UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
the Securities Exchange Act of 1934
(Amendment No.)
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x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to §240.14a-12 |
Westwood Holdings Group, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Dear Stockholder:
You are cordially invited to attend the 20062007 Annual Meeting of Stockholders of Westwood Holdings Group, Inc. (the “Company”), which will be held on Thursday, April 27, 2006,26, 2007, at 10:00 a.m., Dallas, Texas time, at The Crescent Club, 200 Crescent Court, Suite 1700, Dallas, Texas 75201. The official Notice of Annual Meeting together with a proxy statement and form of proxy card are enclosed. Please give this information your careful attention.
Westwood invites all stockholders to attend the meeting in person. Whether or not you expect to attend the annual meeting, we urge you to complete, sign, date and promptly return the accompanying proxy card in the enclosed postage-paid envelope to assure your representation at the meeting. You can revoke your proxy at any time before it is voted by delivering written notice to Brian O. Casey at Westwood’s principal executive office, by signing and mailing to us a proxy bearing a later date, or by attending the meeting and voting in person.
Sincerely, | ||||
March 13, 2007 |
| |||
| Brian O. Casey | |||
Chief Executive Officer, President and Secretary |
|
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 200626, 2007
To the Stockholders of Westwood Holdings Group, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of Westwood Holdings Group, Inc. (“Westwood”) will be held at The Crescent Club at 200 Crescent Court, Suite 1700, Dallas, Texas 75201 on Thursday, April 27, 2006,26, 2007, at 10:00 a.m., Dallas, Texas time, to consider and vote on the following Proposals:
Proposal 1. The election of eight directors to hold office until the next annual meeting of Westwood’s stockholders and until their respective successors shall have been duly elected and qualified; and
Proposal 2. The ratification of the appointment of Grant Thornton LLP as Westwood’s independent auditors for the year ending December 31, 2007.
In addition, we will consider the transaction of such other business as may properly come before the meeting or at any adjournments or postponements.
The foregoing items of business are more fully described in the attached proxy statement.
Only stockholders of record at the close of business on February 27, 2006March 1, 2007 are entitled to notice of, and to vote at, the annual meeting. A holder of shares of Westwood’sour common stock is entitled to one vote in person or by proxy for each share of common stock owned by such holder on all matters properly brought before the annual meeting or at any adjournments or postponements.
All of our stockholders are invited to attend the annual meeting. Whether or not you expect to attend the annual meeting, we urge you to complete, sign, date and promptly return the accompanying proxy card in the enclosed postage-paid envelope to assure your representation at the meeting. You can revoke your proxy at any time before it is voted by delivering written notice to Brian O. Casey at Westwood’sour principal executive office, by signing and mailing to us a proxy bearing a later date, or by attending the meeting and voting in person.
This proxy statement and proxy card are being mailed to our stockholders on or about March 20, 2006.2007.
By Order of the Board of Directors |
Westwood Holdings Group, Inc. |
Brian O. Casey |
Chief Executive Officer, President and Secretary |
i
PROXY STATEMENT FOR
20062007 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 200626, 2007
The following questions and answers are intended to provide brief answers to frequently asked questions concerning the Proposals described in this proxy statement and the proxy solicitation process. These questions and answers do not, and are not intended to, address all the questions that may be important to you. You should carefully read the remainder of this proxy statement, as well as the appendices and the documents incorporated by reference in this proxy statement.
Q: | When and where is the annual meeting? |
The annual meeting will be held on Thursday, April |
Q: | Is my proxy revocable and can I change my vote? |
You may revoke your proxy at any time before it is voted by doing one of the following: |
Sending a written notice revoking your proxy to Brian O. Casey, our Secretary, at 200 Crescent Court, Suite 1200, Dallas, Texas 75201;
Signing and mailing to us a proxy bearing a later date; or
Attending our annual meeting and voting in person.
Q: | Who is entitled to vote? |
A: | Only stockholders of record as of the close of business on |
Q: | How do I vote? |
If you are the record holder of your shares, you can vote by attending the annual meeting in person or by completing, signing and returning your proxy card in the enclosed postage-paid envelope. |
If your shares are held by your broker as your nominee (that is, in “street name”), you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker to vote your shares. If your shares are held in street name, your proxy card may contain instructions from your broker that allow you to vote your shares using the Internet or telephone; pleasetelephone. Please consult with your broker if you have any questions regarding the electronic voting of shares held in street name.
Q: | How does discretionary authority apply? |
Discretionary authority is authority granted to a third party proxy where, in the absence of direction to the contrary, such proxy has the power to make a decision for the stockholder in the proxy’s sole discretion. If you sign your proxy card, but do not make any selections, your shares will be voted “FOR” the election of all of the nominees for directors and “FOR” |
Q. How will votes be counted?
The annual meeting will be held if a quorum is represented in person or by proxy at the meeting. A quorum is a majority of our outstanding shares of common stock entitled to vote. As of |
If you have returned a signed proxy card or attend the meeting in person, then you will be considered part of the quorum, even if you do not vote. A withheld vote is the same as an abstention. TheAbstentions will have no effect on the vote of abstentions with respect to a particular Proposal will be a vote “AGAINST” that Proposal. Our transfer agent, Computershare Trust Company, Inc., will count the votes and act as inspector.
Broker non-votes occur when proxies submitted by brokers, banks or other nominees holding shares in “street” name do not indicate a vote for some or all of the Proposals because they do not have discretionary voting authority and have not received instructions on how to vote on the Proposals. We will treat broker non-votes as shares that are present and entitled to vote for quorum purposes, but they will not otherwise affect the outcome of a vote on a Proposal.
Q. | What happens if I do not return my proxy and do not vote at the annual meeting? |
Q: | Is my vote confidential? |
Yes. Only the inspector |
Q: | What percentage of stock do the directors and officers own? |
A: | Our executive officers and directors collectively beneficially owned approximately |
Q: | Who are the largest principal stockholders? |
A: |
Q: | When are the stockholder proposals due for the annual meeting in |
A: | To be included in the |
Q: | Who is soliciting my proxy and who will pay the solicitation expenses? |
We are soliciting your proxy by and on behalf of our |
Q: | Who can help answer my additional questions? |
Stockholders who would like additional copies, without charge, of this proxy statement or have additional questions about this proxy statement, including the procedures for voting their shares, should contact: |
William R. Hardcastle, Jr.
, Chief Financial Officer
Westwood Holdings Group, Inc.
200 Crescent Court, Suite 1200
Dallas, Texas 75201
Telephone: (214) 756-6900
This question and answer information section is qualified in its entirety by the more detailed information contained in this proxy statement.You are strongly urged to carefully read this proxy statement in its entirety before you vote.
This proxy statement contains important information that should be read before any decisions are made with respect to the Proposals. You are strongly urged to read the proxy statement in its entirety. You are also strongly urged to read our Annual Report on Form 10-K for the period ended December 31, 2005, especially the Risk Factors section,2006, which is being sent to you with this proxy statement.
Election of Directors
Our bylaws provide that the boardBoard of directorsDirectors will consist of between three and eleven directors, as determined from time to time by resolution of the board. The boardBoard of directorsDirectors has set the number of directors at seven,eight, all of whom are to be elected at the 2007 annual meeting. Each director will serve until the 20072008 annual meeting and until his or her successor has been elected and qualified or until the director’s earlier death, resignation or removal. The Board of Directors, upon the recommendation of the Governance/Nominating Committee, has nominated the nominees listed below. Each nominee has consented to being named in this proxy statement and to serve if elected.
Effective February 3, 2006, Leonard Riggs, Jr., M.D. resigned as a director of the Company. Dr. Riggs did not indicate any disagreement with the Company.
On February 7, 2006, Mr. Richard M. Frank was elected to the Company’s Board of Directors. The Board of Directors has affirmatively determined that Mr. Frank qualifies as an “independent director” within the meaning of the New York Stock Exchange (“NYSE”) Corporate Governance Listing Standards. Mr. Frank, who has not previously stood for election by our stockholders, was originally recommended to the governance/nominating committee for nomination by another non-management director.
We have no reason to believe that any of the nominees will not serve if elected, but if any of them should become unavailable to serve as a director, and if the boardBoard of directorsDirectors designates a substitute nominee, the persons named in the accompanying proxy will vote for the substitute nominee designated by the boardBoard of directors,Directors, unless a contrary instruction is given in the proxy.
Each stockholder is entitled to cast one vote for each share of common stock held on February 27, 2006.March 1, 2007. A plurality of the shares represented in person or by proxy at the annual meeting and entitled to vote is required for the election of the directors. A plurality means receiving the largest number of votes, regardless of whether that is a majority. Votes may be cast in favor of the director nominee or withheld. Stockholders may withhold authority to vote for any nominee by striking a line through the name of such nominee in the space provided for such purpose on the proxy card. Broker non-votes, abstentions and votes that are withheld will be excluded entirely from the vote and will have no effect. Votes that are withheld for a particular nominee will be excluded from the vote for that nominee only.
The persons nominated to be directors are listed below. The following information is submitted concerning the nominees named for election as directors:
Name | Age | Position With Westwood | ||
Brian O. Casey | Chief Executive Officer, President, Secretary and Director | |||
Susan M. Byrne | Chairman of the Board of Directors, Chief Investment Officer and Director | |||
Tom C. Davis | ||||
| 58 | Director | ||
| Director | |||
| Director | |||
Jon L. Mosle, Jr. | 77 | Director | ||
Geoffrey R. Norman | 63 | Director Nominee | ||
Raymond E. Wooldridge | Director |
Mr. Norman’s nomination was recommended by Westwood’s Chief Executive Officer. In the event Mr. Norman is elected to serve as director, he will become a member of the Audit Committee and one or more additional committees as determined at the April 2007 meeting of the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE APPROVAL OF EACH OF THE DIRECTOR NOMINEES.
The biographical information for each director nominee is set forth below.
Brian O. Casey has served as Chief Executive Officer of Westwood since January 2006, as President, Secretary and director of Westwood since its inception in December 2001, and as Chief Operating Officer of Westwood from 2001 to 2005. Mr. Casey has served as Chief Executive Officer of Westwood Management since January 2006, as Secretary since 2003, as President since 2002, and as a director since 2000. Mr. Casey served as Chief Operating Officer of Westwood Management from 2000 to 2005, as Executive Vice President from 2000 to 2002, and as Vice President of Marketing and Client Services from 1992 to 1996. Mr. Casey has served as President and director of Westwood Trust since 1996.
Susan M. Byrne serveshas served as Chief Investment Officer of Westwood since January 2006, and has served as Chairman of the Board of Directors and director of Westwood since its inception in December 2001, and as its Chief Executive Officer from December 2001 to December 2005. Ms. Byrne is the founder of Westwood Management and has served as its Chairman of the Board and Chief Investment Officer since 1983, as Chief Executive Officer from 1983 to 2005, and as President from 1983 to 2002. She served as a director of Westwood Trust from 1996 to 1999. She currently serves on the Board of Directors of the Dallas Citizens Council. Ms. Byrne served as a member of the Board of the University of Texas Investment Management Company from 1996 to 2004. She also served2004 and as a member of the Board of Trustees for the City of Dallas Employees Retirement Fund from 1998 to 2003.
Tom C. Davis has served as a director of Westwood since April 2004. He has served as a director of Westwood Trust sincefrom March 2004.2004 to December 2006. Since March 2001, he has served as Chief Executive Officer of The Concorde Group, a private investment firm, and serves on the Board of Directors of Dean Foods Company (NYSE), a dairy and branded foods business, and Affirmative Insurance Holdings, Inc. (NASDAQ), an integrated, non-standard auto insurance business. He was the managing partner and head of banking and corporate finance for the Southwest division of Credit Suisse First Boston (formerly DLJ)Donaldson, Lufkin & Jenrette) from March 1984 to February 2001.
Richard M. Frankhas served as a director of Westwood since February 2006. He has served as a director of Westwood Trust since February 2006. Since March 1986, Mr. Frank has served as Chairman of the Board and Chief Executive Officer of CEC Entertainment, Inc., a Dallas-based NYSE company that operates a chain of pizza and children’s entertainment restaurants, since March 1986.restaurants. He has served as a Director of CEC Entertainment since June 1985, and served as CEC’s President and Chief Operating Officer from June 1985 until October 1988.
Frederick R. Meyer has served as a director of Westwood since its inception in December 2001. Since 1991, he has served as a director of SWS Group, Inc. (“SWS”), a full service securities and banking firm that previously owned Westwood. From 1985 to 2005, he served as the Chairman of the Board of Aladdin Industries, LLC, a diversified company. He served as Aladdin Industries, LLC’s President and Chief Executive Officer from 1987 to 1994, from 1995 to May 1999 and from October 2000 to 2005. He also served as President and Chief Operating Officer of Tyler Corporation, a diversified manufacturing corporation, from 1983 to 1986 and acted as a consultant to Tyler Corporation from 1986 to 1989. He currently serves as a director of Palm Harbor Homes, Inc., a marketer of manufactured homes.
Jon L. Mosle, Jr. has served as a director of Westwood since its inception in December 2001. He has served2001 and as a director of Westwood Trust since February 2006. He has served as director of SWS since 1991. He served as Director of Private Capital Management for Ameritrust Texas Corporation from 1984 to 1992. From 1954 to 1984, he was affiliated with Rotan Mosle, Inc., a regional NYSE member firm, which was acquired by PaineWebber Incorporated in 1983. His roles at Rotan Mosle, Inc. included supervisory responsibility for over-the-counter trading and municipal departments, as well as participating in corporate finance activities. He served as branch manager, regional manager, Vice Chairman of the Board and member of Rotan Mosle, Inc.’s operating committee.
Geoffrey R. Normanhas been retained as an independent consultant to General Electric since 2004. He was employed by General Electric from 1968 to 2004, serving in various roles including comptroller of GE Española, chief financial officer of GE International Contractor Equipment, treasurer of GE Capital and executive vice president of GE Asset Management. Mr. Norman currently serves on advisory boards for QD Technology, a software company; Synectic Asset Ventures, a private equity firm; and Building with Books, a not-for-profit entity that builds schools in underdeveloped countries and organizes after-school clubs in US high schools. Mr. Norman is also an advisor to Rock Maple Funds, a hedge fund of funds.
Raymond E. Wooldridge has served as a director of Westwood since its inception in December 2001. He has served as a director of Westwood Trust since 2000. He is a director of CEC Entertainment, Inc., a Dallas-based NYSE company that operates a chain of pizza and children’s entertainment restaurants, and D. A. Davidson & Company, Inc., an investment firm located in the Pacific Northwest. From 1986 to 1999, he was a director of SWS; from 1996 to 1999, he served as the Vice Chairman and Chairman of the Executive Committee of SWS; from 1993 to 1996, he served as Chief Executive Officer of SWS; and from 1986 to 1993, he served as President and Chief Operating Officer of SWS. He is a past Chairman of the National Securities Clearing Corporation, a national clearing agency registered with the SEC and past Vice Chairman of the Board of Governors of the National Association of Securities Dealers.
Corporate Governance Information
The boardBoard of directorsDirectors held fiveseven meetings, orand otherwise consented to actionsone written action taken during 2005. Each director2006. All of the members of the Board of Directors attended allat least seventy-five percent of the meetings held by the board of directors and the committees on which he served.in 2006. The standing committees of the boardBoard of directorsDirectors currently consist of the audit committee,Audit Committee, the compensation committeeCompensation Committee and the governance/nominating committee.Governance/Nominating Committee. The membership and duties of these committees are described below.
Independent Directors (1) | Audit Committee | Compensation Committee | Governance/ Committee | ||||||
Tom C. Davis | M | M | |||||||
Richard M. Frank | M | M | |||||||
Frederick R. Meyer (2) | M | C | M | ||||||
Jon L. Mosle, Jr. | M | M | C | ||||||
| |||||||||
Raymond E. Wooldridge (3) | C | M | M |
M | Committee member |
C | Committee chairman |
(1) |
(2) | The Board of Directors has determined that Mr. Frederick R. Meyer is qualified as an |
(3) | Lead director. |
Board Committees
Audit Committee. The audit committeeAudit Committee operates pursuant to a charter approved by our Board of Directors, which the audit committeeAudit Committee reviews periodically to determine if revisions are necessary or appropriate. A copy of the charter is posted on our website at www.westwoodgroup.com. In addition, a copy of the charter is available upon written request to our Corporate Secretary at our principal executive office (200 Crescent Court, Suite 1200, Dallas, Texas 75201). The audit committee overseesAudit Committee monitors our independent auditors as well as the preparation of our financial statements and our independent auditors.statements. The audit committeeAudit Committee considers and selects an independent accounting firm to conduct the annual audit, determinesmonitors the independence of our independent accountants and recommends actions tomonitors our Boardaccounting and financial reporting processes and audits of Directors to ensure their independence.our financial statements. The audit committeeAudit Committee is responsible for reviewing reports from our management relating to our financial condition and other matters that may have a material impact on our financial statements and compliance policies. The audit committeeAudit Committee is also responsible for inquiring of our management and independent auditors regarding the appropriateness of the accounting principles we follow, as well as reviewing changes in accounting principles and their impact on our financial statements in terms of scope of audits conducted or scheduled to be conducted. The audit committeeAudit Committee is further responsible for preparing a report stating, among other things, whether our audited financial statements should be included in our Annual Report. The audit committeeAudit Committee met five times during 2005.2006. All of the members of the Audit Committee attended at least seventy-five percent of the meetings held in 2006.
Compensation Committee. The compensation committeeCompensation Committee operates pursuant to a charter approved by our Board of Directors, a copy of which is posted on our website at www.westwoodgroup.com. In addition, a copy of the charter is available upon written request to our Corporate Secretary at our principal executive office. The compensation committeeCompensation Committee authorizes and determines all salariescompensation for our executive officers, administers our incentive compensation plans in accordance with the powers and authority granted in such plans, determines any incentive awards to be made to our officers, administers all of our stock incentive plans and
other equity ownership, compensation, retirement and benefit plans, approves the performance-based compensation of individuals pursuant to Code Section 162(m) and administers other matters relating to compensation or benefits. The compensation committeeCompensation Committee met fiveseven times and executed one written consent during 2005.2006. All of the members of the Compensation Committee attended at least seventy-five percent of the meetings held in 2006.
Governance/Nominating Committee. The governance/nominating committeeGovernance/Nominating Committee operates pursuant to a charter approved by our Board of Directors, a copy of which is posted on our website at www.westwoodgroup.com. In addition, a copy of the charter is available upon written request to our Corporate Secretary at our principal executive office. The governance/nominating committee’sGovernance/Nominating Committee’s responsibilities relate to corporate governance and the identification and evaluation of Board candidates. The primary function of the governance/nominating committeeGovernance/Nominating Committee is to develop and oversee the application of corporate governance principles to Westwood, to identify qualified candidates for Board membership and recommend to the Board director nominees to be voted on at the annual meeting of stockholders, and communicate with members of the Board regarding Board and committee meeting format and procedures. The governance/nominating committeeGovernance/Nominating Committee met fivefour times during 2005.2006. All of the members of the Governance/Nominating Committee attended at least seventy-five percent of the meetings held in 2006.
Director Independence
Our Board of Directors has adopted Corporate Governance Guidelines. The full text of the Guidelines is available on our website at www.westwoodgroup.com. In addition, a copy of the Guidelines is available upon written request to our Corporate Secretary at our principal executive office (200 Crescent Court, Suite 1200, Dallas, Texas 75201).office.
Pursuant to our Guidelines, a majority of the members of our Board of Directors must be non-management directors who meet the “independence” requirements of the NYSE Corporate Governance Listing Standards. In addition, all members of the audit committeeAudit Committee must meet additional “independence” standards. Thestandards required under the Securities Exchange Act of 1934. In February 2007, our Board of Directors recently undertook its annual review of director independence. TheIn that review, the Board of Directors notedreviewed directors’ responses to a questionnaire asking about their relationships with us (and those of their family members) and other potential conflicts of interest. In connection therewith, our Board of Directors specifically considered that Messrs. Meyer, Mosle and Wooldridge each have a current or former relationship with SWS Group, Inc. (“SWS”), or SWS, the company from which Westwood waswe were spun-off in 2002 and which remains a customerour customer. In addition, our Board of Westwood. TheDirectors was aware that certain of our directors and individuals or entities affiliated with such directors have asset management accounts that are held by one of our subsidiaries and managed by us. After noting such items, and based upon its review, the Board categorically concludedof Directors unanimously decided that none of these relationships with SWS would not be deemed to constituteconstituted a material relationship with Westwoodus that would affect the “independence” of any such director. During this review,director under the Board considered transactions and relationships between each director or any member of his or her immediate family, and Westwood and our subsidiaries and affiliates. The Board also examined transactions and relationships between directors or their affiliates, and members of our senior management and their affiliates. The purpose of this review was to determine whether any of these relationships or transactions were inconsistent withNYSE rules.
As a determination that a director is independent.
Based on this review,result, the Board affirmatively determined that all of the directors nominated for election at the 2007 Annual Meeting are independent of Westwoodus and our management, with the exception of Ms. Byrne and Mr. Casey (each of whom is a Westwoodan executive officer)officer of our company).
Lead Director of Board Meetings in Executive Session
Pursuant to our Corporate Governance Guidelines, our non-management directors meet in executive session withoutoutside of the presence of management on a regular basis. The Board of Directors has selected Raymond E. Wooldridge to serve as “Lead Director,” and, as such, he chairs these executive sessions.
Director Nominees
The governance/nominating committeeBoard of Directors has a policy of considering new director candidates recommended by Westwood’s stockholdersdelegated to the extent such recommendations are made in compliance with the procedures outlined below. Director candidates recommended by stockholders are evaluated by the governance/nominating committee based on the same criteria applied by the governance/nominating committeeGovernance/Nominating Committee its responsibilities relating to director candidates identified by that committee.Board selection. The governance/nominating committeeGovernance/Nominating Committee of the Board has the responsibility for identifying potential candidates for Board membership and for making a recommendation to the Board of a slate of director candidates to stand for election at the annual meeting of the Company’sour stockholders. The governance/nominating committeeGovernance/Nominating Committee seeks to identify, and the Board selects, director candidates who (i) have significant business or public experience that is relevant and beneficial to the Board and Westwood, (ii) are willing and able to make a sufficient time commitment to the affairs of Westwood in order to effectively perform the duties of a director, including regular attendance of Board meetings and committee meetings, (iii) are committed to the long-term growth and profitability of Westwood, (iv) are individuals of character and integrity, (v) are individuals with inquiring minds who are willing to speak their minds and challenge and stimulate management and (vi) represent the interests of Westwood as a whole and not only the interests of a particular shareholderstockholder or group.
The governance/nominating committee adopted procedures detailing the manner in whichGovernance/Nominating Committee has a policy of considering new director candidates recommended by our stockholders may recommend candidates to the Board of Directors.extent such recommendations are made in compliance with the following procedures. A stockholder wishing to recommend a candidate for electionnomination to Westwood’sbe elected to our Board of Directors at anyfor inclusion in the statement for the 2008 annual meeting at which the Board of Directors has determined that one or more directors will be elected shallmust submit a written notice of his or her recommendation of a candidate to Westwood’sour Corporate Secretary at our principal executive office. The submission must be received at Westwood’sour principal executive office not less than 120 calendar days before the date that Westwood’sour proxy statement was released to stockholders in connection with the previous year’s annual meeting. However, if Westwoodwe did not hold an annual meeting during the previous year, or if the date of this year’s annual meeting has been changed by more than 30 days from the date of the previous year’s meeting, then the deadline is a reasonable time before Westwood beginswe begin to print and mail itsour proxy materials. For the 20072008 annual meeting, this date would be November 16, 2006.21, 2007. Director candidates recommended by stockholders are evaluated by the Governance/Nominating Committee based on the same criteria applied by the Governance/Nominating Committee to director candidates identified by that committee, as described in the previous paragraph.
In order to be valid, a stockholder’s notice to the Corporate Secretary must set forth (i) the name and address, as they appear on Westwood’sour books, of the stockholder recommending such candidate, (ii) the class and number of shares of Westwood that are beneficially owned by the stockholder, (iii) the name, age, business address and residence
address of each candidate proposed in the notice, (iv) each candidate’s biographical data and qualifications, (v) the class and number of shares of Westwood stock beneficially owned by the candidate, if any, (vi) a description of all arrangements or understandings between the stockholder and each candidate and any other persons pursuant to which the stockholder is making the recommendation, and (vii) any other information required to be disclosed in solicitations of proxies for election of directors or information otherwise required pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, relating to any person that the stockholder proposes to recommend for election or re-election as a director, including the candidate’s signed written consent to being named in the proxy statement as a nominee and to serving as a director if elected.
To date,For the 2007 annual meeting, our governance/nominating committeeGovernance/Nominating Committee has not received a candidate recommendation from any stockholder (or group of stockholders) that beneficially owns more than five percent of our common stock.
Stockholder Communications with the Board
Stockholders may communicate with the Board of Directors or particular Board members (including Westwood’sour Lead Director or non-management directors as a group) by mailing a written communication to Westwood’sour Corporate Compliance Officer at 200 Crescent Court, Suite 1200, Dallas, Texas 75201, by email to compliance@westwoodgroup.com or by telephone to 214-756-6900. All communications are received and processed by the Corporate Compliance Officer before being referred to the appropriate Board member(s). Complaints relating to Westwood’sour accounting, internal accounting controls or auditing matters and concerns regarding questionable accounting or auditing matters are referred to the Chairman of the Audit Committee. Other communications intended for the Board of Directors at large are referred to Westwood’sour Lead Director, while communications intended for specific Board members are referred to those Board members. Advertisements, solicitations for periodical or other subscriptions, and similar communication generally are not forwarded to Board members. In the event that a stockholder’s complaint or concern appears to involve the Corporate Compliance Officer, then the stockholder is encouraged to directly contact the Chairman of the Audit Committee, Raymond E. Wooldridge, at rwooldridge@westwoodgroup.com.
Stockholders may also communicate directly with Board members at the annual meetings of stockholders, as it is our policy that Board members should attend such meetings and make themselves available to address any matters properly brought before the meetings. All of our Board members attended the 20052006 annual meeting of stockholders.
Code of Ethics
All of our employees, including our principal executive officer, principal operatingfinancial officer and principal accounting officer, and directors are required by our Code of Business Conduct and Ethics to conduct our business in the highest legal and ethical manner. The full text of the Code is available on our website at www.westwoodgroup.com. In addition, a copy of the Code is available upon written request to our Corporate Secretary at our principal executive office. We intend to post amendments to or waivers from the Code as required by applicable rules at this location on our website.
Our employees are required to report any conduct that they believe could in any way be construed as a fraudulent or illegal act or otherwise in violation of the Code. The Audit Committee has established procedures to receive, retain and address complaints regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of related concerns.
Employee directors do not receive compensation for their services as directors. EachWe pay each non-employee member of our Board of Directors receives a $4,000 annual retainer, $4,000 for each regularly scheduled quarterly meeting of the Board of Directors attended by the member and $1,000 per board or committee meeting attended other than regularly scheduled quarterly meetings. The Chairman of the Audit Committee receives an additional $4,000 annual retainer. Additionally, upon the date of election or re-election as a member of our Board of Directors, each non-employee director is awarded 1,500 restricted shares of our common stock, which vest at the expiration ofapproximately 12 months from the date of grant. We will reviewThe Compensation Committee reviews our compensation arrangementarrangements for directors from time to time.
Ratification of Appointment of Grant Thornton LLP as Independent Auditors
Our audit committee has appointed Grant Thornton LLP as Brian O. Casey, our independent auditors for 2006. Representatives of Grant Thornton LLP are expected to attend the annual meeting to answer appropriate questionsPresident and may make a statement if they so desire.
The audit committee regularly monitorsChief Executive Officer, and Susan M. Byrne, our independent auditors’ qualifications, performance, independence in accordance with regulatory requirements and guidelines, and examines the relationship from a cost-benefit perspective. In the course of these monitoring activities, on February 23, 2006 the audit committee determined that it would be beneficial to the Company to dismiss Deloitte & Touche LLP, who were our independent auditors in 2005, and to engage Grant Thornton LLP as our independent auditors for the year ended December 31, 2006. It is not expected that representatives of Deloitte & Touche LLP will attend the annual meeting.
Deloitte & Touche LLP’s reports on the Company’s consolidated financial statements for the fiscal years ended December 31, 2005 and 2004 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audit of the consolidated financial statements of the Company for the years ended December 31, 2005 and 2004 and through the date hereof, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Deloitte & Touche LLP’s satisfaction, would have caused Deloitte & Touche LLP to make a reference to the subject matter of the disagreements in connection with its reports. During the years ended December 31, 2005 and 2004, and during the subsequent interim period through the date hereof, there have been no reportable events, as defined in Item 304(a)(l)(v) of Regulation S-K. Deloitte & Touche LLP has furnished to us a letter addressed to the SEC stating that it agrees with the foregoing statements set forth in this paragraph. During the two most recent fiscal years and the interim period preceding the engagement of Grant Thornton LLP, the Company did not consult Grant Thornton LLP regarding any matter described in Item 304(a)(2)(i) or (ii) of Regulation S-K.
Fees Billed by Deloitte & Touche LLP
Audit Fees. The aggregate fees billed for professional services rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”) for the audit of Westwood’s annual financial statements, the review of the financial statements included in Westwood’s Quarterly Reports on Form 10-Q, the audit of (1) Westwood management’s assessment of the effectiveness of our internal control over financial reporting and (2) the effectiveness of our internal control over financial reporting as required by Sarbanes-Oxley Section 404 or for services that are normally provided in connection with statutory or regulatory filings or engagements for the years ended December 31, 2005 and 2004 were $290,000 and $280,100, respectively.
Audit-Related Fees. There were no fees billed by the Deloitte Entities for audit-related services for the years ended December 31, 2005 and 2004.
Tax Fees. The aggregate fees billed for tax services rendered by the Deloitte Entities during the years ended December 31, 2005 and 2004 were $0 and $29,200, respectively. These services consisted primarily of tax compliance and tax consultation.
All Other Fees. There were no fees billed by the Deloitte Entities for services other than audit fees, audit-related fees or tax fees for the years ended December 31, 2005 and 2004.
Pre-approval policies and procedures for audit and non-audit services.The Audit Committee has established a policy regarding pre-approval of all audit and non-audit services provided by Westwood’s independent auditors. Each year the Audit Committee considers for approval the independent auditor’s engagement to render audit services, as well as a list prepared by management of anticipated non-audit services and related budget estimates. During the course of the year, management and the independent auditor are responsible for tracking all services and fees to insure that they are within the scope pre-approved by the Audit Committee. To insure prompt handling of unexpected matters, the Audit Committee has delegated to its chairman the authority to amend or modify the list of approved permissible non-audit services and fees, provided the chairman reports any action taken to the Audit Committee at its next meeting.
The Audit Committee approved all Audit Fees and Tax Fees billed by the Deloitte Entities for the years ended December 31, 2005 and 2004. There were no fees billed by the Deloitte Entities for audit-related services for the years ended December 31, 2005 and 2004.
Vote Sought and Recommendation
Although stockholder action on this matter is not required, the appointment of Grant Thornton LLP is being recommended to the stockholders for ratification. The affirmative vote of a majority of the shares entitled to vote, represented in person or by proxy at the annual meeting, is needed to ratify the appointment of Grant Thornton LLP as independent auditors for 2006. All proxies solicited by the board of directors will be voted “FOR” the ratification of Grant Thornton LLP unless stockholders specify in their proxies a contrary vote. Broker non-votes and abstentions will not be counted as votes for this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR THE RATIFICATION OF GRANT THORNTON LLP AS OUR INDEPENDENT AUDITORS FOR 2006.
Approval of the Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan
The compensation committeeChairman of the Board of Directors of Westwood has approved, and proposed thatChief Investment Officer, are not included in this table as they are our shareholders approve at the annual meeting, the Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan (the “Plan”). Westwood originally adopted the Stock Incentive Plan on February 1, 2002. Following Westwood’s spin-off from SWS Group, Inc. on June 30, 2002, Westwood’s public stockholders approved an amended Stock Incentive Plan on April 24, 2003, with a reserve of 948,100 shares of common stock. On February 8, 2005, the compensation committee adopted the Second Amended and Restated Plan, which contained certain non-material amendments not requiring stockholder approval. The Third Amended and Restated Plan is similar to the existing Second Amended and Restated Plan. The only material revision in the Plan is the increase in the total number of shares currently authorized to be awarded under the Second Amended and Restated Plan.
Westwood is seeking stockholder approval for the Plan. Stockholder approval is required under the requirements of the NYSE Corporate Governance Listing Standards, which are applicable to Westwood.
There are currently approximately 625,875 shares of common stock underlying outstanding awards for the Second Amended and Restated Plan, and approximately 200,350 shares remain available for grant under the Second Amended and Restated Plan. The limited number of remaining available shares limits Westwood’s ability to (a) provide incentive compensation to its key employees, (b) attract new employees and (c) providereceive no compensation to its consultants, advisorsfor their service as directors.
Director Summary Compensation Table
Name (a) | Fees Earned ($) (b) | Stock Awards ($) (c) | Total ($) (d) | |||
Tom C. Davis | 23,000 | 27,255 | 50,255 | |||
Richard M. Frank | 18,000 | 13,538 | 31,538 | |||
Frederick R. Meyer | 23,000 | 27,255 | 50,255 | |||
Jon L. Mosle, Jr. | 23,000 | 27,255 | 50,255 | |||
Raymond E. Wooldridge | 27,000 | 27,255 | 54,255 |
Notes, by column letter:
(c) | The amounts contained in columns (c) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 and include amounts related to restricted stock grants made in 2005 and 2006. The grant date fair value computed in accordance with FAS 123(R) of restricted stock granted to each director in 2006 was $27,075. The assumptions used in all of the grants are discussed in footnote “7. Employee Benefits” of our audited financial statements, which are included in our 2006 Form 10-K filed with the Securities and Exchange Commission on February 22, 2007. |
As of December 31, 2006, the directors have the following unvested restricted shares and non-employee directors. It is anticipated that the additional 1,000,000 shares proposed to be authorized under the Plan, together with the shares remaining under the Second Amended and Restated Plan, will enable Westwood to provide sufficient grants of awards for the foreseeable future.
Description of the Third Amended and Restated Plan
A summary of the material features of the Plan is set forth below. This description and summary are qualified in their entirety by the full text of the Plan included inAppendix A to this Proxy Statement.
Key Features of the Plan. Awards under the Plan will consist of cash or Westwood’s authorized common stock. The fair market value of Westwood’s common stock as of February 27, 2006 was $19.66 per share. The Plan provides for the grant of incentiveunexercised stock options nonstatutory options, shares of restricted stock, stock purchase rights, annual incentive awards, performance-based awards (in the form of cash or deferred stock awards) and discretionary bonus awards. Awards under the Plan may be made to key employees, including officers and directors who may be employees, and non-employee directors, consultants or advisors. There are currently 47 employees of Westwood who may be eligible to receive awards under the Plan, and there are 5 non-employee directors who may be eligible to receive awards under the Plan. The total number of shares of common stock available for delivery pursuant to awards under the Plan over its entire term is 1,000,000 plus (a) any shares of common stock that remain available for grant under the Second Amended and Restated Plan and (b) any shares of common stock that are represented by awards under the Second Amended and Restated Plan that are forfeited, terminated, expired, or canceled without delivery of shares of common stock. As a result, the aggregate maximum number of shares of common stock for which awards may be granted under the Plan is 1,948,100. Any shares issued under the Plan may consist, in whole or in part, of authorized and unissued shares or reacquired shares or a combination thereof. No eligible individual may be granted options under the Plan in any single fiscal year of Westwood, the total number of shares subject to which exceed 316,033 shares.
Term of the Plan.No awards may be made under the Plan after the date that is ten years following the Plan’s approval by the compensation committee (no awards after February 22, 2016).
Types of Awards. The Plan authorizes the grant of several types of stock-based awards, including incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), restricted stock, stock purchase rights and performance shares (in the form of deferred stock awards). The Plan also authorizes cash awards in the form of annual incentive awards, performance-based awards, and discretionary bonus awards. The various types of awards authorized under the Plan may be utilized in the future if determined appropriate by the compensation committee. However, to date the compensation committee has limited its stock-based awards under the Plan to NSOs and restricted stock, and in the future the compensation committee expects that its stock-based awards will likely be limited to restricted stock.
No Discount Stock Options. The Plan prohibits the grant of a stock option with an exercise price less than the fair market value of Westwood’s stock on the date of grant.
Share Counting Rules. Any shares subject to an award under the Plan that are forfeited, settled for cash, expire, or otherwise are terminated without issuance of such shares, are available for awards under the Plan. In addition, cash awards do not reduce the shares available under the Plan or to a participant in any calendar year.
Administration. The Board or the compensation committee administers the Plan with respect to all eligible individuals. All determinations involving awards that are intended to be exempt from the deduction limitations of Section 162(m) of the Code must be made by a committee of outside directors meeting the requirements for the performance-based compensation exception. Determinations of the compensation committee will be final, conclusive, and binding upon all persons on any interested person. Such determinations include such matters as selecting participants, determining the awards that will be made under the Plan, interpreting plan provisions, and deciding the terms and conditions of any award. However, any action or determination by the compensation committee specifically affecting or relating to an award to a nonemployee director will be approved and ratified by the Board of Directors.
Amendment. The Plan may be amended by the Board of Directors or by the compensation committee. However, the Plan may not be amended without the approval of Westwood’s stockholders to (a) increase the aggregate number of shares of stock that may be issued under the Plan, (b) modify the eligibility requirements for receiving awards of ISOs, or (c) make any other amendment that requires stockholder approval under any applicable law, regulation or rule; provided, that such amendments may be made without the consent of the stockholders if changes occur in law or other legal requirements (including Rule 16b-3) that would require otherwise.
Antidilution. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, reverse stock split, spin-off, or similar transaction or other change in corporate structure affecting the shares, such adjustments and other substitutions will be made to the Plan and to awards as the compensation committee or the Board of Directors in its sole discretion deems equitable or appropriate, including without limitation such adjustments in the aggregate number, class and kind of securities which may be delivered under the Plan, in the aggregate or to any one participant, in the number, class, kind and exercise price of securities or other property subject to outstanding options or other awards granted under the Plan, and in the number, class and kind of securities or other property subject to awards granted under the Plan.
Persons Eligible for Grants. Any employee, consultant, advisor or non-employee director will be eligible to be selected as a participant under the Plan by the compensation committee. However, ISOs will be granted only to participants who are employees of Westwood or a subsidiary.
Types of Awards
Options. ISOs and NSOs are both stock options allowing the recipient to purchase a fixed number of shares of common stock at a fixed price. Each award agreement will state the time or periods in which or the conditions upon satisfaction of which, the right to exercise the ISO or NSO or a portion thereof will vest and the number of shares of common stock for which the right to exercise the option will vest at each such time, period, or fulfillment of condition. The Plan permits the compensation committee to include various terms in the options in order to enhance the linkage between shareholder and management interests. These include permitting participants to deliver cash, shares or other consideration (including, where permitted by law and the compensation committee, awards) in payment of the exercise price and making the exercise or vesting of options contingent upon the satisfaction of performance criteria. The Plan provides that the term of any option granted may not exceed ten years and that each option may be exercised for such period as may be specified by the compensation committee in the grant of the option. It is not expected that the compensation committee will exercise its discretion to make such grants under the Plan on a regular basis.
Restricted Stock Awards. The compensation committee may also make awards of restricted shares of our stock. The vesting and number of restricted shares of our stock may be conditioned upon the lapse of time or the satisfaction of other factors determined by the compensation committee. The recipient of restricted shares will generally have the rights and privileges of a stockholder with respect to the right to receive dividends and the right to vote the shares. None of the restricted shares may be sold, transferred or pledged during the restricted period, and all restricted shares shall be forfeited, and all rights to the shares will terminate, if the recipient ceases to be an employee, consultant or director of us or any of our subsidiaries before the expiration or termination of the restricted period and satisfaction of any other conditions prescribed by us with respect to the shares.
Purchase Rights. The compensation committee may also make awards of stock purchase rights, which entitle the holder to purchase a specified number of shares of our common stock during the period of time, and subject to the terms and conditions, as the compensation committee determines. Each award of purchase rights may have a different exercise period or periods, shall specify the method of payment (which may include promissory notes) to purchase our stock and shall set forth any repurchase rights or calls applicable to the purchased stock.
Annual Incentive Awards. The compensation committee may also grant annual incentive awards of stock, cash or any combination of stock and cash to our employees, in such amounts and subject to such terms and conditions as the compensation committee may determine. The compensation committee shall establish the maximum level of annual incentive awards that may be granted for each year. The compensation committee may, in its sole discretion, reduce, but not increase, the annual incentive award payable to any participating employee during a year.
Performance-Based Awards. The compensation committee may also grant performance-based awards of the right, expressed in deferred rights to receive stock, cash or any combination of stock and cash, to eligible officers or other key employees as determined by the compensation committee in its sole discretion. At the time of each grant of a performance-based award, the compensation committee shall establish an objective formula for computing the award based upon the attainment of various performance goals over a performance cycle of at least one year. Performance goals may include minimum, maximum and target levels of performance, with the size of the award based on the level of performance attained. The number of shares of stock and/or the amount of cash payable in settlement of a performance-based award shall be determined by the compensation committee at the end of the performance cycle. The compensation committee may, in its discretion, eliminate or reduce the amount of any performance-based award that otherwise would be payable to a participating officer or other employee unless the participant has a vested right under applicable employment law to receive the full performance-based award. Performance-based awards may be made alone, or in addition to, other grants and awards under the Plan.
Discretionary Bonus Awards. The compensation committee may also grant discretionary bonus awards of stock, cash or any combination of stock and cash to our officers and key employees in such amounts and subject to such terms and conditions as the compensation committee may determine.
Material Federal Income Tax Consequences of the Plan
The following is a summary of the material United States federal income tax consequences associated with awards granted under the Plan. This summary is based upon present federal income tax laws and regulations and does not purport to be a complete description of the federal income tax consequences applicable to a participant or Westwood. This summary does not cover any federal employment tax consequences or any foreign, state, local, estate and gift, or other tax consequences.
Incentive Stock Options.A participant will generally not recognize any taxable income upon either the grant or exercise of an ISO. However, for purposes of the alternative minimum tax, upon the exercise of an ISO, a participant is required to include the difference between the option exercise price and the fair market value of the common stock received in alternative minimum taxable income for purposes of calculating the alternative minimum tax. If a participant sells or otherwise disposes of the common stock acquired pursuant to the exercise of an ISO within either two years from the date of grant or one year from the date of exercise of the option (an “Early Disposition”), the participant will recognize ordinary income at the time of the Early Disposition in an amount equal to the lesser of (i) the excess of the amount realized by the participant on the Early Disposition over the exercise price of the option, or (ii) the excess of the fair market value of the common stock on the date of exercise over the exercise price of the option. The excess, if any, of the amount realized by the participant on the Early Disposition over the fair market value of the common stock on the date of exercise will be capital gain, and will either be short term (taxable at ordinary income tax rates) or long term gain, depending on the participant’s holding period. If a participant disposes of the common stock for an amount that is less than the participant’s tax basis, the difference between the amount realized in the Early Disposition and the tax basis will generally be capital loss, and will either be short term or long term depending on the participant’s holding period.
Nonqualified Stock Options.A participant will not recognize any taxable income upon the grant of an NSO. A participant will recognize ordinary income upon the exercise of an NSO in an amount equal to the difference between the fair market value of the common stock received on the date of exercise and the exercise price paid for the stock.
Purchase Rights.A participant who receives an award of a purchase right will not recognize any taxable income at the time of the grant. A participant will recognize ordinary compensation income at the time the purchase right is exercised in an amount equal to the difference between the fair market value of the common stock on the date of purchase and the purchase price paid by the participant for such stock.
Annual Incentive Awards, Performance-Based Awards and Discretionary Bonus Awards.A participant who receives cash pursuant to an annual incentive award, a performance-based award or a discretionary bonus award will recognize ordinary income equal to the amount of cash received. Except as discussed below in the section entitled“Common Stock Subject to a Substantial Risk of Forfeiture,” a participant who receives shares of common stock pursuant to an annual incentive award, a performance-based award or a discretionary bonus award will recognize ordinary income in an amount equal to the fair market value of the common stock at the time of receipt of the shares.
Common Stock Subject to a Substantial Risk of Forfeiture.If a participant receives common stock that is subject to a substantial risk of forfeiture (whether pursuant to an award of restricted stock, in payment for an annual incentive award, a performance-based award or a discretionary bonus award, or upon the exercise of a purchase right), unless the participant files an election under Section 83(b) of the Code (discussed below), the participant will not recognize any income at the time of receipt of the stock, but will recognize ordinary income when the restrictions on the shares lapse, in an amount equal to the difference between the fair market value of the stock at the time the restrictions lapse and the amount paid, if any, for the stock. However, a participant who receives common stock that is
subject to a substantial risk of forfeiture can elect to include the fair market value of the stock in income at the time of its receipt by filing an election with the Internal Revenue Service under section 83(b) of the Code within 30 days after the date of such receipt.
Availability of Tax Deduction for Westwood.When ordinary income is recognized by a participant in connection with the receipt or exercise of an award under the Plan (including the filing of an election under section 83(b) of the Code), Westwood will generally be entitled to a deduction for federal income tax purposes at the same time and in the same amount, assuming the requisite withholding requirements are met.
Compensation paid by Westwood to each of its five highest paid officers is subject to the deduction limits of Section 162(m). If approved by Westwood’s stockholders, the Plan will enable Westwood to grant options that will be exempt from the deduction limits of Section 162(m).
Plan Benefits
Subject to obtaining stockholder approval of Proposals 4 and 5 described in this proxy statement, it is expected that Westwood’s chief executive officer and the chief investment officer will receive certain benefits under the Plan. See “Approval of Performance-Based Annual Incentive Awards—Annual Incentive Award Benefits” and “Approval of Performance-Based Restricted Stock Goals—Restricted Stock Award Benefits” for information with respect to these anticipated benefits. Otherwise, because awards under the Plan are determined by the compensation committee in its sole discretion, we cannot determine the benefits or amounts that will be received or allocated in the future under the Plan. In addition, awards are dependent upon a number of factors, including the value of our common stock on future dates, Westwood’s performance and the exercise decisions of participants. As a result, the benefits that might be received by participants receiving discretionary grants under the Plan are not determinable.
Vote Sought and Recommendation
The approval of the Plan requires the affirmative vote of a majority of the votes cast with respect to this Proposal (provided that the total votes cast upon this Proposal represent over fifty percent (50%) of all shares entitled to vote on this Proposal). All proxies submitted will be voted “FOR” this Proposal unless stockholders specify in their proxies a contrary vote. Broker non-votes will not be counted as votes cast with respect to this Proposal; abstentions, however, will have the same effect as a vote against this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
THIRD AMENDED AND RESTATED WESTWOOD HOLDINGS GROUP, INC.
STOCK INCENTIVE PLAN
Approval of Performance-Based Annual Incentive Awards
Subject to stockholder approval, the compensation committee has approved the material terms of annual incentive awards for the chief executive officer of Westwood, Brian O. Casey, and for the chief investment officer of Westwood, Susan M. Byrne, effective January 1, 2006.
Section 162(m) of the Code generally places a $1 million annual limit on a company’s tax deduction for compensation paid to a “covered employee.” A “covered employee” is an employee who is, on the last day of the company’s taxable year in which the deduction would otherwise be claimed, the company’s chief executive officer or one of the other four highest paid officers named in its proxy statement. This limit does not apply to compensation that satisfies the applicable requirements for performance-based compensation.
Section 162(m) of the Code will not apply to compensation payable solely on account of attainment of one or more performance goals if:outstanding:
Name (a) | Unvested restricted | Stock options (c) | ||
Tom C. Davis | 1,500 | — | ||
Richard M. Frank | 1,500 | — | ||
Frederick R. Meyer | 1,500 | — | ||
Jon L. Mosle, Jr. | 1,500 | — | ||
Raymond E. Wooldridge | 1,500 | 2,500 |
Notes, by a compensation committee comprised solely of two or more outside directors;
The purpose of seeking stockholder approval of the performance-based annual incentive awards is to meet the requirements of Section 162(m).
Performance Goal. On February 23, 2006, the compensation committee approved performance goals for the chief executive officer’s and chief investment officer’s annual incentive awards for the 2006 year and for each subsequent year until revised by the compensation committee. The approval of the compensation committee was expressly subject to stockholder approval. The performance goal is based on our adjusted pre-tax income, determined based on our audited financial statements. The chief executive officer’s annual incentive award will equal not more than 3% of our adjusted pre-tax income, and the chief investment officer’s annual incentive award will equal not more than 8% of our adjusted pre-tax income (subject to the compensation committee’s discretion to reduce the award to less than the formula amount).
Our adjusted pre-tax income is determined based on our financial statements, as our income before income taxes increased by the expense incurred for the year for these annual incentive awards to the chief executive officer and chief investment officer, and increased by the expense incurred for the year for incentive compensation for all of Westwood’s other employees and increased by the expense incurred for the year for performance-based restricted stock awards to the chief executive officer and chief investment officer.
Assuming the stockholders approve the material terms of the performance goal as described herein, we believe that the annual incentive awards paid to the chief executive officer and the chief investment officer will qualify as performance-based compensation, and will be deductible for federal income tax purposes. If the stockholders do not approve the performance goal, the compensation committee will develop alternative incentive compensation plans for each of these two officers, in which case the compensation expense associated with an annual incentive award may not be deductible to the extent that, together with other compensation paid to the officer, such officer’s total compensation exceeds $1 million.
Annual Incentive Award Benefits.Because the annual incentive awards are based on adjusted pre-tax income, the amount of the benefits that will be received by the chief executive officer and the chief investment officer in the future cannot be determined. The table below shows the maximum annual incentive awards that would have been payable to the chief executive officer and the chief investment officer had the proposed annual incentive awards been in place during the fiscal year ended December 31, 2005. These amounts are not necessarily indicative of the awards that the chief executive officer or chief investment officer will earn in the future.
NEW PLAN BENEFITS
Annual Incentive Awards (Assuming Maximum Award for 2005)column letter:
Position | Dollar Value ($) | |||
Chief Executive Officer | $ | 275,200 | (1) | |
Chief Investment Officer | $ | 733,900 | (2) |
Our compensation committee is conducting discussions with our chief executive officer, Brian O. Casey, and our chief investment officer, Susan M. Byrne, regarding their entry into employment agreements with Westwood. See “Proposed Executive Employment Agreements.”
Vote Sought and Recommendation
The approval of the material terms of the annual incentive awards for our chief executive officer and chief investment officer requires the affirmative vote of a majority of the shares entitled to vote, present in person or represented by proxy at the annual meeting. All proxies submitted will be voted “FOR” this Proposal unless stockholders specify in their proxies a contrary vote. Broker non-votes will not be counted as votes cast with respect to this Proposal; abstentions, however, will have the same effect as a vote against this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR APPROVAL OF THE PERFORMANCE-BASED ANNUAL INCENTIVE AWARDS.
Approval of Performance-Based Restricted Stock Goals
The compensation committee has approved the material terms of restricted stock awards for the chief executive officer of Westwood, Brian O. Casey, and for the chief investment officer of Westwood, Susan M. Byrne, which will be granted immediately following Westwood’s annual meeting of stockholders if stockholder approval is obtained.
Section 162(m) of the Code generally places a $1 million annual limit on a company’s tax deduction for compensation paid to a “covered employee.” A “covered employee” is an employee who is, on the last day of the company’s taxable year in which the deduction would otherwise be claimed, the company’s chief executive officer or one of the other four highest paid officers named in its proxy statement. This limit does not apply to compensation that satisfies the applicable requirements for performance-based compensation.
Section 162(m) of the Code will not apply to compensation payable solely on account of attainment of one or more performance goals if:
The purpose of seeking stockholder approval of the performance-based restricted stock awards is to meet the requirements of Section 162(m).
Performance Goal. On February 23, 2006, the compensation committee approved performance goals for vesting of the chief executive officer’s and chief investment officer’s restricted stock awards to be made during 2006. The awards of restricted stock will be made only in the event of stockholder approval of (i) the Third Amended and Restated Plan, under which the awards will be made, and (ii) the material terms of the performance vesting goals as described below.
The maximum number of shares of restricted stock which may become vested are 100,000 shares, in the case of our chief executive officer, and 300,000 shares, in the case of our chief investment officer. The performance goal is based on our adjusted pre-tax income, determined based on our audited financial statements. The vesting of the restricted stock will occur over a period of four (4) years from the date of grant, for our chief executive officer, and over a period of six (6) years from the date of grant, for our chief investment officer. For the first vesting year, 2006, the officer will become vested in the applicable percentage of his or her restricted shares if Westwood’s adjusted pre-tax income for 2006 is at least 10% greater than Westwood’s adjusted pre-tax income for the 2005 year. In each subsequent year during the applicable vesting period, the compensation committee will establish a specific goal for that year’s vesting of the restricted shares, which will be based in all cases upon Westwood’s adjusted pre-tax income. The specific performance goal for each year will be established no later than March 31 of the vesting year, as required by Section 162(m) of the Code. If, in any year during the vesting period, the performance goal is not met, the compensation committee may establish a goal for a subsequent vesting period, which, if achieved or exceeded, may result in full or partial vesting of the shares that did not otherwise become vested in a prior year. In no event, however, will the maximum number of shares which may become vested over the vesting period exceed 100,000 shares, in the case of our chief executive officer, and 300,000 shares, in the case of our chief investment officer.
Our adjusted pre-tax income is determined based on our financial statements, as our income before income taxes increased by the expense incurred for the year for annual incentive awards to the chief executive officer and chief investment officer, and increased by the expense incurred for the year for incentive compensation for all of Westwood’s other employees and increased by the expense incurred for the year for performance-based restricted stock awards to the chief executive officer and chief investment officer.
Assuming the stockholders approve the material terms of the performance goal as described herein, we believe that the income reported by the chief executive officer and the chief investment officer upon vesting of their shares of restricted stock will qualify as performance-based compensation, and will be deductible for federal income tax purposes. If the stockholders do not approve the performance goal, the compensation committee will reconsider the appropriate terms for any restricted stock awards, in which case the compensation expense reportable by Westwood
upon vesting any restricted stock awards may not be deductible to the extent that, together with other compensation paid to the officer, such officer’s total compensation exceeds $1 million.
Restricted Stock Award Benefits.
The table below illustrates the benefits that will become vested in each vesting year if the performance vesting goals for each year are achieved.
NEW PLAN BENEFITS
Restricted Stock Awards (Vesting Per Year, Assuming Performance Goals are Met)
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Our compensation committee is conducting discussions with our chief executive officer, Brian O. Casey, and our chief investment officer, Susan M. Byrne, regarding their entry into employment agreements with Westwood. See “Proposed Executive Employment Agreements.”
Vote Sought and Recommendation
The approval of the material terms of the performance-based restricted stock goals for our chief executive officer and chief investment officer requires the affirmative vote of a majority of the shares entitled to vote, present in person or represented by proxy at the meeting. All proxies submitted will be voted “FOR” this Proposal unless stockholders specify in their proxies a contrary vote. Broker non-votes will not be counted as votes cast with respect to this Proposal; abstentions, however, will have the same effect as a vote against this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR APPROVAL OF THE PERFORMANCE-BASED RESTRICTED STOCK GOALS.
Biographical information regarding Westwood’s current executive officers and other key employees is as follows:
Brian O. Casey.See biographical information under the caption Proposal 1 – Election of Directors.
Susan M. Byrne.See biographical information under the caption Proposal 1 – Election of Directors.
Patricia R. Fraze, age 62, has served as Executive Vice President of Westwood Management since 1995 and as Client Relationship Manager since 2002. Ms. Fraze served as a director of Westwood Management from 1996 to 2003 and served as a director of Westwood Trust from 1999 to 2004. Ms. Fraze joined Westwood in 1990 as Vice President and fixed income analyst and subsequently served as Portfolio Manager for fixed income and balanced portfolios. Prior to joining Westwood, Ms. Fraze was Vice President, Portfolio Strategies and Fixed Income Research at Drexel Burnham Lambert and also spent twenty-two years in mathematics education at both the secondary and graduate level.
Joyce A. Schaer, age 40,41, has served as Director of Marketing for Westwood Management since 1997 and was promoted to Senior Vice President in 2000. Ms. Schaer served as a director of Westwood Management from 2001 to 2003. Ms. Schaer has held other marketing positions at Westwood including Vice President-Marketing for the Eastern Region of the United States from 1994 to 1996. Ms. Schaer joined the firm in 1989 and has held various positions in the trading, portfolio management and client services areas.
William R. Hardcastle, Jr., age 38,39, has served as Vice President and Chief Financial Officer of Westwood since July 2005. Mr. Hardcastle served as Treasurer from July 2002 to July 2005 and as Assistant to the President from December 2001 to July 2002.
There are no family relationships among the directors, executive officers and other key employees of Westwood.
Compensation Discussion and Analysis
Overview of Certain Executive OfficersCompensation Program
The followingCompensation Committee (the “Committee”) is comprised entirely of Independent Directors under NYSE rules who are also non-employee directors as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (“Rule 16b-3”) and outside directors as defined under Section 162(m) of the Internal Revenue Code (“Section 162(m)”). The Committee authorizes and determines all salaries for our officers, administers our incentive compensation table sets forthplans in accordance with the powers and authority granted in such plans, determines any incentive awards to be made to our officers, administers all of our stock incentive plans and other equity ownership, compensation, retirement and benefit plans, approves the performance-based compensation of individuals pursuant to Section 162(m) and administers other matters relating to compensation or benefits.
The Committee annually reviews and approves our executive compensation strategy and principles to ascertain whether they are aligned with our business strategy and objectives, stockholder interests, desired behaviors and corporate culture. The Committee establishes the total compensation paid by Westwood to the executive officers with the goal of being fair, reasonable and competitive. Generally, the types of compensation and benefits provided to executive officers are similar in most respects to those provided to other key employees.
Throughout this proxy statement, the individuals who served as our Chief Executive Officer, Chief Investment Officer, Chief Financial Officer and Senior Vice President, Director of Marketing during fiscal 2006 are referred to as the “named executive officers.”
Compensation Philosophy and Objectives
As an asset management firm, one of our Presidentgreatest assets is the collective skill, experience and efforts of our employees. Our long-term success depends on our ability to provide superior investment returns and attentive service to our clients. To achieve these goals, it is critical that we are able to attract, retain and motivate talented professionals within all levels of our company that are committed to our core values of integrity, honesty and excellence as well as properly align incentives for our employees with our stockholders and clients. The Committee believes that compensation paid to executive officers should:
closely align incentives for executive officers with our performance on both a short-term and long-term basis; and
enable us to attract, retain and motivate key executives critical to our long-term success.
The Committee evaluates both performance and compensation relative to other companies in its peer group to ensure that we maintain our ability to attract and retain superior employees in key employees duringpositions. The compensation program seeks to compensate executives at a level that is competitive with similar firms in the year ended December 31, 2005 (the “Namedasset management industry and to align executives’ incentives with stockholders and clients. The compensation program is designed to reward individual and company-wide performance as well as recognize the executives’ contribution to serving our clients and creating value for our stockholders. To that end, the compensation program for senior management consists of a combination of base salary, cash incentive bonus awards, long-term equity-based incentive awards, and employee and post-retirement benefits.
Role of Executive Officers”)Officers in Compensation Decisions
The Committee makes all compensation decisions for the named executive officers and reviews and approves recommendations from the Chief Executive Officer and the Chief Investment Officer regarding equity awards to all other employees. The Chief Executive Officer and the Chief Investment Officer make decisions regarding the non-equity compensation of other employees.
The Chief Executive Officer and the Chief Investment Officer annually review the performance of each of the named executive officers (except for the Chief Executive Officer and the Chief Investment Officer, whose performance is reviewed by the Committee). Our compensation committee determinesThe conclusions reached and recommendations based on these reviews are presented to the annual base salaries of, andCommittee. The Committee can exercise its discretion in modifying any recommended adjustments or awards with respect to the named executive officers or any other employees.
Setting Executive Compensation
Based on the foregoing objectives, the Committee has structured our annual and long-term incentive opportunitiescash and equity-based executive compensation to motivate executives to achieve the business goals set by us and reward the executives for achieving such goals. In establishing total annual compensation for the Chief Executive Officer, the Chief Investment Officer and the other named executive officers, the Committee performs the following reviews:
• | Assessment of Company Performance. In establishing total annual compensation, the Committee considers various measures of company performance, including profitability and total shareholder return. With respect to annual base salaries for all named executive officers and incentive cash and equity-based compensation for the Chief Financial Officer and the Director of Marketing, the Committee does not apply a formula or assign weights to these performance measures, but rather makes a subjective determination after considering such measures collectively. With respect to the Chief Executive Officer and Chief Investment Officer, the Committee has established formulas based on company profitability, which have been approved by our stockholders, to determine the size of performance-based cash and equity-based incentive awards, which are discussed in more detail below. |
Assessment of Individual Performance. Individual performance has a strong impact on the compensation of all employees, including the Chief Executive Officer, Chief Investment Officer and the other named executive officers. On February 23, 2006, the Committee approved performance goals for annual incentive awards for the Chief Executive Officer and Chief Investment Officer for the 2006 year and for each subsequent year until revised by the Committee. Each February, the Governance/Nominating Committee conducts a performance review of the Chief Executive Officer for the prior year that is reported to the Board of Directors.
The Chief Executive Officer and the Chief Investment Officer annually review the performance of the other named executive officers. The performance evaluation of these executives is based on the achievement of qualitative goals that apply to all employees, quantitative goals that apply to their specific job responsibilities, his or her contribution to our Named Executive Officers.performance, and other leadership accomplishments. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments, annual cash incentive bonus awards and long-term equity-based incentive awards, are presented to the Committee.
Market Data. The Committee periodically reviews each component of the executive’s compensation against industry compensation surveys from various sources. These compensation surveys provide the Committee with relevant market data on compensation practices and trends in the U.S. asset management industry, along with providing alternatives to consider when making compensation decisions for the named executive officers.
Peer Analysis. The Committee also compares each component of the executive’s total compensation against a peer group of asset management companies (collectively, the “Compensation Peer Group”). The Compensation Peer Group, which is periodically reviewed and updated by the Committee, consists of companies against which the Committee believes we compete for talent and for stockholder investment. The companies comprising the Compensation Peer Group are:
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The companies that comprise the Compensation Peer Group are much larger companies than ours in terms of assets under management and revenues and have greater resources than we do. The Committee realizes this size disparity and takes the disparity into account when looking at the Compensation Peer Group in the context of evaluating and setting compensation for our named executive officers. As such, the Committee does not target a specific percentile within the Compensation Peer Group, but rather uses the levels of compensation for the Compensation Peer Group as a guide in evaluating and setting compensation for our named executive officers.
There is no pre-established policy or target for the allocation between either cash and equity-based or short-term and long-term incentive compensation. Rather, the Committee considers information provided by the compensation surveys and peer group analysis as well as its own judgment to determine the appropriate level and mix of each component of the compensation program. In general, as executives progress to higher levels of our company, their ability to directly impact our performance increases and our need to retain these executives increases; as a result, they receive a larger allocation of their total compensation in the form of long-term equity-based incentive compensation compared to the average for all employees. Income from incentive compensation is realized as a result of our performance or the individual’s performance, depending on the type of award, compared to established goals.
Aggregate Option ExercisesStock Incentive Plan
All cash and equity-based incentive awards are governed by the Westwood Holdings Group, Inc. Third Amended and Restated Stock Incentive Plan (the “Plan”). We originally adopted the Stock Incentive Plan on February 1, 2002. Following our spin-off from SWS Group, Inc. on June 30, 2002, our public stockholders approved an amended Stock Incentive Plan on April 24, 2003, with a reserve of 948,100 shares of common stock. On February 8, 2005, the Committee adopted the Second Amended and Restated Plan, which contained certain non-material amendments not requiring stockholder approval. On April 27, 2006, stockholders approved the Third Amended and Restated Plan, which increased the total number of shares authorized to be awarded under the Plan to a maximum of 1,948,100.
Awards under the Plan consist of cash or our authorized common stock. The Plan provides for the grant of incentive stock options, nonstatutory options, shares of restricted stock, stock purchase rights, annual incentive awards, performance-based awards (in the form of cash or deferred stock awards) and discretionary bonus awards. Awards under the Plan may be made to key employees, including officers and directors who may be employees, and non-employee directors, consultants or advisors. Any shares issued under the Plan may consist, in Last Yearwhole or in part, of authorized and Year End Option Valuesunissued shares or reacquired shares or a combination thereof.
The Plan authorizes the grant of several types of equity-based awards, including incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), restricted stock, stock purchase rights and performance shares (in the form of deferred stock awards). The Plan also authorizes cash awards in the form of annual incentive awards, performance-based awards, and discretionary bonus awards. The various types of awards authorized under the Plan may be utilized in the future if determined appropriate by the Committee. To date the Committee has limited its equity-based awards under the Plan to NSOs and restricted stock, and in the future the Committee expects that its equity-based awards will likely be limited to restricted stock. The Committee believes that restricted stock is the most effective vehicle to align the interests of employees with stockholders and clients. Recipients of restricted stock have voting rights and receive dividends on vested and unvested shares. Time-vested restricted shares granted to employees vest over a four year period as follows: 50% after two years, 75% after three years and 100% after four years. The Committee believes that these terms and conditions for restricted stock awards offer the best balance of providing value to the employee if we, as a company, are successful as well as providing a mechanism to retain key employees over the long-term as they build a meaningful portion of their wealth in the form of equity in us that will not be realized if they leave our employ.
The Board or the Committee administers the Plan with respect to all eligible individuals. Cash incentive bonus awards are typically communicated to employees at the end of the year and paid at the beginning of the following year to coincide with year-end performance reviews. In 2006, a portion of certain employees’ cash incentive bonus was paid at mid-year to coincide with the personal tax liability resulting from restricted stock vesting. Employees that have been granted merit-based salary increases are typically awarded the salary increases as of July 1st, to coincide with mid-year performance reviews; however, salary increases may also be granted at other times as management or the Committee deem appropriate. Also in conjunction with mid-year performance reviews, restricted stock grants are awarded by the Committee in its July meeting, which typically takes place in approximately the fourth week of July.
The following table sets forth information concerningCommittee makes all determinations involving awards that are exempt from the exercisededuction limitations of our stock options duringSection 162(m) of the year ended December 31, 2005Code. Determinations of the Committee are final, conclusive, and binding upon all persons having an interest in the Plan. However, any action or determination by the Named Committee specifically affecting or relating to an award to a non-employee director will be approved and ratified by the Board of Directors. Any employee, consultant, advisor or non-employee director will be eligible to be selected as a participant under the Plan by the Committee.
Executive Officers and the number and aggregate value of unexercised in-the-money options for our stock options at December 31, 2005. The actual amount, if any, realized on exercise of stock options will depend on the amount by which the market price of our common stock on the date of exercise exceeds the exercise price. The actual value realized on the exercise of unexercised in-the-money stock options (whether exercisable or unexercisable) may be higher or lower than the values reflected in this table.
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options/SARs At Year End | Value of Unexercised In-the-Money Options At Year End ($)(1) | ||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||
Brian O. Casey | — | — | 16,500 | 5,500 | 87,780 | 29,260 | ||||||
Susan M. Byrne | 18,750 | 81,313 | — | 6,250 | — | 33,250 | ||||||
Patricia R. Fraze | — | — | 11,250 | 3,750 | 59,850 | 19,950 | ||||||
Joyce A. Schaer | — | — | 11,250 | 3,750 | 59,850 | 19,950 | ||||||
William R. Hardcastle, Jr. | — | — | 3,750 | 1,250 | 19,950 | 6,650 |
PROPOSED EXECUTIVE EMPLOYMENT AGREEMENTSEmployment Agreements
The compensation committeeCommittee believes that the retention of our key executives is critical to our opportunity for future success. Accordingly,In order to formalize a long-term commitment with the compensation committee is in discussionstop two executive officers, we entered into employment agreements with our chief executive officer,Chief Executive Officer, Brian O. Casey, and our chief investment officer,Chief Investment Officer, Susan M. Byrne, regarding their entry into employmentByrne. The agreements with Westwood. Discussions are ongoing regarding the terms of these agreements, but it is anticipated that the agreements will broadly address the terms of their employment with Westwood, including, among other things, duties, compensation and willbenefits, termination, and the effect of termination. In addition, the employment agreements include non-solicitation covenants and non-competition covenants.
EQUITY COMPENSATION PLAN INFORMATION
The Committee determined that the Chief Executive Officer is critical to our future success, due to his significant responsibilities and contributions to the ongoing day-to-day operation of the business, his involvement in marketing our products, his development and direction of strategic initiatives, as well as his participation in the development of new products and our investment processes. As a result, the Committee determined that it was in our best interests to enter into an employment agreement with the Chief Executive Officer that is effective through April 30, 2010.
The following table gives informationCommittee determined that the Chief Investment Officer is critical to our future success, due to her significant responsibilities and contributions to the development of our investment philosophy and process, her day-to-day operation and oversight of our investment function, her integral importance to the ongoing success of our investment process as well as her involvement in product development, strategic initiatives and marketing our products. As a result, the Committee determined that it was in our best interests to enter into an employment agreement with the Chief Investment Officer that is effective through April 30, 2012.
The Committee negotiated the employment agreements with each executive and believes the terms and conditions included in the employment agreements are in our best interests and accomplish the objective of securing the continued long-term employment of the Chief Executive Officer and Chief Investment Officer.
2006 Executive Compensation Components
For the fiscal year ended December 31, 2005 about shares2006, the principal components of our common stock that may be issued upon the exercise of options, warrants and rights under the Second Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan, the only equity compensation plan of the Company in effect at that time. The material terms of this plan were approved by our public stockholders at our 2003 annual meeting.
Equity Compensation Plan Information | |||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in the first column) | ||||
Equity compensation plans approved by security holders | 155,625 | $ | 12.93 | 200,350 | |||
Equity compensation plans not approved by security holders | — | — | — | ||||
Total | 155,625 | $ | 12.93 | 200,350 |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee is a current or former officer or employee of Westwood or its subsidiaries or has had a relationship requiring disclosure by Westwood under applicable federal securities regulations. No executive officer of Westwood served as a director or member of the compensation committee of any entity that has one or morefor named executive officers serving as a member of our board of directors or compensation committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Gabelli Advisers, Inc. and Affiliates
Westwood provides investment advisory services to the Westwood Funds family of mutual funds pursuant to a subadvisory agreement with Gabelli Advisers, Inc. Based on SEC filings, we believe that GAMCO Investors, Inc., of which Gabelli Advisers, Inc. is a subsidiary, owned 19.0% of our common stock as of February 27, 2006. During 2005, Gabelli Advisers, Inc. paid subadvisory fees to Westwood Management Corp., a subsidiary of Westwood, in the amount of $780,000. In addition, Westwood Management owns shares of Class A Common Stock, representing a 19.02% economic interest in Gabelli Advisers, Inc. During 2005, Westwood Management received consulting fees of $280,000 from Gabelli Advisers, Inc.
All future material transactions involving affiliated parties will be subject to approval by a majority of Westwood’s disinterested directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 27, 2006, Westwood had issued and entitled to vote at the annual meeting 5,988,397 shares of common stock. Except where otherwise indicated the following table sets forth certain information, as of February 27, 2006, regarding beneficial ownership of the common stock and the percentage of total voting power held by:were:
base salary;
cash incentive bonus awards;
long-term equity-based incentive awards; and
employee and executive officers as a group.post-retirement benefits.
Unless otherwise noted, the persons named below have sole voting and investment power with respect to such shares.
Beneficial Owners (1) | Number of Shares Beneficially | Percent of Class | |||
5% Beneficial Owners | |||||
GAMCO Investors, Inc. (3)(4) | 1,136,750 | 19.0 | % | ||
Third Avenue Management LLC (3)(5) | 966,951 | 16.1 | % | ||
Dalton, Greiner, Hartman, Maher & Co. (3)(6) | 359,625 | 6.0 | % | ||
Directors and Named Executive Officers | |||||
Brian O. Casey | 252,981 | 4.2 | % | ||
Susan M. Byrne | 666,000 | 11.1 | % | ||
Patricia R. Fraze | 63,845 | 1.1 | % | ||
Joyce A. Schaer | 72,078 | 1.2 | % | ||
William R. Hardcastle, Jr. | 38,150 | * | |||
Tom C. Davis | 8,000 | * | |||
Richard M. Frank | 22,500 | * | |||
Frederick R. Meyer | 35,593 | * | |||
Jon L. Mosle, Jr. | 52,000 | * | |||
Raymond E. Wooldridge | 76,503 | 1.3 | % | ||
All directors and named executive officers as a group (10 Persons) | 1,287,650 | 21.3 | % |
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee consists of Messrs. Davis, Meyer, Mosle and Wooldridge, each an independent director of Westwood. Mr. Meyer serves as Chairman of the compensation committee. This Report describes (i) the compensation committee’s compensation policies generally applicable to Westwood’s executive officers; and (ii) the basis for Ms. Byrne’s compensation in 2005, including the factors and criteria on which Ms. Byrne’s compensation was based, and the relationship of Westwood’s performance to her compensation.
Compensation Policies. The compensation committee’s policies are aimed at achieving close alignment between its executives’ overall compensation opportunity and Westwood’s financial performance, and at retaining the services of key members of its management team. The compensation committee considers the performance of Westwood relative to other companies in its peer group, and assesses management performance on both an individual and aggregate basis.
Base Salary. The compensation committee
Base salary is the fixed component of an employee’s annual cash compensation. We provide named executive officers and other employees with a base salary to compensate them for services rendered during the fiscal year. Salary levels are typically considered annually reviews baseas part of our performance review process as well as upon a promotion or other change in job responsibility. Increases in salary are based on subjective evaluation of such factors as the level of responsibility, individual performance, level of pay both of the executive in question and other similarly situated executives, and market data on compensation levels and considers competitive levels of base pay relative to peer companies in the industry. BaseIn setting base salary levels for 2005 were maintained at2006, the sameCommittee applied the principles described above under “Setting Executive Compensation.”
Cash Incentive Bonus Awards
The Plan authorizes cash awards in the form of annual incentive awards, performance-based annual incentive awards and discretionary bonus awards. The Committee believes that cash incentive bonus awards promote high performance and achievement of corporate goals and objectives by key employees, encourage the growth of stockholder value and allow key employees to participate in our long-term growth and profitability.
Annual Incentive Awards
The Committee may grant annual incentive awards of stock, cash or any combination of stock and cash to our employees, in such amounts and subject to such terms and conditions as the base salariesCommittee may determine. The Committee believes that the payment of cash annual incentive awards provides effective short-term incentives for 2004, with an emphasis placed onthe named executive officers and other performance-based compensation incentives.employees, rewards individual and company-wide performance and recognizes the executives’ and employees’ contributions to serving our clients and creating value for our stockholders.
Performance-Based Compensation. PursuantThe Committee establishes the maximum aggregate level of annual incentive awards that may be granted to all employees for each year. For 2006, the terms ofCommittee established the Stock Incentive Plan,maximum aggregate annual incentive awards that could be awarded to employees other than the compensation committee adopted an Annual Incentive Plan (the “AIP”), under which a bonus pool is established based on financial performance criteria. These criteria are based on pre-tax profits, which operates as a stimulus to achieving improvement in the financial performance of Westwood. For 2005, the compensation committee approved an AIP cash bonus pool equal to $2.7 million. The compensation committee makes recommendations to the board of directors regarding the allocation of the AIP bonus pool among officers of Westwood. For 2005, the compensation committee granted discretion to the then Chief Executive Officer and Chief Investment Officer at $2,017,500 based on its assessment of our profitability as well as the amount of annual incentive awards required to meet their desired allocation of total compensation for all employees. The Committee may, in its sole discretion, reduce, but not increase, the annual incentive award payable to any participating employee during a year. Beginning in the year 2006 and until modified by the Committee, the Chief Executive Officer and Chief Investment Officer will not receive annual incentive awards in addition to performance-based awards as discussed below. For the other named executive officers, the annual incentive award is in the form of a cash award and is determined based on a quantitative and qualitative
evaluation by the Chief Executive Officer and Chief Investment Officer, who then Presidentsubmit a recommendation to allocate the remainderCommittee for review and final approval. In reviewing these recommended awards for 2006, the Committee applied the principles described above under “Setting Executive Compensation.” The Committee has authority for final approval of these awards and may reduce an award below the level recommended by the Chief Executive Officer and Chief Investment Officer. Annual incentive awards for the Chief Financial Officer and Director of Marketing that were earned in 2006 and paid in July 2006 and February 2007 are listed in column (d) in the Summary Compensation Table.
Performance-Based Annual Incentive Awards
The Committee believes that the payment of cash performance-based annual incentive awards provides effective short-term incentives for the Chief Executive Officer and Chief Investment Officer and rewards their contribution to company-wide performance and their contributions to serving our clients and creating value for our stockholders.
Section 162(m) of the AIPCode generally places a $1 million annual limit on a company’s tax deduction for compensation paid to named executive officers listed in the Summary Compensation Table below. Section 162(m) of the Code will not apply to compensation payable solely on account of attainment of one or more performance goals if the performance goals are approved by stockholders and meet other requirements. Performance-based annual incentive awards for the Chief Executive Officer and Chief Investment Officer are designed to meet the requirements of Section 162(m).
Cash annual incentive awards for the Chief Executive Officer and Chief Investment Officer are determined based on a formula as described below, which is subject to Committee oversight and modification. On February 23, 2006, the Committee approved performance goals for the Chief Executive Officer and Chief Investment Officer’s annual incentive awards for the 2006 year and for each subsequent year until revised by the Committee. The approval of the Committee was expressly subject to stockholder approval. On April 27, 2006, stockholders approved the material terms of the performance-based annual incentive awards for our Chief Executive Officer and Chief Investment Officer. For the Chief Executive Officer, the cash incentive bonus pool amongis a maximum 3% of our adjusted pre-tax income. For the Chief Investment Officer, the cash incentive bonus is a maximum 8% of our adjusted pre-tax income. The Committee chose pre-tax income as the basis for the performance formula because it believes that pre-tax income is a meaningful indicator of our performance and profitability and also believes that structuring the performance-based annual incentive award in this way closely aligns the incentives of these two senior executives with our stockholders. The Committee chose these percentages based on its review of market and peer group compensation data as well as its subjective assessment of the proper allocation to performance-based cash incentive awards within the total compensation of these executives.
Our adjusted pre-tax income is determined based on our financial statements, as our income before income taxes increased by the expense incurred for the year for these annual incentive awards to the Chief Executive Officer and Chief Investment Officer, and increased by the expense incurred for the year for incentive compensation for all of our other employees.employees and increased by the expense incurred for the year for performance-based restricted stock awards to the Chief Executive Officer and Chief Investment Officer. Performance-based annual incentive awards which were earned in 2006 and paid in February 2007 are listed in column (g) in the Summary Compensation Table.
Discretionary Bonus Awards.
The compensation committeeCommittee may also grant discretionary bonus awards of stock, cash or any combination of stock and cash to our officers and key employees in such amounts and subject to such terms and conditions as the compensation committeeCommittee may determine. For 2005,The Committee intends to utilize annual incentive awards and performance-based annual incentive awards as the compensation committee approvedprimary means of granting cash incentive bonus awards to our named executive officers. Our Chief Executive Officer was granted a discretionary bonus award in July 2006 of $470,000.$85,000. The Committee reduced his performance-based annual incentive award by this amount. This discretionary bonus award is listed in column (d) in the Summary Compensation Table.
Long-Term Equity-Based Incentive Awards
Long-term equity-based incentive awards are designed to align the interests of our named executive officers, as well as all of our employees, with the interests of our clients and stockholders. Equity-based Compensation. Westwood’s common stock tradesawards also encourage our named executive officers and other employees to focus on our long-term performance. While the NYSE. Westwood believesPlan authorizes the grant of several types of long-term equity-based incentive awards, for the year 2006 and in the future the Committee expects that the opportunityits equity-based awards will likely be limited to award forms of equity-based compensation to recruit and retain talented personnel is a key advantage to operating as an independent public company. Westwood’s ability to grant equity-based compensation awards differentiates it from some of its competitors. The compensation committee intends to grant some form of equity-based compensation awards annually. For 2005, the compensation committee decided to grant individual restricted stock awards basedand performance-based restricted stock awards. Long-term equity-based incentive awards are a key component of our overall compensation program and we believe it has enabled us to attract, retain and motivate talented professionals. The Committee also believes that restricted stock is the most effective equity-based award to accomplish these objectives, as it best conveys the concept of ownership to grantees and allows them to vote the shares and receive dividends on each employee’s tenuretheir vested and unvested shares.
Restricted Stock Awards
The Committee may make awards of restricted shares of our stock. The vesting and number of restricted shares of our stock may be conditioned upon the lapse of time or the satisfaction of other factors determined by the Committee. The recipient of restricted shares will generally have the rights and privileges of a stockholder with Westwood, position,respect to the right to receive dividends and peer review performance ranking,the right to vote the shares. None of the restricted shares may be sold, transferred or pledged during the restricted period, and all restricted shares shall be forfeited, and all rights to the shares will terminate, if the recipient ceases to be an employee before the expiration or termination of the restricted period and satisfaction of any other conditions prescribed by the Committee with respect to the shares.
The Committee has utilized restricted stock awards over the last four years as a meaningful component of total compensation paid to named executive officers as well as qualitative evaluations providedother employees. Equity-based compensation has been used in place of meaningful increases in cash compensation over this period, as the Committee believes that a larger allocation to long-term equity-based incentive awards provides better alignment of incentives between employees, stockholders and clients. These awards also allow all employees to participate in any growth in our value to which they contribute.
Beginning in the year 2006 and until modified by Westwood’s thenthe Committee, the Chief Executive Officer and then President. Grants ofChief Investment Officer will not receive annual restricted stock to Westwood’s Namedawards other than performance-based restricted stock awards, as described below. The Chief Investment Officer has not received any restricted stock awards other than the performance-based award received in 2006. For the other named executive officers and all other eligible employees, restricted stock grants are made annually. Grants have historically been made in conjunction with mid-year performance reviews and awarded by the Committee in its July meeting, which typically takes place in approximately the fourth week of July. Grants are determined based on performance evaluations by the Chief Executive OfficersOfficer and the Chief Investment Officer, which focus on company performance, group performance and individual performance. The performance evaluation of these executives is based on the compensation committee’sachievement of qualitative goals that apply to all employees, quantitative goals that apply to their specific job responsibilities, his or her contribution to our performance, and other leadership accomplishments. The Chief Executive Officer and Chief Investment Officer then submit a recommendation to the Committee, which has full discretion for review, modification and final approval of awards.
Restricted stock awards are subject to the following four-year vesting schedule: 50% after two years, 75% after three years and 100% after four years. The Committee believes that this long-term vesting schedule is effective in acting as a retention tool for 2005named executive officers as well as other employees. All other employees in addition to the named executive officers, but excluding the Chief Executive Officer and Chief Investment Officer, as described above, are set forth under “Executive Compensation – Compensationeligible to receive restricted stock awards. The process of Certain Executive Officers.”determining the size of awards for other employees is similar to the process used with respect to the Chief Financial Officer and the Director of Marketing, although the performance evaluation criteria are specific to each employee’s job level and function.
Performance-Based Restricted Stock Awards
CompensationThe Committee believes that awards of performance-based restricted stock awards to the Chief Executive Officer and Chief Investment Officer are effective long-term incentive awards that provide strong alignment of incentives between these executives, stockholders and clients. These awards also allow these executives to participate in any growth in our value to which they contribute.
On February 23, 2006, the Committee approved performance goals for vesting of the Chief Executive Officer. and Chief Investment Officer’s restricted stock awards made during 2006. On April 27, 2006, stockholders approved these performance-based restricted stock goals. On May 25, 2006, the Committee granted performance-based restricted stock awards to these executives.
The maximum number of shares of restricted stock that may become vested under these awards is 100,000 shares, in the case of the Chief Executive Officer, and 300,000 shares, in the case of the Chief Investment Officer. The Committee determined these share amounts based on its subjective judgment of the impact of these awards over the vesting period on these executives’ total compensation relative to its review of market and peer group compensation data. The performance goal is based on our adjusted pre-tax income, determined based on the audited financial statements. The Committee chose pre-tax income as the basis for the performance formula because it believes that pre-tax income is a meaningful indicator of our performance and profitability and also believes that structuring the performance-based annual incentive award in this way closely aligns the incentives of these two senior executives with our stockholders. The vesting of the restricted stock will occur over a period of four years from the date of grant, for our Chief Executive Officer, and over a period of six years from the date of grant, for our Chief Investment Officer.
For the first vesting year, 2006, the officers were eligible to become vested in the applicable percentage of his or her restricted shares if our adjusted pre-tax income for 2006 was at least 10% greater than our adjusted pre-tax income for the 2005 year. On February 22, 2007, the Committee certified that the performance goal for the 2006 vesting year was achieved and the Chief Executive Officer vested in 25,000 shares and the Chief Investment Officer vested in 50,000 shares. As allowed in our Stock Incentive Plan and approved by the Committee, the Chief Executive Officer surrendered 5,000 of these shares in order to partially satisfy tax withholding requirements due to the vesting of these shares. In determiningeach subsequent year during the applicable vesting period, the Committee will establish a specific goal for that year’s vesting of the restricted shares, which will be based in all cases upon Westwood’s adjusted pre-tax income. Our adjusted pre-tax income is determined based on our financial statements, as our income before income taxes increased by the expense incurred for the year for annual incentive awards to the Chief Executive Officer and Chief Investment Officer, and increased by the expense incurred for the year for incentive compensation for Ms. Byrne,all of Westwood’s other employees and increased by the compensation committee takes into account that Ms. Byrne isexpense incurred for the founder of Westwood,year for performance-based restricted stock awards to the Chief Executive Officer and is a widely known and respected memberChief Investment Officer. The Committee will establish the performance goal in each subsequent year based on their subjective assessment of the financial community whose reputation enhancesperformance objectives and opportunities for us in the staturegiven year.
Performance-based restricted stock awards for the Chief Executive Officer and Chief Investment Officer are designed to meet the requirements of Section 162(m). The specific performance goal for each year will be established no later than March 31 of the vesting year, as required by Section 162(m) of the Code. If, in any year during the vesting period, the performance goal is not met, the Committee may establish a goal for a subsequent vesting period, which, if achieved or exceeded, may result in full or partial vesting of the shares that did not otherwise become vested in a prior year. In no event, however, will be the maximum number of shares that may become vested over the vesting period exceed 100,000 shares, in the case of the CEO, and 300,000 shares, in the case of the CIO.
Employee and Post-Retirement Benefits
We offer employee and post-retirement benefit coverage to all employees in order to provide employees with a reasonable level of financial support in the event of injury, illness or disability and to provide employees with the ability to accumulate retirement savings. All employees are eligible to participate in all benefit programs including medical, dental and vision insurance coverage, disability insurance and life insurance. In addition, all employees are eligible to participate in the Westwood Holdings Group, Inc. Savings Plan (the “Savings Plan”). The cost of health insurance and the Savings Plan is criticalpartially borne by employees, including the named executive officers. We bear the cost of disability insurance and a set amount of term life insurance for all employees on a non-discriminatory basis.
Savings Plan and Matching Contributions
Under the Savings Plan, all employees are eligible to its ongoing marketing efforts.participate in our qualified 401(k) plan. The compensation committee reviews Ms. Byrne’s compensation in relation401(k) plan allows employees to contribute up to 100% of their salary subject to the performanceIRS annual maximum. We fully match employee contributions up to 6% of Westwood’s proprietary accounts, and its client accounts for which she has primary responsibilitytheir eligible compensation. Employees are vested immediately in setting investment policy.
Ms. Byrne’s base salary for 2005 was maintained at the same leveltheir 401(k) contribution as well as the prior year with the emphasis being placed on annual cash incentive awards. Ms. Byrne participates in the AIP, and the compensation committee determines each year the maximum amount that she may earncompany match.
Profit Sharing Contributions
The Savings Plan also authorizes us to make discretionary contributions to employees’ Savings Plan accounts based on our profitability and performance. The profit sharing component of the financial criteriaSavings Plan is meant to be broad-based and all employees are eligible for the Plan. For 2005, Ms. Byrne’s maximum performance bonus is equal to 10% of Westwood’s pre-tax profits (subject to the compensation committee’s discretion to reduce the bonus to less than the 10% formula amount). Ms. Byrne was awarded a 2005 AIP
bonus in an amount equal to 10% of Westwood’s pre-tax profits. Additionally, the compensation committeediscretionary profit sharing contributions. In 2006, we made a discretionary bonus awardcontribution for all employees equal to Ms. Byrne for 2005. Mr. Casey succeeded Ms. Byrne as the Company’s chief5% of their eligible compensation.
Perquisites
We do not provide significant perquisites or personal benefits to named executive officer, effective January 1, 2006. Subject to stockholder approval, the new chief executive officer’s performance based compensation will be based on the methodology described in Proposals 4officers.
Tax and 5, herein.
Our compensation committee is conducting discussions with our new chief executive officer, Brian O. Casey, and our chief investment officer, Susan M. Byrne, regarding their entry into employment agreements with Westwood. See “Proposed Executive Employment Agreements.”Accounting Implications
Deductibility of Compensation.Compliance with Section 162(m) of the Internal Revenue Code of 1986, as amended, limits theCode. Section 162(m) disallows a federal income tax deduction to publicly held companies for certain compensation in excess of $1 million paid to the chief executive officerour Chief Executive Officer and the next four other most highly compensated executive officers to the extent that compensation exceeds $1 million per executive officer covered by Section 162(m) in any fiscal year. The limitation applies only to compensation that is not considered “performance-based” as defined in the Section 162(m) rules.
In designing our compensation programs, the Committee carefully considers the effect of a publicly held corporation.Section 162(m) together with other factors relevant to our business needs. We have historically taken, and intend to continue taking, appropriate actions, to the extent we believe desirable, to preserve the deductibility of annual incentive and long-term performance awards. The compensation committeeCommittee considers it
important to preserve the tax deductibility of compensation for its executive officers, consistent with achieving its goal of retaining its management team.team; however, the Committee has not adopted a policy that all compensation paid must be tax-deductible and qualified under Section 162(m).
Base Salary. We believe that the 2006 base salary paid to the individual executive officers covered by Section 162(m) will not exceed the Section 162(m) limit and will be fully deductible under Section 162(m),
Performance-based Annual Incentive Awards. Performance-based annual incentive awards granted to our Chief Executive Officer and Chief Investment Officer in 2006 were designed to meet the deductibility requirements of Section 162(m).
Performance-based Restricted Stock Awards. Performance-based restricted stock awards granted to our Chief Executive Officer and Chief Investment Officer in 2006 were designed to meet the deductibility requirements of Section 162(m).
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE |
Frederick R. Meyer, Chairman |
Tom C. Davis |
Jon L. Mosle, Jr. |
Raymond E. Wooldridge |
The following table summarizes all compensation earned by our named executive officers in 2006.
Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus (d) | Stock Awards ($) (e) | Option (f) | Non-Equity Incentive Plan Compensation ($) (g) | All Other (h) | Total ($) (i) | ||||||||
Brian O. Casey, Chief Executive Officer | 2006 | 433,333 | 85,000 | 683,733 | 15,043 | 275,000 | 23,700 | 1,515,809 | ||||||||
William R. Hardcastle, Jr., Vice President, Chief Financial Officer | 2006 | 152,500 | 90,000 | 175,083 | 3,419 | — | 22,470 | 443,472 | ||||||||
Susan M. Byrne, Chief Investment Officer | 2006 | 708,333 | — | 940,500 | 17,094 | 960,000 | 23,700 | 2,649,627 | ||||||||
Joyce A. Schaer, Senior Vice President of Westwood Management | 2006 | 200,000 | 85,000 | 153,114 | 10,256 | — | 21,060 | 469,430 |
Notes, by column letter:
(e), | (f) The amounts contained in columns (e) and (f) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2006 and include amounts related to option grants made in 2002 and restricted stock grants made from 2003 through 2006. The assumptions used in all of the grants are discussed in footnote “7. Employee Benefits” of our audited financial statements, which are included in our 2006 Form 10-K filed with the Securities and Exchange Commission on February 22, 2007. |
(g) | The amounts in column (g) reflect the payment of 3% and 8% of our 2006 adjusted pre-tax income to Brian O. Casey and Susan M. Byrne, respectively, in accordance with the Performance-Based Annual Incentive Awards approved by stockholders at the 2006 annual meeting. Mr. Casey’s Performance-Based Annual Incentive Award was reduced by the amount of a Discretionary Bonus Award paid in July 2006, which is included in column (d). Adjusted pre-tax income, determined based on our financial statements, is our income before income taxes increased by the expense incurred for the year for these annual incentive awards to the Chief Executive Officer and Chief Investment Officer, the expense incurred for the year for incentive compensation for all of our other employees and the expense incurred for the year for performance-based restricted stock awards to the Chief Executive Officer and Chief Investment Officer. |
(h) | The amounts in column (h) reflect 401(k) matching contributions and profit sharing contributions to the Westwood Holdings Group, Inc. Savings Plan. |
We have employment agreements with Brian O. Casey and Susan M. Byrne. Under these agreements these officers have a minimum salary, are eligible to receive performance-based and discretionary bonuses, receive restricted shares (subject to performance conditions), could become fully vested in their unvested equity compensation (depending on the cause of termination of employment) and could receive salary and benefits for one year after the termination of their employment (depending on the cause of termination of employment). The agreements expire on April 30, 2010 for the Chief Executive Officer and April 30, 2012 for the Chief Investment Officer.
The following table summarizes all grants of plan-based awards made to our named executive officers in 2006. All equity plan-based awards in the following table consisted solely of restricted shares of our common stock.
Estimated Future Payouts Under Non- Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All of Stock | Grant Date of Stock ($) (j) | |||||||||||||||
Name (a) | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | |||||||||||
Brian O. Casey | 5/25/2006 | N/A | N/A | N/A | 100,000 | 100,000 | 1,881,000 | |||||||||||
Brian O. Casey | 12/31/06 | N/A | 275,000 | N/A | N/A | — | — | — | ||||||||||
William R. Hardcastle, Jr. | 7/27/2006 | N/A | — | N/A | N/A | — | — | 8,000 | 144,400 | |||||||||
Susan M. Byrne | 5/25/2006 | N/A | — | N/A | N/A | 300,000 | 300,000 | 5,643,000 | ||||||||||
Susan M. Byrne | 12/31/06 | N/A | 960,000 | N/A | N/A | — | — | — | ||||||||||
Joyce A. Schaer | 7/27/2006 | N/A | — | N/A | N/A | — | — | 8,000 | 144,400 |
Notes, by column letter:
(d) | The amounts in column (d) reflect the payment of 3% and 8% of our 2006 adjusted pre-tax income to Brian O. Casey and Susan M. Byrne, respectively, in accordance with the Performance-Based Annual Incentive Awards approved by stockholders at the 2006 annual meeting. Adjusted pre-tax income, determined based on our financial statements, is our income before income taxes increased by the expense incurred for the year for these annual incentive awards to the Chief Executive Officer and Chief Investment Officer, the expense incurred for the year for incentive compensation for all of our other employees and the expense incurred for the year for performance-based restricted stock awards to the chief executive officer and chief investment officer. |
(g), (h) | The amounts in columns (g) and (h) reflect shares granted to Brian O. Casey and Susan M. Byrne under our Third Amended and Restated Stock Incentive Plan. The shares had a grant date fair value of $18.81 per share and are subject to vesting conditions, including performance goals. The maximum number of shares of restricted stock which may become vested are 100,000 shares, in the case of our Chief Executive Officer, and 300,000 shares, in the case of our Chief Investment Officer. The performance goal is based on our adjusted pre-tax income, determined based on our audited financial statements. The vesting of the restricted stock will occur over a period of four years from the date of grant, for our Chief Executive Officer, and over a period of six years from the date of grant, for our Chief Investment Officer. For the first vesting year, 2006, the officers became vested in the applicable percentage of their restricted shares since our adjusted pre-tax income for 2006 was at least 10% greater than our adjusted pre-tax income for the 2005 year. In each subsequent year during the applicable vesting period, the Compensation Committee will establish a specific goal for that year’s vesting of the restricted shares, which will be based in all cases upon our adjusted pre-tax income. The specific performance goal for each year will be established no later than March 31 of the vesting year, as required by Section 162(m) of the Code. If in any year during the vesting period the performance goal is not met, the Compensation Committee may establish a goal for a subsequent vesting period, which if achieved or exceeded may result in full or partial vesting of the shares that did not otherwise become vested in a prior year. In no event will the maximum number of shares that could ultimately vest over the vesting period exceed 100,000 shares, in the case of our Chief Executive Officer, and 300,000 shares, in the case of our Chief Investment Officer. |
(i) | The amounts in column (i) reflect restricted shares granted in accordance with our Third Amended and Restated Stock Incentive Plan. The shares vest as follows: 50% after two years, 75% after three years and 100% after four years. The grant date fair value was $18.05 per share. |
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes all outstanding equity awards held by our named executive officers as of December 31, 2006.
Option Awards | Stock Awards | |||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option (e) | Option Expiration Date (f) | Number (g) | Market of Shares of Stock Have Not Vested (h) | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (i) | Equity (j) | |||||||||
Brian O. Casey | 12,000 | — | — | 12.90 | 7/02/12 | 25,000 | 575,750 | 75,000 | 1,727,250 | |||||||||
William R. Hardcastle, Jr. | 5,000 | — | — | 12.90 | 7/02/12 | 28,500 | 656,355 | — | — | |||||||||
Susan M. Byrne | — | — | — | — | — | — | — | 250,000 | 5,757,500 | |||||||||
Joyce A. Schaer | 15,000 | — | — | 12.90 | 7/02/12 | 23,250 | 535,448 | — | — |
Notes, by column letter:
(g) | The shares in column (g) will vest according to the following schedule provided the individual is still employed by us on the vesting date. |
Shares scheduled to vest as of July 1, | ||||||||
Name | 2007 | 2008 | 2009 | 2010 | ||||
Brian O. Casey | 14,375 | 7,500 | 3,125 | — | ||||
William R. Hardcastle, Jr. | 11,500 | 9,875 | 5,125 | 2,000 | ||||
Joyce A. Schaer | 9,000 | 8,375 | 3,875 | 2,000 |
(i) | The shares in column (i) will vest according to the following schedule provided the individual is still employed by us on the vesting date and the performance goal specified for the year indicated is met. The performance goals are described in note (g) below the “Grants of Plan-Based Awards” table. |
Shares scheduled to vest as of December 31, | ||||||||||
Name | 2007 | 2008 | 2009 | 2010 | 2011 | |||||
Brian O. Casey | 25,000 | 25,000 | 25,000 | — | — | |||||
Susan M. Byrne | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 |
(h), (j) | The amounts in columns (h) and (j) reflect the value of the shares shown in columns (g) and (i), respectively, multiplied by $23.03, the per share price of our stock as of December 29, 2006. |
Option Exercises and Stock Vested
The following table summarizes all options exercised and shares vested by our named executive officers for the year ended December 31, 2006.
Option Awards | Stock Awards | |||||||
Name (a) | Number of Shares (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares (d) | Value Realized Vesting ($) (e) | ||||
Brian O. Casey | 10,000 | 61,000 | 12,500 | 235,000 | ||||
William R. Hardcastle, Jr. | — | — | 8,000 | 150,400 | ||||
Susan M. Byrne | 6,250 | 36,875 | — | — | ||||
Joyce A. Schaer | — | — | 7,750 | 145,700 |
Notes, by column letter:
(b) | Stock options in column (b) were issued in July of 2002, have an exercise price of $12.90 per share and have a term of ten years from the date of grant. |
(e) | Values in column (e) reflect shares that vested on July 1, 2006 at a price of $18.80. |
Potential Payments Upon Termination or Change in Control
The tables below reflect compensation and benefits payable to our named executive officers in the event their employment is terminated. For purposes of this disclosure, we have assumed a December 31, 2006 termination date. We have multi-year executive employment agreements with our Chief Executive Officer and our Chief Investment Officer under which the officers: have a minimum salary, are eligible to receive performance-based and discretionary bonuses, receive restricted shares (subject to performance conditions), could become fully vested in their unvested equity compensation (depending on the cause of termination of employment) and could receive salary and benefits for a year after the termination of their employment (depending on the cause of termination of employment). The agreements expire on April 30, 2010 for the Chief Executive Officer and April 30, 2012 for the Chief Investment Officer. Under these agreements, the payments could vary depending on the cause of termination and whether or not the Board of Directors elects to enforce a non-compete agreement. These scenarios are described below.
Payments upon termination without cause where the non-compete agreement is enforced
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
one year’s worth of salary paid in monthly installments,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive,
medical benefits for the executive and his eligible dependents for twelve months following termination, less the amount of insurance premiums the executive would pay had he remained employed, and
all unvested stock options and all unvested restricted shares shall be fully vested.
Payments upon termination without cause where the non-compete agreement is not enforced
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive,
medical benefits for the executive and his eligible dependents for twelve months following termination, less the amount of insurance premiums the executive would pay had he remained employed, and
all unvested stock options and all unvested restricted shares shall be fully vested.
Payments upon termination with cause or by the executive without good reason where the non-compete agreement is enforced
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
one year’s worth of salary paid in monthly installments for twelve months,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive, and
medical benefits for the executive and his eligible dependents for twelve months following termination, less the amount of insurance premiums the executive would pay had he remained employed.
All unvested stock options and all unvested restricted shares shall be forfeited under this scenario.
Payments upon termination with cause or by the executive without good reason where the non-compete agreement is not enforced
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive, and
medical benefits for the executive and his eligible dependents for twelve months following termination, less the amount of insurance premiums the executive would pay had he remained employed.
All unvested stock options and all unvested restricted shares shall be forfeited under this scenario.
Payments upon termination by the executive with good reason (the non-compete agreement is automatically enforced)
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
one year’s worth of salary paid in monthly installments,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive,
medical benefits for the executive and his eligible dependents for twelve months following termination, less the amount of insurance premiums the executive would pay had he remained employed, and
all unvested stock options and all unvested restricted shares shall be fully vested.
Payments upon termination due to a change in control (the non-compete agreement is automatically enforced)
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
one year’s worth of salary paid in monthly installments,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive,
medical benefits for the executive and his eligible dependents for twelve months following termination, less the amount of insurance premiums the executive would pay had he remained employed, and
all unvested stock options and all unvested restricted shares shall be fully vested.
Payments upon termination due to death
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
one year’s worth of salary paid in monthly installments,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive,
medical benefits for the executive’s eligible dependents for twelve months following termination, and
all unvested stock options and all unvested restricted shares shall be fully vested.
Payments upon termination due to disability
Amounts under this scenario include the following to extent they have not been already paid:
amounts earned by the executive during his employment,
one year’s worth of salary paid in monthly installments,
bonus and incentive compensation earned by the executive as of the termination date,
up to four weeks of vacation time that was earned and unused by the executive,
medical benefits for the executive and his eligible dependents for twelve months following termination, and
all unvested stock options and all unvested restricted shares may be fully vested at the Board of Directors’ discretion.
The following tables show the amounts each officer would receive under different scenarios.
Chief Executive Officer severance and change in control arrangements:
Benefits/payments upon termination | For cause or Voluntary Termination | Without cause | Resign with good reason or terminated due to change in control | Death | Disability | ||||||||||||||||
Non-compete enforced? | Y | N | Y | N | Y | N/A | N/A | ||||||||||||||
Base salary for an additional year | $ | 450,000 | $ | — | $ | 450,000 | $ | — | $ | 450,000 | $ | — | $ | — | |||||||
Incentive plan and discretionary bonus awards (1) | 360,000 | 360,000 | 360,000 | 360,000 | 360,000 | 360,000 | 360,000 | ||||||||||||||
Performance shares (2) | — | — | 1,727,250 | 1,727,250 | 1,727,250 | 1,727,250 | 1,727,250 | ||||||||||||||
Restricted stock – accelerated vesting (2) | — | — | 575,750 | 575,750 | 575,750 | 575,750 | 575,750 | ||||||||||||||
Medical benefits | 10,909 | 10,909 | 10,909 | 10,909 | 10,909 | 10,909 | 10,909 | ||||||||||||||
Total | $ | 820,909 | $ | 370,909 | $ | 3,123,909 | $ | 2,673,909 | $ | 3,123,909 | $ | 2,673,909 | $ | 2,673,909 | |||||||
Chief Investment Officer severance and change in control arrangements:
Benefits/payments upon termination | For cause or Voluntary Termination | Without cause | Resign with good | Death | Disability | ||||||||||||||||
Non-compete enforced? | Y | N | Y | N | Y | N/A | N/A | ||||||||||||||
Base salary for an additional year | $ | 750,000 | $ | — | $ | 750,000 | $ | — | $ | 750,000 | $ | — | $ | — | |||||||
Incentive plan and discretionary bonus awards (1) | 960,000 | 960,000 | 960,000 | 960,000 | 960,000 | 960,000 | 960,000 | ||||||||||||||
Performance shares (2) | — | — | 5,757,500 | 5,757,500 | 5,757,500 | 5,757,500 | 5,757,500 | ||||||||||||||
Disability benefits (3) | — | — | — | — | — | — | 315,000 | ||||||||||||||
Medical benefits | 4,818 | 4,818 | 4,818 | 4,818 | 4,818 | 4,818 | 4,818 | ||||||||||||||
Total | $ | 1,714,818 | $ | 964,818 | $ | 7,472,318 | $ | 6,722,318 | $ | 7,472,318 | $ | 6,722,318 | $ | 7,037,318 | |||||||
Notes:
(1) | Incentive plan and discretionary bonus awards are estimated assuming the termination event occurred on the last business day of the year, that the Board of Directors would certify these amounts for payment and that future payments will be equal to the incentive payments that the officers earned in 2006 (the incentive payment amounts are calculated as 3% and 8% of our adjusted pre-tax income, as defined, for the Chief Executive Officer and Chief Investment Officer, respectively). |
(2) | All performance shares and restricted stock accelerated vesting amounts shown in the preceding tables are estimated using our stock price as of the last day of business in 2006, $23.03 per share. Amounts shown under the Disability column are subject to accelerated vesting at the discretion of our Board of Directors. |
(3) | The Chief Investment Officer is covered by a disability income insurance policy, the premiums to which are paid by the Company with the Chief Investment Officer as the beneficiary. The estimated benefits shown assume that a disability that causes termination of employment occurred on December 31, 2006 and that the disability is permanent. The benefits would be paid by the insurance company in monthly installments of $5,000 beginning approximately four months after the disability occurred and would continue until August 1, 2012. |
The amounts shown in the tables above do not include payments and benefits to the extent they are paid to all employees upon termination of employment, including:
accrued salary and vacation pay,
distribution of the balance held by the individual under our 401(k) plan, and
amounts paid under other benefit plans, including our family and medical leave of absence and long-term disability programs.
Definitions
Termination for cause could occur due to any of the following events:
executive’s conviction of any felony or other serious crimes;
executive’s material breach of any of the terms of the employment agreement or any other written agreement or material company policy to which the executive and the Company are parties or are bound, if such breach shall be willful and shall continue beyond a period of twenty (20) days immediately after written notice thereof by the Company to the executive;
wrongful misappropriation by the executive of any money, assets, or other property of the Company or a client of the Company;
willful actions or failures to act by the executive which subject the executive or the Company to censure by the Securities and Exchange Commission as described in and pursuant to Section 203(e) or 203(f) of the Investment Advisers Act of 1940 or Section 9(b) of the Investment Company Act of 1940 or to censure by a state securities administrator pursuant to applicable state securities laws or regulations;
executive’s commission of fraud or gross moral turpitude; or
executive’s continued willful failure to substantially perform executive’s duties under the applicable agreement after receipt of written notice thereof and an opportunity to so perform.
Termination for good reason could occur due to the occurrence of any of the following events without the written consent of the executive:
any material breach by the Company of the employment agreement (including any reduction in the executive’s base salary);
any material adverse change in the status, position or responsibilities of the executive, including a change in the executive’s reporting relationship so that he no longer reports to the Board of Directors, the removal from or failure to re-elect the executive as a member of the Board or if the Company becomes a wholly-owned subsidiary of another company, and the executive serves only as an officer of the subsidiary company;
assignment of duties to the executive that are materially inconsistent with the executive’s position and responsibilities described in his employment agreement;
the failure of the Company to assign the employment agreement to a successor to the Company or failure of a successor to the Company to explicitly assume and agree to be bound by the employment agreement; or
requiring the executive to be principally based at any office or location more than twenty-five (25) miles from the current offices of the Company in Dallas, Texas.
The executive may terminate his employmentwithout good reason at anytime by giving thirty days notice.
The Company may terminate the executive’s employmentwithout cause at anytime.
Ratification of Appointment of Grant Thornton LLP as Independent Auditors
Our Audit Committee has appointed Grant Thornton LLP as our independent auditors for 2007. Representatives of Grant Thornton LLP are expected to attend the annual meeting to answer appropriate questions and may make a statement if they so desire.
The Audit Committee regularly monitors our independent auditors’ qualifications, performance, independence in accordance with regulatory requirements and guidelines, and examines the relationship from a cost-benefit perspective. In the course of these monitoring activities, on February 23, 2006 the Audit Committee determined that it would be beneficial to us to dismiss Deloitte & Touche LLP, who were our independent auditors in 2005, and to engage Grant Thornton LLP as our independent auditors for the year ended December 31, 2006.
Deloitte & Touche LLP’s reports on our consolidated financial statements for the fiscal years ended December 31, 2005 and 2004 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audit of our consolidated financial statements for the years ended December 31, 2005 and 2004 and through the date hereof, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Deloitte & Touche LLP’s satisfaction, would have caused Deloitte & Touche LLP to make a reference to the subject matter of the disagreements in connection with its reports. During the years ended December 31, 2005 and 2004, and during the subsequent interim period through the date hereof, there have been no reportable events, as defined in Item 304(a)(l)(v) of Regulation S-K. Deloitte & Touche LLP has furnished to us a letter addressed to the SEC stating that it agrees with the foregoing statements set forth in this paragraph. During the two most recent fiscal years and the interim period preceding the engagement of Grant Thornton LLP, we did not consult Grant Thornton LLP regarding any matter described in Item 304(a)(2)(i) or (ii) of Regulation S-K.
Fees Billed by Grant Thornton LLP
Audit Fees. The aggregate fees billed for professional services rendered by Grant Thornton LLP for the audit of our annual financial statements, the review of the financial statements included in our Quarterly Reports on Form 10-Q, the audit of (1) our management’s assessment of the effectiveness of our internal control over financial reporting and (2) the effectiveness of our internal control over financial reporting as required by Sarbanes-Oxley Section 404 or for services that are normally provided in connection with statutory or regulatory filings or engagements for the year ended December 31, 2006 was $174,000.
Audit-Related Fees. There were no fees billed by Grant Thornton for services other than audit fees for the years ended December 31, 2006 and 2005.
Tax Fees. There were no fees billed by Grant Thornton for services other than audit fees for the years ended December 31, 2006 and 2005.
All Other Fees. There were no fees billed by Grant Thornton for services other than audit fees for the years ended December 31, 2006 and 2005.
Pre-approval policies and procedures for audit and non-audit services.The Audit Committee has established a policy regarding pre-approval of all audit and non-audit services provided by our independent auditors. Each year the Audit Committee considers for approval the independent auditor’s engagement to render audit services, as well as a list prepared by management of anticipated non-audit services and related budget estimates. During the course of the year, management and the independent auditor are responsible for tracking all services and fees to insure that they are within the scope pre-approved by the Audit Committee. To insure prompt handling of unexpected matters, the Audit Committee has delegated to its chairman the authority to amend or modify the list of approved permissible non-audit services and fees, provided the chairman reports any action taken to the Audit Committee at its next meeting.
The Audit Committee approved all Audit Fees billed by Grant Thornton LLP and Deloitte & Touche LLP for the years ended December 31, 2006 and 2005.
Vote Sought and Recommendation
Although stockholder action on this matter is not required, the appointment of Grant Thornton LLP is being recommended to the stockholders for ratification. The affirmative vote of a majority of the shares entitled to vote, represented in person or by proxy at the annual meeting, is needed to ratify the appointment of Grant Thornton LLP as independent auditors for 2007. If not otherwise
specified, the shares represented by properly executed, returned proxy cards will be voted “FOR” the ratification of Grant Thornton LLP. Broker non-votes and abstentions will not be counted as votes for this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR THE RATIFICATION OF
GRANT THORNTON LLP AS OUR INDEPENDENT AUDITORS FOR 2007.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our Compensation Committee is a current or former officer or employee of Westwood or its subsidiaries or has had a relationship requiring disclosure by Westwood under applicable federal securities regulations. No executive officer of Westwood served as a director or member of the Compensation Committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Gabelli Advisers, Inc. and Affiliates
We provide investment advisory services to the Westwood Funds family of mutual funds pursuant to a subadvisory agreement with Gabelli Advisers, Inc. Based on SEC filings, we believe that GAMCO Investors, Inc., of which Gabelli Advisers, Inc. is a subsidiary, owned 19.0% of our common stock as of March 1, 2007. During 2006, Gabelli Advisers, Inc. paid subadvisory fees to Westwood Management Corp., our subsidiary, in the amount of $863,000. In addition, Westwood Management owns shares of Class A Common Stock, representing a 19.02% economic interest in Gabelli Advisers, Inc. During 2006, Westwood Management received dividends of $260,000 from Gabelli Advisers, Inc.
Review and Approval of Related Party Transactions
All future material transactions involving affiliated parties will be subject to approval by a majority of our disinterested directors. We have a written policy addressing the review and approval of related party transactions that is entitled our Conflict of Interest Policy. The Conflict of Interest Policy provides that, except with the Board of Directors’ prior knowledge and consent, no director, officer or employee of Westwood or its subsidiaries may be involved in a transaction or relationship that gives rise to a “conflict of interest” with Westwood. The policy defines “conflict of interest” as an occurrence where a director, officer or employee’s private interests interfere, or appear to interfere, in any way with our interests as a whole, and specifically includes all related party transactions and relationships we are required to disclose in our proxy statement.
In the event the Board of Directors’ consent to a conflict of interest is sought, the request must be addressed to our compliance officer (or, where the matter involves the compliance officer, to the Audit Committee) and referred to the Audit Committee for its consideration. If the matter involves any member of the Audit Committee, the matter is required to be addressed by the disinterested members of the Board of Directors. A majority of the members of the Audit Committee (or a majority of the disinterested members of the Board of Directors, where applicable) must approve any request. The terms of any transaction consented to must be as favorable to us as the terms would be if the transaction were entered into with an unrelated third party.
Management Accounts
Certain of our directors, executive officers and their affiliates invest their personal funds directly in accounts held and managed by us. All such funds are managed along with, and on the same terms as, funds deposited by our other clients. These individuals are charged management fees for our services at a preferred fee rate, which rate is consistent with fees charged to our other select clients who are not members of our Board of Directors or executive officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 1, 2007, there were 6,635,978 shares of common stock issued and entitled to vote at the annual meeting. Except where otherwise indicated, the following table sets forth certain information, as of March 1, 2007, regarding beneficial ownership of the common stock and the percentage of total voting power held by:
each stockholder who is known by us to own more than five percent (5%) of the outstanding common stock;
each director and director nominee;
each named executive officer; and
all directors and executive officers as a group.
Unless otherwise noted, the persons named below have sole voting and investment power with respect to such shares.
Beneficial Owners (1) | Number of Shares Beneficially | Percent of Class | |||
5% Beneficial Owners | |||||
GAMCO Investors, Inc. (3)(4) | 1,262,750 | 19.0 | % | ||
Third Avenue Management LLC (3)(5) | 1,082,122 | 16.3 | % | ||
Dalton, Greiner, Hartman, Maher & Co. (3)(6) | 334,735 | 5.0 | % | ||
Directors and Named Executive Officers | |||||
Brian O. Casey | 353,481 | 5.3 | % | ||
Susan M. Byrne | 1,000,000 | 15.1 | % | ||
Joyce A. Schaer | 83,828 | 1.3 | % | ||
William R. Hardcastle, Jr. | 47,400 | * | |||
Tom C. Davis | 17,000 | * | |||
Richard M. Frank | 24,000 | * | |||
Frederick R. Meyer | 37,093 | * | |||
Jon L. Mosle, Jr. | 53,500 | * | |||
Geoffrey R. Norman | — | * | |||
Raymond E. Wooldridge | 78,003 | 1.2 | % | ||
All directors and named executive officers as a group (10 Persons) | 1,694,305 | 25.4 | % |
* | Less than 1% |
(1) | The address of each director and named executive officer is 200 Crescent Court, Suite 1200, Dallas, Texas, 75201. |
(2) | Includes shares subject to options that may be acquired within 60 days after March 1, 2007. Such shares are deemed to be outstanding and to be beneficially owned by the person or group holding the options for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group. Individuals listed above with rights to acquire shares within 60 days of March 1, 2007 include: Mr. Casey with rights to 12,000 shares, Ms. Schaer with rights to 15,000 shares, Mr. Hardcastle with rights to 5,000 shares and Mr. Wooldridge with rights to 2,500 shares. |
(3) | The beneficial ownership information reported for this stockholder is based upon the most recent Form 4, Form 13F or Schedule 13G filed with the SEC by such stockholder. |
(4) | Pursuant to the Form 4 filed by GAMCO Investors, Inc., or GAMCO, on September 6, 2006, GAMCO stated that these shares are beneficially owned by Mario J. Gabelli, c/o GAMCO, One Corporate Center, Rye, NY 10580, and GGCP, Inc. |
(5) | The address of Third Avenue Management LLC, or TAM, is 622 Third Avenue, 32nd Floor, New York, New York 10017-6715. On February 14, 2007, TAM reported its beneficial ownership, indicating that it held sole dispositive power and sole voting power over 1,082,122 shares. |
(6) | The address of Dalton, Greiner, Hartman, Maher & Co., or DGHM, is 565 Fifth Ave., Suite 2101, New York, New York 10017. On February 6, 2007, DGHM reported its beneficial ownership, indicating that it held sole dispositive power over 334,735 shares and sole voting power over 326,313 shares. |
In conjunctionaccordance with its written charter adopted by the Board of Directors, the Audit Committee assists the Board in fulfilling its oversight responsibilities by, among other activities,things, reviewing the audit committee reviewedfinancial reports and other financial information provided by us to any governmental body or the public.
In discharging its oversight responsibilities, the Audit Committee received from Grant Thornton LLP, the independent registered public accounting firm, a formal written statement describing all relationships between the firm and our company that might bear on the auditors’ independence consistent with Independent Standards Board Standard No. 1, discussed Westwood’s audited financial statements forwith the year ended December 31, 2005 with its management.independent auditors any relationships that may impact their objectivity and independence, and satisfied itself as to the auditors’ independence. The members of the audit committeeAudit Committee also discussed with Deloitte & Touche LLPmanagement, the internal auditors and the independent auditors the integrity of our company’s financial reporting processes, including our company’s internal accounting systems and controls, and reviewed with management and the independent auditors our company’s significant accounting principles and financial reporting issues, including judgments made in connection with the preparation of our company’s financial statements. The Audit Committee also reviewed with the independent auditors their audit plans, audit scope and identification of audit risks.
The Audit Committee discussed with the independent auditors the matters required to be discussed by SAS 61 (Codification of StatementsStatement on Auditing Standards AU Section 380)No. 61, as amended, and, considered whetherwith and without management present, discussed and reviewed the provisionresults of non-audit services by Deloitte & Touche LLP is compatiblethe independent auditors’ examination of the consolidated financial statements of our company. The Audit Committee reviewed and discussed the audited consolidated financial statements of our company as of and for the fiscal year ended December 31, 2006 with maintaining the independence of Deloitte & Touche LLP. The audit committee received from Deloitte & Touche LLP the written disclosuresmanagement and the letter requiredindependent auditors. Management is responsible for our company’s financial reporting process, including its system of internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934), and for the preparation of our consolidated financial statements in accordance with generally accepted accounting principles. The independent auditor is responsible for auditing those financial statements, and expressing an opinion on (1) management’s assessment of the effectiveness of internal control over financial reporting and (2) the effectiveness of internal control over financial reporting. The Audit Committee’s responsibility is to monitor and review these processes. The members of the Audit Committee are “independent” as defined by Independence StandardsSEC and NYSE rules, and, although our Board Standard No. 1,of Directors has determined that Mr. Meyer is an “audit committee financial expert” as defined by SEC rules, neither Mr. Meyer, nor any other member of the Audit Committee, represents themselves to be, or to serve as, accountants or auditors by profession or experts in the field of accounting or auditing.
For the fiscal year 2006, management completed the documentation, testing and discussedevaluation of our system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002, and related regulations. The Audit Committee monitored the progress of the evaluation and provided oversight and guidance to management during the process. In connection with Deloitte & Touche LLP their independence.this oversight, the Audit Committee received periodic updates provided by management and the independent auditors. At the conclusion of the process, management provided the Audit Committee with a report on management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006.
Based onupon the foregoingabove-mentioned review and discussions with management and the audit committeeindependent auditors, the Audit Committee recommended to the boardBoard of directorsDirectors that theour audited consolidated financial statements be included in Westwood’sits Annual Report on Form 10-K for the fiscal year ended December 31, 2005.2006, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE |
Raymond E. Wooldridge, Chairman |
Tom C. Davis |
Richard M. Frank |
Frederick R. Meyer |
Jon L. Mosle, Jr. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934 requires Westwood’sour directors and executive officers, and persons who own more than ten percent of a registered class of Westwood’s equity securitiesour common stock to file with the SEC initial statements of beneficial ownership of securities and subsequent changes in beneficial ownership. Westwood’sOur officers, directors and greater-than-ten-percent stockholders are required by the SEC’s regulations to furnish Westwoodus with copies of all Section 16(a) forms they file.
To Westwood’s knowledge, basedBased solely on a review of the copies of such reports furnished to Westwoodus and written representations that no other reports were required, during the year ended December 31, 2005, itswe believe that our officers, directors and greater-than-ten-percent beneficial owners timely complied with all Section 16(a) filing requirements applicable to them.
The following graph compares total stockholder returns of Westwood since July 1, 2002, the date the Company began trading as a public company after the spin-off, with the total return of the Russell 2000 Index and the SNL Asset Manager Index. The SNL Asset Manager Index is a composite of twenty-two publicly traded asset management companies.
Comparison of Cumulative Total Return on Investment Since July 1, 2002
Total Return Performance
Period Ending | ||||||||||
Index | 07/01/02 | 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | |||||
Westwood Holdings Group, Inc. | 100.00 | 102.66 | 145.75 | 169.87 | 166.54 | |||||
Russell 2000 Index | 100.00 | 86.21 | 126.95 | 150.22 | 157.06 | |||||
SNL Asset Manager Index | 100.00 | 86.40 | 120.47 | 157.18 | 199.90 |
The total return for Westwood’s stock and for each index assumes $100 invested on July 1, 2002 in Westwood’s common stock, the Russell 2000 Index, and the SNL Asset Manager Index, including the reinvestment of dividends. Westwood’s common stock is traded on the NYSE.
The closing price of Westwood’s common stock on the last trading day of the year ended December 31, 2005 was $18.22 per share. Historical stock price performance is not necessarily indicative of future price performance.
WeFor a request to be timely, we must receive any stockholder proposal intended for inclusion in the proxy materials for our annual meeting to be held in 20072008 no later than November 16, 200621, 2007 to have such Proposal included in our proxy statement for the 20072008 annual meeting. You must submit your Proposal in writing to our Corporate Secretary:
Brian O. Casey
200 Crescent Court, Suite 1200
Dallas, Texas 75201
(214) 756-6900
Our Annual Report to Stockholders, which includes our consolidated financial statements as of and for the year ended December 31, 2005,2006, is being mailed to you along with this proxy statement.Upon written request, we will provide, without charge to any stockholder, a copy of our Annual Report on Form 10-K, including the financial statements and financial statement schedules to such report. Such request should be directed to:
Brian O. Casey
200 Crescent Court, Suite 1200
Dallas, Texas 75201
(214) 756-6900
Unless Westwood haswe have received contrary instructions, Westwoodwe may send a single copy of this proxy statement and notice of annual meeting to any household at which two or more stockholders reside if Westwood believeswe believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at any one household and helps to reduce Westwood’sour expenses. However, if stockholders prefer to receive multiple sets of Westwood’sour disclosure documents at the same address this year or in future years, the stockholders should follow the instructions described below. Similarly, if an address is shared with another stockholder and together both of the stockholders would like to receive only a single set of Westwood’sour disclosure documents, the stockholders should follow these instructions:
If the shares are registered in the name of the stockholder, the stockholder should contact Westwoodus at itsour offices at 200 Crescent Court, Suite 1200, Dallas Texas 75201, Attention: Corporate Secretary, to inform Westwood of their request. If a bank, broker or other nominee holds the shares, the stockholder should contact the bank, broker or other nominee directly.
Our boardBoard of directorsDirectors knows of no other matters that will be presented for consideration at the annual meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named as proxy holder in the accompanying proxy to vote on such matters in accordance with their best judgment.discretion.
By Order of the Board of Directors, |
Brian O. Casey |
Chief Executive Officer, President and Secretary |
March 20, 200613, 2007
APPENDIX A
THIRD AMENDED AND RESTATED WESTWOOD HOLDINGS GROUP, INC.
STOCK INCENTIVE PLAN
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Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
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Each Non-Employee Director shall, upon each date of election and annually thereafter, be awarded 1,500 shares of Restricted Stock. The Compensation Committee shall make the award each year and shall determine the date of grant for each award. The Restricted Stock shall fully vest at the expiration of twelve (12) months from the date of the grant, or, if earlier, upon the Non-Employee Director’s death.All Restricted Stock awards prior to the Effective Date are hereby amended to incorporate these terms.The Restricted Stock is not transferable until vested, and shall be forfeited if the Non-Employee Director’s service as a Director ceases before the vesting date (for reasons other than death).
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Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Company’s common stockholders.
The grant of an Award and the issuance of shares of Stock upon exercise of an Award, if applicable, shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. An Award may not be exercised for shares of Stock if the issuance of such shares would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised for shares of Stock unless (a) a registration statement under the Securities Act shall at the time of exercise of the Award be in effect with respect to the shares of Stock issuable upon exercise of the Award or (b) in the opinion of legal counsel to the Company, the shares of Stock issuable upon exercise of the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares of Stock hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares of Stock as to which such requisite authority shall not have been obtained. As a condition to the exercise of any Award, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company’s stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company’s stockholders under any applicable law, regulation or rule. No termination or amendment of the Plan shall affect any then outstanding Award unless expressly provided by the Board. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Award without the consent of the Participant, unless such termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law, regulation or rule.
Any increase in the maximum aggregate number of shares of Stock issuable under the Plan as provided in Section 4.1 (the “Authorized Shares”) shall be approved by the stockholders of the Company within twelve (12) months of the date of adoption thereof by the Board. Awards granted in excess of the Authorized Shares previously approved by the stockholders shall become exercisable no earlier than the date of stockholder approval of such increase in the Authorized Shares.
PLAN HISTORY
WESTWOOD HOLDINGS GROUP, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING TO BE HELD ON APRIL 27, 200626, 2007
The undersigned hereby appoints Brian O. Casey and William R. Hardcastle, Jr., and each of them, jointly and severally, as the undersigned’s proxy or proxies, each with full power of substitution and to act without the other, to vote as indicated on the back of this card all shares of common stock of Westwood Holdings Group, Inc. which the undersigned is entitled to vote at the annual meeting of the common stockholders to be held at The Crescent Club, 200 Crescent Court, Suite 1700, Dallas, Texas 75201 on Thursday, April 27, 2006,26, 2007, at 10:00 a.m., Dallas, Texas time, and any postponements or adjournments thereof, as fully as the undersigned could if personally present, upon the Proposals set forth below, revoking any proxy or proxies heretofore given.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE BELOW, BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL THE NOMINEES IN PROPOSAL 1 AND FOR PROPOSALSPROPOSAL 2 3, 4 and 5 AND IN THE DISCRETION OF THE PROXY HOLDER WITH RESPECT TO ANY OTHER MATTER AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
(Continued, and to be marked, dated and signed, on the other side.)
DFOLD AND DETACH HERED
The board of directors recommend a vote FOR all Proposals | Please mark your votes as indicated in this example. |
1. | The election of the following |
¨ FOR ALL NOMINEES (except for the names struck out below) | ||||||||||||
(Susan M. Byrne, Brian O. Casey, Tom C. Davis, Richard M. Frank, Frederick R. Meyer, Jon L. Mosle, Jr., Geoffrey R. Norman and Raymond E. Wooldridge) | ¨ WITHHOLD AUTHORITY FOR ALL NOMINEES | |||||||||||
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a line through that nominee’s name above. |
2. | The ratification of the appointment of Grant Thornton LLP as Westwood’s independent auditors for the |
¨ FOR | ¨ AGAINST | ¨ ABSTAIN |
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF. |
Date / | |||||||||||||
Signature | |||||||||||||
Signature, If Jointly Held | |||||||||||||
If acting as Attorney, Executor, Trustee or in other representative | |||||||||||||
FOLD AND DETACH HERE AND READ THE REVERSE SIDE |
FOLD AND DETACH HERE AND READ THE REVERSE SIDE