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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 (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 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
Westwood Holdings Group, Inc.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies: Common
Stock, $0.01 par value per share.
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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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[Westwood Logo]
Dear Stockholder:
You are cordially invited to attend the 2003 Annual Meeting of Stockholders
of Westwood Holdings Group, Inc. (the "Company"), which will be held on
Thursday, April 24, 2003, at 10:00 a.m., Dallas, Texas time, at The Crescent
Club, 200 Crescent Court, Suite 1700, Dallas, Texas 75201. The official Notice
of Annual Meeting together with a proxy statement and form of proxy are
enclosed. Please give this information your careful attention.
Westwood invites all stockholders to attend the meeting in person. Whether
or not you expect to attend the annual meeting, we urge you to complete, sign,
date and promptly return the accompanying proxy card in the enclosed
postage-paid envelope to assure your representation at the meeting. You can
revoke your proxy at any time before it is voted by delivering written notice to
Brian O. Casey at Westwood's principal executive office or by attending the
meeting and voting in person.
Sincerely,
/s/ Susan M. Byrne
Susan M. Byrne
Chairman of the Board and
March 14, 2003 Chief Executive Officer
WESTWOOD HOLDINGS GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 2003
To the Stockholders of Westwood Holdings Group, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of
Westwood Holdings Group, Inc. ("Westwood") will be held at The Crescent Club at
200 Crescent Court, Suite 1700, Dallas, Texas 75201 on Thursday, April 24, 2003,
at 10:00 a.m., Dallas, Texas time, to consider and vote on the following
Proposals:
Proposal 1. The election of five directors to hold office until the
next annual meeting of Westwood's stockholders or until their
respective successors shall have been duly elected and
qualified.
Proposal 2. The approval of the Westwood Stock Incentive Plan.
Proposal 3. The approval of the material terms of the annual incentive
award for the chief executive officer, effective January 1,
2003.
Proposal 4. The ratification of the selection of Deloitte & Touche LLP
as Westwood's independent auditors for the year ending
December 31, 2003.
In addition, we will consider the transaction of such other business as
may properly come before the meeting or at any adjournments or postponements.
The foregoing items of business are more fully described in the
attached proxy statement.
Only stockholders of record at the close of business on February 26,
2003 are entitled to notice of, and to vote at, the annual meeting. A holder of
shares of Westwood's common stock is entitled to one vote, in person or by
proxy, for each share of common stock owned by such holder on all matters
properly brought before the annual meeting or at any adjournments or
postponements.
All of our stockholders are invited to attend the annual meeting.
Whether or not you expect to attend the annual meeting, we urge you to complete,
sign, date and promptly return the accompanying proxy card in the enclosed
postage-paid envelope to assure your representation at the meeting. You can
revoke your proxy at any time before it is voted by delivering written notice to
Brian O. Casey at Westwood's principal executive office or by attending the
meeting and voting in person.
This proxy statement and proxy card are being mailed to our
stockholders on or about March 14, 2003.
By Order of the Board of Directors
Westwood Holdings Group, Inc.
/s/ Brian O. Casey
Brian O. Casey, Secretary
WESTWOOD HOLDINGS GROUP, INC.
PROXY STATEMENT FOR
2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 2003
GENERAL QUESTIONS AND ANSWERS
The following questions and answers are intended to provide brief
answers to frequently asked questions concerning the Proposals described in this
proxy statement and the proxy solicitation process. These questions and answers
do not, and are not intended to, address all the questions that may be important
to you. You should carefully read the remainder of this proxy statement, as well
as the appendices and the documents incorporated by reference in this proxy
statement.
The Annual Meeting
Q: When and where is the annual meeting?
A: The annual meeting will be held on Thursday, April 24, 2003, at 10:00
a.m., Dallas, Texas time, at The Crescent Club at 200 Crescent Court,
Suite 1700, Dallas, Texas 75201. This proxy statement and form of proxy
are being mailed to our stockholders on or about March 14, 2003.
Procedures for Voting
Q: Is my proxy revocable and can I change my vote?
A: You may revoke your proxy at any time before it is voted by doing one
of the following:
o Sending a written notice revoking your proxy to Brian O. Casey,
our Secretary, at 300 Crescent Court, Suite 1300, Dallas, Texas
75201;
o Signing and mailing to us a proxy bearing a later date; or
o Coming to our annual meeting and voting in person.
Q: Who is entitled to vote?
A: Only stockholders of record as of the close of business on February 26,
2003, the record date, will be entitled to vote on the Proposals at the
annual meeting. Each share of common stock is entitled to one vote.
Q: How do I vote?
A: If you are the record holder of your shares, you can vote by attending
the annual meeting in person or by completing, signing and returning
your proxy card in the enclosed postage-paid envelope.
If your shares are held by your broker as your nominee (that is, in
"street name"), you will need to obtain a proxy form from the
institution that holds your shares and follow the instructions included
on that form regarding how to instruct your broker to vote your shares.
If your shares are held in street name, your proxy card may contain
instructions from your broker that allow you to vote your shares using
the Internet or telephone; please consult with your broker if you have
any questions regarding the electronic voting of shares held in street
name.
Q: How does discretionary authority apply?
A: If you sign your proxy card, but do not make any selections, your
shares will be voted "FOR" the election of all of the nominees for
directors and "FOR" Proposals 2, 3, and 4, and, in the discretion of
the proxies, as to all other matters that may be properly brought
before the annual meeting.
Q. How will votes be counted?
A. The annual meeting will be held if a quorum is represented in person or
by proxy at the meeting. A quorum is a majority of our outstanding
shares of common stock entitled to vote. As of February 26, 2003, there
were 5,394,522 shares of common stock outstanding and entitled to vote
on each of the Proposals.
If you have returned a signed proxy card or attend the meeting in
person, then you will be considered part of the quorum, even if you do
not vote. A withheld vote is the same as an abstention. The effect of
abstentions and broker non-votes with respect to a particular Proposal
will be a vote "AGAINST" that Proposal. Our transfer agent,
Computershare Trust Company, Inc., will count the votes and act as
inspector.
Broker non-votes occur when proxies submitted by brokers, banks or
other nominees holding shares in "street" name do not indicate a vote
for some or all of the Proposals because they do not have discretionary
voting authority and have not received instructions on how to vote on
the Proposals. We will treat broker non-votes as shares that are
present and entitled to vote for quorum purposes.
Q. What happens if I do not return my proxy and do not vote at the annual
meeting?
A. If you do not attend the annual meeting and do not submit a proxy, the
effect will be that you will not be considered part of, or count
towards, achieving a quorum. With respect to each of the Proposals, the
failure to return a proxy and vote will have neither the effect of a
vote "FOR" nor "AGAINST" these Proposals. This is the case, for a
plurality of the voting power represented at the annual meeting and
entitled to vote is required for the election of directors. The
affirmative vote of a majority of the voting power represented at the
annual meeting and entitled to vote is required for approval of
Proposals 2, 3 and 4, so your shares will similarly not be treated as
being represented at the annual meeting.
Q: Is my vote confidential?
A: Yes. Only the inspector, Computershare Trust Company, Inc., and
certain of our employees will have access to your proxy card. All
comments will remain confidential, unless you ask that your name be
disclosed.
Our Current Stock Ownership
Q: What percentage of stock do the directors and officers own?
A: Our officers and directors collectively and beneficially owned
approximately 1,236,256 shares, or approximately 22.9 percent of our
common stock as of February 26, 2003.
Q: Who are the largest principal stockholders?
A: To our knowledge, our largest principal stockholders are Third Avenue
Management LLC owns 19.1%; Susan M. Byrne owns 14.6%; American Express
Financial Corporation owns 5.4%; and Dalton, Greiner, Hartman, Maher &
Co. owns 5.1% of our common stock as of February 26, 2003.
Other Information
Q: When are the stockholder proposals due for the annual meeting in 2004?
A: To be included in the 2004 annual meeting, stockholder proposals must
be in writing and must be received by Westwood, at the following
address: 300 Crescent Court, Suite 1300, Dallas, Texas 75201, Attn:
Secretary, no later than November 14, 2003.
Q: Who is soliciting my proxy and who will pay the solicitation expenses?
A: We are soliciting your proxy by and on behalf of our board of
directors, and we will pay the cost of preparing and distributing this
proxy statement and the cost of soliciting votes. We will reimburse
stockbrokers and other custodians, nominees and fiduciaries for
forwarding proxy and solicitation material to the owners of our common
stock.
Q: Who can help answer my additional questions?
A: Stockholders who would like additional copies, without charge, of this
proxy statement or have additional questions about this proxy
statement, including the procedures for voting their shares, should
contact:
William R. Hardcastle, Jr.
Vice President and Treasurer
300 Crescent Court, Suite 1300
Dallas, Texas 75201
Telephone: (214) 756-6900
This question and answer information section is qualified in its
entirety by the more detailed information contained in this proxy statement. You
are strongly urged to carefully read this proxy statement in its entirety before
you vote.
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This proxy statement contains important information that should be read before
any decisions are made with respect to the Proposals. You are strongly urged to
read the proxy statement in its entirety. You are also strongly urged to read
our Annual Report on Form 10-K for the period ended December 31, 2002,
especially the Risk Factors section, which is being sent to you with this proxy
statement.
PROPOSAL 1:
Election of Directors
Our bylaws provide that the board of directors will consist of between
three and eleven directors, as determined from time to time by resolution of the
board. The board of directors has set the number of directors at five, all of
whom are to be elected at the annual meeting. Each director will serve until the
2004 annual meeting and until his successor has been elected and qualified or
until the director's earlier death, resignation or removal. Each nominee has
consented to being named in this proxy statement and to serve if elected.
We have no reason to believe that any of the nominees will not serve if
elected, but if any of them should become unavailable to serve as a director,
and if the board of directors designates a substitute nominee, the persons named
in the accompanying proxy will vote for the substitute nominee designated by the
board of directors, unless a contrary instruction is given in the proxy.
Each stockholder is entitled to cast one vote for each share of common
stock held on February 26, 2003. A plurality of the shares represented in person
or by proxy at the annual meeting and entitled to vote is required for the
election of the directors. Votes may be cast in favor or withheld. Stockholders
may withhold authority to vote for any nominee by striking a line through the
name of such nominee in the space provided for such purpose on the proxy card.
Broker non-votes, abstentions and votes that are withheld will be excluded
entirely from the vote and will have no effect. Votes that are withheld for a
particular nominee will be excluded from the vote for that nominee only.
Nominees
The persons nominated to be directors are listed below. All of the
nominees listed below are currently directors and have been since the inception
of Westwood in 2001.
The following information is submitted concerning the nominees named
for election as directors:
Name Age Position With Westwood
---- --- ----------------------
Susan M. Byrne 56 Chairman of the Board of Directors,
Chief Executive Officer, and
Director
Brian O. Casey 39 President, Chief Operating Officer,
Secretary and Director
Frederick R. Meyer (1)(3) 75 Director
Jon L. Mosle, Jr. (1) 73 Director
Raymond E. Wooldridge (1)(2) 64 Director
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(1) Audit committee and compensation committee member.
(2) Chairman of audit committee.
(3) Chairman of compensation committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE APPROVAL OF EACH OF THE DIRECTOR NOMINEES.
The biographical information for each director nominee is set forth
below.
Susan M. Byrne has served as Chairman of the Board of Directors, Chief
Executive Officer and director of Westwood since its inception in December 2001.
Ms. Byrne is the founder of Westwood Management and has served as its Chairman
of the Board and Chief Investment Officer since 1983 and as its President from
1983 to 2002. She
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served as a director of Westwood Trust from 1996 to 1999. Ms. Byrne serves as a
member of the Board of the University of Texas Investment Management Company.
She also serves as a member of the Board of Trustees for the City of Dallas
Employees Retirement Fund and Chair of the Investment Committee for The First
Presbyterian Church of Dallas Foundation.
Brian O. Casey has served as President, Chief Operating Officer and
director of Westwood since its inception in December 2001. Mr. Casey has served
as Executive Vice President and Chief Operating Officer of Westwood Management
since 2000, President of Westwood Management since 2002 and as the President and
as a director of Westwood Trust since 1996. Prior to his appointment to those
positions, Mr. Casey served as the Vice President of Marketing and Client
Services of Westwood Management from 1992 to 1996.
Frederick R. Meyer has served as a director of Westwood since its
inception in December 2001. Since 1991, he has served as a director of SWS
Group, Inc. ("SWS"), a full service securities and banking firm that previously
owned Westwood. Since 1985, he has served as the Chairman of the Board of
Aladdin Industries, LLC, a diversified company. He served as Aladdin Industries,
LLC's President and Chief Executive Officer from 1987 to 1994, from 1995 to May
1999 and from October 2000 to present. He also served as President and Chief
Operating Officer of Tyler Corporation, a diversified manufacturing corporation,
from 1983 to 1986 and acted as a consultant to Tyler Corporation from 1986 to
1989. He currently serves as a director of Aladdin Industries, LLC, Palm Harbor
Homes, Inc., a marketer of manufactured homes, and the Oaks Bank and Trust
Company.
Jon L. Mosle, Jr. has served as a director of Westwood since its
inception in December 2001. He has served as director of SWS since 1991. He
served as Director of Private Capital Management for Ameritrust Texas
Corporation from 1984 to 1992. From 1954 to 1984, he was affiliated with Rotan
Mosle, Inc., a regional NYSE member firm, which was acquired by PaineWebber
Incorporated in 1983. His roles at Rotan Mosle, Inc. included supervisory
responsibility for both over-the-counter trading and municipal departments, as
well as participating in corporate finance activities. He served as branch
manager, regional manager, Vice Chairman of the Board and member of Rotan Mosle,
Inc.'s operating committee.
Raymond E. Wooldridge has served as a director of Westwood since its
inception in December 2001. He is a director of CEC Entertainment, Inc., a
Dallas-based NYSE company that operates a chain of pizza and children's
entertainment restaurants, D. A. Davidson & Company, Inc., an investment firm
located in the Pacific Northwest, and its subsidiary Davidson Trust Company, and
Security Bank, a Texas-based regional bank. From 1986 to 1999, he was a director
of SWS; from 1996 to 1999, he served as the Vice Chairman and Chairman of the
Executive Committee of SWS; from 1993 to 1996, he served as Chief Executive
Officer of SWS; and from 1986 to 1993, he served as President and Chief
Operating Officer of SWS. He is a past Chairman of the National Securities
Clearing Corporation, a national clearing agency registered with the SEC and
past Vice Chairman of the Board of Governors of the National Association of
Securities Dealers.
Board Meetings and Committees
The board of directors held seven meetings, or otherwise consented to
actions taken during 2002. Each director attended at least 75% of the meetings
held by the board of directors and the committees on which he served. The
standing committees of the board of directors currently consist of the audit
committee and the compensation committee. Messrs. Meyer, Mosle and Wooldridge
are the members of our audit committee and our compensation committee. Mr.
Wooldridge serves as chairman of our audit committee, and Mr. Meyer serves as
chairman of our compensation committee. All members of the audit committee and
the compensation committee are "independent directors" within the meaning of
applicable New York Stock Exchange rules.
Audit Committee. The audit committee operates pursuant to a charter
approved by our Board of Directors, which the audit committee reviews annually
to determine if revisions are necessary or appropriate. A copy of the charter is
attached to this proxy as Appendix A. The audit committee oversees the
preparation of our financial statements and our independent auditors. The audit
committee considers and selects an independent accounting firm to conduct the
annual audit, determines the independence of our independent accountants and
recommends actions to our Board of Directors to ensure their independence. The
audit committee is responsible for reviewing reports from our management
relating to our financial condition and other matters that may have a material
impact on our financial statements and compliance policies. The audit committee
is also responsible for inquiring of our management and independent auditors
regarding the appropriateness of the accounting principles we follow, changes in
accounting principles and their impact on our financial statements in terms of
scope of audits conducted or scheduled to be conducted. The audit committee is
responsible for preparing a report stating among other things whether our
audited financial statements should be included in our Annual Report. The audit
committee met seven times during 2002.
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Compensation Committee. The compensation committee authorizes and
determines all salaries for our officers and supervisory employees, administers
our incentive compensation plans in accordance with the powers and authority
granted in such plans, determines any incentive allowances to be made to our
officers and staff, administers all of our stock option plans and other equity
ownership, compensation, retirement and benefit plans, approves the
performance-based compensation of individuals pursuant to Code Section 162(m)
and administers other matters relating to compensation or benefits. The
compensation committee met four times during 2002.
Director Compensation. Employee directors do not receive compensation
for their services as directors. Each non-employee member of our board of
directors receives $1,500 for each meeting of the Board of Directors attended by
the member, up to a maximum of $6,000 per year. Each non-employee member of our
Board of Directors receives an additional $2,500 per year if the member serves
on one or more committees of our Board of Directors. Additionally, upon the date
of election or re-election as a member of our Board of Directors, each
non-employee director is awarded non-statutory stock options for 2,500 shares of
our common stock, which vest at the expiration of 12 months from the date of
grant and have a term of 10 years. We will review our compensation arrangement
for directors from time to time.
PROPOSAL 2:
Approval of the Westwood Stock Incentive Plan
The board of directors has approved the Amended and Restated Westwood
Holdings Group, Inc. Stock Incentive Plan, a copy of which is attached to this
proxy as Appendix B (the "Stock Incentive Plan"), and has directed that the plan
be submitted to the stockholders for approval. Stockholder approval of the plan
is being sought for the purposes of: (i) enabling the plan to satisfy a
requirement of Section 162(m) of the Code ("Section 162(m)") relating to
performance-based compensation that is not subject to a $1 million deductibility
limit; and (ii) permitting the award of incentive stock options (as defined in
Section 422 of the Code) under the plan to employees.
Section 162(m) limits to $1 million the deduction that a publicly-held
corporation may take for federal income tax purposes for compensation paid in
any year to each of its five highest paid officers. In order to preserve the tax
deductibility of compensation paid upon the exercise of options granted under
the plan, if total compensation for one of the five highest paid officers
exceeds $1 million, the stockholders must approve the plan, including the limit
upon the maximum number of options which may be awarded to any employee in any
calendar year.
The plan terms are summarized below.
Westwood Stock Incentive Plan.
General. We believe that the Stock Incentive Plan will encourage
eligible participants, through their individual efforts, to improve our overall
performance and to promote profitability by providing them an opportunity to
participate in the increased value they help create. There are 948,100 shares of
our common stock reserved for issuance under the Stock Incentive Plan. Our
officers, directors, employees and consultants are eligible to receive awards
under the Stock Incentive Plan, which is administered by the compensation
committee of our board of directors. Our board of directors may terminate or
amend the Stock Incentive Plan at any time, but must obtain stockholder approval
in certain circumstances. No termination or amendment of the Stock Incentive
Plan shall adversely affect any then outstanding option or other award without
the consent of the holder, unless such termination or amendment is required to
enable an option to qualify as an incentive stock option or is necessary to
comply with any applicable law, regulation or rule. The Stock Incentive Plan
will terminate in 2012 unless terminated earlier by our board of directors.
Section 162(m) Limit on Awards of Options. The Plan limits the maximum
number of shares for which options may be awarded to any employee in any
calendar year to 316,033 shares (subject to adjustment for any changes in
capital structure).
Options. Options granted under the Stock Incentive Plan may be in the
form of incentive stock options (as defined under Section 422 of the Code) or
non-statutory stock options. Only our employees are eligible to receive
incentive stock options. In general, all options granted under the Stock
Incentive Plan will lapse no more than ten years from the date of grant (five
years in the case of an incentive stock option granted to a 10% stockholder of
us or one of our subsidiaries). The exercise price of any option will be
determined by the compensation committee at the time the option is granted and
will not be less than 100% of the fair market value per share of our common
stock on the date the option is granted (110% in the case of an incentive stock
option granted to a 10% stockholder of us or one of our subsidiaries). The
aggregate fair market value on the date of grant of the common stock for which
incentive stock options are exercisable by an optionee during any calendar year
may not exceed $100,000. Any options granted
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pursuant to the terms of the Stock Incentive Plan shall be evidenced by an
option agreement specifying the number of shares of our stock covered thereby
and other terms and conditions as are determined by the compensation committee.
Options to Non-Employee Directors. Pursuant to the Stock Incentive
Plan, each of our non-employee directors shall on the date of election or
re-election as a member of our board of directors, be granted a non-statutory
stock option for 2,500 shares of our common stock at an exercise price equal to
the closing price per share as reported by the NYSE on the date of election or
re-election. Each non-statutory stock option granted to our non-employee
directors shall vest at the expiration of twelve months from the date of the
grant and shall have a term of ten years. Expiration of a non-employee
director's term of office shall not affect a non-employee director's right to
exercise its option to the extent such option is vested at any time prior to the
expiration of the director's term.
Restricted Stock Awards. The compensation committee of our board of
directors may also make awards of restricted shares of our stock. The vesting
and number of restricted shares of our stock may be conditioned upon the lapse
of time or the satisfaction of other factors determined by the compensation
committee. The recipient of restricted shares will generally have the rights and
privileges of a stockholder with respect to the right to receive dividends and
the right to vote the shares. None of the restricted shares may be sold,
transferred or pledged during the restricted period, and all restricted shares
shall be forfeited, and all rights to the shares will terminate, if the
recipient ceases to be an employee, consultant or director of us or any of our
subsidiaries before the expiration or termination of the restricted period and
satisfaction of any other conditions prescribed by us with respect to the
shares.
Purchase Rights. The compensation committee of our board of directors
may also make awards of stock purchase rights, which entitle the holder to
purchase a specified number of shares of our common stock during the period of
time, and subject to the terms and conditions, as the compensation committee
determines. Each award of purchase rights may have a different exercise period
or periods, shall specify the method of payment (which may include promissory
notes) to purchase our stock and shall set forth any repurchase rights or calls
applicable to the purchased stock.
Annual Incentive Awards. The compensation committee of our board of
directors may also grant annual incentive awards of stock, cash or any
combination of stock and cash to our employees, in such amounts and subject to
such terms and conditions as the compensation committee may determine.
Performance-Based Awards. The compensation committee of our board of
directors may also grant performance-based awards of the right, expressed in
units, to receive stock, cash or any combination of stock and cash, to eligible
officers or other key employees as determined by the compensation committee in
its sole discretion. At the time of each grant of a performance-based award, the
compensation committee shall establish an objective formula for computing the
award based upon the attainment of various performance goals over a performance
cycle of at least one year. Performance goals may include minimum, maximum and
target levels of performance, with the size of the award based on the level of
performance attained. The number of shares of stock and/or the amount of cash
payable in settlement of a performance-based award shall be determined by the
committee at the end of the performance cycle. The compensation committee may,
in its discretion, eliminate or reduce the amount of any performance-based award
that otherwise would be payable to a participating officer or other employee
unless the participant has a vested right under applicable employment law to
receive the full performance-based award. Performance-based awards may be made
alone, or in addition to, other grants and awards under the Stock Incentive
Plan.
Discretionary Bonus Awards. The compensation committee of our board of
directors may also grant discretionary bonus awards of stock, cash or any
combination of stock and cash to our officers and key employees in such amounts
and subject to such terms and conditions as the compensation committee may
determine.
Material Federal Income Tax Consequences of the Stock Incentive Plan.
The following is a summary of the material United States federal income
tax consequences associated with awards granted under the Stock Incentive Plan.
This summary is based upon present federal income tax laws and regulations and
does not purport to be a complete description of the federal income tax
consequences applicable to a participant or the Company. This summary does not
cover any federal employment tax consequences or any foreign, state, local,
estate and gift, or other tax consequences.
Nonqualified Stock Options. A participant will not recognize any
taxable income upon the grant of a nonqualified stock option. A participant will
recognize ordinary income upon the exercise of a nonqualified stock option in an
amount equal to the difference between the fair market value of the common stock
received on the date of exercise and the exercise price paid for the stock.
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Incentive Stock Options. A participant will generally not recognize any
taxable income upon either the grant or exercise of an incentive stock option.
However, for purposes of the alternative minimum tax, upon the exercise of an
incentive stock option, a participant is required to include the difference
between the option exercise price and the fair market value of the common stock
received, in alternative minimum taxable income for purposes of calculating the
alternative minimum tax. If a participant sells or otherwise disposes of common
stock acquired pursuant to the exercise of an incentive stock option within
either two years from the date of grant or one year from the date of exercise of
the option (an "Early Disposition"), the participant will recognize ordinary
income at the time of the Early Disposition in an amount equal to the lesser of
(i) the excess of the amount realized by the participant on the Early
Disposition over the exercise price of the option, or (ii) the excess of the
fair market value of the common stock on the date of exercise over the exercise
price of the option. The excess, if any, of the amount realized by the
participant on the Early Disposition over the fair market value of the common
stock on the date of exercise will be capital gain, and will either be short
term (taxable at ordinary income tax rates) or long term gain, depending on the
participant's holding period with respect to the common stock. If a participant
disposes of the common stock for an amount that is less than the participant's
tax basis in the common stock, the difference between the amount realized in the
Early Disposition and the tax basis will generally be capital loss, and will
either be short term or long term depending on the participant's holding period
for the common stock.
Purchase Rights. A participant who receives an award of a purchase
right will not recognize any taxable income at the time of the grant. A
participant will recognize ordinary compensation income at the time the purchase
right is exercised in an amount equal to the difference between the fair market
value of the common stock on the date of purchase and the purchase price paid by
the participant for such stock.
Annual Incentive Awards, Performance Based Awards and Discretionary
Bonus Awards. A participant who receives cash pursuant to an annual incentive
award, a performance-based award or a discretionary bonus award will recognize
ordinary income equal to the amount of cash received. Except as discussed below
in the section entitled "Common Stock Subject to a Substantial Risk of
Forfeiture," a participant who receives shares of Common Stock pursuant to an
annual incentive award, a performance-based award or a discretionary bonus award
will recognize ordinary income in an amount equal to the fair market value of
the common stock at the time of the receipt of the shares.
Common Stock Subject to a Substantial Risk of Forfeiture. If a
participant receives common stock that is subject to a substantial risk of
forfeiture (whether pursuant to an award of restricted stock, in payment for an
annual incentive award, a performance-based award or a discretionary bonus
award, or upon the exercise of a purchase right), unless the participant files
an election under Section 83(b) of the Code (discussed below), the participant
will not recognize any income at the time of receipt of the stock, but will
recognize ordinary income when the restrictions on the shares lapse, in an
amount equal to the difference between the fair market value of the stock at the
time the restrictions lapse and the amount paid, if any, for the stock. However,
a participant who receives common stock that is subject to a substantial risk of
forfeiture can elect to include the fair market value of the stock in income at
the time of its receipt by filing an election with the Internal Revenue Service
under section 83(b) of the Code within 30 days after the date of such receipt.
Availability of Tax Deduction for the Company. When ordinary income is
recognized by a participant in connection with the receipt or exercise of an
award under the Stock Incentive Plan (including the filing of an election under
section 83(b) of the Code), the Company will generally be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount, assuming the requisite withholding requirements are met.
Compensation paid by the Company to each of its five highest paid
officers is subject to the deduction limits of Section 162(m). If approved by
the Company's stockholders, the Stock Incentive Plan will enable the Company to
grant options that will be exempt from the deduction limits of Section 162(m).
Plan Benefits.
Because awards under the Stock Incentive Plan are determined by the
compensation committee in its sole discretion, we cannot determine the benefits
or amounts that will be received or allocated in the future under the Plan. The
table below shows stock options and bonuses awarded in 2002 to the individuals
and groups indicated. These awards are not necessarily indicative of awards that
the compensation committee may make in the future.
7
NEW PLAN BENEFITS
--------------------------------------------------------------------------------
Stock Incentive Plan
--------------------------------------------------------------------------------
Name and Position Dollar Value($)(1) Number of Units (2)
----------------- ------------------ -------------------
Susan M. Byrne ..................................... $753,600 25,000
Chief Executive Officer
Brian O. Casey ..................................... $667,900 22,000
President, Chief Operating Officer and
Secretary
Patricia R. Fraze .................................. $307,100 15,000
Executive Vice President of Westwood
Management and Director of Westwood Trust
Lynda J. Calkin(3) ................................. $0 15,000
Senior Vice President of Westwood Management
Joyce A. Schaer .................................... $311,300 15,000
Senior Vice President of Westwood Management
Executive Group .................................... $2,039,900 92,000
Non-Executive Director Group ....................... $0 7,500
Non-Executive Officer Employee Group ............... $1,177,500 126,500
--------------------
(1) Reflects the dollar value of bonuses accrued during 2002, although
such bonuses were not actually paid until 2003. The bonus amounts reflect both
annual incentive awards and discretionary bonus awards.
(2) Options awarded with an exercise price equal to the closing price
of the stock on the date of grant, vesting over four years for executives and
over one year for non-executive directors, with a term of ten years.
(3) Ms. Calkin resigned from Westwood effective January 31, 2003. See
"Certain Relationships and Related Transactions" below for additional details.
Stockholder Approval Requirement. The approval of the Stock Incentive
Plan requires the affirmative vote of a majority of the shares represented in
person or by proxy at the annual meeting. All proxies solicited by the board of
directors will be voted "FOR" this Proposal unless stockholders specify in their
proxies a contrary vote. Broker non-votes and abstentions will not be counted as
votes for this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSAL TWO.
PROPOSAL 3:
Approval of the Material Terms of the Annual Incentive Award
for the Chief Executive Officer
Subject to stockholder approval, the compensation committee of the
board of directors has approved the material terms of an annual incentive award
for the chief executive officer of Westwood, Susan M. Byrne, effective January
1, 2003.
Section 162(m) of the Internal Revenue Code disallows deductions for
publicly-held corporations with respect to compensation in excess of $1,000,000
paid to certain executive officers. However, compensation payable solely on
account of attainment of one or more performance goals is not subject to this
deduction limitation if:
8
o the performance goals are objective, pre-established and determined by
a compensation committee comprised solely of two or more outside
directors;
o the material terms of the performance goals under which the
compensation is to be paid are disclosed to the stockholders and
approved by a majority vote; and
o the compensation committee certifies that the performance goals and
other material terms were in fact satisfied before the compensation is
paid.
The purpose of seeking stockholder approval of the chief executive
officer's annual incentive award is to meet the requirements of Section 162(m).
Performance Goal. On March 28, 2002, the compensation committee of our
board of directors approved a performance goal for the chief executive officer's
annual incentive award for the 2003 year and for each subsequent year until
revised by the compensation committee. The approval of the compensation
committee of our board of directors was expressly subject to stockholder
approval. The performance goal is based on our pre-tax profits, determined based
on our audited financial statements. The chief executive officer's annual
incentive award will equal not more than 10% of our pre-tax profits (subject to
the compensation committee's discretion to reduce the bonus to less than the 10%
formula amount).
Assuming the stockholders approve the material terms of the performance
goal as described herein, we believe that the annual incentive award paid to the
chief executive officer will qualify as performance-based compensation, and will
be deductible for federal income tax purposes. If the stockholders do not
approve the performance goal, the incentive award will not be deductible to the
extent that it, together with other compensation paid to the chief executive
officer, exceeds $1 million.
Annual Incentive Award Benefits.
Because the annual incentive award is based on pre-tax profits, the
amount of the benefits that will be received by the chief executive officer in
the future cannot be determined. The table below shows the annual incentive
award earned in 2002 by the chief executive officer for the portion of the year
following the company's spin-off from SWS Group, Inc. on June 28, 2002. This
award is not necessarily indicative of the amount of the award that the chief
executive officer will earn in the future, and it is likely to be less than
future awards that cover an entire year.
NEW PLAN BENEFITS
--------------------------------------------------------------------------------
Annual Incentive Award of Susan M. Byrne
--------------------------------------------------------------------------------
Name and Position Dollar Value$
----------------- -------------
Susan M. Byrne ................................................ $550,000(1)
Chief Executive Officer
----------------
(1) The annual incentive award was accrued between the date of the
spin-off and December 31, 2002, but not paid until 2003.
Vote Required and Recommendation
The approval of the material terms of the annual incentive award for
our chief executive officer requires the affirmative vote of a majority of the
shares represented in person or by proxy at the annual meeting. All proxies
solicited by the board of directors will be voted "FOR" this Proposal unless
stockholders specify in their proxies a contrary vote. Broker non-votes and
abstentions will not be counted as votes for this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSAL THREE.
PROPOSAL 4:
Ratification of Deloitte & Touche LLP as Independent Auditors
Upon the recommendation of our audit committee, our board of directors
has selected Deloitte & Touche LLP as our independent auditors for 2003.
Representatives of Deloitte & Touche LLP are expected to attend the annual
meeting to answer appropriate questions and may make a statement if they so
desire.
9
On June 20, 2002, Westwood dismissed Arthur Andersen LLP as its
independent auditors and engaged Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 2002. The dismissal was
approved by our audit committee. The audit reports of Arthur Andersen LLP on the
consolidated financial statements of Westwood as of and for the years ended
December 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
During the two years ended December 31, 2001, and the subsequent
interim period through June 20, 2002, there were no disagreements between
Westwood and Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K have occurred within the two years ended December 31, 2001 or
within the interim period through June 20, 2002.
Arthur Andersen LLP was provided with a copy of this disclosure and has
furnished a letter addressed to the Securities and Exchange Commission stating
that they have found no basis for disagreement with the above statements. A copy
of Arthur Andersen LLP's letter to the Securities and Exchange Commission is
filed as Exhibit 16.1 to Westwood's Form 8-K filed on June 20, 2002.
During the two years ended December 31, 2001 and the subsequent interim
period through June 20, 2002, Westwood did not consult Deloitte & Touche LLP
with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on its consolidated financial statements, or any other matters
or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation
S-K.
Audit Fees. The aggregate fees billed for professional services
rendered by Deloitte & Touche LLP for the audit of Westwood's annual financial
statements for the year ended December 31, 2002 and the reviews of the financial
statements included in Westwood's second and third quarter 2002 Forms 10-Q were
$69,000. Arthur Andersen LLP did not conduct an audit of Westwood's annual
financial statements for the year ended December 31, 2002 but reviewed its first
quarter 2002 financial statements included in Westwood's Form 10 (as declared
effective in June 2002).
Financial Information Systems Design and Implementation Fees. During
2002, neither Deloitte & Touche LLP nor Arthur Andersen LLP billed Westwood any
fees related to professional services rendered for financial information systems
design and implementation.
All Other Fees. The aggregate fees billed for all services rendered by
Deloitte & Touche LLP not related to auditing Westwood's financial statements or
financial information systems design and implementation for the year ended
December 31, 2002 were $1,300. The aggregate fees billed for all services
rendered by Arthur Andersen LLP not related to auditing Westwood's financial
statements or financial information systems design and implementation for the
year ended December 31, 2002 were $90,700.
Vote Required and Recommendation
The affirmative vote of a majority of the shares represented in person
or by proxy at the annual meeting is needed to ratify the selection of Deloitte
& Touche LLP as independent auditors for 2003. All proxies solicited by the
board of directors will be voted "FOR" the ratification of Deloitte & Touche LLP
unless stockholders specify in their proxies a contrary vote. Broker non-votes
and abstentions will not be counted as votes for this Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF
DELOITTE & TOUCHE LLP AS OUR INDEPENDENT AUDITORS FOR 2003.
10
EXECUTIVE OFFICERS
Biographical information regarding Westwood's current executive
officers is as follows:
Susan M Byrne. See biographical information under the caption
Proposal 1 - Election of Directors.
Brian O. Casey. See biographical information under the caption
Proposal 1 - Election of Directors.
Patricia R. Fraze, age 59, has served as Executive Vice President of
Westwood Management since 1995 and as Client Relationship Manager since 2002.
Ms. Fraze serves as a director of Westwood Management and Westwood Trust. Ms.
Fraze joined Westwood in 1990 as Vice President and fixed income analyst and
subsequently served as Portfolio Manager for fixed income and balanced
portfolios. Prior to join Westwood, Ms. Fraze was Vice President, Portfolio
Strategies and Fixed Income Research at Drexel Burnham Lambert and also spent
twenty-two years in mathematics education at both the secondary and graduate
level.
Joyce A. Schaer, age 37, has served as a Director of Marketing for
Westwood Management since 1997 and was promoted to Senior Vice President in
2000. Ms. Schaer serves as a director of Westwood Management. Ms. Schaer has
held other marketing positions at Westwood including Vice President-Marketing
for the Eastern Region of the United States from 1994 to 1996. Ms. Schaer joined
the firm in 1989 and has held various positions in the trading, portfolio
management and client services areas.
There are no family relationships among the directors and executive
officers of Westwood.
EXECUTIVE COMPENSATION
Compensation of Certain Executive Officers
The following compensation table sets forth the compensation paid by
Westwood to our Chief Executive Officer and our four most highly compensated
executive officers during the year ended December 31, 2002 (the "Named Executive
Officers"). Our compensation committee determines the annual base salaries of,
and annual and long-term incentive opportunities for, our Named Executive
Officers.
Long Term
Compensation
Awards
Annual Compensation --------------
---------------------------- Securities
Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($)(1) Options (#)(2) Compensation
--------------------------- ---- ---------- ------------ -------------- ------------
($)(3)
------
Susan M. Byrne.................. 2002 500,000 1,753,600(4) 25,000 8,000
Chief Executive Officer 2001 496,000 1,500,000 8,000 22,100
Brian O. Casey.................. 2002 250,000 667,900(4) 22,000 8,000
President, Chief Operating 2001 236,500 550,000 7,000 22,100
Officer and Secretary
Patricia R. Fraze............... 2002 196,200 307,100(4) 15,000 8,000
Executive Vice President of 2001 192,500 275,000 2,000 22,100
Westwood Management and
Director of Westwood Trust
Lynda J. Calkin(5).............. 2002 215,000 - 15,000 241,500
Senior Vice President of 2001 215,000 300,000 1,500 22,100
Westwood Management
Joyce A. Schaer................. 2002 192,500 311,300(4) 15,000 8,000
Senior Vice President of 2001 180,000 315,000 3,000 17,000
Westwood Management
11
---------------------
(1) The bonuses reflect amounts accrued in the indicated year, but
actually paid to each Named Executive Officer in the following year (except with
respect to a $1,000,000 bonus accrued and paid to Ms. Byrne prior to the
completion of the spin-off in June 2002).
(2) 2002 grants represent options to acquire Westwood common stock;
2001 grants represent options to acquire SWS common stock.
(3) Reflects SWS's annual profit sharing contributions and 401(k)
matching contributions to the SWS 401(k) Plan in 2001 and 401(k) matching
contributions to the Westwood Holdings Group, Inc. Savings Plan in 2002. Also
reflects, with respect to Ms. Calkin, a $233,500 severance payment accrued in
2002 and referenced in Note 5 below.
(4) The 2002 bonus amounts include both annual incentive awards and
discretionary bonus awards made under the Stock Incentive Plan. In addition, Ms.
Byrne's bonus amount includes a $1,000,000 bonus paid to her prior to the
completion of the spin-off in June 2002.
(5) Ms. Calkin resigned from Westwood effective January 31, 2003.
Pursuant to the terms of her Separation Agreement, she received a severance
payment of $233,500. See "Certain Relationships and Related Transactions" below
for additional details.
Options Granted in Last Year
The following table sets forth information regarding options to acquire
Westwood common stock that Westwood granted to the Named Executive Officers for
the year ended December 31, 2002.
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Number of % of Total Appreciation for Option
Securities Options/SARs Term(1)
Underlying Granted to Exercise ---------------------------
Options/SARs Employees Price Expiration
Name Granted (#)(2) in Year ($/Share) Date 5% 10%
--------------------- --------------- ------------- ------------- ----------- ------------ ----------
Susan M. Byrne 25,000 11.4% 12.90 7/1/2012 $202,819 $513,982
Brian O. Casey 22,000 10.1 12.90 7/1/2012 178,480 452,304
Patricia R. Fraze 15,000 6.9 12.90 7/1/2012 121,691 308,389
Lynda J. Calkin 15,000 6.9 12.90 7/1/2012 121,691 308,389
Joyce A. Schaer 15,000 6.9 12.90 7/1/2012 121,691 308,389
--------------
(1) Pursuant to the rules promulgated by the SEC, the amounts under these
columns reflect calculations at assumed 5% and 10% appreciation rates and,
therefore, are not intended to forecast further appreciation, if any, of the
respective underlying common stock. The potential realizable value to the
optionees was computed as the difference between the appreciated value at the
expiration date of the stock options of the applicable underlying common stock
obtainable upon exercise of such stock options over the aggregate exercise price
of such stock options.
(2) All options shown were granted under the Stock Incentive Plan effective
July 2, 2002, and will vest 25% upon each anniversary thereof.
Aggregate Option Exercises in Last Year and Year End Option Values
The following table sets forth information concerning the exercise of
our stock options during the year ended December 31, 2002 by the Named Executive
Officers and the number and aggregate value of unexercised in-the-money options
for our stock options at December 31, 2002. The actual amount, if any, realized
on exercise of stock options will depend on the amount by which the market price
of our common stock on the date of exercise exceeds the exercise price. The
actual value realized on the exercise of unexercised in-the-money stock options
(whether exercisable or unexercisable) may be higher or lower than the values
reflected in this table.
12
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-the-Money Options
Shares at Year End at Year End ($)(1)
Acquired on Value ----------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Susan M. Byrne -- -- -- 25,000 -- $12,750
Brian O. Casey -- -- -- 22,000 -- 11,220
Patricia R. Fraze -- -- -- 15,000 -- 7,650
Lynda J. Calkin -- -- -- 15,000 -- 7,650
Joyce A. Schaer -- -- -- 15,000 -- 7,650
-------------------
(1) Values are based upon the closing price of $13.41 per share of our common
stock on the NYSE on December 31, 2002, the last trading day of 2002.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information as of December 31, 2002 about
shares of our common stock that may be issued upon the exercise of options,
warrants and rights under the Westwood Holdings Group, Inc. Stock Incentive Plan
and the Westwood Holdings Group, Inc. Deferred Compensation Plan, the only
equity compensation plans of the Company in effect at that time. Both of these
Plans were approved by our stockholders prior to the completion of the spin-off,
although we are seeking stockholder approval of the Westwood Holdings Group,
Inc. Stock Incentive Plan from our public stockholders at the annual meeting.
Equity Compensation Plan Information
--------------------------------------------------------------------------
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation plans
exercise exercise price of (excluding securities
of outstanding options, outstanding options, reflected in the first
Plan Category warrants and rights warrants and rights column)
------------- ----------------------- -------------------- ---------------------------
Equity compensation plans approved
by security holders 218,500 $12.92 729,600(1)
Equity compensation plans not
approved by security holders -- -- --
Total 218,500 $12.92 729,600
(1) All of these shares are available for issuance under the Stock Incentive
Plan. Even though the Deferred Compensation Plan provides that shares of our
common stock may be issued under the Deferred Compensation Plan, Westwood does
not currently allow shares of our common stock to be issued under the Deferred
Compensation Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee is a current or former officer
or employee of Westwood or its subsidiaries or has had a relationship requiring
disclosure by Westwood under applicable federal securities regulations. No
executive officer of Westwood served as a director or member of the compensation
committee of any entity that has one or more executive officers serving as a
member of our board of directors or compensation committee.
13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 14, 2001, we issued to SWS 5,394,522 shares of our common
stock, and on that same date, SWS sold shares of our common stock, constituting
19.82% of Westwood's outstanding common stock, to our executive officers for an
aggregate of $4.1 million pursuant to a stock purchase agreement. The purchase
price for the shares sold by SWS to our executive officers was premised upon an
understanding reached in October 2001 that SWS would sell the shares of Westwood
common stock based on their value at September 30, 2001, and was based on a
valuation as of September 30, 2001, covering the shares sold, which valuation
was delivered to the SWS Board in December 2001 and took into account the fact
that the shares represented a minority interest in closely held, non-marketable
securities. The issuance of shares to SWS and the resale of those shares to the
executive officers were effected in reliance on private placement exemptions
from the registration requirements of the Securities Act.
Each executive officer received a loan from us pursuant to a promissory
note to pay for their shares of our common stock purchased from SWS. The loans
totaled $4.1 million and are full recourse loans, secured by a pledge of the
shares purchased by each executive officer. The loans can be fully or partially
prepaid, and in the event of a partial prepayment, the number of shares subject
to the related pledge would be released on a pro rata basis. The loans bear
interest at the rate of 3.93% per annum, compounded semi-annually, payable
annually, with the principal payable at maturity on the ninth anniversary of the
date of the loans. If an executive officer's employment is terminated for cause,
or an executive officer terminates his or her employment without good reason,
his or her loan will accelerate and become payable in full within 90 days
following termination of employment.
The table below identifies each executive officer who purchased shares
of Westwood common stock from SWS, the number of shares each executive officer
purchased and the amount of the promissory note executed by each executive
officer.
Number of Shares
Name of Executive Officer Purchased from SWS Amount of Promissory Note
------------------------- ------------------ -------------------------
Susan M. Byrne 722,750 $2,766,960
Brian O. Casey 240,917 $922,320
Patricia R. Fraze 25,096 $96,075
Lynda J. Calkin 40,153 $153,720(1)
Joyce A. Schaer 40,153 $153,720
-------------------
(1) Ms. Calkin resigned from Westwood effective January 31, 2003 and, as of that
date, she has repaid her promissory note in full.
Ms. Calkin resigned from Westwood effective January 31, 2003 and
entered into a Separation Agreement and Mutual Release of Claims with Westwood
Management. Pursuant to the terms of the Separation Agreement, Ms. Calkin
received a severance payment of $233,500, a portion of which was used to repay
her promissory note to Westwood issued in December 2001 to purchase shares of
our common stock from SWS. The Severance Agreement contains standard release,
non-disparagement and confidentiality provisions.
All future material transactions involving affiliated parties will be
subject to approval by a majority of Westwood's disinterested directors.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 26, 2003, Westwood had issued and entitled to vote at
the annual meeting 5,394,522 shares of common stock. The following table sets
forth certain information, as of February 26, 2003, regarding beneficial
ownership of the common stock and the percentage of total voting power held by:
o each stockholder who is known by Westwood to own more than five
percent (5%) of the outstanding common stock;
o each director;
o each Named Executive Officer; and
o all directors and executive officers as a group.
Unless otherwise noted, the persons named below have sole voting and
investment power with respect to such shares.
Number of Shares Percent of
Beneficial Owners(1) Beneficially Owned(2) Class
---------------------------------------------------------------- ---------------------- ----------
5% Beneficial Owners
Third Avenue Management LLC(3)(4) .................................. 1,029,575 19.1%
American Express Financial Corporation (3)(5) ...................... 290,900 5.4%
Dalton, Greiner, Hartman, Maher & Co.(3)(6) ........................ 272,850 5.1%
Directors and Executive Officers
Susan M. Byrne(7) .................................................. 786,305 14.6%
Brian O. Casey(7) .................................................. 241,481 4.5%
Patricia R. Fraze(7) ............................................... 32,146 *
Lynda J. Calkin(8) ................................................. 41,042 *
Joyce A. Schaer(7) ................................................. 40,328 *
Frederick R. Meyer ................................................. 28,593 *
Jon L. Mosle, Jr. .................................................. 45,000 *
Raymond E. Wooldridge .............................................. 62,403 1.2%
All directors and executive officers as a group (8 Persons) ........ 1,277,298 23.7%
----------------------------------
* Less than 1%
(1) The address of each director and Named Executive Officer is that of the
Company.
(2) Includes shares subject to options that may be acquired within 60 days
after February 26, 2003. Such shares are deemed to be outstanding and to be
beneficially owned by the person or group holding the options for the
purpose of computing the percentage ownership of such person or group, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.
(3) The beneficial ownership information reported for this stockholder is based
upon the most recent Schedule 13D or 13G filed with the SEC by such
stockholder.
(4) The address of Third Avenue Management LLC ("TAM") is 767 Third Avenue, New
York, New York 10017-2023. On January 10, 2003, TAM reported its beneficial
ownership, indicating that it held sole dispositive power over 1,029,575
shares and sole voting power over 738,428 shares.
(5) The address of American Express Financial Corporation ("AEFC") is 200 AXP
Financial Center, Minneapolis, Minnesota 55474. On February 13, 2003, AEFC
reported its beneficial ownership, indicating that it held sole dispositive
and sole voting power over all of its 290,900 shares.
(6) The address of Dalton, Greiner, Hartman, Maher & Co. ("DGHM") is 565 Fifth
Ave., Suite 2101, New York, New York 10017. On January 28, 2003, DGHM
reported its beneficial ownership, indicating that it held sole dispositive
power over 272,850 shares and sole voting power over 270,328 shares.
15
(7) Of the shares indicated, Ms, Byrne has 722,750 shares, Mr. Casey has
240,917 shares, Ms. Fraze has 25,096 shares, and Ms. Schaer has 40,153
shares that have been pledged to Westwood to secure loans made to each of
these persons. See "Certain Relationships and Related Transactions."
(8) Ms. Calkin resigned from Westwood effective January 31, 2003. See "Certain
Relationships and Related Transactions" for additional details. The address
of Ms. Calkin is 2101 Belleview Court, Richardson, Texas 75082.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934 requires Westwood's directors
and executive officers, and persons who own more than ten percent of a
registered class of Westwood's equity securities to file with the SEC initial
statements of beneficial ownership of securities and subsequent changes in
beneficial ownership. Westwood's officers, directors and
greater-than-ten-percent stockholders are required by the SEC's regulations to
furnish Westwood with copies of all Section 16(a) forms they file.
To Westwood's knowledge, based solely on a review of the copies of such
reports furnished to Westwood and written representations that no other reports
were required, during the year ended December 31, 2002, its officers, directors
and greater-than-ten-percent beneficial owners timely complied with all Section
16(a) filing requirements applicable to them.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee consists of Messrs. Meyer, Mosle and
Wooldridge, each a non-employee director of Westwood. Mr. Meyer serves as
Chairman of the compensation committee. This Report will describe (i) the
compensation committee's compensation policies generally applicable to
Westwood's executive officers; and (ii) the basis for Ms. Byrne's compensation
in 2002, including the factors and criteria on which Ms. Byrne's compensation
was based, and the relationship of Westwood's performance to her compensation.
Compensation Policies
The compensation committee's policies are aimed at achieving close
alignment between its executives' overall compensation opportunity and
Westwood's financial performance, and at retaining the services of key members
of its management team. The compensation committee considers the performance of
Westwood relative to other companies in its peer group, and assesses management
performance on both an individual and aggregate basis.
Base Salary
The compensation committee annually reviews its base compensation
levels and considers competitive levels of base pay relative to peer companies
in the industry. Base salary levels for 2002 were maintained at the same amounts
as the ending base salaries for 2001, with an emphasis placed on other
performance-based compensation incentives.
Performance-Based Compensation
Prior to the spin-off of Westwood from SWS, Westwood's executive
officers and other employees participated in an annual bonus pool. The formula
for the bonus pool was equal to 50% of pre-tax profits up to $2.0 million, 25%
of pre-tax profits in excess of $2.0 million, plus 100% of pre-tax profits
derived from the Gabelli Westwood Funds. The compensation committee considered
the history and criteria for employee bonuses prior to the spin-off in
developing its bonus plan for officers following the spin-off.
Pursuant to the terms of the Stock Incentive Plan, the compensation
committee adopted an Annual Incentive Plan (the "AIP"), effective for periods
following the spin-off, under which a bonus pool is established based on
financial performance criteria. This criteria is based on pre-tax profits, which
operates as a stimulus to achieving improvement in the financial performance of
Westwood. For 2002, the compensation committee approved an AIP cash bonus pool
equal to $2.9 million. The compensation committee makes recommendations to the
board of directors regarding the allocation of the AIP bonus pool among officers
of Westwood. For 2002, the compensation committee granted discretion to the
Chief Executive Officer and President to allocate the remainder of the AIP bonus
pool among other employees.
16
Discretionary Bonus Awards
The compensation committee may also grant discretionary bonus awards of
stock, cash or any combination of stock and cash to our officers and key
employees in such amounts and subject to such terms and conditions as the
compensation committee may determine.
Equity-based Compensation
Westwood's common stock was distributed in a spin-off from SWS during
2002, and commenced trading on the New York Stock Exchange. Westwood believes
that the opportunity to award stock options and other forms of equity-based
compensation to recruit and retain talented personnel is a key advantage to
operating as an independent public company. Westwood's ability to grant
equity-based compensation awards differentiates it from some of its competitors.
The compensation committee intends to grant some form of equity-based
compensation awards annually. For 2002, the compensation committee determined
individual option grants based on each employee's tenure with Westwood,
position, and peer review performance ranking, as well as qualitative
evaluations provided by Westwood's Chief Executive Officer and President. Grants
of stock options to Westwood's Named Executive Officers based on the
compensation committee's review for 2002 are set forth under "Executive
Compensation - Options Granted in Last Year."
Compensation of the Chief Executive Officer
In determining the compensation for Ms. Byrne, the compensation
committee takes into account that Ms. Byrne is the founder of Westwood, and is a
widely known and respected member of the financial community whose reputation
enhances the stature of Westwood, and is critical to its ongoing marketing
efforts. The compensation committee reviews Ms. Byrne's compensation in relation
to the performance of Westwood's proprietary accounts, and its client accounts
for which she has primary responsibility in setting investment policy.
Ms. Byrne's base salary for 2002 was maintained at approximately the
same level as the prior year with the emphasis being placed on annual cash
incentive awards and long-term equity incentive awards. Ms. Byrne participates
in the AIP, and the compensation committee determines each year the maximum
amount that she may earn based on the financial criteria for the Plan. For the
portion of the 2002 year following the spin-off, and for future years (until
changed by the compensation committee), Ms. Byrne's maximum performance bonus is
equal to 10% of Westwood's pre-tax profits (subject to the compensation
committee's discretion to reduce the bonus to less than the 10% formula amount).
In recognition of the bonus paid to Ms. Byrne prior to the completion of the
spin-off in June 2002, Ms. Byrne was awarded a 2002 AIP bonus in an amount less
than 10% of Westwood's pre-tax profits for the portion of 2002 following
completion of the spin-off. Additionally, the compensation committee made a
discretionary bonus award to Ms. Byrne for 2002.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
the tax deduction for compensation in excess of $1 million paid to the chief
executive officer and the next four most highly compensated executive officers
of a publicly held corporation. The compensation committee considers it
important to preserve the tax deductibility of compensation for its executive
officers, consistent with achieving its goal of retaining its management team.
The stockholders of Westwood are being asked to approve the Westwood Stock
Incentive Plan and the annual incentive award for the Company's Chief Executive
Officer in order to permit the payment of fully deductible performance-based
compensation under those Plans.
COMPENSATION COMMITTEE
Frederick R. Meyer, Chairman
Jon L. Mosle, Jr.
Raymond E. Wooldridge
17
PERFORMANCE GRAPH
The following graph compares total stockholder returns of Westwood
since July 1, 2002, the date the Company began trading as a public company after
the spin-off, with the total return of the Russell 2000 Index and the SNL
Investment Adviser Index. The SNL Investment Adviser Index is a composite of
twenty-four publicly traded asset management companies.
Comparison of Cumulative Total Return on Investment Since July 1, 2002
[PERFORMANCE GRAPH]
Period Ending
------------------------------------------------------------------------------
Index 07/01/02 07/31/02 08/31/02 09/30/02 10/31/02 11/30/02 12/31/02
----------------------------------------------------------------------------------------------------------------------
Westwood Holdings Group, Inc. 100.00 102.37 110.69 108.85 104.72 97.99 102.66
Russell 2000 100.00 87.72 87.50 81.21 83.82 91.30 86.21
SNL Investment Adviser Index 100.00 84.50 88.97 78.95 83.50 93.87 86.40
The total return for Westwood's stock and for each index assumes $100
invested on July 1, 2002 in Westwood's common stock, the Russell 2000 Index, and
the SNL Investment Adviser Index, including the reinvestment of dividends.
Westwood's common stock is traded on the New York Stock Exchange.
The closing price of Westwood's common stock on the last trading day of
the year ended December 31, 2002 was $13.41 per share. Historical stock price
performance is not necessarily indicative of future price performance.
18
REPORT OF THE AUDIT COMMITTEE
In conjunction with its other activities, the audit committee reviewed
and discussed Westwood's audited financial statements for the year ended
December 31, 2002 with its management. The members of the audit committee also
discussed with Deloitte & Touche LLP the matters required to be discussed by SAS
61 (Codification of Statements on Auditing Standards, AU Section 380) and
considered whether the provision of nonaudit services by Deloitte & Touche LLP
is compatible with maintaining the independence of Deloitte & Touche LLP. The
audit committee received from Deloitte & Touche LLP the written disclosures and
the letter required by Independence Standards Board Standard No. 1, and
discussed with Deloitte & Touche LLP their independence.
Based on the foregoing review and discussions, the audit committee
recommended to the board of directors that the audited financial statements be
included in Westwood's Annual Report on Form 10-K for the year ended December
31, 2002.
The audit committee has reviewed and reassessed the adequacy of its
written charter, a copy of which is attached to this proxy as Appendix A. The
audit committee expects to amend its charter in 2003 to comply with applicable
provisions of the Sarbanes-Oxley Act of 2002 and proposed New York Stock
Exchange rules as they become effective.
AUDIT COMMITTEE
Raymond E. Wooldridge, Chairman
Frederick R. Meyer
Jon L. Mosle, Jr.
19
STOCKHOLDER PROPOSALS
We must receive any stockholder proposal intended for inclusion in the
proxy materials for our annual meeting to be held in 2004 no later than November
14, 2003 to have such Proposal included in our proxy statement for the 2004
annual meeting. You must submit your Proposal in writing to our Corporate
Secretary:
Brian O. Casey
300 Crescent Court, Suite 1300
Dallas, Texas 75201
(214) 756-6900
ANNUAL REPORT
Our Annual Report to Stockholders, which includes our consolidated
financial statements as of and for the year ended December 31, 2002, is being
mailed to you along with this proxy statement. Upon written request, we will
provide, without charge to any stockholder, a copy of our Annual Report on Form
10-K, including the financial statements and financial statement schedules to
such report. Such request should be directed to:
Brian O. Casey
300 Crescent Court, Suite 1300
Dallas, Texas 75201
(214) 756-6900
OTHER MATTERS
Our board of directors knows of no other matters that will be presented
for consideration at the annual meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors,
/s/ Brian O. Casey
Brian O. Casey
Secretary
March 14, 2003
20
APPENDIX A
WESTWOOD HOLDINGS GROUP, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Membership and Meetings
1. The Audit Committee of the Board of Directors of Westwood Holdings
Group, Inc. (the "Company") shall consist of at least three independent
directors a majority of whom are unrelated. Members of the Audit
Committee shall be considered independent if they have no relationship
to the Company that could interfere with the exercise of their
independence from management and the Company. As determined by the
Board of Directors, the members of the Audit Committee will be
financially literate.
2. The Audit Committee will meet quarterly and will have special meetings
if and when required. The Audit Committee shall appoint its chairman
who shall be an independent director. Company management, internal and
independent auditors and the Company's counsel may attend each meeting
or portions thereof as required by the Audit Committee. The Chief
Financial Officer of the Company shall attend all meetings of the Audit
Committee, unless otherwise excused from all or part of such meeting.
3. At all meetings of the Audit Committee every question shall be decided
by a majority of the votes cast. In the event of an equality of votes,
the chairman of the meeting shall be entitled to a second or casting
vote. A quorum for a meeting of the Audit Committee shall be a majority
of its members, and the rules for calling, holding, conducting and
adjourning meetings shall be the same as those governing the Board of
Directors. Minutes of all meetings shall be taken and the results,
reviews undertaken and any associated recommendations shall be reported
to the Board of Directors.
Responsibilities
The Audit Committee's role is one of oversight whereas the Company's management
is responsible for preparing the Company's financial statements and the
independent auditors are responsible for auditing those financial statements.
The Audit Committee is not providing any expert or special assurance as to the
Company's financial statements or any professional certification as to the
independent auditor's work. The following functions shall be the key
responsibilities of the Audit Committee in carrying out its oversight function.
1. Provide an open avenue of communications between the internal and
independent auditors and the Board of Directors, including private
sessions with the internal and independent auditors, as the Committee
may deem appropriate.
2. Receive and review reports from Company management relating to the
Company's financial condition, and published financial statements.
3. Receive and review reports from Company management and General Counsel
relating to legal and regulatory matters that may have a material
impact on the Company's financial statements and Company compliance
policies.
4. Receive and review reports from internal auditors relating to major
findings and recommendations from internal audits conducted
Company-wide. Consult with and review reports from internal auditors
relating to on-going monitoring programs including the Company's Code
of Business Conduct and compliance with policies of the Company.
5. Inquire of company management and independent auditors regarding the
appropriateness of accounting principles followed by the Company,
changes in accounting principles and their impact on the financial
statements.
6. Review the internal audit program in terms of scope of audits conducted
or scheduled to be conducted.
7. The Committee and Board of Directors shall be ultimately responsible
for the selection, evaluation, and replacement of the independent
auditors. The Committee will:
o Recommend annually the appointment of the independent auditors to the
Board of Directors for its approval and subsequent submission to the
stockholders for ratification.
o Determine the independence of the independent auditors by obtaining a
formal written statement delineating all relationships between the
independent auditors and the Company, including all non-audit services
and fees.
o Discuss with the independent auditors if any disclosed relationship or
service could impact the auditors' objectivity and independence.
o Recommend that the Board of Directors take appropriate action in
response to the auditors' statement to ensure the independence of the
independent auditors.
8. Meet with independent auditors and review their report to the Committee
including comments relating to the system and adequacy of internal
controls, published financial statements and related disclosures, the
adequacy of the financial reporting process and the scope of the
independent audit. The independent auditors are ultimately accountable
to the Board of Directors and the Committee on all such matters.
9. Review with the internal and independent auditors the coordination of
their respective audit activities.
10. Prepare a Report, for inclusion in the Company's proxy statement,
disclosing that the Committee reviewed and discussed the audited
financial statements with management and discussed certain other
matters with the independent auditors. Based upon these discussions,
state in the Report whether the Committee recommended to the Board of
Directors that the audited financial statements be included in the
Annual Report.
12. Review and reassess the adequacy of the Audit Committee's charter
annually. If any revisions therein are deemed necessary or appropriate,
submit the same to the Board of Directors for its consideration and
approval.
Adopted by the Board of Directors of Westwood Holdings Group, Inc.
December 14, 2001
APPENDIX B
AMENDED AND RESTATED WESTWOOD HOLDINGS GROUP, INC. STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 Establishment. This Amended and Restated Westwood Holdings Group, Inc.
Stock Incentive Plan (the "Plan") is hereby established effective as
of July 1, 2002.
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an
incentive to attract and retain persons performing services for the
Participating Company Group and by motivating such persons to
contribute to the growth and profitability of the Participating
Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the earlier of
its termination by the Board or the date on which all of the shares of
Stock available for issuance under the Plan have been issued and all
restrictions on such shares (if any) under the terms of the Plan and
the agreements evidencing the Awards granted under the Plan have
lapsed. However, all Awards shall be granted, if at all, within ten
(10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the stockholders of the
Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Acquiring Corporation" has the meaning given to it in Section
14.2.
(b) "Annual Incentive Award" has the meaning given to it in Section
11.1.
(c) "Award" means any form of incentive or performance award granted
under the Plan, whether singly or in combination, to a
Participant by the Board pursuant to such terms, conditions,
restrictions and/or limitations (if any) as the Board may
establish. Awards granted under the Plan may include:
(i) Options awarded pursuant to Sections 6-8;
(ii) Restricted Stock awarded pursuant to Section 9;
(iii) Purchase Rights awarded pursuant to Section 10;
(iv) Annual Incentive Awards awarded pursuant to Section 11;
(v) Performance-Based Awards awarded pursuant to Section 12;
and
(vi) Discretionary Bonus Awards awarded pursuant to Section 13.
(d) "Award Certificate" has the meaning given to it in Section 12.3.
(e) "Board" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer
the Plan, "Board" also means such Committee(s).
(f) "Cashless Exercise" has the meaning given to it in Section
6.3(a).
(g) "Cause" shall mean any of the following: (i) the Participant's
theft of a Participating Company's property or falsification of
any Participating Company documents or records; (ii) the
Participant's improper use or disclosure of a Participating
Company's confidential or proprietary information; (iii) any
action by the Participant which has a detrimental effect on a
Participating Company's reputation or business; (iv) the
Participant's failure or inability to perform any reasonable
assigned duties after written notice from the Participating
Company Group or any Participating Company of, and a reasonable
opportunity to cure, such failure or inability; (v) any material
breach by the Participant of any employment agreement between the
Participant and the Participating Company Group or any
Participating Company, which breach is not cured pursuant to the
terms of such agreement; or (vi) the Participant's conviction
(including any plea of guilty or nolo contendere) of any felony
or any other criminal act which impairs the Participant's ability
to perform his or her duties with the Participating Company Group
or any Participating Company.
(h) "Change in Control" has the meaning given to it in Section 14.1.
(i) "Code" means the Internal Revenue Code of 1986, as amended, and
any applicable regulations promulgated thereunder.
(j) "Committee" means the Compensation Committee or other committee
of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers
of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate
the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(k) "Company" means Westwood Holdings Group, Inc., a Delaware
corporation, or any successor corporation thereto.
(l) "Consultant" means a person engaged to provide consulting or
advisory services (other than as an Employee or a Director) to a
Participating Company, provided that the identity of such person,
the nature of such services or the entity to which such services
are provided would not preclude the Company from offering or
selling securities to such person pursuant to the Plan in
reliance on either the exemption from registration provided by
Rule 701 under the Securities Act or, if the Company is required
to file reports pursuant to Section 13 or 15(d) of the Exchange
Act, registration on a Form S-8 Registration Statement under the
Securities Act.
(m) "Deferred Compensation Plan" means that certain Westwood Holdings
Group, Inc. Deferred Compensation Plan, effective February 1,
2002.
(n) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(o) "Disability" means the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.
(p) "Employee" means any person treated as an employee (including an
officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any
Incentive Stock Option granted to such person, who is an employee
for purposes of Section 422 of the Code; provided, however, that
neither service as a Director nor payment of a director's fee
shall be sufficient to constitute employment for purposes of the
Plan.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(r) "Exercise Period" has the meaning given to it in Section 10.1.
(s) "Fair Market Value" means, as of any date, the value of a share
of Stock or other property as determined by the Board, in its
discretion, or by the Company, in its discretion, if such
determination is expressly allocated to the Company herein,
subject to the following:
(i) If, on such date, the Stock is listed on a national or
regional securities exchange or market system, the Fair
Market Value of a share of Stock shall be the closing price
of a share of Stock (or the mean of the closing bid and
asked prices of a share of Stock if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, the Nasdaq
SmallCap Market or such other national or regional
securities exchange or market system constituting the
primary market for the Stock, as reported in THE WALL STREET
JOURNAL or such other source as the Company deems reliable.
If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market
system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so
traded prior to the relevant date, or such other appropriate
day as shall be determined by the Board, in its discretion.
(ii) If, on such date, the Stock is not listed on a national or
regional securities exchange or market system, the Fair
Market Value of a share of Stock shall be as determined by
the Board in good faith without regard to any restriction
other than a restriction which, by its terms, will never
lapse.
(t) "Good Reason" means (i) a resignation occurring within ninety
(90) days following a Change in Control; (ii) the relocation of
the principal place of business of the Participating Company for
which the Participant renders Service to a location more than 100
miles from its location as of the date of the Change in Control
without the Participant's consent; or (iii) a material reduction
in the Participant's salary or bonus opportunity, or the
Participant's responsibilities.
(u) "Incentive Stock Option" means an Option intended to be (as set
forth in the Option Agreement), and which qualifies as, an
incentive stock option within the meaning of Section 422(b) of
the Code.
(v) "Insider" means an officer or a Director of the Company or any
other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(w) "Non-Employee Director" has the meaning given to it in Article 8.
(x) "Nonstatutory Stock Option" means an Option not intended to be
(as set forth in the Option Agreement), or which does not qualify
as, an Incentive Stock Option.
(y) "Option" means a right to purchase Stock (subject to adjustment
as provided in Section 4.2) pursuant to the terms and conditions
of the Plan. An Option may be either an Incentive Stock Option or
a Nonstatutory Stock Option.
(z) "Option Agreement" means a written agreement between the Company
and a Participant setting forth the terms, conditions and
restrictions of the Option granted to the Participant and any
shares acquired upon the exercise thereof. An Option Agreement
may consist of a form of "Notice of Grant of Stock Option" and a
form of "Stock Option Agreement" incorporated therein by
reference, or such other form or forms as the Board may approve
from time to time
(aa) "Option Expiration Date" has the meaning given to it in Section
6.6(a)(i).
(bb) "Ownership Change Event" has the meaning given to it in Section
14.1.
(cc) "Parent" means (i) any "parent corporation" as defined in Section
424(e) of the Code and any successor provisions; (ii) any other
entity that is taxed as a corporation under Section 7701(a)(3) of
the Code and is a member of the "affiliated group" as defined in
Section 1504(a) of the Code of which the Company is a common
subsidiary corporation, and (iii) any other entity as may be
permitted from time to time by the Code or the Internal Revenue
Service to be an employer of employees to whom Options may be
granted; provided, however, that in each case the Company must be
consolidated in the Parent's financial statements.
(dd) "Participant" means a person who has been granted one or more
awards pursuant to the terms and conditions of the Plan.
(ee) "Participating Company" means the Company or any Parent or
Subsidiary.
(ff) "Participating Company Group" means, at any point in time, all
corporations or other entities collectively which are then
Participating Companies.
(gg) "Performance Cycle" means (i) with respect to any Annual
Incentive Award, the twelve (12) month period beginning on
January 1, 2002 and each January 1 thereafter, and (ii) with
respect to any Performance-Based Award, the period determined by
the Committee over which the Company's level of attainment of a
Performance Measure shall be determined.
(hh) "Performance Goals" means, with respect to any Annual Incentive
Award or Performance-Based Award, one or more targets, goals or
levels of attainment required to be achieved in terms of the
specified Performance Measure during a fiscal year or specified
Performance Cycle, as applicable.
(ii) "Performance Measure" means, with respect to any Annual Incentive
Award or Performance-Based Award, the business criteria
established by the Committee to measure the level of performance
of the Company during the fiscal year or Performance Cycle, as
applicable. The Committee may select as the Performance Measure
any one or combination of financial measures, as interpreted by
the Committee, which (to the extent applicable) can be determined
either on a pro forma or GAAP basis, and either pre-tax or
after-tax, such as: earnings per share, return on equity, return
on invested capital, relative total shareholder return, revenue
growth, Stock performance, net income, return on sales, return on
assets, economic value added, cash flow and net operating income.
(jj) "Performance-Based Award" has the meaning given to it in Section
12.1.
(kk) "Permitted Transferees" has the meaning given to it in Section
6.7.
(ll) "Plan" has the meaning given to it in Section 1.1.
(mm) "Purchase Right" means the right to purchase Stock in accordance
with the provisions of Section 10.
(nn) "Restricted Period" has the meaning given to it in Section 9.1.
(oo) "Restricted Stock" means an award of Stock made under Section 9,
which is subject to vesting provisions.
(pp) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended
from time to time, or any successor rule or regulation.
(qq) "Securities Act" means the Securities Act of 1933, as amended.
(rr) "Service" means a Participant's employment or service with the
Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. A Participant's Service
shall not be deemed to have terminated merely because of a change
in the capacity in which the Participant renders Service to the
Participating Company Group or a change in the Participating
Company for which the Participant renders such Service, provided
that there is no interruption or termination of the Participant's
Service. Furthermore, a Participant's Service with the
Participating Company Group shall not be deemed to have
terminated if the Participant takes any military leave, sick
leave, or other bona fide leave of absence approved by the
Company; provided, however, that if any such leave exceeds ninety
(90) days, on the ninety-first (91st) day of such leave the
Participant's Service shall be deemed to have terminated unless
the Participant's right to return to Service with the
Participating Company Group is guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise designated by the
Company or required by law, a leave of absence shall not be
treated as Service for purposes of determining vesting under any
Option Agreement. The Participant's Service shall be deemed to
have terminated either upon an actual termination of Service or
upon the corporation for which the Participant performs Service
ceasing to be a Participating Company. Subject to the foregoing,
the Company, in its discretion, shall determine whether the
Participant's Service has terminated and the effective date of
such termination.
(ss) "Spin-off Date" means the date on which SWS Group, Inc., a
Delaware corporation, distributes all of the Stock that it then
holds to its stockholders.
(tt) "Stock" means the common stock of the Company, as adjusted from
time to time in accordance with Section 4.2.
(uu) "Subsidiary" means (i) any "subsidiary corporation" of the
Company, as defined in Section 424(f) of the Code and any
successor provisions, (ii) any other entity that is taxed as a
corporation under Section 7701(a)(3) of the Code and is a member
of the "affiliated group" as defined in Section 1504(a) of the
Code of which the Company is a common parent corporation, and
(iii) any other entity as may be permitted from time to time by
the Code or the Internal Revenue Service to be an employer of
employees to whom Options may be granted; provided, however, that
in each case the subsidiary corporation must be consolidated in
the Company's financial statements.
(vv) "Ten Percent Owner Participant" means a Participant who, at the
time an Option is granted to the Participant, owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of a Participating Company
within the meaning of Section 422(b)(6) of the Code.
(ww) "Termination After Change in Control" shall mean either of the
following events occurring within twelve (12) months after (or as
a result of) a Change in Control:
(i) termination by the Participating Company Group of the
Participant's Service with the Participating Company Group
for any reason other than for Cause; or
(ii) the Participant's resignation for Good Reason from Service
with the Participating Company Group within a reasonable
period of time following the event constituting Good Reason.
(xx) Notwithstanding any provision herein to the contrary, Termination
After Change in Control shall not include any termination of the
Participant's Service with the Participating Company Group which
(1) is for Cause; (2) is a result of the Participant's death or
Disability; (3) is a result of the Participant's voluntary
termination of Service other than for
Good Reason; or (4) occurs prior to the effectiveness of a Change
in Control (and is not directly related to a Change in Control).
2.2 Construction. Captions and titles contained herein are for convenience
only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless
the context clearly requires otherwise.
3. ADMINISTRATION.
3.1 Administration by the Board. The Plan shall be administered by the
Board. All questions of interpretation of the Plan or of any Award
shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan.
3.2 Authority of Officers. Any officer of a Participating Company shall
have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein,
provided the officer has apparent authority with respect to such
matter, right, obligation, determination or election.
3.3 Powers of the Board. In addition to any other powers set forth in the
Plan and subject to the provisions of the Plan, the Board shall have
the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which,
Awards shall be granted and, if applicable, the number of shares
of Stock to be subject thereto;
(b) to designate Options as Incentive Stock Options or Nonstatutory
Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other
property;
(d) to determine the terms, conditions and restrictions applicable to
each Award (which need not be identical) and, if applicable, any
shares acquired upon the exercise thereof, including, without
limitation, (i) the exercise price of an Option or Purchase
Right, (ii) the method of payment for shares purchased upon the
exercise of the Option or Purchase Right, (iii) the method for
satisfaction of any tax withholding obligation arising in
connection with the Award or such shares of Stock issued or cash
provided thereunder, including by the withholding or delivery of
shares of Stock or cash, (iv) the timing, terms and conditions of
the exercisability of the Award or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the
expiration of the Award, (vi) the effect of the Participant's
termination of Service with the Participating Company Group on
any of the foregoing, and (vii) all other terms, conditions and
restrictions applicable to the Award not inconsistent with the
terms of the Plan;
(e) to approve one or more forms of Option Agreement or Award
Certificate;
(f) to amend, modify, extend, cancel or renew any Award, or to waive
any restrictions or conditions applicable to any Award or any
shares of Stock acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability of
any Award or the vesting of any shares acquired upon the exercise
thereof, including with respect to the period following a
Participant's termination of Service with the Participating
Company Group;
(h) to prescribe, amend or rescind rules, guidelines and policies
relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the
Board deems necessary or desirable to comply with the laws of, or
to accommodate the tax policy or custom of, foreign jurisdictions
whose citizens may be granted Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan, any Option Agreement or any Award
Certificate and to make all other determinations and take such
other actions with respect to the Plan or any Option as the Board
may deem advisable to the extent not inconsistent with the
provisions of the Plan or applicable law.
3.4 Administration with Respect to Insiders. With respect to participation
by Insiders in the Plan, at any time that any class of equity security
of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the
requirements, if any, of Rule 16b-3.
3.5 Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or officers or employees of
the Participating Company Group, members of the Board and any officers
or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by
the Company against all reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan,
or any right granted hereunder, and against all amounts paid by them
in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the
same.
4. SHARES SUBJECT TO PLAN.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided
in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be 948,100 shares, and shall
consist of authorized but unissued or reacquired shares of Stock or
any combination thereof. If an outstanding Award for any reason
expires or is terminated or canceled or if shares of Stock are
acquired upon the exercise of an Award or otherwise subject to a
Company repurchase option and are repurchased by the Company at the
Participant's exercise price, or if shares of Restricted Stock are
forfeited unvested, the shares of Stock shall again be available for
issuance under the Plan. Subject to adjustment as provided in Section
4.2, the maximum aggregate number of Options for shares of Stock that
may be awarded in any year to any Participant may not exceed 316,033
shares.
4.2 Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital
structure of the Company, appropriate adjustments shall be made in the
number and class of shares subject to the Plan and to any outstanding
Awards (if applicable) and in the exercise price per share of any
outstanding Awards (if applicable). If a majority of the shares which
are of the same class as the shares that are subject to outstanding
Awards are exchanged for, converted into, or otherwise become (whether
or not pursuant to an Ownership Change Event, as defined in Section
14.1) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the outstanding Awards to provide that such Awards
are exercisable for New Shares. In the event of any such amendment,
the number of shares subject to, and the exercise price per share of,
the outstanding Awards shall be adjusted in a fair and equitable
manner as determined by the Board, in its discretion. Notwithstanding
the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded down to the nearest
whole number, and in no event may the exercise price of any Award be
decreased to an amount less than the par value, if any, of the stock
subject to the Award. The adjustments determined by the Board pursuant
to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 Persons Eligible for Awards. Awards may be granted pursuant to this
Plan only to Employees, Consultants, and Directors. For purposes of
the foregoing sentence, "Employees," "Consultants" and "Directors"
shall include prospective Employees, prospective Consultants and
prospective Directors to whom Awards are granted in connection with
written offers of an employment or other service relationship with the
Participating Company Group. Eligible persons may be granted more than
one (1) Award.
5.2 Option Grant Restrictions. Any person who is not an Employee on the
effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to
a prospective Employee upon the condition that such person become an
Employee shall be deemed granted effective on the date such person
commences Service with a Participating Company, with an exercise price
determined as of such date in accordance with Section 6.1.
5.3 Fair Market Value Limitation. To the extent that Options designated as
Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by
a Participant for the first time during any calendar year for Stock
having a Fair Market Value greater than One Hundred Thousand Dollars
($100,000), the portions of such Options which exceed such amount
shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5.3, options designated as Incentive Stock Options shall be
taken into account in the order in which they were granted, and the
Fair Market Value of Stock shall be determined as of the time the
Option with respect to such Stock is granted. If the Code is amended
to provide for a different limitation from that set forth in this
Section 5.3, such different limitation shall be deemed incorporated
herein effective as of the date and with respect to such Options as
required or permitted by such amendment to the Code. If an Option is
treated as an Incentive Stock Option in part and as a Nonstatutory
Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Participant may designate which portion of such
Option the Participant is exercising. In the absence of such
designation, the Participant shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate
certificates representing each such portion shall be issued upon the
exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the number of
shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 Exercise Price. The exercise price for each Option shall be
established in the discretion of the Board; provided, however, that
(a) the exercise price per share for an Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of
grant of the Option, and (b) no Incentive Stock Option granted to a
Ten Percent Owner Participant shall have an exercise price per share
less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise
price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section
424(a) of the Code.
6.2 Exercisability and Term of Options. Options shall be exercisable at
such time or times, or upon such event or events, and subject to such
terms, conditions, performance criteria and restrictions as shall be
determined by the Board and set forth in the Option Agreement
evidencing such Option; provided, however, that (a) no Option shall be
exercisable after the expiration of ten (10) years after the effective
date of grant of such Option, (b) no Incentive Stock Option granted to
a Ten Percent Owner Participant shall be exercisable after the
expiration of five (5) years after the effective date of grant of such
Option, and (c) no Option granted to a prospective Employee,
prospective Consultant
or prospective Director may become exercisable prior to the date on
which such person commences Service with a Participating Company.
Subject to the foregoing, unless otherwise specified by the Board in
the grant of an Option, any Option granted hereunder shall terminate
ten (10) years after the effective date of grant of the Option, unless
earlier terminated in accordance with its provisions.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided
below, payment of the exercise price for the number of shares of
Stock being purchased pursuant to any Option shall be made (i) in
cash, by check or cash equivalent, (ii) by tender to the Company,
or attestation to the ownership, of shares of Stock owned by the
Participant having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability
applicable to such stock by reason of federal or state securities
laws or agreements with an underwriter for the Company) not less
than the exercise price, (iii) by delivery of a properly executed
notice together with irrevocable instructions to a broker
providing for the assignment to the Company of the proceeds of a
sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "Cashless Exercise"),
(iv) provided that the Participant is an Employee and in the
Company's sole discretion at the time the Option is exercised, by
delivery of the Participant's promissory note in a form approved
by the Company for the aggregate exercise price, provided that,
if the Company is incorporated in the State of Texas, the
Participant shall pay in cash that portion of the aggregate
exercise price not less than the par value of the shares being
acquired, (v) by such other consideration as may be approved by
the Board from time to time to the extent permitted by applicable
law, or (vi) by any combination thereof. The Board may at any
time or from time to time, by approval of or by amendment to the
standard forms of Option Agreement described in Section 7, or by
other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the
exercise price or which otherwise restrict one or more forms of
consideration.
(b) Limitations on Forms of Consideration.
(i) Tender of Stock. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the
extent such tender or attestation would constitute a
violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option
may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless
such shares either have been owned by the Participant for
more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(ii) Cashless Exercise. The Company reserves, at any and all
times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve or terminate
any program or procedures for the exercise of Options by
means of a Cashless Exercise,
(iii) Payment by Promissory Note. No promissory note shall be
permitted if the exercise of an Option using a promissory
note would be a violation of any law. Any permitted
promissory note shall be on such terms as the Board shall
determine at the time the Option is granted. The Board
shall have the authority to permit or require the
Participant to secure any promissory note used to exercise
an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable
to the Company. Unless otherwise provided by the Board, if
the Company at any time is subject to the regulations
promulgated by the Board of
Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the
Participant shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with
such applicable regulations.
6.4 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the
exercise of an Option, or to accept from the Participant the tender
of, a number of whole shares of Stock having a Fair Market Value, as
determined by the Company, equal to all or any part of the federal,
state, local and foreign taxes, if any, required by law to be withheld
by the Participating Company Group with respect to such Option or the
shares acquired upon the exercise thereof. Alternatively or in
addition, in its discretion, the Company shall have the right to
require the Participant, through payroll withholding, cash payment or
otherwise, including by means of a Cashless Exercise, to make adequate
provision for any such tax withholding obligations of the
Participating Company Group arising in connection with the Option or
the shares acquired upon the exercise thereof the Fair Market Value of
any shares of Stock withheld or tendered to satisfy any such tax
withholding obligations shall not exceed the amount determined by the
applicable minimum statutory withholding rates, the Company shall have
no obligation to deliver shares of Stock or to release shares of Stock
from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been
satisfied by the Participant.
6.5 Repurchase Rights. Shares issued under the Plan may be subject to a
right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its
discretion at the time the Option is granted. The Company shall have
the right to assign at any time any repurchase right it may have,
whether or not such right is then exercisable, to one or more persons
as may be selected by the Company. Upon request by the Company, each
Participant shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates
representing shares of Stock acquired hereunder for the placement on
such certificates of appropriate legends evidencing any such transfer
restrictions.
6.6 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the
Option as otherwise provided herein and unless otherwise provided
by the Board in the grant of an Option and set forth in the
Option Agreement, an Option shall be exercisable after a
Participant's termination of Service only during the applicable
time period determined in accordance with this Section 6.6 and
thereafter shall terminate:
(i) Disability. If the Participant's Service with the
Participating Company Group terminates because of the
Disability of the Participant, the Option, to the extent
unexercised and exercisable on the date on which the
Participant's Service terminated, may be exercised by the
Participant (or the Participant's guardian or legal
representative) at any time prior to the expiration of one
(1) year (or such other period of time as determined by the
Board, in its discretion) after the date on which the
Participant's Service terminated, but in any event no later
than the date of expiration of the Option's term as set
forth in the Option Agreement evidencing such Option (the
"Option Expiration Date").
(ii) Death. If the Participant's Service with the Participating
Company Group terminates because of the death of the
Participant, the Option, to the extent unexercised and
exercisable on the date on which the Participant's Service
terminated, may be exercised by the Participant's legal
representative or other person who acquired the right to
exercise the Option by reason of the Participant's death at
any time prior to the expiration of one (1) year (or such
other period of
time as determined by the Board, in its discretion) after
the date on which the Participant's Service terminated, but
in any event no later than the Option Expiration Date. The
Participant's Service shall be deemed to have terminated on
account of death if the Participant dies within three (3)
months (or such other period of time as determined by the
Board, in its discretion) after the Participant's
termination of Service.
(iii) Cause. If the Participant's Service with the Participating
Company Group is terminated for Cause, the Option shall
terminate and cease to be exercisable immediately upon such
termination of Service.
(iv) Termination After Change in Control. Except as otherwise
specified in an Option Agreement, if the Participant's
Service with the Participating Company Group ceases as a
result of Termination After Change in Control, then (1) the
Option, to the extent unexercised and exercisable on the
date on which the Participant's Service terminated, may be
exercised by the Participant (or the Participant's guardian
or legal representative) at any time prior to the
expiration of three (3) months (or such longer period of
time as determined by the Board, in its sole discretion)
after the date on which the Participant's Service
terminated, but in any event no later than the Option
Expiration Date, and (2) any unexercisable or unvested
portion of the Option shall become fully vested and
exercisable as of the date on which the Participant's
Service terminated.
(v) Termination of Service. If the Participant's Service with
the Participating Company Group terminates for any reason,
except Disability, death or Cause, the Option, to the
extent unexercised and exercisable by the Participant on
the date on which the Participant's Service terminated, may
be exercised by the Participant at any time prior to the
expiration of three (3) months (or such other period of
time as determined by the Board, in its discretion) after
the date on which the Participant's Service terminated, but
in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of an Option within the applicable
time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 17 below, the Option shall remain
exercisable until three (3) months (or such longer period of time
as determined by the Board, in its discretion) after the date the
Participant is notified by the Company that the Option is
exercisable, but in any event no later than the Option Expiration
Date.
(c) Extension if Participant Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable
time periods set forth in Section 6.6(a) of shares acquired upon
the exercise of the Option would subject the Participant to suit
under Section 16(b) of the Exchange Act, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th)
day following the date on which a sale of such shares by the
Participant would no longer be subject to such suit, (ii) the one
hundred and ninetieth (190th) day after the Participant's
termination of Service, or (iii) the Option Expiration Date.
6.7 Transferability of Options. Incentive Stock Options granted under the
Plan shall not be transferable otherwise than by will or the laws of
descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder. Incentive Stock Options shall be exercisable during the
lifetime of the Participant only by the Participant or by the
Participant's guardian or legal representative (unless such exercise
would disqualify an Option as an Incentive Stock Option). With the
approval of the Board, the Option Agreement (other than an Incentive
Stock Option) may provide that such Option may be transferred without
consideration to one or more Permitted Transferees. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of an
Option or other award contrary to the provisions hereof, or the levy
of any
execution, attachment or similar process upon an Option or other award
shall be null and void and without effect. As used herein, "Permitted
Transferees" means a member of a Participant's immediate family,
trusts for the exclusive benefit of such Participant and/or such
Participant's immediate family members, and partnerships or other
entities in which the Participant and/or such immediate family members
are the only partners, provided that no consideration is provided for
the transfer. Immediate family members shall include a Participant's
spouse, descendants (children, grandchildren and more remote
descendants), spouses of descendants, and shall include step-children
and relationships arising from legal adoption.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 Option Agreement. Unless otherwise provided by the Board at the time
the Option is granted, an Option shall comply with and be subject to
the terms and conditions set forth in the form of Option Agreement
approved by the Board concurrently with its adoption of the Plan and
as amended from time to time.
7.2 Authority to Vary Terms. The Board shall have the authority from time
to time to vary the terms of any standard form of Option Agreement
described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that
the terms and conditions of any such new, revised or amended standard
form or forms of Option Agreement are not inconsistent with the terms
of the Plan.
8. AWARD AND DELIVERY OF OPTIONS TO NON-EMPLOYEE DIRECTORS
Notwithstanding any other provision of the Plan, each Director who is not
an Employee (a "Non-Employee Director") shall, shortly after the Spin-off Date
and upon each date of election or re-election as a Board member, be granted a
Nonstatutory Stock Option for 2,500 shares of Stock. The exercise price for any
Options awarded pursuant to this Article 8 shall be equal to one hundred percent
(100%) of the Fair Market Value of the shares on the date of grant. Each such
Option shall fully vest at the expiration of twelve (12) months from the date of
the grant. Each Non-Employee Director Option shall have a term of ten (10)
years. Expiration of a Non-Employee Director's term of office shall not affect a
Non-Employee Director's right to exercise its Option to the extent such Option
is vested at any time prior to the expiration of the Director's term.
9. AWARD AND DELIVERY OF RESTRICTED STOCK
9.1 Restricted Period. At the time an award of Restricted Stock is made,
the Committee shall establish a period or periods of time (each a
"Restricted Period") or such other restrictions on the vesting of the
Restricted Stock as it shall deem appropriate or applicable to such
award. Each award of Restricted Stock may have a different Restricted
Period or Restricted Periods. The Committee may, in its sole
discretion, at the time an award is made, provide for the incremental
lapse of Restricted Periods with respect to a portion or portions of
the Restricted Stock awarded, and for the lapse or termination of
restrictions upon all or any portion of the Restricted Stock upon the
satisfaction of other conditions in addition to or other than the
expiration of the applicable Restricted Period. The Committee may
also, in its sole discretion, shorten or terminate a Restricted Period
or waive any conditions for the lapse or termination of restrictions
with respect to all or any portion of the Restricted Stock.
9.2 Rights and Privileges. At the time a grant of Restricted Stock is made
to a Participant, a stock certificate representing a number of shares
of the Company's common stock equal to the number of shares of such
Restricted Stock shall be registered in the Participant's name but
shall be held in custody by the Company for such Participant's
account. The Participant shall generally have the rights and
privileges of a stockholder as to such Restricted Stock, including,
without limitation, the right to vote the Restricted Stock, except
that, subject to the earlier lapse or termination of restrictions as
herein provided, the following restrictions shall apply: (i) the
Participant shall not be entitled to delivery of the stock certificate
evidencing Restricted Stock until the expiration or
termination of the Restricted Period applicable to such shares and the
satisfaction of any other conditions prescribed by the Committee; (ii)
none of the shares then subject to a Restricted Period shall be sold,
transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period applicable to such shares and until the
satisfaction of any other conditions prescribed by the Committee; and
(iii) all of the shares then subject to a Restricted Period shall be
forfeited and all rights of the Participant to such Restricted Stock
shall terminate without further obligation on the part of the Company
if the Participant ceases to be an Employee, Consultant or Director of
the Company or any of its subsidiaries before the expiration or
termination of such Restricted Period and the satisfaction of any
other conditions prescribed by the Committee applicable to such
Restricted Stock. Dividends on Restricted Stock shall be currently
paid; provided, however, that in lieu of paying currently a dividend
of shares of Common Stock in respect of Restricted Stock, the
Committee may, in its sole discretion, register in the name of a
Participant a stock certificate representing such shares of Common
Stock issued as a dividend on Restricted Stock, and may cause the
Company to hold such certificate in custody for the Participant's
account subject to the same terms and conditions as such Restricted
Stock. Upon the forfeiture of any Restricted Stock, such forfeited
Restricted Stock shall be transferred to the Company without further
action by the Participant.
9.3 Expiration of Restricted Period. Upon the expiration or termination of
the Restricted Period applicable to Restricted Stock and the
satisfaction of any other conditions prescribed by the Committee or at
such earlier time as provided for herein, the restrictions applicable
to the Restricted Stock to such Restricted Period shall lapse and a
certificate for a number of shares of Common Stock equal to the number
of shares of Restricted Stock with respect to which the restrictions
have expired or terminated shall be delivered, free of all such
restrictions, except any that may be imposed by law, to the
Participant. The Company shall not be required to deliver any
fractional share of Common Stock but shall pay to the Participant, in
lieu thereof, the product of (i) the Fair Market Value per share
(determined as of the date the restrictions expire or terminate) and
(ii) the fraction of a share to which such Participant would otherwise
be entitled.
10. AWARD AND DELIVERY OF PURCHASE RIGHTS
10.1 Purchase Rights. At the time an award of Purchase Rights is made, the
Committee shall establish a period or periods of time during which the
Purchase Right may be exercised (each an "Exercise Period") or such
other restrictions as it shall deem appropriate and applicable to such
award. Each award of Purchase Rights may have a different Exercise
Period or Exercise Periods. Each award shall specify the method of
payment (which may include promissory notes) to purchase Stock and
shall set forth any repurchase rights or calls applicable to the
purchased Stock.
11. ANNUAL INCENTIVE AWARDS.
11.1 Annual Incentive Awards. The Committee may grant annual incentive
awards of Stock or cash (each an "Annual Incentive Award") to such
Participants as the Committee may from time to time recommend, in such
amounts and subject to such terms and conditions as the Committee in
its discretion may determine. The Committee shall establish the
maximum amount of Annual Incentive Awards that may be granted for each
Performance Cycle. Notwithstanding the foregoing, all Annual Incentive
Awards shall be subject to the provisions of paragraphs (a) through
(d) below:
(a) Annual Incentive Awards shall be granted in connection with a
12-month Performance Cycle, which shall be the fiscal year of the
Company. The first Performance Cycle under the Plan shall
commence on January 1, 2002.
(b) Subject to Section 4.1, the Committee shall determine the
Participants who shall be eligible to receive an Annual Incentive
Award for such Performance Cycle.
(c) The Committee shall fix and establish, in writing, (A) the
Performance Measure(s) that shall apply to such Performance
Cycle, (B) an objective formula for computing the amount
of the Annual Incentive Awards for such Performance Cycle, where
the amount shall be based upon the attainment of various
Performance Goals for the applicable Performance Measure(s).
(d) Annual Incentive Awards shall be paid in the form of cash, Stock
(including Restricted Stock) or any combination thereof, in the
discretion of the Committee. A portion of any payments made in
connection with an Annual Incentive Award may, at the election of
the Participant, be deferred pursuant to the provisions of the
Deferred Compensation Plan.
12. PERFORMANCE-BASED AWARDS.
12.1 Performance-Based Awards. The Committee may grant to officers and
other key Employees of either the Company or any Subsidiary the
prospective contingent right, expressed in Units, to receive payments
of Stock, cash or any combination thereof, with each Unit equivalent
in value to one share of Stock, or equivalent to such other value or
monetary amount as may be designated or established by the Committee
("Performance-Based Awards"). Performance-Based Awards shall be earned
by Participants only if specified Performance Goals are satisfied in
the applicable Performance Cycle. The Committee shall, in its sole
discretion, determine the officers and other key Employees eligible to
receive Performance-Based Awards. At the time each grant of a
Performance-Based Award is made, the Committee shall establish the
applicable Performance Cycle, the Performance Measure and Performance
Goals in respect of such Performance-Based Award. The number of shares
of Stock and/or the amount of cash earned and payable in settlement of
a Performance-Based Award shall be determined by the Committee at the
end of the Performance Cycle.
12.2 The Committee may grant Performance-Based Awards to a Participant in
such amounts as the Committee may determine, subject to the
limitations set forth in Section 4.1.
12.3 A certificate (an "Award Certificate") for each Performance-Based
Award shall provide that, in order for a Participant to earn all or a
portion of the Units subject to such Performance-Based Award, the
Company must achieve certain Performance Goals over a designated
Performance Cycle having a minimum duration of one year. The
Performance Goals and Performance Cycle shall be established by the
Committee in its sole discretion. The Committee shall establish a
Performance Measure for each Performance Cycle for determining the
portion of the Performance-Based Award, which will be earned or
forfeited, based on the extent to which the Performance Goals are
achieved or exceeded. Performance Goals may include minimum, maximum
and target levels of performance, with the size of the
Performance-Based Award based on the level attained. Once established
by the Committee and specified in the Award Certificate, and if and to
the extent provided in or required by the Award Certificate, the
Performance Goals and the Performance Measure in respect of any
Performance-Based Award shall not be changed. The Committee may, in
its discretion, eliminate or reduce (but not increase) the amount of
any Performance-Based Award that otherwise would be payable to a
Participant upon attainment of the Performance Goal(s) unless the
Participant has a vested right under applicable employment law to
receive the full Performance-Based Award.
12.4 Performance-Based Awards may be made on such terms and conditions not
inconsistent with the Plan, and in such form or forms, as the
Committee may from time to time approve. Performance-Based Awards may
be made alone, in addition to in tandem with, or independent of other
grants and awards under the Plan. Subject to the terms of the Plan,
the Committee shall, in its discretion, determine the number of Units
subject to each Performance Grant made to a Participant and the
Committee may impose different terms and conditions on any particular
Performance-Based Award made to any Participant. The Performance
Goals, the Performance Cycle and the Performance Measure applicable to
a Performance Grant shall be set forth in the relevant Award
Certificate.
12.5 Each Participant shall be entitled to receive payment in an amount
equal to the aggregate Fair Market Value (if the Unit is equivalent to
a share of Stock), or such other value as the Committee shall specify,
of the Units earned in respect of such Performance Award. Payment in
settlement of a Performance-Based Award may be made in Stock, in cash,
or in any combination of Stock and cash, and at such time or times, as
the Committee, in its discretion, shall determine. A portion of any
payments made in connection with a Performance-Based Award may, at the
election of the Participant, be deferred pursuant to the provisions of
the Deferred Compensation Plan.
13. DISCRETIONARY BONUS AWARDS.
13.1 Discretionary Bonus Awards. The Committee may grant discretionary
bonus awards of Stock or cash (each a "Discretionary Bonus Award") to
officers and other key Employees of either the Company or any
Subsidiary, in such amounts and subject to such terms and conditions
as the Committee in its discretion may determine.
13.2 The Committee may grant Discretionary Bonus Awards to eligible
Participants in such amounts as the Committee may determine, subject
to the limitations set forth in Section 4.1.
(a) 13.3 Discretionary Bonus Awards shall be paid in the form of cash,
Stock (including Restricted Stock) or any combination thereof, in the
discretion of the Committee. A portion of any payments made in
connection with a Discretionary Bonus Award may, at the election of
the Participant, be deferred pursuant to the provisions of the
Deferred Compensation Plan.
14. CHANGE IN CONTROL.
14.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred if
any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company; (ii)
a merger or consolidation in which the Company is a party; (iii)
the sale, exchange, or transfer of all or substantially all of
the assets of the Company; or (iv) a liquidation or dissolution
of the Company.
(b) A "Change in Control" shall mean (i) a merger or consolidation of
the Company with or into another corporation in which the Company
shall not be the surviving corporation (other than a merger
undertaken solely in order to reincorporate in another state)
(for purposes hereof, the Company shall not be deemed the
surviving corporation in any such transaction if, as the result
thereof, it becomes a wholly-owned subsidiary of another
corporation), (ii) a dissolution of the Company, (iii) a transfer
of all or substantially all of the assets of the Company in one
transaction or a series of related transactions to one or more
other persons or entities, (iv) a transaction or series of
transactions that results in any entity, "Person" or "Group" (as
defined below), becoming the beneficial owner, directly or
indirectly, of securities of the Company representing more than
50% of the combined voting power of the Company's then
outstanding securities, or (v) during any period of two (2)
consecutive years commencing on or after January 1, 2002,
individuals who at the beginning of the period constituted the
Company's Board of Directors cease for any reason to constitute
at least a majority, unless the election of each director who was
not a director at the beginning of the period has been approved
in advance by directors representing at least two-thirds (2/3) of
the directors then in office who were directors at the beginning
of the period; provided, however, that a "Change in Control"
shall not be deemed to have occurred if the ownership of 50% or
more of the combined voting power of the surviving corporation,
asset transferee or Company (as the case may be), after giving
effect to the transaction or series of transactions, is directly
or indirectly held by (A) a trustee or other fiduciary under an
employee benefit plan maintained by the Company, (B) one or more
of the "executive
officers" of the Company that held such positions prior to the
transaction or series of transactions, or any entity, Person or
Group under their control. As used herein, "Person" and "Group"
shall have the meanings set forth in Sections 13(d)(3) and/or
14(d)(2) of the Securities Exchange Act of 1934, as amended, and
"executive officer" shall have the meaning set forth in Rule 3b-7
promulgated under such Act.
14.2 Effect of Change in Control on Awards. In the event of a Change
in Control, the surviving, continuing, successor, or purchasing
corporation or Parent thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and
obligations under outstanding Awards or substitute for
outstanding Awards substantially equivalent awards, including
awards for the Acquiring Corporation's stock, if applicable. For
purposes of this Section 14.2, an Award shall be deemed assumed
if, following the Change in Control, the Award confers the right
to purchase in accordance with its terms and conditions, for each
share of Stock subject to the Award immediately prior to the
Change in Control, the consideration (whether stock, cash or
other securities or property) to which a holder of a share of
Stock on the effective date of the Change in Control was
entitled. In the event the Acquiring Corporation elects not to
assume or substitute for outstanding Awards in connection with a
Change in Control, the exercisability and vesting of each
outstanding Award shall be accelerated for 12 months as of the
date ten (10) days prior to the date of the Change in Control,
provided that the Participant's Service has not terminated prior
to such date. The exercise or vesting of any Award that was
permissible solely by reason of this Section 14.2 shall be
conditioned upon the consummation of the Change in Control. Any
Award which is neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control
nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of
the Change in Control. Notwithstanding the foregoing, shares
acquired upon exercise of an Award prior to the Change in Control
and any consideration received pursuant to the Change in Control
with respect to such shares shall continue to be subject to all
applicable provisions of the applicable Option Agreement, Award
Certificate or Stock Purchase Agreement, except as otherwise
provided therein. Furthermore, notwithstanding the foregoing, if
the Change in Control results from an Ownership Change Event
described in Section 14.1(a)(i) and the Company is the surviving
or continuing corporation and immediately after such Change in
Control less than fifty percent (50%) of the total combined
voting power of its voting stock is held by another corporation
or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard
to the provisions of Section 1504(b) of the Code, the outstanding
Awards shall not terminate unless the Board otherwise provides in
its discretion.
15. PROVISION OF INFORMATION.
Each Participant shall be given access to information concerning the
Company equivalent to that information generally made available to the Company's
common stockholders.
16. COMPLIANCE WITH SECURITIES LAW.
16.1 The grant of an Award and the issuance of shares of Stock upon
exercise of an Award, if applicable, shall be subject to compliance
with all applicable requirements of federal, state and foreign law
with respect to such securities. An Award may not be exercised for
shares of Stock if the issuance of such shares would constitute a
violation of any applicable federal, state or foreign securities laws
or other law or regulations or the requirements of any stock exchange
or market system upon which the Stock may then be listed. In addition,
no Award may be exercised for shares of Stock unless (a) a
registration statement under the Securities Act shall at the time of
exercise of the Award be in effect with respect to the shares of Stock
issuable upon exercise of the Award or (b) in the opinion of legal
counsel to the Company, the shares of Stock issuable upon exercise of
the Award may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares
of Stock hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares of Stock as to
which such requisite
authority shall not have been obtained. As a condition to the
exercise of any Award, the Company may require the Participant to
satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and
to make any representation or warranty with respect thereto as
may be requested by the Company.
17. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However, subject to
changes in applicable law, regulations or rules that would permit otherwise,
without the approval of the Company's stockholders, there shall be (a) no
increase in the maximum aggregate number of shares of Stock that may be issued
under the Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the Company's
stockholders under any applicable law, regulation or rule. No termination or
amendment of the Plan shall affect any then outstanding Award unless expressly
provided by the Board. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Award without the consent of the
Participant, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
18. STOCKHOLDER APPROVAL.
Both the Plan and any increase in the maximum aggregate number of shares of
Stock issuable thereunder as provided in Section 4.1 (the "Authorized Shares")
shall be approved by the stockholders of the Company within twelve (12) months
of the date of adoption thereof by the Board. Awards granted prior to
stockholder approval of the Plan or in excess of the Authorized Shares
previously approved by the stockholders shall become exercisable no earlier than
the date of stockholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.
PLAN HISTORY
February 1, 2002 Board adopts Plan, with an initial reserve of 948.35
shares.
February 8, 2002 Stockholders approve Plan, with an initial reserve of
948.35 shares.
May 21, 2002 Board adopts amended Plan, with a reserve of 948,100
shares.
May 24, 2002 Stockholders approve amended Plan, with a reserve of
948,100 shares.
July 1, 2002 Board adopts amended Plan effective as of the indicated
date, including discretionary bonus awards
WESTWOOD HOLDINGS GROUP, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING TO BE HELD ON APRIL 24, 2003
The undersigned hereby appoints Susan M. Byrne or Brian O. Casey, and each of
them, jointly and severally, as the undersigned's proxy or proxies, with full
power of substitution, to vote all shares of common stock of Westwood Holdings
Group, Inc. which the undersigned is entitled to vote at the annual meeting of
the common stockholders to be held at The Crescent Club, 200 Crescent Court,
Suite 1700, Dallas, Texas 75201 on Thursday, April 24, 2003, at 10:00 a.m.,
Dallas, Texas time, and any postponements or adjournments thereof, as fully as
the undersigned could if personally present, upon the Proposals set forth below,
revoking any proxy or proxies heretofore given.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE BELOW, BUT
IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL THE NOMINEES IN
PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4 AND IN THE DISCRETION OF THE PROXY
HOLDER WITH RESPECT TO ANY OTHER MATTER AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
(Continued, and to be marked, dated and signed, on the other side.)
.FOLD AND DETACH HERE.
The board of directors recommend a vote FOR Proposals Please mark your
1, 2, 3 and 4 votes as indicated
in this example. [X]
1. The election of the following five directors to hold office until the next
annual meeting of Westwood's stockholders and until their respective
successors shall have been duly elected and qualified.
[_] FOR ALL NOMINEES (except for the names struck out below) [_] WITHHOLD
AUTHORITY FOR ALL NOMINEES
(Susan M. Byrne, Brian O. Casey, Frederick R. Meyer, Jon L. Mosle, Jr. and
Raymond E. Wooldridge)
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through that nominee's name above.
2. The approval of Westwood's Stock Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. The approval of the material terms of the annual incentive award for the
chief executive officer, effective January 1, 2003.
[_] FOR [_] AGAINST [_] ABSTAIN
4. The ratification of Deloitte & Touche LLP as Westwood's independent auditors
for the year ending December 31, 2003.
[_] FOR [_] AGAINST [_] ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY POSTPONEMENTS
OR ADJOURNMENTS THEREOF.
Date /
---------------------
_____________________________
Signature
_____________________________
Signature, If Jointly Held
If acting as Attorney, Executor,
Trustee, or in other representative
capacity, please sign name and title.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE