<PAGE> 1
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
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 sec. 240.14a-11(c) or sec. 240.14a-12
The Hallwood Group Incorporated
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
The Hallwood Group Incorporated
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(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):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
/X/ 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:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
<PAGE> 2
THE HALLWOOD GROUP INCORPORATED
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of The Hallwood Group Incorporated:
The Special Meeting of Stockholders (the "Special Meeting") of The Hallwood
Group Incorporated (the "Company") will be held as follows:
PLACE: Four Seasons Yorkville
21 Avenue Road
32nd Floor, Windows South
Toronto, Ontario, Canada M542G1
TIME: Tuesday, June 27, 1995, at 9:00 a.m.
(Toronto time)
PURPOSES: 1. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to effect a one-for-four reverse
stock split of the Company's common stock, par value $.10 per
share (the "Common Stock");
2. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to restrict certain transfers of the
Company's Common Stock in an attempt to protect certain of the
Company's federal income tax benefits; and
3. To transact any and all other business that may properly come
before the Special Meeting or any adjournment(s) thereof.
Only stockholders of record at the close of business on May 15, 1995 will
be entitled to notice of and to vote at the Special Meeting.
May 26, 1995
By Order of the Board of Directors
MELVIN J. MELLE
Secretary
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS
IMPORTANT FOR YOU TO BE REPRESENTED AT THE SPECIAL MEETING. THE EXECUTION OF
YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT
THE SPECIAL MEETING.
<PAGE> 3
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS
SUITE 1500
DALLAS, TEXAS 75219
---------------------
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 27, 1995
---------------------
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the Board of Directors of The
Hallwood Group Incorporated (the "Company"), to be voted at the Special Meeting
of Stockholders of the Company to be held on June 27, 1995 (the "Special
Meeting"), at the time and place, and for the purposes, set forth in the
accompanying Notice of Special Meeting of Stockholders, and at any
adjournment(s) of that meeting. When proxies in the accompanying form are
properly executed and received, the shares represented thereby will be voted at
the Special Meeting in accordance with the directions noted thereon; if no
directions are indicated, the shares will be voted in favor of the proposals set
forth in this Proxy Statement, and in the discretion of the persons appointed as
Proxies in the accompanying form of proxy with respect to any other matter that
is properly brought before the meeting.
Each stockholder of the Company has the unconditional right to revoke the
proxy at any time prior to its exercise, either in person at the Special Meeting
or by written notice to the Company addressed as follows: Secretary, The
Hallwood Group Incorporated, 3710 Rawlins, Suite 1500, Dallas, Texas 75219. No
revocation by written notice shall be effective unless such notice has been
received by the Secretary of the Company prior to the day of the Special Meeting
or by the inspector of elections at the Special Meeting.
The principal executive offices of the Company are located at 3710 Rawlins,
Suite 1500, Dallas, Texas 75219. This Proxy Statement and the accompanying
Notice of Special Meeting of Stockholders and proxy are being mailed to the
Company's stockholders on or about May 26, 1995.
In addition to the solicitation of proxies by use of this Proxy Statement,
directors, officers, and regular employees of the Company may solicit the return
of proxies either by mail, personal interview, telephone, or telegraph. Officers
and employees of the Company will not be compensated additionally for their
solicitation efforts, but they will be reimbursed for any out-of-pocket expenses
incurred. In addition, the Company has retained Morrow & Co., Inc. to assist in
the solicitation of proxies, for which such firm will be paid a fee of $3,500
plus reimbursement of reasonable out-of-pocket expenses. Brokerage houses and
other custodians, nominees, and fiduciaries will be requested, in connection
with the stock registered in their names, to forward solicitation materials to
the beneficial owners of such stock.
All costs of paying, printing, assembling, and mailing the Notice of
Special Meeting of Stockholders, this Proxy Statement, the enclosed form of
proxy, and any additional materials, as well as the cost of forwarding
solicitation materials to the beneficial owners of stock and all other costs of
solicitation, will be borne by the Company.
PURPOSES OF THE MEETING
At the Special Meeting, the Company's stockholders will be asked to
consider and act upon the following matters:
1. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to effect a one-for-four reverse stock split of the
Company's common stock, par value $.10 per share (the "Common Stock");
<PAGE> 4
2. To consider and act upon a proposal to amend the Company's Certificate
of Incorporation to restrict certain transfers of the Company's Common
Stock in an attempt to protect certain of the Company's federal income
tax benefits; and
3. To transact any and all other business that may properly come before the
Special Meeting or any adjournment(s) thereof.
QUORUM AND VOTING
The directors have fixed the close of business on May 15, 1995 as the
record date (the "Record Date") for the determination of stockholders to vote at
the Special Meeting and any adjournment thereof. As of the Record Date, the
Company had issued and outstanding 6,383,267 shares of Common Stock. As of the
Record Date, 898,653 of such outstanding shares of Common Stock were owned by
Hallwood Energy Corporation ("HEC"), an oil and gas corporation of which the
Company owns approximately 70.2% of the outstanding capital stock on a fully
diluted basis.
Each stockholder of record of Common Stock will be entitled to one vote per
share in each matter that is called to vote at the Special Meeting.
The presence, either in person or by proxy, of holders of a majority of the
voting power of the Company is necessary to constitute a quorum at the Special
Meeting. Assuming the presence of a quorum, the affirmative vote of the holders
of at least a majority of the outstanding shares of Common Stock is required for
the approval of each proposal. HEC, which owns approximately 14.1% of the
outstanding Common Stock, has informed the Company that it will vote all of its
shares in favor of each proposal. In addition, Alpha Trust and Epsilon Trust,
which own approximately 18.6% and 12.4% of the outstanding Common Stock,
respectively, have informed the Company that they will vote all of their shares
of Common Stock in favor of each proposal.
All proxies that are properly completed, signed and returned prior to the
Special Meeting will be voted. Any proxy given by a stockholder may be revoked
at any time before it is exercised by (i) filing with the Secretary of the
Company an instrument revoking it, (ii) a duly executed proxy bearing a later
date or (iii) the stockholder attending the Special Meeting and expressing a
desire to vote his shares of Common Stock in person. 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 a matter called for a vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the close of business on the Record
Date, information as to the beneficial ownership of shares of Common Stock (i)
for any person or "group" (as that term is used in Section 13(d)(3) of the
Exchange Act) who or which the Company knows owns beneficially more than 5% of
the outstanding shares of Common Stock as of the close of business on the Record
Date, (ii) for each director and (iii) for all directors and executive officers
as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS(1)
---------------- ------------ -------------
<S> <C> <C>
Alpha Trust................................................ 1,188,670(2) 18.6%
c/o Radcliffes Trustee Company SA
9 Rue, Charles Humbert
1205 Geneva, Switzerland
Hallwood Energy Corporation................................ 898,653(3) 14.1%
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS(1)
---------------- ------------ -------------
<S> <C> <C>
Epsilon Trust.............................................. 792,448(4) 12.4%
c/o Merohaus Verwaltung AG
Utoquai, 43,8008
Zurich, Switzerland
Charles A. Crocco, Jr...................................... 2,257 *
Anthony J. Gumbiner........................................ --(5) --
William L. Guzzetti........................................ --(6) --
Robert L. Lynch............................................ 27,925(7) *
Melvin J. Melle............................................ 60,000(8) *
J. Thomas Talbot........................................... -- --
Brian M. Troup............................................. --(9) --
All directors and executive officers
as a group (7 persons)................................... 90,182 1.4%
</TABLE>
---------------
* Less than 1%
(1) Assumes, for each person or group listed, the conversion of all convertible
securities owned and the exercise of all stock options held by such person
or group that are convertible or exercisable within 60 days, in accordance
with Rule 13d-3(d)(1)(i) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), but the conversion of none of the convertible
securities owned by any other holder of such securities.
(2) Based on the Amendment to Schedule 13D provided to the Company by Alpha
Trust as of November 9, 1994. Mr. Gumbiner has the power to designate and
replace the trustees of Alpha Trust.
(3) Mr. Gumbiner is the Chairman of the Board of Directors and Chief Executive
Officer and Mr. Guzzetti is the President of HEC.
(4) Based on the Amendment to Schedule 13D provided to the Company by Epsilon
Trust as of December 30, 1994. Mr. Troup has the power to designate and
replace the trustees of Epsilon Trust.
(5) Excludes 898,653 shares of Common Stock held by HEC, of which Mr. Gumbiner
is the Chairman of the Board of Directors and Chief Executive Officer, and
1,188,670 shares of Common Stock held by Alpha Trust. Mr. Gumbiner has the
power to designate and replace the trustees of Alpha Trust. The shares of
Common Stock held by Alpha Trust are pledged to IBJ Schroder Bank & Trust
Company ("IBJ Schroder"), as trustee under an indenture as collateral for
bonds issued by Hallwood Holdings S.A., a Luxembourg corporation ("HHSA").
HHSA no longer claims beneficial interest in the shares, but the shares
remain pledged as collateral for these bonds. Mr. Gumbiner is a director of
HHSA.
(6) Excludes 898,653 shares of Common Stock held by HEC, of which Mr. Guzzetti
is the President.
(7) These shares are owned beneficially and of record by Perpetual Storage,
Inc. Mr. Lynch is deemed to beneficially own such shares by virtue of his
ownership of 96.7% of the outstanding shares of Perpetual Storage, Inc.
(8) Includes currently exercisable options to purchase 60,000 shares of Common
Stock.
(9) Excludes 792,448 shares of Common Stock held by Epsilon Trust. Mr. Troup
has the power to designate and replace the trustees of Epsilon Trust. These
shares are pledged to IBJ Schroder, as trustee under an indenture as
collateral for the bonds issued by HHSA. HHSA no longer claims beneficial
interest in the shares, but the shares remain pledged as collateral for
these bonds. Mr. Troup is a director of HHSA.
3
<PAGE> 6
REVERSE SPLIT
GENERAL
At the Special Meeting, stockholders will consider and vote upon a proposal
providing for a one-for-four reverse split of the Common Stock (the "Reverse
Split"). The Reverse Split will be effected by an amendment to the Company's
Certificate of Incorporation (the "Reverse Split Amendment") that is contained
in Exhibit A hereto, which is incorporated by reference herein. The provisions
of the Reverse Split Amendment will become effective upon the filing of a
certificate of amendment with the Secretary of State of the State of Delaware
(the "Effective Date"). Fractional shares of Common Stock will not be issued as
a result of the Reverse Split. Stockholders entitled to receive a fractional
share of Common Stock as a consequence of the Reverse Split will instead receive
from the Company a cash payment in United States dollars equal to such fraction
multiplied by four times the average closing price of the Common Stock on the
New York Stock Exchange for the five trading days immediately preceding the
Effective Date.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Reverse Split Amendment will amend Article Fourth of the Certificate of
Incorporation to add a new Paragraph 1(c). At the Effective Date, without
further action on the part of the Company or the holders, each share of Common
Stock will be converted into one-fourth of a share of Common Stock. The Reverse
Split Amendment will be filed with the Secretary of State of the State of
Delaware and will become effective on the date of such filing. The Reverse Split
Amendment will not affect the number of authorized shares of the Company's
Common Stock.
VOTE NEEDED FOR APPROVAL
The proposed Reverse Split and the related amendment to the Company's
Certificate of Incorporation must be approved by the holders of at least a
majority of the outstanding shares of Common Stock.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH
THE PROPOSED REVERSE SPLIT AMENDMENT AND DECLARING ITS ADVISABILITY, AND HEREBY
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED AMENDMENT.
EFFECT OF THE PROPOSED REVERSE SPLIT
The proposed Reverse Split will be effected by means of an amendment to the
Certificate of Incorporation. As such, no appraisal rights are available to
dissenting stockholders under Delaware law. Each stockholder who owns fewer than
four shares of Common Stock, as of the Effective Date, will have his shares of
Common Stock converted into the right to receive cash for his fractional share
resulting from the Reverse Split as set forth in "-- Exchange of Stock
Certificates and Payment for Fractional Shares". The interest of such
stockholder in the Company will thereby be terminated, and such stockholder will
have no right to share in the assets or future growth of the Company. Each
stockholder who owns four or more shares of Common Stock will continue to own
shares of Common Stock and will share in the assets and future growth of the
Company. Such interest will be represented by one-fourth as many shares as
before the Reverse Split, except that cash will be received in lieu of
fractional shares resulting from the Reverse Split.
4
<PAGE> 7
The following unaudited schedule of stockholders' equity sets forth as of
January 31, 1995, on a pro forma basis, the effect of the adoption of the
Reverse Split proposal. Adoption of the Reverse Split proposal will result in a
one-for-four reverse split of the Common Stock with stockholders receiving cash
in lieu of fractional shares.
PRO FORMA SCHEDULE OF STOCKHOLDERS' EQUITY
ASSUMING ADOPTION OF REVERSE SPLIT PROPOSAL
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA ADJUSTED BALANCE
JANUARY 31, 1995 ADJUSTMENTS(1) JANUARY 31, 1995
---------------- -------------- ----------------
<S> <C> <C> <C>
Preferred Stock, $0.10 par value; unissued......... $ -- $ -- $ --
Common Stock, $0.10 par value;
(pre-proposal -- issued 6,394,709 shares;
outstanding 5,487,267 shares;
post-proposal -- issued 1,598,677 shares;
outstanding 1,371,817 shares).................... 639 (479) 160
Additional paid-in capital......................... 56,538 479 57,017
Accumulated deficit................................ (46,575) -- (46,575)
Equity adjustment from foreign currency
translation...................................... 245 -- 245
Treasury Stock, at cost; (pre-proposal -- 907,442
shares; post-proposal -- 226,860 shares)(2)...... (6,296) -- (6,296)
------------ ---------- ------------
Total stockholders' equity............... $ 4,551 $ -- $ 4,551
============ ========== ============
</TABLE>
---------------
(1) Represents the proposed one-for-four Common Stock Reverse Split, which
results in a net reduction of 4,115,450 shares of Common Stock outstanding
assuming no fractional shares purchased for cash.
(2) Assumes 896,000 shares owned by HEC at January 31, 1995 on a pre-proposal
basis.
Adoption of the Reverse Split proposal as of August 1, 1993 would not have
had an effect on net loss for the fiscal year ended July 31, 1994. However, net
loss per share would have been increased from $0.80 to $3.20. No adjustment has
been made for the reduction in the number of shares of Common Stock resulting
from the payment of cash for fractional shares.
The Company does not anticipate that the Reverse Split will affect the
listing of the Common Stock on the New York Stock Exchange. However, New York
Stock Exchange policies provide that consideration will normally be given to
delisting a security of a company when, among other criteria that the Company
meets, the net tangible assets available to common stock are less than
$8,000,000 and average net income after taxes for the past three years is less
than $600,000. The Company's net tangible assets available to common stock as of
January 31, 1995 were less than $8,000,000 and the Company has incurred a net
loss for each of the past three years. Accordingly, the New York Stock Exchange
has informed the Company that it will monitor the Company's listing, but is not
taking any action at this time.
REASONS FOR THE REVERSE SPLIT
Management of the Company believes that it is difficult to attract new
investors to the Company due to the fact that the Common Stock trades at a
relatively low price (the closing price on the Record Date was $3.25 per share).
Institutional investors typically are unwilling to invest in companies whose
stock trade at less than $5, and, in some cases, $10 per share. Stockbrokers
also are sometimes subject to internal restrictions on their ability to
recommend stocks trading at less than $5 per share, because of the general
presumption that such stock may be highly speculative. In addition, stock which
trades in the range of the Company's Common Stock may not be marginable under
the internal policies of some stockbrokers.
5
<PAGE> 8
It is anticipated that following the consummation of the Reverse Split, the
shares of Common Stock will trade at a price per share that is significantly
higher than the current market price and more typical of stocks which trade on
the New York Stock Exchange. However, there can be no assurance that the shares
of Common Stock, after the consummation of the Reverse Split, will trade at four
times the market price of the Common Stock prior to the Reverse Split.
EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
The exchange of shares of Common Stock will occur on the Effective Date (i)
without any action on the part of stockholders of the Company and (ii) without
regard to the date or dates certificates formerly representing shares of Common
Stock are physically surrendered for certificates representing the number of
shares of Common Stock such stockholders are entitled to receive as a
consequence of the Reverse Split. The Exchange Agent will effectuate the
exchange of certificates. In the event that the number of shares of Common Stock
into which shares of Common Stock will be exchanged or converted includes a
fraction, the Company will pay to the holder of such fraction, in lieu of the
issuance of fractional shares of the Company, a cash amount in United States
dollars which will be equal to the same fraction multiplied by four times the
average closing price of the Common Stock on the New York Stock Exchange for the
five trading days immediately preceding the Effective Date.
As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates formerly representing shares of
Common Stock to be used in forwarding their certificates for surrender and
exchange for certificates representing the number of shares of Common Stock such
stockholders are entitled to receive as a consequence of the Reverse Split.
After receipt of such transmittal form, each such holder should surrender the
certificates formerly representing shares of Common Stock of the Company and
such holder will receive in exchange therefor certificates representing the
whole number of shares of Common Stock to which he is entitled and any cash
which may be payable in lieu of any fractional share. Such transmittal forms
will be accompanied by instructions specifying other details of the exchange.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Date, each certificate representing shares of Common
Stock will, until surrendered and exchanged as described above, be deemed, for
all corporate purposes, to evidence ownership of the whole number of shares of
Common Stock, and the right to receive from the Company the amount of cash for
any fractional share, into which the shares evidenced by such certificate have
been converted, except that the holder of such unexchanged certificates will not
be entitled to receive any dividends or other distributions payable by the
Company after the Effective Date with respect to the shares which the
stockholder is entitled to receive because of the Reverse Split, until the
certificates representing such shares of Common Stock have been surrendered.
Such dividends and distributions, if any, will be accumulated and, at the time
of such surrender, all such unpaid dividends or distributions will be paid
without interest.
The Company estimates that payments for fractional shares resulting from
the Reverse Split will aggregate, at a maximum, $60,000, and likely will
aggregate significantly less than such amount. The Company intends to use
internally generated funds for such purpose.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes certain federal income tax consequences
of the Reverse Split. This discussion is based upon the Internal Revenue Code of
1986 (the "Code"), existing and proposed regulations thereunder, reports of
congressional committees, judicial decisions and current administrative rulings
and practices, all as amended and in effect on the date hereof. Any of these
authorities could be repealed, overruled or modified at any time. Any such
change could be retroactive and, accordingly, could modify the tax consequences
discussed herein. No ruling from the Internal Revenue Service (the "IRS") with
respect to the matters discussed herein has been requested and there is no
assurance that the IRS would agree with the conclusions set forth in this
discussion.
6
<PAGE> 9
This discussion is for general information only and does not address the
federal income tax consequences that may be relevant to particular stockholders
in light of their personal circumstances or to certain types of stockholders
(such as dealers in securities, insurance companies, foreign individuals and
entities, financial institutions and tax-exempt entities) who may be subject to
special treatment under the federal income tax laws. This discussion also does
not address any tax consequences under state, local or foreign laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF PARTICIPATION IN THE REVERSE SPLIT, INCLUDING THE
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX
LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
The Company will not recognize any gain or loss as a result of the Reverse
Split. No gain or loss should be recognized by a stockholder who receives only
Common Stock upon the Reverse Split. The aggregate tax basis of Common Stock
received by such a stockholder in connection with the Reverse Split will equal
the stockholder's aggregate tax basis in the Common Stock exchanged therefore
and generally will be allocated among Common Stock received on a pro rata basis.
Stockholders who have used the specific identification method to identify their
basis in Common Stock surrendered in the Reverse Split should consult their own
tax advisors to determine their basis in the Common Stock received in exchange
therefor. A stockholder who receives cash in lieu of a fractional share of
Common Stock that otherwise would be held as a capital asset generally should
recognize capital gain or loss on the receipt of such cash in an amount equal to
the difference between the cash received and the stockholder's basis in such
fractional share of Common Stock. For this purpose, a stockholder's basis in
such fractional share of Common Stock will be determined as if the stockholder
actually received such fractional share.
RESTRICTION ON TRANSFER OF COMMON STOCK
GENERAL
At the Special Meeting, stockholders will consider and vote upon a proposal
providing for an amendment to the Company's Certificate of Incorporation (the
"Stock Transfer Amendment") that would impose certain restrictions upon the
transfer of the Company's Common Stock to designated persons (the "Stock
Transfer Restrictions"). It is currently possible that certain future transfers
of the Company's stock could result in the imposition of limitations on the
ability of the Company to utilize its carryforwards of net operating losses and
certain credits for federal income tax purposes. The Board of Directors believes
that it is advisable and in the best interest of the Company to attempt to
prevent the imposition of such limitations by adopting the amendment described
below.
BACKGROUND REGARDING DELAWARE LAW
Under the laws of the State of Delaware, pursuant to which the Company is
incorporated, a corporation may provide in its certificate of incorporation or
bylaws that a transfer of a security of the Company to designated persons or
classes of persons may be prohibited so long as the designation of the persons
or classes of persons is not manifestly unreasonable. Under Delaware law, any
restriction on the transfer of shares of Common Stock of the Company for the
purposes of maintaining any tax advantage to the Company is conclusively
presumed to be for a reasonable purpose. The transfer restriction must be noted
conspicuously on the certificate representing the shares to be enforceable
against the holder of the restricted shares or any successor or transferee of
the holder. If the restriction is not conspicuously noted on the certificate
representing the shares, Delaware law provides that the restriction is
ineffective except against a person with actual knowledge of the restriction.
Finally, no restriction so imposed is binding with respect to shares issued
prior to the inclusion of the restrictions in the certificate of incorporation
or bylaws unless the holders of such shares agree thereto or vote in favor
thereof.
7
<PAGE> 10
REASONS FOR ADOPTION OF STOCK TRANSFER AMENDMENT
The restrictions imposed by the proposed Stock Transfer Amendment are
designed to restrict transfer of the Company's Common Stock that could result in
the imposition of limitations on the use, for federal income tax purposes, of
the Company's carryforwards of net operating losses and certain credits. The
Company estimates that it had, as of the Record Date, carryforwards of net
operating losses of approximately $62,000,000, of which approximately
$12,000,000 are subject to certain limitations regarding their utilization, and
$548,000 of alternative minimum tax credits which never expire. For federal
income tax purposes, the carryforwards of net operating losses will expire
through the year 2009. Because the amount and timing of the Company's taxable
income in the current fiscal year and thereafter cannot be accurately predicted,
it is not presently feasible to estimate the amount, if any, of carryforwards
that ultimately may be used to reduce the Company's federal income tax
liability.
The benefit of the Company's existing and future loss and credit
carryforwards can be reduced or eliminated if the Company undergoes an
"ownership change," as defined in Section 382 of the Code. Generally, an
"ownership change" occurs if one or more stockholders, each of whom owns 5% or
more in value of a company's capital stock, increase their aggregate percentage
ownership by more than 50 percentage points over the lowest percentage of stock
owned by such stockholders over the preceding three-year period. For this
purpose, all holders who each own less than 5% of a company's capital stock
generally are treated together as one 5% stockholder. In addition, certain
attribution rules, which generally attribute ownership of stock to the ultimate
beneficial owner thereof without regard to ownership by nominees, trusts,
corporations, partnerships or other entities, are applied to determine the level
of stock ownership of a particular stockholder. If a principal purpose of the
issuance, transfer or structuring of an option (including a warrant) to acquire
stock is to avoid or ameliorate the impact of an "ownership change," such option
may be treated as if it had been exercised for purposes of determining whether
an "ownership change" has occurred. All percentage determinations are based on
the fair market value of a company's capital stock, including, if any, preferred
stock that is voting or convertible and certain other interests in the Company.
If the Company were to undergo an "ownership change," the amount of future
taxable income of the Company that could be offset in any year by its
carryforwards of net operating losses and credits incurred prior to such
"ownership change" could not exceed an amount equal to the product obtained by
multiplying (i) the aggregate value of the Company's outstanding capital stock
immediately prior to the "ownership change" (reduced by certain capital
contributions made during the immediately preceding two years and certain other
items) by (ii) the federal long-term tax-exempt interest rate (currently
approximately 6.50%). Because the aggregate value of the Company's outstanding
stock and the federal long-term tax-exempt interest rate fluctuate, it is
impossible to predict with any accuracy the annual limitation upon the amount of
taxable income of the Company that could be offset by such loss carryforwards
and credits were an "ownership change" to occur in the future. While the
carryovers not used as a result of this limitation would remain available to
offset variable income in future years (again, subject to the limitation), an
ownership change could significantly defer the utilization of the carryovers,
accelerate payment of federal income tax and cause a portion of the carryovers
to expire unused.
The Company currently knows of no stockholder owning more than 4.75%, based
on value, of the Company's capital stock other than persons listed in the table
under "Security Ownership of Certain Beneficial Owners and Management" above. It
is possible that additional accumulations of the Company's Common Stock by such
persons or by stockholders who become holders of at least 5% of the Company's
capital stock would result in an "ownership change" with the consequent loss or
deferral of the potential benefits arising from the Company's carryforwards of
net operating losses and credits. The Stock Transfer Restrictions recommended by
the Board of Directors are intended to reduce the risk of such additional
accumulations by prohibiting certain transfers of the Company's Common Stock.
DESCRIPTION AND EFFECT OF PROPOSED AMENDMENT
The proposed Stock Transfer Restrictions will be effected by means of an
amendment to the Certificate of Incorporation. As such, no appraisal rights are
available to dissenting stockholders under Delaware law. The
8
<PAGE> 11
proposed Stock Transfer Amendment is contained in Exhibit A hereto, which is
incorporated by reference herein, and the following discussion of the terms
thereof is qualified in its entirety by reference thereto. Pursuant to the
policies of the New York Stock Exchange, the Stock Transfer Restrictions will
not preclude the settlement of any transaction through the facilities of the New
York Stock Exchange. The Company will retain all other rights and remedies under
the Stock Transfer Restrictions.
Upon approval of the Stock Transfer Amendment, Article Fourth of the
Company's Certificate of Incorporation would be amended to add a new Paragraph
1(d), which would restrict, until the earliest of July 31, 2009, or such date
after which Section 382 of the Code is repealed or substantially modified such
that, in the opinion of counsel to the Company, the Stock Transfer Restrictions
are no longer necessary to accomplish their intended purpose, any transfer of
shares of the Company's Common Stock (i) to a person or entity (or group of
persons or entities acting in concert) who directly or indirectly owns, or whose
shares are or would be attributed to a person, entity or group who directly or
indirectly owns, in either case prior to the transfer and after giving effect to
the applicable attribution rules of the Code, more than 4.75% of the value of
the outstanding capital stock (within the meaning of Section 382 of the Code) of
the Company or (ii) to a person or entity (or group of persons or entities
acting in concert) not described in clause (i) who directly or indirectly would
own, or whose shares would be attributed to any person, entity or group who
directly or indirectly would own, in either case as the result of and
immediately after the transfer and after giving effect to the applicable
attribution rules of the Code, more than 4.75% of the value of the outstanding
capital stock (within the meaning of Section 382 of the Code) of the Company,
provided that the restriction shall apply only to the number of shares of Common
Stock representing such excess over 4.75%. A transfer that would otherwise be
prohibited may be effected if the transferor or proposed transferee obtains the
written approval of the Company's Board of Directors. The Board of Directors may
require as a condition of any transfer, that a transferor or proposed transferee
provide the Company with an opinion of counsel satisfactory to the Company to
the effect that the transfer would not result in an "ownership change" within
the meaning of Section 382 of the Code.
The Stock Transfer Restrictions may be removed by amending Article Fourth
of the Certificate of Incorporation in accordance with the provisions of
Delaware law. The restriction period is based on Section 172 of the Code, which
permits a net operating loss to be carried forward for a maximum of 15 taxable
years following the taxable year in which the loss arose.
The Company believes that, as of the Record Date, the only stockholders who
beneficially own more than 4.75% in value of the Company's outstanding capital
stock are those stockholders listed on the table set forth under "Security
Ownership of Certain Beneficial Owners and Management" above. The Stock Transfer
Restrictions, to the extent applicable, would prohibit any other person, entity
or group from acquiring sufficient shares of Common Stock to cause such person,
entity or group to become the owner of more than 4.75% of the value of Company's
outstanding capital stock (within the meaning of Section 382 of the Code) and
would prohibit the stockholders set forth under "Security Ownership of Certain
Beneficial Owners and Management" from increasing their respective ownership of
Common Stock of the Company, without obtaining the prior approval of the
Company's Board of Directors.
Assuming adoption of the Stock Transfer Amendment, Article Fourth of the
Certificate of Incorporation would provide for all certificates representing
Common Stock to bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERS SET FORTH IN ARTICLE FOURTH OF THE CORPORATION'S
CERTIFICATE OF INCORPORATION, THE TEXT OF WHICH IS SUMMARIZED ON THE REVERSE
SIDE OF THIS CERTIFICATE. ANY ATTEMPT TO ACQUIRE COMMON STOCK OF THE CORPORATION
IN VIOLATION OF SUCH RESTRICTIONS SHALL BE NULL AND VOID AND MAY RESULT IN
FINANCIAL LOSS TO THE PERSON OR ENTITY ATTEMPTING SUCH ACQUISITION."
The Board of Directors intends to issue instructions to or make
arrangements with the transfer agent for the Company's Common Stock to implement
the Stock Transfer Restrictions. These instructions or arrangements may result
in the delay or refusal of transfers initially determined by the transfer agent
to be in
9
<PAGE> 12
violation of the Stock Transfer Restrictions, including such transfers as might
be ultimately determined by the Company and its transfer agent not to be in
violation of such restrictions. The Company believes that such delays would be
minimal but could occur at any time while the Stock Transfer Restrictions might
be in effect.
Upon adoption of the Stock Transfer Amendment, the Certificate of
Incorporation of the Company would provide that any transfer attempted to be
made in violation of such restrictions would be void ab initio, even if such
transfer has been recorded by the transfer agent and new certificates issued. In
the event of an attempted transfer of shares in violation of the Stock Transfer
Restrictions, the Company may appoint an agent for the purpose of consummating a
sale of such shares to an eligible transferee that would not violate the Stock
Transfer Restrictions. Ownership of such shares would be by such agent until the
shares have been sold to an eligible transferee. The intended transferee of
shares of Common Stock in violation of the Stock Transfer Restrictions would not
be entitled to any rights of a stockholder, including any right to vote such
shares, or to receive dividends or liquidating distributions with respect
thereof, if any.
Within thirty days of learning of an attempted transfer in violation of the
Stock Transfer Restrictions, the Company shall demand the surrender of the
certificates representing such shares, or any proceeds from a subsequent sale of
such shares, to an agent of the Company.
For a period of ninety days after learning of an attempted transfer in
violation of the Stock Transfer Restrictions, the Company may elect to acquire
such shares from the transferee at the same purchase price agreed to be paid by
the intended transferee, in which case the Company would become obligated to pay
to the intended transferee the amount of any payments made to the transferor by
such intended transferee for such shares. Such amounts would be payable to the
intended transferee in three equal installments, without interest. The first
such installment would be payable within ten days after the Company exercises
such right and the remaining installments would be payable on the date one and
two years, respectively, subsequent to such exercise. The Company may exercise
such election by giving written notice thereof to the intended transferee.
PROPOSED AMENDMENT NO GUARANTEE
Although the Stock Transfer Amendment is intended to reduce the likelihood
of an ownership change, it will not prevent all transfers that might result in
an "ownership change." Furthermore, certain changes in relationships and other
events not addressed by the Stock Transfer Amendment could cause the Company to
undergo an "ownership change." Section 382 of the Code is an extremely complex
provision with respect to which there are many uncertainties. In addition, the
Company has not requested a ruling from the IRS regarding the effectiveness of
the Stock Transfer Amendment and, therefore, there can be no assurance that the
IRS will agree that the Stock Transfer Restrictions are effective for purposes
of Section 382 of the Code. As a result of the foregoing, the Stock Transfer
Amendment serves to reduce, but does not eliminate, the risk that the Company
will undergo an ownership change. In addition, although the Company believes
that no "ownership change" has occurred as of the date hereof, there can be no
assurance that the Company has not already undergone an "ownership change."
Finally, there can be no assurances that upon audit, the IRS would agree that
all of the Company's net operating loss, capital loss and tax credit
carryforwards are allowable. The Board of Directors nevertheless believes that
the adoption of the Stock Transfer Amendment is in the best interests of the
Company because it discourages transfers that could cause or contribute to an
"ownership change."
OTHER CONSIDERATIONS
The Stock Transfer Amendment, if adopted, may be deemed to have an
"anti-takeover" effect because it will restrict the ability of a person, entity
or group to accumulate in the aggregate, through transfers of Common Stock, more
than 4.75%, in value, of the Company's capital stock and the ability of persons,
entities or groups now owning more than 4.75%, in value, of the Company's
capital stock from acquiring additional shares of Common Stock, with the result
that the Board of Directors may be able to prevent any future takeover attempt,
in its discretion. Therefore, the Stock Transfer Amendment would discourage or
prevent accumulations of substantial blocks of shares in which stockholders
might receive a substantial premium above market value. Similarly, because the
Stock Transfer Amendment operates to prevent the accumulation
10
<PAGE> 13
of more than 4.75% of the Company's Common Stock, it will discourage the
assumption of control by third parties and tend to insulate management against
the possibility of removal. These results might be considered disadvantageous by
some stockholders. However, such disadvantages are outweighed, in the opinion of
the Board of Directors, by the fundamental importance to the Company's
stockholders of maintaining the availability of the Company's tax benefits. The
Board of Directors is not aware of any efforts to take control of the Company
and has no present intent to propose any provisions designed to inhibit a change
of control. In addition, the Company does not believe that adoption of the Stock
Transfer Amendment will adversely affect the continued trading of the Company's
Common Stock on the New York Stock Exchange. The Company has been informed that
it will be monitored by the New York Stock Exchange. See "Reverse
Split -- Effect of the Proposed Reverse Split."
The aforementioned "anti-takeover" effect of the proposed Stock Transfer
Amendment is not, however, the reason for the Stock Transfer Restrictions. The
Board of Directors has adopted and proposed the Stock Transfer Amendment in an
effort to reduce the risk that the Company may be unable to fully utilize the
tax benefits described above as a result of future transfers of the Company's
Common Stock.
The Board of Directors believes that attempting to safeguard the tax
benefits of the Company as described above is in the best interests of the
Company and its stockholders. Nonetheless, the Stock Transfer Amendment, if
adopted, could restrict a stockholder's ability to acquire additional shares of
the Company's Common Stock to the extent those shares exceed the specified
limitations of the Stock Transfer Restrictions. Furthermore, a stockholder's
ability to dispose of his Common Stock could be restricted as a result of the
Stock Transfer Restrictions.
The Board of Directors has the discretion to approve a transfer of the
Company's Common Stock that would otherwise violate the Stock Transfer
Restrictions. If the Board of Directors decides to permit a transfer that would
otherwise violate the Stock Transfer Restrictions, that transfer or later
transfers may result in an "ownership change" that would limit the Company's use
of its carryforwards. The Board of Directors intends to consider any such
attempted transfer individually and determine at the time whether it is in the
best interest of the Company, after consideration of any factors that the Board
deems relevant, to permit such transfer notwithstanding that an "ownership
change" may then occur.
VOTE NEEDED FOR APPROVAL
The affirmative vote by the holders of at least a majority of the
outstanding Common Stock is required for approval and adoption of the proposed
Stock Transfer Amendment. The Stock Transfer Amendment, if approved, would
become effective upon the filing of a Certificate of Amendment with the
Secretary of State of the State of Delaware, which would be accomplished as soon
as practicable after the approval is obtained.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH
THE PROPOSED STOCK TRANSFER AMENDMENT AND DECLARING ITS ADVISABILITY, AND HEREBY
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED AMENDMENT.
11
<PAGE> 14
OTHER INFORMATION
ADDITIONAL MATTERS
While the notice for the meeting calls for the transaction of any other
business as may be properly presented, management is not aware of any business
to be submitted at the meeting not referred to in the proxy. If any further
business is presented, the persons named in the proxy will act according to
their best judgment on behalf of the shareholders they represent.
SUBMISSION OF STOCKHOLDERS PROPOSALS
Any stockholder who wishes to present a proposal for action at the next
Annual Meeting of Stockholders and who wishes to have it set forth in the proxy
statement and identified in the form of proxy prepared by management must notify
management of the Company in such a manner so that such notice is received by
management by August 15, 1995, and in such form as required under the rules and
regulations promulgated by the SEC.
By Order of the Board of Directors
MELVIN J. MELLE
Secretary
May 26, 1995
12
<PAGE> 15
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE HALLWOOD GROUP INCORPORATED
The Hallwood Group Incorporated (the "Corporation"), organized and existing
under and by virtue of the General Corporation Law of Delaware (the "DGCL") does
hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth an amendment to the Certificate of Incorporation of
the Corporation (the "Amendment"), declaring the Amendment to be advisable and
calling for the submission of the proposed Amendment to the stockholders of the
Corporation for consideration thereof. The resolution setting forth the proposed
Amendment is as follows:
ARTICLE FOURTH of the Certificate of Incorporation of The Hallwood Group
Incorporated, a Delaware corporation, is hereby amended so as to add thereto new
Paragraphs 1(c) and (d) to read as follows:
(c) Reverse Stock Split
(i) Effective immediately upon the filing of this Amendment to the
Certificate of Incorporation in the office of the Secretary of State of the
State of Delaware, each outstanding share of previously existing Common Stock
shall be and hereby is converted into and reclassified as one-fourth of a share
of Common Stock; provided, however, that fractional shares of Common Stock will
not be issued and each holder of a fractional share of Common Stock shall
receive in lieu thereof a cash payment from the Corporation determined by
multiplying such fractional share of Common Stock by four times the average
closing price of a share of previously existing Common Stock on the New York
Stock Exchange for the five trading days immediately preceding the effective
date, and upon such other terms as the officers of the Corporation, in their
sole discretion, deem to be advisable and in the best interests of the
Corporation.
(ii) Certificates representing reclassified shares are hereby cancelled and
upon presentation of the cancelled certificates to the Corporation, the holders
thereof shall be entitled to receive certificate(s) representing the new shares
into which such cancelled shares have been converted.
(d) Restrictions on Transfer
(i) Until the earliest of July 31, 2009, such date as the Corporation shall
no longer have any unutilized federal income tax net operating loss carryovers,
capital loss carryovers or tax credit carryovers, whether or not such carryovers
are currently in existence (the "Carryforwards") or such date after which
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), is
repealed or so substantially modified such that, in the opinion of counsel to
the Corporation, the restrictions on transfer described herein are no longer
necessary to accomplish their intended purpose: (A) any attempted sale,
transfer, assignment or other disposition (including the granting of any option
(within the meaning of Section 382 of the Code and the Income Tax Regulations as
now in effect or hereafter promulgated pursuant thereto (the "Regulations"))
(any such option being referred to hereinafter as an "Option") or entering into
of any agreement for the sale, transfer or other disposition), whether voluntary
or involuntary, whether of record or beneficially and whether by operation of
law or otherwise (a "Transfer"), of any share or shares of the Common Stock of
the Corporation or of any Option to acquire such stock, to any person or entity
or group of persons or entities acting in concert (a "Transferee") who or that
owns or owned, directly, indirectly or by application of the constructive
ownership rules set forth in Sections 382 and 318 of the Code and the
Regulations, or in any other manner representing "ownership" under any
circumstances for purposes of Section 382 of the Code and the Regulations
(collectively, "Owns" or "Owned"), at any time during the four-year period
ending on the day of the Transfer, an aggregate number of shares of the
Corporation's stock (taking into account for this purpose all interests in the
Corporation that are treated as stock for purposes of Section 382(g)(1) of the
Code and no other interests in the Corporation (any interest that is so treated
being referred to hereinafter as "Stock"))
A-1
<PAGE> 16
having a fair market value equal to or greater than 4.75% of the fair market
value of the Corporation's then outstanding Stock shall be void ab initio
insofar as it purports to transfer ownership to such Transferee of any shares of
Common Stock or any Option to acquire Common Stock and (B) any attempted
Transfer of any share or shares of the Common Stock of the Corporation or of any
Option to acquire Common Stock to any Transferee not described in clause (A)
hereof who or that would Own, as a result of the Transfer of any share or shares
of the Corporation's Stock or of any Option to acquire the Corporation's Stock,
an aggregate number of shares of the Corporation's Stock having a fair market
value equal to or greater than 4.75% of the aggregate fair market value of all
of the Corporation's Stock then outstanding, shall, as to the number of shares
representing such excess over 4.75%, be void ab initio insofar as it purports to
transfer ownership to such Transferee of any shares of Common Stock or any
Option to acquire Common Stock.
(ii) The restrictions contained in subparagraph (i) of this Paragraph
(1)(d) of this Article Fourth have been included herein for the purpose of
reducing the risk of occurrence of an "ownership change" within the meaning of
Section 382(g) of the Code and the Regulations that would result in the
disallowance or limitation of the Corporation's utilization of the Carryforwards
and to maintain the tax advantage of the Corporation associated with the
Carryforwards.
(iii) Neither clause (A) nor clause (B) of subparagraph (i) of this
Paragraph (1)(d) of this Article Fourth shall restrict any Transfer of Common
Stock of the Corporation if (A) the prior written approval of the Board of
Directors of the Corporation (based on a majority vote of the Board of
Directors) shall have been obtained with respect to such Transfer and (B) if so
requested by the Board of Directors, counsel to the Corporation shall have
delivered its opinion that such Transfer would not result in an "ownership
change" within the meaning of Section 382(g) of the Code and the Regulations
that would result in the elimination or limitation of the Corporation's
utilization of the Carryforwards. The Board of Directors shall have the
authority, in its sole discretion, to adopt procedures for the orderly and
effective administration and implementation of this Paragraph (d) and, in
deciding whether to approve any proposed Transfer of Common Stock of the
Corporation, the Corporation acting through any officer may request all relevant
information, as well as an opinion of counsel in form and substance reasonably
satisfactory to the Board of Directors. No employee or agent of the Corporation
shall be permitted to record any attempted or purported Transfer of Common Stock
of the Corporation made in violation of this Article Fourth and no Transferee of
Common Stock of the Corporation attempted to be Transferred in violation of this
Article Fourth shall be deemed to have acquired ownership of Common Stock for
any purpose. Such intended Transferee shall not be entitled to any rights as a
shareholder of the Corporation with respect to such Common Stock including, but
not limited to, the right to vote such Common Stock or to receive any
distributions in respect thereof, whether as dividends or in liquidation.
(iv) If the procedures adopted by the Board of Directors so require, the
Corporation's transfer agent shall not issue any certificates effecting the
Transfer, assignment or disposition or purported Transfer, assignment or other
disposition of legal ownership of any shares of Common Stock unless the transfer
agent receives from the proposed Transferee, in addition to any other
information requested by it, a certificate signed under penalty of perjury
attesting to the fact that the Transferee does not, and will not as a result of
the proposed Transfer, assignment or other disposition, own an aggregate number
of shares of the Corporation's outstanding Stock having a fair market value
equal to or greater than 4.75% of the aggregate fair market value of all of the
Corporation's outstanding Stock. If at any time the Corporation's transfer agent
receives a request to make a change in record ownership of shares of Common
Stock of the Corporation that, if effected, would appear to the transfer agent
on the basis of information in its possession to constitute a violation of this
Article Fourth, then, prior to registering such change in ownership on the books
of the Corporation, the transfer agent shall notify the Corporation. If the
Board of Directors or an officer of the Corporation designated by the Board of
Directors determines that the proposed change in ownership would violate this
Article Fourth, then the Corporation shall so advise the transfer agent and the
transfer agent shall not make such change in ownership on the books of the
Corporation and shall return the stock certificates representing such shares to
an agent designated by the Corporation (the "Agent").
(v) Unless approval of the Board of Directors is obtained as provided in
subparagraph (iii) above, any attempted Transfer of shares of Common Stock of
the Corporation or any Option to acquire shares of
A-2
<PAGE> 17
Common Stock of the Corporation in excess of the shares that could be
Transferred to the Transferee without restriction under subparagraph (i) above
shall not be effective to Transfer ownership of such excess shares or Options
(the "Prohibited Shares") to the purported acquiror thereof (the "Purported
Acquiror"), who shall not be entitled to any rights as a shareholder of the
Corporation with respect to the Prohibited Shares (including, without
limitation, the right to vote or to receive dividends with respect thereto). All
rights with respect to the Prohibited Shares shall be the property of the Agent
until such time as the Prohibited Shares are resold as set forth in subparagraph
(A) or subparagraph (B) below. The Purported Acquiror, by acquiring ownership of
shares of Common Stock of the Corporation that are not Prohibited Shares, shall
be deemed to have consented to all of the provisions of this Paragraph (d) and
to have agreed to act as provided in the following subparagraph (A).
(A) Upon demand by the Corporation, the Purported Acquiror shall
transfer any certificate, or other evidence of purported ownership of the
Prohibited Shares within the Purported Acquiror's possession or control,
along with any dividends or other distributions paid by the Corporation
with respect to the Prohibited Shares that were received by the Purported
Acquiror (the "Prohibited Distributions"), to the Agent designated by the
Corporation. If the Purported Acquiror has sold the Prohibited Shares to an
unrelated party in any arm's-length transaction after purportedly acquiring
them, the Purported Acquiror shall be deemed to have sold the Prohibited
Shares as agent for the Agent, and in lieu of transferring the Prohibited
Shares and Prohibited Distributions to the Agent shall transfer to the
Agent the Prohibited Distributions and the proceeds of such sale (the
"Resale Proceeds") except to the extent that the Agent grants written
permission to the Purported Acquiror to retain a portion of the Resale
Proceeds not exceeding the amount that would have been payable by the Agent
to the Purported Acquiror pursuant to the following subparagraph (B) if the
Prohibited Shares had been sold by the Agent rather than by the Purported
Acquiror. Any purported transfer of the Prohibited Shares by the Purported
Acquiror other than a transfer described in one of the two preceding
sentences shall not be effective to transfer any ownership of the
Prohibited Shares.
(B) The Agent shall sell in an arm's-length transaction (through a
stock exchange, if any, on which the Common Stock is traded, if possible)
any Prohibited Shares transferred to the Agent by the Purported Acquiror,
and the proceeds of such sale (the "Sales Proceeds"), or the Resale
Proceeds, if applicable, shall be allocated to the Purported Acquiror up to
the following amount: (i) where applicable, the purported purchase price
paid or value of consideration surrendered by the Purported Acquiror for
the Prohibited Shares, and (ii) where the purported Transfer of the
Prohibited Shares to the Purported Acquiror was by gift, inheritance, or
any similar purported transfer, the fair market value of the Prohibited
Shares at the time of such purported Transfer. Subject to the succeeding
provisions of this subparagraph, any Resale Proceeds or Sales Proceeds in
excess of the amount allocable to the Purported Acquiror pursuant to the
preceding sentence, together with any Prohibited Distributions, shall be
paid over to a court or governmental agency, if applicable law permits, or
otherwise shall be transferred to any entity designated by the Corporation
that is described in Section 501(c)(3) of the Code. In no event shall any
such amount inure to the benefit of the Corporation or the Agent, but said
amounts may be used to cover expenses incurred by the Agent.
(C) Within thirty (30) business days of learning of a purported
Transfer of Prohibited Shares to a Purported Acquiror, the Corporation
through its Secretary shall demand that the Purported Acquiror surrender to
the Agent the certificates representing the Prohibited Shares, or any
Resale Proceeds, and any Prohibited Distributions, and if such surrender is
not made by the Purported Acquiror within thirty (30) business days from
the date of such demand, the Corporation shall institute legal proceedings
to compel such transfer; provided, however, that nothing in this
subparagraph shall preclude the Corporation in its discretion from
immediately bringing legal proceedings without a prior demand, and also
provided that failure of the Corporation to act within the time periods set
out in this subparagraph shall not constitute a waiver of any right of the
Corporation to compel any transfer required by this Paragraph (d).
(D) For a period of ninety (90) days after learning of an attempted or
purported Transfer or unpermitted registration of shares in violation of
this Paragraph 1(d), the Corporation may elect to acquire such shares at
the same purchase price agreed to be paid by the intended Transferee, in
which
A-3
<PAGE> 18
case the Corporation shall be obligated to pay to the intended Transferee
of such shares the amount of any payments made by such intended Transferee
to the transferor for such shares; such amounts shall be payable to the
intended Transferee in three equal installments, without interest. The
first such installment shall be payable within ten days after the
Corporation exercises such right and the remaining installments shall be
payable on the first and second anniversaries, respectively, of such
exercise. The Corporation may exercise such election by giving written
notice thereof to the intended Transferee.
(E) Upon a determination by the Board of Directors that there has been
or is threatened a purported Transfer of Prohibited Shares to a Purported
Acquiror, the Board of Directors may take such action in addition to any
action required by the preceding subparagraph as it deems advisable to give
effect to the provisions of this Paragraph (d) including, without
limitation, refusing to give effect on the books of the Corporation to such
purported Transfer or instituting proceedings to enjoin such purported
Transfer.
(vi) Until the earliest of July 31, 2009, such date as the Corporation
shall no longer have any unutilized Carryforwards or such date after which
Section 382 of the Code is repealed or so substantially modified such that, in
the opinion of counsel to the Corporation, the restrictions on transfer
described in this Paragraph (d) of this Article Fourth are no longer necessary
to accomplish their intended purpose, all certificates representing shares of
Common Stock shall conspicuously bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERS SET FORTH IN ARTICLE FOURTH OF THE CORPORATION'S
CERTIFICATE OF INCORPORATION, THE TEXT OF WHICH IS SUMMARIZED ON THE REVERSE
SIDE OF THIS CERTIFICATE. ANY ATTEMPT TO ACQUIRE COMMON STOCK OF THE CORPORATION
IN VIOLATION OF SUCH RESTRICTIONS SHALL BE NULL AND VOID AND MAY RESULT IN
FINANCIAL LOSS TO THE PERSON OR ENTITY ATTEMPTING SUCH ACQUISITION."
(vii) Nothing in this Article Fourth shall preclude the settlement of any
transaction entered into through the facilities of the New York Stock Exchange,
Inc.
SECOND: That thereafter pursuant to a resolution of the Board of Directors,
a special meeting of the stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the DGCL at which meeting
the necessary number of shares as required by statute were voted in favor of the
Amendment.
THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
FOURTH: That the Amendment shall be effective on the date this Certificate
of Amendment is filed and accepted by the Secretary of State of the State of
Delaware.
A-4
<PAGE> 19
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by William L. Guzzetti, its Executive Vice President, and attested by
Melvin J. Melle, its Secretary, this 27th day of June, 1995.
THE HALLWOOD GROUP INCORPORATED
By:
-------------------------------
William L. Guzzetti
Executive Vice President
ATTEST:
-------------------------------
Melvin J. Melle
Secretary
A-5
<PAGE> 20
PROXY
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS SUITE 1500
DALLAS, TEXAS 75219-4236
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Anthony J. Gumbiner and Brian M. Troup, and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated below, all of the
shares of the common stock, par value $0.10 per share (the "Common Stock"), of
The Hallwood Group Incorporated (the "Company"), held of record by the
undersigned on May 15, 1995, at the Special Meeting (the "Special Meeting") of
Stockholders of the Company to be held on June 27, 1995, and any adjournment(s)
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND THE PROXIES WILL USE THEIR
DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO IN PROPOSAL 3.
1. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO EFFECT A ONE-FOR-FOUR REVERSE STOCK SPLIT OF THE COMPANY'S
COMMON STOCK AS DESCRIBED IN THE COMPANY'S PROXY STATEMENT RELATING TO THE
SPECIAL MEETING.
/ / FOR / / AGAINST / / ABSTAIN
[To Be Dated And Signed On Reverse Side]
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO RESTRICT CERTAIN TRANSFERS OF THE COMPANY'S COMMON STOCK IN
AN ATTEMPT TO PROTECT CERTAIN OF THE COMPANY'S FEDERAL INCOME TAX BENEFITS AS
DESCRIBED IN THE COMPANY'S PROXY STATEMENT RELATING TO THE SPECIAL MEETING.
/ / FOR / / AGAINST / / ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
/ / FOR / / AGAINST / / ABSTAIN
Dated: , 1995
----------------------
----------------------------------
Signature
----------------------------------
Signature, If Held Jointly
Please execute this proxy as your
name appears hereon. When shares
are held by joint tenants, both
should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by the president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
