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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
THE HALLWOOD GROUP INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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THE HALLWOOD GROUP INCORPORATED
NOTICE OF ANNUAL MEETING
Dear Hallwood Group Stockholder:
On behalf of the board of directors, you are cordially invited to attend
the Annual Meeting of Stockholders of The Hallwood Group Incorporated (the
"Company"). The annual meeting will be held on Thursday, May 17, 2001 at 1:00
p.m. local time, at the offices of the Company located at 3710 Rawlins, Suite
1500, Dallas, Texas, 75219.
At the annual meeting we will:
1. Elect one director to hold office for one year and elect one
director to hold office for three years;
2. Vote on a proposal to amend the Company's 1995 Stock Option Plan;
and
3. Transact any other business properly presented at the meeting.
Only stockholders of record at the close of business on March 23, 2001 are
entitled to notice of and to vote at the annual meeting.
By order of the Board of Directors
MELVIN J. MELLE
Secretary
April 18, 2001
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE UPON THE MATTERS PRESENTED. IF
YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR YOU TO
BE REPRESENTED AT THE MEETING. EXECUTING YOUR PROXY WILL NOT AFFECT YOUR RIGHT
TO VOTE IN PERSON IF YOU ARE PRESENT AT THE ANNUAL MEETING.
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THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 17, 2001
---------------------
This proxy statement and the accompanying proxy are first being mailed on
or about April 18, 2001. The accompanying proxy is solicited by the board of
directors of the Company.
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
1. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record at the close of business on March 23,
2001, the "record date," are entitled to vote at the annual
meeting.
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2. Q: WHAT MAY I VOTE ON?
A: You may vote on:
(1) the election of one nominee to serve on the board of
directors for one year and the election of one nominee to
serve on the board of directors for three years;
(2) a proposal to increase the number of options authorized
under the Company's 1995 stock option plan; and
(3) any other business properly presented at the meeting.
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3. Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive and return it in
the prepaid envelope. If you return your signed proxy card
but do not mark the boxes showing how you wish to vote, your
shares will be voted FOR the election of our nominees or to
approve the proposal to amend the 1995 stock option plan.
Abstentions, broker non-votes and proxies directing that the
shares are not to be voted will not be counted as a vote in
favor of the nominees or in favor of the approval to amend
the 1995 stock option plan.
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4. Q: HOW CAN I REVOKE MY PROXY?
A: You have the right to revoke your proxy at any time before
the meeting by:
(1) notifying our corporate secretary in writing;
(2) voting in person; or
(3) returning a later-dated proxy card.
Attending the meeting is not sufficient to revoke your proxy
unless you notify the Company's secretary in writing prior
to the voting of your proxy.
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5. Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE
PROPOSALS?
A: Your board of directors recommends that you vote FOR the
nominees for director and FOR approval of the proposal to
amend the 1995 stock option plan.
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6. Q: HOW MANY SHARES CAN VOTE AT THE ANNUAL MEETING?
A: As of the record date, there were 1,424,789 shares of common
stock outstanding and entitled to vote at the annual
meeting. You are entitled to one vote for each share of
common stock you hold.
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7. Q: WHAT IS A "QUORUM?"
A: A "quorum" is a majority of the outstanding shares. A quorum
may be present at the meeting or represented by proxy. There
must be a quorum for the meeting to be valid. If you submit
a properly executed proxy card, even if you abstain from
voting, you will be considered part of the quorum. In
addition, broker non-votes will be counted toward
determining the presence of a quorum.
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8. Q: HOW MANY VOTES DO YOU NEED TO ELECT THE NOMINEES AND APPROVE
THE AMENDMENT TO THE 1995 STOCK OPTION PLAN?
A: The affirmative vote of the holders of a majority of the
Company's common stock, voting in person or represented by
proxy at the annual meeting, is necessary to elect each
nominee for director and approve the amendment to the 1995
stock option plan.
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9. Q: WHY IS THE 1995 STOCK OPTION PLAN BEING AMENDED?
A: We are proposing an amendment to the 1995 stock option plan
to provide for the issuance of additional options, so that
the Company may continue to attract and retain qualified
employees, directors and consultants.
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SOLICITATION OF PROXIES
The cost of preparing, assembling, printing and mailing this proxy
statement and the enclosed proxy form and the cost of soliciting proxies related
to the annual meeting will be borne by the Company. The Company will request
banks and brokers to solicit their customers who are beneficial owners of shares
of common stock listed of record in names of nominees, and will reimburse those
banks and brokers for the reasonable out-of-pocket expenses of the solicitation.
The original solicitation of proxies by mail may be supplemented by telephone,
telegram and personal solicitation by officers and other regular employees of
the Company and its subsidiaries, but no additional compensation will be paid to
those individuals on account of their activities. In addition, the Company has
retained Morrow & Co., Inc. to assist in the solicitation of proxies, for which
it will be paid a fee of $2,500 plus reimbursement of reasonable out-of-pocket
expenses. We estimate that total costs of the proxy solicitation will be
approximately $4,000.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company's board of directors is divided into three classes serving
staggered three-year terms. At the annual meeting, you will elect one director
to serve for one year and one director to serve for three years.
The individuals named on the enclosed proxy card intend to vote for the
election of the nominees listed below, unless you direct them to withhold your
vote. The nominees have indicated that each is able and willing to serve as
director. However, if for some reason a nominee is unable to stand for election,
the individuals named as proxies may substitute some other person for that
nominee and may vote for that nominee.
Below are the names and ages of the two nominees and of the director whose
term of office will continue after the annual meeting, the year in which each
director was first elected as a director of the Company, their principal
occupations or employment for at least the past five years, and other
directorships they hold.
NOMINEE FOR ELECTION FOR A ONE-YEAR TERM ENDING WITH THE 2002 ANNUAL MEETING
Charles A. Crocco, Jr. .... Mr. Crocco, age 62, has served as a director since
1981. He was a shareholder in, and is currently of
counsel to, Crocco & De Maio, P.C., attorneys at
law, for more than five years. He also has served
as a director of First Banks America, Inc. (NYSE),
a bank holding company since April 1988.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM ENDING WITH THE 2004 ANNUAL MEETING
J. Thomas Talbot........... Mr. Talbot, age 65, has served as a director since
1981 and is Chairman of the Company's audit
committee. He has been a partner of Shaw & Talbot,
a commercial real estate investment and development
company, since 1975, and of Pacific Management
Group, an asset management firm, since 1986. He is
also the owner of The Talbot Company. Mr. Talbot
served as Chairman of the Board and Chief Executive
Officer of HAL, Inc., an airline holding company,
and as Chairman of the Board and Chief Executive
Officer of both Hawaiian Airlines, Inc., a
commercial airline, and West Maui Airport between
1989 and 1991. He was founder and served as
Chairman of the Board of Jet America Airlines
between 1980 and 1986. He has served as a director
of Fidelity National Financial, Inc. since 1990. He
has also served as a director of California Coastal
Communities, Inc. (formerly Koll Real Estate Group)
since August 1993, and as a director of Metalclad
Corp. (NASDAQ) since March 1999.
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DIRECTOR CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING
Anthony J. Gumbiner........ Mr. Gumbiner, age 56, has served as a director and
Chairman of the Board since 1981 and Chief
Executive Officer of the Company since 1984. He has
also served as President and Chief Operating
Officer since December 1999. He has also served as
Chairman of the Board and Chief Executive Officer
of Hallwood Energy Corporation and its predecessors
since 1987; as a director of Hallwood Holdings,
S.A. ("HHSA") since 1984 and as a director of
Hallwood Realty, LLC, the general partner of
Hallwood Realty Partners, L.P. ("HRP"), and its
predecessor since 1990. Mr. Gumbiner is also a
solicitor of the Supreme Court of Judicature of
England.
Except as indicated above, neither the nominees nor the continuing director
hold a directorship in any company with a class of securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the
requirements of Section 15(d) of the Securities Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended.
No family relationships exist between the nominees, the directors and the
executive officers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTORS.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Messrs. Talbot (Chairman) and Crocco served as members of the Company's
audit committee during the year ended December 31, 2000. The audit committee met
four times during this period and was charged with the responsibility of
reviewing the annual audit report and the Company's accounting practices and
procedures, and recommending to the board of directors the firm of independent
public accountants to be engaged for the following year.
The board of directors does not have a standing nominating or compensation
committee.
During the year ended December 31, 2000, the board of directors held five
meetings. Each director attended at least 75% of (1) the total number of
meetings held by the board of directors, and (2) the total number of meetings
held by all committees of the board of directors on which he served.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as to the beneficial ownership
of shares of the Company's common stock (1) for any person or "group," as that
term is used in Section 13(d)(3) of the Securities Exchange Act, who, or which
the Company knows, owns beneficially more than 5% of the outstanding shares of
the Company's common stock as of the close of business on the record date; (2)
for the continuing director and the nominees for director; and (3) for all
directors and executive officers as a group. Unless otherwise noted, the address
of each person listed below is 3710 Rawlins, Suite 1500, Dallas, Texas, 75219.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(1)
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Alpha Trust................................................. 686,687(2) 48.2%
c/o Radcliffes Trustee Company SA
9 Rue, Charles Humbert
1205 Geneva, Switzerland
Hallwood Investments Limited................................ 163,170(3) 10.3%
Le Roccabella
24 Princess Grace Avenue
Monte Carlo, 98000 Monaco
F. Berdon & Co., L.P. ...................................... 102,400(4) 7.2%
717 Post Road
Scarsdale, New York 10583
Charles A. Crocco, Jr. ..................................... 15,825(5) 1.1%
Anthony J. Gumbiner......................................... 150,000(6) 9.5%
William L. Guzzetti......................................... *(7) *
Melvin J. Melle............................................. 13,500(8) *
J. Thomas Talbot............................................ 15,000(5) 1.0%
All directors and executive officers as a group (5
persons).................................................. 194,325 12.0%
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* Less than 1%
(1) Assumes, for each person or group listed, the exercise of all stock options
or other rights held by that person or group that are exercisable within 60
days, according to Rule 13d-3(d)(1)(i) of the Securities Exchange Act, but
the exercise of none of the convertible securities owned by any other holder
of options.
(2) Mr. Gumbiner has the power to designate and replace the trustees of the
Alpha Trust. Mr. Gumbiner and his family are among the discretionary
beneficiaries of the Alpha Trust.
(3) Includes 163,170 shares of common stock issuable to Hallwood Investments
Limited, of which Mr. Gumbiner is chairman and principal stockholder, upon
conversion of a note in the amount of $1,652,917, including accrued
interest, convertible at $10.13 per share.
(4) Based on Schedule 13G Filed on February 13, 2001. Pursuant to the Company's
Amended and Restated Certificate of Incorporation, which prohibits ownership
of 4.75% or more of the Company's shares, the Company disputes that this
holder has voting or dispositive power over all of the shares.
(5) Includes currently exercisable options to purchase 15,000 shares of common
stock.
(6) Includes currently exercisable options to purchase 150,000 shares of common
stock. Excludes 686,687 shares of common stock held by Alpha Trust. Does not
include 163,170 shares of common stock beneficially owned by Hallwood
Investments Limited. In addition, Mr. Gumbiner holds currently exercisable
options to purchase 210,434 shares of Hallwood Energy Corporation, and
currently exercisable options to purchase 25,800 units of Hallwood Realty
Partners.
(7) Mr. Guzzetti does not own any shares or hold any options to purchase shares
of the Company. He owns 100 units of Hallwood Realty Partners, and currently
exercisable options to purchase 15,000 units of
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Hallwood Realty Partners and currently exercisable options to purchase 124,423
shares of Hallwood Energy Corporation.
(8) Includes currently exercisable options to purchase 13,500 shares of common
stock.
EXECUTIVE COMPENSATION
The total compensation paid for each of the years ended December 31, 2000,
1999 and 1998 to the Chief Executive Officer, and the other executive officers
who received cash compensation in excess of $100,000 for 2000, referred to
collectively as the "Named Executive Officers," is set forth in the following
Summary Compensation Table.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
--------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------ OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL CALENDAR COMPENSATION OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(4) SARS(#) ($) ($)(7)
- ------------------ -------- ---------- ---------- ------------ ---------- ------- ------------
Anthony J. Gumbiner.......... 2000 300,000(1) 497,100(1) 0 (5) (6) 7,802
Chairman, President and 1999 168,333(1) 75,000(1) 0 (5) (6) 7,802
Chief Executive Officer 1998 0(1) 0(1) 0 (5) (6) 7,802
William L. Guzzetti.......... 2000 413,144(2) 615,100(3) 0 (5) 67,878 5,100
Executive Vice 1999 413,144(2) 195,000(3) 0 (5) 23,251 4,800
President 1998 413,144(2) 182,800(3) 0 (5) 30,523 4,800
Melvin J. Melle.............. 2000 208,333 0 5,422 (5) 0 13,603
Vice President, Chief 1999 209,042 0 3,246 (5) 0 13,962
Financial Officer and
Secretary 1998 208,333 0 2,940 (5) 0 13,893
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(1) Consists of $300,000 in salary and $497,100 in bonus paid by Hallwood Energy
Corporation in 2000 and consists of $168,333 in salary and $75,000 in bonus
paid by Hallwood Energy Corporation in 1999. In addition, the Company paid
HSC Financial Corporation ("HSC Financial"), an entity with which Mr.
Gumbiner is associated, consulting fees of $495,000 for 2000 and $825,000
each year for 1999 and 1998, primarily in connection with HSC Financial's
activities on behalf of the Company's subsidiaries. The Company also
received from the Company's energy entities consulting fees of $241,389 for
the period January 1 through June 8, 1999 and $550,000 for 1998, which the
Company paid to HSC Financial to provide the associated consulting services
to the Company's energy entities. See "Certain Relationships and Related
Transactions." In March 2001 and 2000, the board of directors of Hallwood
Realty, LLC approved a bonus to HSC Financial in the amount of $150,000,
which was paid by Hallwood Realty Partners. In March 1998, the board of
directors approved bonuses to HSC Financial in the amount of $500,000 from
the Company and $322,539 from the Company's Hallwood Commercial Real Estate,
LLC subsidiary ("HCRE"), both of which were accrued and payable as of
December 31, 1997 and paid in 1998. Mr. Gumbiner became President of the
Company on December 21, 1999.
(2) Consists of $204,811 paid by Hallwood Energy Corporation and its affiliates
and $208,333 paid by Hallwood Realty Partners for each of 2000, 1999 and
1998.
(3) Consists of $591,100 paid by Hallwood Energy Corporation and its affiliates
and $24,000 paid by HCRE in 2000; $171,000 paid by Hallwood Energy
Corporation and its affiliates and $24,000 paid by HCRE for 1999; and
$162,800 paid by Hallwood Energy Partners and affiliates and $20,000 by HCRE
for 1998.
(4) Represents reimbursements to compensate for the income tax effect of payment
for life and/or disability insurance.
(5) Consists of the following options granted during calendar years ended 2000,
1999 and 1998. "HWG" refers to the Company, "HEP" to Hallwood Energy
Partners and "HEC" to Hallwood Energy
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Corporation. Options for units of Hallwood Energy Partners and options for
shares of Hallwood Consolidated Resources Corporation granted in 1998 have
been terminated.
SECURITIES UNDERLYING
OPTIONS/SARS(#)
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NAME COMPANY 2000 1999 1998
- ---- ----------------- ------ ------- ------
Anthony J. Gumbiner........... HWG 66,300 0 0
HEP Class C Units 0 0 34,588
HEC 71,300 198,000 0
William L. Guzzetti........... HEP Class C Units 0 0 16,588
HEC 42,200 117,000 0
Melvin J. Melle............... HWG 4,500 0 0
(6) Under the Hallwood Petroleum, Inc. ("HPI") Long-Term Incentive Plan, payouts
were made to HSC Financial in the amount of $230,884 in 2000, $66,208 for
1999 and $67,977 for 1998.
(7) Consists of the following items of compensation in 2000:
COMPANY OR SUBSIDIARY
CONTRIBUTIONS TO TAX
FAVORED SAVINGS PLANS OR IN
LIEU THEREOF PAYMENT
UNDER THE HALLWOOD SPECIAL PREMIUM PAYMENTS FOR
NAME BONUS AGREEMENT($) TERM LIFE INSURANCE($)
- ---- --------------------------- ----------------------
Anthony J. Gumbiner............... 0 7,802
William L. Guzzetti............... 5,100 0
Melvin J. Melle................... 7,923 5,680
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the options to purchase shares of the
Company and Hallwood Energy Corporation common stock granted to Named Executive
Officers during 2000. No options held by Named Executive Officers were exercised
in 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL SHARE PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PER SHARE($) DATE 5%($) 10%($)
- ---- ------------ ------------ ------------ ---------- --------- ---------
Anthony J. Gumbiner...... 66,300(1) 94 10.31 5/19/10 377,321 927,581
71,300(2) 30 4.625 1/28/07 134,247 312,851
William L. Guzzetti...... 42,200(2) 18 4.625 6/1/06 79,456 185,166
Melvin J. Melle.......... 4,500(1) 6 10.31 5/19/10 25,610 62,958
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(1) The Company's options have a ten-year term and are fully vested on the date
of grant.
(2) Hallwood Energy Corporation options have a seven-year term and vest
cumulatively over three years on each of the date of grant and the first two
anniversaries of the date of grant. All options vest immediately in the
event of certain changes in control of Hallwood Energy Corporation.
(3) Securities and Exchange Commission Rules require calculation of potential
realizable value assuming that the market price of the shares appreciates in
value at 5% and 10% annualized rates. At a 5% annualized rate of
appreciation, the share price for Hallwood Energy Corporation options with a
$4.625 exercise price would be $6.51 at the end of seven years and $16.00
for Company options with a $10.31 exercise price at the end of ten years. At
a 10% annualized rate of appreciation, the share price for Hallwood Energy
Corporation options with a $4.625 exercise price would be $9.01 at the end
of seven years and $24.30 for Company options with a $10.31 exercise price
at the end of ten years. No gain to an
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executive officer is possible without an appreciation in share value, which
will benefit all holders of shares. The actual value an executive officer
may receive depends on market prices for the shares, and there can be no
assurance that the amounts reflected will actually be realized.
AGGREGATED OPTION/SAR EXERCISES
AND OPTION/SAR VALUES AT DECEMBER 31, 2000
The following table discloses for each of the Named Executive Officers who
have been granted options to purchase securities of the Company or its
subsidiaries, the number of options held by each of the Named Executive Officers
and the potential realizable values for their options at December 31, 2000. None
of the Named Executive Officers exercised any options during the year ended
December 31, 2000, and the Company has not granted SARs.
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 2000(#) DECEMBER 31, 2000($)
------------------------- -------------------------
NAME ENTITY EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------ ------------------------- -------------------------
Anthony J. Gumbiner....................... HWG 150,000/0 0/0
HRP 25,800/0 886,875/0
HEC 23,767/47,533 115,864/231,723
William L. Guzzetti....................... HRP 15,000/0 515,625/0
HEC 14,067/28,133 67,577/137,148
Melvin J. Melle........................... HWG 13,500/0 0/0
The following table discloses each of the Named Executive Officers who
received long-term incentive plan awards during the year ended December 31, 2000
and the estimated future payouts of the awards.
LONG TERM INCENTIVE PLANS -- AWARDS IN YEAR ENDED
DECEMBER 31, 2000
PERCENTAGE OF PERFORMANCE OR ESTIMATED FUTURE
PLAN CASH OTHER PERIOD PAYOUTS UNDER NON-STOCK
NAME FLOW UNTIL PAYOUT PRICE-BASED PLANS($)(1)(2)
- ---- ------------- -------------- --------------------------
Anthony J. Gumbiner(3)...................... 25.0 2005 69,574
William L. Guzzetti......................... 7.5 2005 20,872
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(1) Awards were made under Hallwood Energy Corporation's Phantom Working
Interest Incentive Plan.
(2) These amounts are estimates based on estimated reserve quantities and future
prices. Because of the uncertainties inherent in estimating quantities of
reserves and prices, it is not possible to predict cash flow or remaining
net present value of estimated future production with any degree of
certainty.
(3) The award was made to HSC Financial, with which Mr. Gumbiner is associated.
COMPENSATION OF DIRECTORS
For the year ended December 31, 2000, Messrs. Crocco and Talbot received
director fees of $27,500 and are entitled to receive $500 for each day spent on
business of the Company, other than at board meetings. Each director is also
reimbursed for expenses reasonably incurred in connection with the performance
of his duties. Additional information regarding consulting agreements with, or
services provided by, Mr. Gumbiner through HSC Financial is included in "Certain
Relationships and Related Transactions" and "Compensation Committee Interlocks
and Insider Participation," below.
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EMPLOYMENT AGREEMENTS
During the year ended December 31, 2000, the Company had an employment
agreement with Mr. Melle. Mr. Melle's employment agreement provides for payment
of a salary of $200,000 per year plus an annual bonus in an amount as may be
determined by the board of directors. In addition, the employment agreement
provides that the Company will maintain $500,000 of life insurance benefits on
behalf of Mr. Melle and, for the year ended December 31, 2000, the Company paid
premiums in the amount of $5,680 for this life insurance. Mr. Melle's employment
agreement continued under the same terms and conditions until December 31, 2000,
at which time it was automatically extended for one year and will be
automatically extended annually unless terminated by either party.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Since 1997 the board of directors as a whole has performed the functions of
the compensation committee. References to the Company's compensation committee
in this proxy statement refer to the board of directors, acting in its capacity
as the compensation committee.
Messrs. Gumbiner and Guzzetti served on the board of directors of Hallwood
Realty, LLC, the general partner of Hallwood Realty Partners in 2000, and on the
board of directors of Hallwood Energy Corporation. For Hallwood Realty Partners,
the audit committee of the board of directors served as the compensation
committee, Mr. Gumbiner was the Chief Executive Officer and Mr. Guzzetti was the
Chief Operating Officer.
As general partner of Hallwood Realty Partners, Hallwood Realty, LLC earns
an asset management fee and certain related fees from Hallwood Realty Partners,
which amounted to $655,000 for the year ended December 31, 2000. In addition,
Hallwood Realty Partners reimbursed Hallwood Realty, LLC for $2,974,000 of costs
incurred by Hallwood Realty, LLC on behalf of Hallwood Realty Partners in 2000.
As property manager for Hallwood Realty Partners, the Company's HCRE subsidiary
received management fees, leasing commissions and other fees from Hallwood
Realty Partners and related parties of $5,436,000 during the year ended December
31, 2000.
Since December 31, 1996, the Company has been a party to an agreement with
HSC Financial under which HSC Financial provides international consulting and
advisory services to the Company and its affiliates for an annual fee. The
annual fee was $825,000 through December 31, 1999. Effective January 1, 2000,
the agreement was amended to reduce the annual consulting fee to $495,000.
According to this agreement, the Company reimburses HSC Financial for reasonable
and necessary expenses in providing office space and administrative services
used by Mr. Gumbiner. For the year ended December 31, 2000, the Company
reimbursed HSC Financial in the amount of $304,000. Of the amounts paid in 2000,
$117,000 was paid by the Company, and $187,000 was paid by Hallwood Realty, LLC.
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COMPENSATION COMMITTEE
REPORTS ON EXECUTIVE COMPENSATION
GENERAL
The Company is a diversified holding company with several subsidiaries and
affiliated companies. Of the Named Executive Officers, Mr. Gumbiner was involved
in the activities of all of the subsidiaries and affiliated companies, but
received no cash compensation directly from the Company. HSC Financial, with
which Mr. Gumbiner is associated, received consulting fees from the Company. The
Company's board of directors, acting in its capacity as the compensation
committee, approved the payments by the Company to HSC Financial. Since the
consolidation of the Company's energy interests with Hallwood Energy Partners
and Hallwood Consolidated Resources Corporation into Hallwood Energy Corporation
in June 1999, Hallwood Energy Corporation has paid Mr. Gumbiner compensation
directly for his services to that company, as described under "Compensation by
Hallwood Energy Corporation -- Executive Officers," below. Mr. Gumbiner's
compensation for his services with respect to Hallwood Energy Corporation is
determined by Hallwood Energy Corporation's compensation committee. HSC
Financial was also involved in the activities of Hallwood Realty, LLC and HCRE
during 2000. The consulting fees paid to HSC Financial with respect to Hallwood
Realty, LLC are determined by the board of directors of Hallwood Realty, LLC;
the fees for services with respect to HCRE are determined by the Company's board
of directors.
Mr. Guzzetti's compensation for his services with respect to Hallwood
Energy Corporation is determined by Hallwood Energy Corporation's compensation
committee. Mr. Guzzetti was involved in the activities of Hallwood Realty, LLC
and HCRE during 2000. He was also involved in the activities of Hallwood Energy
Corporation. The compensation of Mr. Guzzetti with respect to his services to
Hallwood Realty, LLC is determined by the board of directors of Hallwood Realty,
LLC; the compensation for his services with respect to HCRE is determined by the
Company's board of directors, acting in its capacity as the compensation
committee.
Mr. Melle is involved in the activities of the Company and of certain
subsidiaries and affiliated companies, but for 2000 received compensation only
from the Company. Accordingly, the compensation of Mr. Melle is determined
solely by the Company's board of directors, acting in its capacity as the
compensation committee.
COMPENSATION BY THE COMPANY
The Company's board of directors, acting in its capacity as the
compensation committee, annually determines the compensation of the Company's
executive officers after discussions with each officer, and bases the amount of
compensation on the board of directors' determination of the reasonable
compensation for that officer. The members of the board of directors, through
their business experience, are generally aware of prevailing compensation
practices and regularly review and remain informed about the recent financial
and operating experience of the Company. Based on this experience and review,
the board of directors establishes compensation that it believes to be
appropriate for each officer. Substantially all of the executive officers'
compensation is paid as salary, although from time to time the Company has
awarded substantial bonuses upon completion of significant acquisitions or other
transactions that provide material benefits to the Company.
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HCRE has contracted with Hallwood Realty, LLC to manage the properties
controlled by Hallwood Realty, LLC. Mr. Guzzetti is the president and is
primarily responsible for the operations of HCRE. HCRE's Executive Incentive
Plan authorizes HCRE to pay annual cash bonuses in an amount up to 10% of HCRE's
net operating income for the prior year. The actual amount to be paid and the
allocation of the total amount to individual employees is recommended by Mr.
Gumbiner, the chief executive officer of HCRE, and is approved by the board of
directors of HCRE, which consists of Messrs. Gumbiner and Guzzetti. Any amount
to be paid to an executive officer of the Company is subject to the approval of
the board of directors. No bonuses were awarded under the Executive Incentive
Plan for 2000.
2000 Members of The Hallwood Group Incorporated Board of Directors
Charles A. Crocco, Jr.
Anthony J. Gumbiner
J. Thomas Talbot
COMPENSATION BY HALLWOOD REALTY, LLC
Compensation of the executive officers of Hallwood Realty, LLC is
determined by the entire board of directors of Hallwood Realty, LLC in
consultation with Mr. Guzzetti, the president of Hallwood Realty, LLC. The board
members, through their business experience, are generally aware of prevailing
compensation practices and, regularly review and remain informed about the
recent financial and operating experience of Hallwood Realty, LLC and Hallwood
Realty Partners. With this experience and review, Hallwood Realty, LLC's board
of directors bases its determination of specific amounts to be paid to
individual executive officers primarily on Mr. Guzzetti's and the Hallwood
Realty, LLC's board of directors' assessments of the individual performance of
each officer. The compensation paid by Hallwood Realty, LLC to its executive
officers consists of salary, and to the extent that Hallwood Realty, LLC's board
of directors determines it to be appropriate, bonuses based on their
determination that Hallwood Realty, LLC or Hallwood Realty Partners have
experienced favorable operating results or completed transactions that benefit
Hallwood Realty, LLC or Hallwood Realty Partners. For 2000, Mr. Guzzetti and
Hallwood Realty, LLC's board of directors determined that no change was required
in the salaries of the executive officers from the prior year. In recognition of
the benefits provided to Hallwood Realty Partners through the efforts of the
executive officers during the year, Hallwood Realty, LLC's board of directors
determined that it was appropriate to award bonuses to the executive officers of
Hallwood Realty, LLC, including a bonus of $150,000 to HSC Financial and a bonus
of $24,000 to Mr. Guzzetti.
2000 Members of the Hallwood Realty, LLC Board of Directors
Anthony J. Gumbiner William F. Forsyth
Alan G. Crisp Edward T. Story
William L. Guzzetti
COMPENSATION BY HALLWOOD ENERGY CORPORATION
General. Hallwood Energy Corporation's compensation philosophy is designed
to motivate employees to contribute to the success of the Hallwood Energy
Corporation through reserve replacement and enhancement of cash flow by
fostering an atmosphere that encourages an entrepreneurial approach to Hallwood
Energy Corporation's business. Hallwood Energy Corporation's compensation
practices are designed to attract, motivate and retain key personnel by
recognizing individual contributions, as well as the overall performance of
Hallwood Energy Corporation, through the use of "at-risk" compensation
strategies. Hallwood Energy Corporation's compensation program for executive
officers consists of four main components: (1) base salaries that, over a two to
three year period, are at least 20% below surveyed market salaries for companies
similar in revenue and capital expenditures to Hallwood Energy Corporation; (2)
annual cash bonus program based on overall Hallwood Energy Corporation
performance measured against industry performance; (3) phantom working interest
awards intended to encourage the successful drilling/workover of wells; and
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(4) stock option awards intended to motivate recipients to enhance stock value
and align executive officer and shareholder interests.
Base Salary. Hallwood Energy Corporation's compensation committee
determines base salaries for executive officers utilizing market survey data
that focuses on other oil and gas companies similar in size, as measured by
revenue and capital expenditures. Salaries of officers and other professional
employees are targeted at 80% of the average of the executive officer positions
for comparable companies within the surveys. Typically, the targeted percentage
is reviewed and adjustments are considered every two to three years.
Salary Adjustment in 2000. Neither the Chief Executive Officer nor any
other Named Executive Officers received salary adjustments in 2000.
Cash Bonus. The total bonus pool available for distribution to the
executive officers is determined based on an assessment by Hallwood Energy
Corporation's compensation committee of a number of quantitative and qualitative
factors. The primary quantitative factors are operating costs, general and
administrative costs, the effectiveness of capital expenditures in reserve
replacement and the percentage of production replacement, in comparison to the
historical performance of independent oil and gas companies as a group. The
primary qualitative factors are the effectiveness of acquisitions and corporate
transactions and the overall effectiveness of management and administration.
Depending on Hallwood Energy Corporation's success in these areas, the aggregate
of salaries and cash bonuses paid to management employees may range from 67% of
the average total compensation paid to similarly situated employees in
comparable companies if the performance is poor, to as high as 500% of the
average total compensation paid by comparable companies if the performance has
been excellent. The objective of the bonus plan is to enhance Hallwood Energy
Corporation's stockholder value by rewarding employees for attaining certain
levels in strategic elements of the business. After taking into account the
various quantitative and qualitative factors, Hallwood Energy Corporation's
compensation committee determined that Hallwood Energy Corporation had an
average year in the categories of overall reserves found and the effectiveness
of capital expenditures, and a very good year in the area of transactions. Based
on this characterization that the overall performance of Hallwood Energy
Corporation was slightly better than average, Hallwood Energy Corporation's
compensation committee authorized a bonus pool for the executive officers of an
amount that, when aggregated with the officers' base salaries, would be equal to
95% of the total compensation paid to officers in comparable companies. This
bonus pool amount, $1,072,000, is then allocated among the executive officers to
approximately achieve 95% of total compensation of officers with similar
positions in comparable companies.
Phantom Working Interest Incentive Plan
Hallwood Energy Corporation's phantom working interest incentive plan is
intended to provide incentive and motivation to key employees to increase the
oil and gas reserves of Hallwood Energy Corporation and to continue their
employment with Hallwood Energy Corporation.
Under the terms of this incentive plan, Hallwood Energy Corporation's
compensation committee annually determines whether or not to allocate cash flow
of certain wells completed or enhanced during the year, and if so, the
percentage of cash flow to be allocated. The allocated cash flow is a portion of
Hallwood Energy Corporation's interest in the cash flow from certain
international projects, if any, and wells drilled, recompleted or enhanced
during that year. Hallwood Energy Corporation's compensation committee also
approves the participants and their sharing percentage in the plan. Awards under
the plan do not represent actual ownership in the wells. In making the awards,
Hallwood Energy Corporation's compensation committee takes into consideration
the recommendation of the executive officers of Hallwood Energy Corporation.
An award under the plan means that a participant has the right, for five
years, to receive a specified share of the plan cash flow from certain domestic
wells drilled, recompleted or enhanced during the year of the award. In the
sixth year, a participant receives an amount equal to a specified percentage, as
determined by Hallwood Energy Corporation's compensation committee at the time
of the award, of the remaining net present value of estimated future production
from the wells, and the award is terminated. Cash flow from international
projects, if any, is paid to participants for a ten-year period, but there is no
buy-out for estimated future production. There are no international projects
allocated to the 2000 plan, so the value of awards under
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the 2000 plan depends primarily on Hallwood Energy Corporation's results in 2000
in drilling, completing and achieving production from new wells and from certain
recompletions and enhancements of existing wells. Five-year average oil and gas
prices are used in determining the net present value of the awards.
The awards for Hallwood Energy Corporation's 2000 phantom working interest
incentive plan were made in January of 2001. For the 2000 plan year, Hallwood
Energy Corporation's compensation committee allocated 2.8% of the cash flow from
the eligible domestic wells to the plan. It was also determined that the
participants' interests in the eligible domestic wells for the 2000 plan year
would be purchased in the sixth year at 80% of the remaining net present value
of the wells.
Stock Option Plan. The objective of Hallwood Energy Corporation's
long-term incentive plan, under which stock options are granted, is to motivate
recipients to maximize the long-term growth and profitability of Hallwood Energy
Corporation. Recipients can recognize value from options granted only if
Hallwood Energy Corporation's stock price increases after the date on which the
options are granted, because the exercise price of options granted is at least
equal to the fair market value of Hallwood Energy Corporation's stock on the
date of grant. For this reason, the award of options aligns the long-range
interests of the recipients with those of the stockholders. Grants of options
are generally made annually. Hallwood Energy Corporation's compensation
committee determined the grant levels for grants to the chief executive officer
and the executive officers of Hallwood Energy Corporation after taking into
consideration prior year's grants and the position of the grantee in
relationship to responsibilities which could likely affect the price of Hallwood
Energy Corporation's stock.
Chief Executive Officer. Hallwood Energy Corporation's compensation
committee determined Mr. Gumbiner's salary after reviewing salary information on
salaries paid to chief executive officers at other comparable companies. In
addition to Mr. Gumbiner's base salary, he is also eligible to participate in
the bonus, phantom working interest and stock option plans of Hallwood Energy
Corporation. These "at-risk" components of Hallwood Energy Corporation's total
compensation program serve to align Mr. Gumbiner's interests with those of the
stockholders. Hallwood Energy Corporation's compensation committee feels that
Mr. Gumbiner's compensation, including base salary, bonus payments, phantom
working interest participation and stock option grants, is appropriately
oriented toward risk-based, incentive compensation.
Members of the Hallwood Energy Corporation's Board of Directors
Anthony J. Gumbiner
Hans-Peter Holinger
Rex A. Sebastian
William L. Guzzetti
Nathan C. Collins
Bill M. Van Meter
Jerry A. Lubliner
John R. Isaac
Hamilton P. Schrauff
2000 Members of the Compensation Committee of Hallwood Energy Corporation
Rex A. Sebastian
Bill M. Van Meter
Jerry A. Lubliner
Hans-Peter Holinger
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REPORT OF THE AUDIT COMMITTEE
The audit committee is composed of two directors and operates under a
charter adopted by the board of directors according to the rules and regulations
of the SEC and the American Stock Exchange. The audit committee charter is
attached as Annex A. The audit committee members are J. Thomas Talbot, Chairman
of the audit committee, and Charles A. Crocco, Jr. The board of directors
believes that both of these directors are independent as defined by the American
Stock Exchange's Listed Company Guide.
Management is responsible for the Company's internal controls and the
financial reporting process. Deloitte & Touche LLP, the Company's independent
auditors, is responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America. The audit committee's
responsibility is to monitor and oversee these processes. The audit committee
also recommends to the board of directors the selection of the Company's
independent auditors.
In this context, the audit committee reviewed and discussed the audited
financial statements with both management and Deloitte & Touche LLP.
Specifically, the audit committee has discussed with Deloitte & Touche LLP
matters required to be discussed by Statement on Auditing Standards No. 61.
The audit committee received from Deloitte & Touche LLP the written
disclosures and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committee), and has discussed with
Deloitte & Touche LLP the issue of its independence from the Company.
Based on the audit committee's review of the audited financial statements
and its discussions with management and Deloitte & Touche LLP noted above and
the report of the independent auditors to the audit committee, the audit
committee recommended to the board of directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
2000 Members of the Audit Committee of The Hallwood Group Incorporated
J. Thomas Talbot
Charles A. Crocco, Jr.
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PERFORMANCE GRAPH
The following performance graph compares the 5-year cumulative return of
the Company's common stock with that of the Russell 2000 Index and a peer group
of issuers. The issuers included in the peer group are all publicly traded
companies included in Standard Industrial Classification Code 6512 "Operators of
Nonresidential Buildings," with market capitalization of less than $100,000,000
as of December 31, 2000, which consist of Hallwood Realty Partners, Milestone
Properties, Inc. and Pacific Gateway Properties, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG THE HALLWOOD GROUP INCORPORATED,
THE RUSSELL 2000 INDEX AND A PEER GROUP
[PERFORMANCE GRAPH]
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12/95 12/96 12/97 12/98 12/99 12/00
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THE HALLWOOD GROUP INCORPORATED 100.00 205 481 244 236 75
RUSSELL 2000 100.00 116 143 139 168 147
PEER GROUP 100.00 143 269 337 319 277
* $100 invested on December 31, 1995 in stock or index -- including reinvestment
of dividends. Fiscal year ending December 31.
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PROPOSAL NUMBER 2
AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN
PROPOSED AMENDMENT TO THE STOCK OPTION PLAN
The Company's stock option plan currently provides that the maximum number
of shares of common stock for which options may be granted under the stock
option plan is 204,000 (as adjusted for a three for two stock split in 1999). As
of the record date, options to purchase all of the shares authorized under the
stock option plan have been granted. The board of directors has determined that
an increase in the number of shares for which options may be awarded under the
stock option plan is necessary for the Company to remain competitive in total
compensation, including salaries, benefits and incentives, so as to achieve the
goals of the original stock option plan in attracting and retaining qualified
directors, employees and consultants. Therefore, the board of directors has
approved an amendment to the stock option plan that would increase the
authorized shares of common stock that could be issued in the stock option plan
from 204,000 to 244,800 and directed that the amended stock option plan be
submitted to the stockholders of the Company for approval and adoption. The
material features of the amended stock option plan are discussed below, but the
description is subject to, and is qualified in its entirety by, the full text of
the stock option plan attached as Annex B to this proxy statement. The Company
anticipates registering the additional shares issuable as a result of the
increase in the number of authorized shares under the stock option plan with the
SEC during 2001.
PRINCIPAL FEATURES OF THE STOCK OPTION PLAN
The stock option plan provides for the issuance of options to purchase an
aggregate of up to 244,800 shares of the Company's common stock. Persons
eligible to participate in the stock option plan are directors, employees of, or
consultants to the Company or its subsidiaries. Under the stock option plan, the
board of directors or a committee designated by the board of directors has the
discretion to grant options to an eligible person based upon the contribution
the eligible person has made or may make to the success of the Company or its
subsidiaries. The options are "nonqualified" options, meaning that they are not
incentive stock options as defined in Section 422 of the Internal Revenue Code.
Options are issued at an exercise price as determined by the board of
directors or a stock option committee. In the event the exercise price is paid
in whole or in part with shares of common stock, the value of the shares
surrendered will be their fair market value. For purposes of the stock option
plan, the fair market value is determined by the last reported sale price of
such shares if the shares are listed or admitted for trading on any national
securities exchange or included in the National Market System of NASDAQ. If the
shares are quoted on NASDAQ or any similar system of automated dissemination of
securities price quotations in common use, the fair market value is the mean
between the closing high bid and low asked quotations for the shares.
Under the 1995 Stock Option Plan Loan Program for The Hallwood Group
Incorporated, the Company has agreed to loan to the holders of options granted
under the stock option plan an amount up to the aggregate exercise price of the
options. The loan must be secured by the shares to be acquired upon exercise of
the option and other property having a fair market value equal to the principal
amount of the loan, is payable in full on the fifth anniversary of the loan and
will bear interest, which is payable quarterly, at the same rate that the
Company pays on its revolving line of credit with its primary lender. If the
option being exercised was accelerated because of a change in control of the
Company, however, the loan may not exceed the aggregate exercise price of the
options plus the amount of any amounts required to be paid by the holder as
income tax payments related to the option exercise, the loan may be unsecured,
the principal balance of the loan will be due on the first anniversary of the
loan and will bear interest at a rate two percent above the rate the Company
pays on its revolving line of credit with its primary lender. The principal
balance of the loan may be paid by the holder either in cash or by the surrender
of shares having a fair market value as of the date of the repayment equal to
the principal balance.
Options granted under the stock option plan are exercisable in amounts and
at intervals as the board of directors or the stock option committee provides in
granting an option, provided that the option has not
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expired on the date of exercise. The expiration date of an option is determined
by the stock option committee when the option is granted, but in no event is an
option exercisable after ten years from the date the option is granted. Exercise
of the options may be accelerated based on the occurrence of certain events,
including changes in control of the Company resulting from reorganization,
consolidation, merger, liquidation, dissolution or other comparable
transactions. If an optionee ceases to be employed for any reason other than
retirement, mental or physical disability, death or a change in control of the
Company, that optionee's option terminates automatically and without notice. If
an optionee retires, that optionee's option expires 90 days after termination by
retirement. If an optionee ceases to be employed by the Company due to mental or
physical disability, that optionee's option expires after 12 months. In the
event of a change of control of the Company, an optionee whose employment
terminates due to that change in control shall have 12 months to exercise the
option.
Options granted under the stock option plan are transferable by the
optionee by gift or by contribution to (a) any member of the optionee's
immediate family, (b) any entity of which the optionee or members of the
optionee's family are the sole equity owners or beneficiaries, or if there are
discretionary beneficiaries, among the class of discretionary beneficiaries, or
(c) any combination of the above.
An optionee may also be granted stock appreciation rights ("SARs") and
limited stock appreciation rights ("Limited SARs") with respect to all or some
of the shares covered by any option (a "Related Option"). SARs and Limited SARs
may be granted on or after the date on which a related option is granted. A SAR
or Limited SAR is exercisable only in the event that a tender offer or exchange
offer is made by a person or entity other than the Company for 25% or more of
the outstanding common stock of the Company. Upon the exercise of a SAR or
Limited SAR, the holder of such SAR or Limited SAR may be paid in (1) cash, (2)
shares, or (3) a combination of cash and shares. In the event cash and shares
are received, an optionee exercising SARs shall be paid an amount equal to the
fair market value per share on the date of the exercise over the option price
per share of the related option, multiplied by the number of shares with respect
to which such SARs are being exercised. In the event cash and shares are
received, an optionee exercising Limited SARs will receive an amount equal to
the excess of the highest price per share paid in any offer that is in effect at
any time during the period beginning on the 60th day prior to the date a Limited
SAR is exercised, and ending on the date that the Limited SAR is exercised over
the option price per share of the related option, multiplied by the number of
shares with respect to which a Limited SAR is being exercised.
Since the number of options awarded to any participant is determined by the
board of directors, acting as the stock option committee in its discretion from
time to time, it is not possible to indicate the number of options that will be
granted to any employee in the future. The board of directors or stock option
committee may amend the stock option plan or any option as it considers
advisable, but may not substantially impair any option outstanding under the
stock option plan.
TAX CONSEQUENCES
Upon the exercise of a option, an optionee will recognize ordinary income
at the time of exercise equal to the excess of the then fair market value of the
shares of common stock received over the exercise price. The taxable income
recognized upon exercise of an option will be treated as compensation income
subject to withholding and the Company will be entitled to deduct as a
compensation expense an amount equal to the ordinary income an optionee
recognizes with respect to such exercise. When common stock received upon the
exercise of an option is subsequently sold or exchanged in a taxable
transaction, the holder generally will recognize capital gain or loss equal to
the difference between the total amount realized and the fair market value of
the common stock on the date of exercise. The character of the gain or loss as
long-term or short-term capital gain or loss will depend upon the holding period
of the shares following exercise.
Approval of the amendment to the stock option plan requires the affirmative
vote of the holders of a majority of the shares of common stock present and
voting at the annual meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT TO THE STOCK OPTION PLAN, INCLUDING AN INCREASE IN THE
NUMBER OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE STOCK OPTION PLAN, AS
DESCRIBED ABOVE.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AND MANAGEMENT AGREEMENTS
Effective December 31, 1996, the Company entered into an agreement with HSC
Financial under which HSC Financial agreed to provide international consulting
and advisory services to the Company and its affiliates for an annual fee of
$825,000 and reimbursement for out-of-pocket and other reasonable expenses of
HSC Financial. The annual fee was reduced to $495,000 effective January 1, 2000.
STANWICK HOLDINGS, INC.
The Company shares offices, facilities and staff with, and certain
executive officers of the Company also served as executive officers or directors
of, Stanwick Holdings, Inc. The Company pays the common general and
administrative expenses of the two companies and charges Stanwick a fee for its
allocable share of such expenses, which totaled $25,000 for the year ended
December 31, 2000.
Stanwick is a subsidiary of HHSA. Mr. Gumbiner is a director of HHSA. Under
United States securities laws, HHSA and HSC Financial are associated, and HSC
Financial could be considered to share beneficial ownership of substantially all
of the outstanding shares of HHSA.
HALLWOOD INVESTMENTS LIMITED.
In March 2000 and September 2000, the Company entered into loan agreements
with Hallwood Investments Limited in the amount of $1,500,000 and $1,000,000,
respectively. Significant terms include: (1) a term of five years; (2) a fixed
interest rate of 10%; (3) interest and principal payments are deferred until
maturity; (4) the loans are unsecured and subordinated to the Company's senior
secured term loan; and (5) the loan amounts are convertible into common stock 12
months after date of issuance, if not previously repaid, at $10.13 per share, in
the case of the March loan, and $6.47 per share, in the case of the September
loan. Each conversion price was set as 115% of the market price of the Company's
common stock on the date each loan was approved by the Company's independent
board members. In March 2001, the Company entered into an additional loan
agreement with Hallwood Investments Limited under similar terms and conditions
in the amount of $1,500,000, with a conversion price of $6.12 per share.
AUDITORS
Deloitte & Touche LLP served as the Company's independent auditors for the
years ended December 31, 1998, 1999 and 2000 and has been selected to serve in
that capacity again for the year ended December 31, 2001. A representative of
Deloitte & Touche LLP will be available at the annual meeting to respond to
appropriate questions and will be given an opportunity to make a statement if
desired.
AUDIT FEES
Deloitte & Touche LLP provided services to the Company in the following
categories and amounts:
Audit fees................................................ $215,000
Financial information systems design and implementation
fees.................................................... $ 0
All other fees(1)......................................... $127,000
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(1) The audit committee has considered whether the provision of these services,
the majority of which include tax compliance and tax planning services, is
compatible with maintaining the principal accountant's independence.
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STOCKHOLDER PROPOSALS
If a stockholder intends to present a proposal for action at the 2002
annual meeting and wishes to have the proposal considered for inclusion in the
Company's proxy materials in reliance on Rule 14a-8 under the Securities
Exchange Act, the proposal must be submitted in writing to the Secretary of The
Hallwood Group Incorporated, at 3710 Rawlins, Suite 1500, Dallas, Texas 75219 by
December 12, 2001. Such proposals must also meet the other requirements of the
rules of the SEC relating to stockholder proposals.
The Company's bylaws establish an advance notice procedure with regard to
certain matters, including stockholder proposals and nominations of individuals
for election to the board of directors. In general, notice of a stockholder
proposal or a director nomination for an annual meeting must be received by the
Company 90 days or more before the date of the annual meeting and must contain
specified information and conform to certain requirements, as set forth in the
bylaws.
If you wish to submit a proposal at the annual meeting, other than through
inclusion in the proxy statement, you must notify the Company no later than
February 25, 2002. If you do not notify the Company of your proposal by that
date, the Company will exercise its discretionary voting power on that proposal.
In addition, if you submit a proposal outside of Rule 14a-8 of the
Securities Exchange Act for the 2002 annual meeting, and the proposal fails to
comply with the advance notice procedure prescribed by the bylaws, then the
Company's proxy or proxies may confer discretionary authority on the persons
being appointed as proxies on behalf of management to vote on the proposal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's securities, to file reports of ownership and changes of
ownership with the SEC and the American Stock Exchange. Officers, directors and
10% stockholders of the Company are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms filed by them.
Based solely on review of copies of the forms received, the Company
believes that, during the last fiscal year, all filing requirements under
Section 16(a) applicable to its officers, directors and 10% stockholders were
timely.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the
annual meeting. All shares represented by proxies will be voted in favor of the
nominees for director and to approve the amendment to the 1995 stock option plan
set forth in this proxy statement unless otherwise indicated on the form of
proxy. If any other matters properly come before the meeting, the Company's
proxy holders will vote on those matters according to their best judgment.
By order of the Board of Directors
MELVIN J. MELLE
Secretary
April 18, 2001
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ANNEX A
THE HALLWOOD GROUP INCORPORATED
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
General. The role of the Audit Committee (the "Committee") is to assist
the Board of Directors in fulfilling its oversight responsibilities by:
(a) Serving as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
(b) Reviewing and appraising the audit efforts of the Corporation's
independent accountants.
(c) Providing an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
COMPOSITION
The Audit Committee shall consist of three or more directors, as determined
by the Board, each of whom shall be independent and free from any relationship
that, in the opinion of the Board, would interfere with the exercise of his or
her independent judgment as a member of the Committee. In determining whether
any director is independent, the Board shall take into consideration the
requirements of the principal exchange or system on which the Corporation's
common stock is traded. Directors who are affiliates of the Corporation, or
officers or employees of the Corporation or of its subsidiaries, will not be
considered independent. Notwithstanding the first sentence of this paragraph,
until June 14, 2001, the Committee may consist of two or more directors meeting
the qualifications of this section.
All members of the Committee must be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement, and cash flow statement or become able to do so within a reasonable
period of time after his or her appointment to the Committee, and at least one
member of the Committee is to have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in the member's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
The members of the Committee are to be elected by the Board and shall serve
until their successors are duly elected and qualified: Unless a Chair is elected
by the full Board, the members of the Committee may designate a Chair by
majority vote of the full Committee membership.
MEETINGS
The Committee shall meet regularly, as circumstances dictate. As part of
its job to foster open communication, the Committee should meet at least
annually with management and the independent accountants, in separate executive
sessions, to discuss any matters that the Committee or either of these groups
believe should be discussed privately. In addition, the Committee or its Chair
should meet with the independent accountants and management quarterly to review
the Corporation's financial statements. The Committee shall be available to the
independent accounts during the year for consultation purposes.
Relationship with Independent Accountants
The Corporation's independent accountants are to be ultimately accountable
to the Board and the Committee, and the Committee and the Board shall have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent accountants.
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Responsibilities and Duties
To fulfill its responsibilities and duties the Audit Committee shall:
(a) Review and update this Charter at least annually, and otherwise as
conditions dictate.
(b) Review the Corporation's annual financial statements, the scope of
the annual audit and any reports or other financial information submitted
to the Securities and Exchange Commission or the public, including any
certification, report, opinion, or review rendered by the independent
accountants.
(c) Review with financial management and the independent accountants
the Corporation's filings with the Securities and Exchange Commission on
Form 10-Q prior to their filing or prior to the release of earnings. The
Chair of the Committee may represent the entire Committee for purposes of
this review. The following factors are general guidelines for the Committee
to consider in determining if the independent accountants are independent:
(i) Financial relationships that impair independence, such as
direct or material indirect investments in the Corporation, investments
in common with the Corporation or investments by the Corporation in the
independent accountants;
(ii) Employment relationships between the independent accountants
or their family members and the Corporation;
(iii) Non-audit services provided by the independent accountants to
the Corporation that may impair the Corporation's independence,
including bookkeeping or other services related to the Corporation's
accounting records, financial information systems design and
implementation, appraisal or valuation services and fairness opinions,
actuarial services, internal audit services, management functions, human
resources, broker-dealer services, and legal services; and
(iv) Contingent fee arrangements for services provided by the
independent accountants to the Corporation.
(d) Discuss these requirements with the independent accountants to
assure that the independent accountants will satisfy the requirements or
will take the necessary steps to assure compliance in the future. This will
be done in a dialogue with the independent accountants about the exact
extent of the requirements and the independent accountants' internal
procedures to assure compliance.
(e) On an annual basis, obtain from the independent accountants, and
review and discuss with the independent accounts, a formal written
statement delineating all significant relationships the independent
accountants have with the Corporation and actively engage in a dialogue
with the independent accountants with respect to any disclosed
relationships or services that may impact the objectivity and independence
of the independent accountants.
(f) Recommend to the Board any appropriate action to ensure the
independence of the independent accountants.
(g) Review the performance of the independent accountants and approve
any proposed discharge of the independent accountants when circumstances
warrant.
(h) Periodically consult with the independent accountants regarding
the fullness and accuracy of the Corporation's financial statements.
(i) Prepare a report of the Committee to be included in the
Corporation's annual proxy statement, and recommend to the Board whether
the financial statements prepared by the independent accountants shall be
included in the Corporation's Annual Report on Form 10-K.
(j) In consultation with the independent accountants, review the
integrity of the Corporation's accounting practices, policies, financial
reporting processes and overall accounting and financial controls, both
internal and external, and recommend to whom reports should be submitted
within the Corporation.
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(k) Consider the independent accountants' judgments about the quality
and appropriateness of the Corporation's accounting principles as applied
in its financial reporting.
(l) Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices as suggested
by the independent accountants or management.
(m) Establish regular and separate reporting to the Committee by each
of management and the independent accountants, regarding any significant
judgments made in management's preparation of the financial statements and
the view of each as to appropriateness of such judgments.
(n) Following completion of the annual audit, review separately with
each of management and the independent accountants any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
(o) Review any significant disagreement among management and the
independent accountants in connection with the preparation of the financial
statements.
(p) Review with the independent accountants and management the extent
to which changes or improvements in financial or accounting practices, as
approved by the Committee, have been implemented.
(q) Establish, review and update periodically a Code of Conduct and
ensure that management has established a system to enforce this Code.
(r) Review and, if the Committee determined it is appropriate, approve
transactions proposed between the Corporation and its affiliates.
(s) Review, with the Corporation's counsel, any legal matter that
could have a significant impact on the Corporation's financial statements.
(t) Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
Adopted by Resolution of the Board
of Directors
March 15, 2001
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ANNEX B
AMENDED
1995 STOCK OPTION PLAN
FOR
THE HALLWOOD GROUP INCORPORATED
SECTION 1. Purpose. The purpose of this 1995 Stock Option Plan for The
Hallwood Group Incorporated is to advance the interests of The Hallwood Group
Incorporated, a Delaware corporation (the "Corporation"), by providing an
additional incentive to attract and retain qualified and competent directors,
employees and consultants for the Corporation and its subsidiaries, upon whose
efforts and judgment the success of the Corporation is largely dependent,
through the encouragement of ownership in the Corporation by such persons.
SECTION 2. Definitions. As used herein, the following terms shall have the
meaning indicated:
(a) "Act" shall mean the Securities Exchange Act of 1934, as amended.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Business Day" shall mean (i) if the Shares trade on a national
securities exchange, any day that the national securities exchange on which
the Shares trade is open or (ii) if the Shares do not trade on a national
securities exchange, any day that commercial banks in the City of New York
are open.
(d) "Committee" shall mean the Compensation Committee of the Board or
other committee, if any, appointed by the Board pursuant to Section 13
hereof.
(e) "Continuing Director" shall mean (i) any member of the Board on
the effective date of this Plan and (ii) any person who subsequently
becomes a member of the Board if such person's nomination for election or
election to the Board is recommended or approved by a majority of the
Continuing Directors.
(f) "Corporation" shall mean The Hallwood Group Incorporated, a
Delaware corporation.
(g) "Date of Grant" shall mean the date on which the Committee takes
formal action to grant an Option to an Eligible Person, provided it is
followed, as soon as reasonably possible, by written notice to the Eligible
Person of the grant.
(h) "Director" shall mean a member of the Board.
(i) "Eligible Person(s)" shall mean those persons who are Directors or
are employees of, or consultants to, the Corporation or any Subsidiary.
(j) "Effective Date" shall mean June 27, 1995.
(k) "Fair Market Value" of a Share on any date of reference shall mean
the Closing Price on the business day immediately preceding such date,
unless the Committee in its sole discretion shall determine fair market
value otherwise in a fair and uniform manner. For this purpose, the Closing
Price of the Shares on any business day shall be: (i) if the Shares are
listed or admitted for trading on any United States national securities
exchange or included in the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
the last reported sale price of Shares on such exchange or system, as
reported in any newspaper of general circulation; (ii) if Shares are quoted
on NASDAQ, or any similar system of automated dissemination of quotations
of securities prices in common use, the mean between the closing high bid
and low asked quotations for such day of Shares on such system; (iii) if
neither clause (i) nor (ii) is applicable, the mean between the high bid
and low asked quotations for Shares as reported by the National Quotation
Bureau, Incorporated if at least two securities dealers have inserted both
bid and asked quotations for Shares on at least five of the ten preceding
days; or, (iv) in lieu of the above, if actual transactions in the Shares
are reported on a
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consolidated transaction reporting system, the last sale price of the
Shares for such day and on such system.
(l) "Nonqualified Option" shall mean an option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue
Code.
(m) "Option" (when capitalized) shall mean any option granted under
this Plan.
(n) "Optionee" shall mean a person to whom an Option is granted or any
successor to the rights of such Option under this Plan.
(o) "Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture or other legal entity.
(p) "Plan" shall mean this 1995 Stock Option Plan for The Hallwood
Group Incorporated.
(q) "SAR" shall mean a stock appreciation right as defined in Section
9 hereof.
(r) "Share(s)" shall mean shares of the common stock, par value $.10
per share, of the Corporation (meaning such Shares after giving effect to
the one-for-four reverse stock split approved by the stockholders of the
Corporation as of the Effective Date).
(s) "Subsidiary" shall mean (i) any corporation of which a majority of
the outstanding stock having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation, irrespective of
whether at the time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency, is at the time, directly or indirectly, owned or controlled by
the Corporation or by one or more Subsidiaries, or by the Corporation and
one or more Subsidiaries or (ii) any partnership, joint venture or limited
liability company of which at least a majority of the equity ownership,
whether in the form of membership, general, special or limited partnership
interests or otherwise, is directly or indirectly owned or controlled by
the Corporation or by one or more Subsidiaries or by the Corporation and
one or more Subsidiaries.
SECTION 3. Shares and Options. The Corporation may grant to Eligible
Persons from time to time Options to purchase an aggregate of up to Two Hundred
Forty Four Thousand Eight Hundred (244,800) Shares. If any Option granted under
the Plan shall terminate, expire, or be canceled or surrendered as to any
Shares, new Options may thereafter be granted covering such Shares. An Option
granted hereunder shall be a Nonqualified Option.
SECTION 4. Conditions for Grant of Options.
(a) Each Option shall be evidenced by an option agreement that may contain
any term deemed necessary or desirable by the Committee, provided such terms are
not inconsistent with this Plan or any applicable law. Optionees shall be those
persons selected by the Committee from Eligible Persons. Any Person who files
with the Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Option under this Plan shall not be eligible to
receive any Option under this Plan for the duration of such waiver.
(b) In granting Options, the Committee shall take into consideration the
contribution the Person has made or may make to the success of the Corporation
or its Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Corporation and any
Subsidiary with regard to these matters. The Committee may from time to time in
granting Options under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
relating an Option to achievement of specific goals established by the Committee
or the continued employment of the Optionee for a specified period of time,
provided that such terms and conditions are not more favorable to an Optionee
than those expressly permitted herein.
(c) The Committee in its sole discretion shall determine in each case
whether periods of military or government service shall constitute a
continuation of employment for the purposes of this Plan or any Option.
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SECTION 5. Exercise Price. The exercise price per Share of any Option
shall be any price determined by the Committee.
SECTION 6. Exercise of Options. An Option shall be deemed exercised when
(i) the Corporation has received written notice of such exercise in accordance
with the terms of the Option, (ii) full payment of the aggregate exercise price
of the Shares as to which the Option is exercised has been made, and (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Corporation of the amount, if any,
that the Committee determines to be necessary for the employer of the Optionee
to withhold in accordance with applicable federal or state income tax
withholding requirements. Unless further limited by the Committee in any Option,
the option price of any Shares purchased shall be paid in cash, by certified or
cashier's check, by money order, with Shares (provided that at the time of
exercise the Committee in its sole discretion does not prohibit the exercise of
Options through the delivery of already-owned Shares) or by a combination of the
above; provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares. If the exercise price
is paid in whole or in part with Shares, the value of the Shares surrendered
shall be their Fair Market Value. The Corporation in its sole discretion, and on
such terms as it may determine, may lend money to an Optionee, guarantee a loan
to an Optionee, or otherwise assist an Optionee to obtain the cash necessary to
exercise all or a portion of an Option granted hereunder or to pay any tax
liability of the Optionee attributable to such exercise.
SECTION 7. Exercisability of Options.
(a) Any Option shall become exercisable in such amounts and at such
intervals as the Committee shall provide in any Option, except as otherwise
provided in this Section 7; provided in each case that the Option has not
expired on the date of exercise.
(b) The expiration date of an Option shall be determined by the Committee
at the Date of Grant, but in no event shall an Option be exercisable after the
expiration of ten (10) years from the Date of Grant.
(c) The Committee may in its sole discretion accelerate the date on which
any Option may be exercised.
(d) Unless otherwise provided in any Option, each outstanding Option shall
become fully exercisable immediately upon any of the following dates unless, in
each case, the applicable transaction is approved in advance by Continuing
Directors:
(i) ten (10) days prior to the date of any transaction (which shall
include a series of transactions occurring within 60 days or occurring
pursuant to a plan), which has the result that stockholders of the
Corporation immediately before such transaction would cease to own at least
66 2/3% of the voting ownership interests of the Corporation or of any
entity that results from the participation of the Corporation in a
reorganization, consolidation, merger, liquidation, dissolution or any
other comparable form of transaction;
(ii) ten (10) days preceding the record date for the approval by the
stockholders of the Corporation of a plan of reorganization, consolidation,
merger, liquidation, dissolution or other comparable form of transaction in
which the Corporation does not survive or as a result of which the
stockholders of the Corporation immediately before such transaction would
cease to own at least 66 2/3% of the voting ownership interests of the
Corporation;
(iii) ten (10) days preceding the record date for the approval by the
stockholders of the Corporation of a plan for the sale, lease, exchange or
other disposition of 50% or more of the property and assets of the
Corporation;
(iv) ten (10) days preceding the record date for the approval by the
stockholders of the Corporation of the removal of or a change in a majority
of the members of the Board; or
(v) the date any tender offer or exchange offer is made by any person,
which, if successfully completed, would result in such person beneficially
owning (within the meaning of Rule 13d-3 promulgated under the Act) either
33 1/3% or more of the Corporation's outstanding Shares or interests in
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the Corporation having 33 1/3% or more of the combined voting power of the
Corporation's then outstanding voting interests.
(e) Notwithstanding any provisions hereof to the contrary, if any Option is
accelerated under Subsection 7(c) or (d), the portion of such Option that may be
exercised to acquire Shares that the Optionee would not be entitled to acquire
but for such acceleration (the "Acceleration Shares"), is limited to that number
of Acceleration Shares that can be acquired without causing the Optionee to have
an "excess parachute payment" under Section 280G of the Internal Revenue Code,
determined by taking into account all of the Optionee's "parachute payments"
determined under Section 280G of the Code. If as a result of this Subsection
7(e), the Optionee may not acquire all of the Acceleration Shares, then the
Acceleration Shares that the Optionee may acquire shall be the last Shares that
the Optionee would have been entitled to acquire had this Option not been
accelerated.
SECTION 8. Termination of Option Period.
(a) Unless otherwise provided in any Option, the unexercised portion of an
Option shall automatically and without notice terminate and become null and void
at the time of the earliest to occur of the following:
(i) ten (10) years after the date of grant of such Option;
(ii) three (3) months after the date on which the Optionee's
employment by the Corporation or a Subsidiary is terminated for any reason
other than by reason of: (A) a mental or physical disability as determined
by a medical doctor satisfactory to the Committee; (B) the Optionee's
death; (C) termination for Cause (as defined below); or (D) termination
resulting from any transaction described in SECTION 7(d) hereof;
(iii) twelve (12) months after the date on which the Optionee's
employment by the Corporation or a Subsidiary is terminated by reason of a
mental or physical disability as determined by a medical doctor
satisfactory to the Committee;
(iv) (A) twelve (12) months after the date of termination of the
Optionee's employment by the Corporation or a Subsidiary by reason of death
of the Optionee; or (B) three (3) months after the date on which the
Optionee shall die if such death shall occur during the three-month period
specified in SECTION 8(a)(ii) hereof or the twelve-month period specified
in SECTION 8(a)(iii) hereof;
(v) three (3) years after the termination of the employee's employment
by the Corporation or a Subsidiary by reason of a transaction specified in
SECTION 7(d) hereof.
(vi) Immediately upon termination for Cause. For purposes of this
section, "Cause shall mean:
(A) the willful and continued failure by the Optionee to
substantially perform his duties with the Corporation or a Subsidiary
(other than any such failure resulting from the Optionee's Disability),
within a reasonable period of time after a written demand for
substantial performance is delivered to the Optionee by the board of
directors of the Optionee's employer, which demand specifically
identifies the manner in which the board of directors of the Optionee's
employer believes that the Optionee has not substantially performed his
duties;
(B) the failure by the Optionee to materially conform to the
Corporation's policies and procedures, within a reasonable period of
time after a written demand for substantial performance is delivered to
the Optionee by the board of directors of the Optionee's employer, which
demand specifically identifies the manner in which the board of
directors of the Optionee's employer believes that the Optionee has
failed to materially conform to the Corporation's policies and
procedures;
(C) the willful engaging by the Optionee in conduct that is
demonstrably and materially injurious to the Corporation or a
Subsidiary, monetarily or otherwise; or
B-4
29
(D) the engaging by the Optionee in egregious misconduct involving
serious moral turpitude to the extent that, in the reasonable judgment
of the board of directors of the Optionee's employer, the Optionee's
credibility and reputation no longer conform to the standard of the
employer's employees.
For purposes of the Plan, no act, or failure to act, on the Optionee's part
shall be deemed "willful" unless done, or omitted to be done, by the
Optionee not in good faith and without reasonable belief that the
Optionee's action or omission was in the best interest of the Corporation.
(b) If provided in an Option, the Committee in its sole discretion shall
have the power to cancel, effective upon the date determined by the Committee in
its sole discretion, all or any portion of any Option that is then exercisable
(whether or not accelerated by the Committee) upon payment to the Optionee of
cash in an amount that, in the absolute discretion of the Committee, is
determined to be equal to the excess of (i) the aggregate Fair Market Value of
the Shares subject to such Option on the effective date of the cancellation over
(ii) the aggregate exercise price of such Option.
SECTION 9. Stock Appreciation Rights and Limited Stock Appreciation
Rights. (a) The Board shall have authority to grant an SAR or a Limited SAR
with respect to all or some of the Shares covered by any Option ("Related
Option"). An SAR or Limited SAR may be granted on or after the Date of Grant of
such Related Option.
(b) For the purposes of this Section 9, the following definitions shall
apply:
(i) The term "Offer" shall mean any tender offer or exchange offer for
twenty-five percent (25%) or more of the outstanding Shares of the
Corporation, other than one made by the Corporation; provided that the
corporation, person or other entity making the Offer acquires Shares
pursuant to such Offer.
(ii) The term "Offer Price Per Share" shall mean the highest price per
Share paid in any Offer that is in effect at any time during the period
beginning on the 60th day prior to the date that a Limited SAR is exercised
and ending on the date that the Limited SAR is exercised. Any securities or
properties that are a part or all of the consideration paid or to be paid
for Shares in the Offer shall be valued in determining the Offer Price Per
Share at the higher of (1) the valuation placed on such securities or
properties by the person making such Offer, or (2) the valuation placed on
such securities or properties by the Board.
(iii) The term "Limited SAR" shall mean a right granted under this
Plan that shall entitle the Holder to an amount in cash equal to the Offer
Spread in the event an Offer is made.
(iv) The term "Offer Spread" shall mean, with respect to each Limited
SAR, an amount equal to the product obtained by multiplying (1) the excess
of (A) the Offer Price Per Share immediately preceding the date of exercise
over (B) the Option Price per Share of the Related Option multiplied by (2)
the number of Shares with respect to which such Limited SAR is being
exercised.
(v) The term "SAR" shall mean a right granted under this Plan that
shall entitle the Holder thereof to an amount in cash equal to the SAR
Spread.
(vi) The term "SAR Spread" shall mean with respect to each SAR an
amount equal to the product of (1) the excess of (A) the Fair Market Value
per Share on the date of exercise over (B) the Option Price per Share of
the Related Option multiplied by (2) the number of Shares with respect to
which such SAR is being exercised.
(c) To exercise the SAR or Limited SAR, the Holder shall:
(i) Give written notice thereof to the Corporation, specifying the SAR
or Limited SAR being exercised and the number or Shares with respect to
which such SAR or Limited SAR is being exercised, and
(ii) If requested by the Corporation, deliver within a reasonable time
the agreement evidencing the SAR or Limited SAR being exercised, and the
Related Option agreement to the Secretary of the
B-5
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Corporation who shall endorse or cause to be endorsed thereon a notation of
such exercise and return all agreements to the Holder.
(d) As soon as practicable after the exercise of an SAR or Limited SAR, the
Corporation shall pay to the Holder (i) cash, (ii) at the request of the Holder
and the approval of the Board, or in accordance with the terms of the Related
Option, Shares, or (iii) a combination of cash and Shares, having a Fair Market
Value equal to either the SAR Spread, or to the Offer Spread, as the case may
be; provided, however, that the Corporation may, in its sole discretion,
withhold from such payment any amount necessary to satisfy the Corporation's or
a Subsidiary's obligation for federal and state withholding taxes with respect
to such exercise.
(e) An SAR or Limited SAR may be exercised only if and to the extent that
the Related Option is eligible to be exercised; provided, however, a Limited SAR
may be exercised only during the period beginning on the first day following the
date of expiration of the Offer and ending on the 30th day following such date.
(f) Upon the exercise of an SAR or Limited SAR, the Shares under the
Related Option to that such exercised SAR or Limited SAR relate shall be
released, but such released Shares shall never again be Shares available for
grant.
(g) Upon the exercise or termination of a Related Option, the SAR or
Limited SAR with respect to such Related Option likewise shall terminate.
(h) An SAR or Limited SAR shall be transferable only to the extent, if any,
that the Related Option is transferable, and under the same conditions.
(i) Each SAR or Limited SAR shall be on such terms and conditions not
inconsistent with this Plan as the Board may determine and shall be evidenced by
a written agreement.
(j) The Holder shall have no rights as a stockholder with respect to the
related Shares as a result of the grant of an SAR or Limited SAR.
SECTION 10. Adjustment of Shares.
(a) If at any time while the Plan is in effect or unexercised Options are
outstanding, there shall be any increase or decrease in the number of issued and
outstanding Shares through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
Shares, then and in such event.
(i) appropriate adjustment shall be made in the maximum number of
Shares then subject to being optioned under the Plan, so that the same
proportion of the Corporation's issued and outstanding Shares shall
continue to be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of Shares and
the exercise price per Share thereof then subject to outstanding Options,
so that the same proportion of the Corporation's issued and outstanding
Shares shall remain subject to purchase at the same aggregate exercise
price.
(b) The Committee may change the terms of Options outstanding under this
Plan, with respect to the exercise price or the number of Shares subject to the
Options, or both, when, in the Committee's sole discretion, such adjustments
become appropriate by reason of any transaction.
(c) Except as otherwise expressly provided herein, the issuance by the
Corporation of any class, or securities convertible into ownership interests of
any class, either in connection with direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Corporation convertible into such ownership interests or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number of Shares reserved for issuance under the Plan or the
number of or exercise price of Shares then subject to outstanding Options
granted under the Plan.
(d) Without limiting the generality of the foregoing, the existence of
outstanding Options granted under the Plan shall not affect in any manner the
right or power of the Corporation to make, authorize or consummate (1) any or
all adjustments, recapitalizations, reorganizations or other changes in the
Corpora-
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tion's capital structure or its business; (2) any merger or consolidation of the
Corporation; (3) any issue by the Corporation of debt securities, or partnership
interests that would rank above the Shares subject to outstanding Options; (4)
the dissolution or liquidation of the Corporation; (5) any sale, transfer or
assignment of all or any part of the assets or business of the Corporation; or
(6) any other partnership act or proceeding, whether of a similar character or
otherwise.
SECTION 11. Transferability of Options. Each Option may provide that such
Option may be transferrable by the Optionee in the Optionee's discretion.
SECTION 12. Issuance of Shares. No person shall be, or have any of the
rights or privileges of, a stockholder of the Corporation with respect to any of
the Shares subject to an Option unless and until certificates representing such
Shares shall have been issued and delivered to such person. As a condition of
any transfer of the certificate for Shares, the Committee may obtain such
agreements or undertakings, if any, as it may deem necessary or advisable to
assure compliance with any provision of the Plan, the agreement evidencing the
Option or any law or regulation including, but not limited to, the following:
(a) A representation, warranty or agreement by the Optionee to the
Corporation at the time any Option is exercised that he or she is acquiring the
Shares to be issued to him or her for investment and not with a view to, or for
sale in connection with, the distribution of any such Shares; and
(b) A representation, warranty or agreement to be bound by any legends that
are, in the opinion of the Committee, necessary or appropriate to comply with
the provisions of any securities laws deemed by the Committee to be applicable
to the issuance of the Shares and that are endorsed upon the Share certificates.
SECTION 13. Administration of the Plan.
(a) The Plan may be administered by the Compensation Committee of the Board
or other committee thereof as appointed by the Board (herein called the
"Committee"); or, if the Board so determines, by the Board and in such case all
references to the Committee shall be deemed to be references to the Board.
Except for the powers set forth in Section 16, the Committee shall have all of
the powers of the Board with respect to the Plan. Any member of the Committee
may be removed at any time, with or without cause, by resolution of the Board
and any vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.
(b) The Committee, from time to time, may adopt rules and regulations for
carrying out the purposes of the Plan. The determinations and the interpretation
and construction of any provision of the Plan by the Committee shall be final
and conclusive.
(c) Any and all decisions or determinations of the Committee shall be made
either (i) by a majority vote of the members of the Committee at a meeting or
(ii) without a meeting by the written approval of a majority of the members of
the Committee.
(d) Subject to the express provisions of this Plan, the Committee shall
have the authority, in its sole and absolute discretion (i) to adopt, amend, and
rescind administrative and interpretive rules and regulations relating to this
Plan or any Option; (ii) to construe the terms of this Plan or any Option; (iii)
as provided in Subsection 10(a), upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this Plan and
Option; and (iv) to make all other determinations and perform all other acts
necessary or advisable for administering this Plan, including the delegation of
such ministerial acts and responsibilities as the Committee deems appropriate.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or any Option in the manner and to the extent it
shall deem expedient to carry it into effect, and it shall be the sole and final
judge of such expediency. The Committee shall have full discretion to make all
determinations on the matters referred to in this Subsection 13(d), and such
determinations shall be final, binding and conclusive.
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SECTION 14. Government Regulations.
This Plan, Options and the obligations of the Corporation to sell and
deliver Shares under any Options, shall be subject to all applicable laws, rules
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
SECTION 15. Miscellaneous.
(a) The grant of an Option shall be in addition to any other compensation
paid to the Optionee or other employee benefit plans of the Corporation or a
Subsidiary or other benefits with respect to Optionee's position with the
Corporation or a Subsidiary. The grant of an Option shall not confer upon the
Optionee the right to continue in the Optionee's employment position, or
interfere in any way with the rights of the Optionee's employer to terminate his
or her status as an employee.
(b) Neither the members of the Board nor any member of the Committee shall
be liable for any act, omission, or determination taken or made in good faith
with respect to this Plan or any Option, and members of the Board and the
Committee shall, in addition to all other rights of indemnification and
reimbursement, be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising from such claim, loss, damage, or expense to the full extent
permitted by law and under any directors' and officers' liability or similar
insurance coverage that may from time to time be in effect.
(c) Any issuance or transfer of Shares to an Optionee, or to his legal
representative, heir, legatee, distributee or assignee, in accordance with the
provisions of this Plan or the applicable Option, shall, to the extent thereof,
be in full satisfaction of all claims of such persons under the Plan. The
Committee may require any Optionee, legal representative, heir, legatee,
distributee or assignee as a condition precedent to such payment or issuance or
transfer of Shares, to execute a release and receipt for such payment or
issuance or transfer of Shares in such form as it shall determine.
(d) Neither the Committee nor the Corporation guarantees Shares from loss
or depreciation.
(e) All expenses incident to the administration, termination, or protection
of this Plan or any Option, including, but not limited to, legal and accounting
fees, shall be paid by the Corporation; provided, however, the Corporation may
recover any and all damages, fees, expenses and costs arising out of any actions
taken by the Corporation to enforce its rights under this Plan or any Option.
(f) Records of the Corporation shall be conclusive for all purposes under
this Plan or any Option, unless determined by the Committee to be incorrect.
(g) The Corporation shall, upon request or as may be specifically required
under this Plan or any Option, furnish or cause to be furnished all of the
information or documentation that is necessary or required by the Committee to
perform its duties and functions under this Plan or any Option.
(h) The Corporation assumes no liability to any Optionee or his legal
representatives, heirs, legatees or distributees for any act of, or failure to
act on the part of, the Committee.
(i) If any provision of this Plan or any Option is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions of this Plan or any Option, but such provision shall be
fully severable, and the Plan or Option, as applicable, shall be construed and
enforced as if the illegal or invalid provision had never been included in the
Plan or Option, as applicable.
(j) Whenever any notice is required or permitted under this Plan, such
notice must be in writing and personally delivered or sent by mail or delivery
by a nationally recognized courier service. Any notice required or permitted to
be delivered under this Plan shall be deemed to be delivered on the date on
which it is personally delivered, or, if mailed, whether actually received or
not, on the third Business Day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address that such person has previously specified by written
notice delivered in accordance
B-8
33
with this Subsection 15(j) or, if by courier, seventy-two (72) hours after it is
sent, addressed as described in this Subsection 15(j). The Corporation or the
Optionee may change, at any time and from time to time, by written notice to the
other, the address that it or he had previously specified for receiving notices.
Until changed in accordance with this Plan, the address of the Corporation is
3710 Rawlins, Suite 1500, Dallas, Texas 75219-4236 and the address of the
Optionee is the Optionee's address in the records of the Optionee's employer.
(k) Any person entitled to notice under this Plan may waive such notice.
(l) Each Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees and upon the Corporation, its
successors, and assigns, and upon the Board, the Committee and its successors.
(m) The titles and headings of Sections are included for convenience of
reference only and are not to be considered in construction of this Plan's
provisions.
(n) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Plan dictates, the plural shall be
read as the singular and the singular as the plural.
SECTION 16. Amendment and Discontinuation of the Plan. The Committee may
from time to time amend the Plan or any Option; provided, however, that, except
to the extent provided in Section 8, no amendment or suspension of the Plan or
any Option issued hereunder shall, except as specifically permitted in any
Option, substantially impair any Option previously granted to any Optionee
without the consent of such Optionee.
SECTION 17. Effective Date and Termination Date. The Effective Date of the
Plan is June 27, 1995, which is the date the Board adopted this Plan. The Plan
shall terminate on the tenth anniversary of the Effective Date.
Executed to evidence the 1995 Stock Option Plan of The Hallwood Group
Incorporated adopted by the Board on June 27, 1995, and amended March 15, 2001.
THE HALLWOOD GROUP INCORPORATED
By: /s/ MELVIN J. MELLE
----------------------------------
Name: Melvin J. Melle
Title: Vice President, Chief Financial
Officer and Secretary
B-9
34
DETACH HERE
PROXY
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned herby appoints Anthony J. Gumbiner and Melvin J. Melle,
and each of them, as Proxies, with the power to appoint their substitutes, and
hereby authorizes them to represent and vote, as designated below, all of the
shares of common stock of The Hallwood Group Incorporated (the "Company"), held
of record by the undersigned on March 23, 2001, at the Annual Meeting of
Stockholders to be held on Thursday, May 17, 2001, or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
be voted FOR the election of the nominees listed, for the amendment to the 1995
Stock Option Plan of the Company and at the discretion of the Proxies with
respect to any other matter that is properly brought before the meeting.
[SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE] SIDE
35
DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
PLEASE MARK BOXES IN BLUE OR BLACK INK.
FOR AGAINST ABSTAIN
1. Election of Directors. 2. Proposal to amend the 1995 Stock [ ] [ ] [ ]
NOMINEES: (01) Charles A. Crocco, Jr., (02) J. Thomas Talbot Option Plan.
FOR all nominees [ ] [ ] WITHHOLD AUTHORITY 3. In their discretion, the Proxies are [ ] [ ] [ ]
listed above to vote for all nominees authorized to vote upon such other
(except as marked listed above business as may properly come
to the contrary) before the meeting.
- ---------------------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line above) MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
COMPLETE, SIGN AND DATE THE PROXY CARD AND RETURN PROMPTLY
USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears at left. When shares
are held by joint tenants, both should sign, or if one signs
he/she should attach evidence of his/her authority.
When signing as attorney, executor, administrator, agent,
trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by President
or other authorized officer. If a partnership, please sign
full partnership name by authorized person.
Signature: Date: ,2001 Signature: Date: ,2001
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