HWG Hallwood Grp. Incorporated

NOTICE OF SPECIAL MEETING

OF

STOCKHOLDERS

THE HALLWOOD GROUP INCORPORATED

3710 Rawlins, Suite 1500

Dallas, Texas 75219

Telephone: (214) 528-5588

[                    ], 2014

To the Stockholders of The Hallwood Group Incorporated:

You are cordially invited to attend a special meeting of the stockholders of The Hallwood Group Incorporated, a Delaware corporation (the “Company,” “we” or “us”), which we will hold at 3710 Rawlins, Suite 1500, Dallas, Texas 75219 on April    , 2014, at [                    ], Central Time.

At the special meeting, holders of our common stock, par value $0.10 per share (“Common Stock”), will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of June 4, 2013, by and among the Company, Hallwood Financial Limited, a corporation organized under the laws of the British Virgin Islands (“Parent”), and HFL Merger Corporation, a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), as amended by that certain Amendment to Agreement and Plan of Merger, dated as of July 11, 2013, and as further amended by that certain Second Amendment to Agreement and Plan of Merger, dated as of February 7, 2014 (as it may be further amended from time to time, the “Merger Agreement”), a copy of which is attached as Annex A to the accompanying proxy statement. Parent is controlled by Anthony J. Gumbiner, Chairman and Chief Executive Officer of the Company, and members of his family, and Parent currently owns 1,001,575 shares, or 65.7%, of the issued and outstanding shares of Common Stock.

Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”), and each share of Common Stock outstanding immediately prior to the effective time of the Merger (other than certain excluded and dissenting shares of Common Stock) will be cancelled and converted into the right to receive $12.39 in cash, without interest (the “Merger Consideration”), based on the Settlement (as defined below), approved by the Delaware Court of Chancery (the “Court”) by a Final Order and Judgment entered on March 28, 2014, relating to the purported class and, in the alternative, derivative action filed by Gary L. Sample against the Company and other defendants, asserting, among other things, that the original Merger Consideration was unfair and did not reflect the true value of the Company and all of its assets (the “Sample Litigation”). The Sample Litigation is more fully described in the accompanying proxy statement under the section entitled “ Special Factors—Litigation. ” The following excluded and dissenting shares of Common Stock will not be entitled to the Merger Consideration: (i) shares held by Parent, Merger Sub, the Company or any wholly owned subsidiary of the Company or held in the Company’s treasury and (ii) shares outstanding immediately prior to the effective time of the Merger held by a stockholder who has neither voted in favor of the Merger nor consented thereto in writing and who has demanded properly in writing appraisal for such shares and otherwise properly perfected and not withdrawn or lost the right to an appraisal of such dissenting shares pursuant to Section 262 of the General Corporation Law of the State of Delaware.

The board of directors of the Company (the “Board”) formed a special committee (the “Special Committee”), consisting of three independent directors of the Company, to evaluate the Merger and other alternatives available to the Company. The Special Committee unanimously determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of the Company and its stockholders (other than the persons and entities associated with Mr. Gumbiner), and unanimously recommended that the Board approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, and that the Company’s stockholders vote for the adoption of the Merger Agreement.

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Based in part on that recommendation, the Board (other than Mr. Gumbiner, who did not participate due to his interest in the Merger) unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of the Company and its stockholders (other than the persons and entities associated with Mr. Gumbiner), (ii) approved and declared advisable the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger and (iii) resolved to recommend that the Company’s stockholders vote for the adoption of the Merger Agreement. Accordingly, the Board (without Mr. Gumbiner’s participation) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the Merger Agreement.

As of June 4, 2013 and March 20, 2014, Hallwood Trust and Mr. Gumbiner beneficially owned through Parent, in the aggregate, 1,001,575 shares of Common Stock, or approximately 65.7% of the total number of outstanding shares of Common Stock.

We urge you to read the accompanying proxy statement in its entirety, including annexes and the documents referred to in, or incorporated by reference into, the proxy statement, because it describes the Merger Agreement and the Merger and provides specific information concerning the special meeting and other important information related to the Merger. In addition, you may obtain information about us from documents filed with the U.S. Securities and Exchange Commission (“SEC”).

Your vote is very important, regardless of the number of shares of Common Stock you own. The closing of the Merger is subject to a non-waivable condition that the Merger Agreement be adopted by (i) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote on the adoption of the Merger Agreement, voting together as a single class, and (ii) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting together as a single class, excluding all shares of Common Stock owned by Parent, Merger Sub, Mr. Gumbiner or any of their respective affiliates (other than the Company and its subsidiaries), or by any director, officer or other employee of the Company or any of its subsidiaries.

While stockholders may exercise their right to vote their shares in person, we recognize that many stockholders may not be able to, or do not desire to, attend the special meeting. Accordingly, we have enclosed a proxy that will enable your shares to be voted on the matters to be considered at the special meeting even if you are unable or do not desire to attend. If you desire your shares to be voted in accordance with the Board’s recommendation, you need only sign, date and return the proxy in the enclosed postage-paid envelope. Otherwise, please mark the proxy to indicate your voting instructions; date and sign the proxy; and return it in the enclosed postage-paid envelope. You also may submit a proxy by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

Submitting a proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy and thus ensure that your shares will be represented at the special meeting if you are unable to attend.

Sincerely,

Charles A. Crocco, Jr.

Chairman of the Special Committee and Audit Committee

Neither the SEC nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in the accompanying proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated [                    ], 2014 and is first being mailed to stockholders on or about [                    ], 2014.

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THE HALLWOOD GROUP INCORPORATED

3710 Rawlins, Suite 1500

Dallas, Texas 75219

Telephone: (214) 528-5588

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Stockholders of The Hallwood Group Incorporated:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of The Hallwood Group Incorporated, a Delaware corporation (the “Company,” “we” or “us”), will be held at 3710 Rawlins, Suite 1500, Dallas, Texas 75219 on April , 2014, at [                    ], Central Time, for the following purposes:

The holders of record of our common stock, par value $0.10 per share (“Common Stock”), at the close of business on March 20, 2014, are entitled to notice of and to vote at the special meeting or at any adjournment or postponement thereof. All stockholders of record are cordially invited to attend the special meeting in person.

Your vote is important, regardless of the number of shares of Common Stock you own . The closing of the Merger is subject to a non-waivable condition that the Merger Agreement be adopted by (i) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote on the adoption of the Merger Agreement, voting together as a single class, and (ii) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting together as a single class, excluding all shares of Common Stock owned by Parent, Merger Sub, Mr. Gumbiner or any of their respective affiliates (other than the Company and its subsidiaries), or by any director, officer or other employee of the Company or any of its subsidiaries. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy and thus ensure that your shares will be represented at the special meeting if you are unable to attend. You also may submit your proxy by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

If you sign, date, and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to adopt the Merger Agreement and in favor of the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies. If you fail to vote or submit your proxy, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the proposal to adopt the Merger Agreement. Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement. If you are a stockholder of record, attend the special meeting and wish to vote in person, you may revoke your proxy and vote in person.

BY ORDER OF THE BOARD OF DIRECTORS

Richard Kelley

Corporate Secretary

Dated [                    ], 2014

Dallas, Texas

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SUMMARY TERM SHEET

This summary term sheet discusses material information contained in this proxy statement, including with respect to the Merger Agreement (as defined below) and the Merger (as defined below). We encourage you to read carefully this entire proxy statement, including its annexes and the documents referred to in, or incorporated by reference into, this proxy statement, as this summary term sheet may not contain all of the information that may be important to you. The items in this summary term sheet include page references directing you to a more complete description of the applicable topic in this proxy statement.

The Parties to the Merger (page 63)

The Hallwood Group Incorporated

The Hallwood Group Incorporated (the “Company,” “we” “us”) is a Delaware corporation. Founded in September 1981, the Company operates its principal business in the textile products industry through its wholly owned subsidiary, Brookwood Companies Incorporated (“Brookwood”). Brookwood is an integrated textile firm that develops and produces innovative fabrics and related products through specialized finishing, treating and coating processes. For more information, see the sections entitled “ Important Information Regarding the Company ” beginning on page 81 and “ The Parties to the Merger—The Company ” on page 63.

Additional information about the Company is contained in its public filings, which are incorporated by reference into this proxy statement. See the section entitled “ Where You Can Find Additional Information” on page 95.

Parent and Merger Sub

Hallwood Financial Limited (“Parent”) is a corporation organized under the laws of the British Virgin Islands. HFL Merger Corporation (“Merger Sub”) is a Delaware corporation and wholly owned subsidiary of Parent. Parent is controlled by Anthony J. Gumbiner, Chairman and Chief Executive Officer of the Company, and members of his family, and Parent currently owns 1,001,575 shares, or 65.7%, of the issued and outstanding shares of common stock, par value $0.10 per share, of the Company (“Common Stock”). Merger Sub was formed solely for the purpose of engaging in the Merger (as defined below) and other related transactions. Merger Sub has not engaged in any business other than in connection with the Merger (as defined below) and other related transactions. For more information, see the section entitled “ The Parties to the Merger—Parent and Merger Sub ” on page 63.

The Purpose of the Special Meeting (page 64 )

You will be asked to consider and vote on the proposal to adopt the Agreement and Plan of Merger, dated as of June 4, 2013, by and among Parent, Merger Sub and the Company, as amended by that certain Amendment to Agreement and Plan of Merger, dated as July 11, 2013, as further amended by that certain Second Amendment to Agreement and Plan of Merger, dated as of February 7, 2014 (as it may be further amended from time to time, the “Merger Agreement”). The Merger Agreement provides that Merger Sub will be merged with and into the Company (the “Merger”), at the effective time of the Merger (the “Effective Time”), whereupon the separate corporate existence of Merger Sub will cease, and the Company will continue as the surviving company in the Merger (the “Surviving Corporation”) and a wholly owned subsidiary of Parent. At the Effective Time, each share of Common Stock outstanding immediately prior to the Effective Time (other than shares held by Parent, Merger Sub, the Company or any wholly owned subsidiary of the Company or held in the Company’s treasury (such shares, “Excluded Shares”)) and shares outstanding immediately prior to the Effective Time held by any stockholder who has neither voted in favor of the Merger nor consented thereto in writing and who has demanded properly in writing appraisal for such shares or otherwise properly perfected and not withdrawn or lost his or her rights of appraisal under the General Corporation Law of the State of Delaware (the “DGCL”) (such shares, “Dissenting Shares”), will be converted into the right to receive $12.39 in cash, without interest (the “Merger Consideration”), pursuant to the Settlement (as defined below) approved by the Court by a Final Order and

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Judgment entered on March 28, 2014, relating to the purported class and, in the alternative, derivative action filed by Gary L. Sample against the Company and other defendants, asserting, among other things, that the original Merger Consideration was unfair and did not reflect the true value of the Company and all of its assets (the “Sample Litigation”), whereupon all such shares will be automatically cancelled upon the conversion thereof and will cease to exist, and the holders of such shares will cease to have any rights with respect thereto other than the right to receive the Merger Consideration. Excluded Shares will not be entitled to receive the Merger Consideration. The Sample Litigation is more fully described under the section entitled “ Special Factors—Litigation. ” Parent will be entitled to deduct and withhold from the Merger Consideration otherwise payable any amounts that are required to be withheld or deducted under the Internal Revenue Code of 1986, as amended (the “Code”), or any provision of U.S., state, local or foreign tax laws. To the extent that amounts are withheld or deducted, those withheld or deducted amounts will be treated for all purposes as having been paid to the holder of the shares of Common Stock in respect of which such deduction and withholding were made.

Deregistration of the Company’s Common Stock (page 46)

Following, and as a consequence of, the Merger, the Company will become a privately held company and a wholly owned subsidiary of Parent. Shares of our Common Stock will no longer be listed and publicly traded and will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Market Price of the Company’s Common Stock (page 46)

Shares of Common Stock are traded on the NYSE MKT under the ticker symbol “HWG”. The closing price of our Common Stock on the NYSE MKT on June 4, 2013, the last trading day prior to our public announcement of the Merger Agreement on June 5, 2013, was $8.05 per share. On February 7, 2014, the last trading day prior to our public announcement of the Second Amendment to Agreement and Plan of Merger, dated as of February 7, 2014, by and among Parent, Merger Sub and the Company (the “Second Amendment”) and the increase in Merger Consideration, the closing price of our Common Stock was $9.73. On March 28, 2014, the closing price of our Common Stock on the NYSE MKT was $12.37 per share. The Company has not paid any cash dividends on its Common Stock since 2008. You are encouraged to obtain current market quotations for our Common Stock.

The Special Meeting (page 64)

The special meeting of stockholders will be held at 3710 Rawlins, Suite 1500, Dallas, Texas 75219, on April     , 2014 at [            ], Central Time.

Record Date and Quorum

The holders of record of Common Stock as of the close of business on March 20, 2014, the record date for determination of stockholders entitled to notice of and to vote at the special meeting (the “Record Date”), are entitled to receive notice of and to vote at the special meeting.

The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Common Stock entitled to vote on the Record Date will constitute a quorum, permitting the Company to conduct its business at the special meeting. Given Parent’s ownership of 65.7% of the issued and outstanding shares of Common Stock, Parent’s attendance at the special meeting will, by itself, constitute a quorum.

The Proposals

At the special meeting, you will be asked to (i) consider and vote on a proposal to adopt the Merger Agreement, (ii) approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the Merger Agreement and (iii) act upon other business as may properly come before the special meeting or any adjournment or postponement thereof by or at the direction of the Board.

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Required Vote

For the Company to consummate the Merger, under the DGCL, stockholders holding at least a majority of the shares of Common Stock outstanding and entitled to vote at the close of business on the Record Date must vote “ FOR ” the proposal to adopt the Merger Agreement. In addition, the Merger Agreement provides that the closing of the Merger (the “Closing”) is subject to a non-waivable condition that the Merger Agreement be adopted by (i) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote on the adoption of the Merger Agreement, voting together as a single class, and (ii) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting together as a single class, excluding all shares of Common Stock owned by Parent, Merger Sub, Mr. Gumbiner or any of their respective affiliates (other than the Company and its subsidiaries), or by any director, officer or other employee of the Company or any of its subsidiaries. See “ The Special Meeting—Required Vote ” on page 65.

Voting; Proxies; Revocation (page 66)

Attendance

All holders of shares of Common Stock as of the close of business on the Record Date including stockholders of record and beneficial owners of Common Stock registered in the “street name” of a bank, broker or other nominee, are invited to attend the special meeting. If you wish to attend the special meeting and are a stockholder of record, please be prepared to provide proper identification, such as a driver’s license. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other nominee, along with proper identification.

Voting in Person

Stockholders of record will be able to vote in person at the special meeting. If you are not a stockholder of record, but instead hold your shares in “street name” through a bank, broker or other nominee, you must provide a proxy executed in your favor from your bank, broker or other nominee in order to be able to vote in person at the special meeting.

Providing Voting Instructions by Proxy

To ensure that your shares are represented at the special meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the special meeting in person.

If you are a stockholder of record, you may provide voting instructions by proxy by completing, signing, dating and returning the enclosed proxy card. You may alternatively follow the instructions on the enclosed proxy card for Internet or telephone submissions.

For more information, see the section entitled “ The Special Meeting—Voting; Proxies; Revocation ” beginning on page 66.

Revocation of Proxies (page 67)

Your proxy is revocable. If you are a stockholder of record, you may revoke your proxy at any time before the vote is taken at the special meeting by:

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Attending the special meeting in person without taking one of the actions described above will not in itself revoke a previously submitted proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to the Company or by sending a written notice of revocation to the Company, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by the Company before the day of the special meeting.

If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee in order to revoke your proxy or submit new voting instructions.

Abstentions (page 67)

Abstentions will be included in the calculation of the number of shares of Common Stock represented at the special meeting for purposes of determining whether a quorum has been achieved. Abstaining from voting will have the same effect as a vote “ AGAINST ” the proposal to adopt the Merger Agreement and “ AGAINST ” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the Merger Agreement.

Appraisal Rights (pages 67, 88, and Annex C)

Pursuant to Section 262 of the DGCL (“Section 262”), stockholders who do not vote in favor of the Merger and who comply with the applicable requirements of Section 262 and do not withdraw or otherwise lose the rights to an appraisal are entitled to statutory appraisal rights under Delaware law in connection with the Merger. This means that if you comply precisely with the requirements of Section 262, you are entitled to seek appraisal of the “fair value” of your shares of Common Stock determined by the Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the Merger Consideration. If you validly exercise (and do not withdraw or lose) appraisal rights, the ultimate amount you may be entitled receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement. To exercise your appraisal rights, (i) you must submit a written demand for appraisal to us before the vote is taken on the Merger Agreement, (ii) you must NOT vote in favor of the proposal to adopt the Merger Agreement and (iii) you must otherwise comply with the requirements of Section 262. Your failure to follow precisely the procedures specified under Delaware law could result in the loss of your appraisal rights. See the section entitled “ Rights of Appraisal ” beginning on page 88 and the text of the Delaware appraisal rights statute, Section 262, which is reproduced in its entirety as Annex C to this proxy statement. Assuming you have otherwise complied with the requirements of Section 262, your right to seek appraisal under Section 262 is not released under the Settlement (as defined below), but you may not claim value related to or arising from the derivative claims that are released, settled, and dismissed with prejudice as a result of the court’s entry of the March 28, 2014 Final Order and Judgment approving the Settlement.

Adjournments and Postponements (page 68)

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. In the event that there is present, in person or by proxy, sufficient favorable voting power to secure the vote of the stockholders of the Company necessary to approve the proposal to adopt the Merger Agreement, the Company does not anticipate that it will adjourn or postpone the special meeting unless it is advised by counsel that such adjournment or postponement is necessary under applicable law to allow additional time for any disclosure. Any signed proxies received by the Company in which no voting instructions are provided on such matter will be voted in favor of an adjournment in these circumstances. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice need be given, unless the adjournment is for more than 30 days. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

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Structure of the Merger (page 69)

Upon and subject to the terms of the Merger Agreement and in accordance with DGCL, at the Effective Time, Merger Sub will merge with and into the Company, whereupon the separate corporate existence of Merger Sub will cease, and the Company will continue as the Surviving Corporation in the Merger and a wholly owned subsidiary of Parent.

Merger Consideration (page 54)

As a consequence of the Merger, each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than Excluded Shares and any Dissenting Shares) will be converted automatically into and will thereafter represent the right to receive the Merger Consideration. All Shares (other than Excluded Shares and any Dissenting Shares) will, upon conversion, cease to be outstanding and will automatically be cancelled and will cease to exist, and each holder of (i) a certificate that immediately prior to the Effective Time represented such shares or (ii) uncertificated shares represented by book-entry that immediately prior to the Effective Time represented such shares will cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest, upon surrender of such certificate or book-entry shares in accordance with the Merger Agreement.

Payment Procedures and Exchange of Certificates (page 70)

At or prior to the Effective Time, Parent will deposit, or will cause to be deposited, with a U.S. bank or trust company that will be appointed by Parent (that is reasonably acceptable to the Company) to act as paying agent under the Merger Agreement (the “Paying Agent”), in trust for the benefit of the holders of our Common Stock, sufficient cash to pay to the holders of our Common Stock (other than the holders of the Excluded Shares and Dissenting Shares) the Merger Consideration. In the event any Dissenting Shares cease to be Dissenting Shares, Parent will deposit, or will cause to be deposited, with the Paying Agent sufficient cash to pay to the holders of such Common Stock the Merger Consideration of $12.39 per share, without interest, pursuant to the Settlement (as defined below) approved by the Court by a Final Order and Judgment entered on March 28, 2014, relating to the Sample Litigation. The Sample Litigation is more fully described under the section entitled “ Special Factors—Litigation. ”

As soon as reasonably practicable after the Effective Time and in any event no later than the fifth business day following the Effective Time, the Paying Agent will mail to each record holder of shares of Common Stock that were converted into the Merger Consideration a letter of transmittal and instructions for use in effecting the surrender of certificates that formerly represented shares of the Common Stock or non-certificated shares represented by book-entry in exchange for the Merger Consideration. For more information regarding the exchange of certificates, see the section entitled “ The Merger Agreement—Payment Procedures and Exchange of Certificates ” beginning on page 70.

Conditions to the Merger (page 77)

The obligations of each of the Company, Parent and Merger Sub to consummate the Merger are subject to several conditions. For a more detailed discussion of these conditions, see the section entitled “ The Merger Agreement—Conditions to the Merger ” beginning on page 77.

When the Merger Becomes Effective (page 70)

The Merger will become effective when the Company files a certificate of merger with the Secretary of State of the State of Delaware or at such later date or time as Parent and the Company may agree in writing and specify in the certificate of merger in accordance with the DGCL.

The Closing will take place on a date which will be no later than the fifth business day after the satisfaction or waiver (to the extent permitted by applicable law) of the closing conditions stated in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions) or at such other time and date as the Company and Parent may agree in writing.

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The Company currently expects the Closing to occur soon after the special meeting. The Company, however, can provide no assurance that the Closing will occur by any particular date, if at all. Because the Closing is subject to a number of conditions, the exact timing of the Closing cannot be determined at this time.

Reasons for the Merger; Fairness of the Merger; Recommendations of the Special Committee and the Board (page 28)

The Board, acting upon the unanimous recommendation of a special committee of the Board consisting of three independent directors of the Company (the “Special Committee”), determined that the Merger was substantively and procedurally fair to minority and unaffiliated stockholders, and was advisable and in the best interests of the Company and its minority and unaffiliated stockholders. The Board (without Mr. Gumbiner’s participation) unanimously recommended that the stockholders of the Company vote “ FOR ” the proposal to adopt the Merger Agreement. For a description of the reasons considered by the Special Committee and the Board in deciding to recommend approval of the proposal to adopt the Merger Agreement, see the section entitled “ Special Factors—Background of the Merger—Reasons for the Merger; Fairness of the Merger; Recommendations of the Special Committee and the Board ” beginning on page 28.

Opinion of Southwest Securities (page 33 and Annex B)

The Special Committee retained Southwest Securities, Inc. (“Southwest Securities”) to act as its independent financial advisor in connection with the proposed Merger. At the Special Committee meeting held on June 4, 2013, Southwest Securities rendered its oral opinion, and subsequently confirmed in writing, that as of June 4, 2013, and based upon and subject to the factors and assumptions set forth therein, the consideration to be paid to the holders of Common Stock (other than Excluded Shares and Dissenting Shares) in the proposed Merger was fair, from a financial point of view, to such stockholders.

The full text of the written opinion of Southwest Securities, dated June 4, 2013, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limits on the review undertaken by Southwest Securities in rendering its opinion. You are urged to read the opinion carefully and in its entirety. Southwest Securities’ written opinion that was provided to the Special Committee and the Board, is directed only to the fairness from a financial point of view of the Merger Consideration originally agreed to be paid in the proposed Merger and it does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the Merger or any other matter, nor does Southwest Securities intend to update its opinion or further opine on any matters related hereto. For a further discussion of Southwest Securities’ opinion, see the section entitled “ Special Factors—Background of the Merger—Opinion of Southwest Securities ” beginning on page 33 and Annex B to this proxy statement.

Purposes and Reasons of the Company for the Merger (page 28)

The Company’s purpose for engaging in the Merger is to enable its minority and unaffiliated stockholders to receive the Merger Consideration. The original Merger Consideration of $10.00 per share, without interest, represented a premium of approximately 78.3% above the closing price of our Common Stock on November 8, 2012, the last trading day prior to the Company’s public announcement of the proposal received from Parent. The increased Merger Consideration of $12.39 per share represents a premium of at least 120% above the closing price of our Common Stock on November 8, 2012. For more information on the Company’s purposes and reasons for engaging in the Merger, see the section entitled “ Special Factors—Background of the Merger—Reasons for the Merger; Fairness of the Merger; Recommendations of the Special Committee and the Board ” beginning on page 28.

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Certain Effects of the Merger (page 46)

If the conditions to the Closing are either satisfied or, to the extent permitted, waived, Merger Sub will be merged with and into the Company with the Company surviving the Merger as a wholly owned subsidiary of Parent. Upon the Closing, shares of Common Stock (other than Excluded Shares and Dissenting Shares) will be converted into the right to receive the Merger Consideration, all such shares will be automatically cancelled upon the conversion thereof and will cease to exist, and the holders of such shares will cease to have any rights with respect thereto other than the right to receive the Merger Consideration. Following the Closing, Common Stock will no longer be publicly traded, and current stockholders (other than Parent and its affiliates) will cease to have any ownership interest in the Company. For more information, see the section entitled “ Special Factors—Certain Effects of the Merger ” beginning on page 46.

Interests of the Company’s Directors and Executive Officers in the Merger (page 54)

As of June 4, 2013, Hallwood Trust and Mr. Gumbiner, a director and the chief executive officer of the Company, beneficially owned through Parent 1,001,575 shares of Common Stock, in the aggregate, or approximately 65.7% of the total number of outstanding shares of Common Stock. Common Stock beneficially owned by Hallwood Trust and Mr. Gumbiner will be cancelled in the Merger without consideration, and the outstanding shares of Merger Sub will be converted into, and constitute the only outstanding shares, of the Surviving Corporation, with the result that Parent will be the sole stockholder of the Surviving Corporation after the Effective Time, as discussed in the section entitled “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” beginning on page 54. Mr. Charles A. Crocco, Jr., a director of the Company and Chairman of the Special Committee, owned 9,996 shares of Common Stock, or approximately 0.7% of the total number of outstanding shares of Common Stock, as of March 20, 2014. The Special Committee and the Board were aware of the different or additional interests set forth herein and considered such interests along with other matters in approving the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommending that the Company’s stockholders vote to adopt the Merger Agreement.

Financing the Merger (page 53)

Parent will satisfy the funding required for the Merger from the working capital and personal funds of Parent and its affiliates. For more information, see the section entitled “ Special Factors—Financing the Merger ” beginning on page 53.

Material U. S. Federal Income Tax Consequences of the Merger (page 55)

If you are a U.S. holder, the receipt of cash in exchange for shares of Common Stock pursuant to the Merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of Common Stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws). For more information, see the section entitled “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 55.

Regulatory Approvals (page 57)

The Company does not believe that the filing of notification and report forms under the Hart-Scott-Rodino Act will be necessary to complete the Merger. However, at any time before or after the Merger, the U.S. Department of Justice, the Federal Trade Commission, a state attorney general or a foreign competition authority could take such action under antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Merger or seeking divestiture of substantial assets of the Company or Merger Sub or their respective subsidiaries. Private parties may also bring legal actions under the antitrust laws under certain circumstances. Notwithstanding the fact that no such filings are required, there can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if a challenge is made, of the result of such challenge.

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Litigation (page 58)

On August 23, 2013, a complaint was filed in the Delaware Court of Chancery (the “Court”) captioned Sample v. Gumbiner et al., Civil Action No. 8833-VCN. The action named as defendants the directors of the Company, and also named as defendants Parent and Merger Sub. The Company was also named as a defendant, or in the alternative, as a nominal defendant. The plaintiff and defendants entered into a Stipulation of Settlement (the “Stipulation”) relating to the Sample Litigation. The settlement set forth in the Stipulation (the “Settlement”) was approved by the Court by a Final Order and Judgment entered on March 28, 2014. For more information, see the section entitled “ Special Factors—Litigation ” beginning on page 47.

No Solicitation (page 75)

Until the Effective Time, the Company, its subsidiaries and their respective representatives are subject to customary “no shop” restrictions on their ability to initiate, solicit, knowingly encourage (including by providing information) or knowingly facilitate any inquiries, proposals or offers with respect to, or the making or completion of, an Alternative Proposal (as defined below). However, if following the date of the Merger Agreement and prior to the Company obtaining the required stockholder approvals, (i) the Company receives an unsolicited written Alternative Proposal, (ii) the Company has not breached the “no shop” provision, (iii) the Board (acting through the Special Committee, if then in existence) determines, in good faith, after consultation with its outside counsel and financial advisors, that such Alternative Proposal constitutes or is reasonably likely to result in a Superior Proposal (as defined below) and (iv) after consultation with its outside counsel, the Board of Directors (acting through the Special Committee, if then in existence) determines in good faith that failure to take such action could reasonably be expected to be inconsistent with its fiduciary duties under applicable law, then the Company may (A) furnish information with respect to the Company and its subsidiaries to the person making such Alternative Proposal and its representatives pursuant to a customary confidentiality agreement with a standstill provision and (B) participate in discussions or negotiations with such person and its representatives regarding such Alternative Proposal. As used in the Merger Agreement, “Alternative Proposal” means any inquiry, proposal or offer from any person or group of persons other than Parent or one of its subsidiaries (1) for a merger, reorganization, consolidation, recapitalization or other business combination, liquidation, dissolution or similar transaction involving the Company or any of its subsidiaries, (2) for the issuance by the Company of over 20% of its equity securities as consideration for the assets or securities of another person or (3) to acquire in any manner, directly or indirectly, over 20% of the equity securities or consolidated total assets of the Company and its subsidiaries, in each case, other than the Merger.

As used in the Merger Agreement, “Superior Proposal” means a bona fide, unsolicited, written Alternative Proposal (except that references to “20%” in the definition of such term will be deemed to be references to “50%”) made in writing and not solicited in violation of the “no shop” provision that the Board (acting through the Special Committee, if then in existence) determines in good faith, after consultation with outside legal counsel and financial advisors, (i) is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal (including any conditions relating to financing, regulatory approvals or other events or circumstances beyond the control of the party invoking the condition), (ii) for which financing, if a cash transaction (whether in whole or in part), is then fully committed, and (iii) if consummated, would result in a transaction more favorable to the holders of Common Stock in their sole capacity as such (other than Parent and Merger Sub) from a financial point of view (including the effect of any termination fee or provision relating to the reimbursement of expenses) than the transaction contemplated by the Merger Agreement (after taking into account any revisions to the terms of the transaction contemplated by the “no shop” provision and the time likely to be required to consummate such Alternative Proposal).

Additionally, neither the Board nor any committee thereof may withdraw or modify in a manner adverse to Parent or Merger Sub, or publicly propose to withdraw or modify in a manner adverse to Parent or Merger Sub or fail to publicly reaffirm as promptly as practicable (but in any event within five business days after written

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receipt of any written request to do so from Parent), its recommendation (a “Recommendation Change”). Notwithstanding the foregoing, with respect to (aa) an event, fact, circumstance, development or occurrence that affects the business, assets or operations of the Company that is unknown to the Board or any committee thereof as of the date of the Merger Agreement and becomes known to the Board or any committee thereof (an “Intervening Event”) or (bb) an Alternative Proposal, the Board (acting through the Special Committee, if then in existence) may at any time prior to receipt of the required stockholder approvals, make a Recommendation Change and/or terminate the Merger Agreement if (and only if):

In either case, (x) the Company must provide Parent three business days prior written notice of its intention to take such action, which notice must include the information with respect to such Superior Proposal (if applicable) that is specified in the “no shop” provision or a description of such Intervening Event (if applicable) and must otherwise specify the basis for the Recommendation Change or proposed termination, (y) after providing such notice and prior to making such Recommendation Change in connection with an Intervening Event or a Superior Proposal, or taking any action to terminate the Merger Agreement with respect to a Superior Proposal, as applicable, the Company must negotiate in good faith with Parent during such three business day period (to the extent that Parent desires to negotiate) to make such revisions to the terms of the Merger Agreement as would permit the Board and the Special Committee not to effect a Recommendation Change in connection with an Intervening Event or a Superior Proposal or to take such action to terminate the Merger Agreement in response to a Superior Proposal, and (z) the Board and the Special Committee must have considered in good faith any changes to the Merger Agreement offered in writing by Parent and must have determined in good faith, after consultation with its outside legal counsel and financial advisors, that the event continues to constitute an Intervening Event or that the Superior Proposal would continue to constitute a Superior Proposal, in each case, if such changes offered in writing by Parent were to be given effect. However, neither the Board nor any committee thereof may effect a Recommendation Change in connection with an Intervening Event or a Superior Proposal or take any action to terminate the Merger Agreement with respect to a Superior Proposal prior to the time that is three business days after it has provided the required written notice; provided, further, that in the event that the Alternative Proposal is modified subsequently by the party making such Alternative Proposal, the Company must provide written notice of such modified Alternative Proposal and must again comply with the “no shop” provision.

See the section entitled “The Merger Agreement—Non-Solicitation” beginning on page 75.

Termination (page 78)

The Merger Agreement may be terminated and abandoned at any time prior to the Effective Time, whether before or (subject to the terms of the Merger Agreement) after any approval of the matters presented in connection with the Merger by the stockholders of the Company:

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Fees and Expenses (pages 57, 79)

If the Merger is not consummated, all costs and expenses incurred in connection with the Merger, the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring or required to incur such expenses. If the Merger is consummated, all costs and expenses incurred by Parent or Merger Sub in connection with the Merger, the Merger Agreement and the transactions contemplated thereby shall be paid by the Surviving Corporation and/or, to the extent applicable, reimbursed to Parent by the Surviving Corporation. See the section entitled “ Special Factors—Fees and Expenses ” beginning on page 57 and the section entitled “ The Merger Agreement—Fees and Expenses ” beginning on page 79.

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the special meeting of stockholders, the Merger Agreement and the Merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in or incorporated by reference into this proxy statement.

Q: Why am I receiving this proxy statement?

A: On June 4, 2013, we entered into the Merger Agreement providing that Merger Sub will be merged with and into the Company, whereupon the separate corporate existence of Merger Sub will cease, and the Company will continue as the Surviving Corporation and a wholly owned subsidiary of Parent. Following the Effective Time, the Company would be privately held as a wholly owned subsidiary of Parent. As our stockholders must vote on the adoption of the Merger Agreement, and the Closing is subject to a non-waivable condition that the Merger Agreement be adopted by the affirmative vote of holders of a majority of outstanding shares of Common Stock not owned by Parent, Merger Sub, Mr. Gumbiner or their respective affiliates, you are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the proposal to adopt the Merger Agreement and the other matters to be voted on at the special meeting (if any).

Q: What matters will be voted on at the special meeting?

A: You will be asked to consider and vote on the following proposals:

Q: Where and when is the special meeting?

A: The special meeting will be held at 3710 Rawlins, Suite 1500, Dallas, Texas 75219 on April     , 2014, at [            ], Central Time.

Q: Who can attend and vote at the special meeting?

A: All stockholders of record as of the close of business on the Record Date are entitled to receive notice of and to attend and vote at the special meeting, or any adjournment or postponement thereof. A complete list of stockholders entitled to vote at the special meeting will be available for examination by any stockholder at 3710 Rawlins, Suite 1500, Dallas, Texas 75219, during regular business hours for a period of no less than ten days before the special meeting, and at the special meeting. We are commencing our solicitation of proxies on April     , 2014. We will continue to solicit proxies until the date of the special meeting. If you wish to attend the special meeting and are a stockholder of record on the Record Date, please be prepared to provide proper identification, such as a driver’s license. If you wish to attend the special meeting and your shares of Common Stock are held in “street name” by your broker, bank or other nominee, you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other nominee, along with proper identification. “Street name” holders who wish to vote at the special meeting will need to obtain a proxy executed in such holder’s favor from the broker, bank or other nominee that holds their shares of Common Stock. Seating will be limited at the special meeting.

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Q: What is a quorum?

A: In order for any matter to be considered at the special meeting, there must be a quorum present. The presence, in person or represented by proxy, of the holders of a majority of the shares of the Common Stock entitled to vote on such matters as of the Record Date will constitute a quorum. Shares of Common Stock represented by proxies reflecting abstentions and properly executed broker non-votes (if any) will be counted as present and entitled to vote for purposes of determining a quorum. If a quorum is not present, the stockholders entitled to vote at the meeting who are present or represented by proxy may adjourn the meeting until a quorum is present. However, given Parent’s ownership of 65.7% of the issued and outstanding shares of Common Stock, Parent’s attendance at the special meeting, by itself, will constitute a quorum. See the section entitled “ The Special Meeting—Record Date and Quorum ” on page 65.

Q: What will I receive in the Merger?

A: If the Closing occurs, you will be entitled to receive $12.39 for each share of Common Stock you own, unless you properly exercise, and do not withdraw or lose, appraisal rights under Section 262. For example, if you own 100 shares of Common Stock, you will be entitled to receive $1,239 in cash in exchange for your shares of Common Stock, without interest. You will not be entitled to receive shares in the Surviving Corporation or in Parent. Parent will be entitled to deduct and withhold from the Merger Consideration otherwise payable, any amounts that are required to be withheld or deducted under the Code, or any provision of U.S., state, local or foreign laws. To the extent that the amounts are withheld or deducted, those withheld or deducted amounts will be treated for all purposes as having been paid to the holder of shares of Common Stock in respect of which such deduction and withholding were made.

Q: Is the Merger expected to be taxable to me?

A: If you are a U.S. holder, the receipt of cash for your shares of Common Stock as part of the Merger will generally be a taxable transaction for U.S. federal income tax purposes. If you are a non-U.S. holder, the receipt of cash for your shares of Common Stock as part of the Merger will generally not be a taxable transaction for U.S. federal income tax purposes, unless you have certain connections to the United States. See the section entitled “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 55. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of Common Stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local, foreign and other tax laws).

Q: What vote of our stockholders is required to approve the proposal to adopt the Merger Agreement?

A: Under Delaware law, stockholders holding at least a majority of the shares of Common Stock outstanding and entitled to vote at the close of business on the Record Date must vote “ FOR ” the proposal to adopt the Merger Agreement. In addition, the Merger Agreement provides that the Closing is subject to a non-waivable condition that the Merger Agreement be adopted by (i) the affirmative vote of the holders of a majority of the outstanding shares of our Common Stock entitled to vote on the adoption of the Merger Agreement, voting together as a single class, and (ii) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, voting together as a single class, excluding all shares of Common Stock owned by Parent, Merger Sub, Mr. Gumbiner or any of their respective affiliates (other than the Company and its subsidiaries), or by any director, officer or other employee of the Company or any of its subsidiaries (the “Majority of the Minority Approval”). A failure to vote your shares of Common Stock or an abstention from voting or broker non-vote will have the same effect as a vote against the proposal to adopt the Merger Agreement. As of March 20, 2014 there were 1,525,166 shares of Common Stock issued and outstanding, such being the only class of capital stock and representing 1,525,166 votes in the aggregate to which such class is entitled. Of these total issued and outstanding shares of Common Stock, 523,591 are owned by holders other than Parent, Merger Sub, Mr. Gumbiner or their respective affiliates.

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Q: What will happen if I abstain from voting or fail to vote on the proposal to adopt the Merger Agreement?

A: A failure to vote your shares of Common Stock or an abstention from voting will have the same effect as a vote “ AGAINST ” the proposal to adopt the Merger Agreement. Abstentions will be included in the calculation of the number of shares of Common Stock represented at the special meeting for purposes of determining whether a quorum has been achieved. See the section entitled “ The Special Meeting—Required Vote ” on page 65.

Q: What vote of our stockholders is required to approve other matters to be discussed at the special meeting?

The proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the Merger Agreement requires the affirmative vote of the holders of a majority of the shares of Common Stock present or represented by proxy and entitled to vote thereon. However, given Parent’s ownership of 65.7% of the issued and outstanding shares of Common Stock, adjournment of the special meeting may be approved solely by the affirmative vote of Parent’s shares.

Q: How does the Board recommend that I vote?

A: The Board (without Mr. Gumbiner’s participation), acting on the unanimous recommendation of the Special Committee, unanimously recommends that our stockholders vote:

You should read the section entitled “ Special Factors—Background of the Merger—Reasons for the Merger; Fairness of the Merger; Recommendations of the Special Committee and the Board ” beginning on page 28 for a discussion of the factors that the Special Committee and the Board (without Mr. Gumbiner’s participation) considered in deciding to recommend the approval of the Merger Agreement and the section entitled “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” beginning on page 54.

Q: How will the Company’s directors and executive officers vote on the proposal to adopt the Merger Agreement?

A: Of the Company’s directors and current executive officers, only Mr. Charles A. Crocco, Jr. (director) and Mr. Gumbiner, through Parent, own shares of Common Stock. Mr. Crocco has informed the Company that, as of the date of the filing of this proxy statement, he intends to vote in favor of the proposal to adopt the Merger Agreement. As of March 20, 2014, Mr. Crocco owned 9,996 shares of Common Stock entitled to vote at the special meeting.

Q: Am I entitled to exercise appraisal rights instead of receiving the Merger Consideration for my shares of Common Stock?

A: Pursuant to Section 262, stockholders who do not vote in favor of the Merger and who comply with the applicable requirements of Section 262 and do not withdraw or otherwise lose the right of appraisal are entitled to statutory appraisal rights under Delaware law in connection with the Merger. This means that if you comply precisely with the requirements of Section 262, you are entitled to seek appraisal of the “fair value” of your shares of Common Stock determined by the Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the Merger Consideration. If you validly

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exercise (and do not withdraw or lose) appraisal rights, the ultimate amount you may be entitled receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement. To exercise your appraisal rights, (i) you must submit a written demand for appraisal to us before the vote is taken on the Merger Agreement, (ii) you must NOT vote in favor of the proposal to adopt the Merger Agreement and (iii) you must otherwise comply precisely with the requirements of Section 262. Your failure to follow precisely the procedures specified under Delaware law could result in the loss of your appraisal rights. See the section entitled “ Rights of Appraisal ” beginning on page 88 and the text of the Delaware appraisal rights statute, Section 262, which is reproduced in its entirety as Annex C to this proxy statement. Assuming you have otherwise complied with the requirements of Section 262, your right to seek appraisal under Section 262 is not released under the Settlement, but you may not claim value related to or arising from the derivative claims that are released, settled, and dismissed with prejudice pursuant to the Settlement.

Q: What effects will the Merger have on the Company?

A: The Common Stock is currently registered under the Exchange Act, and is quoted on the NYSE MKT stock exchange (the “NYSE MKT”) under the symbol “HWG.” As a result of the Merger, the Company will cease to have publicly traded equity securities and will be wholly owned by Parent. Following the Closing, the registration of Common Stock and our reporting obligations under the Exchange Act with respect to such registration will be terminated upon application to the SEC. In addition, upon the Closing, our Common Stock will no longer be listed on the NYSE MKT or any other stock exchange or quoted on any quotation system.

Q: When is the Merger expected to be completed?

A: The parties to the Merger Agreement are working to complete the Merger as quickly as possible. In order to complete the Merger, the Company must obtain the stockholder approvals described in this proxy statement and the other closing conditions under the Merger Agreement must be satisfied or waived. The Company currently expects the Closing to occur soon after the special meeting. The Company, however, can provide no assurance that the Closing will occur by any particular date, if at all. Because the Closing is subject to a number of conditions, the exact timing of the Merger cannot be determined at this time. For more information, see “ The Merger Agreement—When the Merger Becomes Effective ” beginning on page 70.

Q: What happens if the Merger is not consummated?

A: If the proposal to adopt the Merger Agreement is not approved by the Company’s stockholders, or if the Merger is not consummated for any other reason, the Company’s stockholders will not receive any payment for their shares in connection with the Merger. Instead, the Company will remain a public company and shares of its Common Stock will continue to be listed and traded on the NYSE MKT. For more information, see the section entitled “ The Merger Agreement—Termination ” beginning on page 78.

Q: What do I need to do now?

A: We urge you to read this proxy statement carefully, and in its entirety, including its annexes and the documents referred to in, or incorporated by reference into, this proxy statement, and to consider how the Merger affects you. If you are a stockholder of record, you can ensure that your shares are voted at the special meeting by submitting your proxy via:

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If you hold your shares in “street name” through a broker, bank or other nominee, you should follow the directions provided by your broker, bank, or other nominee regarding how to instruct your broker, bank, or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the proposal to adopt the Merger Agreement.

Q: Should I send in my stock certificates or other evidence of ownership now?

A: No. After the Merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your shares of Common Stock for the Merger Consideration. If your shares of Common Stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the Merger Consideration. Do not send in your certificates now.

Q: What happens if I sell my shares of Common Stock after the Record Date but before the date of the special meeting?

A: The record date for the special meeting is earlier than the date of the special meeting and the expected date on which the Closing will occur. If you transfer your shares of Common Stock after the Record Date but before the date of the special meeting, you will retain your right to vote at the special meeting (provided such shares remain outstanding on the date of the special meeting), but you will not have the right to receive the Merger Consideration to be received by the Company’s stockholders in the Merger. In order to receive the Merger Consideration, you must hold your shares of Common Stock through the Closing.

Q: Can I revoke my proxy?

A: Yes. You can revoke your proxy at any time before the vote is taken at the special meeting. If you are a stockholder of record, you may revoke your proxy by notifying the Company’s Corporate Secretary in writing at The Hallwood Group Incorporated, Attn: Corporate Secretary, 3710 Rawlins, Suite 1500, Dallas, Texas 75219, or by submitting a new proxy by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked. In addition, you may revoke your proxy by attending the special meeting and voting in person, although simply attending the special meeting will not cause your proxy to be revoked. If you hold your shares in “street name” and you have instructed a broker, bank or other nominee to vote your shares, the options described above for revoking your proxy do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your proxy or submit new voting instructions.

Q: What does it mean if I get more than one proxy card or voting instruction card?

A: If your shares are registered differently or are held in more than one account, you will receive more than one proxy or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies by telephone or the Internet, if available to you) to ensure that all of your shares are voted.

Q: What is householding and how does it affect me?

A: The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of Common Stock held through brokerage firms. If your family has multiple accounts holding Common Stock, you may have already received householding notification from

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your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

Q: Who can help answer my other questions?

A: If you have more questions about the special meeting, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact Georgeson Inc., which is acting as the Company’s proxy solicitation agent:

Call Toll-Free 1-866-391-7007

Email: hallwood@georgeson.com

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

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SPECIAL FACTORS

BACKGROUND OF THE MERGER

Background of the Merger

The Board of Directors of the Company (the “Board”) and management, regularly and in the ordinary course of business, evaluate potential strategic alternatives available to the Company in an effort to enhance stockholder value. On June 13, 2012, at Mr. Gumbiner’s request, Hunton & Williams LLP (“Hunton & Williams”) advised the independent members of the Board that Mr. Gumbiner believed it would be appropriate for Parent to consider the status and structure of Parent’s ownership of Hallwood Group and had requested that those independent members of the Board consent to Hunton & Williams’ representation of Parent in that connection. The independent directors provided that consent on behalf of the Company and the Board on June 21, 2012. However, during the months of July and August of 2012, Mr. Gumbiner advised the independent members of the Board that he had not determined whether, on what basis or when he might make any proposal concerning the Company.

At the meeting of the Board held on September 4, 2012, management of the Company discussed with the independent members of the Board whether it would be appropriate for the Board to consider a transaction to take the Company private, but in late October, the independent directors determined that they did not believe they were able to consider such a transaction in the abstract. After management of the Company advised Mr. Gumbiner of that determination, on about November 1, 2012, Mr. Gumbiner informed management of the Company, and on November 6, 2012, advised Mr. Crocco by telephone that Parent intended to propose to acquire all of the outstanding shares of Common Stock that were not already beneficially owned by Parent, at a cash purchase price of $10.00 per share. In determining the proposed purchase price, Parent did not engage any third party advisors, obtain any valuations from third parties or conduct any formal valuation of the Company. Parent determined the proposed purchase price based on Mr. Gumbiner’s general knowledge of and familiarity with the Company and its business and his understanding of all available information regarding the Company, without particularly focusing on any specific aspects of the business or any specific information. The price Parent proposed was not based on any calculation of book value, market value, going concern value, liquidation value, comparable companies or comparable transactions, but on Mr. Gumbiner’s personal assessment of what he was willing for Parent to pay and his personal judgment regarding a price that would be acceptable to the Special Committee and the stockholders of the Company. Mr. Gumbiner understood that the proposed price constituted a premium over the market price of the Common Stock at that time, and believed that this was appropriate because the Special Committee and the stockholders would be unlikely to accept a price that did not include a premium to the then current market price. In arriving at the price, Parent took into account the factors described in “ Special Factors—The Parent Filing Persons’ Purposes And Reasons For The Merger ” and “—The Parent Filing Persons’ Position As To The Fairness Of The Merger .”

Later on November 6, 2012, Mr. Gumbiner sent a letter (the “Proposal Letter”) to the rest of Board setting forth the proposal from Parent to acquire all of the outstanding shares of Common Stock that were not already beneficially owned by Parent at a cash purchase price of $10.00 per share (the “Proposed Transaction”). The Proposal Letter specified that the Proposed Transaction would be in the form of a merger of the Company with a new acquisition vehicle that Parent would form. The Proposal Letter also specified that the Proposed Transaction would be governed by a merger agreement providing for a non-waivable condition requiring the approval of a majority of the shares of the Company that are not directly or indirectly owned by Parent, and that it was expected that the Board would establish a special committee of independent directors to consider the Proposed Transaction on behalf of the Company’s public stockholders and to make a recommendation to the full Board. In addition, the Proposal Letter stated that, in its capacity as a stockholder of the Company, Parent was interested only in acquiring the shares of the Company that it did not currently own, and that in such capacity Parent had no interest in a disposition or sale of its interest in the Company, nor was it Parent’s intention to vote in favor of any alternative sale, merger or similar transaction involving the Company. As such, without the approval of Parent as the Company’s controlling stockholder, no transaction other than the Proposed Transaction would be possible.

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On November 7, 2012, in response to the Proposal Letter, the Board formed a special committee (the “Special Committee”) of independent directors for the purposes of negotiating the Proposed Transaction on an arm’s length basis against Parent, consisting of Charles A. Crocco, Jr., Amy H. Feldman and Michael R. Powers, all of the Company’s independent directors. The Special Committee was empowered, among other things, to consider whether the Proposed Transaction was in the best interests of the Company and the holders of the Common Stock, consider and review potential alternative transactions, and, in its own and full discretion, reject the Proposed Transaction if the Special Committee determined it was not fair to or otherwise not in the best interests of the Company and the holders of the Common Stock, in addition to considering other matters deemed appropriate by the Special Committee. The Board empowered the Special Committee to, among other things, retain its own independent legal and financial advisors to assist in its review of the Proposed Transaction. The Board also resolved to refrain from taking any action in relation to the Proposed Transaction, including, without limitation, its negotiation, rejection or approval, without first having obtained a recommendation from the Special Committee that the Board take such action. The Board established the compensation for each member of the Special Committee as $1,000 per meeting of the Special Committee attended and $125 per hour (or a proportionate amount thereof for each hourly fraction) for other time expended on Special Committee matters. The Special Committee retained Wick Phillips Gould & Martin, LLP (“Wick Phillips”) on November 8, 2012 as its independent legal counsel.

On November 9, 2012, the Company issued a press release announcing the Company’s receipt of the Proposal Letter and the Board’s formation of the Special Committee, and filed a copy with the SEC as an exhibit to a Current Report on Form 8-K on the same day.

On November 14, 2012, Hallwood Energy I Creditors’ Trust (“HEI Creditors’ Trust”), successor-in-interest to Hallwood Energy, L.P., the plaintiff in the case originally styled as Hallwood Energy, L.P. v. The Hallwood Group Incorporated pending in the Bankruptcy Court of the Northern District of Texas (the “Bankruptcy Court”), a description of which can be found under “ Special Factors— Litigation” , filed a motion requesting that the Bankruptcy Court direct the Company to comply with the Bankruptcy Court’s prior order issued on May 28, 2010. That order required the Company to notify the Bankruptcy Court of any intention to sell assets out of the ordinary course of business, pay a dividend, distribution or return of capital to its stockholders or transfer in any manner any assets to its majority stockholder or its affiliates outside the ordinary course of business. In reference to such order, the November 14, 2012 motion sought to enjoin the Company from participating in the Proposed Transaction.

On December 3, 2012, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, during which it discussed, among other things, the independence of the members of the Special Committee and the need for engaging an independent financial advisor to the Special Committee to assist in the negotiation and evaluation of the Proposed Transaction. Based upon Wick Phillips’ advice regarding the required Delaware law independence standard, Mr. Crocco confirmed his independence and the Special Committee determined Mr. Crocco to be independent for purposes of serving on the Special Committee. The Special Committee also noted during its meeting the Company’s recent engagement of K&L Gates LLP (“K&L Gates”) as counsel to the Company.

On December 12, 2012, Wick Phillips interviewed each of Ms. Feldman and Mr. Powers. During such interviews, Wick Phillips discussed with each of Ms. Feldman and Mr. Powers, among other things, any interest that they or their respective families may have in the Proposed Transaction, their relationship with Mr. Gumbiner, the percentage that their compensation as directors of the Company represented out of their respective families’ total assets and any other factors or relationships that could adversely affect their ability to consider the merits of the Proposed Transaction in a neutral, non-biased manner. Following their respective interviews and after receiving advice from Wick Phillips, each of Ms. Feldman and Mr. Powers confirmed their independence from Parent for the purposes of serving on the Special Committee.

Each member of the Special Committee was determined to be independent for purposes of the Proposed Transaction. Each member of the Special Committee was determined to have the requisite level of independence

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from Parent and its ultimate owner, Mr. Gumbiner, because it was determined that no Special Committee member has a relationship with Parent or Mr. Gumbiner that would affect his or her ability to independently negotiate the Proposed Transaction on behalf of the Company’s minority and unaffiliated stockholders. In the Special Committee meeting on December 3, 2012, Mr. Crocco was able to confirm that he was independent because he has no relationship, whether financial or personal, with Parent or its ultimate owner, Mr. Gumbiner, other than as a director of the Company and his minor stockholding in the Company (described on page 54). However, Mr. Powers and Ms. Feldman have had, and continue to have a social relationship with Mr. Gumbiner. Ms. Feldman’s husband had previously received an indirect referral fee for a real estate transaction involving Mr. Gumbiner (although that fee was an insignificant component of Ms. Feldman’s family income). For these reasons the Special Committee requested that Wick Phillips conduct a further analysis into the relationships of Mr. Powers and Ms. Feldman to verify they each satisfied the independence standard under Delaware law. As noted above, on December 12, 2012, Wick Phillips interviewed Mr. Powers and Ms. Feldman. Each explained their prior and current relationship with Mr. Gumbiner and affirmatively stated that such relationship would not affect their ability to independently negotiate the Proposed Transaction on behalf of the Company’s minority and unaffiliated stockholders. From these interviews, and the discussions in the December 3, 2012, meeting, Wick Phillips concluded that each member of the Special Committee satisfied the requisite level of independence to negotiate the Proposed Transaction on behalf of the Company’s minority and unaffiliated stockholders. The Special Committee relied upon such conclusion.

Each member of the Special Committee was also determined to be disinterested because they have no financial interest or other material interest in the Proposed Transaction, other than their compensation as directors and Mr. Crocco’s minor stockholding in the Company as described on page 54.

During the week of December 19, 2012, Mr. Crocco, on behalf of the Special Committee, interviewed five investment banking candidates to act as independent financial advisor to the Special Committee in connection with the Proposed Transaction.

On January 7, 2013, the Special Committee held a telephonic meeting at which a representative of Wick Phillips was also in attendance, during which it discussed the results of Mr. Crocco’s interviews with Southwest Securities and the four other investment banks, and, after consideration, selected Southwest Securities as its independent financial advisor in connection with the Proposed Transaction. The criteria for the Special Committee’s selection of Southwest Securities over the other four investment banks were the experience of Southwest Securities as a large, sophisticated investment bank, its quality presentation to Mr. Crocco, its preparation for such presentation and resulting knowledge about the Company and its competitive fee bid. On January 10, 2013, the Company executed an engagement letter with Southwest Securities as financial advisor to the Special Committee.

On January 10, 2013, after a hearing on HEI Creditors’ Trust’s November 14, 2012 motion which was held on January 7, 2013, the Bankruptcy Court entered an order (the “Notice Order”) requiring the Company to notify the Bankruptcy Court and HEI Creditors’ Trust after entering into a material, definitive agreement to consummate any transaction similar to that described in the Proposal Letter and the related Form 8-K filed by the Company. Pursuant to the Notice Order, upon the signing of any such agreement, the Company was required to provide at least 35 days’ prior notice of the earliest anticipated closing date of the Proposed Transaction so that HEI Creditors’ Trust could request a hearing as to whether the Proposed Transaction is prohibited by the Notice Order. The Company’s required notice was to be in the form of a copy of a Current Report on Form 8-K reporting the entry into a material, definitive agreement as filed with the SEC.

On January 23, 2013, Mr. Crocco, Southwest Securities and Wick Phillips met telephonically to discuss business and financial due diligence being performed by Southwest Securities with respect to the Company.

On January 29, 2013, William L. Guzzetti and Richard Kelley, the respective President and Chief Operating Officer and Chief Financial Officer of the Company, met with Southwest Securities at the Company’s offices to provide Southwest Securities with a historical overview of the Company. Among other items discussed, the

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Company’s management explained to Southwest Securities that the Company was unable, and it was not the Company’s practice, to prepare cash flow projections beyond one year, as a result of the Company’s reliance on orders from the U.S. military as its predominant source of revenue and the uncertainty as to when during the year such orders would be placed.

During the week of February 11, 2013, as part of its due diligence review, Southwest Securities conducted on-site visits to the facilities of the Company and updated Wick Phillips as to its progress. Southwest Securities informed Wick Phillips that, although it was not customary for bankers to conduct an analysis for the purposes of preparing a fairness opinion without the benefit of cash flow projections from the target company’s management, Southwest Securities would consider other factors in performing its analysis, such as a comparable company analysis, selected precedent transaction analysis, and premiums paid analysis as more fully described in “ Summary of Southwest Securities’ Analyses .”

On March 11, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips and Southwest Securities were also in attendance, for a discussion led by Southwest Securities, regarding the financial analysis performed by Southwest Securities in connection with the Proposed Transaction and the fairness of the proposal contained in the Proposal Letter to the Company’s minority and unaffiliated stockholders. Southwest Securities reported to the Special Committee that, as part of such analysis, Southwest Securities performed (i) a market analysis of companies comparable to the Company, (ii) an analysis of precedent mergers and acquisitions transactions that Southwest Securities deemed similar to the Proposed Transaction and (iii) an analysis of the premiums paid in connection with transactions similar to the Proposed Transaction. Southwest Securities and the Special Committee also discussed the fact that, due to the uncertainty of the Company’s prospects as a result of its business’ material reliance on U.S. military activity, the Company’s management had not been able to provide five-year financial projections or estimates of future performance beyond 2013, and that Southwest Securities was thus unable to conduct a discounted cash flow analysis. The Special Committee then asked Southwest Securities for its view with respect to the valuation of the Company’s property, plant and equipment on its balance sheet. Southwest Securities explained that it did not perform an independent evaluation, physical inspection or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company, and had not been furnished with any such valuations or appraisals. After deliberation, the Special Committee decided to look further into obtaining a valuation of the Rhode Island facilities of Kenyon Industries, Inc., a subsidiary of the Company, for the purposes of considering the possibility of a liquidation of such parcel of real estate.

On March 18, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, to discuss, among other things, the Special Committee’s duties with respect to the Proposed Transaction, the Special Committee’s progress as to the evaluation of Parent’s proposal contained in the Proposal Letter and the Special Committee’s preferred strategy in negotiating with Parent for the benefit of the Company’s minority and unaffiliated stockholders.

On March 25, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips and, for a portion of such meeting, Southwest Securities, were also in attendance. The Special Committee discussed the results of an informal estimate of the Company’s Rhode Island site’s value that was obtained by Ms. Feldman with the help of a real estate broker (which amounted to $2 million), the Company’s debt levels (which exceed $2 million), and a concern about potential environmental issues at the Rhode Island site. The Special Committee concluded it was unlikely that further exploration of the real estate liquidation value of such property would indicate a value in excess of the Company’s current debt and, therefore, decided not to further pursue such valuation. After Southwest Securities joined the meeting, a discussion ensued regarding the Company’s continued liquidity issues and the probability that the audit opinion from the Company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), to be included in Company’s upcoming Annual Report on Form 10-K for the fiscal year ended December 31, 2012, might contain a “going concern” explanatory paragraph. A “going concern” explanatory paragraph included in the unqualified opinion from a company’s independent registered public accounting firm references the readers of the company’s financial statements to a company’s disclosure regarding the current financial position and the company’s analysis, based

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upon current financial resources, as to whether the company can meet its obligations over the next year in order to continue as a going concern. The Special Committee discussed with its advisors its concern that, as a result of such liquidity issues, the Company’s minority and unaffiliated stockholders could be harmed by a drop in the Company’s stock price followed by a reduction or possible withdrawal of Parent’s bid to consummate the Proposed Transaction. The Special Committee requested that Wick Phillips and Southwest Securities contact Hunton & Williams to discuss and negotiate the terms of the Proposed Transaction on the basis of the comments discussed during the meeting. In particular, because the Special Committee was concerned about losing the $10.00 per share offer in light of the Company’s liquidity issues and preliminary report from Southwest Securities, it instructed Wick Phillips to inquire whether Parent would consider increasing its offered price, rather than aggressively demand a higher price.

On March 25, 2013, as instructed by the Special Committee, Wick Phillips and Southwest Securities held a telephonic meeting with Hunton & Williams to begin negotiating the terms of the Proposed Transaction and inquired whether Parent would consider increasing the price per share that it was prepared to offer.

On March 26, 2013, Hunton & Williams replied telephonically to Wick Phillips that in order for Parent to consider a higher price, the Special Committee should provide Parent with information that supported a value for the Common Stock greater than the price of $10.00 per share.

On March 28, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips and Southwest Securities were also in attendance, for the primary purpose of a presentation by Southwest Securities of an analysis report (a copy of which is attached as Exhibit (c)(2) to Amendment No. 1 to the Schedule 13E-3 filed in conjunction herewith), which had previously been provided to the Special Committee, presenting Southwest Securities’ findings with respect to the financial terms of the Proposed Transaction and its fairness to the Company’s minority and unaffiliated stockholders and to determine the Special Committee’s response to Parent. With the assistance of the presentation materials comprising its report, Southwest Securities explained its preliminary conclusion that the Merger Consideration of $10.00 per share originally offered by Parent was a fair price from a financial point of view. The Special Committee then discussed the possible reasons for Parent’s offer and proposed Merger Consideration as set forth in the Proposal Letter. On the basis of the Company’s lack of liquidity, market and economic considerations and other factors, the Special Committee concluded that it could not present sufficient rationale to Parent supporting a higher price than that offered by Parent. Because of its inability to obtain support for a per share price higher than $10.00 per share, and its concern that the Company’s minority and unaffiliated stockholders would be harmed by a withdrawal of Parent’s proposed $10.00 offer as discussed in the March 25, 2013 meeting, the Special Committee decided not to ask for an increased purchase price. Following such decision, the Special Committee instructed Wick Phillips to contact Hunton & Williams to request a draft merger agreement reflecting the terms set forth in the Proposal Letter.

On April 1, 2013, the Company filed its Form 10-K for the year ended December 31, 2012. The Form 10-K disclosed several factors negatively impacting the Company’s financial situation, including the Company’s dependence on Brookwood for cash, the Company’s lack of cash to pay its operating costs or service its existing debt and an audit report from Deloitte, which included an explanatory paragraph related to its status as a “going concern” resulting from the uncertainty of the payment of dividends from Brookwood to fund the Company’s ongoing operations and obligations.

On April 2, 2013, the closing price of the Common Stock dropped to $7.90 per share from its closing price of $8.61 per share on March 28, 2013, the trading day prior to the filing of the Company’s Form 10-K.

On April 8, 2013, Hunton & Williams delivered a draft Merger Agreement to the Special Committee.

On April 11, 2013, the Company received a letter from NYSE MKT LLC (the “Exchange”), indicating that the Company was not in compliance with certain NYSE MKT continued listing standards. The Exchange determined the Company’s financial condition had become impaired based upon its review of the Company’s Form 10-K for the fiscal year ended December 31, 2012. As a result of the Exchange’s review and determination, the Company

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was not in compliance with one of the Exchange’s continued listing standards, and therefore became subject to the procedures and requirements of Section 1009 of the NYSE MKT Company Guide (“Company Guide”). Specifically, the Company was not in compliance with Section 1003(a)(iv) of the Company Guide in that it had sustained losses which were so substantial in relation to its overall operations or its then-existing financial resources or financial condition had become so impaired that it appeared questionable, in the opinion of the Exchange, as to whether the Company would be able to continue operations and/or meet its obligations as they mature. The letter stated that, in order to maintain the Company’s listing with the Exchange, the Company was required to submit a plan of compliance by May 13, 2013 addressing how it intended to regain compliance with Section 1003(a)(iv) by July 15, 2013. If the Company did not submit a plan, or if the plan was not accepted by the Exchange, the Company would be subject to delisting proceedings. Furthermore, if the plan was accepted but the Company was not in compliance with the continued listing standards of the Company Guide by July 15, 2013, or if the Company did not make progress consistent with the plan, the Exchange staff would initiate delisting proceedings in accordance with Section 1010 and Part 12 of the Company Guide.

On April 15, 2013, the Company issued a press release announcing receipt of the April 11, 2013 notice from the Exchange of potential delisting. On April 16, 2013, the Company filed a copy of such press release as an exhibit to a Current Report on Form 8-K.

On April 16, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, primarily for the purposes of discussing comments and questions from the Special Committee and Wick Phillips pertaining to the draft Merger Agreement. The Special Committee asked Wick Phillips to revise the draft Merger Agreement accordingly and to deliver the revised version to Hunton & Williams.

On April 19, 2013, the Special Committee, through its counsel, returned a revised draft of the Merger Agreement to Parent, through its counsel. As part of its comments, the Special Committee requested, among other things, additional materiality qualifiers to representations and warranties; a reduced scope of several representations and warranties; a representation by Parent that it has sufficient internal funds to consummate the Proposed Transaction without reliance on funds or assets of the Company, as well as an indication as to the source of such funds; the removal of a covenant of the Company to cooperate with Parent in connection with Parent’s efforts to obtain financing for purposes of consummating the Proposed Transaction; the increased ability for the Board to consider alternative proposals without breaching the “no shop” provision and change its recommendation to the Company’s stockholders that they adopt the Merger Agreement; a change to the standard for the Company’s efforts with respect to certain pre-closing covenants from “reasonable best efforts” to “commercially reasonable efforts”; certain additional exceptions to occurrences which constitute a “Company Material Adverse Effect” under the Merger Agreement; the right for the Company to terminate the Merger Agreement if it has satisfied its obligations and waived any unsatisfied obligations of Parent thereunder but Parent fails to proceed with the Proposed Transaction; and the removal of the lack of occurrence of a Company Material Adverse Effect as a condition to Parent’s obligation to effect the Proposed Transaction.

On April 22, 2013, Mr. Gumbiner requested that the Special Committee consent to Parent’s retention of Potter Anderson & Corroon LLP (“Potter Anderson”) as its Delaware counsel in connection with the Merger, and waive on the Company’s behalf any conflicts of interests faced by Potter Anderson, in light of the fact that Potter Anderson had in the past also represented the Company in certain matters. The Special Committee considered this request and provided its consent, and waiver on the Company’s behalf of any conflict of interest, on April 30, 2013.

On April 23, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, to discuss, among other matters, the April 11, 2013 letter from the Exchange informing the Company of its potential delisting unless certain measures were put in place. The Special Committee discussed its concern about the ability of the Company to maintain its listing if the Proposed Transaction was not announced and consummated and the potential harm that the failure to maintain such listing could cause to the Company’s minority and unaffiliated stockholders.

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On April 30, 2013, Hunton & Williams, on behalf of Parent, communicated orally to Wick Phillips Parent’s comments to the revised draft of the Merger Agreement that had been circulated by the Special Committee, through its counsel, on April 19, 2013. As part of such comments, Parent generally accepted most of the Special Committee’s requested changes, but insisted on keeping the lack of a Company Material Adverse Effect as a condition to Parent’s obligation to effect the Proposed Transaction and rejected the ability of the Company to terminate the Merger Agreement if Parent fails to close (while leaving the Company other possibilities for terminating the Merger Agreement in certain other circumstances). Also, in exchange for reducing certain representations and warranties regarding certain environmental matters, Parent added an additional condition precedent to its obligation to effect the Proposed Transaction that the Company did not suffer environmental liabilities in excess of a certain threshold after the signing of the Merger Agreement.

On May 3, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, to discuss, among other things, Parent’s comments to the draft Merger Agreement communicated orally to Wick Phillips on April 30, 2013.

On May 4, 2013, Hunton & Williams delivered to Wick Phillips a revised version of the Merger Agreement containing Parent’s comments which had previously been communicated orally on April 30, 2013 as described above.

During the week of May 6, 2013, discussions between Wick Phillips and the Special Committee occurred to finalize the then-current draft of the Merger Agreement. The Special Committee considered the fact that Parent had accepted most of the Special Committee’s material changes to the Merger Agreement contained in its April 19, 2013 draft (including, among others, the changes making the representations and warranties more favorable to the Company and reinforcing Parent’s commitment to finance the Proposed Transaction with internal funds). The Special Committee determined that the significant concessions made by Parent in accepting most of the Special Committee’s material transaction points, combined with the relatively few substantial counterproposals included by Parent in its May 4, 2013 draft of the Merger Agreement, had resulted in a balanced draft of the Merger Agreement which the Special Committee had negotiated to the best of its ability in the interest of the Company’s minority and unaffiliated stockholders.

On May 9, 2013, representatives of Southwest Securities met with the Company’s management team at the Company’s Dallas, Texas office to provide Southwest Securities an opportunity to update its due diligence review of the Company.

On May 10, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, to discuss, among other items, the status of negotiations of the Merger Agreement and various factors impacting the general timing of the contemplated signing of the Merger Agreement.

On May 13, 2013, the Company submitted a plan of compliance with the Exchange in response to the Exchange’s request set forth in its April 11, 2013 letter to the Company. Additionally and as part of the Company plan of compliance, on May 13, 2013, the promissory note associated with the loan to the Company by Hallwood Family (BVI) L.P., an affiliate of Parent (“HFL Loan”), was amended, pursuant to a Second Amendment to Promissory Note, to convert it to a revolving credit facility to provide additional liquidity to the Company. As of March 31, 2013, the outstanding balance of the HFL Loan was $9,047,000, and such amendment resulted in $953,000 of credit availability as of May 13, 2013.

During the week of May 27, 2013, K&L Gates communicated to Wick Phillips its comments to the draft Merger Agreement, which comments were primarily aimed at ensuring that certain recent events concerning the Company and its business were adequately disclosed as exceptions to the Company’s representations and warranties set forth in the Merger Agreement.

On May 29, 2013, Hunton & Williams delivered to Wick Phillips a final draft of the Merger Agreement containing the agreed upon terms, including the changes requested by K&L Gates on May 27, 2013 and the $10.00 per share price comprising the original Merger Consideration.

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On May 30, 2013, representatives of Southwest Securities met with the Company’s management team telephonically to provide Southwest Securities an opportunity to update its due diligence review of the Company.

The closing price for the Company’s Common Stock was $8.05 per share on June 3, 2013 and June 4, 2013. On June 4, 2013, the Special Committee held a telephonic meeting with all of its advisors to review the final terms of the Merger Agreement and to consider an oral report by Southwest Securities detailing the contents of and analysis underlying its draft fairness opinion with respect to the Proposed Transaction and the fairness of the offered price per share to the Company’s minority and unaffiliated stockholders, which draft had previously been provided to the Special Committee. The contents of and analysis underlying Southwest Securities’ opinion are more fully described in “ Opinion of Southwest Securities .” Southwest Securities subsequently delivered to the Special Committee a signed version of its fairness opinion. After receiving Southwest Securities’ report, the Special Committee performed a final review of the Merger Agreement and received from Wick Phillips a final reminder of the fiduciary obligations of the Special Committee. The Special Committee then discussed the reasons for its decision not to insist that the Merger Agreement contain a provision allowing the Company to actively solicit competing offers from other potential bidders. In doing so, the Special Committee considered the fact that, although the Company had announced the Potential Transaction to the public in November 2012, the Company had not since that time received any indication of interest from other bidders besides Parent, and that the Proposal Letter made it clear that Parent was only interested in acquiring the shares it did not currently own, had no interest in a disposition of its own interest, and had no intention to vote in favor of any transaction other than the Proposed Transaction. Given those considerations, the Special Committee ultimately concluded that the inclusion in the Merger Agreement of a “go-shop” provision, permitting the Company to seek a superior bid, the consummation of which would in any event have required the approval of Parent, would have been futile. The Special Committee also determined that, in negotiating the Proposed Transaction, it had reached an appropriate balance between giving the Proposal Letter due consideration and vigorously negotiating the Proposed Transaction, while remaining wary of the risk of jeopardizing the only available transaction that would allow the minority and unaffiliated stockholders to receive a premium over the market value of their shares. The Special Committee also noted during its discussion that it had considered the possibility of liquidating the real estate owned by the Company in Rhode Island, but had concluded that such a transaction was unlikely to yield a value as favorable to the Company’s minority and unaffiliated stockholders as the per share price offered by Parent. Following the Special Committee’s deliberation regarding the reasons for the Proposed Transaction and the fairness of the Proposed Transaction, it reiterated its conclusion that its members were independent and that it had analyzed the Proposed Transaction in the best interest of the Company’s minority and unaffiliated stockholders. Then, taking into account the relevant facts and circumstances, the Special Committee unanimously determined that the Proposed Transaction was substantively and procedurally fair to the Company’s minority and unaffiliated stockholders, and to recommend that the Board approve the Proposed Transaction and the entry into and execution of the Merger Agreement (and any other document deemed necessary or advisable in connection with the Proposed Transaction) and to recommend that the Board recommend the same to the Company’s stockholders.

On June 4, 2013, immediately following the meeting of the Special Committee, the Board (consisting of Mr. Crocco, Ms. Feldman and Mr. Powers, with Mr. Gumbiner not participating) held a telephonic meeting to consider the Proposed Transaction and the Merger Agreement. During such meeting, the Board (consisting of Mr. Crocco, Ms. Feldman and Mr. Powers, with Mr. Gumbiner not participating), upon the recommendation of the Special Committee, agreed with the Special Committee that the Proposed Transaction, as contemplated by the Merger Agreement, was advisable and in the best interests of the Company and its minority and unaffiliated stockholders, and was substantively and procedurally fair to the Company’s minority and unaffiliated stockholders, and the Board approved the Merger Agreement and recommended the Merger Agreement to the Company’s stockholders for their approval and adoption.

On June 4, 2013, following the Board meeting, the Merger Agreement in the form submitted to the Board (consisting of Mr. Crocco, Ms. Feldman and Mr. Powers, with Mr. Gumbiner not participating) was executed by the parties thereto.

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On June 5, 2013, the Company issued a press release and filed with the SEC a Current Report on Form 8-K announcing that it had entered into the Merger Agreement.

On June 5, 2013, as required by the January 10, 2013 Notice Order, the Company provided notice to HEI Creditors’ Trust and the Bankruptcy Court of the filing on June 5, 2013 of the Company’s Current Report on Form 8-K announcing its entry into the Merger Agreement.

On June 11, 2013, HEI Creditors’ Trust, FEI Shale L.P. and Hall Phoenix/Inwood Ltd. filed in the Bankruptcy Court an objection to the Company’s June 5, 2013 notice of intent to proceed with the Proposed Transaction. The plaintiffs’ motion argues, among other things, that the Proposed Transaction would be in violation of the Bankruptcy Court’s May 28, 2010 order and requests that the Bankruptcy Court enjoin the Company from consummating the Proposed Transaction. This litigation was dismissed on November 22, 2013.

On July 1, 2013, the Special Committee held a telephonic meeting, at which representatives of Wick Phillips were also in attendance, to consider, among other items, a postponement by the parties to the Merger Agreement of the performance of their respective obligations to file with the SEC a proxy statement and Schedule 13E-3 prior to October 31, 2013. The Special Committee determined that the process of preparing the proxy solicitation and the Schedule 13E-3 would require significant use of Company resources, and that preparing such filings before October 31, 2013 would not be commercially reasonable in light of the then-pending litigation against the Company, which litigation has since been dismissed. Accordingly, the Special Committee was concerned about the timing of the filing of the Preliminary Proxy Statement. After deliberating and receiving advice from its counsel, the Special Committee concluded that the postponement of such filings was in the best interest of the Company and its stockholders.

On July 8, 2013, the Company issued a press release announcing the receipt of a letter from the Exchange dated July 5, 2013 informing the Company that it had resolved the continued listing deficiency referenced in the Exchange’s letter dated April 11, 2013. On July 9, 2013, the Company filed a copy of such press release as an exhibit to a Current Report on Form 8-K.

On July 11, 2013, the parties to the Merger Agreement entered into an Amendment to Agreement and Plan of Merger stating that no party shall have any obligation to file a Schedule 13E-3, prior to October 31, 2013 (the “Amendment”).

On July 12, 2013, the Company filed with the SEC a Current Report on Form 8-K announcing that it had entered into the Amendment.

On August 23, 2013, a complaint was filed in the Court of Chancery of the State of Delaware captioned Sample v. Gumbiner et al., Civil Action No. 8833-VCN. The action named as defendants the directors of the Company, and also named as defendants Parent and Merger Sub. The Company was also named as a defendant or, in the alternative, as a nominal defendant. Among other things, the plaintiff alleged that all defendants other than Merger Sub breached fiduciary duties to the minority and unaffiliated stockholders in connection with the proposed Merger as a consequence of an allegedly unfair merger process and an allegedly unfair merger price. The complaint also alleged that Merger Sub aided and abetted these claimed breaches of fiduciary duty. The defendants denied, and continue to deny, any and all alleged wrongdoing. The complaint is described in more detail on page 58.

In December 2013 and January 2014, the parties to the Sample Litigation discussed and negotiated the terms on which the Sample Litigation might be settled, subject to Court approval. Ultimately, Parent offered to settle the Sample Litigation by adding an additional $3.00 per share to the purchase price to be paid in the Merger, with a condition that the Merger Agreement be amended to provide that Parent could terminate the Merger Agreement if such settlement were rejected by the Court or other court of appropriate jurisdiction.

On January 23, 2014, Potter Anderson provided a draft of a proposed settlement stipulation.

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On January 24, 2014, Hunton & Williams provided a draft of a proposed amendment to the Merger Agreement.

On January 24, 2014, the Special Committee held a meeting in which Wick Phillips reported the proposed terms of the settlement. The Special Committee reserved making a decision on the settlement while the terms were being negotiated with the plaintiff in the Sample Litigation.

On January 28, 2014, the Special Committee met again to discuss the terms of the settlement proposed by Parent. The Special Committee was concerned about accepting Parent’s request to have the right to terminate the Merger Agreement if the settlement were rejected by the Court or other court having such authority. The Special Committee considered the following options: (i) rejecting the settlement and requiring the Merger to proceed at the $10.00 per share purchase price, (ii) accepting Parent’s proposed terms, or (iii) negotiating for additional protection of the Merger while obtaining the additional $3.00 per share for the Company’s minority and unaffiliated stockholders. Without approving the settlement, the Special Committee instructed Wick Phillips to request a change to the proposed amendment to the Merger Agreement that would preserve the Merger at the original purchase price of $10.00 per share if the settlement were rejected by the Court.

On January 28, 2014, Wick Phillips contacted Hunton & Williams to request a modification to the proposed amendment to the Merger Agreement that would require Parent to close the Merger at $10.00 per share if the settlement were ultimately rejected by the Court.

On January 29, 2014, Hunton & Williams provided a draft amendment to the Merger Agreement that provided for an additional $3.00 per share to the purchase price in the Merger, a condition to closing that the settlement to the Sample Litigation be finally approved by the Court, and a provision for further amendment to the Merger Agreement to reduce the purchase price back to the original purchase price of $10.00 per share if the settlement were rejected by the Court. The draft amendment further provided for the re-solicitation of stockholder approval of the Merger at the original $10.00 purchase price if the settlement were rejected.

On February 3, 2014, the Special Committee met to discuss the proposed amendment to the Merger Agreement and a proposed settlement stipulation that would be filed with the Court. A draft of each had been previously provided to the Special Committee for review. The Special Committee discussed both the risks and benefits of entering into the proposed amendment. On one hand, an obvious and significant benefit included an additional $3.00 per share in purchase price (less a proportionate deduction for any incentive fee and attorney’s fees awarded by the Court) for the Company’s minority and unaffiliated stockholders. On the other hand, the completion of the Merger could be put at risk by the amount of time it would take to amend the Merger Agreement and solicit stockholder approval again at the original price of $10.00 per share in the event that the Merger Agreement had to be further amended following a rejection of the settlement agreement by the Court. In general, the longer a merger transaction goes without closing, the greater the risk of an event occurring that could permit a party to refuse to close. For example, a default under the Brookwood credit facility is one of the events identified in the Merger Agreement that would allow Parent not to close the Merger. The risk of such event occurring is increased by the amount of time that elapses between the signing of the Merger Agreement and the closing of the Merger. The Special Committee believed that the benefit of obtaining the increased purchase price in an amendment to the Merger Agreement was greater than the risk of the transaction failing in the time required to address the events required if the settlement were rejected. The Special Committee approved the proposed amendment to the Merger Agreement and the proposed settlement stipulation. The Special Committee further authorized its counsel and the officers of the Company to complete negotiation of such amendment and stipulation, with such other terms, documents and notices as such counsel and officers deemed appropriate in furtherance of such approved terms, and to execute and file such documents with the appropriate courts, the SEC and other authorities.

On February 7, 2014, the Company entered into a proposed Stipulation of Settlement in the Sample Litigation, subject to approval by the Court, and entered into the Second Amendment formalizing the terms outlined above, which had been previously approved by the Special Committee. The Company filed a Form 8-K announcing the Second Amendment.

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On March 25, 2014, the Court held a public hearing regarding the Settlement, during which it indicated its approval of the Settlement. On March 28, 2014, the Court entered a Final Order and Judgment approving the Settlement. The Court’s order awarded a $10,000 incentive fee to the plaintiff and $310,000 in attorney’s fees to the plaintiff’s counsel. This means that the Merger Consideration will equal $12.39 per share. In addition to awarding in a $10,000 incentive fee and $310,000 in attorney’s fees, the Court reserved judgment on a separate application for additional attorney’s fees relating to disclosure by the Company of certain information, which resulted from the Settlement. The Company will not be responsible for payment of any such separate disclosure-based award of attorney’s fees and, regardless of whether the Court grants such an award, the Merger Consideration will not decrease as a result.

On March 26, 2014, the promissory note associated with the HFL Loan (as described above) was amended, pursuant to a Third Amendment to Promissory Note, to extend the revolving credit facility under certain conditions until December 31, 2014 to provide up to $3,000,000 in funding for general and administrative expenses of the Company. The maturity date was also extended to March 30, 2016. Hallwood Family (BVI) L.P. will not have any obligation to advance any additional amounts to the Company on or after December 31, 2014. As of December  31, 2013, the outstanding balance of the HFL Loan was $5,411,000.

REASONS FOR THE MERGER; FAIRNESS OF THE MERGER; RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD

The Company’s Board of Directors

As discussed in greater detail below, the Board believes that the Merger Agreement and the merger contemplated thereby (the “Merger”), upon the terms and conditions set forth in the Merger Agreement, are advisable and in the best interests of the Company and its minority and unaffiliated stockholders. The Board has determined that the Merger is substantively and procedurally fair to the Company’s minority and unaffiliated stockholders. The recommendation of the Board is based, in part, upon the unanimous recommendation of the Special Committee.

The Board consists of four directors. Anthony J. Gumbiner, who is affiliated with Parent and will remain as an executive officer and director of the Company, did not participate in the deliberations concerning or voting on the Merger Agreement or the above recommendations. The three remaining, independent directors (Charles A. Crocco, Jr., Amy Feldman and Michael Powers, who also constitute the independent Special Committee), voted in favor of the above recommendations.

The Special Committee

In November 2012, in response to the Proposal Letter from Parent, the Board formed a Special Committee of independent non-employee directors to consider on behalf of the Board the Proposed Transaction. The Special Committee is comprised of Charles A. Crocco, Jr. (chairman), Amy H. Feldman and Michael R. Powers, three independent directors.

As discussed in greater detail below, the Special Committee believes that the Merger Agreement and the Merger, upon the terms set forth in the Merger Agreement, including without limitation, the price of $10.00 per share of Common Stock originally agreed to be paid to the Company’s minority and unaffiliated stockholders, or $13.00 per share (less a proportionate deduction for the incentive fee and attorney’s fees that were awarded by the Court in connection with the Settlement relating to the Sample Litigation, as further described under the subheading entitled “ Special Factors—Litigation ”), are advisable, in the best interest of, and substantively and procedurally fair to, such minority and unaffiliated stockholders.

Recommendation of the Special Committee

The Special Committee, by unanimous vote at a meeting held on June 4, 2013:

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The Special Committee considered the following material factors in approving the Merger Agreement and making its determination and recommendation, which factors support the Special Committee’s belief that the Merger Agreement and the Merger, upon the terms set forth in the Merger Agreement, are substantively and procedurally fair to the Company’s minority and unaffiliated stockholders:

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In considering the Proposed Transaction, the Special Committee also considered certain risks and potentially negative factors, including the following:

The Special Committee did not establish, and did not specifically consider, a pre-Merger public company going concern value of Common Stock for the purposes of determining the per share Merger Consideration or the fairness of the per share Merger Consideration to the minority and unaffiliated stockholders of the Company. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement per share price of Common Stock, the original per share Merger Consideration of $10.00 represented a premium to the going concern value of the Company. In addition, the Special Committee did not consider net book value of Common Stock because it believes that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, either the public trading prices of Common Stock or the Company’s value as a going concern. The Special Committee did not consider liquidation value in determining the fairness of the Merger to the minority and unaffiliated stockholders of the Company because of its belief that liquidation sales generally result in proceeds substantially less than sales of a going concern, because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, because it considered the Company to be a viable, going concern and because the Company will continue to operate its business following the Merger.

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The Special Committee determined it was unnecessary to establish or specifically consider the going concern value of the Company (or the value of its business as operated rather than the value of its assets sold in a liquidation) in light of the other information considered by the Special Committee in assessing the initial $10.00 per share offer price, as described in this proxy statement. In addition, Southwest Securities reported to the Special Committee that certain approaches in its analysis resulted in estimates of value that were either negative or approximately zero. Southwest Securities noted that stock prices cannot be “negative” and considered any negative results to imply “speculative” or essentially no going concern value. One indication of going concern value is the company’s pre-announcement per share price of its common stock. Additionally, multiplying adjusted EBITDA (earnings before reduction for interest, taxes, depreciation and amortization, and after removing certain extraordinary income and expense items) of a company by a certain multiple is a typical manner of determining the going concern value of a company on an enterprise value basis. Another manner of going concern valuation is to calculate a company’s expected cash flow over a long period of time and apply a discount to provide for the time value of that projected cash flow. At the time Southwest Securities presented its March 28, 2013 report to the Special Committee, the Company was expected to have a $900,000 negative EBITDA in 2013. Also, the Company was unable to determine a projected cash flow beyond then end of 2013 due to dependence of its only operating business, Brookwood, on military purchasing.

Instead of specifically determining the Company’s single going concern value, the Special Committee examined the deemed enterprise value of the Company that was implied by the Parent’s $10.00 per share bid as compared to the deemed enterprise value reflected in the purchase price of other comparable public companies and similar transactions. Enterprise value of a company is its public market value, plus the amount of its indebtedness, minus the amount of its cash. The Southwest Securities report of March 28, 2013 indicated that Parent was implicitly treating the Company as having a $29.2 million enterprise value by offering $10.00 per share, which was 24.6 times (a multiple of 24.6) the Company’s 2012 adjusted EBITDA. Furthermore, at the time of such report, the Company was expected to have $900,000 negative EBITDA in 2013. Such report also contained an analysis of 12 transactions similar to the Proposed Transaction. The purchase prices in these example transactions implied an average enterprise valuation of these companies of 7.0 times their EBITDA, as compared to the 24.6 times EBITDA valuation reflected in the price offered by Parent. For these reasons, and based on the other information and circumstances described in this proxy statement, the Special Committee did not believe that it needed to determine a single actual going concern value of the Company to conclude that the $10.00 per share purchase price was fair to the Company’s minority and unaffiliated stockholders.

Because the Special Committee concluded that the purchase price of $10.00 per share was fair to the Company’s minority and unaffiliated stockholders, it concluded that an increase in purchase price to $13.00 per share, without interest, less a proportionate deduction for the incentive fee and attorney’s fees that would be awarded by the Court in connection with the Stipulation of Settlement relating to the Sample Litigation, would make the Proposed Transaction no less fair to the Company’s minority and unaffiliated stockholders. The Sample Litigation is more fully described under the subheading entitled “ Special Factors—Litigation. ”

The foregoing discussion is not intended to be exhaustive, but summarizes certain factors considered by the Special Committee in making its determination and recommendation to the Board. In view of the wide variety of factors considered by the Special Committee and the complexity of these matters, the Special Committee did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors and instead made its determination based on all factors and considerations, taken as a whole. In addition, each of the members of the Special Committee may have assigned different weights to various factors. On balance, the Special Committee determined that the positive factors discussed above outweighed any negative factors.

Although the market trading price of the Company’s Common Stock at some points in the twelve months prior to the execution of the Merger Agreement had exceeded the proposed $10.00 per share purchase price for the Proposed Transaction, the Special Committee did not consider such higher price as significant to determining the fairness of the price in the Proposed Transaction. The Special Committee recognized from the March 28, 2013 report of Southwest Securities that the proposed $10.00 per share purchase price was at a 15.7% premium over the 120 day trading average for such Common Stock immediately prior to the announcement of the proposal by

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Parent of the proposed $10.00 per share purchase price. Such report also indicated that the price of such Common Stock had not traded above $10.00 since the third quarter of 2012 and the trading price demonstrated steady trend of decline beginning in March 2010. Considering this history, the other information presented by Southwest Securities, and the Special Committee’s knowledge about the performance of the Company, the Special Committee believed that the prior trades of the Company’s Common Stock in excess of such $10.00 per share price did not reflect the value of such Common Stock at the time the Special Committee approved the Proposed Transaction. The closing price of the Company’s Common Stock has not exceeded $13.00 per share since February 2012.

Although the Premiums Paid Analysis of Southwest Securities described on page 39 indicated some ranges of values for the Common Stock that exceeded $10.00 per share, the Special Committee did not view such excess as a basis for requiring a higher per share Merger Consideration. Such test was used to demonstrate the price of $10.00 per share fell within a range that was fair to the minority and unaffiliated stockholders and not as a basis for supporting a higher value. The sampling of companies used in such analysis was based only on the size of such companies and not on their business, historical and current financial performance, competitive and operating environment, and, therefore, the Board and the Special Committee did not believe that this analysis was itself determinative of the value of the Company.

The Special Committee believes that the process it followed in making its determination and recommendation with respect to the Merger Agreement was fair and proper because, among other things:

Recommendation of the Board

At a meeting on June 4, 2013, following the recommendation of the Special Committee, the Board (consisting of Mr. Crocco, Ms. Feldman and Mr. Powers, with Mr. Gumbiner not participating):

In voting on the above items, the Board reviewed a significant amount of information and considered each of the factors recited above with respect to the Special Committee’s deliberations, as well as the fact that the Merger Agreement was approved and recommended by the Special Committee after a full and deliberate process. In view of the wide variety of factors considered by the Board and the complexity of these matters, the Board did not find it practicable to quantify or otherwise assign relative weights to the factors it considered in making its decision. In addition, individual members of the Board may have assigned different weights to various factors. The Board members voting on the Merger Agreement unanimously approved the Merger Agreement and the Merger, and found the Proposed Transaction to be substantively and procedurally fair to the minority and unaffiliated

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stockholders, based upon the totality of the information presented to and considered by them. The Board expressly adopted the analysis and recommendations of the Special Committee and Southwest Securities with respect to the Proposed Transaction.

The Board (consisting of Mr. Crocco, Ms. Feldman and Mr. Powers, without Mr. Gumbiner’s participation) unanimously recommends that you vote “FOR” the proposal to adopt the Merger Agreement and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the Merger Agreement.

OPINION OF SOUTHWEST SECURITIES

Southwest Securities was retained to act as financial advisor to the Special Committee in connection with the transactions described in this Proxy Statement. In connection with this engagement, the Special Committee requested Southwest Securities to evaluate the fairness, from a financial point of view, to the holders of Common Stock (other than shares of Common Stock owned by Parent, HFL Merger Corporation, a Delaware corporation (“Merger Sub”), and their respective affiliates and other than shares as to which any appraisal rights are properly exercised) of the Merger Consideration payable per share of Common Stock pursuant to the Merger Agreement. On March 28, 2013, at a meeting of the Special Committee, Southwest Securities expressed orally to the Special Committee that it was prepared to opine that the Merger Consideration originally offered by Parent was fair from a financial point of view. On June 4, 2013, Southwest Securities provided its oral report to the Special Committee, which confirmed, with no substantial changes, its March 28, 2013 oral statement and was then confirmed by delivery of its written opinion dated as of June 4, 2013, to the effect that, as of that date and based on and subject to the matters described in its opinion, the original Merger Consideration payable pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of Common Stock (other than shares of Common Stock owned by Parent, Merger Sub and their respective affiliates and other than shares as to which any appraisal rights are properly exercised).

The full text of Southwest Securities’ written opinion, dated as of June 4, 2013, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached to this Proxy Statement as Annex B. You are urged to read the opinion carefully and in its entirety. Southwest Securities’ opinion was directed to the Special Committee in connection with its evaluation of the original Merger Consideration from a financial point of view and does not address any other aspects or implications of the Merger. Southwest Securities’ opinion is not intended to be and does not constitute a recommendation to any stockholder as to any action that should be taken with respect to the proposed Merger. Southwest Securities’ opinion does not address the relative merits of the Merger as compared to any alternative business strategies that might exist for the Company or the underlying business decision of the Company to effect the Merger. The following is a summary of Southwest Securities’ opinion and the methodology that Southwest Securities used to render its opinion.

Southwest Securities has consented to the use of its opinion in this proxy statement. Pursuant to the engagement letter between Southwest Securities and the Company, Southwest Securities’ opinion was furnished solely for the use and benefit of the Special Committee (solely in its capacity as such) in connection with its consideration of the Merger and was not intended to, and did not, confer any rights or remedies upon any other person. Any defenses by Southwest Securities with respect to a claim by any such person, including a shareholder of the Company, would be subject to resolution under applicable law and would need to be resolved by a court of competent jurisdiction. The availability of any such defenses under applicable law will have no effect on the rights and responsibilities of the Special Committee or board of directors of the Company under applicable Delaware law. The Opinion was not intended to be used, and may not be used, for any other purpose, without the express, prior written consent of Southwest Securities. This opinion should not be construed as creating any fiduciary duty on the part of Southwest Securities to

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any party. This opinion is not intended to be, and does not constitute, a recommendation to the Special Committee, any security holder or any other person or entity as to how to act or vote with respect to any matter relating to the Merger.

The opinion was necessarily based on financial, economic, market and other conditions as in effect on, and information available to Southwest Securities as of, the date of the opinion. Southwest Securities did not undertake to update, reaffirm, revise or withdraw its opinion or otherwise comment upon any events occurring or coming to its attention after the date of the opinion and does not have any obligation to update, revise or reaffirm this opinion.

In the course of performing its review and analysis for rendering this opinion, Southwest Securities, among other things:

In rendering its opinion, Southwest Securities relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished or otherwise made available to it, discussed with it or reviewed by it, or that was publicly available, and did not assume any responsibility for or with respect to such data, material, or other information. Southwest Securities was not requested to, and did not perform an independent evaluation, physical inspection or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company, and was not furnished with any such valuations or appraisals. Southwest Securities did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject. Southwest Securities was not provided any financial projections or estimates of future performance by management of the Company beyond the year ended December 31, 2013, and was advised by management that none exist or could be meaningfully prepared, due to the uncertainty created by the Company’s significant reliance on one source of revenue.

In its analysis of the Company, Southwest Securities reviewed projections for the Company on a consolidated basis covering the year ending 2013 that were periodically updated during the term of its due diligence. The report Southwest Securities presented to the Special Committee on March 28, 2013, attached as Exhibit (c)(2) to Amendment No. 1 to Schedule 13E-3 filed in conjunction herewith, contained projections that reflected a loss for the Company in 2013. Brookwood, the Company’s only operating subsidiary, updates its projections periodically for the Company’s board of directors. Brookwood made such an update on May 7, 2013, to show a slight increase in projected income for 2013, which projections are described herein on page 49 without consolidation with the projected cash flows of the Company as its parent. Such revised projections were also reviewed by Southwest Securities prior to the delivery of its opinion.

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In relying on the financial analyses and forecasts provided, Southwest Securities assumed that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company. Southwest Securities relied on the assurances of management of the Company that they were unaware of any facts that would make such business prospects and financial outlook incomplete or misleading. Southwest Securities also assumed that the Merger Agreement conformed in all material respects to the latest available drafts it reviewed; that the Merger will be consummated in a timely manner and in accordance with the terms set forth in the Merger Agreement without waiver, modification, or amendment of any material term, condition or agreement; and that all governmental, regulatory, and other consents and approvals necessary for the consummation of the Merger will be obtained without any material adverse effect on the Company or on the contemplated benefits of the Merger. Southwest Securities relied upon and assumed, without independent verification, that there had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the dates of the most recent financial statements and other information, financial or otherwise, provided to it, in each case that would be material to the analysis for its opinion.

The opinion addressed solely the fairness of the financial terms of the original Merger Consideration and did not address any other terms or agreement relating to the Merger or any other matters pertaining to the Company. Southwest Securities was not authorized to, and did not:

Southwest Securities did not consider, and expressed no opinion with respect to, (i) the price at which shares of the Common Stock may trade following announcement or consummation of the Merger; (ii) the estimated value of the Company’s Rhode Island real estate; and (iii) the value of any potential claims the Company may have against Mr. Gumbiner and other employees and advisors of the Company resulting from the entry of judgments by the Bankruptcy Court against the Company totaling approximately $24 million.

Southwest Securities acted as financial advisor to the Special Committee in connection with the Merger and received a fee for its services in the aggregate amount of $150,000. A portion of the fee was paid at the commencement of the engagement, and the remainder was paid in accordance with the terms of the engagement letter, including $75,000 which was paid upon the delivery of an oral summary by Southwest Securities of its fairness opinion. No portion of the fee was contingent upon consummation of the Merger or the conclusions which Southwest Securities reached in its opinion. In addition, the Company agreed to reimburse Southwest Securities for its expenses and indemnify Southwest Securities for certain liabilities that may arise out of the engagement. In the ordinary course of business, Southwest Securities may, for its own account and the accounts of its customers, actively trade the securities of the Company and, accordingly, may hold a long or short position in such securities. During the last two years, Southwest Securities has not provided investment banking or any other services to the Company for which it received compensation from the Company.

Southwest Securities’ opinion does not constitute legal, regulatory, accounting, insurance, tax or other similar professional advice, and does not address or express an opinion regarding:

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Summary of Southwest Securities’ Analyses

In preparing its opinion, Southwest Securities performed a variety of financial and comparative analyses, including those described below. This summary is not a complete description of Southwest Securities’ opinion of the financial and comparative analyses performed and factors considered in connection with its opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or summary description. Southwest Securities believes that its analyses must be considered as a whole. Considering any portion of Southwest Securities’ analyses or the factors considered by Southwest Securities, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the conclusion expressed in Southwest Securities’ opinion. In addition, Southwest Securities did not attribute any particular weight to any analysis, but instead made qualitative judgments about the significance and relevance of each such analysis so that the range of valuations resulting from any particular analysis described below should not be taken to be Southwest Securities’ view of the Company’s actual value. Accordingly, the conclusions reached by Southwest Securities are based on all analyses and factors taken as a whole and also on the application of Southwest Securities’ own experience and judgment.

In performing the analyses, Southwest Securities took into consideration factors related to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond the Company’s and Southwest Securities’ control. The analyses performed by Southwest Securities are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per share value of the Common Stock do not purport to be appraisals or to reflect the prices at which the Common Stock may actually be sold. The analyses performed were prepared solely as part of Southwest Securities’ analysis of the fairness, from a financial point of view, of the proposed Merger Consideration originally offered by Parent to be received by holders of Common Stock pursuant to the Merger Agreement, and were provided to the Special Committee in connection with the delivery of Southwest Securities’ opinion. As described in the foregoing analysis, certain approaches resulted in estimates of value that were either negative or approximately zero and therefore, Southwest Securities noted that stock prices cannot be “negative” and considers any negative results to imply “speculative” or essentially no value.

The following is a summary of the material financial and comparative analyses reviewed by Southwest Securities with the Special Committee in connection with Southwest Securities’ delivery of its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand Southwest Securities’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Southwest Securities’ financial analyses .

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Historical Stock Trading Analysis. Southwest Securities analyzed the $10.00 cash per share of Common Stock to be paid to the holders of shares of Common Stock pursuant to the Merger Agreement in relation to the closing price of shares of Common Stock on November 8, 2012, the closing prices of shares of Common Stock for the 52-week period ended March 26, 2013, and the Common Stock’s 30-trading day average, 60-trading day average, 90-trading day average and 120-trading day average closing prices prior to November 8, 2012 the last trading day prior to the date on which the offer was announced. This analysis was undertaken to assist the Special Committee in understanding the Merger Consideration originally offered by Parent compared to recent historical market prices of the Common Stock.

This analysis indicated that the $10.00 cash per share of Common Stock to be paid to the holders of the Company’s shares of Common Stock pursuant to the Merger Agreement represented:

Southwest Securities also presented a stock price histogram for the 12-month period ended March 26, 2013, illustrating that 87.9% of the trading activity in the Common Stock occurred at prices of $10.00 per share or below.

Comparable Company Analysis. Southwest Securities reviewed and analyzed certain financial information, public market valuation multiples and market trading data relating to 12 selected comparable publicly-traded textile and specialty apparel manufacturers. Southwest Securities then compared such information to the corresponding information for the Company. No company used in this analysis is identical to the Company. The selected group of comparable companies was as follows:

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Although none of the selected textile and specialty apparel manufacturers is directly comparable to the Company, the companies included were chosen because they are publicly-traded companies in the textile and specialty apparel manufacturers industries with operations and/or business drivers that for the purposes of this analysis may be considered similar to the operations and business drivers of the Company. Criteria for selecting comparable companies included similar lines of business, markets of operation, customers and other business and financial considerations ( e.g ., business drivers, business risk and financial performance).

In the analysis, Southwest Securities reviewed, among other things, enterprise values of the selected publicly-traded companies, calculated as equity values based on closing stock prices as of March 26, 2013, plus debt, minority interest and preferred stock, less cash, as a multiple of actual and estimated EBITDA for the calendar years 2012 and 2013 (unless otherwise noted). Southwest Securities utilized EBITDA because the metric is commonly used when evaluating companies in the textile and specialty apparel manufacturers industries. The estimated financial data of the selected publicly-traded companies were based on publicly available research analysts’ estimates, public filings and other publicly available information. Based on the comparable company metrics analyzed and its professional judgment, Southwest Securities selected a multiple range of 3.3x to 10.7x for calendar year 2012 EBITDA and 3.1x to 8.8x for calendar year 2013 estimated EBITDA. Southwest Securities then applied the calculated multiples for the comparable companies to the Company’s EBITDA. Financial data of the Company were based on actual results for calendar year 2012 and based on management’s forecast estimate for the calendar year 2013 (adjusted to add-back to EBITDA the costs associated with the Hallwood Energy and Nextec litigation which were deemed to be unusual in nature). The analysis yielded only negative amounts and therefore, Southwest Securities noted that stock prices cannot be “negative” and considers any negative results to imply “speculative” or essentially no value.

Southwest Securities selected the companies reviewed in this analysis because, among other things, such companies operate similar businesses to the Company. However, no selected company is identical to the Company. Accordingly, Southwest Securities believed that purely quantitative analyses are not, in isolation, determinative in the context of the Merger and that qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of the Company and the selected companies that could affect the public trading values of each also are relevant.

Selected Precedent Transactions Analysis. Using publicly available information, Southwest Securities examined financial information relating to the following six majority stake acquisition transactions of various transaction sizes, announced over the last seven years involving textile and specialty apparel manufacturers. These transactions were selected generally because they involve target companies with similar industry focus and business drivers to the Company. The closing dates and transactions were as follows:

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Southwest Securities reviewed transaction values, calculated as the enterprise value implied for the target company based on the consideration payable in the selected transaction, as a multiple of the target company’s latest 12 months revenues and EBITDA. Financial data of the selected transactions were based on publicly available information at the time of announcement of the transaction. This analysis indicated the following multiple ranges:

Based on the selected precedent transaction metrics analyzed and its professional judgment, Southwest Securities selected a multiple range of 5.9x to 8.2x for EBITDA. Southwest Securities then applied the calculated multiples for the precedent transactions to the Company’s EBITDA. Financial data of the Company were based on actual results for calendar year 2012 and based on management’s March 28, 2013 forecast estimate for the calendar year 2013 (adjusted to add-back to EBITDA the costs associated with the Hallwood Energy and Nextec litigation which were deemed to be unusual in nature). The analysis yielded only negative amounts and therefore, Southwest Securities noted that stock prices cannot be “negative” and considers any negative results to imply “speculative” or essentially no value.

No company, business or transaction used in this analysis is identical to the Company or the Merger. In addition, an evaluation of the results of this analysis is not entirely mathematical. This analysis involves considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which the Company and the Merger were compared.

Discounted Cash Flow Analysis. Management did not prepare or make available to Southwest Securities financial forecasts beyond 2013 and therefore, a discounted cash flow analysis could not be performed.

Premiums Paid Analysis. Using publicly available information, Southwest Securities analyzed the premiums offered in (i) 41 selected publicly-traded minority buy-in merger and acquisition transactions of all sizes since January 1, 2008 and (ii) 20 selected publicly-traded minority buy-in merger and acquisition transactions for less than $50 million since January 1, 2008. For each of these transactions, Southwest Securities calculated the premium represented by the offer price over the target company’s closing share price one day, one week, 30-days and 60-days prior to the transaction’s announcement. This analysis indicated the following premiums for those time periods prior to announcement:

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Publicly-Traded Minority Buy-In M&A Transactions—Less than $50 million

Source: Capital IQ

Based on the foregoing, this analysis indicated the following implied equity value reference ranges based on median minority buy-in premiums for the Company, as compared to the Merger Consideration of $10.00 originally offered by Parent:

Minority Buy-in M&A Transactions—All Sizes

Implied Per Share Equity

Value Reference Range

$7.20—$12.69

Minority Buy-in M&A Transactions—Less Than $50 million

Implied Per Share Equity

Value Reference Range

$6.59—$10.90

The above information was presented to the Special Committee on March 28, 2013.

General. The Merger Consideration was determined through negotiations between the Company and Parent, and was approved by the Special Committee. Southwest Securities’ opinion was one of many factors taken into consideration by the Special Committee in making its determination to approve the Merger and should not be considered determinative of the views of the Special Committee, the Board or management with respect to the Merger or the Merger Consideration. Southwest Securities was selected by the Special Committee based on Southwest Securities’ qualifications, expertise and reputation. Southwest Securities is a nationally recognized investment banking and advisory firm. Southwest Securities, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services. In the ordinary course of business, Southwest Securities may, for its own account and the accounts of its customers, actively trade the securities of the Company and, accordingly, may hold a long or short position in such securities. During the last two years, Southwest Securities has not provided investment banking services to the Company, Parent, or their respective affiliates for which it received compensation.

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THE PARENT FILING PERSONS’ PURPOSES AND REASONS FOR THE MERGER

Each of the Parent Filing Persons (as defined below) may be deemed to be affiliates of the Company and, therefore, under the SEC rules governing “going-private” transactions, are required to express their purpose and reasons for the Merger. The Parent Filing Persons are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

Mr. Gumbiner, his wife Marie Magdeleine Gumbiner and Gert Lessing are the directors of Parent. Messrs. Gumbiner and Lessing are the executive directors of Parent and the sole directors and executive officers of Merger Sub. Mr. Gumbiner and Mrs. Gumbiner are the directors and executive officers of Hallwood Family Investments Ltd. (“HFI”). Mrs. Gumbiner, in her role as a director of Parent, and Mr. Lessing, in his roles as a director of Parent and a director and officer of Merger Sub, each delegated the determination of issues related to the Merger, and the negotiation of the Merger Agreement to Mr. Gumbiner. Parent, Merger Sub, HFI, Mr. Gumbiner, and Mrs. Gumbiner are referred to collectively in this discussion as the “Parent Filing Persons.” For the Parent Filing Persons, the purpose of the Merger is to enable Parent to acquire sole ownership of the Company, in a transaction in which the minority and unaffiliated stockholders of the Company will be cashed out for the Merger Consideration, so Parent will bear the rewards and risks of the ownership of the Company after shares of Common Stock cease to be publicly held and traded. Parent attempted to negotiate the terms of a transaction that would be most favorable to itself, and not to stockholders of the Company and, accordingly, did not negotiate the Merger Agreement with the goal of obtaining terms that were fair to such stockholders. Parent decided to pursue the Merger because it believes that the Company can be operated more effectively as a privately-owned company because it will not be subject to the obligations, constraints and costs associated with having publicly traded securities. In addition, the success of the Company depends primarily on the success of its Brookwood subsidiary. Brookwood’s success in turn depends in large part on sales to the customers from whom it derives its military business, which have been increasingly volatile and difficult to predict. The Parent Filing Persons believe that a business subject to this type of volatility is more appropriately operated as a private company because the public markets tend to focus on consistency and growth. For these reasons, the Parent Filing Persons believe that private ownership is in the best interests of the business and the organization and that the Merger is in the best interests of the Company’s stockholders.

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THE PARENT FILING PERSONS’ POSITION AS TO THE FAIRNESS OF THE MERGER

Under the SEC rules governing “going-private” transactions, each of the Parent Filing Persons may be deemed to be affiliates of the Company and, therefore, required to express their beliefs as to the substantive and procedural fairness of the Merger to the minority and unaffiliated stockholders of the Company. The Parent Filing Persons are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The Parent Filing Persons’ views as to the fairness of the Merger should not be construed as a recommendation to any stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement.

Given Mr. Gumbiner’s participation in the transactions contemplated by the Merger Agreement, Mr. Gumbiner did not vote or otherwise participate in the deliberations of the Special Committee or the Board when the Special Committee voted to recommend, or the Board voted to approve, the adoption of the Merger Agreement and did not receive advice from the Company’s or the Special Committee’s legal counsel or Financial Advisor.

As described in the “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ” section beginning on page 54, the Parent Filing Persons have interests in the Merger different from those of the minority and unaffiliated stockholders of the Company by virtue of Parent’s and Mr. Gumbiner’s holdings of Common Stock and Mr. Gumbiner’s expectation of a continuing leadership role in the Surviving Corporation. None of the Parent Filing Persons participated in the deliberations of the Special Committee or the Board regarding, or received advice from the Special Committee’s legal or financial advisors as to, the fairness of the Merger. Nevertheless, the Parent Filing Persons took into account the fact that the Board determined, by the unanimous vote of all members of the Board (with Mr. Gumbiner not participating), based on the unanimous recommendation of the Special Committee, that the Merger is fair to, and in the best interests of, the Company and its minority and unaffiliated stockholders on the basis of the factors and considerations described in the “ Special Factors—Background of the Merger—Reasons for the Merger; Fairness of the Merger; Recommendations of the Special Committee and the Board ” section beginning on page 28. In addition, the Parent Filing Persons believe that the Merger is fair to the minority and unaffiliated stockholders of the Company on the basis of the additional factors and considerations described below in this section. In this section, we refer to the “Board” to mean the Board of Directors other than Mr. Gumbiner (who did not participate as a Board member in discussions relating to the Merger).

The Parent Filing Persons have not engaged a financial advisor to perform any valuation or other analysis for the purpose of assessing the fairness of the Merger to the minority and unaffiliated stockholders of the Company. Based on the Parent Filing Persons’ knowledge and analysis of available information regarding the Company, the Parent Filing Persons believe that the Merger is substantively fair to the minority and unaffiliated stockholders of the Company. In particular, the Parent Filing Persons considered the following factors:

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While the Parent Filing Persons were aware of a variety of risks and other potentially negative factors concerning the Merger, the Parent Filing Persons did not specifically take such factors into account in determining the per share Merger Consideration or the fairness of the per share Merger Consideration to the minority and unaffiliated stockholders of the Company, and such factors did not directly influence the Parent Filing Persons’ determination that the Merger is substantively fair to the minority and unaffiliated stockholders. Further, the Parent Filing Persons took into account that at certain points over the year prior to the signing of the Merger Agreement, the Company’s stock price exceeded the per share Merger Consideration. However, the Parent Filing Persons’ determination that the Merger was fair to the minority and unaffiliated stockholders of the Company was based on all factors and considerations, taken as a whole.

The Parent Filing Persons did not attempt to calculate, and did not consider, a pre-Merger public company going concern value for the Company for purposes of determining the fairness of the Merger Consideration to the minority and unaffiliated stockholders of the Company. The Parent Filing Persons believe that common methods of determining a company’s going concern value are based on a calculation of the company’s expected cash flow over a period of time, to which a discount is then applied to provide for the time value of that projected cash flow. At the time the Parent Filing Persons determined the original Merger Consideration, management of the Company had projected that the Company would have only nominal or negative cash flow during 2013 and was unable to determine a projected cash flow beyond the end of 2013 due to dependence of the Company’s only operating business, Brookwood, on military purchasing. Therefore, the Parent Filing Persons determined it was not useful to calculate a specific pre-Merger public company going concern value for the Company based on the Company’s projected cash flow because the original Merger Consideration of $10.00 per share implied a greater value for the Company than would result from any such calculation. For this reason, the Parent Filing Persons

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believed that the pre-announcement per share price of Common Stock, described above, is a more reliable indication of the Company’s pre-Merger value. In addition, the Parent Filing Persons did not consider net book value of Common Stock because they believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, either the market trading prices of Common Stock or the Company’s value as a going concern. The Parent Filing Persons did not consider liquidation value in determining the fairness of the Merger to the minority and unaffiliated stockholders of the Company because of their belief that liquidation sales generally result in proceeds substantially less than sales of a going concern, because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, because they considered the Company to be a viable, going concern and because the Company will continue to operate its business following the Merger. The Parent Filing Persons are not aware of any firm offers made by any unaffiliated person during the two years prior to the execution of the Merger Agreement for the merger or consolidation of the Company with or into another company, or vice versa, the sale or transfer of all or any substantial part of the Company’s assets or a purchase of the Company’s securities that would enable the holder to exercise control of the Company in determining the fairness of the Merger to the minority and unaffiliated stockholders Company and, therefore, did not take any such offers into account in determining the fairness of the Merger.

The Parent Filing Persons believe that the Merger is procedurally fair to the minority and unaffiliated stockholders of the Company based primarily upon the following:

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While Mr. Gumbiner is an officer and director of the Company, because of his participation in the transaction as described in the “ Special Factors — Interests of the Company’s Directors and Executive Officers in the Merger ” section beginning on page 54, he did not serve on the Special Committee, nor did he participate in, or vote in connection with, the Special Committee’s evaluation or recommendation of the Merger Agreement and the Merger or the Board’s evaluation or approval of the Merger Agreement and the Merger. For these reasons, the Parent Filing Persons do not believe that Mr. Gumbiner’s interests in the Merger influenced the decision of the Special Committee or the Board with respect to the Merger Agreement or the Merger. Parent has stated, including in its initial proposal letter for the Merger, that the failure of the Special Committee to recommend, or the minority and unaffiliated stockholders to approve, the Merger would not adversely affect Parent’s or Mr. Gumbiner’s future relationship with the Company.

The foregoing discussion of the information and factors considered and given weight by the Parent Filing Persons in connection with the fairness of the Merger Agreement and the Merger is not intended to be exhaustive but is believed to include all material factors considered by them. The Parent Filing Persons did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger Agreement and the Merger. Rather, the Parent Filing Persons made the fairness determinations after considering all of the foregoing as a whole. The Parent Filing Persons believe these factors provide a reasonable basis upon which to form their belief that the Merger is fair to the minority and unaffiliated stockholders of the Company. This belief should not, however, be construed as a recommendation to any Company stockholder to approve the Merger or adopt the Merger Agreement. The Parent Filing Persons do not make any recommendation as to how stockholders of the Company should vote their shares of Common Stock relating to the Merger.

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DEREGISTRATION OF THE COMPANY’S COMMON STOCK

Following and as a consequence of the Merger, the Company will become a privately held company and a wholly owned subsidiary of Parent. Shares of our Common Stock will no longer be listed on any stock exchange or quotation system, including the NYSE MKT or publicly traded and will be deregistered under the Exchange Act.

MARKET PRICE OF THE COMPANY’S COMMON STOCK

Shares of Common Stock are traded on the NYSE MKT under the ticker symbol “HWG”. The closing price of our Common Stock on the NYSE MKT on June 4, 2013, the last trading day prior to our public announcement of the Merger Agreement on June 5, 2013, was $8.05 per share. On March 28, 2014, the closing price of our Common Stock on the NYSE MKT was $12.37 per share. The Company has not paid any cash dividends on its Common Stock since 2008. You are encouraged to obtain current market quotations for our Common Stock.

CERTAIN EFFECTS OF THE MERGER

If the Merger Agreement is adopted by the requisite votes of the Company’s stockholders and all other conditions to the Closing are either satisfied or waived, Merger Sub will merge with and into the Company, with the Company continuing as the Surviving Corporation and as a wholly owned subsidiary of Parent. At the Effective Time, each share of Common Stock outstanding immediately prior to the Effective Time (other than Excluded Shares and any Dissenting Shares) will be converted into the right to receive the Merger Consideration, and all such shares will be automatically cancelled upon the conversion thereof and will cease to exist, and each holder of (x) a certificate that immediately prior to the Effective Time represented such share or (y) uncertificated shares represented by book-entry that immediately prior to the Effective Time represented such shares will cease to have any rights with respect thereto, other than the right to receive the Merger Consideration, without interest, upon surrender of such certificate or book-entry share in accordance with the Merger Agreement.

A primary benefit of the Merger to our stockholders (other than holders of Excluded Shares) will be the right of such stockholders to receive a cash payment of $12.39, without interest, which represents at least a premium of approximately 53.7% above the closing price of the Common Stock on June 4, 2013, the last trading day prior to our public announcement of the Merger Agreement and a premium of at least approximately 120% above the closing price of the Common Stock on November 8, 2012, the last trading day prior to the date on which Parent’s proposal of a transaction was announced. Additionally, such stockholders will avoid the risk after the Merger of any possible decrease in our future earnings, growth or value.

The primary detriments of the Merger to our stockholders (other than holders of Excluded Shares) include the lack of interest of such stockholders in any potential future earnings, growth or value realized by the Company after the Merger. The minority and unaffiliated stockholders will be required to surrender their shares in exchange for a cash price determined by the filing persons and such stockholders will not have the right as a result of the merger to liquidate their shares at a time and price of their choosing. Additionally, the receipt of cash in exchange for shares of Common Stock pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes to our stockholders who are U.S. holders. See “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger ” beginning on page 55.