Hallwood Group Inc – ‘PRES14A’ for 6/27/95

As of:  Thursday, 4/27/95   ·   For:  6/27/95   ·   Accession #:  950134-95-834   ·   File #:  1-08303

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Preliminary Proxy Solicitation Material — Special Meeting   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Preliminary Notice & Proxy for Special Meeting        18    102K 

Document Table of Contents

PRES14A
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SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT 

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES 
EXCHANGE ACT OF 1934

Filed by the Registrant /X/                                           
Filed by a Party other than the Registrant / /                        
Check the appropriate box:                                            
/X/ Preliminary Proxy Statement     / / Confidential, for Use of the  
                                          Commission Only (as permitted by
                           Rule 14a-6(e)(2))
/ / Definitive Proxy Statement                                        
/ / Definitive Additional Materials                                   
   / / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12

The Hallwood Group Incorporated 
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

The Hallwood Group Incorporated 
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              
     /X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.                             
  / / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).                                                  
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.                                                         

(1) Title of each class of securities to which transaction applies:   

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(2) Aggregate number of securities to which transaction applies:      

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(3) Per unit price or other underlying value of transaction computed  
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):                                 

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(4) Proposed maximum aggregate value of transaction:                  

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(5) Total fee paid:                                                   

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/ / Fee paid previously with preliminary materials.                   

    / / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid   
previously. Identify the previous filing by registration statement number, or   
the Form or Schedule and the date of its filing.                                

(1) Amount Previously Paid:                                           

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(2) Form, Schedule or Registration Statement No.:                     

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(3) Filing Party:                                                     

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(4) Date Filed:                                                       

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THE HALLWOOD GROUP INCORPORATED 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

To the Stockholders of The Hallwood Group Incorporated:                         

     The Special Meeting of Stockholders (the "Special Meeting") of The Hallwood
Group Incorporated (the "Company") will be held as follows:                     

PLACE:       Four Seasons Yorkville                                             
21 Avenue Road                                        
32 Floor, Windows South                               
Toronto, Ontario, Canada M542G1                       

TIME:         Tuesday, June 27, 1995, at 9:00 a.m.                              
(Toronto time)                                      

PURPOSES:  1. To consider and act upon a proposal to amend the Company's        
         Certificate of Incorporation to effect a one-for-four reverse
         stock split of the Company's common stock, par value $.10 per
share (the "Common Stock");                         

     2. To consider and act upon a proposal to amend the Company's
               Certificate of Incorporation to restrict certain transfers of the
            Company's Common Stock in an attempt to protect certain of the
Company's federal income tax benefits; and        

        3. To transact any and all other business that may properly come
       before the Special Meeting or any adjournment(s) thereof.

   Only stockholders of record at the close of business on May 15, 1995 will
be entitled to notice of and to vote at the Special Meeting.                    

May   , 1995                                                                    

                                    By Order of the Board of Directors

                                     MELVIN J. MELLE
                                     Secretary

 YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS     
IMPORTANT FOR YOU TO BE REPRESENTED AT THE SPECIAL MEETING. THE EXECUTION OF    
YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT   
THE SPECIAL MEETING.                                                            

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THE HALLWOOD GROUP INCORPORATED 
3710 RAWLINS
SUITE 1500
DALLAS, TEXAS 75219 
--------------------- 

PROXY STATEMENT 
FOR SPECIAL MEETING OF STOCKHOLDERS 
TO BE HELD JUNE 27, 1995
--------------------- 

SOLICITATION AND REVOCABILITY OF PROXIES

The accompanying proxy is solicited by the Board of Directors of The  
Hallwood Group Incorporated (the "Company"), to be voted at the Special Meeting 
of Stockholders of the Company to be held on June 27, 1995 (the "Special        
Meeting"), at the time and place, and for the purposes, set forth in the        
accompanying Notice of Special Meeting of Stockholders, and at any              
adjournment(s) of that meeting. When proxies in the accompanying form are       
properly executed and received, the shares represented thereby will be voted at 
the Special Meeting in accordance with the directions noted thereon; if no      
directions are indicated, the shares will be voted in favor of the proposals set
forth in this Proxy Statement, and in the discretion of the persons appointed as
Proxies in the accompanying form of proxy with respect to any other matter that 
is properly brought before the meeting.                                         

   Each stockholder of the Company has the unconditional right to revoke the
proxy at any time prior to its exercise, either in person at the Special Meeting
or by written notice to the Company addressed as follows: Secretary, The        
Hallwood Group Incorporated, 3710 Rawlins, Suite 1500, Dallas, Texas 75219. No  
revocation by written notice shall be effective unless such notice has been     
received by the Secretary of the Company prior to the day of the Special Meeting
or by the inspector of elections at the Special Meeting.                        

     The principal executive offices of the Company are located at 3710 Rawlins,
Suite 1500, Dallas, Texas 75219. This Proxy Statement and the accompanying      
Notice of Special Meeting of Stockholders and proxy are being mailed to the     
Company's stockholders on or about May 22, 1995.                                

    In addition to the solicitation of proxies by use of this Proxy Statement,
directors, officers, and regular employees of the Company may solicit the return
of proxies either by mail, personal interview, telephone, or telegraph. Officers
and employees of the Company will not be compensated additionally for their     
solicitation efforts, but they will be reimbursed for any out-of-pocket expenses
incurred. In addition, the Company has retained Morrow & Co., Inc. to assist in 
the solicitation of proxies, for which such firm will be paid a fee of $2,500   
plus reimbursement of reasonable out-of-pocket expenses. Brokerage houses and   
other custodians, nominees, and fiduciaries will be requested, in connection    
with the stock registered in their names, to forward solicitation materials to  
the beneficial owners of such stock.                                            

All costs of paying, printing, assembling, and mailing the Notice of  
Special Meeting of Stockholders, this Proxy Statement, the enclosed form of     
proxy, and any additional materials, as well as the cost of forwarding          
solicitation materials to the beneficial owners of stock and all other costs of 
solicitation, will be borne by the Company.                                     

PURPOSES OF THE MEETING 

At the Special Meeting, the Company's stockholders will be asked to   
consider and act upon the following matters:                                    

   1. To consider and act upon a proposal to amend the Company's Certificate
    of Incorporation to effect a one-for-four reverse stock split of the
      Company's common stock, par value $.10 per share (the "Common Stock");

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   2. To consider and act upon a proposal to amend the Company's Certificate
    of Incorporation to restrict certain transfers of the Company's Common
    Stock in an attempt to protect certain of the Company's federal income
tax benefits; and                                                 

     3. To transact any and all other business that may properly come before the
Special Meeting or any adjournment(s) thereof.                    

QUORUM AND VOTING 

The directors have fixed the close of business on May 15, 1995 as the 
record date (the "Record Date") for the determination of stockholders to vote at
the Special Meeting and any adjournment thereof. As of the Record Date, the     
Company had issued and outstanding [6,383,267] shares of Common Stock. As of the
Record Date, [896,000] of such outstanding shares of Common Stock were owned by 
Hallwood Energy Corporation ("HEC"), an oil and gas corporation of which the    
Company owns approximately 63% of the outstanding capital stock on a fully      
diluted basis.                                                                  

     Each stockholder of record of Common Stock will be entitled to one vote per
share in each matter that is called to vote at the Special Meeting.             

  The presence, either in person or proxy, of holders of a majority of the
voting power of the Company is necessary to constitute a quorum at the Special  
Meeting. Assuming the presence of a quorum, the affirmative vote of the holders 
of at least a majority of the outstanding shares of Common Stock is required for
the approval of each proposal. HEC, which owns approximately [14%] of the       
outstanding Common Stock, has informed the Company that it will vote all of its 
shares in favor of each proposal. In addition, Alpha Trust and Epsilon Trust,   
which own approximately 18.6% and 12.4% of the outstanding Common Stock,        
respectively, have informed the Company that they will vote all of their shares 
of Common Stock in favor of each proposal.                                      

   All proxies that are properly completed, signed and returned prior to the
Special Meeting will be voted. Any proxy given by a stockholder may be revoked  
at any time before it is exercised by (i) filing with the Secretary of the      
Company an instrument revoking it, (ii) a duly executed proxy bearing a later   
date or (iii) the stockholder attending the Special Meeting and expressing a    
desire to vote his shares of Common Stock in person. Abstentions, broker        
non-votes and proxies directing that the shares are not to be voted will not be 
counted as a vote in favor of a matter called for a vote.                       

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of the close of business on May 15,
1995, information as to the beneficial ownership of shares of Common Stock for  
each director and for all directors and executive officers as a group.          

                                                        [Enlarge/Download Table]

                                                              AMOUNT AND                
                                                              NATURE OF                 
                          NAME OF                             BENEFICIAL   PERCENTAGE OF
                     BENEFICIAL OWNER                        OWNERSHIP(1)    CLASS(1)   
-----------------------------------------------------------  ------------  -------------
                                                                                        
Charles A. Crocco, Jr......................................      2,257        *         
Anthony J. Gumbiner........................................          0(2)        --     
William L. Guzzetti........................................          0(3)        --     
Robert L. Lynch............................................     27,925(4)     *         
Melvin J. Melle............................................     60,000(5)     *         
J. Thomas Talbot...........................................         --           --     
Brian M. Troup.............................................         --(6)        --     
All directors and executive officers                                                    
  as a group (7 persons)...................................     90,182          1.4%    

---------------                                                                 

*  Less than 1%                                                               

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(1) Assumes, for each person or group listed, the conversion of all convertible 
    securities owned and the exercise of all stock options held by such person
    or group that are convertible or exercisable within 60 days, in accordance
     with Rule 13d-3(d)(1)(i) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), but the conversion of none of the convertible   
securities owned by any other holder of such securities.              

(2) Excludes [896,000] shares of Common Stock held by Hallwood Energy           
  Corporation ("HEC"), of which Mr. Gumbiner is the Chairman of the Board of
   Directors and Chief Executive Officer, and 1,188,670 shares of Common Stock
    held by Alpha Trust. Mr. Gumbiner has the power to designate and replace the
   trustees of Alpha Trust. The shares of Common Stock held by Alpha Trust are
 pledged to IBJ Schroder Bank & Trust Company ("IBJ Schroder"), as trustee
    under an indenture as collateral for bonds issued by Hallwood Holdings S.A.,
    a Luxembourg corporation ("HHSA"). HHSA no longer claims beneficial interest
   in the shares, but the shares remain pledged as collateral for these bonds.
Mr. Gumbiner is a director of HHSA.                                     

(3) Excludes [896,000] shares of Common Stock held by HEC, of which Mr. Guzzetti
is the President.                                                     

(4) These shares are owned beneficially and of record by Perpetual Storage, Inc.
Mr. Lynch is deemed to beneficially own such shares by virtue of his  
 ownership of 96.7% of the outstanding shares of Perpetual Storage, Inc.

(5) Includes currently exercisable options to purchase 60,000 shares of Common  
Stock.                                                                

(6) Excludes 792,448 shares of Common Stock held by Epsilon Trust. Mr. Troup has
 the power to designate and replace the trustees of Epsilon Trust. These
shares are pledged to IBJ Schroder, as trustee under an indenture as  
    collateral for the shares, but the shares remain pledged as collateral for
these bonds. Mr. Troup is a director of HHSA.                         

Except as set forth below, the Company does not know of any person or 
"group" (as that term is used in Section 13(d)(3) of the Exchange Act) who or   
which owns beneficially more than 5% of its outstanding shares of Common Stock  
as of the close of business on the Record Date.                                 

                                                                [Download Table]

                                                    AMOUNT AND                   
                                                    NATURE OF                    
                NAME AND ADDRESS                    BENEFICIAL      PERCENTAGE OF
               OF BENEFICIAL OWNER                 OWNERSHIP(1)       CLASS(1)   
-------------------------------------------------  ------------     -------------
                                                                                 
Alpha Trust                                          1,188,670(2)       18.6%    
c/o Radcliffes Trustee Company SA                                                
9 Rue, Charles Humbert                                                           
1205 Geneva, Switzerland                                                         
Hallwood Energy Corporation                           [896,000](3)      14.0%    
4582 South Ulster Street Parkway                                                 
Suite 1700                                                                       
Denver, Colorado 80237                                                           
Epsilon Trust                                          792,448(4)       12.4%    
c/o Merohaus Verwaltung AG                                                       
Utoquai, 43,8008                                                                 
Zurich, Switzerland                                                              

---------------                                                                 

(1) Assumes, for each person or group listed, the conversion of all convertible 
    securities owned and the exercise of all stock options held by such person
    or group that are convertible or exercisable within 60 days, in accordance
     with Rule 13d-3(d)(1)(i) of the Exchange Act, but the conversion of none of
  the convertible securities owned by any other holder of such securities.

(2) Based on the Amendment to Schedule 13D provided to the Company by Alpha     
   Trust as of November 9, 1994. Mr. Gumbiner has the power to designate and
replace the trustees of Alpha Trust.                                  

(3) Mr. Gumbiner is the Chairman of the Board of Directors and Chief Executive  
Officer and Mr. Guzzetti is the President of HEC.                     

(4) Based on the Amendment to Schedule 13D provided to the Company by Epsilon   
Trust as of December 30, 1994. Mr. Troup has the power to designate and 
replace the trustees of Epsilon Trust.                                  

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REVERSE SPLIT 

GENERAL                                                                         

     At the Special Meeting, stockholders will consider and vote upon a proposal
providing for a one-for-four reverse split of the Common Stock (the "Reverse    
Split"). The Reverse Split will be effected by an amendment to the Company's    
Certificate of Incorporation (the "Reverse Split Amendment") that is contained  
in Exhibit A hereto, which is incorporated by reference herein. The provisions  
of the Reverse Split Amendment will become effective upon the filing of a       
certificate of amendment with the Secretary of State of the State of Delaware   
(the "Effective Date"). Fractional shares of Common Stock will not be issued as 
a result of the Reverse Split. Stockholders entitled to receive a fractional    
share of Common Stock as a consequence of the Reverse Split will instead receive
from the Company a cash payment in United States dollars equal to such fraction 
multiplied by 4 times the average closing price of the Common Stock on the New  
York Stock Exchange for the five calendar days immediately preceding the        
Effective Date.                                                                 

AMENDMENT TO THE CERTIFICATE OF INCORPORATION                                   

     The Reverse Split Amendment will amend Article Fourth of the Certificate of
Incorporation to add a new Paragraph 1(c). At the Effective Date, without       
further action on the part of the Company or the holders, each share of Common  
Stock will be converted into one-fourth of a share of Common Stock. The Reverse 
Split Amendment will be filed with the Secretary of State of the State of       
Delaware and will become effective on the date of such filing. The Reverse Split
Amendment will not affect the number of authorized shares of the Company's      
Common Stock.                                                                   

VOTE NEEDED FOR APPROVAL                                                        

The proposed Reverse Split and the related amendment to the Company's 
Certificate of Incorporation must be approved by the holders of at least a      
majority of the outstanding shares of Common Stock.                             

   THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH
THE PROPOSED REVERSE SPLIT AMENDMENT AND DECLARING ITS ADVISABILITY, AND HEREBY 
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED AMENDMENT.

EFFECT OF THE PROPOSED REVERSE SPLIT                                            

     The proposed Reverse Split will be effected by means of an amendment to the
Certificate of Incorporation. As such, no appraisal rights are available to     
dissenting stockholders under Delaware law. Each stockholder who owns fewer than
4 shares of Common Stock, as of the Effective Date, will have his shares of     
Common Stock converted into the right to receive cash for his fractional share  
resulting from the Reverse Split as set forth in "-- Exchange of Stock          
Certificates and Payment for Fractional Shares". The interest of such           
stockholder in the Company will thereby be terminated, and such stockholder will
have no right to share in the assets or future growth of the Company. Each      
stockholder who owns 4 or more shares of Common Stock will continue to own      
shares of Common Stock and will share in the assets and future growth of the    
Company. Such interest will be represented by one-fourth as many shares as      
before the Reverse Split, except that cash will be received in lieu of          
fractional shares resulting from the Reverse Split.                             

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   The following unaudited schedule of stockholders' equity sets forth as of
April 30, 1995, on a pro forma basis, the effect of the adoption of the Reverse 
Split proposal. Adoption of the Reverse Split proposal will result in a         
one-for-four reverse split of the Common Stock with stockholders receiving cash 
in lieu of fractional shares.                                                   

PRO FORMA SCHEDULE OF STOCKHOLDERS' EQUITY
ASSUMING ADOPTION OF REVERSE SPLIT PROPOSAL 

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                       PRO FORMA    
                                                      HISTORICAL      PRO FORMA     ADJUSTED BALANCE
                                                    APRIL 30, 1995  ADJUSTMENTS(1)   APRIL 30, 1995 
                                                    --------------  --------------  ----------------
                                                                                                    
Common Stock, $.10 par value;                                                                       
  (pre-proposal -- issued and outstanding                                                           
  [6,394,709] shares; post-proposal -- issued and                                                   
  outstanding [1,595,678] shares)..................   $     [639]      $  [(479)]      $     [160]  
Additional paid-in capital.........................      [56,538]          [479]          [57,017]  
Accumulated deficit................................     [(46,575)]           --          [(46,575)] 
Equity adjustment from foreign currency                                                             
  translation......................................         [245]            --              [245]  
                                                      ----------       --------        ----------   
Treasury Stock at cost.............................      [(6,296)]      [(6,296)]         [(6,296)] 
                                                      ----------       --------        ----------   
          Total stockholders' equity...............   $   [4,551]      $     --        $   [4,551]  
                                                      ==========       ========        ==========   

---------------                                                                 

(1)  Represents the proposed one-for-four Common Stock reverse stock split which
    results in a net reduction of           shares of Common Stock outstanding
assuming no fractional shares purchased for cash.                     

    Adoption of the Reverse Split proposal as of August 1, 1993 would not have
had an effect on net income for the fiscal year ended July 31, 1994. However,   
net income per share would have been increased from $          to $          .  
No adjustment has been made for the reduction in the number of shares of Common 
Stock resulting from the payment of cash for fractional shares. In addition, the
Company does not believe that adoption of the Reverse Split will adversely      
affect the continued trading of the Company's Common Stock on the New York Stock
Exchange.                                                                       

REASONS FOR THE REVERSE SPLIT                                                   

Management of the Company believes that it is difficult to attract new
investors to the Company due to the fact that the Common Stock trades at a      
relatively low price (the closing price on May   , 1995 was $          per      
share). Institutional investors typically are restricted from investing in      
companies whose stock trade at less than $5, and, in some cases, $10 per share. 
Stockbrokers also are sometimes subject to internal restrictions on their       
ability to recommend stocks trading at less than $5 per share because of the    
general presumption that such stock may be highly speculative. In addition,     
stock which trades in the trading range of the Company's Common Stock may not be
marginable under the internal policies of some stockbrokers.                    

     It is anticipated that following the consummation of the Reverse Split, the
shares of Common Stock will trade at a price per share that is significantly    
higher than the current market price and more typical of stocks which trade on  
the New York Stock Exchange. However, there can be no assurance that the shares 
of Common Stock, after the consummation of the Reverse Split, will trade at 4   
times the market price of the Common Stock prior to the Reverse Split.          

   THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH
THE PROPOSED REVERSE SPLIT AMENDMENT AND DECLARING ITS ADVISABILITY, AND HEREBY 
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED AMENDMENT.

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EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES                

 The exchange of shares of Common Stock will occur on the Effective Date
without any action on the part of stockholders of the Company and without regard
to the date or dates certificates formerly representing shares of Common Stock  
are physically surrendered for certificates representing the number of shares of
Common Stock such stockholders are entitled to receive as a consequence of the  
Reverse Split. The Exchange Agent will effectuate the exchange of certificates. 
In the event that the number of shares of Common Stock into which shares of     
Common Stock will be exchanged or converted includes a fraction, the Company    
will pay to the holder of such fraction, in lieu of the issuance of fractional  
shares of the Company, a cash amount in United States dollars which will be     
equal to the same fraction multiplied by 4 times the average closing price of   
the Common Stock on the New York Stock Exchange for the five calendar days      
immediately preceding the Effective Date.                                       

    As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates formerly representing shares of 
Common Stock to be used in forwarding their certificates for surrender and      
exchange for certificates representing the number of shares of Common Stock such
stockholders are entitled to receive as a consequence of the Reverse Split.     
After receipt of such transmittal form, each such holder should surrender the   
certificates formerly representing shares of Common Stock of the Company and    
such holder will receive in exchange therefor certificates representing the     
whole number of shares of Common Stock to which he is entitled and any cash     
which may be payable in lieu of any fractional share. Such transmittal forms    
will be accompanied by instructions specifying other details of the exchange.   
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A         
TRANSMITTAL FORM.                                                               

  After the Effective Date, each certificate representing shares of Common
Stock will, until surrendered and exchanged as described above, be deemed, for  
all corporate purposes, to evidence ownership of the whole number of shares of  
Common Stock, and the right to receive from the Company the amount of cash for  
any fractional shares, into which the shares evidenced by such certificate have 
been converted, except that the holder of such unexchanged certificates will not
be entitled to receive any dividends or other distributions payable by the      
Company after the Effective Date with respect to the shares which the           
stockholder is entitled to receive because of the Reverse Split, until the      
certificates representing such shares of Common Stock have been surrendered.    
Such dividends and distributions, if any, will be accumulated and, at the time  
of such surrender, all such unpaid dividends or distributions will be paid      
without interest.                                                               

  The Company estimates that payments for fractional shares resulting from
the Reverse Split will aggregate, at a maximum, $[60,000], and likely will      
aggregate significantly less than such amount. The Company intends to use       
internally generated funds for such purpose.                                    

FEDERAL INCOME TAX CONSEQUENCES                                                 

    The following discussion describes certain federal income tax consequences
of the Reverse Split. This discussion is based upon the Internal Revenue Code of
1986 (the "Code"), existing and proposed regulations thereunder, reports of     
congressional committees, judicial decisions and current administrative rulings 
and practices, all as amended and in effect on the date hereof. Any of these    
authorities could be repealed, overruled or modified at any time. Any such      
change could be retroactive and, accordingly, could modify the tax consequences 
discussed herein. No ruling from the Internal Revenue Service (the "IRS") with  
respect to the matters discussed herein has been requested and there is no      
assurance that the IRS would agree with the conclusions set forth in this       
discussion.                                                                     

  This discussion is for general information only and does not address the
federal income tax consequences that may be relevant to particular stockholders 
in light of their personal circumstances or to certain types of stockholders    
(such as dealers in securities, insurance companies, foreign individuals and    
entities, financial institutions and tax-exempt entities) who may be subject to 
special treatment under the federal income tax laws. This discussion also does  
not address any tax consequences under state, local or foreign laws.            

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   STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF PARTICIPATION IN THE REVERSE SPLIT, INCLUDING THE   
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX
LAWS AND ANY PENDING OR PROPOSED LEGISLATION.                                   

The Company should not recognize any gain or loss as a result of the  
Reverse Split. No gain or loss should be recognized by a stockholder who        
receives only Common Stock upon the Reverse Split. The aggregate tax basis of   
Common Stock received by such a stockholder in connection with the Reverse Split
will equal the stockholder's aggregate tax basis in the Common Stock exchanged  
therefore and generally will be allocated among Common Stock received on a pro  
rata basis. Stockholders who have used the specific identification method to    
identify their basis in Common Stock surrendered in the Reverse Split should    
consult their own tax advisors to determine their basis in the Common Stock     
received in exchange therefor. A stockholder who receives cash in lieu of a     
fractional share of Common Stock that otherwise would be held as a capital asset
generally should recognize capital gain or loss on the receipt of such cash in  
an amount equal to the difference between the cash received and his basis in    
such fractional share of Common Stock. For this purpose, a stockholder's basis  
in such fractional share of Common Stock will be determined as if the           
stockholder actually received such fractional share.                            

RESTRICTION ON TRANSFER OF COMMON STOCK 

GENERAL                                                                         

     At the Special Meeting, stockholders will consider and vote upon a proposal
providing for an amendment to the Company's Certificate of Incorporation (the   
"Stock Transfer Amendment") that would impose certain restrictions upon the     
transfer of the Company's Common Stock to designated persons (the "Stock        
Transfer Restrictions"). It is currently possible that certain future transfers 
of the Company's stock could result in the imposition of limitations on the     
ability of the Company to utilize its carryforwards of net operating losses and 
certain credits for federal income tax purposes. The Board of Directors believes
that it is advisable and in the best interest of the Company to attempt to      
prevent the imposition of such limitations by adopting the amendment described  
below.                                                                          

BACKGROUND REGARDING DELAWARE LAW                                               

   Under the laws of the State of Delaware, pursuant to which the Company is
incorporated, a corporation may provide in its certificate of incorporation or  
bylaws that a transfer of a security of the Company to designated persons or    
classes of persons may be prohibited so long as the designation of the persons  
or classes of persons is not manifestly unreasonable. Under Delaware law, any   
restriction on the transfer of shares of Common Stock of the Company for the    
purposes of maintaining any tax advantage to the Company is conclusively        
presumed to be for a reasonable purpose. The transfer restriction must be noted 
conspicuously on the certificate representing the shares to be enforceable      
against the holder of the restricted shares or any successor or transferee of   
the holder. If the restriction is not conspicuously noted on the certificate    
representing the shares, Delaware law provides that the restriction is          
ineffective except against a person with actual knowledge of the restriction.   
Finally, no restriction so imposed is binding with respect to shares issued     
prior to the inclusion of the restrictions in the certificate of incorporation  
or bylaws unless the holders of such shares agree thereto or vote in favor      
thereof.                                                                        

REASONS FOR ADOPTION OF STOCK TRANSFER AMENDMENT                                

The restrictions imposed by the proposed Stock Transfer Amendment are 
designed to restrict transfer of the Company's Common Stock that could result in
the imposition of limitations on the use, for federal income tax purposes, of   
the Company's carryforwards of net operating losses and certain credits. The    
Company estimates that it had, as of May   , 1995, carryforwards of net         
operating losses of up to approximately $138,000,000, of which approximately    
$89,000,000 are subject to certain "separate return limitation years," and      
certain other tax credits consisting of up to approximately $1,700,000 in job   
tax credit carryforwards,                                                       

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approximately $1,200,000 in investment tax credits and approximately $180,000 in
alternative minimum tax credit. For federal income tax purposes, these          
carryforwards will expire through the year 2009. Because the amount and timing  
of the Company's taxable income in the current fiscal year and thereafter cannot
be accurately predicted, it is not presently feasible to estimate the amount, if
any, of carryforwards that ultimately may be used to reduce the Company's       
federal income tax liability.                                                   

The benefit of the Company's existing and future loss and credit      
carryforwards can be reduced or eliminated if the Company undergoes an          
"ownership change," as defined in Section 382 of the Code. Generally, an        
"ownership change" occurs if one or more stockholders, each of whom owns 5% or  
more in value of a company's capital stock, increase their aggregate percentage 
ownership by more than 50 percentage points over the lowest percentage of stock 
owned by such stockholders over the preceding three-year period. For this       
purpose, all holders who each own less than 5% of a company's capital stock     
generally are treated together as one 5% stockholder. In addition, certain      
attribution rules, which generally attribute ownership of stock to the ultimate 
beneficial owner thereof without regard to ownership by nominees, trusts,       
corporations, partnerships or other entities, are applied to determining the    
level of stock ownership of a particular stockholder. If a principal purpose of 
the issuance, transfer or structuring of an option (including a warrant) to     
acquire stock is to avoid or ameliorate the impact of an "ownership change,"    
such option may be treated as if it had been exercised for purposes of          
determining whether an "ownership change" has occurred. All percentage          
determinations are based on the fair market value of a company's capital stock, 
including, if any, preferred stock that is voting or convertible and certain    
other interests in the Company.                                                 

    If the Company were to undergo an "ownership change," the amount of future
taxable income of the Company that could be offset in any year by its           
carryforwards of net operating losses and credits incurred prior to such        
"ownership change" could not exceed an amount equal to the product obtained by  
multiplying (i) the aggregate value of the Company's outstanding capital stock  
immediately prior to the "ownership change" (reduced by certain capital         
contributions made during the immediately preceding two years and certain other 
items) by (ii) the federal long-term tax-exempt interest rate (currently        
approximately 6.50%). Because the aggregate value of the Company's outstanding  
stock and the federal long-term tax-exempt interest rate fluctuate, it is       
impossible to predict with any accuracy the annual limitation upon the amount of
taxable income of the Company that could be offset by such loss carryforwards   
and credits were an "ownership change" to occur in the future. While the        
carryovers not used as a result of this limitation would remain available to    
offset variable income in future years (again, subject to the limitation), an   
ownership change could significantly defer the utilization of the carryovers,   
accelerate payment of federal income tax and cause a portion of the carryovers  
to expire unused.                                                               

     The Company currently knows of no stockholder owning more than 4.75%, based
on value, of the Company's capital stock other than persons listed in the table 
under "Security Ownership of Certain Beneficial Owners and Management" above. It
is possible that additional accumulations of the Company's Common Stock by such 
persons or by stockholders who become holders of at least 5% of the Company's   
capital stock would result in an "ownership change" with the consequent loss or 
deferral of the potential benefits arising from the Company's carryforwards of  
net operating losses and credits. The Stock Transfer Restrictions recommended by
the Board of Directors are intended to reduce the risk of such additional       
accumulations by prohibiting certain transfers of the Company's Common Stock.   

DESCRIPTION AND EFFECT OF PROPOSED AMENDMENT                                    

  The proposed Stock Transfer Restrictions will be effected by means of an
amendment to the Certificate of Incorporation. As such, no appraisal rights are 
available to dissenting stockholders under Delaware law. The proposed Stock     
Transfer Amendment is contained in Exhibit A hereto, which is incorporated by   
reference herein, and the following discussion of the terms thereof is qualified
in its entirety by reference thereto.                                           

Upon approval of the Stock Transfer Amendment, Article Fourth of the  
Company's Certificate of Incorporation would be amended to add a new Paragraph  
1(d), which would restrict, until the earliest of July 31, 2009, or such date   
after which Section 382 of the Code is repealed or substantially modified such  
that, in the opinion of counsel to the Company, the Stock Transfer Restrictions 
are no longer necessary to                                                      

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accomplish their intended purpose, any transfer of any shares of the Company's  
Common Stock (i) to a person or entity (or group of persons or entities acting  
in concert) who directly or indirectly owns, or whose shares are or would be    
attributed to a person, entity or group who directly or indirectly owns, in     
either case prior to the transfer and after giving effect to the applicable     
attribution rules of the Code, more than 4.75% of the value of the outstanding  
capital stock (within the meaning of Section 382 of the Code) of the Company or 
(ii) to a person or entity (or group of persons or entities acting in concert)  
not described in clause (i) who directly or indirectly would own, or whose      
shares would be attributed to any person, entity or group who directly or       
indirectly would own, in either case as the result of and immediately after the 
transfer and after giving effect to the applicable attribution rules of the     
Code, more than 4.75% of the value of the outstanding capital stock (within the 
meaning of Section 382 of the Code) of the Company, provided that the           
restriction shall apply only to the number of shares of Common Stock            
representing such excess over 4.75%. A transfer that would otherwise be         
prohibited may be effected if the transferor or proposed transferee obtains the 
written approval of the Company's Board of Directors. The Board of Directors may
require as a condition of any transfer, that a transferor or proposed transferee
provide the Company with an opinion of counsel satisfactory to the Company to   
the effect that the transfer would not result in an "ownership change" within   
the meaning of Section 382 of the Code.                                         

   The Stock Transfer Restrictions may be removed by amending Article Fourth
of the Certificate of Incorporation in accordance with the provisions of        
Delaware law. The restriction period is based on Section 172 of the Code, which 
permits a net operating loss to be carried forward for a maximum of 15 taxable  
years following the taxable year in which the loss arose.                       

  The Company believes that, as of May 15, 1995, the only stockholders who
beneficially own more than 4.75% in value of the Company's outstanding capital  
stock are those stockholders listed on the table set forth under "Security      
Ownership of Certain Beneficial Owners and Management" above. The Stock Transfer
Restrictions, to the extent applicable, would prohibit any other person, entity 
or group from acquiring sufficient shares of Common Stock to cause such person, 
entity or group to become the owner of more than 4.75% of the value of Company's
outstanding capital stock (within the meaning of Section 382 of the Code) and   
would prohibit the stockholders set forth under "Security Ownership of Certain  
Beneficial Owners and Management" from increasing their respective ownership of 
Common Stock of the Company, without obtaining the prior approval of the        
Company's Board of Directors.                                                   

  Assuming adoption of the Stock Transfer Amendment, Article Fourth of the
Certificate of Incorporation would provide for all certificates representing    
Common Stock to bear the following legend:                                      

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN    
RESTRICTIONS ON TRANSFERS SET FORTH IN ARTICLE FOURTH OF THE CORPORATION'S      
CERTIFICATE OF INCORPORATION, THE TEXT OF WHICH IS SUMMARIZED ON THE REVERSE    
SIDE OF THIS CERTIFICATE. ANY ATTEMPT TO ACQUIRE COMMON STOCK OF THE CORPORATION
IN VIOLATION OF SUCH RESTRICTIONS SHALL BE NULL AND VOID AND MAY RESULT IN      
FINANCIAL LOSS TO THE PERSON OR ENTITY ATTEMPTING SUCH ACQUISITION."            

The Board of Directors intends to issue instructions to or make       
arrangements with the transfer agent for the Company's Common Stock to implement
the Stock Transfer Restrictions. These instructions or arrangements may result  
in the delay or refusal of transfers initially determined by the transfer agent 
to be in violation of the Stock Transfer Restrictions, including such transfers 
as might be ultimately determined by the Company and its transfer agent not to  
be in violation of such restrictions. The Company believes that such delays     
would be minimal but could occur at any time while the Stock Transfer           
Restrictions might be in effect.                                                

Upon adoption of the Stock Transfer Amendment, the Certificate of     
Incorporation of the Company would provide that any transfer attempted to be    
made in violation of such restrictions would be void ab initio, even if such    
transfer has been recorded by the transfer agent and new certificates issued. In
the event of an attempted transfer of shares in violation of the Stock Transfer 
Restrictions, the Company may appoint an agent for the purpose of consummating a
sale of such shares to an eligible transferee that would not violate the Stock  
Transfer Restrictions. Ownership of such shares would remain in the name of the 
transferor until the                                                            

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shares have been sold to an eligible transferee. The intended transferee of     
shares of Common Stock in violation of the Stock Transfer Restrictions would not
be entitled to any rights of a stockholder, including any right to vote such    
shares, or to receive dividends or liquidating distributions with respect       
thereof, if any. The rights to vote and to receive dividends and liquidating    
distributions with respect to such shares would remain with the transferor.     

     Within thirty days of learning of an attempted transfer in violation of the
Stock Transfer Restrictions, the Company shall demand the surrender of the      
certificates representing such shares, or any proceeds from a subsequent sale of
such shares, to an agent of the Company.                                        

PROPOSED AMENDMENT NO GUARANTEE                                                 

    Although the Stock Transfer Amendment is intended to reduce the likelihood
of an ownership change, it will not prevent all transfers that might result in  
an "ownership change." Furthermore, certain changes in relationships and other  
events not addressed by the Stock Transfer Amendment could cause the Company to 
undergo an "ownership change." Section 382 of the Code is an extremely complex  
provision with respect to which there are many uncertainties. In addition, the  
Company has not requested a ruling from the IRS regarding the effectiveness of  
the Stock Transfer Amendment and, therefore, there can be no assurance that the 
IRS will agree that the Stock Transfer Restrictions are effective for purposes  
of Section 382 of the Code. As a result of the foregoing, the Stock Transfer    
Amendment serves to reduce, but does not eliminate, the risk that the Company   
will undergo an ownership change. Finally, there can be no assurances that upon 
audit, the IRS would agree that all of the Company's net operating loss, capital
loss and tax credit carryforwards are allowable. The Board of Directors         
nevertheless believes that the adoption of the Stock Transfer Amendment is in   
the best interests of the Company because it discourages transfers that could   
cause or contribute to an "ownership change."                                   

OTHER CONSIDERATIONS                                                            

The Stock Transfer Amendment, if adopted, may be deemed to have an    
"anti-takeover" effect because it will restrict the ability of a person, entity 
or group to accumulate in the aggregate, through transfers of Common Stock, more
than 4.75%, in value, of the Company's capital stock and the ability of persons,
entities or groups now owning more than 4.75%, in value, of the Company's       
capital stock from acquiring additional shares of Common Stock, with the result 
that the Board of Directors may be able to prevent any future takeover attempt, 
in its discretion. Therefore, the Stock Transfer Amendment would discourage or  
prevent accumulations of substantial blocks of shares in which stockholders     
might receive a substantial premium above market value. Similarly, because the  
Stock Transfer Amendment operates to prevent the accumulation of more than 4.75%
of the Company's Common Stock, it will discourage the assumption of control by  
third parties and tend to insulate management against the possibility of        
removal. These results might be considered disadvantageous by some stockholders.
However, such disadvantages are outweighed, in the opinion of the Board of      
Directors, by the fundamental importance to the Company's stockholders of       
maintaining the availability of the Company's tax benefits. The Board of        
Directors is not aware of any efforts to take control of the Company and has no 
present intent to propose any provisions designed to inhibit a change of        
control. In addition, the Company does not believe that adoption of the Stock   
Transfer Amendment will adversely affect the continued trading of the Company's 
Common Stock on the New York Stock Exchange.                                    

  The aforementioned "anti-takeover" effect of the proposed Stock Transfer
Amendment is not, however, the reason for the Stock Transfer Restrictions. The  
Board of Directors has adopted and proposed the Stock Transfer Amendment in an  
effort to reduce the risk that the Company may be unable to fully utilize the   
tax benefits described above as a result of future transfers of the Company's   
Common Stock.                                                                   

The Board of Directors believes that attempting to safeguard the tax  
benefits of the Company as described above is in the best interests of the      
Company and its stockholders. Nonetheless, the Stock Transfer Amendment, if     
adopted, could restrict a stockholder's ability to acquire additional shares of 
the Company's Common Stock to the extent those shares exceed the specified      
limitations of the Stock Transfer Restrictions.                                 

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Furthermore, a stockholder's ability to dispose of his Common Stock could be    
restricted as a result of the Stock Transfer Restrictions.                      

The Board of Directors has the discretion to approve a transfer of the
Company's Common Stock that would otherwise violate the Stock Transfer          
Restrictions. If the Board of Directors decides to permit a transfer that would 
otherwise violate the Stock Transfer Restrictions, that transfer or later       
transfers may result in an "ownership change" that would limit the Company's use
of its carryforwards. The Board of Directors intends to consider any such       
attempted transfer individually and determine at the time whether it is in the  
best interest of the Company, after consideration of any factors that the Board 
deems relevant, to permit such transfer notwithstanding that an "ownership      
change" may then occur.                                                         

VOTE NEEDED FOR APPROVAL                                                        

The affirmative vote by the holders of at least a majority of the     
outstanding Common Stock is required for approval and adoption of the proposed  
Stock Transfer Amendment. The Stock Transfer Amendment, if approved, would      
become effective upon the filing of a Certificate of Amendment with the         
Secretary of State of the State of Delaware, which would be accomplished as soon
as practicable after the approval is obtained.                                  

   THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH
THE PROPOSED STOCK TRANSFER AMENDMENT AND DECLARING ITS ADVISABILITY, AND HEREBY
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE PROPOSED AMENDMENT.

OTHER INFORMATION 

ADDITIONAL MATTERS                                                              

 While the notice for the meeting calls for the transaction of any other
business as may be properly presented, management is not aware of any business  
to be submitted at the meeting not referred to in the proxy. If any further     
business is presented, the persons named in the proxy will act according to     
their best judgment on behalf of the shareholders they represent.               

SUBMISSION OF STOCKHOLDERS PROPOSALS                                            

 Any stockholder who wishes to present a proposal for action at the next
Annual Meeting of Stockholders and who wishes to have it set forth in the proxy 
statement and identified in the form of proxy prepared by management must notify
management of the Company in such a manner so that such notice is received by   
management by August 15, 1995, and in such form as required under the rules and 
regulations promulgated by the SEC.                                             

                                            By Order of the Board of Directors

                                           MELVIN J. MELLE
                                           Secretary

May   , 1995                                                                    
Dallas, Texas                                                                   

    IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE SPECIAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED 
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED  
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.                

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                                                                       EXHIBIT A

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE HALLWOOD GROUP INCORPORATED 

     The Hallwood Group Incorporated (the "Corporation"), organized and existing
under and by virtue of the General Corporation Law of Delaware (the "DGCL") does
hereby certify:                                                                 

FIRST: That the Board of Directors of the Corporation duly adopted    
resolutions setting forth an amendment to the Certificate of Incorporation of   
the Corporation (the "Amendment"), declaring the Amendment to be advisable and  
calling for the submission of the proposed Amendment to the stockholders of the 
Corporation for consideration thereof. The resolution setting forth the proposed
Amendment is as follows:                                                        

  ARTICLE FOURTH of the Certificate of Incorporation of The Hallwood Group
Incorporated, a Delaware corporation, is hereby amended so as to add thereto new
Paragraphs 1(c) and (d) to read as follows:                                     

(c) Reverse Stock Split                                                     

(i) Effective immediately upon the filing of this Amendment to the    
Certificate of Incorporation in the office of the Secretary of State of the     
State of Delaware, each outstanding share of previously existing Common Stock   
shall be and hereby is converted into and reclassified as 1/4th of a share of   
Common Stock; provided, however, that the fractional shares of Common Stock will
not be issued and each holder of a fractional share of Common Stock shall       
receive in lieu thereof a cash payment from the Corporation determined by       
multiplying such fractional share of Common Stock by four times the average     
closing price of a share of previously existing Common Stock on the New York    
Stock Exchange for the five trading days immediately preceding the effective    
date, and upon such other terms as the officers of the Corporation, in their    
sole discretion, deem to be advisable and in the best interests of the          
Corporation.                                                                    

     (ii) Certificates representing reclassified shares are hereby cancelled and
upon presentation of the cancelled certificates to the Corporation, the holders 
thereof shall be entitled to receive certificate(s) representing the new shares 
into which such cancelled shares have been converted.                           

(d) Restrictions on Transfer                                                

     (i) Until the earliest of July 31, 2009, such date as the Corporation shall
no longer have any unutilized federal income tax net operating loss carryovers, 
capital loss carryovers or tax credit carryovers, whether or not such carryovers
are currently in existence (the "Carryforwards") or such date after which       
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), is   
repealed or so substantially modified such that, in the opinion of counsel to   
the Corporation, the restrictions on transfer described herein are no longer    
necessary to accomplish their intended purpose: (A) any attempted sale,         
transfer, assignment or other disposition (including the granting of any option 
(within the meaning of Section 382 of the Code and the Income Tax Regulations as
now in effect or hereafter promulgated pursuant thereto (the "Regulations"))    
(any such option being referred to hereinafter as an "Option") or entering into 
of any agreement for the sale, transfer or other disposition), whether voluntary
or involuntary, whether of record or beneficially and whether by operation of   
law or otherwise (a "Transfer"), of any share or shares of the Common Stock of  
the Corporation or of any Option to acquire such stock, to any person or entity 
or group of persons or entities acting in concert (a "Transferee") who or that  
owns or owned, directly, indirectly or by application of the constructive       
ownership rules set forth in Sections 382 and 318 of the Code and the           
Regulations, or in any other manner representing "ownership" under any          
circumstances for purposes of Section 382 of the Code and the Regulations       
(collectively, "Owns" or "Owned"), at any time during the 3-year period ending  
on the day of the Transfer, an aggregate number of shares of the Corporation's  
stock (taking into account for this purpose all interests in the Corporation    
that are treated as stock for purposes of Section 382(g)(1) of the Code and no  
other interests in the Corporation (any interest that is so treated being       
referred to hereinafter as "Stock"))                                            

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having a fair market value equal to or greater than 4.75 percent of the fair    
market value of the Corporation's then outstanding Stock shall be void ab initio
insofar as it purports to transfer ownership to such Transferee of any shares of
Common Stock or any Option to acquire Common Stock and (B) any attempted        
Transfer of any share or shares of the Common Stock of the Corporation or of any
Option to acquire Common Stock to any Transferee not described in clause (A)    
hereof who or that would Own, as a result of the Transfer of any share or shares
of the Corporation's Stock or of any Option to acquire the Corporation's Stock, 
an aggregate number of shares of the Corporation's Stock, having a fair market  
value equal to or greater than 4.75 percent of the aggregate fair market value  
of all of the Corporation's Stock then outstanding, shall, as to the number of  
shares representing such excess over 4.75 percent, be void ab initio insofar as 
it purports to transfer ownership to such Transferee of any shares of Common    
Stock or any Option to acquire Common Stock.                                    

   (ii) The restrictions contained in subparagraph (i) of this Paragraph (d)
of this Article Fourth have been included herein for the purpose of reducing the
risk of occurrence of an "ownership change" within the meaning of Section 382(g)
of the Code and the Regulations that would result in the disallowance or        
limitation of the Corporation's utilization of the Carryforwards and to maintain
the tax advantage of the Corporation associated with the Carryforwards.         

(iii) Neither clause (A) nor clause (B) of subparagraph (i) of this   
Paragraph (d) of this Article Fourth shall restrict any Transfer of Common Stock
of the Corporation if (A) the prior written approval of the Board of Directors  
of the Corporation (based on a majority vote of the Board of Directors) shall   
have been obtained with respect to such Transfer and (B) if so requested by the 
Board of Directors, counsel to the Corporation shall have delivered its opinion 
that such Transfer would not result in an "ownership change" within the meaning 
of Section 382(g) of the Code and the Regulations that would result in the      
elimination or limitation of the Corporation's utilization of the Carryforwards.
The Board of Directors shall have the authority, in its sole discretion, to     
adopt procedures for the orderly and effective administration and implementation
of this Paragraph (d) and, in deciding whether to approve any proposed Transfer 
of Common Stock of the Corporation, the Corporation acting through any officer  
may request all relevant information, as well as an opinion of counsel in form  
and substance reasonably satisfactory to the Board of Directors. No employee or 
agent of the Corporation shall be permitted to record any attempted or purported
Transfer of Common Stock of the Corporation made in violation of this Article   
Fourth and no Transferee of Common Stock of the Corporation effected in         
violation of this Article Fourth shall be deemed to have acquired ownership of  
Common Stock for any purpose. Such intended Transferee shall not be entitled to 
any rights as a shareholder of the Corporation with respect to such Common Stock
including, but not limited to, the right to vote such Common Stock or to receive
any distributions in respect thereof, whether as dividends or in liquidation.   

  (iv) If the procedures adopted by the Board of Directors so require, the
Corporation's transfer agent shall not issue any certificates effecting the     
Transfer, assignment or disposition or purported Transfer, assignment or other  
disposition of legal ownership of any shares of Common Stock unless the transfer
agent receives from the proposed Transferee, in addition to any other           
information requested by it, a certificate signed under penalty of perjury      
attesting to the fact that the Transferee does not, and will not as a result of 
the proposed Transfer, assignment or other disposition, own an aggregate number 
of shares of the Corporation's outstanding Stock having a fair market value     
equal to or greater than 4.75 percent of the aggregate fair market value of all 
of the Corporation's outstanding Stock. If at any time the Corporation's        
transfer agent receives a request to make a change in record ownership of shares
of Common Stock of the Corporation that, if effected, would appear to the       
transfer agent on the basis of information in its possession to constitute a    
violation of this Article Fourth, then, prior to registering such change in     
ownership on the books of the Corporation, the transfer agent shall notify the  
Corporation. If the Board of Directors or an officer of the Corporation         
designated by the Board of Directors determines that the proposed change in     
ownership would violate this Article Fourth, then the Corporation shall so      
advise the transfer agent and the transfer agent shall not make such change in  
ownership on the books of the Corporation and shall return the stock            
certificates representing such shares to the holder of record thereof.          

  (v) Unless approval of the Board of Directors is obtained as provided in
subparagraph (iii) above, any attempted Transfer of shares of Common Stock of   
the Corporation or any Option to acquire shares of Common Stock of the          
Corporation in excess of the shares that could be Transferred to the Transferee 
without                                                                         

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restriction under subparagraph (i) above shall not be effective to Transfer     
ownership of such excess shares or Options (the "Prohibited Shares") to the     
purported acquiror thereof (the "Purported Acquiror"), who shall not be entitled
to any rights as a shareholder of the Corporation with respect to the Prohibited
Shares (including, without limitation, the right to vote or to receive dividends
with respect thereto). All rights with respect to the Prohibited Shares shall   
remain the property of the person who initially purported to Transfer the       
Prohibited Shares to the Purported Acquiror (the "Initial Transferor") until    
such time as the Prohibited Shares are resold as set forth in subparagraph (A)  
or subparagraph (B) below. The Purported Acquiror, by acquiring ownership of    
shares of Common Stock of the Corporation that are not Prohibited Shares, shall 
be deemed to have consented to all of the provisions of this Paragraph (d) and  
to have agreed to act as provided in the following subparagraph (A).            

    (A) Upon demand by the Corporation, the Purported Acquiror shall
   transfer any certificate, or other evidence of purported ownership of the
  Prohibited Shares within the Purported Acquiror's possession or control,
 along with any dividends or other distributions paid by the Corporation
   with respect to the Prohibited Shares that were received by the Purported
  Acquiror (the "Prohibited Distributions"), to an agent designated by the
Corporation (the "Agent"). If the Purported Acquiror has sold the     
 Prohibited Shares to an unrelated party in any arm's-length transaction
     after purportedly acquiring them, the Purported Acquiror shall be deemed to
     have sold the Prohibited Shares as agent for the Initial Transferor, and in
    lieu of transferring the Prohibited Shares and Prohibited Distributions to
    the Agent shall transfer to the Agent the Prohibited Distributions and the
     proceeds of such sale (the "Resale Proceeds") except to the extent that the
Agent grants written permission to the Purported Acquiror to retain a 
 portion of the Resale Proceeds not exceeding the amount that would have
been payable by the Agent to the Purported Acquiror pursuant to the   
  following subparagraph (B) if the Prohibited Shares had been sold by the
    Agent rather than by the Purported Acquiror. Any purported transfer of the
     Prohibited Shares by the Purported Acquiror other than a transfer described
  in one of the two preceding sentences shall not be effective to transfer
any ownership of the Prohibited Shares.                               

      (B) The Agent shall sell in an arm's-length transaction (through a
   stock exchange, if any, on which the Common Stock is traded, if possible)
   any Prohibited Shares transferred to the Agent by the Purported Acquiror,
and the proceeds of such sale (the "Sales Proceeds"), or the Resale   
     Proceeds, if applicable, shall be allocated to the Purported Acquiror up to
  the following amount: (i) where applicable, the purported purchase price
  paid or value of consideration surrendered by the Purported Acquiror for
the Prohibited Shares, and (ii) where the purported Transfer of the   
  Prohibited Shares to the Purported Acquiror was by gift, inheritance, or
 any similar purported transfer, the fair market value of the Prohibited
  Shares at the time of such purported Transfer. Subject to the succeeding
   provisions of this subparagraph, any Resale Proceeds or Sales Proceeds in
  excess of the amount allocable to the Purported Acquiror pursuant to the
  preceding sentence, together with any Prohibited Distributions, shall be
the property of the Initial Transferor. If the identity of the Initial
  Transferor cannot be determined by the Agent through inquiry made to the
     Purported Acquiror and the Corporation, the Agent shall publish appropriate
notice (in The Wall Street Journal, if possible) for seven consecutive
    business days in an attempt to identify the Initial Transferor in order to
    transmit any Resale Proceeds or Sales Proceeds or Prohibited Distributions
    due to the Initial Transferor pursuant to this subparagraph. The Agent may
     also take, but is not required to take, other reasonable actions to attempt
  to identify the Initial Transferor. If after 90 days following the final
    publication of such notice the Initial Transferor has not been identified,
     any amounts due to the Initial Transferor pursuant to this subparagraph may
    be paid over to a court or governmental agency, if applicable law permits,
or otherwise shall be transferred to any entity designated by the     
     Corporation that is described in Section 501(c)(3) of the Code. In no event
     shall any such amount due to the Initial Transferor inure to the benefit of
the Corporation or the Agent, but said amounts may be used to cover   
expenses (including but not limited to the expenses of publication)   
 incurred by the Agent in attempting to identify the Initial Transferor.

   (C) Within thirty (30) business days of learning of a purported
Transfer of Prohibited Shares to a Purported Acquiror, the Corporation
     through its Secretary shall demand that the Purported Acquiror surrender to
the Agent the certificates representing the Prohibited Shares, or any 
Resale Proceeds, and                                                  

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any Prohibited Distributions, and if such surrender is not made by the
   Purported Acquiror within thirty (30) business days from the date of such
  demand, the Corporation shall institute legal proceedings to compel such
transfer; provided, however, that nothing in this subparagraph shall  
    preclude the Corporation in its discretion from immediately bringing legal
   proceedings without a prior demand, and also provided that failure of the
 Corporation to act within the time periods set out in this subparagraph
     shall not constitute a waiver of any right of the Corporation to compel any
transfer required by this Paragraph (d).                              

          (D) Upon a determination by the Board of Directors that there has been
   or is threatened a purported Transfer of Prohibited Shares to a Purported
  Acquiror, the Board of Directors may take such action in addition to any
     action required by the preceding subparagraph as it deems advisable to give
effect to the provisions of this Paragraph (d) including, without     
     limitation, refusing to give effect on the books of the Corporation to such
purported Transfer or instituting proceedings to enjoin such purported
Transfer.                                                             

(vi) Until the earliest of July 31, 2009, such date as the Corporation
shall no longer have any unutilized Carryforwards or such date after which      
Section 382 of the Code is repealed or so substantially modified such that, in  
the opinion of counsel to the Corporation, the restrictions on transfer         
described in this Paragraph (d) of this Article Fourth are no longer necessary  
to accomplish their intended purpose, all certificates representing shares of   
Common Stock shall conspicuously bear the following legend:                     

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN    
RESTRICTIONS ON TRANSFERS SET FORTH IN ARTICLE FOURTH OF THE CORPORATION'S      
CERTIFICATE OF INCORPORATION, THE TEXT OF WHICH IS SUMMARIZED ON THE REVERSE    
SIDE OF THIS CERTIFICATE. ANY ATTEMPT TO ACQUIRE COMMON STOCK OF THE CORPORATION
IN VIOLATION OF SUCH RESTRICTIONS SHALL BE NULL AND VOID AND MAY RESULT IN      
FINANCIAL LOSS TO THE PERSON OR ENTITY ATTEMPTING SUCH ACQUISITION."            

     SECOND: That thereafter pursuant to a resolution of the Board of Directors,
a special meeting of the stockholders of the Corporation was duly called and    
held, upon notice in accordance with Section 222 of the DGCL at which meeting   
the necessary number of shares as required by statute were voted in favor of the
Amendment.                                                                      

THIRD: That the Amendment was duly adopted in accordance with the     
provisions of Section 242 of the DGCL.                                          

  FOURTH: That the effective time of the Amendment shall be   p.m. Eastern
    Time on the date this Certificate of Amendment is filed with the Secretary
of State of the State of Delaware.                                              

IN WITNESS WHEREOF, the Corporation has caused this certificate to be 
signed by William L. Guzzetti, its Executive Vice President, and attested by    
Melvin J. Melle, its Secretary, this   day of           , 1995.                 

                                       THE HALLWOOD GROUP INCORPORATED

                                          By: ______________________________
                                             William L. Guzzetti
                                              Executive Vice President

ATTEST: ____________________________                                            
Melvin J. Melle,                                    
Secretary                                     

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--------------------------------------------------------------------------------

PROXY 

THE HALLWOOD GROUP INCORPORATED 
3710 RAWLINS    SUITE 1500
DALLAS, TEXAS 75219-4236

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

   The undersigned hereby appoints Anthony J. Gumbiner and Brian M. Troup, and
each of them, as proxies, each with the power to appoint his substitute, and    
hereby authorizes them to represent and vote, as designated below, all of the   
shares of the common stock, par value $0.10 per share, of The Hallwood Group    
Incorporated (the "Company"), held of record by the undersigned on May 15, 1995,
at the Special Meeting (the "Special Meeting") of Stockholders of the Company to
be held on June 27, 1995, and any adjournment(s) thereof.                       

 THIS PROXY, WHEN PROPERLY EXECUTED AND DATED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND THE PROXIES WILL USE THEIR        
DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO IN PROPOSAL 3.               

1. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF             
 INCORPORATION TO EFFECT A ONE-FOR-FOUR REVERSE STOCK SPLIT OF THE COMPANY'S
 COMMON STOCK, PAR VALUE $.10 PER SHARE (THE "COMMON STOCK") AS DESCRIBED IN
THE COMPANY'S PROXY STATEMENT RELATING TO THE SPECIAL MEETING.            

/ /  FOR                 / /  AGAINST                 / /  ABSTAIN

[To Be Dated And Signed On Reverse Side]
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF             
  INCORPORATION TO RESTRICT CERTAIN TRANSFERS OF THE COMPANY'S COMMON STOCK IN
   AN ATTEMPT TO PROTECT CERTAIN OF THE COMPANY'S FEDERAL INCOME TAX BENEFITS AS
 DESCRIBED IN THE COMPANY'S PROXY STATEMENT RELATING TO THE SPECIAL MEETING.

/ /  FOR                 / /  AGAINST                 / /  ABSTAIN

3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER      
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.                         

/ /  FOR                 / /  AGAINST                 / /  ABSTAIN

                                              Dated: _____________________, 1995

                                             _________________________________
                     Signature

                                             _________________________________
                                      Signature, If Held Jointly

                                             Please execute this proxy as your
                                            name appears hereon. When shares
                                           are held by joint tenants, both
                                        should sign. When signing as
                                              attorney, executor, administrator,
                                            trustee or guardian, please give
                                    full title as such. If a
                                            corporation, please sign in full
                                              corporate name by the president or
                                          other authorized officer. If a
                                       partnership, please sign in
                                          partnership name by authorized
                   person.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY  
USING THE ENCLOSED ENVELOPE.  

--------------------------------------------------------------------------------

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PRES14A’ Filing		Date		First		Last			Other Filings
		7/31/09		10		17
		8/15/95		13
For Period End:		6/27/95		2		18			DEFS14A
		5/22/95		3
		5/15/95		2		18
		4/30/95		7					10-Q
Filed on:		4/27/95
		12/30/94		5
		11/9/94		5
		7/31/94		7					10-K
		8/1/93		7
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