UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
Filed by
the Registrant x
Filed by
a Party other than the Registrant o
Check the
appropriate box:
|
o |
Preliminary
Proxy Statement |
|
o |
Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) |
|
x |
Definitive
Proxy Statement |
|
o |
Definitive
Additional Materials |
|
o |
Soliciting
Material Pursuant to Sec.240.14a-12 |
SOUTHWALL
TECHNOLOGIES INC.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
|
x |
No
fee required. |
|
o |
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
|
(1) |
Title
of each class of securities to which transaction
applies: |
|
(2) |
Aggregate
number of securities to which transaction
applies: |
|
(3) |
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was
determined): |
|
(4) |
Proposed
maximum aggregate value of transaction: |
|
(5) |
Total
fee paid: |
|
o |
Fee
paid previously with preliminary materials. |
|
o |
Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
filing. |
|
(1) |
Amount
Previously Paid: |
|
(2) |
Form,
Schedule or Registration Statement No.: |
|
(3) |
Filing
Party: |
|
(4) |
Date
Filed: |
Persons
who are to respond to the collection of information contained in this form are
not required to respond unless the form displays a currently valid OMB control
number.
SOUTHWALL
TECHNOLOGIES INC.
3975
East Bayshore Road
Palo
Alto, California 94303
| April 25, 2005 |
Dear
Stockholder:
You are
cordially invited to attend our Annual Meeting of Stockholders, which will be
held on Thursday, May 26, 2005, at 3:00 p.m. local time, at our principal
executive offices at 3975 East Bayshore Road, Palo Alto,
California.
The
following Notice of Annual Meeting of Stockholders and Proxy Statement describe
the items to be considered by the stockholders and contain certain information
about us and our officers and directors.
Please
sign and return the enclosed proxy card as soon as possible in the envelope
provided so that your shares can be voted at the meeting in accordance with your
instructions. Even if you plan to attend the meeting, we urge you to sign and
promptly return the proxy card. You may revoke it at any time before it is
exercised at the meeting or vote your shares personally if you attend the
meeting.
Thank you
in advance for your participation and prompt attention. We look forward to
seeing you.
 | |
| Sincerely, | |
|
|
Thomas G. Hood |
|
|
President and Chief Executive Officer |
SOUTHWALL
TECHNOLOGIES INC.
3975 East
Bayshore Road
Palo
Alto, California 94303
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on May 26, 2005
To the
stockholders of Southwall Technologies Inc.:
The Board
of Directors of Southwall Technologies Inc. has called an annual meeting to seek
stockholder approval of the matters listed below.
Each of
the matters submitted to our stockholders at the annual meeting is described in
more detail in the accompanying proxy statement. We encourage you to read the
proxy statement in its entirety. The details of the annual meeting are as
follows:
|
Date: |
May
26, 2005. |
|
Time: |
3:00
p.m., local time. |
|
Place: |
Our
principal executive offices at 3975 East Bayshore Road, Palo Alto,
California. |
|
Items
of Business: |
At
the annual meeting, you and our other stockholders will be asked
to: |
|
1. |
elect
directors to serve for the ensuing year; |
|
2. |
ratify
the appointment of Burr, Pilger & Mayer LLP as the Company's
independent registered public accounting firm for the fiscal year ending
December 31, 2005; and |
|
3. |
transact
such other business as may properly come before the meeting or any
adjournment. |
|
Record
Date: |
You
may vote at the annual meeting if you were a stockholder of record at the
close of business on March 30, 2005. |
|
Proxy
Voting: |
Your
vote is important. You may vote on these matters in person or by proxy. We
ask that you complete and return the enclosed proxy card promptly, whether
or not you plan to attend the annual meeting, in the enclosed addressed,
postage-paid envelope, so that your shares will be represented and voted
at the annual meeting in accordance with your wishes. You can revoke your
proxy at any time prior to its exercise by written notice received by us,
by delivering to us a duly executed proxy bearing a later date, or by
attending the annual meeting and voting your shares in
person. |
This
notice, the attached proxy statement and form of proxy card are first being
mailed to our stockholders beginning on or about April 25, 2005.
 | |
|
By
Order of the Board of Directors | |
|
|
Maury Austin |
|
Secretary |
Palo
Alto, California
April 25,
2005
PROXY
STATEMENT
FOR
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON MAY
26, 2005
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SOUTHWALL
TECHNOLOGIES INC.
3975
East Bayshore Road
Palo,
Alto, California 94303
PROXY
STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on May 26, 2005
This
proxy statement contains information about the 2005 Annual Meeting of
Stockholders of Southwall Technologies Inc. The meeting will be held on
Thursday, May 26, 2005, beginning at 3:00 p.m., local time, at our principal
executive offices at 3975 East Bayshore Road, Palo Alto,
California.
This
proxy statement is furnished in connection with the solicitation of proxies by
our Board of Directors for use at the annual meeting and at any adjournment of
that meeting. All proxies will be voted in accordance with the instructions they
contain. If no instruction is specified on a proxy, it will be voted in favor of
Proposals 1 and 2 set forth in the notice of the meeting. A stockholder may
revoke any proxy at any time before it is exercised by giving our corporate
secretary written notice to that effect.
Our
Annual Report to Stockholders for the fiscal year ended December 31, 2004, is
being mailed to stockholders with the mailing of these proxy materials on or
about April 25, 2005. The Annual Report does not constitute any part of this
proxy statement.
INFORMATION ABOUT THE ANNUAL MEETING AND
VOTING
We
have included the following discussion of the matters to be presented at the
annual meeting to provide summary answers to some of the questions that you
might have about the annual meeting and the proposals to be presented to our
stockholders at the annual meeting. You are encouraged to read the entire proxy
statement. The information below is qualified in its entirety by the full text
of this proxy statement.
What
is the purpose of the annual meeting?
At the
annual meeting, stockholders will consider and vote on the following
matters:
|
1. |
The
election of directors to serve for the ensuing
year. |
|
2. |
The
ratification of the selection of Burr, Pilger & Mayer LLP as our
independent registered public accounting firm for the year ending December
31, 2005. |
The
stockholders will also act on any other business that may properly come before
the meeting.
Who
may vote at the annual meeting?
Only
holders of our common stock at the close of business on the record date, March
30, 2005, are entitled to receive notice of, and to vote their shares at, the
annual meeting. As of the record date, there were issued and outstanding
26,778,482 shares of common stock. Shares of our Series A 10% Cumulative
Preferred Stock, or the Series A shares, are not entitled to vote on the matters
to be presented at the meeting.
How
many votes do I have?
At the
annual meeting, you will be entitled to one vote for each share of common stock
you held on the record date.
Is
my vote important?
Your vote
is important regardless of how many shares you own. Please take time to vote.
Take a moment to read the instructions below.
How
do I vote?
You can
vote your shares in two ways. You can vote by mail or you can vote in person at
the meeting.
You
may vote by mail. You may
vote by completing and signing the proxy card that accompanies this proxy
statement and promptly mailing it in the enclosed postage-prepaid envelope. You
do not need to put a stamp on the enclosed envelope if you mail it in the United
States. The shares you own will be voted according to the instructions on the
proxy card you mail. If you return the proxy card but do not give any
instructions on a particular matter described in this proxy statement, the
shares you own will be voted in accordance with the recommendations of our Board
of Directors. The Board of Directors recommends that you vote FOR Proposals 1
and 2.
You
may vote in person. If you
attend the meeting, you may vote by delivering your completed proxy card in
person or you can vote by completing a ballot. Ballots will be available at the
meeting.
May
I revoke my proxy?
Yes. Even
if you complete and return a proxy, you may revoke it at any time before it is
exercised by taking one of the following actions:
|
· |
send
written notice
that you wish to revoke your proxy to Maury Austin, our corporate
Secretary, at our address set forth in the Notice of Annual Meeting
appearing before this proxy statement; |
|
· |
send
us another
signed proxy with a later date; or |
|
· |
attend
the annual meeting, notify Mr. Austin that you are present, and then vote
in person. |
If,
however, you elect to vote in person at the annual meeting and a broker or other
nominee holds your shares, you must bring to the annual meeting a legal proxy
from the broker or other nominee authorizing you to vote the
shares.
What
if a broker holds my shares in "street name"?
If your
shares are held in "street name" by a bank or other nominee, your bank or
nominee, as the record holder of your shares, is required to vote your shares
according to your instructions. You should instruct your broker or other nominee
to vote your shares by following the procedure provided by your broker or other
nominee. Even if you do not give your broker or other nominee instructions as to
how to vote on the other proposals described in this proxy statement, your
broker or other nominee may be entitled to use its discretion in voting your
shares in accordance with industry practice and applicable law. You may also
attend the annual meeting and vote in person. If you elect to vote in person,
however, you must bring to the annual meeting a legal proxy from the broker or
other nominee authorizing you to vote the shares.
How
many shares must be present in person or by proxy to transact business at the
annual meeting?
Our
by-laws require that shares representing a majority of the votes entitled to be
cast by the holders of common stock outstanding on the record date be present in
person or by proxy at the annual meeting to constitute a quorum to transact
business with regard to each of the proposals. Shares as to which holders
abstain from voting as to a particular matter and broker non-votes will be
counted in determining whether there is a quorum of stockholders present at the
annual meeting.
How
many votes are required to approve the proposals?
The votes
necessary to approve each of the proposals is as follows:
|
· |
Election
of Directors.
The six nominees receiving the highest number of votes cast at the annual
meeting will be elected, regardless of whether that number represents a
majority of the votes cast. |
|
· |
Other
Matters. The
affirmative vote of a majority of the total number of shares cast at the
meeting is needed to approve other matters to be voted on at the meeting,
including the ratification of the independent registered public accounting
firm. |
Abstentions
and broker non-votes will not be counted as votes in favor of a proposal, and
will also not be counted as votes cast or shares voting on such proposal.
Accordingly, abstentions and broker non-votes will have no effect on the outcome
of voting with respect to Proposal 1 (election of directors) or Proposal 2
(ratification of independent registered public accounting firm), because each of
those proposals requires an affirmative vote of a plurality, in the case of
Proposal 1, and a majority, in the case of Proposal 2, of the shares voting on
such matter.
Who
will count the votes?
The votes
will be counted, tabulated and certified by our transfer agent and registrar,
EquiServe Trust Company, N.A. A representative of EquiServe Trust Company, N.A.
will serve as inspector of elections at the meeting.
What
if additional proposals are presented at the annual
meeting?
If other
proposals are properly presented at the annual meeting for consideration, the
persons named in the proxy card that accompanies this proxy statement will have
the discretion to vote on those proposals for you. As of the date of the mailing
of this proxy statement, we do not know of any other proposals to be presented
at the annual meeting.
Will
any other business be conducted at the meeting or will other matters be voted
on?
The Board
of Directors does not know of any other matters that may come before the
meeting. If any matter properly comes before the meeting, the persons named in
the proxy card that accompanies this proxy statement will exercise their
judgment in deciding how to vote, or otherwise act, at the meeting with respect
to that matter or proposal.
Where
can I find the voting results?
We will
report the voting results in our quarterly report on Form 10-Q for the second
quarter of 2005, which we expect to file with the Securities and Exchange
Commission, or the SEC, on or before August 14, 2005.
How
and when may I submit a stockholder proposal for the 2006 annual
meeting?
If you
are interested in submitting a proposal for inclusion in the proxy statement for
the 2006 annual meeting, you need to follow the procedures outlined in Rule
14a-8 of the Securities Exchange Act of 1934. To be eligible for inclusion, your
stockholder proposal intended for inclusion in the proxy statement for the 2006
annual meeting of the stockholders must be received by us at our principal
corporate offices in Palo Alto, California as set forth below no later than
January 17, 2006.
If a
stockholder wishes to present a proposal before the 2006 annual meeting of
stockholders, but does not wish to have the proposal considered for inclusion in
the proxy statement and proxy card, the stockholder must also give written
notice to us at the address written below. The required notice must be received
by us by March 2, 2006. If a stockholder fails to provide timely notice of a
proposal to be presented at the 2006 annual meeting of stockholders, the proxies
designated by our Board of Directors will have discretionary authority to vote
on that proposal.
Any
proposals or notices should be sent to:
Southwall
Technologies Inc.
3975 East
Bayshore Road
Palo
Alto, California 94303
Attention:
Secretary
Who
will bear the costs of soliciting these proxies?
We will
bear the costs of solicitation of proxies. Brokers, custodians and fiduciaries
will be requested to forward proxy soliciting material to the owners of shares
of our common stock they hold in their names. We will reimburse banks and
brokers for their reasonable out-of-pocket expense incurred in connection with
the distribution of proxy materials.
How
can I obtain an Annual Report on Form 10-K?
Our
Annual Report on Form 10-K for the fiscal year ended December 31, 2004, is
available on our website at www.southwall.com. If you
would like a copy of our Annual Report, we will send you one without charge.
Please contact:
Southwall
Technologies Inc.
3975 East
Bayshore Road
Palo
Alto, California 94303
Attention:
Investor Relations
Telephone:
(650) 962-9111 x1178
Whom
can I contact for more information regarding the proxy materials or voting my
shares?
If you
have any additional questions about the proposals in this proxy statement, you
should contact Maury Austin, our Chief Financial Officer, by telephone at (650)
962-9111 or by e-mail to
maustin@southwall.com.
Householding
of Annual Meeting Materials
Some
banks, brokers and other nominee record holders may be participating in the
practice of "householding" proxy statements and annual reports. This means that
only one copy of our proxy statement and annual report to stockholders may have
been sent to multiple stockholders in your household. We will promptly deliver a
separate copy of either document to you if you contact us at the following
address or telephone number: Investor Relations, Southwall Technologies Inc.,
3975 East Bayshore Road, Palo Alto, California 94303, Telephone: (650) 962-9111
x1178. If you want to receive separate copies of the proxy statement or annual
report to stockholders in the future, or if you are receiving multiple copies
and would like to receive only one copy per household, you should contact your
bank, broker or other nominee record holder, or you may contact us at the above
address or telephone number.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth material information regarding beneficial ownership
of our common stock as of February 14, 2005, by:
|
· |
each
person who we know to own beneficially more than 5% of our common
stock; |
|
· |
each
of our executive officers, for whom compensation information is provided
elsewhere in this proxy statement; |
|
· |
each
director and nominee for director; and |
|
· |
all
executive officers and directors as a
group. |
Except as
noted below, the address of each person listed on the table is c/o Southwall
Technologies Inc., 3975 East Bayshore Road, Palo Alto, California 94303, and
each person has sole voting and investment power over the shares shown as
beneficially owned, except to the extent authority is shared by spouses under
applicable law. Beneficial ownership is determined in accordance with the rules
of the SEC. The information below regarding persons beneficially owning more
than 5% of our common stock is based solely on public filings made by such
persons with the SEC through February 14, 2005.
|
Name
and Address |
Common
Stock Beneficially Owned |
Percent
of Outstanding
Shares(1) |
|||||
|
Needham
Investment Management, LLC |
728,000 |
2.7 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Needham
& Company, Inc. |
1,272,740 |
4.8 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Needham
Capital Partners II, L.P.(2) |
3,258,068 |
11.7 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Needham
Capital Partners III, L.P.(3) |
5,703,716 |
20.0 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Needham
Capital Partners IIIA, L.P.(4) |
589,054 |
2.2 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Needham
Capital Partners III (Bermuda), L.P.(5) |
1,136,767 |
4.2 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Needham
Capital Partners II (Bermuda), L.P.(6) |
456,700 |
1.7 |
% | ||||
|
445
Park Avenue |
|||||||
|
New
York, New York 10022 |
|||||||
|
Dolphin
Direct Equity Partners, L.P.(7) |
6,258,062 |
22.0 |
% | ||||
|
129
East 17th Street |
|||||||
|
New
York, New York 10003 |
|||||||
|
William
A. Berry(8) |
35,376 |
* |
|||||
|
George
Boyadjieff(9) |
195,000 |
* |
|||||
|
Jami
K. Nachtsheim(8) |
32,914 |
* |
|||||
|
Joseph
B. Reagan(10) |
155,542 |
* |
|||||
|
Walter
C. Sedgwick(11) |
439,449 |
1.6 |
% | ||||
|
Thomas
G. Hood(12) |
1,311,468 |
4.7 |
% | ||||
|
Wolfgang
Heinze(9) |
75,000 |
* |
|||||
|
Dennis
Capovilla(9) |
158,333 |
* |
|||||
|
Maury
Austin(9) |
215,067 |
* |
|||||
|
Sicco
W.T. Westra(13) |
120,607 |
* |
|||||
|
All
current officers and directors as a group (10 persons)(14) |
2,738,756 |
9.6 |
% | ||||
_______________
* Less
than 1%
(1)
The
number of shares of common stock deemed outstanding consists of (i) 26,778,482
shares of common stock outstanding as of February 14, 2005, and (ii) shares of
common stock issuable pursuant to outstanding Series A shares, options or
warrants held by the respective persons or group that are exercisable within 60
days of February 14, 2005, as set forth below.
(2)
Includes
953,557 shares of common stock issuable upon conversion of Series A shares that
were issued pursuant to an investment agreement.
(3)
Includes
1,669,338 shares of common stock issuable upon conversion of Series A shares
that were issued pursuant to an investment agreement.
(4)
Includes
172,402 shares of common stock issuable upon conversion of Series A shares that
were issued pursuant to an investment agreement.
(5)
Includes
332,704 shares of common stock issuable upon conversion of Series A shares that
were issued pursuant to an investment agreement.
(6)
Includes
133,655 shares of common stock issuable upon conversion of Series A shares that
were issued pursuant to an investment agreement.
(7)
Includes
1,630,883 shares of common stock issuable upon conversion of Series A shares
that were issued pursuant to an investment agreement.
(8)
Includes
options to purchase 5,000 shares that are exercisable within 60 days of February
14, 2005.
(9)
Consists
of options that are exercisable within 60 days of February 14,
2005.
(10)
Includes
options to purchase 62,496 shares that are exercisable within 60 days of
February 14, 2005, 30,371 shares held in a family limited partnership, and
13,696 shares held in trust.
(11)
Includes
options to purchase 43,074 shares that are exercisable within 60 days of
February 14, 2005, 99,000 shares held by two public foundations of which Mr.
Sedgwick is an officer, 17,272 shares held by his son and 6,000 shares held in a
trust of which Mr. Sedgwick is a trustee.
(12)
Includes
options to purchase 890,216 shares that are exercisable within 60 days of
February 14, 2005, and 100 shares held by Mr. Hood's son and 100 shares held by
Mr. Hood's daughter.
(13)
Includes
options to purchase 118,207 shares that are exercisable within 60 days of
February 14, 2005.
(14)
Includes
options to purchase an aggregate of 1,604,060 shares that are exercisable within
60 days of February 14, 2005, the shares held in a family limited partnership
and trust described in note 10 above, the shares held by two public foundations,
in trust and by Mr. Sedgwick's son described in note 11 above, and the shares
held by Mr. Hood's son and daughter described in note 12 above.
ELECTION
OF DIRECTORS
There are
currently six members of our Board of Directors. The Board has fixed the number
of directors for the ensuing year at six and has nominated for such positions
the six people listed below. The persons named in the enclosed proxy card as
proxies will vote to elect each of the nominees unless you withhold authority to
vote for the election of one or more nominees by marking the proxy card to that
effect. Each of the six nominees has agreed to serve, but if any of them shall
become unable or unwilling to serve, the proxies, unless authority has been
withheld as to such nominee, may be voted for election of a substitute nominee
designated by our Board of Directors or the Board may reduce the number of
directors. Proxies may not be voted for more than six persons.
There are
no family relationships among any of our executive officers or
directors.
The
following information as of the date of this proxy statement is furnished with
respect to each director and nominee for election as a director. The information
presented includes information each director and nominee has given us about his
or her age, all positions he or she holds with us, his or her principal
occupation and business experience during the past five years, and the names of
other publicly-held companies of which he or she serves as a director.
Information about the number of shares of common stock and preferred stock
beneficially owned by each director or nominee, directly and indirectly, as of
February 14, 2005, appears above under the heading "Security Ownership of
Certain Beneficial Owners and Management."
|
Name |
Age | |
|
William
A. Berry(1) |
66 | |
|
George
Boyadjieff, Chairman(1)(2) |
66 | |
|
Thomas
G. Hood |
49 | |
|
Jami
K. Nachtsheim(2)(3) |
46 | |
|
Joseph
B. Reagan(1)(3) |
70 | |
|
Walter
C. Sedgwick(2)(3) |
58 |
_______________
| (1) |
Member
of the Audit Committee. |
| (2) |
Member
of the Nominating and Corporate Governance
Committee. |
| (3) |
Member
of the Compensation Committee. |
Mr.
Berry has
served on our Board of Directors since May 2003. Since April 1996, Mr. Berry has
served as a Special Projects Manager of EPRI, the Electric Power Research
Institute, a non-profit energy research organization providing science and
technology-based solutions to global energy companies. From April 1996 to July
2003, Mr. Berry served as the Chief Financial Officer of EPRI. From 1992 to
March 1996, Mr. Berry was the Senior Vice President and Chief Financial Officer
of Compression Labs, Inc., a manufacturer of visual communications systems based
on digital technology, and from 1989 to 1992 was the President of Optical
Shields, Inc. Mr. Berry worked at Raychem Corporation from 1967 until 1988,
where he was a Corporate Vice President and Chief Administrative Officer from
1985 to 1988. He is a director of FAFCO, Inc., a manufacturer of solar pool
heating systems. Mr. Berry holds a BS in industrial engineering and an MBA from
Stanford University.
Mr.
Boyadjieff joined
our Board of Directors as Chairman in December 2003. Mr. Boyadjieff was the
Chief Executive Officer of Varco International, Inc., a diversified oil service
company, from 1991 through 2002, and the chairman of the Board of Directors of
Varco from 1998 through 2003. Mr. Boyadjieff retired from active leadership of
Varco in 2003. Mr. Boyadjieff holds a BS and an MS in mechanical engineering
from the University of California at Berkeley.
Mr.
Hood has
served as our President and Chief Executive Officer since July 1998 and as a
member of our Board of Directors since March 1998. From March 1998 until July
1998, he served as Interim President and Chief Executive Officer. From July 1996
to March 1998, he served as Senior Vice President, General Manager, Energy
Products Division. From January 1995 to July 1996, he was Vice President,
General Manager, International Operations, and from October 1991 to January
1995, he was Vice President, Marketing and Sales. He is the inventor of record
on ten of our patents. Mr. Hood has an MS degree in Mechanical Engineering from
New Mexico State University and a BS in mechanical engineering from Union
College.
Ms.
Nachtsheim has been
a member of our Board of Directors since April 2003. Ms. Nachtsheim retired in
June 2000 after 20 years with Intel Corporation, a semiconductor chipmaker. Ms.
Nachtsheim served in a variety of positions at Intel, most recently as Corporate
Vice President of the Sales and Marketing Group and Director of Worldwide
Marketing, from 1998 until her retirement. From January 2003 to December 2003,
Ms. Nachtsheim served on the Board of Directors of Vixel Corporation, a creator
of disruptive storage networking technologies. Ms. Nachtsheim is a graduate of
Arizona State University with a bachelor degree in Business
Management.
Dr.
Reagan has
served as a member of our Board of Directors since June 1993 and was Chairman of
the Board of Directors from May 2000 until December 2003. He previously served
as a director from October 1987 through May 1992. Dr. Reagan is a technology and
senior management consultant to industry and to the United States Government. He
retired in 1996 after 37 years with the Lockheed Martin Corporation where he was
a Corporate Vice President and General Manager of the Research and Development
Division of the Missiles and Space Company. Since July 2004, Dr. Reagan has
served as a member of the Board of Directors of SM&A, a consulting firm that
advises on matters related to large competitive contract bidding. Dr. Reagan
holds BS and MS degrees in Physics from Boston College and a PhD in Space
Science from Stanford University.
Mr.
Sedgwick has
served as a member of our Board of Directors since January 1979. Mr. Sedgwick
has been a private investor since 1994.
The
Board of Directors recommends a vote "FOR" the election of all of the above
nominees that are nominated for election as directors.
We
believe that good corporate governance is important to ensure that Southwall is
managed for the long-term benefit of its stockholders and are committed to
having sound corporate governance principles. During the past year, we continued
to review our corporate governance policies and practices and to compare them to
those suggested by various authorities in corporate governance and the practices
of other public companies. We have also continued to review the provisions of
the Sarbanes-Oxley Act of 2002, the new and proposed rules of the SEC and the
new Nasdaq listing standards. As noted below, we have attempted to continue to
comply with Nasdaq listing standards relating to corporate governance even
though we are no longer listed on Nasdaq.
You can
request copies of the current charters of our Audit Committee, Compensation
Committee and Nominating and Corporate Governance Committee, as well as our
Corporate Governance Guidelines and Code of Business Conduct and Ethics, by
writing to:
Thomas G.
Hood
President
and Chief Executive Officer
c/o
Southwall Technologies Inc.
3975 East
Bayshore Road
Palo
Alto, CA 94303
Phone:
(650) 962-9111
Determination of Independence
Our Board
of Directors has determined that none of Messrs. Berry, Boyadjieff or Sedgwick,
Dr. Reagan or Ms. Nachtsheim has a material relationship with us (either
directly or as a partner, shareholder or officer of an organization that has a
relationship with us) and that each of these directors is "independent" within
the meaning of Nasdaq's director independence standards. In addition, our Board
of Directors has determined that each of the members of each of our Audit
Committee, Compensation Committee and Nominating and Corporate Governance
Committee has no material relationship with us (either directly or as a partner,
shareholder or officer of an organization that has a relationship with us) and
is "independent" within the meaning of Nasdaq's director independence
standards.
Director Candidates
Our
stockholders may recommend director candidates for inclusion by the Board of
Directors in the slate of nominees that the Board recommends to our stockholders
for election. The qualifications of recommended candidates will be reviewed by
our Nominating and Corporate Governance Committee. If the Board determines to
nominate a stockholder-recommended candidate and recommends his or her election
as a director by the stockholders, the name will be included in our proxy card
for the stockholders meeting at which his or her election is
recommended.
Stockholders
may recommend individuals for the Nominating and Corporate Governance Committee
to consider as potential director candidates by submitting their names and
background to the "Southwall Technologies Inc. Nominating and Corporate
Governance Committee" c/o Southwall Technologies Inc., 3975 East Bayshore Road,
Palo Alto, California 94303, Attention: Controller. The Nominating and Corporate
Governance Committee will consider a recommendation only if appropriate
biographical information and background material is provided on a timely basis.
The process followed by the Nominating and Corporate Governance Committee to
identify and evaluate candidates includes requests to Board members and others
for recommendations, meetings from time to time to evaluate biographical
information and background material relating to potential candidates and
interviews of selected candidates by members of the Nominating and Corporate
Governance Committee and the Board. Assuming that appropriate biographical and
background material is provided for candidates recommended by stockholders, the
Nominating and Corporate Governance Committee will evaluate those candidates by
following substantially the same process, and applying substantially the same
criteria, as for candidates submitted by Board members.
In
considering whether to recommend any candidate for inclusion in the Board's
slate of recommended director nominees, including candidates recommended by
stockholders, the Nominating and Corporate Governance Committee will apply the
criteria set forth in Southwall's Corporate Governance Guidelines. These
criteria include the candidate's integrity, business acumen, age, experience,
commitment, diligence, conflicts of interest and the ability to act in the
interest of all stockholders. The Nominating and Corporate Governance Committee
does not assign specific weights to particular criteria and no particular
criterion is necessarily applicable to all prospective nominees. We believe that
the backgrounds and qualifications of the directors, considered as a group,
should provide a significant composite mix of experience, knowledge and
abilities that will allow the Board to fulfill its responsibilities. We have not
paid, to date, any third party a fee to assist in evaluating and identifying
nominees. During 2004, no candidate was recommended to us by any beneficial
owner of more than 5% of our common stock.
Communications from Stockholders and Other Interested
Parties with the Board
The Board
of Directors will give appropriate attention to written communications on issues
that are submitted by stockholders and other interested parties, and will
respond if and as appropriate. Absent unusual circumstances or as contemplated
by committee charters, the Chairman of the Nominating and Corporate Governance
Committee will, with the assistance of our legal counsel, (1) be primarily
responsible for monitoring communications from stockholders and other interested
parties and (2) provide copies or summaries of such communications to the other
directors as he or she considers appropriate.
Communications
will be forwarded to all directors if they relate to substantive matters and
include suggestions or comments that the Chairman of the Nominating and
Corporate Governance Committee considers to be important for the directors to
know. In general, communications relating to corporate governance and long-term
corporate strategy are more likely to be forwarded than communications relating
to personal grievances and matters as to which we tend to receive repetitive or
duplicative communications. Stockholders and other interested parties who wish
to send communications on any topic to the Board should address such
communications to:
Ms. Jami
Nachtsheim
Chair of
the Nominating and Corporate Governance Committee
c/o
Controller
Southwall
Technologies Inc.
3975 East
Bayshore Road
Palo
Alto, CA 94303
Board of Directors Meetings and
Committees
The Board
of Directors has responsibility for establishing broad corporate policies and
reviewing our overall performance rather than day-to-day operations. The Board's
primary responsibility is to oversee the management of the company and, in so
doing, serve the best interests of the company and its stockholders. The Board
selects, evaluates and provides for the succession of executive officers and,
subject to stockholder election, directors. It reviews and approves corporate
objectives and strategies, and evaluates significant policies and proposed major
commitments of corporate resources. It participates in decisions that have a
potential major economic impact on us. Management keeps the directors informed
of company activity through regular written reports and presentations at Board
and committee meetings.
The Board
of Directors met eight times in 2004 (including two teleconference meetings).
During 2004, each of our directors attended 75% or more of the total number of
meetings of the Board of Directors and the committees of which such director was
a member. The Board has standing Audit, Compensation and Nominating and
Corporate Governance Committees. Each committee has a charter that has been
approved by the Board. Each committee must review the appropriateness of its
charter and perform a self-evaluation at least annually. Mr. Hood is the only
director who is also an employee of Southwall. He does not participate in any
meetings at which his compensation is evaluated. All members of all committees
are non-employee directors.
Executive
sessions of non-management directors will be held at least three times per year,
and during 2004, there were eight such sessions. The sessions are scheduled and
chaired by Mr. Boyadjieff. Any non-management director can request that an
additional executive session be scheduled.
Our
Corporate Governance Guidelines set forth our policy that directors should
attend annual meetings of stockholders. Two of our directors attended the 2004
annual meeting of stockholders.
Audit
Committee
The
current members of our Audit Committee are Messrs. Berry (Chairman) and
Boyadjieff and Dr. Reagan. Each of Messrs. Berry and Boyadjieff and Dr. Reagan
qualifies as an "audit committee financial expert" under SEC rules. Each of
Messrs. Berry and Boyadjieff and Dr. Reagan is an "independent director" under
the Nasdaq rules governing the qualifications of the members of audit
committees. In addition, our Board of Directors has determined that each member
of the Audit Committee is financially literate. None of Messrs. Berry and
Boyadjieff and Dr. Reagan serve on the audit committees of more than two other
public companies. The Audit Committee met five times during 2004. The
responsibilities of our Audit Committee and its activities during 2004 are
described in the Report of the Audit Committee contained below in this proxy
statement.
Compensation
Committee
The
current members of the Compensation Committee are Dr. Reagan (Chairman), Ms.
Nachtsheim and Mr. Sedgwick. The Board has determined that each of Dr. Reagan,
Ms. Nachtsheim and Mr. Sedgwick is independent as defined under Nasdaq rules.
Our Compensation Committee held five meetings during 2004 (including one
teleconference meetings). The Compensation Committee evaluates and sets the
compensation of our Chief Executive Officer and makes recommendations to our
Board of Directors regarding the salaries and bonuses of our other executive
officers. The Compensation Committee also oversees the evaluation of management
by the Board of Directors. The Compensation Committee also grants stock options
and other stock incentives (within guidelines established by our Board of
Directors) to our officers and employees. The responsibilities of our
Compensation Committee and its activities during 2004 are described in the
Report of the Compensation Committee on Executive Compensation contained below
in this proxy statement.
Nominating
and Corporate Governance Committee
The
current members of the Nominating and Corporate Governance Committee are Ms.
Nachtsheim (Chair) and Messrs. Boyadjieff and Sedgwick. The Board has determined
that each of Ms. Nachtsheim and Messrs. Boyadjieff and Sedgwick is independent
as defined under Nasdaq rules. The purpose of the Nominating and Corporate
Governance Committee is to identify individuals qualified to become Board
members, recommend to the Board the persons to be nominated by the Board for
election as directors at the annual meeting of stockholders, develop and
recommend to the Board a set of corporate governance principles and oversee the
evaluation of the Board. The Nominating and Corporate Governance Committee is
authorized to retain any such advisers or consultants. For information relating
to nominations of directors by our stockholders, see "—Director Candidates"
above. Our Nominating and Corporate Governance Committee was formed in 2004 and
did not meet in 2004.
Audit Committee's Pre-approval Policy and
Procedures
Our Audit
Committee pre-approves all services, including both audit and non-audit
services, provided by our independent registered public accounting firm for the
purpose of maintaining the independence of our independent registered public
accounting firm. For audit services, each year the independent registered public
accounting firm provides us with an engagement letter outlining the scope of the
audit services proposed to be performed during the year, which must be formally
accepted by the Audit Committee before the audit commences. The independent
registered public accounting firm also submits an audit services fee proposal,
which also must be approved by the Audit Committee before the audit
commences.
Each
year, management also submits to the Audit Committee a list of non-audit
services that it recommends the independent registered public accounting firm be
engaged to provide and an estimate of the fees to be paid for each. Management
and the independent registered public accounting firm must each confirm to the
Audit Committee that the performance of the non-audit services on the list would
not compromise the independence of the independent registered public accounting
firm and would be permissible under all applicable legal requirements. The Audit
Committee must approve both the list of non-audit services and the budget for
each such service before commencement of the work. Management and the
independent registered public accounting firm report to the Audit Committee at
each of its regularly scheduled meetings as to the non-audit services actually
provided by the independent registered public accounting firm and the
approximate fees incurred by us for those services.
During
2004, no services were provided to us by PricewaterhouseCoopers LLP, our
independent registered public accounting firm until August 16, 2004, or Burr,
Pilger & Mayer LLP or any other accounting firm other than in accordance
with the pre-approval policies and procedures described above.
During
2004, we paid each of our non-employee directors, other than Mr. Boyadjieff, the
Chairman during 2004, an annual fee of $8,000 for his or her services as a
director. Pursuant to an agreement with Mr. Boyadjieff, we paid him $50,000 for
acting as Chairman of the Board in 2004, which payment was conditioned on our
being profitable in the fourth quarter of 2004. Mr. Boyadjieff did not receive
any other cash compensation in 2004. The directors' fees are payable in shares
of our common stock at the directors' option. In addition, each non-employee
director receives $1,000 plus expenses for each Board meeting attended and a fee
of $500 for each Board meeting held via teleconference. In 2004, non-employee
directors who served on committees of the Board also received $600 for each
committee meeting attended, and committee chairmen received $750 for each
committee meeting attended. In October 2003, the Board elected to receive their
fees in the form of shares of our common stock, in lieu of cash. Other than Mr.
Boyadjieff, all of the non-employee directors received their fees for the period
beginning October 2003 and ending December 2004 in the form of common stock. The
non-employee directors, other than Mr. Boyadjieff, received an aggregate of
89,178 shares of common stock as compensation for fees in 2004.
Directors
may also from time to time be granted options to purchase shares of common stock
under our 1997 Stock Incentive Plan. During 2004, the non-employee directors
received options to purchase the following number of shares, all at an exercise
price of $0.50 per share: Mr. Berry—20,000 shares; Ms. Nachtsheim—20,000 shares;
Dr. Reagan—20,000 shares; and Mr. Sedgwick—20,000 shares. Mr. Boyadjieff
received an option to purchase 30,000 shares at an exercise price of $1.58 per
share, which option vested immediately. In addition, Mr. Boyadjieff received
options to purchase 200,000 shares and 60,000 shares at exercise prices of $0.88
per share and $1.58 per share, respectively. These options vest over four years
in equal annual installments. Neither Mr. Jaffee nor Mr. Stempel, each of whom
resigned from the Board during 2004, received any options in 2004. For a summary
of option grants we made to Mr. Hood in 2004, please see "Executive Officer
Compensation—Option Grants in Last Fiscal Year" below.
The
non-employee directors' annual fees for 2005 are as follows: Mr.
Boyadjieff—$30,000;
Mr. Berry—$18,000;
Dr. Reagan—$15,000;
Ms. Nachtsheim—$15,000;
and Mr. Sedgwick—$12,000.
In addition, each non-employee director will receive $1,000 plus expenses for
each Board meeting attended. Non-employee directors also receive a fee of $500
for each Board meeting held via teleconference. Non-employee directors who serve
on committees of the Board (other than committee chairmen) receive $750 for each
committee meeting attended in person or $500 for each committee meeting held via
teleconference. We will no longer pay a separate amount to committee chairmen
for attending committee meetings, but instead have adjusted their annual fees.
Except for Ms. Nachtsheim, each of the non-employee directors have elected to
receive their fees for 2005 in the form of common stock. For service in 2005,
Mr. Boyadjieff received options to purchase 30,000 shares, and Mr. Berry, Dr.
Reagan, Mr. Sedgwick and Ms. Nachtsheim each received options to purchase 20,000
shares, all at an exercise price of $1.28 per share.
On April
9, 1997, we signed a comprehensive set of collaborative agreements with one of
our major suppliers of raw materials, Teijin Limited. The agreements provided
for, among other things, the purchase by Teijin of 667,000 shares of our common
stock at a price of $7.50 per share; a guarantee by Teijin of a $10 million loan
for Southwall; and an agreement to collaborate to achieve closer marketing and
product development ties between the two companies. We agreed to pay a loan
guarantee fee to Teijin at the rate of 0.5625% per year on the outstanding
balance of the loan guaranteed by Teijin. Pursuant to letter agreements dated
March 28, 2002 and May 9, 2002, between Teijin and us, we repaid $2.5 million of
the loan guaranteed by Teijin with a portion of the proceeds of our public stock
offering in 2002. On November 5, 2003, we defaulted on the debt supported by the
Teijin guarantee and Teijin honored its guarantee by satisfying the obligation,
which was $1.25 million. Under the terms of Teijin's guarantee, we were
obligated to immediately repay the amounts paid by Teijin. As part of our
restructuring plan, we entered into an agreement with Teijin to satisfy Teijin's
claim for repayment of this amount. The agreement included a payment schedule
that spread the payments out over a period of four years until 2008. The
obligations owed to Teijin will not accrue interest if paid according to the
payment schedule. Teijin previously held a security interest in one of our
production machines, which it has released. Our obligations to Teijin are
guaranteed by our subsidiary, Southwall Europe GmbH. The agreement with Teijin
was amended to allow us to sell one of our production machines provided that we
paid the proceeds of the sale to Teijin. During the second quarter of 2004, we
sold the production machine to a third party, with the proceeds to be paid
to us on an installment basis. We received $560,000 of proceeds from the buyer
in June 2004, and $290,000 of proceeds on in September 2004, and paid down the
amount we owed to Teijin under the agreement by the amount of such proceeds. The
remaining amount that we owed to Teijin at December 31, 2004, under our
agreement was $419,000. In January 2005, we paid Teijin $150,000 from the final
installment of the proceeds from the sale of the production machine. In March
2005, we paid the remaining $269,000 owed to Teijin.
Also, in
connection with our 1997 agreements with Teijin, we agreed to use best efforts
to elect a Teijin nominee to our Board of Directors. Teijin has not currently
nominated any director to our Board. During 2004, we paid Teijin approximately
$4.8 million for purchases of raw material substrates.
We
believe that all transactions described above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
Future transactions, if any, with our executive officers, directors and
affiliates will be on terms no less favorable to us than could be obtained from
unrelated third parties and will be approved by a majority of the Board of
Directors and by a majority of our disinterested
directors.
The
following table sets forth information required under applicable SEC rules about
the compensation for each of the last three fiscal years of our Chief Executive
Officer and our four most highly compensated other executive officers who were
serving as officers on December 31, 2004.
|
|
Annual
Compensation(1) |
Long-Term
Compensation Awards |
||||||||||||||
|
Name
and Principal Position |
Year |
Salary(2) |
Bonus(2) |
Securities
Underlying
Options |
All
Other
Compensation |
|||||||||||
|
Thomas
G. Hood |
2004 |
$ |
270,000 |
$ |
27,000 |
520,000 |
$ |
23,291 |
(3) | |||||||
|
President
and Chief Executive Officer |
2003 |
274,154 |
130,731 |
60,000 |
17,200
|
|||||||||||
|
|
2002 |
270,000 |
122,295 |
50,000 |
17,200 |
|||||||||||
|
Wolfgang
Heinze |
2004 |
246,717 |
26,042 |
195,000 |
— |
|||||||||||
|
Vice
President, General Manager |
2003 |
221,224 |
28,482 |
10,000 |
— |
|||||||||||
|
Dresden
Operations |
2002 |
163,660 |
70,545 |
20,000 |
— |
|||||||||||
|
Maury
Austin(4) |
2004 |
242,308 |
25,000 |
350,000 |
1,000 |
(5) | ||||||||||
|
Senior
Vice President and |
2003 |
— |
— |
— |
— |
|||||||||||
|
Chief
Financial Officer |
2002 |
— |
— |
—
|
— |
|||||||||||
|
Sicco
W. T. Westra |
2004 |
195,000 |
19,500 |
125,000 |
516 |
(5) | ||||||||||
|
Vice
President, Product and |
2003 |
211,650 |
— |
15,000 |
529 |
|||||||||||
|
Business
Development |
2002 |
219,469 |
— |
20,000 |
516 |
|||||||||||
|
Dennis
Capovilla(6) |
2004 |
301,538 |
(7)
|
— |
250,000 |
1,000 |
(5)
| |||||||||
|
Vice
President, Sales and Marketing |
2003 |
87,692 |
— |
100,000 |
5,750 |
|||||||||||
|
2002 |
— |
— |
— |
— |
||||||||||||
______________
|
(1) |
In
accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted because the
aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total of annual
salary and bonuses for each of the Named Executive Officers for 2004, 2003
and 2002. |
|
(2) |
The
amounts listed under Salary and Bonus include amounts deferred pursuant to
our 401(k) Plan. |
|
(3) |
For
2004, consists of $1,000 of our matching contributions under our 401(k)
Plan and a vacation accrual cash payout of
$22,291. |
|
(4) |
Mr.
Austin joined Southwall in February 2004. |
|
(5) |
For
2004, consists of our matching contributions under our 401(k)
Plan. |
|
(6) |
Mr.
Capovilla joined Southwall in July 2003. |
|
(7) |
Includes
$101,538 of sales commissions. |
Option
Grants in Last Fiscal Year
The
following table contains information concerning each stock option we granted to
the named executive officers during 2004.
|
Number
of
Securities
Underlying
Options |
Percent
of
Total
Options
Granted
to
Employees
in |
Exercise
Price |
Expiration |
Annual
Rates of Stock Price Appreciation For
Option
Terms(3) |
|||||||||||||||
|
Name |
Granted
(1) |
Fiscal
Year |
($/Sh)(2) |
Date |
5% |
10% |
|||||||||||||
|
Thomas
G. Hood |
330,000
190,000 |
13.87
7.99 |
%
% |
$
$ |
0.50
1.81 |
10/05/14
2/24/11 |
$
$ |
103,768
140,002 |
$
$ |
262,968
326,264 |
|||||||||
|
Wolfgang
Heinze |
150,000
45,000 |
6.31
1.89 |
%
% |
$
$ |
0.50
1.81 |
10/05/14
2/24/11 |
$
$ |
47,167
33,158 |
$
$ |
119,530
77,273 |
|||||||||
|
Maury
Austin |
350,000 |
14.72 |
% |
$ |
0.50 |
10/05/14 |
$ |
110,056 |
$ |
278,904 |
|||||||||
|
Sicco
W.T. Westra |
100,000
25,000 |
4.20
1.05 |
%
% |
$
$ |
0.50
1.81 |
10/05/14
2/24/11 |
$
$ |
31,445
18,421 |
$
$ |
79,687
42,929 |
|||||||||
|
Dennis
Capovilla |
200,000
50,000 |
8.41
2.10 |
%
% |
$
$ |
0.50
1.81 |
10/05/14
2/24/11 |
$
$ |
62,889
36,843 |
$
$ |
159,374
85,859 |
|||||||||
_______________
|
(1) |
Option
grants were made under our 1997 Stock Incentive Plan. The options granted
on February 24, 2004 vest in four equal annual installments, beginning one
year after the grant date; the options granted on October 5, 2004, vest in
two equal annual installments, beginning one year from the date of grant.
In the event of certain corporate transactions such as an acquisition or
sale of the our assets, the outstanding options of the named
executive officers will become immediately exercisable for fully vested
shares of common stock, unless the options are assumed or substituted with
a comparable option by the acquiring company or its parent. In any event,
the our Compensation Committee may accelerate the vesting of outstanding
options upon certain corporate transactions or involuntary terminations
following a corporate transaction. |
|
(2) |
Grants
of options expiring October 5, 2014 were authorized on July 23, 2004
contingent upon the approval of such grants by the Company's stockholders,
which approval was obtained on October 5, 2004. The exercise price per
share of such options is equal to the fair market value of the common
stock as of their authorization on July 23, 2004. We granted the options
expiring February 24, 2011 at an exercise price per share equal to the
fair market value of the common stock on the date of grant. The exercise
price may be paid in cash or cash equivalents, in shares of the underlying
common stock valued at fair market value on the exercise date or in a
same-day sale program with the assistance of a designated brokerage
firm. |
|
(3) |
The
potential realizable values at assumed 5% and 10% annual rates of
compounded stock price appreciation for the terms of the options are based
on the fair market value or deemed fair market value of the common stock
used by us for accounting purposes, as applicable, and do not represent
our estimates or projections of its future stock prices. Actual gains, if
any, on stock option exercises will be dependent on the future performance
of our common stock. |
Fiscal
Year-End Option Values
The
following table sets forth information required under applicable SEC rules
concerning the number and value of unexercised stock options held as of December
31, 2004, by each of the named executive officers. None of the named executive
officers exercised any options in 2004. We determined the value of unexercised
in-the-money options by calculating the difference between the exercise price
per share payable upon exercise of these options and the closing price of our
common stock on the Over-the-Counter Bulletin Board Market at December 31, 2004,
which was $1.72 per share.
|
Number
of Securities Underlying Unexercised Options at Fiscal
Year-End |
In-the-Money
Options at Fiscal Year-End |
||||||||||||
|
Name |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
|||||||||
|
Thomas
G. Hood |
289,502 |
600,714 |
— |
330,000 |
|||||||||
|
Wolfgang
Heinze |
33,215 |
216,785 |
— |
150,000 |
|||||||||
|
Maury
Austin |
— |
350,000 |
— |
350,000 |
|||||||||
|
Sicco
W.T. Westra |
94,765 |
158,035 |
— |
100,000 |
|||||||||
|
Dennis
Capovilla |
25,000 |
325,000 |
25,000 |
275,000 |
|||||||||
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth information as of March 15, 2005 regarding our 1997
Stock Incentive Plan, 1998 Stock Option Plan for Employees and Consultants, and
1997 Employee Stock Purchase Plan. Our stockholders previously approved each of
these plans and all amendments that were subject to stockholder approval. We
have no other equity compensation plans that have not been approved by
stockholders.
|
|
Number
of Shares
of
Common Stock
to
be Issued Upon
Exercise
of
Outstanding
Stock
Options
(a) |
Weighted-Average
Exercise
Price of
Outstanding
Stock
Options
(b) |
Number
of Shares
of
Common Stock
Remaining
Available
for
Future Issuance
(excluding
those in
column
(a)) Under
the
Stock Option
Plans
(c) |
|||||||
|
1997
Stock Incentive Plan (1) |
3,133,513 |
$ |
2.00 |
2,771,910
|
||||||
|
1997
Employee Stock Purchase Plan (2) |
Not
applicable | |||||||||
|
1998
Stock Option Plan for Employees and Consultants (1) |
906,022 |
$ |
2.76 |
1,376,751 |
||||||
|
Total |
4,039,535 |
$ |
2.17 |
4,148,661 |
||||||
|
(1) |
In
addition to the issuance of stock options, each of the 1997 Plan and the
1998 Plan allows for the issuance of stock and restricted
stock. |
|
(2) |
A
total of 325,000 shares of common stock are reserved for issuance under
the 1997 Employee Stock Purchase Plan. Through March 15, 2005, we had
issued 255,134 shares under the 1997 Employee Stock Purchase Plan. In
addition, an offering period under the Plan is currently in effect and
scheduled to expire on May 31, 2005, on which date we will issue an
additional number of shares to be determined at such
time. |
Severance
Agreements
We have a
severance policy that covers all of our officers, including the named executive
officers, and some of our key employees, under which they may become entitled to
annual benefits in connection with certain changes in control of Southwall
affected by merger, liquidation or tender offer. Under
the policy, each participant may become entitled to a lump sum severance payment
upon his or her involuntary termination within 24 months after a change in
control. The cash payment will be equal to (i) in the case of our chief
executive officer, two times the sum of the chief executive officer's annual
rate of base salary in effect at the time of his or her involuntary termination
plus the bonuses earned by him or her for the immediately preceding fiscal year
and (ii) in the case of each other participant, between one and one and one-half
times, as determined by our Board of Directors, the sum of the participant's
annual rate of base salary in effect at the time of his or her involuntary
termination plus the bonuses earned by him or her for the immediately preceding
fiscal year. In addition, the amount paid to each participant will be grossed up
if the amount received by the participant is subject to federal excise tax as an
"excess parachute payment."
If
benefits had become due as of December 31, 2004, under the severance policy, the
maximum cash amounts payable to each of the named executive officers would be as
follows: Mr. Hood, $540,000; Mr. Heinze, $370,075; Mr. Austin, $375,000; Mr.
Westra, $292,500; and Mr.
Capovilla, $300,000
It is the
duty of the members of the Board of Directors to set the base salary of certain
executive officers and to administer our benefit plans. In addition, the Board
approves the individual bonus programs to be in effect for certain executive
officers each fiscal year. The Board acts pursuant to recommendations of our
Compensation Committee. The Compensation Committee administers the 1997 Plan,
under which stock option grants may be made to such officers and other key
employees. The Compensation Committee held five meetings during
2004.
For 2004,
the Board established the compensation payable to Mr. Hood, President and Chief
Executive Officer, and all other of our executive officers.
General
Compensation Policy. Our
executive compensation policy is competitive in order to recruit, retain and
motivate people of needed capabilities. For executives, we strive to link total
compensation to performance. Base compensation, benefits and perquisites are
intended to be competitive. Incentive compensation is provided in the form of
cash bonuses and stock options. We anticipate that the compensation levels of
our executive officers will generally be reviewed in the early part of each
fiscal year.
Factors. Several
of the more important factors that were considered in establishing the
components of each executive officer's compensation package for 2004 are
summarized below.
Base
Salary. The base
salary for each executive officer is set on the basis of personal performance
and salary levels for comparable positions at companies with revenue levels
comparable to that of Southwall. Information regarding comparable salary levels
is obtained from published surveys of companies that may or may not be in
industries comparable to that of Southwall. Generally, we target base salaries
at the mid-point of such market data.
Annual
Incentive Compensation. The
annual pool of bonuses for executive officers is determined solely on the basis
of our achievement of the financial performance targets established at the start
of the fiscal year. Actual bonuses paid reflect an individual's accomplishment
of both corporate and functional objectives, with substantially greater weight
being given to achievement of corporate rather than functional objectives. In
particular, approximately 70% of an executive's target bonus is based on
achieving corporate objectives and the balance on achieving the executive's
functional objectives, such as profitability improvement, asset management,
market position, product leadership and key projects. These factors are
evaluated on a subjective basis without specific weighting.
Long-Term
Incentive Compensation. In 2004,
the Compensation Committee approved stock option grants to each of the named
executive officers under our 1997 Plan. The grants are designed to align the
interests of each of the named executive officers with those of the stockholders
and provide each such
individual with a significant incentive to manage Southwall from the perspective
of an owner with an equity stake in Southwall. The decision to award options to
certain officers and the number of shares subject to each such option grant was
based upon the officer's type and level of function, criticality of function,
contribution and performance against objectives as described above. The
Committee considers the number of options already held by executives when
approving new options to executives. Each option grant allows the officer to
acquire shares of common stock at a fixed price per share (the market price on
the grant date) over a specified period of time (up to seven years).
Accordingly, the option will provide a return to the executive officer only if
the market price of the common stock appreciates over the option
term.
CEO
Compensation. The
annual base salary for 2004 for our President and Chief Executive Officer, Mr.
Hood, was established primarily on the basis of Mr. Hood's personal performance
and the range of base salaries paid to the chief executive officers of companies
with comparable revenue levels. Mr. Hood's 2004 salary was within the range of
base salaries paid to the chief executive officers of comparable companies. The
option grants made to Mr. Hood that were based upon his position and a
subjective evaluation of his performance, were intended to place a significant
portion of his total compensation at risk, since the options will have no value
unless there is appreciation in the value of the common stock over the option
term.
Deduction
Limit for Executive Compensation. Section
162(m) of the Internal Revenue Code of 1986, as amended, limits federal income
tax deductions for compensation paid after 1993 to the chief executive officer
and the four other most highly compensated officers of a public company to $1
million per year, but contains an exception for performance-based compensation
that satisfies certain conditions. We do not believe that the components of our
compensation will be likely to exceed $1 million per year for any executive
officer in the foreseeable future and, therefore, concluded that no further
action with respect to qualifying such compensation for federal income tax
deductibility was necessary at this time. In the future, we will continue to
evaluate the advisability of qualifying its executive compensation for such
deductibility. Our policy is to qualify its executive compensation for
deductibility under applicable tax laws as practicable.
|
The Compensation Committee | |
| Joseph B. Reagan, Chairman | |
| Jami K. Nachtsheim | |
| Walter C. Sedgwick |
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Our
Compensation Committee is composed of Joseph B. Reagan, Jami K. Nachtsheim and
Walter C. Sedgwick. Neither Dr. Reagan, Ms. Nachtsheim nor Mr. Sedgwick has at
any time since our formation been an officer or employee of Southwall. None of
our executive officers currently serves, or in the past has served as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving on our Board of Directors or Compensation
Committee.
The Audit
Committee oversees our financial reporting process on behalf of the Board of
Directors. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
The primary duties and responsibilities of the Audit Committee are to: (1)
select and approve our independent registered
public accounting firm; (2) serve as an independent and objective party to
monitor our financial reporting process and internal control systems; (3) review
and appraise the audit efforts of our independent registered
public accounting firm and internal audit department; (4) review the independent
registered public accounting firm's fee; and (5) provide an open avenue of
communication among the independent registered
public accounting firm, financial and senior management and the Board of
Directors.
The Audit
Committee consists of three members, each of whom is independent (as defined by
listing standards that govern companies, the shares of which are listed on
Nasdaq). The Board of Directors has determined that the members of the Audit
Committee satisfy the requirements of Nasdaq as to independence, financial
literacy and expertise. In addition, the Board of Directors has determined that
Mr. Berry is an audit committee financial expert as defined by the SEC and has
the requisite financial sophistication to satisfy the requirements of Nasdaq.
The Audit Committee operates under a written charter, approved by the Board of
Directors, which was last amended in April 2004.
In
fulfilling its oversight responsibilities regarding the 2004 financial
statements, the Audit Committee reviewed with management the audited financial
statements in the Annual Report, including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements. The Audit Committee's review included discussion with the
independent registered
public accounting firm of matters required to be discussed pursuant to Statement
of Auditing Standards No. 61 (Codification of Statements on Auditing Standards),
including the process used by management in formulating particularly sensitive
accounting estimates and the basis for the conclusions of the independent
registered
public accounting firm regarding the reasonableness of those
estimates.
The Audit
Committee reviewed with the independent registered
public accounting firm, who are responsible for expressing an opinion on the
conformity of those audited financial statements with generally accepted
accounting principles, their judgment as to the quality, not just the
acceptability, of Southwall's accounting principles and such other matters as
are required to be discussed with the Audit Committee under generally accepted
auditing standards. In addition, the Audit Committee has discussed with the
independent registered
public accounting firm their independence from management and Southwall,
including the matters in the written disclosures required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
and received by the Committee.
The Audit
Committee discussed with Southwall's independent registered
public accounting firm the overall scope and plans for their audits in 2005. The
Audit Committee meets with the independent registered
public accounting firm, with and without management present, to discuss the
results of their examinations, the evaluations of Southwall's internal controls,
and the overall quality of Southwall's financial reporting. The Audit Committee
held five meetings during 2004.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors, and the Board has approved, that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2004, for filing with the SEC.
| The Audit Committee | |
|
William
A. Berry (Chairman) | |
| George Boyadjieff | |
| Joseph B. Reagan |
The
following performance graph assumes an investment of $100 on December 31, 1999
and compares the changes thereafter in the market price of our common stock with
a broad market index (Coredata Market Index—Composite Market Value) and an
industry index (Coredata Industry Index—General Building Materials). We paid no
dividends during the periods shown; the performance of the indexes is shown on a
total return (dividend reinvestment) basis. The graph lines merely connect
fiscal year-end dates and do not reflect fluctuations between those
dates.
COMPARE
5-YEAR CUMULATIVE TOTAL RETURN
AMONG
SOUTHWALL TECHNOLOGIES, INC.,
COREDATA
MARKET INDEX AND COREDATA INDUSTRY INDEX
ASSUMES
$100 INVESTED ON DEC. 31, 1999
ASSUMES
DIVIDEND REINVESTED
FISCAL
YEAR ENDING DEC. 31, 2004
ASSUMES
$100 INVESTED ON DEC. 31, 1999
ASSUMES
DIVIDEND REINVESTED
FISCAL
YEAR ENDING DEC. 31, 2004
|
|
12/31/99 |
12/31/00 |
12/31/01 |
12/31/02 |
12/31/03 |
12/31/04 |
|||||||||||||
|
Southwall
Technologies Inc. |
$ |
100.00 |
|
$ |
62.16 |
|
$ |
154.59 |
|
$ |
67.68 |
|
$ |
20.76 |
|
$ |
37.19 |
||
|
General
Building Materials |
$ |
100.00 |
|
$ |
102.08 |
|
$ |
111.62 |
|
$ |
108.34 |
|
$ |
146.73 |
|
$ |
181.36 |
||
|
Composite
Market Value |
|
$ |
100.00 |
|
$ |
90.27 |
|
$ |
79.93 |
|
$ |
63.49 |
|
$ |
84.52 |
|
$ |
94.81 |
|
The
Compensation Committee Report on Executive Compensation, the Report of the Audit
Committee and the Comparison of Cumulative Total Stockholder Return information
above shall not be deemed "soliciting material" or incorporated by reference
into any of our filings with the SEC by implication or by any reference in any
such filing to this proxy statement.
RATIFICATION
OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Our Audit
Committee has selected Burr, Pilger & Mayer LLP, or BPM, an independent
registered
public accounting firm, to audit our financial statements for the fiscal year
ending December 31, 2005. BPM audited our financial statements for the fiscal
year ended December 31, 2004. Although stockholder approval of the selection of
BPM is not required by law, our Board of Directors believe that it is advisable
to give stockholders the opportunity to ratify this selection. We expect that
representatives of BPM will be present at the 2005 annual meeting, with the
opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions from stockholders.
The
Board of Directors recommends that you vote "FOR" the ratification of the
selection of BPM as our independent registered
public accounting firm, and proxies solicited by the Board will be voted in
favor thereof unless a stockholder has indicated otherwise on the
proxy.
PRINCIPAL INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FEES AND SERVICES
The
following table shows the fees paid or accrued by us for the audit and other
services provided by our principal independent registered
public accounting firms for 2004 and 2003.
|
|
2004 |
2003 |
|||||
|
Audit
fees(1) |
$ |
455,280 |
$ |
676,311 |
|||
|
Audit-related
fees(2) |
— |
50,257 |
|||||
|
Tax
fees(3) |
27,570 |
112,545 |
|||||
|
All
other fees |
— |
— |
|||||
|
Total |
$ |
482,850 |
$ |
839,113 |
|||
|
(1) |
Audit
fees represent: |
|
· |
fees
(in the amount of $266,700 with respect to 2004 and $676,311 with respect
to 2003) for professional services provided by PricewaterhouseCoopers LLP
in connection with the audit of our financial statements, 401(k) plan and
statutory audits for the fiscal year ended December 31, 2003, and the
reviews of quarterly reports on Form 10-Q filed during 2004 and 2003;
and |
|
· |
fees
(in the amount of $188,580 with respect to 2004) for professional services
provided by Burr,
Pilger & Mayer LLP in
connection with the audit of our financial statements for the fiscal year
ended December 31, 2004, and the review of quarterly reports on Form 10-Q
filed during 2004. |
|
(2) |
Audit-related
fees primarily represent fees for professional services provided by
PricewaterhouseCoopers LLP in connection with discussions regarding
corporate governance requirements under the Sarbanes-Oxley Act and related
rules and regulations. |
|
(3) |
Tax
fees consisting of fees for tax compliance, tax advice and tax planning
were paid to PricewaterhouseCoopers LLP for 2003 and Burr, Pilger &
Mayer LLP for 2004. |
All audit
and non-audit services provided by our independent registered public accounting
firm are approved by the Audit Committee, which considers whether the provision
of non-audit services is compatible with maintaining the independent registered
public accounting firm's independence.
On August
16, 2004, PricewaterhouseCoopers LLP, or PwC, was dismissed as our independent
registered public accounting firm with the approval of our Audit Committee, and,
with the approval of our Audit Committee, we engaged Burr, Pilger & Mayer
LLP to audit our financial statements for the year ending December 31,
2004.
PwC's
reports on our financial statements as of and for the years ended December 31,
2002 and 2003 included an explanatory paragraph regarding uncertainty. These
explanatory paragraphs noted our incurrence of net losses and negative cash
flows from operating activities during each fiscal year and our significant debt
service and other contractual obligations at the end of each fiscal year. These
factors raised a substantial doubt about our ability to continue as a going
concern. Other than these explanatory paragraphs, the reports of PwC on the
financial statements as of and for the years ended on or about December 31, 2002
and 2003 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principle.
During
the years ended on or about December 31, 2002 and 2003 and through August 16,
2004, there were no disagreements between us and PwC on any matter of accounting
principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of PwC, would have caused PwC to make reference
thereto in its reports on our financial statements for such years.
During
the years ended on or about December 31, 2002 and 2003 and through August 16,
2004, there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K promulgated by the SEC), except that, as detailed in our annual
reports on Form 10-K for the years ended on or about December 31, 2002 and 2003,
material weaknesses in our internal control environment were identified. These
material weaknesses were caused by a reduction in force that occurred during
2002 and 2003 and related to the inadequacy of review and supervision of the
preparation of accounting records and the untimely reconciliation of certain
accounts. The Audit Committee discussed these material weaknesses with PwC. We
have taken steps to attempt to improve our internal controls and our control
environment. We have hired a new Corporate Controller, a new Director of
Financial Planning and Analysis, a new Senior Cost Accountant, and a new Senior
Accountant for our German subsidiary; appointed a new Plant Manager for our U.S.
manufacturing operations; initiated re-training of personnel on the correct use
of our new ERP system; initiated procedure to attempt to ensure all accounts are
reconciled and reviewed on a timely basis; and are in the process of documenting
our procedures and reviewing our internal controls to ensure compliance under
section 404 of the Sarbanes-Oxley Act. We have authorized PwC to respond fully
to inquiries of successor independent accountants concerning such material
weaknesses.
Prior to
engaging BPM as our new independent registered public accounting firm on August
16, 2004, we did not consult with BPM regarding any matter that was a reportable
event or the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, with respect to which a written report or
oral advice was provided to us that BPM concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act,
requires our officers and directors and persons who own more than ten percent of
our common stock to file reports with the SEC disclosing their ownership of
stock in Southwall and changes in such ownership. Officers, directors and 10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
reports received by us and the written representations received from one or more
such persons, we believe that, during 2004 all such filing requirements were
complied with in a timely fashion, except that
Forms 4 were filed late in connection with (i) single grants of stock options to
each of Thomas Hood, Sicco Westra, Wolfgang Heinze, Dennis Capovilla, John
Lipscomb and Maury Austin; (ii) two grants of stock options to George
Boyadjieff; and (iii) payments for Board meeting attendance in the form of
common stock to each of Joseph Reagan, William Berry, Bruce Jaffe, Jami
Nachtsheim, Noriyuki Nakamura, Walter Sedgwick and Robert Stempel.
We know
of no other business that may be presented for consideration at the 2005 annual
meeting. If any other matters are properly presented to the annual meeting,
however, it is the intention of the persons named in the accompanying proxy card
to vote, or otherwise to act, in accordance with their best judgment on such
matters.
The Board
hopes that stockholders will attend the annual meeting.
Whether or not you plan to attend, you are urged to complete, sign and return
the enclosed proxy in the accompanying envelope. A
prompt response will greatly facilitate arrangements for the meeting, and your
cooperation will be appreciated. Stockholders who attend the annual meeting may
vote their shares personally even though they have sent in their
proxies.
|
|
|
|
|
By
Order of the Board of Directors |
|
|
Maury
Austin |
|
|
Secretary |
Palo
Alto, California
April 25,
2005
|
|
|
DETACH
HERE |
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SOUTHWALL
TECHNOLOGIES INC.
Annual
Meeting of Stockholders
May
26, 2005
The
undersigned hereby appoints Thomas G. Hood and Maury Austin, and each of them,
as attorneys and proxies of the undersigned, with power of substitution, to vote
all of the shares of stock of Southwall Technologies Inc. (the "Company") which
the undersigned may be entitled to vote at the Annual Meeting of Stockholders of
the Company to be held at the Company's principal executive offices at 3975 East
Bayshore Road, Palo Alto, California on Thursday, May 26, 2005 at 3:00 a.m.,
local time, and at all continuations, and adjournments or postponements thereof,
with all of the powers the undersigned would possess if personally present, upon
and in respect of the following matters and in accordance with the following
instructions, with the discretionary authority as to all other matters that may
properly come before the meeting.
Receipt
is hereby acknowledged of the Notice of Annual Meeting of Stockholders and Proxy
Statement dated April 25, 2005 (the "Proxy Statement").
UNLESS
A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES
LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY SET FORTH IN THE
PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE
VOTED IN ACCORDANCE THEREWITH.
PLEASE
VOTE, DATE, SIGN, AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED POSTAGE
PAID ENVELOPE.
|
SEE
REVERSE
SIDE |
|
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE |
|
SEE
REVERSE
SIDE |
SOUTHWALL
TECHNOLOGIES INC.
C/O
EQUISERVE TRUST COMPANY N.A.
P.O.
BOX 8694
EDISON,
NJ 08818-8694
|
DETACH
HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL |
ZSWTC1 | |
|
x |
|
Please
mark
votes
as in
this
example. |
|
#SWT |
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES FOR DIRECTORS LISTED
BELOW AND "FOR" PROPOSALS 2 AND 3.
| 1. | Election of Directors to hold office until the 2006 Annual Meeting of Stockholders and until their successors are elected. |
Nominees: (01)
William A. Berry, (02) Jami K. Nachtsheim, (03) Joseph B. Reagan, (04) Walter C.
Sedgwick, (05) Thomas G. Hood and (06) George Boyadjieff
|
FOR
ALL
NOMINEES |
|
o |
|
o |
|
WITHHELD
FROM
ALL
NOMINEES |
o______________________________________________________
For all
nominee(s) except as written above
|
2. |
|
To
ratify the selection of Burr, Pilger & Mayer LLP as our independent
registered public accounting firm for the year ending December 31,
2005. |
|
FOR
o |
|
AGAINST
o |
|
ABSTAIN
o |
|
3. |
|
In
their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and at any
adjournment or postponement thereof. | ||||||
|
MARK
HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |
|
o | ||||||
Please
sign exactly as your name appears hereon. If the stock is registered in the
names of two or more persons, each should sign. If signer is a corporation,
please give full corporate name and have a duly authorized officer sign stating
title. If signer is a partnership, please sign in partnership name by authorized
person.
|
Signature: |
|
|
|
Date: |
|
|
|
Signature: |
|
|
|
Date: |
|
|
24