<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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
THE HALLWOOD GROUP INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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 ANNUAL MEETING
To the Stockholders of The Hallwood Group Incorporated:
The Annual Meeting of Stockholders of The Hallwood Group Incorporated (the
"Company") will be held as follows:
<TABLE>
<S> <C>
PLACE: The Four Seasons Hotel
21 Avenue Road
Toronto, Ontario, Canada
TIME: Wednesday, May 7, 1997 at 11:30 a.m. (local time)
(Toronto, Ontario, Canada)
PURPOSES: 1. To elect two directors to hold office for three years and
until their successors are elected and qualified; and
2. To consider and vote on a proposal to approve the
Company's amended 1995 Stock Option Plan for The Hallwood
Group Incorporated (the "Option Plan"), including an
increase in the number of shares authorized under the
Option Plan; and
3. To transact such other business as may properly come
before the meeting.
</TABLE>
Only stockholders of record at the close of business on March 21, 1997,
will be entitled to notice of and to vote at the Annual Meeting.
April 11, 1997
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 MEETING. THE EXECUTION OF YOUR PROXY
WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING.
<PAGE> 3
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS SUITE 1500
DALLAS, TEXAS 75219
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1997
---------------------
GENERAL INFORMATION
This proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Hallwood Group Incorporated (the
"Company") for use at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held on Wednesday, May 7, 1997 at 11:30 a.m. (local time) Toronto,
Ontario, Canada, at The Four Seasons Hotel, 21 Avenue Road, Toronto, Ontario,
Canada, M54 261, and any adjournment thereof. This Proxy Statement and the form
of proxy to be utilized at the Annual Meeting are to be mailed or delivered to
the stockholders of the Company on or about April 11, 1997.
MATTERS TO BE CONSIDERED
The Annual Meeting has been called (i) to elect two directors to hold
office for three years, (ii) to approve an amended 1995 Stock Option Plan and
(iii) to transact such other business as may properly come before the meeting.
See "Election of Directors" and "Other Business".
RECORD DATE AND VOTING
The directors have fixed the close of business on March 21, 1997 as the
record date (the "Record Date") for the determination of stockholders entitled
to vote at the Annual Meeting and any adjournment thereof. As of the record
date, there were 1,566,294 shares of common stock, $0.10 par value per share
("Common Stock"), outstanding and entitled to vote at the meeting.
The presence at the Annual Meeting, either in person or by proxy, of the
holders of outstanding shares of Common Stock having a majority of the voting
power of the Company is necessary to constitute a quorum for the transaction of
business. Each holder of record of Common Stock will be entitled to one vote per
share in each matter that is called to vote at the Annual Meeting.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of the holders of shares of Common Stock having a
majority of the voting power of the Company present in person or represented by
proxy at the Annual Meeting is required to elect directors and approve the
amended Option Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES
FOR DIRECTOR AND FOR THE AMENDED OPTION PLAN. The trustees of Alpha Trust and
Epsilon Trust, which own approximately 29.2% and 19.5% of the outstanding Common
Stock, respectively, have informed the Company that they will vote all of the
shares of Common Stock held by the trusts for the nominees for director and for
the amended Option Plan.
PROXY, SOLICITATION, REVOCATION AND EXPENSES
All proxies that are properly completed, signed and returned prior to the
Annual 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 Annual Meeting and expressing a desire to
vote his shares of Common Stock in person.
Shares represented by proxies will be voted for or against the election of
the nominee directors named in the proxy and the amendment to the Option Plan in
accordance with the specifications made on the proxy by
<PAGE> 4
the stockholder and, if no specification is made, will be voted in favor of the
election of the nominee directors and for the adoption of the amended Option
Plan. Abstentions, broker non-votes and proxies directing that the shares are
not to be voted will not be counted as a vote in favor of a matter called for a
vote.
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the enclosed proxy form and the cost of soliciting proxies related
to the Annual Meeting will be borne by the Company. The Company will request
banks and brokers to solicit their customers who are beneficial owners of shares
of Common Stock listed of record in names of nominees, and will reimburse such
banks and brokers for the reasonable out-of-pocket expenses of such
solicitation. The original solicitation of proxies by mail may be supplemented
by telephone, telegram and personal solicitation by officers and other regular
employees of the Company and its subsidiaries, but no additional compensation
will be paid to such individuals on account of such activities. 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.
ELECTION OF DIRECTORS
Two persons are to be elected to the Board of Directors at the Annual
Meeting and the three remaining directors will continue in office for the terms
specified below. The persons named in the enclosed proxy intend to vote for the
election of the nominees listed below, unless instructions to the contrary are
given therein. The nominees have indicated that they are able and willing to
serve as directors. However, if some unexpected occurrence should require the
substitution of some other person for a nominee, the person voting the proxies
will vote for such nominee as the Company may select.
The following table lists the name and age of the two nominees and of each
of the three directors whose terms of office will continue after the Annual
Meeting, the annual meeting at which their respective terms of office will
expire (assuming, in the case of each nominee, that he is elected) and the year
in which each director was first elected as a director of the Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE TERM EXPIRES SINCE
---- --- ------------ --------
<S> <C> <C> <C>
NOMINEE DIRECTORS
Anthony J. Gumbiner... 52 Third annual meeting following this Annual Meeting 1981
Robert L. Lynch....... 78 Third annual meeting following this Annual Meeting 1984
CONTINUING DIRECTORS
Charles A. Crocco,
Jr................. 59 First annual meeting following this Annual Meeting 1981
J. Thomas Talbot...... 61 First annual meeting following this Annual Meeting 1984
Brian M. Troup........ 50 Second annual meeting following this Annual Meeting 1981
</TABLE>
BUSINESS HISTORY OF NOMINEES AND CONTINUING DIRECTORS
Mr. Gumbiner has served as Chairman of the Board of Directors of the
Company since 1981 and Chief Executive Officer of the Company since 1984. He has
also served as Chairman of the Board of Directors and Chief Executive Officer of
the general partner of Hallwood Energy Partners L.P. ("HEP"), a publicly held
oil and gas partnership, since 1984 and February 1987, respectively; as a
director of Hallwood Holdings S.A. ("HHSA"), a corporation engaged in the real
estate business, since March 1984; as a director of Hallwood Realty Corporation
("Hallwood Realty"), which is a wholly-owned subsidiary of the Company and
serves as the general partner of Hallwood Realty Partners, L.P. ("HRP"), since
November 1990 and as a director of Hallwood Consolidated Resources Corporation
("HCRC") since 1992. Mr. Gumbiner is also a solicitor of the Supreme Court of
Judicature of England.
Mr. Lynch has served as Vice Chairman of the Company since 1984. He is
Chairman of the Board and Chief Executive Officer of Perpetual Storage, Inc., a
corporation engaged in underground storage and maintenance of business and
personal records and in micrographic services. Mr. Lynch has served as a
director of Perpetual Storage, Inc. since 1969.
2
<PAGE> 5
Mr. Crocco, a shareholder in Crocco & DeMaio, P.C., attorneys at law, is
Chairman of the Company's Compensation Committee. He has also served as a
director of First Banks America, Inc., a bank holding company, since April 1988.
Mr. Talbot is Chairman of the Company's Audit Committee. He has been a
partner of Shaw & Talbot, a commercial real estate investment and development
company, since 1975, and of Pacific Management Group, an asset management firm,
since 1986, and is the owner of The Talbot Company. Mr. Talbot served as
Chairman of the Board and Chief Executive Officer of HAL, Inc., an airline
holding company; and as Chairman of the Board and Chief Executive Officer of
both Hawaiian Airlines, Inc., a commercial airline, and West Maui Airport
between 1989 and July 1991. He was founder and served as Chairman of the Board
of Jet America Airlines between 1980 and 1986. He has served as a director of
Fidelity National Financial, Inc. since December 1990. He has also served as a
director of Koll Real Estate Group since August 1993. He served as a director of
the Baldwin Company from June 1993 to September 1996, and as a director of
Hemmeter Enterprises from October 1993 to February 1996. In addition, Mr. Talbot
served as a director of Alliance Bancorporation, a bank holding company
("Alliance"), from April 1988 until its liquidation in February 1994, and as
Chairman and Chief Executive Officer of Alliance from August 1992 until its
liquidation.
Mr. Troup has served as President and Chief Operating Officer of the
Company since April 1986. He has also served as Finance Director of Anglo
Metropolitan Holdings, plc, a real estate holding company located in the United
Kingdom, since 1979; as a director of Hallwood Holdings S.A., since March 1984;
as a director of the general partner of HEP since 1984; as a director of
Hallwood Realty, since 1990; and as a director of HCRC since 1992. He is an
associate of the Institute of Bankers in Scotland and a member of the Society of
Investment Analysts in the United Kingdom. Mr. Troup also served as a director
of Alliance from February 1988 until its liquidation.
Except as set forth above, neither the nominees nor the continuing
directors hold a directorship in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or subject to the requirements of Section 15(d) of
the Exchange Act or any company registered as an investment company under the
Investment Company Act of 1940, as amended.
No family relationships exist between the nominees, the directors and the
executive officers.
COMMITTEES AND MEETINGS OF THE BOARD
Messrs. Talbot (Chairman), Crocco and Lynch served as members of the Audit
Committee during the five months ended December 31, 1995 and year ended December
31, 1996. The Audit Committee met three times during this period and was charged
with the responsibility of reviewing the annual audit report and the Company's
accounting practices and procedures and recommending to the Board of Directors
the firm of independent public accountants to be engaged for the ensuing year.
Messrs. Crocco (Chairman) and Lynch served as members of the Compensation
Committee during the five month period ended December 31, 1995 and year ended
December 31, 1996. The Compensation Committee met four times during this period
and was charged with the responsibility of the formulation and implementation of
the Company's compensation policy. For additional information relating to
amounts paid under certain consulting agreements, see "Certain Relationships and
Related Transactions -- Consulting and Management Agreements".
The Board of Directors does not have a standing nominating committee.
During the five month period ended December 31, 1995 and year ended
December 31, 1996, the Board of Directors held seven meetings. Each director,
with the exception of Mr. Troup, who attended five of the seven meetings,
attended at least 75% of (i) the total number of meetings held by the Board of
Directors and (ii) the total number of meetings held by all committees of the
Board of Directors on which he served.
3
<PAGE> 6
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 nominee for director and (iii) for all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(1)
---------------- ------------ -----------
<S> <C> <C>
Alpha Trust............................................... 457,791(2) 29.2%
c/o Radcliffes Trustee Company SA
9 Rue, Charles Humbert
1205 Geneva, Switzerland
Epsilon Trust............................................. 305,196(3) 19.5%
c/o Radcliffes Trustee Company SA
9 Rue, Charles Humbert
1205 Geneva, Switzerland
Dimensional Fund Advisors, Inc............................ 70,692(4) 4.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Charles A. Crocco, Jr..................................... 5,550(5) *
Anthony J. Gumbiner....................................... 27,900(6) 1.8%
William L. Guzzetti....................................... --(7) --
Robert L. Lynch........................................... 11,981(8) *
Melvin J. Melle........................................... 3,000(9) *
J. Thomas Talbot.......................................... 5,000(10) *
Brian M. Troup............................................ 18,600(11) 1.2%
All directors and executive officers as a group (7
persons)................................................ 72,031 4.4%
</TABLE>
- ---------------
* Less than 1%
(1) Assumes, for each person or group listed, the exercise of all stock options
held by such person or group that are exercisable within 60 days, in
accordance with Rule 13d-3(d)(1)(i) of the Exchange Act, but the exercise
of none of the convertible securities owned by any other holder of options.
(2) Mr. Gumbiner has the power to designate and replace the trustees of the
Alpha Trust. Mr. Gumbiner and his family are among the discretionary
beneficiaries of this Trust.
(3) Mr. Gumbiner has the power to designate and replace the trustees of the
Epsilon Trust. Mr. Troup and his family are among the discretionary
beneficiaries of this Trust.
(4) Based on the Schedule 13G for calendar year 1996, filed by Dimensional Fund
Advisors, Inc. ("Dimensional") on February 5, 1997. All of the shares are
held in portfolios of DFA Investment Dimensions Group Inc, (the "Fund") or
in series of the DFA Investment Trust Company( the "Trust"), or the DFA
Group Trust and DFA Participation Group Trust, which are investment
vehicles for qualified employee benefit plans. Dimensional disclaims
beneficial ownership of all such shares. In addition, persons who are
officers of Dimensional also serve as officers of the Fund and the Trust.
In their capacities as officers of the Fund and the Trust, these persons
vote 10,762 additional shares which are owned by the Fund and 3,025 shares
which are owned by the Trust.
(5) Includes currently exercisable options to purchase 5,000 shares of Common
Stock.
(6) Includes currently exercisable options to purchase 27,900 shares of Common
Stock. Excludes 457,791 shares of Common Stock held by Alpha Trust. In
addition, Mr. Gumbiner holds currently exercisable
4
<PAGE> 7
options to purchase 127,500 units of HEP, currently exercisable options to
purchase 10,600 shares of HCRC, and currently exercisable options to
purchase 25,800 units of HRP.
(7) In addition, Mr. Guzzetti owns 100 units of HEP and 400 units of HRP,
currently exercisable options to purchase 63,750 units of HEP, currently
exercisable options to purchase 5,300 shares of HCRC, and currently
exercisable options to purchase 15,000 units of HRP.
(8) Includes 6,981 shares of Common Stock, which 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. Includes currently exercisable options to
purchase 5,000 shares of Common Stock.
(9) Includes currently exercisable options to purchase 3,000 shares of Common
Stock.
(10) Includes currently exercisable options to purchase 5,000 shares of Common
Stock.
(11) Includes currently exercisable options to purchase 18,600 shares of Common
Stock. Excludes 305,196 shares of Common Stock held by Epsilon Trust. In
addition, Mr. Troup holds currently exercisable options to purchase 85,000
units of HEP, currently exercisable options to purchase 7,067 shares of
HCRC, and currently exercisable options to purchase 17,200 units of HRP.
EXECUTIVE COMPENSATION
The total compensation paid for each of the years ended July 31, 1994 and
1995, the five-month period ended December 31, 1995 and the year ended December
31, 1996 to the Chief Executive Officer, and the other executive officers who
received cash compensation in excess of $100,000 for 1996 (collectively, the
"Named Executive Officers"), is set forth in the following Summary Compensation
Table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------
------------------------------------ OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION UNDERLYING LTIP COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)(5) OPTIONS/SARS(#) PAYOUTS ($)(7)(9)
-------- ------ ---------- --------- ------------ --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Gumbiner........... 1996 625,000(1)(2) 0 0 (6) 0 6,200
Chairman and Chief 1995(8) 250,167(1)(2) 0 0 0 0 0
Executive Officer 1995 550,000(1)(2) 50,000 0 (6) 0 6,200
1994 300,000(2) 0 0 0 0 6,200
Brian M. Troup................ 1996 100,000(2) 0 0 (6) 0 74,470
President and Chief 1995(8) 41,667(2) 0 0 0 0 0
Operating Officer 1995 100,000(2) 50,000 0 (6) 0 3,800
1994 100,000(2) 0 0 0 0 3,800
William L. Guzzetti........... 1996 412,745(3) 150,000(4) 0 0 33,170 4,500
Executive Vice 1995(8) 179,271(3) 62,500(4) 0 0 6,276 1,000
President 1995 412,745(3) 100,000(4) 0 (6) 15,753 4,620
1994 412,745(3) 80,000(4) 0 0 4,449 6,004
Melvin J. Melle............... 1996 208,333 0 2,940 0 0 9,025
Vice President, Chief 1995(8) 91,667 0 0 0 0 8,556
Financial Officer and 1995 208,333 0 2,941 1,500 0 14,300
Secretary 1994 208,333 0 3,228 0 0 5,680
</TABLE>
- ---------------
(1) Consists of $375,000 paid by the Company and $250,000 paid by Hallwood
Petroleum, Inc. ("HPI"), an affiliate of HEP, in 1996; the proration of
these amounts for the five months ended December 31, 1995; $300,000 by the
Company and $250,000 by HPI in fiscal 1995; and $300,000 by the Company in
fiscal 1994.
(2) In addition to the compensation paid to Messrs. Gumbiner and Troup, the
Company paid Hallwood Securities Limited ("HSL") or HSC Financial
Corporation ("HSC"), entities with which Messrs. Gumbiner and Troup are
associated, consulting fees of $350,000 for the 1996 year, $145,833 for the
five months ended December 31, 1995, $350,000 for the 1995 year and $600,000
for the 1994 year, primarily in connection with those entities' activities
on behalf of the Company's subsidiaries. The Company also received from the
Hallwood Energy entities consulting fees of $300,000 for fiscal 1995 and
5
<PAGE> 8
1996, which the Company paid to HSL or HSC to provide the associated
consulting services to the Hallwood Energy entities. See "Certain
Relationships and Related Transactions." For 1996, the Company paid a bonus
of $100,000 to HSC with respect to its activities on behalf of the Company
outside the United States. In addition, the Company received from ShowBiz in
1996 a consulting fee of $125,000, which the Company paid to HSC to provide
the associated consulting services to ShowBiz.
(3) Consists of $204,412 paid by HEP and affiliates and $208,333 paid by
Hallwood Realty in the fiscal year ending December 31, 1996, 1995 and 1994;
and $87,605 paid by HEP and affiliates and $91,666 paid by Hallwood Realty,
for the five months ended December 31, 1995.
(4) Consists of $131,500 paid by HEP and affiliates, $9,250 by Hallwood Realty
and $9,250 by Hallwood Commercial Real Estate, Inc. ("HCRE") in 1996;
$62,500 paid by HEP with respect to the five months ended December 31, 1995;
$85,000 paid by HEP and $15,000 paid by Hallwood Realty in fiscal 1995; and
$65,000 paid by HEP and affiliates and $15,000 paid by Hallwood Realty in
fiscal 1994.
(5) Represents reimbursements to compensate for the income tax effect of payment
for life and/or disability insurance.
(6) Consists of the following options granted during 1995 and 1996:
<TABLE>
<CAPTION>
SECURITIES UNDERLYING
NAME COMPANY OPTIONS/SARS (#)
---- ------- ---------------------
<S> <C> <C>
Anthony J. Gumbiner............................. HWG 27,900
HRP 25,800
HEP 127,500
HCRC 15,900
Brian M. Troup.................................. HWG 18,600
HRP 17,200
HEP 85,000
HCRC 10,600
William L. Guzzetti............................. HRP 15,000
HEP 63,750
HCRC 7,950
</TABLE>
(7) Consists of the following items of compensation:
<TABLE>
<CAPTION>
COMPANY OR SUBSIDIARY CONTRIBUTIONS TO
TAX FAVORED SAVINGS PLANS OR IN LIEU
THEREOF PAYMENT UNDER THE HALLWOOD PREMIUM PAYMENTS FOR
SPECIAL BONUS AGREEMENT ($) TERM LIFE INSURANCE ($)
--------------------------------------- -------------------------------
NAME 1996 1995(8) 1995 1994 1996 1995(8) 1995 1994
---- ------- --------- ------- ------- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Gumbiner......... 0 0 0 0 6,200 0 6,200 6,200
Mr. Troup............ 0 0 0 0 3,800 0 3,800 3,800
Mr. Guzzetti......... 4,500 1,000 4,620 6,004 0 0 0 0
Mr. Melle............ 3,345 8,556 8,620 0 5,680 0 5,680 5,680
</TABLE>
(8) During 1995, the Company changed its fiscal year end from July 31 to
December 31. This information is for the five months ended December 31,
1995.
(9) During 1996, the Board approved reimbursement to Mr. Troup of medical
expenses not covered by the Company's group medical insurance contract in
the amount of $70,670, which is included in "All Other Compensation."
6
<PAGE> 9
The following table discloses certain information for each of the Named
Executive Officers who have been granted options to purchase securities of the
Company or its subsidiaries in the last year:
OPTIONS/SAR GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS/SARS EXERCISE STOCK PRICE
UNDERLYING GRANTED TO OR APPRECIATION FOR
OPTIONS/ EMPLOYEES BASE OPTION TERM
SARS IN FISCAL PRICE EXPIRATION ---------------------
NAME ENTITY GRANTED(#) YEAR(%) ($/SH) DATE 5%($) 10%($)
---- ------ ---------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Gumbiner..... HWG(1) 27,900 60 11.75 9/6/2006 206,529 521,242
Brian M. Troup.......... HWG(1) 18,600 40 11.75 9/6/2006 137,686 347,495
William L. Guzzetti..... -- -- -- -- -- -- --
Melvin J. Melle......... -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options to purchase shares of Common Stock of the Company.
The following table discloses for each of the Named Executive Officers who
have been granted options to purchase securities of the Company or its
subsidiaries, the number of such options held by each of the Named Executive
Officers and the potential realizable values for their options at December 31,
1996. None of the Named Executive Officers exercised any options during the five
months ended December 31, 1995 and year ended December 31, 1996 and the Company
has not granted SARs.
AGGREGATED OPTION/SAR EXERCISES IN
1996 AND OPTION/SAR VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT MONEY OPTIONS/SARS AT
DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)
---------------------------- ----------------------------
NAME ENTITY EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Anthony J. Gumbiner.............. HWG 27,900 0 442,912 0
HRP 25,800 0 632,100 0
HEP 127,500 0 1,131,562 0
HCRC 10,600 5,300 736,700 368,350
Brian M. Troup................... HWG 18,600 0 295,275 0
HRP 17,200 0 421,400 0
HEP 85,000 0 754,375 0
HCRC 7,067 3,533 491,167 245,584
William L. Guzzetti.............. HRP 15,000 0 367,906 0
HEP 63,750 0 565,780 0
HCRC 5,300 2,650 368,350 185,584
Melvin J. Melle.................. HWG 1,500 0 23,812 0
</TABLE>
7
<PAGE> 10
The following table discloses each of the Named Executive Officers who
received long-term incentive plan awards during the year ended December 31, 1996
and the estimated future payouts of the awards. No Awards were received during
the five months ended December 31, 1995:
LONG TERM INCENTIVE PLANS -- AWARDS IN YEAR ENDED DECEMBER 31, 1996 (1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE
NUMBER OF UNITS PERFORMANCE OR OTHER PAYOUTS UNDER NON-STOCK
NAME (#) PERIOD UNTIL PAYOUT PRICE-BASED PLANS($)
---- --------------- -------------------- -----------------------
<S> <C> <C> <C>
Anthony J. Gumbiner(2)....... -- -- $ --
William L. Guzzetti.......... 0.0841 2001 25,836(1)
</TABLE>
- ---------------
(1) These amounts represent awards under the HPI 1997 Incentive Plan. There are
no minimum, maximum or target amounts payable under the plan. Payments under
the awards will be equal to the indicated percentage of net cash flow from
certain wells for the first five years after an award and, in the sixth
year, the indicated percentage of 80% of the remaining net present value of
estimated future production from the wells. The amounts shown above are
estimates based on estimated reserve quantities and future prices. Because
of the uncertainties inherent in estimating quantities of reserves and
prices, it is not possible to predict cash flow or remaining net present
value of estimated future production with any degree of certainty.
(2) In addition, an award was granted to HSC, with which Mr. Gumbiner is
associated, with respect to 0.4200 units, having a payout period ending in
2001 and an estimated future payout of $129,024.
COMPENSATION OF DIRECTORS
For the five months ended December 31, 1995 and year ended December 31,
1996, Messrs. Crocco and Talbot received director fees of $41,250 and are
entitled to receive $500 for each day spent on business of the Company, other
than at board meetings. Each director is also reimbursed for expenses reasonably
incurred in connection with the performance of his duties. Additional
information regarding consulting agreements with or services provided by Mr.
Gumbiner, an entity controlled by him, Mr. Lynch and Mr. Talbot is included in
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation," below.
EMPLOYMENT AGREEMENTS
During the five months ended December 31, 1995 and year ended December 31,
1996, the Company or its subsidiaries had employment agreements with Messrs.
Gumbiner, Troup and Melle.
Pursuant to an agreement with a subsidiary of the Company, Mr. Gumbiner
received compensation of $375,000 per year for providing consulting services in
relation to the Company's business outside the United States. Effective August
1, 1994, HPI, an affiliate of HEPGP Ltd. ("HEPGP"), entered into a Compensation
Agreement with Mr. Gumbiner pursuant to which HPI paid Mr. Gumbiner $250,000 per
year for providing consultation and assistance in maintaining its relationships
with foreign governments and negotiating transactions outside the United States.
These Compensation Agreements terminated effective December 31, 1996.
Pursuant to an agreement entered into January 1, 1993, Mr. Troup was
compensated for services rendered to certain subsidiaries of the Company at the
rate of $100,000 per year. Under the agreement, Mr. Troup is required to devote
substantially all of his time and attention to consulting with respect to the
business and investments of the Company and its subsidiaries and associated
companies situated outside the United States. The agreement terminated effective
December 31, 1996.
Mr. Melle's employment agreement provides for payment of a salary of
$200,000 per year plus an annual bonus in an amount as may be determined by the
Board of Directors of the Company. In addition, the employment agreement
provides that the Company will maintain $500,000 of life insurance benefits on
behalf
8
<PAGE> 11
of Mr. Melle and, for the year ended December 31, 1996, the Company paid
premiums in the amount of $5,680 for such life insurance. Mr. Melle's employment
agreement will continue under the same terms and conditions until December 31,
1997, and will be automatically extended annually thereafter unless terminated
by either party.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Crocco (Chairman) and
Lynch. During the five months ended December 31, 1995 and year ended December
31, 1996, the Company retained Crocco & DeMaio, P.C., attorneys at law, of which
Mr. Crocco is a partner, as special counsel on certain legal matters for which
$55,722 was paid (excluding expense reimbursements). Mr. Lynch is Vice Chairman
of the Board of Directors of the Company. Under a month-to-month extension of a
consulting agreement, Mr. Lynch received a consulting fee of $170,000 for the
five months ended December 31, 1995 and year ended December 31, 1996, and a car
allowance of $5,457. He also received compensation for serving as a director of
the Company in the aggregate amount of $24,250, including $18,750 of standard
fees at the rate of $3,125 per quarter, $750 for each of the five meetings of
the Board he attended (other than telephonic meetings, for which no fee was
paid) and $250 for each of the three Audit Committee meetings and the four
Compensation Committee meetings he attended.
In addition, Messrs. Gumbiner, Troup and Guzzetti served on the Boards of
Directors of Hallwood Realty, HCRC and the general partner of HEP. For each of
these entities, the Board of Directors serves as the Compensation Committee and
Mr. Gumbiner is the Chief Executive Officer and Mr. Guzzetti is the Chief
Operating Officer.
As general partner of HRP, Hallwood Realty earns an asset management fee
and certain related fees from HRP, which amounted to $467,000 for the year ended
December 31, 1996. In addition, HRP reimbursed Hallwood Realty for $2,321,000 of
costs incurred by Hallwood Realty on behalf of HRP in 1996. As property manager
for HRP, the Company's HCRE subsidiary received management fees, leasing
commissions and certain other fees from HRP and related parties of $5,205,000
during the year ended December 31, 1996.
On October 10, 1996, the Company and Hallwood Energy Corporation ("HEC"),
then the general partner of HEP, announced that the Company and HEC had entered
into a definitive merger agreement providing for the merger of HEC into the
Company. Prior to the merger, the Company agreed to commence a tender offer for
all of the 143,209 outstanding shares of HEC not currently owned by the Company,
at a price of $19.50 per share, subject to the terms and conditions of the
tender offer documents. After the tender offer, on November 22, 1996, the merger
of HEC into the Company was consummated.
Also during 1996, HEP and its affiliates reimbursed the Company for
$309,000 of costs incurred by the Company on behalf of HEP and its affiliates
and HCRC reimbursed the Company for $249,000 of costs incurred by the Company on
behalf of HCRC.
The Company entered into a financial consulting agreement with HPI, dated
as of June 30, 1994, which provides that the Company or its agent shall provide
consulting services to HPI for compensation of $300,000 per year. The
Compensation Committee determined that these services would be most
appropriately provided by HSC, acting as the Company's agent, through the
services of Mr. Gumbiner and Mr. Troup, and that as consideration for these
services the Company would pay to HSC the fee to which the Company is entitled
under the agreement. Of the $300,000 payment made in June 1996, the general
partner of HEP paid approximately $9,438, and HEP and its affiliates paid the
remainder. This agreement was terminated effective December 31, 1996 and the
parties entered into a new agreement on substantially the same terms, except
that the compensation payable under the new agreement was increased to $550,000.
The new agreement continues until June 30, 2000 and is automatically renewed for
successive three-year terms, except that either party may terminate the
agreement on not less than 30 days' written notice prior to the expiration of
any three-year term.
Pursuant to an existing agreement, the Company reimburses HSC for
reasonable and necessary expenses in providing office space and administrative
services used by Mr. Gumbiner. For the five months ended
9
<PAGE> 12
December 31, 1995 and year ended December 31, 1996, the Company reimbursed HSC
in the amount of $114,279 and $307,295, respectively. Of the amounts paid in
1995 and 1996, $28,570 and $57,865 was paid by the Company, $4,803 and $4,306
was paid by the general partner of HEP, $104,794 was paid by Hallwood Realty for
1996, and the remainder by other affiliates of HEP.
COMPENSATION COMMITTEE
REPORTS ON EXECUTIVE COMPENSATION
GENERAL
The Company is a diversified holding company with several subsidiaries and
associated companies. Of the Named Executive Officers, Messrs. Gumbiner and
Troup are involved in the activities of all of the subsidiaries and associated
companies, but for 1996 Mr. Troup received compensation only from a wholly owned
foreign subsidiary of the Company and Mr. Gumbiner received compensation from a
wholly owned foreign subsidiary and from a company affiliated with HEP; Mr.
Melle is involved in the activities of the Company and of certain subsidiaries
and associated companies, but for 1996 received compensation only from the
Company; and Mr. Guzzetti is involved in the activities of Hallwood Realty,
Hallwood Commercial Real Estate, Inc. (formerly Hallwood Management Company), a
wholly owned subsidiary of the Company, HEP and HCRC and their subsidiaries and
controlled entities. Accordingly, the compensation of Messrs. Troup and Melle
were determined solely by the Company's Compensation Committee. The compensation
of Mr. Gumbiner with respect to his services to the Company and its subsidiaries
generally is determined by the Company's Compensation Committee and the
compensation of Mr. Gumbiner for his services to HEP, HCRC and the related
energy companies is determined by the Boards of Directors of the general partner
of HEP and the Board of Directors of HCRC. The compensation of Mr. Guzzetti with
respect to his services to Hallwood Realty is determined by the Board of
Directors of Hallwood Realty, the compensation to Mr. Guzzetti for his services
with respect to HCRE is determined by the Compensation Committee of the
Company's Board of Directors and Mr. Guzzetti's compensation with respect to his
services to HEP, HCRC and the related energy companies is determined by HEP's
general partner's and HCRC's Boards of Directors.
COMPENSATION BY THE COMPANY
The members of the Compensation Committee of the Company's Board of
Directors are appointed by the Board of Directors. During 1996, the members of
the Compensation Committee were Messrs. Crocco and Lynch. The Company's
Compensation Committee annually determines the compensation of the Company's
executive officers after discussions with each officer and bases the amount of
compensation on the Committee's determination of the reasonable compensation for
that officer. The members of the Compensation Committee, through their business
experience, are generally aware of prevailing compensation practices and
regularly review and remain informed about the recent financial and operating
experience of the Company. Based on this experience and review, the Compensation
Committee establishes compensation that it believes to be appropriate for each
officer. Substantially all of the executive officers' compensation is paid as
salary, although from time to time the Compensation Committee has awarded
substantial bonuses upon completion of significant acquisitions or other
transactions that provide material benefits to the Company.
The Company operates primarily through its subsidiaries. Accordingly, the
compensation of Mr. Gumbiner, the Company's Chief Executive Officer, is based in
large part on his activities on behalf of the various subsidiaries, including
consultation with respect to acquisitions and financings and identifying and
negotiating investment opportunities. During 1996, Mr. Gumbiner received cash
compensation of $375,000 per year as an employee of a foreign subsidiary of the
Company and an award of options to purchase 27,900 shares of the Company's
Common Stock. In addition, since August 1, 1994, the Company is a party to an
agreement with HSC pursuant to which HSC provides international consulting and
advisory services to the Company and its affiliates for an annual fee of
$350,000. For 1996 the Compensation Committee determined to award HSC a bonus of
$100,000 in recognition of HSC's assistance with respect to the activities of
the Company.
10
<PAGE> 13
The Company also entered into a financial consulting agreement with HPI, an
affiliate of HEP, dated as of June 30, 1994, which provides that the Company or
its agent shall provide consulting services to HPI for compensation of $300,000
per year and a consulting agreement with ShowBiz, which provided that the
Company or its agent shall provide consulting services to ShowBiz for
compensation of $125,000 per year. The Compensation Committee determined that
these services would be most appropriately provided by HSC acting as the
Company's agent, through the services of Mr. Gumbiner and Mr. Troup, and that as
consideration for these services the Company would pay to HSC the fee to which
the Company is entitled under both agreements.
HCRE has contracted with Hallwood Realty to manage the properties
controlled by Hallwood Realty. Mr. Guzzetti is the President and is primarily
responsible for the operations of HCRE. HCRE's Executive Incentive Plan
authorizes HCRE to pay annual cash bonuses in an amount up to 10% of HCRE's net
operating income for the prior year. The actual amount to be paid and the
allocation of the total amount to individual employees is recommended by the
Chief Executive Officer of HCRE, Mr. Gumbiner, and approved by the Board of
Directors of HCRE, which consists of Messrs. Gumbiner, Troup and Guzzetti. Any
amount to be paid to an executive officer of the Company is subject to the
approval of the Company's Compensation Committee. Pursuant to the Executive
Incentive Plan, Mr. Gumbiner recommended that a total bonus of $198,250 (5.0%)
of HCRE's net operating income, as defined, for 1996) be paid to three employees
of HCRE and to HSC, including $9,250 to Mr. Guzzetti and $139,000 to HSC. The
total amount of the awards under the Executive Incentive Plan was determined by
Mr. Gumbiner based on his determination that the amount was reasonable in light
of HCRE's net operating income and was allocated to the employee participants
based on Mr. Gumbiner's judgement of the overall contribution of each
participant to HCRE and the compensation the participant otherwise receives. The
Board of Directors of HCRE and the Company's Compensation Committee approved the
bonuses as recommended by Mr. Gumbiner.
1996 Compensation Committee Members:
Charles A. Crocco, Jr.
Robert L. Lynch
HALLWOOD REALTY COMPENSATION
Compensation of the executive officers of Hallwood Realty is determined by
the entire Board of Directors of Hallwood Realty in consultation with Mr.
Guzzetti, the President of Hallwood Realty. The members of the Compensation
Committee, through their business experience, are generally aware of prevailing
compensation practices and regularly review and remain informed about the recent
financial and operating experience of Hallwood Realty and HRP. With this
experience and review, the Board bases its determination of specific amounts to
be paid to individual executive officers primarily on Mr. Guzzetti's and the
Board's assessments of the individual performance of each officer. Substantially
all the compensation paid by Hallwood Realty to its executive officers consists
of salary, although the Board of Directors may determine to pay bonuses from
time to time based on the Board's determination that Hallwood Realty or HRP have
experienced favorable operating results or completed transactions that benefit
Hallwood Realty or HRP. For 1996, Mr. Guzzetti and the Board of Directors
determined that no change was required in the salaries of the executive officers
from the prior year. In recognition of the benefits provided to HRP through the
efforts of the executive officers during the year, the Board of Directors
determined that it was appropriate to award bonuses to the executive officers of
Hallwood Realty, including a bonus of $9,250 to Mr. Guzzetti.
1996 Members of the Board of Directors:
<TABLE>
<S> <C>
Anthony J. Gumbiner William L. Guzzetti
Alan G. Crisp William F. Forsyth
Brian M. Troup Edward T. Story
Udo H. Walther
</TABLE>
11
<PAGE> 14
HEP COMPENSATION
General. The Board of Directors of the general partner of HEP directs the
activities of HEP, which in turn controls several other entities (collectively,
the "Energy Companies"). Management for all the entities is provided by
employees of HPI, which provides services to all of the Energy Companies.
Accordingly, the various energy companies do not directly pay any compensation
but reimburse HPI for its costs and expenses. Individual compensation is based
on the individual's responsibilities and performance relating to all of the
Energy Companies. Salaries are allocated among the Energy Companies based on a
procedure that takes into account both the amount of time spent on management
and the number of properties owned by each entity. The cash bonus pool is
allocated among the Energy Companies based upon the entity's performance
relative to all of the Energy Companies. Awards under the long-term Incentive
Plans are allocated based upon the ownership of the wells included in the plan.
Because the compensation paid to HPI employees is allocated to all of the Energy
Companies, it is reviewed and approved by the Compensation Committee of HEP's
general partner. The compensation of the Energy Companies' management employees,
including executive officers, is reviewed and approved at least annually.
During 1996, salaries were reviewed and awards under the Incentive Plan
were made by the full Board of Directors of HEP's general partner, in each case
acting as the Compensation Committee. In March 1997, the full Board of Directors
of HEP's general partner again, acted as the Compensation Committee in
determining cash bonuses paid with respect to 1996 and the salaries to be paid
and other awards made in 1996. In determining 1996 compensation of key
employees, the Energy Companies' compensation levels were compared with those of
comparable companies, as reported by compensation consultants and other industry
surveys. The comparable companies consisted of twelve independent oil and gas
companies selected by consultants to the Energy Companies. For 1996, the
compensation of the Energy Companies' management employees consisted of three
primary components: salary and annual bonus, cash bonus and long-term incentive
plan awards.
Salary. All non-hourly employees' salaries and annual bonuses are
determined based on the individual employee's level of responsibility and
comparisons to similar positions in comparable companies. Salaries of officers
and other professional employees are generally set at approximately 69% to 90%
of the average salaries paid by those comparable companies. When an employee's
position is not standard and cannot be compared to similar positions in
comparable companies, compensation is determined in a discretionary process,
taking into consideration the components and overall responsibility of the
employee's position.
Cash Bonus. The Board determined to award certain management employees,
including executive officers, cash bonuses based on an assessment of a number of
quantitative and qualitative factors. The primary quantitative factors are
performance in reserve replacement, considering overall reserves found and
effectiveness of capital expenditures, in comparison to the historical
performance of independent oil and gas companies as a group, the production of
existing resources in comparison to budget and the prior year and general and
administrative expenses and operating costs in comparison to budget. Qualitative
factors include judgments regarding the effectiveness of management and
administration. Depending on the Energy Companies' success in these areas, total
salaries and cash bonuses paid to management employees may range from 69% of the
compensation paid to similarly situated employees in comparable companies if the
Energy Companies perform poorly to as high as 500% of the compensation paid by
comparable companies if the Energy Companies perform very well. Based on
comparisons of the Energy Companies' performance with the historical performance
of other independent oil and gas companies as a group as reported by generally
published industry statistics, the Board of HEP's general partner determined
that the Energy Companies had a slightly better than average year in the overall
reserves found and a slightly less than average year in the effectiveness of
capital expenditures. The Board of Directors also concluded that the
effectiveness of management and administration and control of general and
administrative expenses deserved recognition. Therefore, the cash bonuses paid
to management employees as a group were set at levels that would result in their
total annual compensation being less than that paid by comparable companies. The
aggregate cash bonuses are allocated among the key and professional employees
based on the recommendations of senior management and a determination of the
employees' relative contributions to the Energy Companies during the year.
12
<PAGE> 15
The Long-Term Incentive Plan. The Energy Companies' long-term Incentive
Plan is intended to provide incentive and motivation to the Energy Companies'
key employees, including the executive officers and consultants, to increase the
oil and gas reserves of the Energy Companies and to enhance the Energy
Companies' ability to attract, motivate and retain key employees upon whom, in
large measure, the success of the Energy Companies depends.
Under the Incentive Plan, the Board of Directors annually determines the
portion of the Energy Companies' collective interests in the cash flow from
certain domestic wells drilled, recompleted or enhanced during that year (the
"Plan Year"), which will be allocated to participants in the plan. The portion
allocated to participants in the plan is referred to as the Plan Cash Flow. The
Board of Directors then determines which key employees may participate in the
plan for the Plan Year and allocates the Plan Cash Flow among the participants.
Awards under the plan do not represent any actual ownership interest in the
wells. Awards are made in the Board's discretion.
Each award under the plan represents the right to receive for five years a
specified share of the Plan Cash Flow attributable to certain domestic wells
drilled, recompleted or enhanced during the Plan Year. In the sixth year after
the award, the participant is paid an amount equal to a specified percentage of
the remaining net present value of estimated future production from the domestic
wells and the award is terminated. Cash Flow from international projects, if
any, allocated to the plan is paid to participants for a ten-year period, with
no buy-out for estimated future production. There are no international projects
allocated to the 1996 Plan. Accordingly, the value of awards under the plan
depends primarily on the Energy Companies' success in drilling, completing and
achieving production from new wells each year and from certain recompletions and
enhancements of existing wells. The percentage of the Energy Companies' cash
flow from international projects domestic wells completed in any Plan Year to be
allocated to the Plan Cash Flow each Plan Year, the percentage of the remaining
net present value of estimated future production from domestic wells for which
the participants will receive payment in the sixth year of an award, and the
amount to be awarded to individual participants is determined by the Board of
Directors each year, after taking into consideration the recommendation of the
Energy Companies' executive officers.
The awards for the 1996 Plan Year were made in March 1997. For the 1996
Plan Year, the Board determined that the total Plan Cash Flow would be equal to
2.4% of the cash flow of the domestic wells completed during the Plan Year. The
Board also determined that the participants' interests in eligible domestic
wells for the 1996 Plan Year would be purchased in the sixth year at 80% of the
remaining net present value of the wells completed in the Plan Year. The Board
also determined that the total awards would be allocated among key employees
primarily on the basis of salary, to the extent of 70% of the total award, and
on individual performance, to the extent of 30% of the total award.
Chief Executive Officer. Effective August 1, 1994, Mr. Gumbiner had a
Compensation Agreement with HPI pursuant to which HPI paid Mr. Gumbiner for
providing consultation and assistance in maintaining relationships with foreign
governments and negotiating contracts outside the United States. The Energy
Companies engaged in certain transactions with the Company, of which Mr.
Gumbiner is Chairman and Chief Executive Officer, during 1996. In addition, the
Energy Companies had a consulting agreement with the Company effective June 30,
1993, pursuant to which the Energy Companies pay the Company a $300,000 annual
consulting fee. In 1996, the consulting services were provided by HSC, through
Mr. Gumbiner and Mr. Troup, and the Company paid the annual fee it received to
HSC. Both agreements were approved by the Board of Directors, Mr. Gumbiner
abstaining. Mr. Gumbiner's Compensation Agreement terminated effective December
31, 1996 and the compensation payable thereunder was incorporated into a new
consulting agreement with the Company at the rate of $550,000 per annum,
effective December 31, 1996. These provisions were approved by the Board of
Directors of HEP, with Messrs. Gumbiner and Troup abstaining.
1996 Members of the Board of Directors:
<TABLE>
<S> <C>
Anthony J. Gumbiner Rex A. Sebastian
Brian M. Troup William L. Guzzetti
Hans-Peter Holinger Nathan C. Collins
</TABLE>
13
<PAGE> 16
PERFORMANCE GRAPH
The following performance graph compares the 5-year cumulative return of
the Common Stock with that of the Russell 2000 Index and a peer group of
issuers. The issuers included in the peer group are all publicly traded
companies included in Standard Industrial Classification Code 6512 "Operators of
Nonresidential Buildings," with market capitalization of less than $100,000,000
as of December 31, 1996, which consist of HRP, Milestone Properties, Inc.,
Pacific Gateway Properties, Inc. and Shopco Laurel Centre, L.P.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG THE HALLWOOD GROUP INCORPORATED, A PEER GROUP
AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE HALLWOOD
(FISCAL YEAR COVERED) GROUP INC. PEER GROUP RUSSELL 2000
<S> <C> <C> <C>
7/91 100 100 100
7/92 73 52 115
7/93 80 56 142
7/94 43 69 148
7/95 36 73 185
12/95 28 68 197
12/96 57 85 229
2/97 88 124 228
</TABLE>
- ---------------
* $100 invested on July 31, 1991 in stock, index or peer group, including
reinvestment of dividends. Years ended July 31, 1991 through 1995, five months
ended December 31, 1995, year ended December 31, 1996 and two months ended
February 28, 1997.
14
<PAGE> 17
AMENDED 1995 STOCK OPTION PLAN
FOR THE HALLWOOD GROUP INCORPORATED
PROPOSED AMENDMENT TO THE OPTION PLAN
The Company's Option Plan currently provides that the maximum number of
shares of Common Stock for which options may be granted under the Option Plan is
68,000. As of the Record Date, Options to purchase all 68,000 Shares have been
granted. The Board of Directors has determined that an increase in the number of
shares for which options may be awarded under the Option Plan is necessary for
the Company to remain competitive in total compensation, including salaries,
benefits and incentives, so as to achieve the goals of the original Option Plan
in attracting and retaining qualified directors, employees and consultants.
Therefore, the Board of Directors has approved an amendment to the Option Plan
that would increase the authorized shares of Common Stock that could be utilized
in the Option Plan from 68,000 to 136,000 and directed that the amended Option
Plan be submitted to the shareholders of the Company for approval and adoption.
The material features of the amended Option Plan are discussed below, but the
description is subject to, and is qualified in its entirety by, the full text of
the Option Plan attached as Exhibit A to this Proxy Statement. The Company
anticipates registering the additional Shares issuable as a result of the
increase in the number of authorized Shares under the Option Plan with the
Securities and Exchange Commission during 1997.
PRINCIPAL FEATURES OF THE OPTION PLAN
The Option Plan provides for the issuance of options to purchase an
aggregate of up to Sixty-Eight Thousand (68,000) shares ("Shares") of the
Company's Common Stock. Persons eligible to participate in the Option Plan are
directors or employees of or consultants to the Company or its subsidiaries.
Under the Option Plan, the Board of Directors or a Committee designated by the
Board (in either case, the "Stock Option Committee") has the discretion to grant
options (an "Option") to an eligible person ("Optionee") based upon the
contribution the Eligible Person has made or may make to the success of the
Company or its subsidiaries. The Options are "Nonqualified" Options, meaning
that they are not incentive stock options as defined in Section 422 of the
Internal Revenue Code.
Options are issued at an exercise price as determined by the Stock Option
Committee. In the event the exercise price is paid in whole or in part with
Shares of Common Stock, the value of such Shares surrendered shall be their fair
market value ("Fair Market Value"). For purposes of the Option Plan, the Fair
Market Value is determined by the last reported sale price of such Shares, if
the Shares are listed or admitted for trading on any national securities
exchange or included in the National Market System of the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"). If the Shares are
quoted on NASDAQ or any similar system of automated dissemination of securities
price quotations in common use, the Fair Market Value is the mean between the
closing high bid and low asked quotations for the Shares.
Under the 1995 Stock Option Plan Loan Program for The Hallwood Group
Incorporated, the Company has agreed to loan to the holders of options granted
under the Option Plan an amount up to the aggregate exercise price of the
options. The loan must be secured by the shares to be acquired upon exercise of
the option and other property having a fair market value equal to the principal
amount of the loan, is payable in full on the fifth anniversary of the loan and
will bear interest at the same rate that the Company pays on its revolving line
of credit with its primary lender, which is payable quarterly. However, if the
option being exercised was accelerated because of a change in control of the
Company, the loan may not exceed the aggregate exercise price of the options
plus the amount of any amounts required to be paid by the holder as income tax
payments related to the option exercise, the loan may be unsecured and the
principal balance of the loan will be due on the first anniversary of the loan
and will bear interest at a rate two percent above the rate the Company pays on
its revolving line of credit with its primary lender. The principal balance of
the loan may be paid by the holder either in cash or by the surrender of shares
having a fair market value as of the date of the repayment equal to the
principal balance.
15
<PAGE> 18
Options granted under the Option Plan are exercisable in such amounts and
at such intervals as the Stock Option Committee provides in granting an Option,
provided that the Option has not expired on the date of exercise. The expiration
date of an Option is determined by the Stock Option Committee when the Option is
granted, but in no event is an Option exercisable after ten (10) years from the
date the Option is granted. Exercise of the Options may be accelerated based on
the occurrence of certain events, including changes in control ("Change in
Control") of the Company resulting from reorganization, consolidation, merger,
liquidation, dissolution or other comparable transactions. If an Optionee ceases
to be employed for any reason other than retirement, mental or physical
disability, death or a Change in Control of the Company, that Optionee's Option
terminates automatically and without notice. If an Optionee retires, that
Optionee's Option expires 90 days after termination by retirement. If an
Optionee ceases to be employed by the Company due to mental or physical
disability, that Optionee's Option expires after 12 months. In the event of a
change of control of the Company, an Optionee whose employment terminates due to
that change in control shall have 12 months to exercise his or her Option.
Options granted under the Plan are transferable by the Optionee by gift or
by contribution to (a) any member of the Optionee's immediate family, (b) any
entity of which the Optionee or members of the Optionee's family are the sole
equity owners or beneficiaries, or if there are discretionary beneficiaries,
among the class of discretionary beneficiaries, or (c) any combination of the
foregoing.
An Optionee may also be granted Stock Appreciation Rights ("SARs") and
Limited Stock Appreciation Rights ("Limited SARs") with respect to all or some
of the Shares covered by any Option ("Related Option"). SARs and Limited SARs
may be granted on or after the date on which a Related Option is granted. A SAR
or Limited SAR is exercisable only in the event that a tender offer or exchange
offer ("Offer") is made by a person or entity other than the Company for
twenty-five percent (25%) or more of the outstanding common stock of the
Company. Upon the exercise of a SAR or Limited SAR, the holder of such SAR or
Limited SAR may be paid in (i) cash, (ii) Shares, or (iii) a combination of cash
and Shares. In the event cash and Shares are received, an Optionee exercising
SARs shall be paid an amount equal to the Fair Market Value per Share on the
date of the exercise over the option price per Share of the Related Option,
multiplied by the number of Shares with respect to which such SARs are being
exercised (the "SAR Spread"). In the event cash and Shares are received, an
Optionee exercising Limited SARs shall receive an amount equal to the excess of
the highest price per Share paid in any Offer that is in effect at any time
during the period beginning on the 60th day prior to the date a Limited SAR is
exercised, and ending on the date that the Limited SAR is exercised (the "Offer
Price Per Share") over the Option Price per Share of the Related Option,
multiplied by the number of Shares with respect to which a Limited SAR is being
exercised (the "Offer Spread").
Since the number of Options awarded to any participant is determined by the
Stock Option Committee in its discretion from time to time, it is not possible
to indicate the number of Options that will be granted to any employee in the
future. For information on the number of Options, SARs and Limited SARs
currently held by certain officers and directors, see "Executive Compensation:
Aggregated Option/SAR Exercises During Fiscal Year 1996 and Option/SAR Values at
December 31, 1996." The Board or Option Committee may amend the Option Plan or
any option as it deems advisable, but may not substantially impair any option
outstanding under the Plan.
TAX CONSEQUENCES
Upon the exercise of a Option, an Optionee will recognize ordinary income
at the time of exercise equal to the excess of the then fair market value of the
Shares of Common Stock received over the exercise price. The taxable income
recognized upon exercise of a Option will be treated as compensation income
subject to withholding and the Company will be entitled to deduct as a
compensation expense an amount equal to the ordinary income an Optionee
recognizes with respect to such exercise. When Common Stock received upon the
exercise of a Option subsequently is sold or exchanged in a taxable transaction,
the holder thereof generally will recognize capital gain (or loss) equal to the
difference between the total amount realized and the fair market value of the
Common Stock on the date of exercise; the character of such gain or loss as
long-term or short-term capital gain or loss will depend upon the holding period
of the Shares following exercise.
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Approval of the amended Option Plan requires the affirmative vote of the
holders of a majority of the shares of Common Stock present and voting at the
Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE THE AMENDED OPTION PLAN, INCLUDING AN INCREASE IN THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE UNDER THE OPTION PLAN, AS DESCRIBED ABOVE.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AND MANAGEMENT AGREEMENTS
Effective August 1, 1994, the Company entered into an agreement (the "1994
Consulting Agreement"), with HSC, a corporation with which Mr. Gumbiner and Mr.
Troup are associated, pursuant to which HSC agreed to provide international
consulting and advisory services to the Company and its affiliates for an annual
fee of $350,000 and reimbursement for out-of-pocket and other reasonable
expenses of HSC. This agreement was terminated effective December 31, 1996 and
the parties entered into a new agreement on substantially the same terms (the
"1997 Consulting Agreement"), except that the compensation payable under the
1997 Consulting Agreement was increased to $825,000. The 1997 Consulting
Agreement continues until July 31, 1998 and is automatically extended for
successive one year terms unless notice of termination is provided by either
party no less than thirty-one (31) days prior to the expiration of the end of
its term or an extension thereof.
Pursuant to an agreement dated December 1, 1988, the Company provides
consulting services to ShowBiz, for which it receives an annual payment of
$125,000. Effective October 1, 1995, in recognition that the Company has
discontinued its merchant banking activities and that the services required by
the agreement are performed by Messrs. Gumbiner and Troup, the Company assigned
to HSC its rights to the payments pursuant to this Agreement. This Agreement was
terminated March 26, 1997.
STANWICK HOLDINGS, INC.
The Company shares common offices, facilities and staff with, and certain
executive officers of the Company also served as executive officers or directors
of, Stanwick Holdings, Inc. ("Stanwick"). The Company pays the common general
and administrative expenses of the two companies and charges Stanwick a fee for
its allocable share of such expenses, which totaled $12,500 for the five months
ended December 31, 1995 and $25,000 for the year ended December 31, 1996. HCRE
manages a commercial office building for Stanwick and provides property
management, leasing and construction services, which totaled $77,367 for the
five months ended December 31, 1995 and $61,848 for the year ended December 31,
1996.
Stanwick is a subsidiary of HHSA. Messrs. Gumbiner and Troup are directors
of HHSA. Under United States securities laws, HSC, with which Messrs. Gumbiner
and Troup are associated, could be considered to share beneficial ownership of
substantially all of the outstanding shares of HHSA.
AUDITORS
Deloitte & Touche LLP served as the Company's independent auditors for the
year ended July 31, 1995, the five months ended December 31, 1995, and the year
ended December 31, 1996 and have been selected to serve in that capacity again
for the year ended December 31, 1997. A representative of Deloitte & Touche LLP
will be available at the Annual Meeting to respond to appropriate questions and
will be given an opportunity to make a statement if desired.
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SUBMISSION OF STOCKHOLDER 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 January 7, 1998 and in such form as required under the rules and
regulations promulgated by the Securities and Exchange Commission.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the
Annual Meeting. All shares represented by Company proxies will be voted in favor
of the nominees for directors set forth herein unless otherwise indicated on the
form of proxy. If any other matters properly come before the meeting, Company
proxy holders will vote thereon according to their best judgment.
By order of the Board of Directors
/s/ MELVIN J. MELLE
------------------------------------
Melvin J. Melle
Secretary
April 11, 1997
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EXHIBIT A
1995 STOCK OPTION PLAN
FOR
THE HALLWOOD GROUP INCORPORATED
SECTION 1. PURPOSE. The purpose of this 1995 Stock Option Plan for The
Hallwood Group Incorporated is to advance the interests of The Hallwood Group
Incorporated, a Delaware corporation (the "Corporation"), by providing an
additional incentive to attract and retain qualified and competent directors,
employees and consultants for the Corporation and its subsidiaries, upon whose
efforts and judgment the success of the Corporation is largely dependent,
through the encouragement of ownership in the Corporation by such persons.
SECTION 2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Act" shall mean the Securities Exchange Act of 1934, as amended.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Business Day" shall mean (i) if the Shares trade on a national
securities exchange, any day that the national securities exchange on which
the Shares trade is open or (ii) if the Shares do not trade on a national
securities exchange, any day that commercial banks in the City of New York
are open.
(d) "Committee" shall mean the Compensation Committee of the Board or
other committee, if any, appointed by the Board pursuant to SECTION 13
hereof.
(e) "Continuing Director" shall mean (i) any member of the Board on
the effective date of this Plan and (ii) any person who subsequently
becomes a member of the Board if such person's nomination for election or
election to the Board is recommended or approved by a majority of the
Continuing Directors.
(f) "Corporation" shall mean The Hallwood Group Incorporated, a
Delaware corporation.
(g) "Date of Grant" shall mean the date on which the Committee takes
formal action to grant an Option to an Eligible Person, provided it is
followed, as soon as reasonably possible, by written notice to the Eligible
Person of the grant.
(h) "Director" shall mean a member of the Board.
(i) "Eligible Person(s)" shall mean those persons who are Directors or
are employees of, or consultants to, the Corporation or any Subsidiary.
(j) "Effective Date" shall mean June 27, 1995.
(k) "Fair Market Value" of a Share on any date of reference shall mean
the Closing Price on the business day immediately preceding such date,
unless the Committee in its sole discretion shall determine fair market
value otherwise in a fair and uniform manner. For this purpose, the Closing
Price of the Shares on any business day shall be: (i) if the Shares are
listed or admitted for trading on any United States national securities
exchange or included in the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
the last reported sale price of Shares on such exchange or system, as
reported in any newspaper of general circulation; (ii) if Shares are quoted
on NASDAQ, or any similar system of automated dissemination of quotations
of securities prices in common use, the mean between the closing high bid
and low asked quotations for such day of Shares on such system; (iii) if
neither clause (i) nor (ii) is applicable, the mean between the high bid
and low asked quotations for Shares as reported by the National Quotation
Bureau, Incorporated if at least two securities dealers have inserted both
bid and asked quotations for Shares on at least five of the ten preceding
days; or, (iv) in lieu of the above, if actual transactions in the Shares
are reported on a consolidated transaction reporting system, the last sale
price of the Shares for such day and on such system.
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(l) "Nonqualified Option" shall mean an option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue
Code.
(m) "Option" (when capitalized) shall mean any option granted under
this Plan.
(n) "Optionee" shall mean a person to whom an Option is granted or any
successor to the rights of such Option under this Plan.
(o) "Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture or other legal entity.
(p) "Plan" shall mean this 1995 Stock Option Plan for The Hallwood
Group Incorporated.
(q) "SAR" shall mean a stock appreciation right as defined in Section
9 hereof.
(r) "Share(s)" shall mean shares of the common stock, par value $.10
per share, of the Corporation (meaning such Shares after giving effect to
the one-for-four reverse stock split approved by the stockholders of the
Corporation as of the Effective Date).
(s) "Subsidiary" shall mean (i) any corporation of which a majority of
the outstanding stock having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation, irrespective of
whether at the time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency, is at the time, directly or indirectly, owned or controlled by
the Corporation or by one or more Subsidiaries, or by the Corporation and
one or more Subsidiaries or (ii) any partnership, joint venture or limited
liability company of which at least a majority of the equity ownership,
whether in the form of membership, general, special or limited partnership
interests or otherwise, is directly or indirectly owned or controlled by
the Corporation or by one or more Subsidiaries or by the Corporation and
one or more Subsidiaries.
SECTION 3. SHARES AND OPTIONS. The Corporation may grant to Eligible
Persons from time to time Options to purchase an aggregate of up to Sixty-Eight
Thousand (68,000) Shares, (being equivalent to 272,000 shares of the Company's
common stock existing before the reverse stock split). If any Option granted
under the Plan shall terminate, expire, or be canceled or surrendered as to any
Shares, new Options may thereafter be granted covering such Shares. An Option
granted hereunder shall be a Nonqualified Option.
SECTION 4. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that may contain
any term deemed necessary or desirable by the Committee, provided such terms are
not inconsistent with this Plan or any applicable law. Optionees shall be those
persons selected by the Committee from Eligible Persons. Any Person who files
with the Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Option under this Plan shall not be eligible to
receive any Option under this Plan for the duration of such waiver.
(b) In granting Options, the Committee shall take into consideration the
contribution the Person has made or may make to the success of the Corporation
or its Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Corporation and any
Subsidiary with regard to these matters. The Committee may from time to time in
granting Options under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
relating an Option to achievement of specific goals established by the Committee
or the continued employment of the Optionee for a specified period of time,
provided that such terms and conditions are not more favorable to an Optionee
than those expressly permitted herein.
(c) The Committee in its sole discretion shall determine in each case
whether periods of military or government service shall constitute a
continuation of employment for the purposes of this Plan or any Option.
SECTION 5. EXERCISE PRICE. The exercise price per Share of any Option shall
be any price determined by the Committee.
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SECTION 6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when
(i) the Corporation has received written notice of such exercise in accordance
with the terms of the Option, (ii) full payment of the aggregate exercise price
of the Shares as to which the Option is exercised has been made, and (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Corporation of the amount, if any,
that the Committee determines to be necessary for the employer of the Optionee
to withhold in accordance with applicable federal or state income tax
withholding requirements. Unless further limited by the Committee in any Option,
the option price of any Shares purchased shall be paid in cash, by certified or
cashier's check, by money order, with Shares (provided that at the time of
exercise the Committee in its sole discretion does not prohibit the exercise of
Options through the delivery of already-owned Shares) or by a combination of the
above; provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares. If the exercise price
is paid in whole or in part with Shares, the value of the Shares surrendered
shall be their Fair Market Value. The Corporation in its sole discretion, and on
such terms as it may determine, may lend money to an Optionee, guarantee a loan
to an Optionee, or otherwise assist an Optionee to obtain the cash necessary to
exercise all or a portion of an Option granted hereunder or to pay any tax
liability of the Optionee attributable to such exercise.
SECTION 7. EXERCISABILITY OF OPTIONS.
(a) Any Option shall become exercisable in such amounts and at such
intervals as the Committee shall provide in any Option, except as otherwise
provided in this SECTION 7; provided in each case that the Option has not
expired on the date of exercise.
(b) The expiration date of an Option shall be determined by the Committee
at the Date of Grant, but in no event shall an Option be exercisable after the
expiration of ten (10) years from the Date of Grant.
(c) The Committee may in its sole discretion accelerate the date on which
any Option may be exercised.
(d) Unless otherwise provided in any Option, each outstanding Option shall
become fully exercisable immediately upon any of the following dates unless, in
each case, the applicable transaction is approved in advance by Continuing
Directors:
(i) ten (10) days prior to the date of any transaction (which shall
include a series of transactions occurring within 60 days or occurring
pursuant to a plan), which has the result that stockholders of the
Corporation immediately before such transaction would cease to own at least
66 2/3% of the voting ownership interests of the Corporation or of any
entity that results from the participation of the Corporation in a
reorganization, consolidation, merger, liquidation, dissolution or any
other comparable form of transaction;
(ii) ten (10) days preceding the record date for the approval by the
stockholders of the Corporation of a plan of reorganization, consolidation,
merger, liquidation, dissolution or other comparable form of transaction in
which the Corporation does not survive or as a result of which the
stockholders of the Corporation immediately before such transaction would
cease to own at least 66 2/3% of the voting ownership interests of the
Corporation;
(iii) ten (10) days preceding the record date for the approval by the
stockholders of the Corporation of a plan for the sale, lease, exchange or
other disposition of 50% or more of the property and assets of the
Corporation;
(iv) ten (10) days preceding the record date for the approval by the
stockholders of the Corporation of the removal of or a change in a majority
of the members of the Board; or
(v) the date any tender offer or exchange offer is made by any person,
which, if successfully completed, would result in such person beneficially
owning (within the meaning of Rule 13d-3 promulgated under the Act) either
33 1/3% or more of the Corporation's outstanding Shares or interests in the
Corporation having 33 1/3% or more of the combined voting power of the
Corporation's then outstanding voting interests.
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(e) Notwithstanding any provisions hereof to the contrary, if any Option is
accelerated under SUBSECTION 7(C) or (D), the portion of such Option that may be
exercised to acquire Shares that the Optionee would not be entitled to acquire
but for such acceleration (the "Acceleration Shares"), is limited to that number
of Acceleration Shares that can be acquired without causing the Optionee to have
an "excess parachute payment" under Section 280G of the Internal Revenue Code,
determined by taking into account all of the Optionee's "parachute payments"
determined under Section 280G of the Code. If as a result of this SUBSECTION
7(E), the Optionee may not acquire all of the Acceleration Shares, then the
Acceleration Shares that the Optionee may acquire shall be the last Shares that
the Optionee would have been entitled to acquire had this Option not been
accelerated.
SECTION 8. TERMINATION OF OPTION PERIOD.
(a) Unless otherwise provided in any Option, the unexercised portion of an
Option shall automatically and without notice terminate and become null and void
at the time of the earliest to occur of the following:
(i) the date on which the Optionee's employment by the Corporation or
a Subsidiary is terminated for any reason other than by reason of: (A)
retirement (which, for purposes of this Plan, shall mean any termination of
employment after an Optionee has reached the age of sixty-five (65)); (B) a
mental or physical disability as determined by a medical doctor
satisfactory to the Committee; (C) death; or (D) termination resulting from
any transaction described in SECTION 7(D) hereof;
(ii) three (3) months after the date on which the Optionee's
employment by the Corporation or a Subsidiary is terminated by reason of
retirement;
(iii) twelve (12) months after the date on which the Optionee's
employment by the Corporation or a Subsidiary is terminated by reason of a
mental or physical disability as determined by a medical doctor
satisfactory to the Committee;
(iv) ten (10) years after the date of grant of such Option;
(v) (A) twelve (12) months after the date of termination of the
Optionee's employment by the Corporation or a Subsidiary by reason of death
of the Optionee; (B) three (3) months after the date on which the Optionee
shall die if such death shall occur during the three-month period specified
in SECTION 8(A)(II) hereof or the twelve-month period specified in SECTION
8(A)(III) hereof; or (C) three (3) years after the termination of the
employee's employment by the Corporation or a Subsidiary by reason of a
transaction specified in SECTION 7(D) hereof.
(b) If provided in an Option, the Committee in its sole discretion shall
have the power to cancel, effective upon the date determined by the Committee in
its sole discretion, all or any portion of any Option that is then exercisable
(whether or not accelerated by the Committee) upon payment to the Optionee of
cash in an amount that, in the absolute discretion of the Committee, is
determined to be equal to the excess of (i) the aggregate Fair Market Value of
the Shares subject to such Option on the effective date of the cancellation over
(ii) the aggregate exercise price of such Option.
SECTION 9. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(a) The Board shall have authority to grant an SAR or a Limited SAR with respect
to all or some of the Shares covered by any Option ("Related Option"). An SAR or
Limited SAR may be granted on or after the Date of Grant of such Related Option.
(b) For the purposes of this SECTION 9, the following definitions shall
apply:
(i) The term "Offer" shall mean any tender offer or exchange offer for
twenty-five percent (25%) or more of the outstanding Shares of the
Corporation, other than one made by the Corporation; provided that the
corporation, person or other entity making the Offer acquires Shares
pursuant to such Offer.
(ii) The term "Offer Price Per Share" shall mean the highest price per
Share paid in any Offer that is in effect at any time during the period
beginning on the 60th day prior to the date that a Limited SAR is exercised
and ending on the date that the Limited SAR is exercised. Any securities or
properties that
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are a part or all of the consideration paid or to be paid for Shares in the
Offer shall be valued in determining the Offer Price Per Share at the
higher of (1) the valuation placed on such securities or properties by the
person making such Offer, or (2) the valuation placed on such securities or
properties by the Board.
(iii) The term "Limited SAR" shall mean a right granted under this
Plan that shall entitle the Holder to an amount in cash equal to the Offer
Spread in the event an Offer is made.
(iv) The term "Offer Spread" shall mean, with respect to each Limited
SAR, an amount equal to the product obtained by multiplying (1) the excess
of (A) the Offer Price Per Share immediately preceding the date of exercise
over (B) the Option Price per Share of the Related Option multiplied by (2)
the number of Shares with respect to which such Limited SAR is being
exercised.
(v) The term "SAR" shall mean a right granted under this Plan that
shall entitle the Holder thereof to an amount in cash equal to the SAR
Spread.
(vi) The term "SAR Spread" shall mean with respect to each SAR an
amount equal to the product of (1) the excess of (A) the Fair Market Value
per Share on the date of exercise over (B) the Option Price per Share of
the Related Option multiplied by (2) the number of Shares with respect to
which such SAR is being exercised.
(c) To exercise the SAR or Limited SAR, the Holder shall:
(i) Give written notice thereof to the Corporation, specifying the SAR
or Limited SAR being exercised and the number or Shares with respect to
which such SAR or Limited SAR is being exercised, and
(ii) If requested by the Corporation, deliver within a reasonable time
the agreement evidencing the SAR or Limited SAR being exercised, and the
Related Option agreement to the Secretary of the Corporation who shall
endorse or cause to be endorsed thereon a notation of such exercise and
return all agreements to the Holder.
(d) As soon as practicable after the exercise of an SAR or Limited SAR, the
Corporation shall pay to the Holder (i) cash, (ii) at the request of the Holder
and the approval of the Board, or in accordance with the terms of the Related
Option, Shares, or (iii) a combination of cash and Shares, having a Fair Market
Value equal to either the SAR Spread, or to the Offer Spread, as the case may
be; provided, however, that the Corporation may, in its sole discretion,
withhold from such payment any amount necessary to satisfy the Corporation's or
a Subsidiary's obligation for federal and state withholding taxes with respect
to such exercise.
(e) An SAR or Limited SAR may be exercised only if and to the extent that
the Related Option is eligible to be exercised; provided, however, a Limited SAR
may be exercised only during the period beginning on the first day following the
date of expiration of the Offer and ending on the 30th day following such date.
(f) Upon the exercise of an SAR or Limited SAR, the Shares under the
Related Option to that such exercised SAR or Limited SAR relate shall be
released, but such released Shares shall never again be Shares available for
grant.
(g) Upon the exercise or termination of a Related Option, the SAR or
Limited SAR with respect to such Related Option likewise shall terminate.
(h) An SAR or Limited SAR shall be transferable only to the extent, if any,
that the Related Option is transferable, and under the same conditions.
(i) Each SAR or Limited SAR shall be on such terms and conditions not
inconsistent with this Plan as the Board may determine and shall be evidenced by
a written agreement.
(j) The Holder shall have no rights as a stockholder with respect to the
related Shares as a result of the grant of an SAR or Limited SAR.
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SECTION 10. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised Options are
outstanding, there shall be any increase or decrease in the number of issued and
outstanding Shares through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
Shares, then and in such event.
(i) appropriate adjustment shall be made in the maximum number of
Shares then subject to being optioned under the Plan, so that the same
proportion of the Corporation's issued and outstanding Shares shall
continue to be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of Shares and
the exercise price per Share thereof then subject to outstanding Options,
so that the same proportion of the Corporation's issued and outstanding
Shares shall remain subject to purchase at the same aggregate exercise
price.
(b) The Committee may change the terms of Options outstanding under this
Plan, with respect to the exercise price or the number of Shares subject to the
Options, or both, when, in the Committee's sole discretion, such adjustments
become appropriate by reason of any transaction.
(c) Except as otherwise expressly provided herein, the issuance by the
Corporation of any class, or securities convertible into ownership interests of
any class, either in connection with direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Corporation convertible into such ownership interests or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number of Shares reserved for issuance under the Plan or the
number of or exercise price of Shares then subject to outstanding Options
granted under the Plan.
(d) Without limiting the generality of the foregoing, the existence of
outstanding Options granted under the Plan shall not affect in any manner the
right or power of the Corporation to make, authorize or consummate (1) any or
all adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business; (2) any merger or consolidation
of the Corporation; (3) any issue by the Corporation of debt securities, or
partnership interests that would rank above the Shares subject to outstanding
Options; (4) the dissolution or liquidation of the Corporation; (5) any sale,
transfer or assignment of all or any part of the assets or business of the
Corporation; or (6) any other partnership act or proceeding, whether of a
similar character or otherwise.
SECTION 11. TRANSFERABILITY OF OPTIONS. Each Option may provide that such
Option may be transferrable by the Optionee in the Optionee's discretion.
SECTION 12. ISSUANCE OF SHARES. No person shall be, or have any of the
rights or privileges of, a stockholder of the Corporation with respect to any of
the Shares subject to an Option unless and until certificates representing such
Shares shall have been issued and delivered to such person. As a condition of
any transfer of the certificate for Shares, the Committee may obtain such
agreements or undertakings, if any, as it may deem necessary or advisable to
assure compliance with any provision of the Plan, the agreement evidencing the
Option or any law or regulation including, but not limited to, the following:
(i) A representation, warranty or agreement by the Optionee to the
Corporation at the time any Option is exercised that he or she is acquiring
the Shares to be issued to him or her for investment and not with a view
to, or for sale in connection with, the distribution of any such Shares;
and
(ii) A representation, warranty or agreement to be bound by any
legends that are, in the opinion of the Committee, necessary or appropriate
to comply with the provisions of any securities laws deemed by the
Committee to be applicable to the issuance of the Shares and that are
endorsed upon the Share certificates.
SECTION 13. ADMINISTRATION OF THE PLAN.
(a) The Plan may be administered by the Compensation Committee of the Board
or other committee thereof as appointed by the Board (herein called the
"Committee"); or, if the Board so determines, by the
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Board and in such case all references to the Committee shall be deemed to be
references to the Board. Except for the powers set forth in SECTION 16, the
Committee shall have all of the powers of the Board with respect to the Plan.
Any member of the Committee may be removed at any time, with or without cause,
by resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and regulations for
carrying out the purposes of the Plan. The determinations and the interpretation
and construction of any provision of the Plan by the Committee shall be final
and conclusive.
(c) Any and all decisions or determinations of the Committee shall be made
either (i) by a majority vote of the members of the Committee at a meeting or
(ii) without a meeting by the written approval of a majority of the members of
the Committee.
(d) Subject to the express provisions of this Plan, the Committee shall
have the authority, in its sole and absolute discretion (i) to adopt, amend, and
rescind administrative and interpretive rules and regulations relating to this
Plan or any Option; (ii) to construe the terms of this Plan or any Option; (iii)
as provided in SUBSECTION 10(A), upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this Plan and
Option; and (iv) to make all other determinations and perform all other acts
necessary or advisable for administering this Plan, including the delegation of
such ministerial acts and responsibilities as the Committee deems appropriate.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or any Option in the manner and to the extent it
shall deem expedient to carry it into effect, and it shall be the sole and final
judge of such expediency. The Committee shall have full discretion to make all
determinations on the matters referred to in this SUBSECTION 13(D), and such
determinations shall be final, binding and conclusive.
SECTION 14. GOVERNMENT REGULATIONS.
This Plan, Options and the obligations of the Corporation to sell and
deliver Shares under any Options, shall be subject to all applicable laws, rules
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
SECTION 15. MISCELLANEOUS.
(a) The grant of an Option shall be in addition to any other compensation
paid to the Optionee or other employee benefit plans of the Corporation or a
Subsidiary or other benefits with respect to Optionee's position with the
Corporation or a Subsidiary. The grant of an Option shall not confer upon the
Optionee the right to continue in the Optionee's employment position, or
interfere in any way with the rights of the Optionee's employer to terminate his
or her status as an employee.
(b) Neither the members of the Board nor any member of the Committee shall
be liable for any act, omission, or determination taken or made in good faith
with respect to this Plan or any Option, and members of the Board and the
Committee shall, in addition to all other rights of indemnification and
reimbursement, be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising from such claim, loss, damage, or expense to the full extent
permitted by law and under any directors' and officers' liability or similar
insurance coverage that may from time to time be in effect.
(c) Any issuance or transfer of Shares to an Optionee, or to his legal
representative, heir, legatee, distributee or assignee, in accordance with the
provisions of this Plan or the applicable Option, shall, to the extent thereof,
be in full satisfaction of all claims of such persons under the Plan. The
Committee may require any Optionee, legal representative, heir, legatee,
distributee or assignee as a condition precedent to such payment or issuance or
transfer of Shares, to execute a release and receipt for such payment or
issuance or transfer of Shares in such form as it shall determine.
(d) Neither the Committee nor the Corporation guarantees Shares from loss
or depreciation.
A-7
<PAGE> 28
(e) All expenses incident to the administration, termination, or protection
of this Plan or any Option, including, but not limited to, legal and accounting
fees, shall be paid by the Corporation; provided, however, the Corporation may
recover any and all damages, fees, expenses and costs arising out of any actions
taken by the Corporation to enforce its rights under this Plan or any Option.
(f) Records of the Corporation shall be conclusive for all purposes under
this Plan or any Option, unless determined by the Committee to be incorrect.
(g) The Corporation shall, upon request or as may be specifically required
under this Plan or any Option, furnish or cause to be furnished all of the
information or documentation that is necessary or required by the Committee to
perform its duties and functions under this Plan or any Option.
(h) The Corporation assumes no liability to any Optionee or his legal
representatives, heirs, legatees or distributees for any act of, or failure to
act on the part of, the Committee.
(i) If any provision of this Plan or any Option is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions of this Plan or any Option, but such provision shall be
fully severable, and the Plan or Option, as applicable, shall be construed and
enforced as if the illegal or invalid provision had never been included in the
Plan or Option, as applicable.
(j) Whenever any notice is required or permitted under this Plan, such
notice must be in writing and personally delivered or sent by mail or delivery
by a nationally recognized courier service. Any notice required or permitted to
be delivered under this Plan shall be deemed to be delivered on the date on
which it is personally delivered, or, if mailed, whether actually received or
not, on the third Business Day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address that such person has previously specified by written
notice delivered in accordance with this SUBSECTION 15(J) or, if by courier,
seventy-two (72) hours after it is sent, addressed as described in this
SUBSECTION 15(J). The Corporation or the Optionee may change, at any time and
from time to time, by written notice to the other, the address that it or he had
previously specified for receiving notices. Until changed in accordance with
this Plan, the address of the Corporation is 3710 Rawlins, Suite 1500, Dallas,
Texas 75219-4236 and the address of the Optionee is the Optionee's address in
the records of the Optionee's employer.
(k) Any person entitled to notice under this Plan may waive such notice.
(l) Each Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees and upon the Corporation, its
successors, and assigns, and upon the Board, the Committee and its successors.
(m) The titles and headings of Sections are included for convenience of
reference only and are not to be considered in construction of this Plan's
provisions.
(n) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Plan dictates, the plural shall be
read as the singular and the singular as the plural.
SECTION 16. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Committee may
from time to time amend the Plan or any Option; provided, however, that, except
to the extent provided in Section 8, no amendment or suspension of the Plan or
any Option issued hereunder shall, except as specifically permitted in any
Option, substantially impair any Option previously granted to any Optionee
without the consent of such Optionee.
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<PAGE> 29
SECTION 17. EFFECTIVE DATE AND TERMINATION DATE. The Effective Date of the
Plan is June 27, 1995, which is the date the Board adopted this Plan. The Plan
shall terminate on the tenth anniversary of the Effective Date.
Executed to evidence the 1995 Stock Option Plan of The Hallwood Group
Incorporated adopted by the Board on June 27, 1995.
THE HALLWOOD GROUP INCORPORATED
By: /s/ MELVIN J. MELLE
----------------------------------
Name: Melvin J. Melle
Title: Vice President, Chief
Financial
Officer and Secretary
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<PAGE> 30
SKU 2070-PS-97
<PAGE> 31
P R O X Y
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles A. Crocco, Jr. and J. Thomas
Talbot, 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 of The Hallwood Group Incorporated
(the "Company"), held of record by the undersigned on March 21, 1997, at the
Annual Meeting of Stockholders to be held on May 7, 1997, or any adjournment
thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted FOR the election of the nominees listed, FOR the amended 1995
Stock Option Plan and at the discretion of the Proxies with respect to any
other matter that is properly brought before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
***********************
* *
* SEE REVERSE SIDE *
* *
***********************
<PAGE> 32
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
PLEASE MARK BOXES IN BLUE OR BLACK INK.
1. Election of Directors
NOMINEES: Anthony J. Gumbiner, Robert L. Lynch
FOR WITHHELD
[ ] [ ]
[ ]
---------------------------------------
For both nominees except as noted above
2. Proposal to approve the Company's amended 1995 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the meeting.
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
COMPLETE, SIGN AND DATE THE PROXY CARD AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both sign, or if one signs he should attach evidence of his authority.
When signing as attorney, executor, administrator, agent, trustee or guardian,
please give full title as such. If a corporation, please sign full corporate
name by President or other authorized officer. If a partnership, please sign
full partnership name by authorized person.
Signature Date:
---------------------------- ----------------------
Signature Date:
---------------------------- ----------------------
