<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:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / 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):
/X/ $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:
- --------------------------------------------------------------------------------
/ / 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
32 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 , 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 22, 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 $2,500
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, [896,000] 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 63% 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 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%] 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 May 15,
1995, information as to the beneficial ownership of shares of Common Stock for
each director and 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>
Charles A. Crocco, Jr...................................... 2,257 *
Anthony J. Gumbiner........................................ 0(2) --
William L. Guzzetti........................................ 0(3) --
Robert L. Lynch............................................ 27,925(4) *
Melvin J. Melle............................................ 60,000(5) *
J. Thomas Talbot........................................... -- --
Brian M. Troup............................................. --(6) --
All directors and executive officers
as a group (7 persons)................................... 90,182 1.4%
</TABLE>
- ---------------
* Less than 1%
2
<PAGE> 5
(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) Excludes [896,000] shares of Common Stock held by Hallwood Energy
Corporation ("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.
(3) Excludes [896,000] shares of Common Stock held by HEC, of which Mr. Guzzetti
is the President.
(4) 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.
(5) Includes currently exercisable options to purchase 60,000 shares of Common
Stock.
(6) 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 shares, but the shares remain pledged as collateral for
these bonds. Mr. Troup is a director of HHSA.
Except as set forth below, the Company does not know of any person or
"group" (as that term is used in Section 13(d)(3) of the Exchange Act) who or
which owns beneficially more than 5% of its outstanding shares of Common Stock
as of the close of business on the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENTAGE OF
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 [896,000](3) 14.0%
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
Epsilon Trust 792,448(4) 12.4%
c/o Merohaus Verwaltung AG
Utoquai, 43,8008
Zurich, Switzerland
</TABLE>
- ---------------
(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 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.
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 4 times the average closing price of the Common Stock on the New
York Stock Exchange for the five calendar 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
4 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 4 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
April 30, 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
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA ADJUSTED BALANCE
APRIL 30, 1995 ADJUSTMENTS(1) APRIL 30, 1995
-------------- -------------- ----------------
<S> <C> <C> <C>
Common Stock, $.10 par value;
(pre-proposal -- issued and outstanding
[6,394,709] shares; post-proposal -- issued and
outstanding [1,595,678] 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............................. [(6,296)] [(6,296)] [(6,296)]
---------- -------- ----------
Total stockholders' equity............... $ [4,551] $ -- $ [4,551]
========== ======== ==========
</TABLE>
- ---------------
(1) Represents the proposed one-for-four Common Stock reverse stock split which
results in a net reduction of shares of Common Stock outstanding
assuming no fractional shares purchased for cash.
Adoption of the Reverse Split proposal as of August 1, 1993 would not have
had an effect on net income for the fiscal year ended July 31, 1994. However,
net income per share would have been increased from $ to $ .
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. In addition, the
Company does not believe that adoption of the Reverse Split will adversely
affect the continued trading of the Company's Common Stock on the New York Stock
Exchange.
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 May , 1995 was $ per
share). Institutional investors typically are restricted from investing 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 trading range of the Company's Common Stock may not be
marginable under the internal policies of some stockbrokers.
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 4
times the market price of the Common Stock prior to the Reverse Split.
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.
5
<PAGE> 8
EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
The exchange of shares of Common Stock will occur on the Effective Date
without any action on the part of stockholders of the Company and 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 4 times the average closing price of
the Common Stock on the New York Stock Exchange for the five calendar 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 shares, 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.
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.
6
<PAGE> 9
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 should 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 his 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.
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 May , 1995, carryforwards of net
operating losses of up to approximately $138,000,000, of which approximately
$89,000,000 are subject to certain "separate return limitation years," and
certain other tax credits consisting of up to approximately $1,700,000 in job
tax credit carryforwards,
7
<PAGE> 10
approximately $1,200,000 in investment tax credits and approximately $180,000 in
alternative minimum tax credit. For federal income tax purposes, these
carryforwards 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 determining 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 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.
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
8
<PAGE> 11
accomplish their intended purpose, any transfer of any 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 May 15, 1995, 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 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 remain in the name of the
transferor until the
9
<PAGE> 12
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. The rights to vote and to receive dividends and liquidating
distributions with respect to such shares would remain with the transferor.
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.
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. 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 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 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.
10
<PAGE> 13
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.
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 , 1995
Dallas, Texas
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE SPECIAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
11
<PAGE> 14
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 1/4th of a share of
Common Stock; provided, however, that the 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 3-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> 15
having a fair market value equal to or greater than 4.75 percent 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 percent 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 percent, 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 (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 (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 effected 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 percent 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 the holder of record thereof.
(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 Common Stock of the
Corporation in excess of the shares that could be Transferred to the Transferee
without
A-2
<PAGE> 16
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
remain the property of the person who initially purported to Transfer the
Prohibited Shares to the Purported Acquiror (the "Initial Transferor") 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 an agent designated by the
Corporation (the "Agent"). 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 Initial Transferor, 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
the property of the Initial Transferor. If the identity of the Initial
Transferor cannot be determined by the Agent through inquiry made to the
Purported Acquiror and the Corporation, the Agent shall publish appropriate
notice (in The Wall Street Journal, if possible) for seven consecutive
business days in an attempt to identify the Initial Transferor in order to
transmit any Resale Proceeds or Sales Proceeds or Prohibited Distributions
due to the Initial Transferor pursuant to this subparagraph. The Agent may
also take, but is not required to take, other reasonable actions to attempt
to identify the Initial Transferor. If after 90 days following the final
publication of such notice the Initial Transferor has not been identified,
any amounts due to the Initial Transferor pursuant to this subparagraph may
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 due to the Initial Transferor inure to the benefit of
the Corporation or the Agent, but said amounts may be used to cover
expenses (including but not limited to the expenses of publication)
incurred by the Agent in attempting to identify the Initial Transferor.
(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
A-3
<PAGE> 17
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) 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."
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 effective time of the Amendment shall be p.m. Eastern
Time on the date this Certificate of Amendment is filed with the Secretary
of State of the State of Delaware.
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 day of , 1995.
THE HALLWOOD GROUP INCORPORATED
By: ______________________________
William L. Guzzetti
Executive Vice President
ATTEST: ____________________________
Melvin J. Melle,
Secretary
A-4
<PAGE> 18
- --------------------------------------------------------------------------------
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, 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, PAR VALUE $.10 PER SHARE (THE "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.
- --------------------------------------------------------------------------------
