UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
<Table>
[ ] 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
</Table>
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):
[ ] 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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(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 16, 2002, 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 three years; and
2. Transact any other business properly presented at the meeting.
Only stockholders of record at the close of business on Friday, March 22,
2002 are entitled to notice of and to vote at the annual meeting.
By order of the Board of Directors
MELVIN J. MELLE
Secretary
April 22, 2002
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.
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
---------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 16, 2002
---------------------
This proxy statement and the accompanying proxy are first being mailed on
or about April 22, 2002. The accompanying proxy is solicited by the board of
directors of the Company.
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
<Table>
1. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record at the close of business on Friday,
March 22, 2002, 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 three years; and
(2) 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 the nominee for
director. 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 nominee.
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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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</Table>
<Table>
5. Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE
PROPOSAL?
A: Your board of directors recommends that you vote FOR the
nominee for director.
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6. Q: HOW MANY SHARES CAN VOTE AT THE ANNUAL MEETING?
A: As of the record date, there were 1,361,343 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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</Table>
2
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.
ELECTION OF DIRECTOR
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 three years.
The individuals named on the enclosed proxy card intend to vote for the
election of the nominee listed below, unless you direct them to withhold your
vote. The nominee has indicated that he is able and willing to serve as
director. However, if for some reason the nominee is unable to stand for
election, the individuals named as proxies may substitute some other person for
the nominee and may vote for that nominee.
Below are the names and ages of the nominee and of the directors whose
terms 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 THREE-YEAR TERM ENDING WITH THE 2005 ANNUAL MEETING
Charles A. Crocco, Jr. .... Mr. Crocco, age 63, 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.
DIRECTOR CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING
Anthony J. Gumbiner........ Mr. Gumbiner, age 57, 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 also served as
Chairman of the Board and Chief Executive Officer
of Hallwood Energy Corporation and its predecessors
from 1987 until Hallwood Energy Corporation was
sold in May 2001, as a director of Hallwood
Holdings, S.A. ("HHSA") since 1984 and has served
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.
3
DIRECTOR CONTINUING IN OFFICE UNTIL THE 2004 ANNUAL MEETING
J. Thomas Talbot........... Mr. Talbot, age 66, 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. since March 1999.
Except as indicated above, neither the nominee nor the continuing directors
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 nominee, the directors and the
executive officers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE INDIVIDUAL NOMINATED FOR ELECTION AS DIRECTOR.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Messrs. Talbot (Chairman), Crocco and Gumbiner (from June 2001) served as
members of the Company's audit committee during the year ended December 31,
2001. The audit committee met five 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, 2001, the board of directors held four
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.
4
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 directors and the nominee 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.
<Table>
<Caption>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(1)
- ------------------------------------ ------------ -----------
Alpha Trust................................................. 726,687(2) 53.4
Le Roccabella
24 Princess Grace Avenue
Monte Carlo, 98000 Monaco
Charles A. Crocco, Jr. ..................................... 15,825(3) 1.2
J. Thomas Talbot............................................ 15,000(3) 1.1
Anthony J. Gumbiner......................................... 150,000(4) 9.9
William L. Guzzetti......................................... --(5) --
Melvin J. Melle............................................. 13,500(6) *
All directors and executive officers as a group (5
persons).................................................. 921,012 59.2
</Table>
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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 derivative securities owned by any other holder
of options. Unless otherwise noted, the address of each individual listed
above is 3710 Rawlins, Suite 1500, Dallas, Texas 75219.
(2) Mr. Gumbiner has the power to designate and replace the trustees of Alpha
Trust. Mr. Gumbiner and his family are among the discretionary beneficiaries
of Alpha Trust.
(3) Includes currently exercisable options to purchase 15,000 shares of common
stock.
(4) Includes currently exercisable options to purchase 150,000 shares of common
stock. Does not include 726,687 shares of common stock beneficially owned by
Alpha Trust through Hallwood Investments Limited, which is wholly-owned by
Alpha Trust. Mr. Gumbiner and Alpha Trust share voting and investment power
with respect to such shares. In addition, Mr. Gumbiner holds currently
exercisable options to purchase 25,800 units of HRP.
(5) Mr. Guzzetti does not own any shares or hold any options to purchase shares
of the Company. He owns 100 units of HRP and currently exercisable options
to purchase 15,000 units of HRP.
(6) Includes currently exercisable options to purchase 13,500 shares of common
stock.
5
EXECUTIVE COMPENSATION
The total compensation paid for each of the years ended December 31, 2001,
2000 and 1999 to the Chief Executive Officer, and the other executive officers
who received cash compensation in excess of $100,000 for 2001, referred to
collectively as the "Named Executive Officers," is set forth in the following
Summary Compensation Table.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM
COMPENSATION
AWARDS
-----------------------
ANNUAL COMPENSATION SECURITIES
---------------------------------- OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL CALENDAR COMPENSATION OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(4) SARS(#) ($) ($)
- ------------------ -------- ---------- ---------- ------------ ---------- ---------- ------------
Anthony J. Gumbiner............. 2001 114,176(1) 0 0 (5) (6) 1,884,009(8)
Chairman, President and 2000 300,000(1) 497,100(1) 0 (5) (6) 7,802
Chief Executive Officer 1999 168,333(1) 75,000(1) 0 (5) (6) 7,802
William L. Guzzetti............. 2001 397,505(2) 169,000(3) 0 (5) 170,413(7) 1,861,645(9)
Executive Vice President 2000 413,144(2) 615,100(3) 0 (5) 67,878 5,100
1999 413,144(2) 195,000(3) 0 (5) 23,251 4,800
Melvin J. Melle................. 2001 208,333 10,000 3,246 (5) 0 12,820(10)
Vice President, Chief 2000 208,333 0 3,246 (5) 0 13,603
Financial Officer and 1999 209,042 0 3,246 (5) 0 13,962
Secretary
</Table>
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(1) Consists of $114,176 in salary paid by Hallwood Energy Corporation for
2001; $300,000 in salary and $497,100 in bonus paid by Hallwood Energy
Corporation in 2000; and $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 $682,500 for 2001; $495,000 for 2000; and
$825,000 for 1999, 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, 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 each of
March 2002, 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 HRP, and in March 2002 the Board of Directors of Hallwood Commercial
Real Estate, LLC ("HCRE") approved a bonus of $33,000, which was paid by
HCRE.
(2) Consists of $189,172 paid by Hallwood Energy Corporation and its affiliates
for 2001; $204,811 paid by Hallwood Energy Corporation and its affiliates
for each of 2000 and 1999; and $208,333 paid by HRP for each of 2001, 2000
and 1999.
(3) Consists of $24,000 paid by HRP and $145,000 paid by HCRE for 2001;
$591,100 paid by Hallwood Energy Corporation and its affiliates and $24,000
paid by HRP for 2000; and $171,000 paid by Hallwood Energy Corporation and
its affiliates and $24,000 paid by HRP for 1999.
(4) Represents reimbursements to compensate for the income tax effect of
payment for life and/or disability insurance.
6
(5) Consists of the following options granted during calendar years ended 2001,
2000 and 1999. "HWG" refers to the Company and "HEC" to Hallwood Energy
Corporation. The HEC options were purchased in the tender offer.
<Table>
<Caption>
SECURITIES UNDERLYING
OPTIONS/SARS(#)
-------------------------
NAME COMPANY 2001 2000 1999
---- ------- ------ ------ -------
Anthony J. Gumbiner.......................... HWG 0 66,300 0
HEC 92,702 71,300 198,000
William L. Guzzetti.......................... HEC 54,867 42,200 117,000
Melvin J. Melle.............................. HWG 0 4,500 0
</Table>
(6) Payouts were made to HSC Financial in the amount of $677,621 pursuant to
Hallwood Energy Corporation's Phantom Working Interest Incentive Plan in
2001; $230,884 in 2000; and $66,208 for 1999.
(7) Consists of $170,413 paid pursuant to Hallwood Energy Corporation's Phantom
Working Interest Incentive Plan.
(8) Consists of $876,207 paid pursuant to a separation agreement with Hallwood
Energy Corporation, $1,000,000 paid in consideration for Mr. Gumbiner's
entering into a noncompetition agreement with Hallwood Energy Corporation
and $7,802 representing payments for term life insurance premiums.
(9) Consists of $956,545 paid pursuant to a separation agreement with Hallwood
Energy Corporation, $900,000 paid in consideration for Mr. Guzzetti's
entering into a noncompetition agreement with Hallwood Energy Corporation
and $5,100 representing contributions to tax savings plan.
(10) Consists of $5,680 premium payment for term life insurance and $7,140 for
payment to Special Bonus Plan in lieu of contribution to Tax Favored
Savings Plan.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth the options to purchase shares of the
Company and Hallwood Energy Corporation common stock granted to Named Executive
Officers during 2001. Except as noted below, no options held by Named Executive
Officers were exercised in 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL SHARE PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------
NAME GRANTED FISCAL YEAR PER SHARE($) DATE 5%($) 10%($)
- ---- ------------ ------------ ------------ ---------- ------ -------
Anthony J. Gumbiner....... 92,702(1) 23.3 9.875 1/31/08(1) (1) (1)
William L. Guzzetti....... 54,867(1) 13.8 9.875 1/31/08(1) (1) (1)
</Table>
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(1) All options vested immediately in connection with the sale of Hallwood
Energy Corporation in a tender offer completed in May 2001. Options for
shares of Hallwood Energy Corporation stock were purchased in the sale at an
amount per share equal to the difference between the tender offer price of
$12.50 per share and the exercise price of the option.
7
AGGREGATED OPTION/SAR EXERCISES
AND OPTION/SAR VALUES AT DECEMBER 31, 2001
The following table discloses for each of the Named Executive Officers who
have been granted options to purchase securities of the Company or its
subsidiaries, the number of options held by each of the Named Executive Officers
and the potential realizable values for their options at December 31, 2001.
Except as noted below, none of the Named Executive Officers exercised any
options during the year ended December 31, 2001, and the Company has not granted
SARs.
<Table>
<Caption>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SECURITIES OPTIONS/SARS AT OPTIONS/SARS AT
UNDERLYING DECEMBER 31, 2001(#) DECEMBER 31, 2001($)
EXERCISED VALUE ------------------------- -------------------------
NAME ENTITY OPTIONS/SARS(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------ --------------- ----------- ------------------------- -------------------------
Anthony J.
Gumbiner........... HWG 0 0 150,000/0 0/0
HRP 0 0 25,800/0 1,512,525/0
HEC(1) 362,002 1,893,830 0/0(1) 0/0(1)
William L.
Guzzetti........... HRP 15,000/0 879,375/0
HEC(1) 214,067 1,198,851 0/0(1) 0/0(1)
Melvin J. Melle...... HWG 0 0 13,500/0 0/0
</Table>
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(1) Options were purchased in connection with the sale of Hallwood Energy
Corporation in the tender offer at a per share price equal to the difference
between the tender offer price of $12.50 per share and the exercise price of
the option.
COMPENSATION OF DIRECTORS
For the year ended December 31, 2001, 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. Mr. Talbot received
$5,500 and Mr. Crocco $5,000 for time spent on Company business other than
attendance 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.
EMPLOYMENT AGREEMENTS
During the year ended December 31, 2001, 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, 2001, 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, 2001,
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 November 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.
During 2001, Messrs. Gumbiner and Guzzetti served on the board of directors
of Hallwood Realty, LLC, the general partner of HRP and on the board of
directors of Hallwood Energy Corporation, until it was sold in
8
May 2001. For HRP, 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 HRP, Hallwood Realty, LLC earns an asset management
fee and certain related fees from HRP, which amounted to $729,000 for the year
ended December 31, 2001. In addition, HRP reimbursed Hallwood Realty, LLC for
$3,297,000 of costs incurred by Hallwood Realty, LLC on behalf of HRP in 2001.
As property manager for HRP, the Company's HCRE subsidiary received management
fees, leasing commissions and other fees from HRP and related parties of
$5,367,000 during the year ended December 31, 2001.
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. The agreement currently
provides for an annual fee of $795,000. 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, 2001, HSC Financial was reimbursed in the amount of $343,853.
Of the amounts paid in 2001, $85,963 was paid by the Company and $257,890 was
paid by Hallwood Realty, LLC as general partner of HRP, for services rendered to
HRP.
COMPENSATION COMMITTEE
REPORTS ON EXECUTIVE COMPENSATION
GENERAL
The Company is a 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. From the consolidation of
the Company's energy interests with Hallwood Energy Partners and Hallwood
Consolidated Resources Corporation into Hallwood Energy Corporation in June
1999, until the sale of Hallwood Energy Corporation in May 2001, Hallwood Energy
Corporation paid Mr. Gumbiner compensation directly for his services to that
company. Mr. Gumbiner's compensation for his services with respect to Hallwood
Energy Corporation was determined by Hallwood Energy Corporation's compensation
committee. Hallwood Energy Corporation was purchased by Pure Resources, Inc. in
a tender offer completed in May 2001. HSC Financial was also involved in the
activities of Hallwood Realty, LLC and HCRE during 2001. 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, acting in its
capacity as the compensation committee.
Mr. Guzzetti was involved in the activities of Hallwood Energy Corporation,
Hallwood Realty, LLC and HCRE during 2001. Mr. Guzzetti's compensation for his
services with respect to Hallwood Energy Corporation was determined by Hallwood
Energy Corporation's compensation committee until the purchase of Hallwood
Energy Corporation by Pure Resources in 2001. 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 2001 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.
9
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 transactions that
provide material benefits to the Company.
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. For 2001, the board of directors of the Company approved
the payment of bonuses under the HCRE Executive Incentive Plan to HSC Financial
of $33,000 and to Mr. Guzzetti of $145,000.
2001 Members of the 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 HRP. 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
HRP have experienced favorable operating results or completed transactions that
benefit Hallwood Realty, LLC or HRP. For 2001, 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 HRP 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.
2001 Members of the Hallwood Realty, LLC Board of Directors
Anthony J. Gumbiner
William L. Guzzetti
Edward T. Story
Alan G. Crisp
William F. Forsyth
10
REPORT OF THE AUDIT COMMITTEE
The audit committee is composed of three 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 members are J.
Thomas Talbot, chairman of the audit committee, Charles A. Crocco, Jr. and
Anthony J. Gumbiner. The board of directors believes that Messrs. Talbot and
Crocco are independent, as defined by the American Stock Exchange's Listed
Company Guide. Mr. Gumbiner, although not "independent" for purposes of the
rules and regulations of the American Stock Exchange, possesses certain
experience and qualifications appropriate for service on the audit committee
and, by virtue of his personal interest in the success of the Company, is
considered to be a valuable member of the audit committee and provides an
objective review of the functions and reports of the Company's independent
auditors.
Management is responsible for the Company's internal controls and the
financial reporting process. Deloitte & Touche LLP ("D&T"), the Company's
independent auditors, is responsible for performing an independent audit of the
Company's consolidated financial statements with auditing standards generally
accepted in the United States. 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 D&T. Specifically, the audit
committee has discussed with D&T matters required to be discussed by Statement
on Auditing Standards No. 61.
The audit committee received from D&T the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee), and has discussed with D&T the issue of its
independence from the Company.
Management is responsible for the Company's financial reporting process,
including its system of internal control, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. The Company's independent auditors are responsible for
auditing those financial statements. The audit committee's responsibility is to
monitor and review these processes. It is not the audit committee's duty or its
responsibility to conduct auditing or accounting reviews or procedures. Other
than Mr. Gumbiner, members of the audit committee are not employees of the
Company and may not be, and may not represent themselves to be or to serve as,
accountants or auditors by profession or experts in the fields of accounting or
auditing. Therefore, the audit committee has relied, without independent
verification, on management's representation that the financial statements have
been prepared with integrity and objectivity and in conformity with accounting
principles generally accepted in the United States of America and on the
representations of the independent auditors included in their report on the
Company's financial statements. The audit committee's oversight does not provide
it with an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or policies, or
appropriate internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. Furthermore, the audit
committee's considerations and discussions with management and the independent
auditors do not assure that the Company's financial statements are presented in
accordance with generally accepted accounting principles, that the audit of the
Company's financial statements has been carried out in accordance with generally
accepted auditing standards or that the Company's independent accountants are in
fact "independent."
Based on the audit committee's review of the audited financial statements
and its discussions with management and D&T 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, 2001.
2001 Members of the Audit Committee of The Hallwood Group Incorporated
J. Thomas Talbot
Charles A. Crocco, Jr.
Anthony J. Gumbiner (since June 2001)
11
PERFORMANCE GRAPH
The following performance graph compares the 5-year cumulative total 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," which consist of HRP, AmeriVest Properties, Inc. and
Maxus Realty Trust, Inc. The Company previously provided performance data using
a peer group consisting of HRP, Milestone Properties, Inc. and Pacific Gateway
Properties, Inc. The Company has selected a new peer group because Milestone
Properties, Inc. is no longer publicly traded and Pacific Gateway Properties,
Inc. has a different market capitalization than the Company. Consequently, the
Company feels that the new peer group is more appropriate for purposes of this
proxy statement.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG THE HALLWOOD GROUP INCORPORATED,
THE RUSSELL 2000 INDEX,
A NEW PEER GROUP AND AN OLD PEER GROUP
[PERFORMANCE GRAPH]
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
- -----------------------------------------------------------------------------------------------------------
THE HALLWOOD GROUP INCORPORATED 100 235 119 115 37 55
RUSSELL 2000 100 123 120 145 140 144
NEW PEER GROUP 100 178 208 185 175 267
OLD PEER GROUP 100 194 243 209 189 289
</Table>
* $100 invested on 12/31/96 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AND MANAGEMENT AGREEMENTS
Effective January 1997, 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 agreement was amended to change the annual fee to $795,000 in
May 2001.
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, 2001.
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, an entity associated with its chairman and
principal stockholder, Anthony J. Gumbiner, in the amount of $1,500,000 and
$1,000,000, respectively. Significant terms included: (1) a term of five years;
(2) a fixed interest rate of 10%; (3) interest and principal payments were
deferred until maturity; (4) the loans were unsecured and subordinated to the
Company's senior secured term loan; and (5) the loan amounts were 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.
In accordance with the terms of the notes, the Company repaid the March and
September 2000 notes in December 2001, for $1,760,417 and $1,120,555,
respectively and repaid the March 2001 note in March 2002 for $1,648,333, in
each case including accrued interest.
AUDITORS
D&T served as the Company's independent auditors for the years ended
December 31, 2001, 2000 and 1999 and has been selected to serve in that capacity
again for the year ended December 31, 2002. A representative of D&T 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
D&T provided services to the Company in the following categories and
amounts:
<Table>
Audit fees................................................ $275,000
Financial information systems design and implementation
fees.................................................... $ 0
All other fees(1)......................................... $155,000
</Table>
- ---------------
(1) The audit committee has determined that the provision of these services, the
majority of which include tax compliance and tax planning services, is
compatible with maintaining the principal accountants' independence.
13
STOCKHOLDER PROPOSALS
If a stockholder intends to present a proposal for action at the 2003
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 18, 2002. 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 13, 2003. 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 2003 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, except for one Form 4 for each of Mr. Gumbiner and Mr. Melle relating to
a single grant of stock options granted in May 2000, which Form 4s were
inadvertently filed late.
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 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.
Please note, however, that if your shares of common stock are voted against
the nominees for director, the proxy holders will not use their discretion to
vote your shares in favor of any adjournment or postponement of the annual
meeting.
By order of the Board of Directors
MELVIN J. MELLE
Secretary
April 22, 2002
14
2070-PS-02
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 hereby appoints Anthony J. Gumbiner and J. Thomas Talbot,
and each of them, as Proxies, each 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 22, 2002, at the Annual Meeting of
Stockholders to be held on Thursday, May 16, 2002, 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 nominee listed 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
- -------------- --------------
THE HALLWOOD GROUP INCORPORATED
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
<Table>
DETACH HERE ZHGI11
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
PLEASE MARK BOXES IN BLUE OR BLACK INK.
FOR AGAINST ABSTAIN
1. Election of Director. 2. In their discretion, the Proxies are [ ] [ ] [ ]
NOMINEE: (01) Charles A. Crocco, Jr. authorized to vote upon such other
business as may properly come before
FOR WITHHELD the meeting.
[ ] [ ]
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
should attach evidence of his 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: Signature: Date:
----------------------------------- ----------- -------------------------------------- -----------
</Table>