SCHEDULE
14A
(RULE
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
(Amendment
No. )
Filed
by
the Registrant ý
Filed
by
a Party other than the Registrant ¨
Check
the
appropriate box:
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¨
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Preliminary
Proxy Statement
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¨
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Confidential,
For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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ý
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-11(c) or
§240.14a-12
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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):
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ý
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No
fee required.
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¨
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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1.
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Title
of each class of securities to which transaction
applies:
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2.
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Aggregate
number of securities to which transaction
applies:
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3.
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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4.
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Proposed
maximum aggregate value of
transaction:
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5.
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Total
fee paid:
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¨
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Fee
paid previously with preliminary
materials:
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¨
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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.
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1.
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Amount
previously paid:
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2.
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Form,
Schedule or Registration Statement
No.:
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3.
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Filing
Party:
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4.
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Date
Filed:
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SOUTHWALL
TECHNOLOGIES INC.
3788
Fabian Way
Palo
Alto, California 94303
April
30,
2007
Dear
Stockholder:
You
are
cordially invited to attend our Annual Meeting of Stockholders, which will
be
held on May 24, 2007, at 8:30 a.m. local time, at our principal executive
offices at 3788 Fabian Way, 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, or vote by Internet or telephone, 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, or vote by Internet or telephone. 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.
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Sincerely,
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R.
Eugene Goodson
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President
and Chief Executive
Officer
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SOUTHWALL
TECHNOLOGIES INC.
3788
Fabian Way
Palo
Alto, California 94303
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on May 24, 2007
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:
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Date:
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May
24, 2007.
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Time:
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8:30
a.m., local time.
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Place:
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Our
principal executive offices at 3788 Fabian Way, Palo Alto,
California.
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Items
of Business:
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At
the annual meeting, you and our other stockholders will be asked
to:
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1.
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elect
directors to serve for the ensuing year;
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2.
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approve
the Company’s 2007 Long-Term Incentive Plan;
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3.
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ratify
the appointment of Burr, Pilger & Mayer LLP as the Company’s
independent registered public accounting firm for the fiscal
year ending
December 31, 2007; and
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4.
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transact
such other business as may properly come before the meeting or
any
adjournment.
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Record
Date:
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You
may vote at the annual meeting if you were a stockholder of record
at the
close of business on April 17, 2007.
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Proxy
Voting:
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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, or vote by
Internet or
telephone, 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.
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This
notice, the attached proxy statement and form of proxy card are first being
mailed to our stockholders beginning on or about May 1, 2007.
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By
Order of the Board of Directors,
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Sylvia
Kamenski
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Secretary
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Palo
Alto, California
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April
30, 2007
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Table
of Contents
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Page
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1
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5
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7
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9
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12
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13
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19
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19
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20
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23
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24
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25
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26
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30
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30
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30
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31
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SOUTHWALL
TECHNOLOGIES INC.
3788
Fabian Way
Palo,
Alto, California 94303
PROXY
STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on May 24, 2007
This
proxy statement contains information about the 2007 Annual Meeting of
Stockholders of Southwall Technologies Inc. (“Southwall” or the
“Company”). The meeting will be held on May 24, 2007, beginning at
8:30 a.m., local time, at our principal executive offices at 3788 Fabian Way,
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, 2 and 3 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, 2006 is
being mailed to stockholders with the mailing of these proxy materials on or
about May 1, 2007. 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:
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1.
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The
election of directors to serve for the ensuing
year.
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2.
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The
approval of the Company’s 2007 Long-Term Incentive
Plan.
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3.
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The
ratification of the selection of Burr, Pilger & Mayer LLP as our
independent registered public accounting firm for the year ending
December
31, 2007.
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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, April
17, 2007, 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 27,139,035 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 four ways. You can vote by mail, over the
Internet, by telephone, or 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, 2 and 3.
You
may vote over the Internet. If you have Internet access, you
may vote your shares from any location in the world by following the “Vote by
Internet” instructions set forth on the enclosed proxy card.
You
may vote by telephone. You may vote your
shares by following the “Vote by Telephone” instructions set forth on the
enclosed proxy card.
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:
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send
written notice that you wish to revoke your proxy to Sylvia
Kamenski, our corporate Secretary, at our address set forth in the
Notice
of Annual Meeting appearing before this proxy
statement;
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send
us another signed proxy with a later date;
or
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attend
the annual meeting, notify Ms. Kamenski that you are present, and
then vote in person.
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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:
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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.
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·
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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 approval of the Company’s
Long-Term Incentive Plan and the ratification of the independent
registered public accounting firm.
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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), Proposal 2 (approval of the Company’s Long-Term Incentive Plan) or
Proposal 3 (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 and Proposal
3, 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,
Computershare Trust Company, N.A. A representative of Computershare
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 that voting results in our quarterly report on Form 10-Q for the second
quarter of 2007, which we expect to file with the Securities and Exchange
Commission, or the SEC, on or before August 14, 2007.
How
and when may I submit a stockholder proposal for the 2008 annual
meeting?
If
you
are interested in submitting a proposal for inclusion in the proxy statement
for
the 2008 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 2008 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 December 31, 2007.
If
a
stockholder wishes to present a proposal before the 2008 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. If a stockholder fails to
provide timely notice of a proposal to be presented at the 2008 annual meeting
of stockholders by no later than March 16, 2008, 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.
3788
Fabian Way
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, 2006, 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.
3788
Fabian Way
Palo
Alto, California 94303
Attention:
Investor Relations
Telephone:
(650) 798-1200
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 Sylvia Kamenski, our Vice President, Finance, by telephone at
(650) 798-1200 or by e-mail
to skamenski@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., 3788 Fabian Way, Palo Alto,
California 94303, Telephone: (650) 798-1200. 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 16, 2007, by:
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Each
person who we know to own beneficially more than 5% of our common
stock;
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·
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Each
of our current and former executive officers, for whom compensation
information is provided elsewhere in this proxy
statement;
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Each
director and nominee for director;
and
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·
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all
executive officers and directors as a
group.
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Except
as
noted below, the address of each person listed on the table is c/o Southwall
Technologies Inc., 3788 Fabian Way, 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 16,
2007.
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Name and Address
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Common
Stock
Beneficially
Owned
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Percent of
Outstanding
Shares(1)
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Needham
Investment Management, LLC (2)
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1,428,000
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5.3 | % | |||||
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445
Park Avenue
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New
York, New York 10022
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Needham &
Company, LLC
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2,009,807
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7.4 | % | |||||
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445
Park Avenue
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New
York, New York 10022
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Needham
Capital Management (Bermuda) L.L.C. (3)
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1,593,467
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5.8 | % | |||||
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445
Park Avenue
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New
York, New York 10022
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Needham
Capital Management, L.L.C. (4)
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9,550,838
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31.9 | % | |||||
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445
Park Avenue
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New
York, New York 10022
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Dolphin
Direct Equity Partners, L.P. (5)
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6,258,062
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21.8 | % | |||||
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129
East 17th Street
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New
York, New York 10003
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||||||||
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William
A. Berry (6)
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74,662
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*
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||||||
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George
Boyadjieff (7)
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473,929
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1.7 | % | |||||
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Jami
K. Dover Nachtsheim (6)
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72,692
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*
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||||||
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Peter
E. Salas (6)
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15,000
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*
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||||||
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Andre
R. Horn (6)
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65,000
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*
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||||||
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Thomas
G. Hood (8)
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880,263
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3.2 | % | |||||
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R.
Eugene Goodson
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11,000
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*
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||||||
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Sylvia
Kamenski (9)
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75,661
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*
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||||||
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Wolfgang
Heinze (10)
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376,761
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1.4 | % | |||||
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Dennis
Capovilla
(11)
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404,606
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1.5 | % | |||||
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Neil
Bergstrom (12)
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234,448
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*
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||||||
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All
current officers and directors as a group (11 persons)
(13)
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2,081,124
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7.7 | % | |||||
* Less
than 1%
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(1)
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The
number of shares
of common stock deemed outstanding consists of (i) 27,139,035 shares
of common stock outstanding as of February 16, 2007, 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 16, 2007, as set forth
below.
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(2)
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Consists
of shares of common stock owned by private investment partnerships
and
registered investment companies with respect to which Needham Investment
Management, LLC is a general partner or investment adviser and, therefore,
may be deemed to own. Needham Investment Management, LLC
disclaims beneficial ownership of these
shares.
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(3)
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Consists
of 804,063 shares of common stock and 332,704 shares of common stock
issuable upon conversion of Series A shares owned by Needham Capital
Partners III (Bermuda), L.P. and 323,045 shares of common stock and
133,655 shares of common stock issuable upon conversion of Series
A shares
owned by Needham Capital Partners II (Bermuda), L.P., with respect
to
which, in each case, Needham Capital Management (Bermuda) L.L.C.
is a
general partner and, therefore, may be deemed to own. Needham
Capital Management (Bermuda) L.L.C. disclaims beneficial ownership
of
these shares.
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(4)
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Consists
of 2,304,511 shares of common stock and 953,557 shares of common
stock
issuable upon conversion of Series A shares owned by Needham Capital
Partners II, L.P.; 4,034,378 shares of common stock and 1,669,338
shares
of common stock issuable upon conversion of Series A shares owned
by
Needham Capital Partners III, L.P.; and 416,652 shares of common
stock and
172,402 shares of common stock issuable upon conversion of Series
A shares
owned by Needham Capital Partners IIIA, L.P., with respect to which,
in
each case, Needham Capital Management, L.L.C. is a general partner
and,
therefore, may be deemed to own. Needham Capital Management,
L.L.C. disclaims beneficial ownership of these
shares
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(5)
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Includes
1,630,883 shares of common stock issuable upon conversion of Series A
shares that were issued pursuant to an investment
agreement.
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(6)
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Includes
options to purchase 1,429 shares that are exercisable within 60 days
of
February 16, 2007.
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(7)
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Includes
options to purchase 17,143 shares that are exercisable within 60
days of
February 16, 2007.
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(8)
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Includes
options to purchase 758,393 shares that are exercisable within 60
days of
February 16, 2007.
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(9)
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Includes
options to purchase 2,679 shares that are exercisable within 60 days
of
February 16, 2007.
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(10)
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Includes
options to purchase 10,714 shares that are exercisable within 60
days of
February 16, 2007.
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(11)
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Includes
options to purchase 5,357 shares that are exercisable within 60 days
of
February 16, 2007.
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(12)
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Includes
options to purchase 8,482 shares that are exercisable within 60 days
of
February 16, 2007.
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(13)
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Includes
options to purchase an aggregate of 62,055 shares that are exercisable
within 60 days of February 16,
2007.
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6
PROPOSAL
1
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 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 16, 2007, appears above under the heading “Security
Ownership of Certain Beneficial Owners and Management.”
|
Name
|
Age
|
|
William
A. Berry (1)
|
69
|
|
George
Boyadjieff, Chairman (3)
|
68
|
|
R.
Eugene Goodson
|
72
|
|
Andre
R. Horn (1)(2)
|
78
|
|
Jami
K. Dover Nachtsheim (1)(2)
|
48
|
|
Peter
E. Salas (2)(3)
|
52
|
_______________
|
(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 retired from EPRI,
the Electric Power Research Institute, a non-profit energy research organization
providing science and technology-based solutions to global energy companies,
in
December 2003. While at EPRI, Mr. Berry served as Chief Financial
Officer from April 1996 to July 2003. From August 2003 to December
2003, Mr. Berry served as Special Projects Manager. 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. From August 9, 2006 to October 31, 2006, Mr. Boyadjieff served
as our interim Chief Executive Officer. 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.
Dr.
Goodson served as Southwall’s Chief Operating Officer from September 18,
2006 through October 31, 2006 and has served as Chief Executive Officer and
President of Southwall since November 1, 2006. Dr. Goodson joined our
Board of Directors in April 2006. Dr. Goodson has been the Chief
Executive Officer and President of Williams Controls Inc. (OTCBB: WMCO), a
manufacturer of electronic throttle controls, from July 2002 until October
2004,
and the Chairman of the Board of Williams Controls since October 2004. From
1990
to 1997, Dr. Goodson was the Chairman and Chief Executive Officer of Oshkosh
Truck Corporation, a developer and producer of heavy-duty on and off road
trucks. After retiring from Oshkosh in 1998, Dr. Goodson became an Adjunct
Professor at the University of Michigan Business School, teaching operations
management. He was a director of the Executive Officer Association of
American Industrial Partners, a private equity firm, from 1998 to
2005.
Mr.
Horn was appointed to our Board of Directors in February of
2006. Mr. Horn retired in 1985 as Chairman of Joy Manufacturing Co.
in Pittsburgh, Pennsylvania, now known as Joy Global Inc., a manufacturer of
heavy equipment. Mr. Horn served as the Chairman of Needham & Co., Inc.
(“Needham”), from which position he retired in 1991, and was elected
Chairman Emeritus of Needham. Mr. Horn is currently a
director of Needham. Needham and its affiliates are the beneficial
owners of approximately 42.4% of the Company’s outstanding capital stock as set
forth under the heading “Security Ownership of Certain Beneficial Owners and
Management.” Mr. Horn is currently a director and Chairman of the
Board of REMEC, Inc., a San Diego, California manufacturer of microwave
components for communications and defense electronics, which is in the process
of liquidation. Mr. Horn holds a BA in Mathematics from the
University of Paris and is a graduate from the Ecole des Hautes Etudes
Commerciales.
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 BA in Business
Management.
Mr.
Salas was appointed to our Board of Directors in November of
2005. Mr. Salas has been President of Dolphin Asset Management
Corporation and its related companies (“Dolphin”) since he founded it in 1988.
Dolphin and its affiliates are the beneficial owners of approximately 22.0%
of
the Company’s outstanding capital stock, as set forth under the heading
“Security Ownership of Certain Beneficial Owners and
Management.” Prior to founding Dolphin, he was with J.P. Morgan
Investment Management, Inc. for ten years. Mr. Salas is currently a
director and Chairman of the Board of both Tengasco, Inc. (AMEX: TGC), an
independent oil and gas producer, and of ACT Teleconferencing, Inc. (OTC: ACTT),
a global teleconferencing provider. He is also a director of Williams
Controls, Inc. (OTCBB: WMCO), a manufacturer of electronic throttle controls,
and Boston Restaurant Associates, Inc. (OTCBB: BRAI), a restaurant company
in
the New England. Mr. Salas received an A.B. degree from Harvard in
1978.
The
Board of Directors recommends a vote “FOR” the election of all of the above
nominees that are nominated for election as directors.
CORPORATE
GOVERNANCE
General
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 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:
R.
Eugene
Goodson
Chief
Executive Officer
c/o
Southwall Technologies Inc.
3788
Fabian Way
Palo
Alto, CA 94303
Phone:
(650) 798-1200
Determination
of Independence
Our
Board
of Directors has determined that none of Messrs. Berry, Horn or Salas 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,
other than Mr. Boyadjieff, who served as our interim Chief Executive Officer
from August 9, 2006 until October 31, 2006.
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., 3788 Fabian Way, Palo
Alto, California 94303, Attention: Secretary. 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 2006, Dr. Goodson was recommended to us as a candidate for
the
Board by Needham and Dolphin. Needham and Dolphin are each beneficial
owners 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
K. Dover Nachtsheim
Chair
of
the Nominating and Corporate Governance Committee
c/o
Secretary
c/o
Southwall Technologies Inc.
3788
Fabian Way
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 ten times in 2006. During 2006, 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. Dr. Goodson is the
only director who is currently also an employee of Southwall. He does not
participate in any meetings at which his compensation is
evaluated. Mr. Boyadjieff was CEO/President from August 9, 2006 to
October 31, 2006, and during that time did 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 2006, there were five such sessions. The sessions are
scheduled and chaired by Mr. Boyadjieff. Any non-management director
can request that an additional executive session be scheduled.
It
is our
current policy to have the Chairman of the Board and the Chief Executive Officer
attend the annual meetings of stockholders. Two of our directors, the
Chairman and the Chief Executive Officer, attended the 2006 annual meeting
of
stockholders.
Audit
Committee
The
current members of our Audit Committee are Messrs. Berry
(Chairman) and Horn and Ms. Nachtsheim. Each
of Messrs. Berry and Horn and Ms. Nachtsheim qualifies as an “audit
committee financial expert” under SEC rules. Each of
Messrs. Berry and Horn and Ms. Nachtsheim 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 Horn and Ms. Nachtsheim serve on the audit committees of
more than two other public companies. The Audit Committee met four times during
2006. The responsibilities of our Audit Committee and its activities
during 2006 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 Messrs. Salas (Chairman)
and
Boyadjieff. The Board has determined that Mr. Salas is independent as
defined under Nasdaq rules. Because he served as our interim Chief
Executive Officer during a portion of 2006, Mr. Boyadjieff is not independent
in
accordance with the Nasdaq rules. Our Compensation Committee held
nine meetings during 2006. 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.
Nominating
and Corporate Governance Committee
The
current members of the Nominating and Corporate Governance Committee are
Ms. Nachtsheim (Chair) and Messrs. Horn and Salas. The Board has
determined that each of Ms. Nachtsheim and Messrs. Horn and Salas 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 met six times in 2006.
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
2006, no services were provided to us by Burr, Pilger & Mayer LLP, our
independent registered public accounting firm, or any other accounting firm
other than in accordance with the pre-approval policies and procedures described
above.
REPORT
OF THE AUDIT 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.
During
2006, the Audit Committee consisted of three members, Messrs. Boyadjieff, Berry
and Horn. When Mr. Boyadjieff became interim Chief Executive Officer
of the Company, he resigned from the Audit Committee and Ms. Nachtscheim was
appointed as his replacement on the Audit Committee. 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 2006 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
2007. 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 four meetings during
2006.
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, 2006, for filing with the SEC.
|
|
The
Audit Committee
|
|
|
|
|
|
William
A. Berry (Chairman)
|
|
|
Jami
K. Dover Nachtsheim
|
|
|
Andre
R. Horn
|
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
of Compensation Program
The
Compensation Committee (for purposes of this analysis, the “Committee”) of the
Board has responsibility for establishing, implementing and continually
monitoring adherence with Southwall’s compensation philosophy. The
Committee ensures that the total compensation paid to our executive officers
is
fair, reasonable and competitive. The members of the Committee
are Mr. Peter Salas (Chairman) and Mr. George
Boyadjieff. Mr. Salas is considered an independent member of the
Board under Nasdaq rules and regulations. Because he served as
our
interim Chief Executive Officer during a portion of 2006, Mr. Boyadjieff is
not
independent in accordance with the Nasdaq rules. Our Compensation
Committee held nine meetings during 2006. Messrs. Salas and
Boyadjieff were chosen to serve on the Committee because of their
status as independent directors and their experience in compensation
matters. Ms. Nachtsheim ceased to be a member of the Compensation
Committee when she became a member of the Audit Committee. Dr.
Goodson ceased to be a member of the Compensation Committee when he became
the
Chief Operating Officer of the Company on September 18, 2006.
The
Compensation Committee charter, which was created in April 2004, can be found
at
www.southwall.com. The Committee charter can be revised by the approval
of the Board and gives the Committee authority to determine or recommend to
the
Board for determination the Chief Executive Officer’s and other executive
officers’ compensation. The Committee charter also gives the
Committee authority to hire outside consultants to provide assistance in
determining market levels of executive compensation. The Committee
did not retain an outside compensation consultant in 2006 or 2007 as part of
the
process in determining executive compensation.
The
Committee met nine times in 2006. The Company’s Chief Executive
Officer attended three of these meetings and the Company’s Vice President,
Finance attended five of these meetings. Each member of the Committee
gets paid $750 for each meeting attended in person or $500 for each committee
meeting held via teleconference. As Chairman of the Compensation
Committee, Mr. Salas was paid a retainer of $9,750 in 2006.
Throughout
this proxy statement, any individual who served as our Chief Executive Officer
or Vice President, Finance during fiscal 2006, as well as the other individuals
included in the Summary Compensation Table below, are referred to as the “named
executive officers”.
Compensation
Philosophy and Objectives
The
Committee believes that the most effective executive compensation program is
one
that is designed to reward the achievement of specific annual, long-term and
strategic goals by our company, and which aligns executives’ interests with
those of the stockholders by rewarding performance above established goals,
with
the ultimate objective of improving stockholder value. The Committee
evaluates both performance and compensation to ensure that we maintain our
ability to attract and retain superior employees in key positions and that
compensation provided to key employees remains competitive relative to the
compensation paid to similarly situated executives of our peer
companies. To that end, the Committee believes executive compensation
packages provided by Southwall to its executives, including the named executive
officers, should include both cash and stock-based compensation that reward
performance as measured against established goals.
Role
of Executive Officers in Compensation Decisions
The
Committee makes or recommends to the Board all compensation decisions for the
Company’s executive officers and approves recommendations from the Board of
Directors regarding equity awards to all elected officers of the
Company. Decisions regarding the compensation of non-executive
officers are made by the functional Vice Presidents.
The
Chief
Executive Officer annually reviews the performance of each executive officer
(other than the Chief Executive Officer whose performance is reviewed by the
Committee). The conclusions reached and recommendations based on
these reviews, including with respect to salary adjustments and annual award
amounts, are made by the Committee.
Setting
Executive Compensation
Based
on
the foregoing objectives, the Committee has structured Southwall’s annual and
long-term incentive-based cash and non-cash executive compensation to motivate
executives to achieve the business goals set by the company and reward the
executives for achieving such goals.
In
determining the particular elements of compensation that will be used to
implement our overall compensation policies, the Committee takes into
consideration a number of factors related to our performance, such as our
earnings per share, profitability, revenue growth and operational performance,
as well as competitive practices among our peer group. The Committee
compares each element of compensation given to executive officers
against a peer group of publicly-traded companies which consists of companies
against which the Committee believes Southwall competes for talent (the
“Compensation Peer Group”). The companies comprising the Compensation
Peer Group, which are periodically reviewed and updated by the Committee, for
2006 consisted of 20 public companies, 19 located in Northern California and
one
in Colorado, with annual revenues between approximately $40 million and $420
million, with ten of such companies with revenues between approximately $40
million and $60 million.
Data
on
the compensation practices of the above-mentioned peer group generally is
gathered through searches of publicly available information, including publicly
available databases. Publicly available information does not
typically include information regarding target cash compensation, so we rely
upon compensation surveys (prepared by Assets Unlimited, an external
compensation consultant) to benchmark target cash compensation levels against
the above peer group. Peer group data is gathered with respect to
base salary, bonus targets and all equity awards (including stock options,
performance shares, restricted stock and long-term, cash-based
awards). It does not include deferred compensation benefits or
generally available benefits, such as 401(k) plans or health care
coverage. We compete with many larger companies for top
executive-level talent. Because of the competitive marketplace for
talent, the Committee generally sets compensation for its executive officers
at
approximately the midpoint of compensation paid to similarly situated executives
of the companies comprising the Compensation Peer Group. Variations
to this objective may occur as dictated by the experience level and performance
of the individual and market factors.
Compensation
Components
For
the
fiscal year ended December 31, 2006, the principal components of compensation
for the named executive officers were: (i) base salary, (ii) bonuses, (iii)
long-term equity incentive compensation, (iv) retirement benefits provided
under
a 401(k) plan and (v) perquisites and other generally available
benefit programs. We have selected these elements because each is
considered useful and/or necessary to meet one or more of the principal
objectives of our compensation policy. For instance, base salary and
bonus target percentage are set with the goal of attracting employees and
adequately compensating and rewarding them on a day-to-day basis for the time
spent and the services they perform, while our equity programs are geared toward
providing an incentive and reward for the achievement of long-term business
objectives and retaining key talent. We believe that these elements
of compensation, when combined, are effective, and will continue to be
effective, in achieving the objectives of our compensation program.
Base
Salary
We
provide executive officers and other employees with base salary to compensate
them for services rendered during the fiscal year. Base salary ranges
for executive officers are determined for each executive based on his or her
position and responsibility by using market data. Base salary ranges
are designed so that salary opportunities for a given position will be at the
midpoint of the base salary established for each range.
During
its review of base salaries for executives, the Committee primarily
considers:
|
|
·
|
market
data provided by our outside
consultants;
|
|
|
·
|
internal
review of the executive’s compensation, both individually and relative to
their executive officers; and
|
|
|
·
|
individual
performance of the executive.
|
Salary
levels are typically considered annually as part of the company’s performance
review process as well as upon a promotion or other change in job
responsibility. Merit based increases to salaries of executive
officers are based on the Committee’s assessment of the individual’s
performance. There were no salary increases for executive officers in
2006.
Bonuses
Bonuses
also are paid in order to motivate the achievement of Southwall’s business
goals. Bonuses are intended to 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 is paid in cash (the “Cash
Portion”) and the balance on achieving the executive’s functional objectives,
such as profitability improvement, asset management, market position, product
leadership and key products, and is paid in stock (the “Stock
Portion”). These functional objectives are evaluated on a subjective
basis without specific weighting among them. Achievement of the
targeted goals under the bonus plan are intended to result in total cash
compensation for that is competitive with Southwall’s peer group, which the
Committee believes is an appropriate range to enable us to attract and retain
key personnel and to motivate the executives to meet our business
goals.
Neither
Mr. Boyadjieff nor Mr. Goodson participated in the 2006 executive bonus
plan. For 2006, our other named executive officers were eligible to
receive a bonus calculated as a percentage of their respective base annual
salaries as follows: Mr. Hood—50%; Ms. Kamenski—20%; Mr. Heinze—30%;
Mr. Capovilla—50%; and Mr. Bergstrom—30%. The actual amounts payable
could have exceeded such percentages of base salary if the net income target
described below had been exceeded. For 2006, the corporate objective
for executive bonus plan, which determines the Cash Portion, was tied to a
net
income after taxes target of $2.975 million. If the Company had made
$2.975 million in net income after taxes, each of these named executive officers
would have received 100% of the Cash Portion of their bonus
target. If the Company had had more than $2.975 million in net income
after taxes, each of these named executive officers would have received more
than 100% of their bonus target calculated as follows, up to 200% in the event
that net income after taxes was at least $5.95 million. If the
Company had had more than $2.38 million in net income after taxes but less
than
$2.975 million, each of these named executive officers would have received
a
bonus of less than 100% of their target, as low as 80% in the event that net
income was $2.38 million. For fiscal 2006, our net income after taxes
was below $2.38 million, and, therefore, the Cash Portion was not
paid. Under the bonus plan for 2006, the Stock Portion, which related
to the executives’ functional objectives, were not payable in the event that our
net income after taxes was less than $2.38 million.
Long-Term
Equity Incentive Compensation
Southwall
provides long-term incentive compensation through awards of stock options that
generally vest over multiple years. Our equity compensation program
is intended to align the interests of our officers with those of our
stockholders by creating an incentive for our officers to maximize stockholder
value. The equity compensation program also is designed to encourage
our officers to remain employed with Southwall despite a very competitive labor
market.
Equity-based
incentives are granted to our officers under our stockholder-approved 1997
Stock
Incentive Plan. The Committee has granted equity awards at its
scheduled meetings or by unanimous written consent. Grants approved
during scheduled meetings become effective and are priced as of the date of
approval. Grants approved by unanimous written consent become effective and
are
priced as of the date the last signature is obtained or as of a predetermined
future date. All stock option grants have a per share exercise price
equal to the fair market value of our common stock on the grant
date. The Committee has not granted, nor does it intend in the future
to grant, equity compensation awards to executives in anticipation of the
release of material nonpublic information that is likely to result in changes
to
the price of our common stock, such as a significant positive or negative
earnings announcement. Similarly, the Committee has not timed, nor
does it intend in the future to time, the release of material nonpublic
information based on equity award grant dates. Also, because equity
compensation awards typically vest over a four-year period, the value to
recipients of any immediate increase in the price of our stock following a
grant
will be attenuated.
We
grant
stock options because they can be an effective tool for meeting our compensation
goal of increasing long-term stockholder value by tying the value of the stock
options to our performance in the future. Employees are able to
profit from stock options only if our stock price increases in value over the
stock option’s exercise price. We believe the options that were
granted in 2006 provide effective incentives to option holders to achieve
increases in the value of Southwall’s stock.
The
number of options, restricted stock and/or performance shares our Committee
grants to each officer and the vesting schedule for each grant is determined
based on a variety of factors, including the number of options already held
by
the officer, market data collected regarding the equity grant ranges for the
peer companies listed above and our goal to award grants in line with the
competitive benchmark data, as well as the performance rating each executive
is
given by our Chief Executive Officer. The Chief Executive
Officer assigns a performance rating to each member of the executive team that
reports to him based on a number of factors, including the individual’s
accomplishments during the prior fiscal year and over the course of his or
her
service with Southwall. The Chief Executive Officer then makes a
recommendation to the Compensation Committee as to the number of options to
be
granted to each named executive officer, as well as the total options to be
granted to other employees. In deciding the number of options granted
to the named executive officers the Chief Executive Officer and the Compensation
Committee consider the officer’s position, the number of options already held by
the officer, the performance assessment (both historical and future potential),
and the number of shares available in the option plan. For fiscal
2006, the Committee accepted the Chief Executive Officer’s recommendations with
respect to stock option grants.
In
2006,
our Committee relied upon the above-mentioned factors to approve stock option
grants for the named executive officers and other senior
officers. Management made recommendations to the Committee with
respect to equity award grants based on guidelines that include award ranges
for
employees at specific job responsibility levels and performance
ratings. Stock option awards generally vest 25% per year over a
period of four years. Stock option awards to employees, other than
the named executive officers, were made under our 1998 Stock Option Plan for
Employees and Consultants. All other grants of options and
performance shares were approved by our Chief Executive
Officer after consultation with our Human Resources
department, and external benchmark data for executives, and pursuant to the
guidelines noted above. For new hires who are non-executive officers,
the Committee has delegated the Chief Executive Officer the authority to grant
options based on a metric approved by the committee on the non-executive
officers hire date. This grant is then confirmed at the next
Compensation Committee meeting. Any options granted by our Chief
Executive Officer pursuant to this
authority will have a four-year vesting schedule, and
options will have a maximum term of ten years. Equity awards granted
by our Chief Executive Officer are typically approved by
him monthly (new hire) and annually (strategic awards). All stock
option grants approved by our Chief Executive Officer have
a per share exercise price equal to the fair market value of Southwall’s common
stock on the grant date. Our Chief Executive
Officer has not granted, nor does he intend in the future
to grant, equity compensation awards in anticipation of the release of material
nonpublic information that is likely to result in changes to the price of our
common stock, such as a significant positive or negative earnings
announcement. Similarly, our Chief Executive
Officer has not timed, nor does he intend in the future to
time, the release of material nonpublic information based on equity award grant
dates. Also, because equity compensation awards typically vest over a
four-year period, the value to recipients of any immediate increase in the
price
of our stock following a grant will be attenuated.
After
approval of our new 2007 Long-Term Incentive Plan at the annual meeting, stock
options granted to Dr. Goodson, our other named executive officers and all
other
employees will be granted under our new 2007 Long-Term Incentive
Plan.
We
are
asking stockholders to approve our new 2007 Long-Term Incentive Plan because
our
1997 Stock Incentive Plan expires according to its terms this year and our
1998
Stock Option Plan for Employees and Consultants expires according to its terms
next year, leaving us without an outstanding option plan to incentivize
employees. Please see the section entitled “Proposal 2––Approval of
the Company’s Long-Term Incentive Plan.” We believe that stockholder
approval of the 2007 Long-Term Incentive Plan is important to allow us to
continue attracting and retaining key talent and to motivate executives and
other employees to achieve our goals.
Retirement
Benefits under 401(k) Plans, Perquisites and Generally Available Benefit
Programs
In
fiscal
2006, the named executive officers were eligible to receive health care coverage
that is generally available to other Southwall employees. In
addition, we provide a car allowance of $1,350 per month to Dr. Goodson and
$950 per month to other named executive officers.
We
also
maintain a tax-qualified 401(k) Plan and Roth 401(k) Plan (established in April
2007), which provides for broad-based employee participation. Under
both 401(k) Plans, all Southwall employees are eligible to receive matching
contributions from Southwall. The matching contribution for the
401(k) Plan in year 2006 was 25% on the first $6,000 (maximum company match
of
$1,500) subject to applicable Federal limits. We do not provide
defined benefit pension plans or defined contribution retirement plans to our
executives or other employees other than: (a) the 401(k) Plan or Roth 401(k)
Plan.
We
also
offer a number of other benefits to the named executive officers pursuant to
benefit programs that provide for broad-based employee
participation. These benefits programs include the employee stock
purchase plan, medical, dental and vision insurance, long-term and short-term
disability insurance, life and accidental death and dismemberment
insurance, business travel insurance, employee assistance and certain
other benefits.
The
401(k) Plans and other generally available benefit programs allow us to remain
competitive for employee talent, and we believe that the availability of the
benefit programs generally enhances employee productivity and loyalty to
Southwall. The main objectives of our benefit programs are to give
our employees access to quality healthcare, financial protection from unforeseen
events, assistance in achieving retirement financial goals, enhanced health
and
productivity and to provide support for global workforce mobility, in full
compliance with applicable legal requirements. These generally
available benefits typically do not specifically factor into decisions regarding
an individual executive’s total compensation or equity award
package.
On
an
annual basis, we benchmark our overall benefits programs, including our 401(k)
Plan, against external benchmark data and surveys from our benefit consultants
and plan administrators. We generally target our overall benefits
programs, in the competitive with the competition, which we believe allows
us to
remain competitive in attracting and retaining talent. We analyze
changes to our benefits programs in light of the overall objectives of the
program, including the effectiveness of the retention and incentive features
of
such programs and our targeted percentile range.
Stock
Ownership Guidelines
We
have
not adopted stock ownership guidelines that require our directors and named
executive officers to maintain a certain amount of Southwall
stock. We believe such guidelines are unnecessary because we believe
that the interests of directors and named executive officers are already closely
aligned with the interests of stockholders through grants of stock options
made
under our stock option plans. We have an insider trading policy
which, among other things, prohibits covered employees from short sales and
trading in publicly listed options for Southwall shares. We have no
specific policy regarding hedging of stock ownership positions, but any such
hedging must be accomplished within the requirements of the insider trading
policy.
Compensation
of Chief Executive Officer
During
fiscal 2006, Dr. Goodson received a salary of $50,000 for the period from
November 1, 2006, when he became Chief Executive Officer, until December 31,
2006. Our former Chief Executive officer, Thomas Hood, received a
salary of $182,397 for the period from January 1, 2006 until August 9, 2006
and
our interim Chief Executive Officer, George Boyadjieff, received a salary of
$53,077 for the period from August 9, 2006 until October 31, 2006. In
setting Dr. Goodson’s salary, target bonus and equity compensation grant, the
Committee relied on market-competitive pay data and the strong belief that
the
Chief Executive Officer significantly and directly influences Southwall’s
overall performance. The Committee also took into consideration the
overall compensation policies discussed above. In connection with his
becoming our Chief Executive Officer, Dr. Goodson was granted an option to
purchase 300,000 shares of common stock in fiscal 2006. The option
vests over a one-year period with 50% of the award vesting after six months
and
the remainder monthly thereafter. The option grant made to Dr.
Goodson was based upon his position and a subjective evaluation of his
performance and were intended to place a significant portion of his total
compensation at risk, since the options will not have significant value unless
there is an appreciation in the value of our common stock over the option
term. Since Dr. Goodson began his employment with the Company on
September 18, 2006, but did not become the Chief Executive Officer until
November 1, 2006, the Compensation Committee decided that the average daily
closing stock price in October 2006, which was $0.14 per share lower than the
closing price on November 1, was a more appropriate exercise price for the
300,000 options, which were granted to him on November 1, 2006.
Our
Chief
Executive Officer also receives a car allowance of $1,350 per
month.
Accounting
and Tax Considerations
In
designing our compensation programs, we take into consideration the accounting
and tax effect that each element will or may have on Southwall and the executive
officers and other employees as a group. We aim to keep the expense
related to our compensation programs as a whole within certain affordability
levels. When determining how to apportion between differing elements
of compensation, the goal is to meet our objectives while maintaining cost
neutrality. For instance, if we increase benefits under one program
resulting in higher compensation expense, we may seek to decrease costs under
another program in order to avoid a compensation expense that is above the
affordability level. We recognize a charge to earnings for accounting
purposes when stock options are granted. We also take into account
that the 401(k) Plan provides a tax-advantaged retirement planning vehicle
for
our executives.
In
addition, we have not provided any executive officer or director with a gross-up
or other reimbursement for tax amounts the executive might pay pursuant to
Section 280G or Section 409A of the Internal Revenue
Code. Section 280G and related Internal Revenue Code sections
provide that executive officers, directors who hold significant stockholder
interests and certain other service providers could be subject to significant
additional taxes if they receive payments or benefits in connection with a
change in control of Southwall that exceeds certain limits, and that Southwall
or its successor could lose a deduction on the amounts subject to the additional
tax. Section 409A also imposes additional significant taxes in
the event that an executive officer, director or service provider receives
“deferred compensation” that does not meet the requirements of
Section 409A. To assist in the avoidance of additional tax under
Section 409A, we structure our equity awards in a manner intended to comply
with the applicable Section 409A requirements.
In
determining which elements of compensation are to be paid, and how they are
weighted, we also take into account whether a particular form of compensation
will be considered “performance-based” compensation for purposes of Section
162(m) of the Internal Revenue Code. Under Section 162(m), we
generally receive a federal income tax deduction for compensation paid to any
of
our named executive officers only if the compensation is less than $1 million
during any fiscal year or is “performance-based” under
Section 162(m). Both our 1997 Stock Incentive Plan and 1998
Stock Option Plan for Employees and Consultants permit our Committee to pay
compensation that is “performance-based” and thus fully tax-deductible by
Southwall. Our Committee currently intends to continue seeking a tax
deduction for all of our executive compensation, to the extent we determine
it
is in the best interests of Southwall. All of the stock options
granted to our executive officers qualify under Section 162(m) as
performance-based compensation.
Severance
Agreements
We
currently have no severance policy and have not entered into any severance
arrangements or agreements with any of its employees. During 2006, we
had in place a severance policy that covered all of our officers, including
the
named executive officers, and some of our key employees, under which they might
have become entitled to annual benefits in connection with certain changes
in
control of Southwall affected by merger, liquidation or tender
offer. The Board terminated this policy in 2007, and it is no longer
in effect. Under the policy, each participant might have 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 would
have been 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 would have
been grossed up if the amount received by the participant is subject to federal
excise tax as an “excess parachute payment.”
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee of the Board of Directors oversees our compensation
program on behalf of the Board. In fulfilling its oversight
responsibilities, the Compensation Committee reviewed and discussed with
management the Compensation Discussion and Analysis set forth in this proxy
statement.
In
reliance on the review and discussions referred to above, the Compensation
Committee recommended to the Board that the Compensation Discussion and Analysis
be included in this proxy statement.
|
The
Compensation Committee
|
|
|
Peter
E. Salas (Chairman)
|
|
|
George
Boyadjieff
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Our
Compensation Committee is composed of Messrs. Salas and
Boyadjieff. Mr. Salas has not at any time since our
formation been an officer or employee of Southwall. Mr. Boyadjieff was
interim Chief Executive Officer from August 9, 2006 through October 31,
2006. At that time, he was not a member of the Compensation
Committee. None of our present 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.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information about the compensation of each person
who
served as Chief Executive Officer during 2006, the Vice President, Finance,
who
is our principal financial officer, and each of the three other most highly
compensated executive officers (the “named executive officers”).
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
All
Other Compensation
($)
|
Total
($)
|
||||||||||||||||||
|
Thomas
G. Hood (2)
|
2006
|
$ | 244,761(3) |
--
|
--
|
$ |
55,016
|
$ | 91,665(4) | $ |
391,442
|
||||||||||||||
|
Chief
Executive Officer
|
|
||||||||||||||||||||||||
|
George
Boyadjieff (5)
|
2006
|
$ | 84,327(6) |
--
|
--
|
$ |
10,869
|
$ | 3,114(7) | $ |
68,722
|
||||||||||||||
|
Chief
Executive Officer
|
|
||||||||||||||||||||||||
|
R.
Eugene Goodson (8)
|
2006
|
$ |
67,058
|
--
|
--
|
$ |
91,691
|
$ | 4,214(9) | $ |
156,992
|
||||||||||||||
|
Chief
Executive Officer
|
|
||||||||||||||||||||||||
|
Sylvia
Kamenski
|
2006
|
$ |
175,000
|
--
|
--
|
$ |
22,006
|
$ | 12,900(10) | $ |
209,906
|
||||||||||||||
|
Vice
President, Finance
|
|
||||||||||||||||||||||||
|
Wolfgang
Heinze (11)
|
2006
|
$ | 273,200(12) |
--
|
--
|
$ |
66,404
|
--
|
$ |
341,853
|
|||||||||||||||
|
Vice
President, General Manager Dresden Operations
|
|
||||||||||||||||||||||||
|
Dennis
Capovilla
|
2006
|
$ |
247,500
|
--
|
--
|
$ |
33,009
|
$ | 74,663(13) | $ |
355,172
|
||||||||||||||
|
Senior
Vice President, Sales and Marketing
|
|
||||||||||||||||||||||||
|
Neil
Bergstrom (14)
|
2006
|
$ |
250,000
|
--
|
--
|
$ |
33,009
|
$ | 12,900(10) | $ |
295,909
|
||||||||||||||
|
Chief
Technology Officer, Senior Vice President, Engineering
|
|
||||||||||||||||||||||||
_______________
|
(1)
|
The
assumptions used to value these option awards are consistent with
contemporary practices for their accounting treatment and recognized
in
accordance with SFAS No. 123R, “Share Based Payments.” These
assumptions are set forth in Note 2, “Stock Based Compensation,” of the
footnotes to our Consolidated Financial
Statements.
|
|
(2)
|
Mr.
Hood’s ceased to serve as our Chief Executive Officer on August 9, 2006,
and his employment with the Company terminated on September 7,
2006.
|
|
(3)
|
Includes
$32,453 paid in lieu of accrued
vacation.
|
|
(4)
|
Consists
of a $75,000 severance payment, $15,165 car allowance and $1,500
of
Company matching contributions to 401(k)
plan.
|
|
(5)
|
Mr.
Boyadjieff, one of our directors, served as our interim Chief Executive
Officer from August 9, 2006 until October 31, 2006. Mr.
Boyadjieff received additional compensation in his role as a non-employee
director before and after serving as our interim Chief Executive
Officer. The amount set forth under “Salary” includes $31,250
paid to Mr. Boyadjieff for retainer and meeting fees as a non-employee
director of the Company, and the amount set forth under “Option Awards”
includes the value of options to acquire 30,000 shares received by
Mr.
Boyadjieff for his service as a non-employee
director.
|
|
(6)
|
Includes
$1,732 paid in lieu of accrued
vacation
|
|
(7)
|
Consists
of car allowance.
|
|
(8)
|
Mr.
Goodson became our Chief Operating Officer on September 18, 2006
and our
Chief Executive Officer on November 1, 2006. The amounts set
forth under “Salary” include $4,750 paid to Dr. Goodson in his role as a
non-employee director prior to becoming Chief Executive Officer,
and the
amount set forth under “Option Awards” includes the value of options to
acquire 40,000 shares received by Dr. Goodson for his service as
a
non-employee director.
|
|
(9)
|
Consists
of $2,993 of car allowance and $1,221 of Company matching contributions
to
401(k) plan.
|
|
(10)
|
Consists
$11,400 of car allowance and $1,500 of Company matching contributions
to
401(k) plan.
|
|
(11)
|
Mr.
Heinze’s employment with the Company terminated on April 16,
2007.
|
|
(12)
|
Includes
$2,249 paid in lieu of accrued
vacation.
|
|
(13)
|
Consists
of $61,923 in commission payments, $11,400 car allowance and $1,340
of
Company matching contributions to 401(k)
plan.
|
|
(14)
|
Mr.
Bergstrom’s employment with the Company terminated on April 2,
2007.
|
Grants
of Plan-Based Awards
All
grants of plan-based awards to the named executive officers in 2006 are
presented in the table below.
|
Name
|
Grant
Date
|
All
Other Option Awards: Number of Securities Underlying
Options
(#)
|
Exercise
or Base Price of Option Awards ($/Sh)
|
Market
Price on the Date of Grant($)
|
Grant
Date Fair Value of Stock and Option Awards($)
|
||||||||||||
|
Thomas
G. Hood
|
5/11/06
|
125,000 | (1) | $ |
0.71
|
$ |
0.71
|
$ |
55,016
|
||||||||
|
George
Boyadjieff
|
2/27/06
|
30,000 | (1) | $ |
0.68
|
$ |
0.68
|
$ |
10,869
|
||||||||
|
R.
Eugene Goodson
|
7/28/06
|
40,000 | (1) | $ |
0.62
|
$ |
062
|
$ |
15,358
|
||||||||
|
11/1/06
|
300,000 | (2) | $ |
0.4118
|
$ |
0.55
|
$ |
76,333
|
|||||||||
|
Sylvia
Kamenski
|
5/11/06
|
50,00 | (1) | $ |
0.71
|
$ |
0.71
|
$ |
22,006
|
||||||||
|
Wolfgang
Heinze
|
5/11/06
|
75,000 | (1) | $ |
0.71
|
$ |
0,71
|
$ |
33,009
|
||||||||
|
11/6/06
|
100,000 | (1) | $ |
0.54
|
$ |
0.54
|
$ |
33,395
|
|||||||||
|
Dennis
Capovilla
|
5/11/06
|
75,000 | (1) | $ |
0.71
|
$ |
0.71
|
$ |
33,009
|
||||||||
|
Neil
Bergstrom
|
5/11/06
|
75,000 | (1) | $ |
0.71
|
$ |
0.71
|
$ |
33,009
|
||||||||
_______________
|
(1)
|
These
options will vest in four equal annual installments beginning with
the
first anniversary of the grant
date.
|
|
(2)
|
These
options were granted with an exercise price of $0.41, which was $0.14
below market value at the date of the grant and vest at 25% after
six
months and thereafter in equal monthly installments over the next
six
months.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information about all equity awards held by the named
executive officers at December 31, 2006.
|
Name
|
Number
of Securities Underlying Unexercised
Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised
Options(#)
Unexercisable
|
Option
Exercise Price($)
|
Option
Expiration Date
|
|||||||||
|
Thomas
G. Hood
|
62,500 | (1) | $ |
0.58
|
6/6/08
|
||||||||
| 22,321 | (2) | $ |
0.58
|
3/7/08
|
|||||||||
| 330,000 | (3) | $ |
0.50
|
6/6/08
|
|||||||||
| 190,000 | (3) | $ |
1.81
|
6/6/08
|
|||||||||
| 45,000 | (1) | $ |
2.28
|
6/6/08
|
|||||||||
| 28,572 | (4) | $ |
8.00
|
6/6/08
|
|||||||||
| 50,000 | (5) | $ |
3.71
|
6/6/08
|
|||||||||
| 28,550 | (6) | $ |
7.063
|
1/20/07
|
|||||||||
| 30,000 | (7) | $ |
6.875
|
5/21/07
|
|||||||||
|
George
Boyadjieff
|
20,000 | (1) | 20,000 | (1) | $ |
0.50
|
10/5/14
|
||||||
| 7,500 | (2) | $ |
0.68
|
2/27/16
|
|||||||||
| 2,143 | (2) | 20,357 | (2) | $ |
0.68
|
2/27/16
|
|||||||
| 100,000 | (9) | $ |
0.88
|
12/18/13
|
|||||||||
| 150,000 | (1) | 50,000 | (1) | $ |
0.88
|
12/18/13
|
|||||||
| 7,500 | (2) | $ |
1.28
|
2/28/15
|
|||||||||
| 8,571 | (2) | 13,929 | (2) | $ |
1.28
|
2/28/15
|
|||||||
| 30,000 | (9) | $ |
1.58
|
2/20/14
|
|||||||||
| 30,000 | (1) | 30,000 | (1) | $ |
1.58
|
2/20/14
|
|||||||
|
|
|||||||||||||
|
R.
Eugene Goodson
|
181,818 | (8) | $ |
0.4118
|
11/1/16
|
||||||||
| 118,182 | (8) | $ |
0.4118
|
11/1/16
|
|||||||||
| 40,000 | (1) | $ |
0.62
|
7/28/16
|
|||||||||
|
Sylvia
Kamenski
|
50,000 | (1) | $ |
0.71
|
5/11/16
|
||||||||
| 26,786 | (2) | 48,214 | (2) | $ |
0.58
|
12/9/15
|
|||||||
| 35,000 | (1) | 35,000 | (1) | $ |
0.50
|
7/23/11
|
|||||||
|
Wolfgang
Heinze
|
100,000 | (1) | $ |
0.54
|
11/6/16
|
||||||||
| 75,000 | (1) | $ |
0.71
|
5/11/16
|
|||||||||
| 53,371 | (2) | 96,429 | (2) | $ |
0.58
|
12/9/15
|
|||||||
| 150,000 | (3) | $ |
0.50
|
10/5/14
|
|||||||||
| 45,000 | (3) | $ |
1.81
|
2/24/11
|
|||||||||
| 7,500 | (1) | 2,500 | (1) | $ |
2.28
|
2/25/13
|
|||||||
| 11,429 | (4) | 8,571 | (4) | $ |
8.00
|
2/27/12
|
|||||||
| 5,000 | (1) | $ |
5.206
|
9/27/07
|
|||||||||
|
Dennis
Capovilla
|
75,000 | (1) | $ |
0.71
|
5/11/16
|
||||||||
| 53,571 | (2) | 96,249 | (2) | $ |
0.58
|
12/9/15
|
|||||||
| 200,000 | (3) | $ |
0.50
|
10/5/14
|
|||||||||
| 50,000 | (3) | $ |
1.81
|
2/24/11
|
|||||||||
| 75,000 | (1) | 25,000 | (1) | $ |
1.05
|
7/17/10
|
|||||||
|
Neil
Bergstrom
|
75,000 | (1) | $ |
0.71
|
5/11/16
|
||||||||
| 62,500 | (2) | 112,500 | (2) | $ |
0.58
|
12/9/15
|
|||||||
| 139,286 | (2) | 160,714 | (2) | $ |
1.20
|
7/7/15
|
|||||||
_______________
|
(1)
|
These
options vest at a rate of 25% per year over four
years.
|
|
(2)
|
These
options vest at a rate of 25% after six months and then monthly thereafter
for 42 months.
|
|
(3)
|
These
options vest at a rate of 50% per year over two
years.
|
|
(4)
|
These
options vest in equal amount annually over seven
years.
|
|
(5)
|
These
options vested on grant date of March, 31,
2002.
|
|
(6)
|
These
options vest after six months from grant
date.
|
|
(7)
|
These
options vested on grant date of August 15,
2004.
|
|
(8)
|
These
options vest 25% after six months and thereafter in equal monthly
installments over the next six
months.
|
|
(9)
|
These
options vested on grant date of February 14,
2004.
|
Option
Exercises and Stock Vested Table
None
of
the named executive officers exercised any stock options during 2006, nor did
any of the named executive officers hold any shares that became vested during
2006 or any other shares that are subject to vesting at any future
date.
Pension
Benefits
We
do not
have any pension plans.
DIRECTOR
COMPENSATION
During
2006, we paid each of our non-employee directors a retainer for his or her
services. As chairman of the Board, Mr. Boyadjieff was paid a retainer of
$30,000. As chairman of the Audit Committee, Mr. Berry was paid a
retainer of $13,500. As chairman of the Compensation Committee, Mr. Salas was
paid a retainer of $9,750. As chairperson of the Corporate Governance
Committees, Ms. Nachtscheim was paid a retainer of $11,250. In
addition, each non-employee director received $1,000 plus expenses for each
Board meeting attended and a fee of $500 for each Board meeting held via
teleconference. In 2006, non-employee directors who served on committees
of the Board also received $750 for each committee meeting attended and a fee
of
$500 for each committee meeting held via teleconference.
Directors
may also from time to time be granted options to purchase shares of common
stock
under our 1997 Stock Incentive Plan. During 2006, the non-employee
directors received options to purchase the following number of shares, all
at an
exercise price of $0.68 per share. These options vest at a rate of
25% per year over four years. For a summary of option grants we made
to Messrs. Hood and Goodson in 2006, please see “Executive Officer
Compensation—Option Grants in Last Fiscal Year” above.
Assuming
the election of the director candidates presented pursuant to Proposal 1, the
non-employee directors’ annual fees for 2007 are as follows: Mr.
Boyadjieff—$18,000; Mr. Berry—$18,000; Mr. Horn—$12,000; Ms. Nachtsheim—$15,000;
and Mr. Salas—$15,000. 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. For service in 2007, each
non-employee director received options to purchase 20,000 shares at
an exercise price of $0.54 per share.
The
total
compensation to our non-employee directors during 2006 is shown in the following
table. Dr. Goodson was a non-employee director during 2006, until he
became our Chief Executive Officer on November 1, 2006. Because
Messrs. Boyadjieff and Goodson are among our named executive officers and all
compensation they received during 2006, including as directors, is reflected
in
the “Summary Compensation Table” above, information about their compensation as
directors is not provided in the table below.
|
Name
|
Fees
Earned or Paid in Cash ($)
|
Option
Awards ($)(1)
|
Total
($)
|
|||||||||
|
William
A. Berry
|
$ |
24,000
|
$ |
7,246
|
$ |
31,246
|
||||||
|
Jami
K. Nachtsheim
|
$ |
27,250
|
$ |
7,246
|
$ |
34,496
|
||||||
|
Peter
E. Salas
|
$ |
21,250
|
$ |
14,492
|
$ |
35,742
|
||||||
|
Joseph
B. Reagan (2)
|
$ |
20,750
|
$ |
7,246
|
$ |
27,996
|
||||||
|
Walter
C. Sedgwick (3)
|
$ |
14,500
|
$ |
7,246
|
$ |
21,746
|
||||||
|
Andre
R. Horn
|
$ |
20,750
|
$ |
14,492
|
$ |
35,242
|
||||||
_______________
|
(1)
|
The
assumptions used to value these option awards are consistent with
contemporary practices for their accounting treatment and recognized
in
accordance with FAS 123R, “Share Based Payments.” These
assumptions are set forth in Note 2, “Stock Based Compensation,” of the
footnotes to our Consolidated Financial
Statements.
|
|
(2)
|
Mr.
Reagan’s tenure as a director ended on June 5,
2006.
|
|
(3)
|
Mr.
Sedgwick’s tenure as a director ended on June 5,
2006.
|
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS
The
following table sets forth information as of March 31, 2007 regarding our 1997
Stock Incentive Plan, 1998 Stock Option Plan for Employees and Consultants,
1997
Employee Stock Purchase Plan and 2007 Long-Term Incentive
Plan. Except for our 2007 Long-Term Incentive Plan, which is being
put before our stockholders at the annual meeting for their approval, 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
|
Weighted-Average
Exercise Price of Outstanding Stock Options
|
Number
of Shares of Common Stock Remaining Available for Future Issuance
(excluding those in column (a)) Under the Stock Option
Plans
|
|
|
1997
Stock Incentive Plan (1)
|
4,813,911
|
$1.13
|
820,680
|
|
1997
Employee Stock Purchase Plan (2)
|
Not
applicable
|
||
|
1998
Stock Option Plan for Employees and Consultants (1)
|
2,264,374
|
$0.99
|
18,024
|
|
2007
Long-Term Incentive Plan(1)
|
Not
applicable
|
Not
applicable
|
10,000,000
|
|
Total
|
7,078,285
|
$1.08
|
10,838,704
|
_______________
|
(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. Following the adoption of the 2007 Long-Term Incentive
Plan, no additional equity awards or other grants will be made pursuant
to
the 1997 Plan or the 1998 Plan.
|
|
(2)
|
A
total of 325,000 shares of common stock are reserved for issuance
under
the 1997 Employee Stock Purchase Plan. Through March 31, 2007,
we had issued 280,934 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, 2007, on which
date
we will issue an additional number of shares to be determined at
such
time.
|
CERTAIN
RELATIONSHIPS AND OTHER TRANSACTIONS
During
2006, the only transaction required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated by the SEC was a severance agreement, dated September
18, 2006, entered into between the Company and Thomas G. Hood, the
Company’s former Chief Executive Officer. The terms of this severance
agreement require the Company to pay Mr. Hood $316, 200, equal to one year
of
base salary and car allowance, in four installments of $26,350 in October,
November and December of 2006 and January 2007, and two installments of $105,400
in February and March of 2007. In addition, the Company will
reimburse Mr. Hood for 18 months of health insurance under COBRA and agreed
to
pay for $5,000 of outplacement consultant costs. Pursuant to the
severance agreement, the Company agreed to accelerate options to purchase 13,393
shares; these options were previously granted to Mr. Hood, are exercisable
at
$0.58 per share, and expire if not exercised by March 7, 2008. In
addition, the Company agreed that, for purposes of determining the last date
to
exercise his options, Mr. Hood’s separation would be treated as a
resignation. The Company also allowed Mr. Hood of certain stock
option grants. 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.
PROPOSAL
2
APPROVAL
OF THE COMPANY’S LONG-TERM INCENTIVE PLAN
On
April
25, 2007, the Board of Directors adopted, subject to stockholder approval,
the
Southwall Technologies Inc. 2007 Long-Term Incentive Plan (the
“Plan”). The following summary of the Plan does not purport to be
complete and is qualified in its entirety by reference to the full text of
the
Plan, which is attached as Appendix A to this proxy
statement.
Purposes
The
purposes of the Plan are to attract and retain the best available personnel
for
positions of substantial responsibility, to provide additional incentive to
employees, directors and consultants, and to promote the success of our
business. Options, stock purchase rights and other stock-based awards
may be granted under the Plan.
Administration
The
Plan
is administered by the Board, which may delegate its powers under the Plan
to
one or more committees or sub-committees of the Board. Subject to the
provisions of the Plan, the administrator of the Plan has authority in its
discretion to: (1) determine fair market value of our common stock;
(2) select employees, directors and consultants to whom awards may be granted;
(3) determine the number of shares covered by awards; (4) approve forms of
agreement for use under the Plan; (5) determine the terms and conditions of
awards; (6) determine whether and under what circumstances an option may be
settled in cash instead of common stock; (7) reduce the exercise price or
purchase price of any award to the then fair market value if the fair market
value has declined since the date of grant; (8) initiate a program whereby
outstanding options are exchanged for options with a lower exercise price;
(9)
prescribe, amend or rescind rules and regulations relating to the Plan; and
(10)
construe and interpret the terms of the Plan and awards granted pursuant to
the
Plan. While we expect that the plan administrator will make awards
from time to time under the Plan, it has no current plans, proposals or
arrangements to make any specific grants under the Plan.
Shares
Subject to the Plan
The
stock
subject to options and awards under the Plan is authorized but unissued shares
of our common stock or shares of treasury common stock. Any shares
subject to an option that for any reason expires or is terminated unexercised
as
to such shares and any restricted stock that is forfeited and repurchased by
us
at not more than its exercise price as a result of the exercise of a repurchase
option may again be the subject of an option or award under the
Plan. The number of shares of common stock that may be issued under
the Plan may not exceed 10,000,000 shares, subject to adjustment, as described
below. On April 20, 2007, the closing sale price of our common stock
was $0.70 per share.
Section
162(m) Limitations
Section
162(m) of the Internal Revenue Code generally disallows a tax deduction to
public companies for compensation in excess of $1 million paid to the chief
executive officer or any of the four other most highly compensated
officers. Certain performance-based compensation is specifically
exempt from the deduction limit if it otherwise meets the requirements of
Section 162(m). One of the requirements for equity compensation plans
is that there must be a limit to the number of shares granted to any one
individual under the plan. Accordingly, the Plan provides that no
participant may receive, over the term of the Plan, awards for more than an
aggregate of 30% of the total number of shares of common stock with respect
to
which awards may be granted under the Plan. Stockholder approval of
this proposal will constitute stockholder approval of this limitation for
Section 162(m) purposes.
Eligibility
Nonstatutory
stock options, or NSO’s, stock purchase rights and other stock-based awards
(other than incentive stock options) may be granted to employees, directors
and
consultants. Incentive stock options, ISO’s, may be granted only to
employees. Each option will be designated in the stock option
agreement as either ISO or an NSO. As of April 20, 2007, we estimate
that approximately 100 employees, as well as our five non-employee directors,
were eligible to participate in the Plan. As of April 20, 2007, no
grants had been made under the Plan. Notwithstanding the terms of any
award under the Plan, in the event of certain misconduct by a participant,
all
awards to that participant will be terminated and all shares acquired by the
participant under the Plan will be subject to repurchase by us at any time
within 180 days after we have knowledge of such misconduct.
Terms
and Conditions of Options
Exercise
Price. The exercise price for shares issued upon exercise of
options will be determined by the Plan administrator. The exercise
price of ISO’s may not be less than 100% of the fair market value on the date
the option is granted. The exercise price of ISO’s granted to a 10%
or greater stockholder may not be less than 110% of the fair market value on
the
date of grant.
Form
of Consideration. The means of payment for shares issued upon
exercise of an option will be specified in each option agreement. The
Plan permits payment to be made by cash, check, promissory note of the
participant, wire transfer, other shares of our common stock (with some
restrictions), consideration received by us under a cashless exercise program
implemented by us in connection with the Plan, or any combination of the
foregoing.
Term
of Options. The term of an option may be no more than ten years
from the date of grant, except that the term of an option granted to a 10%
or
greater stockholder may not exceed five years from the date of
grant.
Termination
of Employment. No option may be exercised more than three months
following termination other than by reason of the participant’s death,
disability or retirement, or such other period as set forth in the option
agreement. If, on the date of termination, a participant is not fully
vested, the shares covered by the unvested portion will revert to the
Plan.
Death
or Disability. An option is exercisable for 12 months following
death of the participant or 24 months following termination for a disability
or
such other period as set forth in the option agreement. If, on the
date of death or termination, a participant is not fully vested, the shares
covered by the unvested portion will revert to the Plan.
Retirement. Upon
the retirement at or after the age of 60, an option is exercisable for 24 months
following retirement or such other period as set forth in the option
agreement. If, on the date of retirement, a participant is not fully
vested, the shares covered by the unvested portion will revert to the
Plan.
Other
Provisions. The stock option agreement for each option grant may
contain other terms, provisions and conditions not inconsistent with the Plan,
as may be determined by the Plan administrator.
Terms
and Conditions of Stock Purchase Rights
Rights
to Purchase. Stock purchase rights may be issued either alone,
in addition to, or in tandem with, other awards granted under the Plan and/or
cash awards made outside of the Plan. The offer to purchase stock
under the Plan will be accepted by execution by the participant of a stock
purchase agreement.
Right
of Repurchase. Unless the Plan administrator determines
otherwise, the stock purchase agreement will grant us the right to repurchase
the stock sold upon the termination of the participant’s service to us or upon
the failure to satisfy any performance objectives or other conditions specified
in the stock purchase agreement. The repurchase price will be the
purchase price paid by the participant or, if less, the fair market value of
the
restricted shares. The repurchase right will lapse upon such
conditions or at such rate as the Plan administrator may determine and set
forth
in the stock purchase agreement.
Other
Stock-Based Awards
The
Plan
administrator will have the right to grant other awards based upon our common
stock, having such terms and conditions as the Plan administrator may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into common stock and the grant of stock appreciation
rights.
Adjustments
Changes
in Capitalization. In the event of a stock split, reverse stock
split, stock dividend, recapitalization, combination of shares, reclassification
of shares, spin-off or other similar change in capitalization or event, or
any
distribution to holders of common stock other than a normal cash dividend,
(1)
the number and class of securities available under the Plan, (2) the
per-participant limit, (3) the number and class of securities and exercise
price
per share subject to each outstanding award, (4) the price per share at which
outstanding restricted shares may be repurchased, and (5) the terms of each
other outstanding award shall be appropriately adjusted (or substituted awards
may be made, if applicable) to the extent that the administrator of the Plan
shall determine, in good faith, necessary and appropriate.
Dissolution
or Liquidation. The Plan administrator in its discretion may
provide for a participant to have the right to exercise his or her award until
15 days prior to any dissolution or liquidation of the Company. To
the extent not previously exercised, an award will terminate immediately prior
to the consummation of any proposed dissolution or liquidation.
Sale
of the Company. Except as otherwise provided in any stock option
agreement or stock purchase agreement or other document evidencing such rights,
in the event a third party acquires a majority of the voting power of the
Company, whether through the sale of substantially all of our assets, the sale
of our voting securities or a merger or consolidation, the Plan administrator,
in its discretion, may provide for the assumption, substitution or adjustment
of
each outstanding award, accelerate the vesting of options and terminate any
restrictions on stock awards, or cancel awards for a cash payment to the
participant.
Limits
on Transferability
An
ISO
granted under the Plan may not be transferred during a participant’s lifetime
and will not be transferable other than by will or by the laws of descent and
distribution following the participant’s death. NSOs, stock purchase
rights or shares granted under the Plan may be assigned during a participant’s
lifetime to members of the participant’s family or to a trust established for
such family members or the participant’s former spouse pursuant to the
participant’s estate plan or pursuant to a domestic relations
order.
Amendment
and Termination
The
Board
may at any time amend, alter, suspend or terminate the Plan. The
Board will obtain stockholder approval of any Plan amendment to the extent
necessary and desirable to comply with applicable laws. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any
participant, unless mutually agreed in writing.
Federal
Income Tax Consequences
ISOs—A
participant who receives an ISO will recognize no taxable income for regular
federal income tax purposes upon either the grant or the exercise of such
ISO. However, when a participant exercises an ISO, the difference
between the fair market value of the shares purchased and the option price
of
those shares will be includable in determining the participant’s alternative
minimum taxable income.
If
the
shares are retained by the participant for at least one year from the date
of
exercise and two years from the date of grant of the options, gain will be
taxable to the participant upon sale of the shares acquired upon exercise of
the
ISO, as a long-term capital gain. In general, the adjusted basis for
the shares acquired upon exercise will be the option price paid with respect
to
such exercise. We will not be entitled to a tax deduction arising
from the exercise of an ISO if the employee qualifies for such long-term capital
gain treatment.
NSOs—A
participant will not recognize taxable income for federal income tax purposes
at
the time an NSO is granted. However, the participant will recognize
compensation taxable as ordinary income at the time of exercise for all shares
that are not subject to a substantial risk of forfeiture. The amount
of such compensation will be the difference between the option price and
the
fair market value of the shares on the date of exercise of the
option. We will be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the participant is deemed
to
have recognized compensation income with respect to shares received upon
exercise of the NSO. The participant’s basis in the shares will be
adjusted by adding the amount so recognized as compensation to the purchase
price paid by the participant for the shares.
The
participant will recognize gain or loss when he or she disposes of shares
obtained upon exercise of an NSO in an amount equal to the difference between
the selling price and the participant’s tax basis in such
shares. Such gain or loss will be treated as long-term or short-term
capital gain or loss, depending upon the holding period.
The
Board of Directors recommends that you vote FOR the approval of the Company’s
2007 Long-Term Incentive Plan, and proxies solicited by the Board will be
voted
in favor of the Plan unless a stockholder has indicated otherwise on the
proxy.
29
PROPOSAL
3
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, 2007. BPM audited our financial
statements for the fiscal year ended December 31, 2006. 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 2007 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 2006 and 2005.
|
|
2005
|
2006
|
||||||
|
Audit
fees(1)
|
$ |
237,620
|
$ |
250,148
|
||||
|
Tax
fees
|
--
|
--
|
||||||
|
All
other fees
|
--
|
--
|
||||||
|
Total
|
$ |
237,620
|
$ |
250,148
|
||||
_______________
|
(1)
|
Audit
fees represent fees for professional services provided by Burr, Pilger
& Maye r LLP in connection with the audit of our financial statements
for the fiscal years ended December 31, 2005 and 2006 and the review
of
quarterly reports on Form 10-Q filed during 2005 and
2006.
|
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.
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, except that each of Neil Bergstrom,
Dennis Capovilla, Wolfgang Heinze, Sylvia Kamenski, Thomas Hood, officers of
the
Company, filed on June 7, 2006 a Form 4 for an option grant, which report was
due on May 15, 2006, and filed on March 9, 2006 a Form 4 for an option grant,
which report was due on March 1, 2006; and each of William A. Berry, Andre
Horn,
Jami K. Nachtsheim, Joseph B. Reagan, Peter E. Salas, Walter G. Sedgwick and
George Boyadjieff, directors of the Company, filed on March 9, 2006 a Form
4 for
an option grant, which report was due on March 1, 2006.
OTHER
BUSINESS
We
know
of no other business that may be presented for consideration at the 2007 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,
or
vote by Internet or telephone. 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.
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|
By
Order of the Board of Directors
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|
|
Sylvia
Kamenski
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|
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Secretary
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Palo
Alto, California
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April
30, 2007
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Appendix
A
Southwall
Technologies Inc. 2007 Long-Term Incentive Plan
1. Purposes
of the Plan. The purposes of this 2007 Long-Term Incentive Plan
(the “Plan”) are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees, Directors and Consultants, and to promote the success of the
Company’s business. Options, Stock Purchase Rights and other
stock-based awards may be granted under the Plan.
2.
Definitions. As
used herein, the following definitions shall apply:
(a) “Administrator”
means the Board or the Committee responsible for administering the Plan, as
applicable, in accordance with Section 5 hereof.
(b) “Applicable
Laws” means the requirements relating to the administration of stock options
plans under U.S. state corporate laws, U.S. federal and state securities laws,
the Code, any stock exchange or quotation system on which the Common Stock
is
listed or quoted and the applicable laws of any foreign country or jurisdiction
where Awards are granted under the Plan.
(c) “Award”
means any Option, Stock Purchase Right or other stock-based award granted
pursuant to the Plan.
(d) “Board”
means the Board of Directors of the Company, as constituted from time to
time.
(e) “Code”
means the Internal Revenue Code of 1986, as amended, or any successor statute
or
statutes thereto. References to any particular Code section shall
include any successor section.
(f) “Committee”
means a committee of Directors appointed by the
Board
in
accordance with Section 5(b) hereof.
(g) “Common
Stock” means the Common Stock, $0.001 par value per share, of the
Company.
(h) “Company”
means Southwall Technologies Inc., a Delaware corporation.
(i) “Consultant”
” means any consultant
or
adviser if: (i) the consultant or adviser renders bona
fide services to a Related Company; (ii) the services rendered by
the consultant or adviser are not in connection with the offer or sale of
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for a Related Company’s securities; and
(iii) the consultant or adviser is a natural person who has
contracted directly with a Related Company to render such services.
(j) “Director”
means a member of the Board.
(k) “Disability”
means total and permanent disability as defined in Section 22(e)(3) of the
Code.
(l) “Employee”
means any person, including Officers and Directors, employed by a Related
Company (or who has accepted an offer for employment by a Related Company)
who
is subject to the control and direction of the employer entity as to both the
work to be performed and the manner and method of performance. An
Employee shall not cease to be an Employee in the case of (i) any leave
of absence approved by a Related Company or (ii) transfers between
locations of a Related Company or between the Related Companies, or any
successor. For purposes of Incentive Stock Options, no such leave may
exceed ninety (90) days, unless reemployment upon expiration of such leave
is
guaranteed by statute or contract. If reemployment upon expiration of
leave of absence approved by the Related Company is not so guaranteed, on the
181st day of
such leave any Incentive Stock Option held by the Participant shall cease to
be
treated as an Incentive Stock Option and shall be treated for tax purposes
as a
Nonstatutory Stock Option. Neither service as a Director nor payment
of a director’s fee by the Company shall be sufficient to constitute
“employment” by the Company.
(m) “Exchange
Act” means the Securities Exchange Act of 1934, as amended, or any successor
statute or statutes thereto. References to any particular Exchange
Act section shall include any successor section.
(n) “Exercise
Price” or “Purchase Price” means the per Share price to be paid by a
Participant or Purchaser to exercise an Option or Stock Purchase
Right.
(o) “Fair
Market Value” means, as of any date, the value of a share of Common Stock
determined as follows:
(i) If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market or the
Nasdaq SmallCap Market of the Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for a share of such stock on that day (or, if there
are no quotes for that day, on the last day preceding such date for which
quotations were available), as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean between
the high bid and low asked prices for a share of Common Stock on the last market
trading day prior to the day of determination (or, if there are no quotes on
that day, on the last day preceding such date for which quotes were available);
or
(iii) In
the absence of an established market for the Common Stock, the Fair Market
Value
thereof shall be determined in good faith by the Administrator.
(p) “Incentive
Stock Option” means an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and which is designated
as
an Incentive Stock Option by the Administrator.
(q) “Nonstatutory
Stock Option” means an Option (or portion thereof) that is not designated as
an Incentive Stock Option by the Administrator, or which is designated as an
Incentive Stock Option by the Administrator but fails to qualify as an incentive
stock option within the meaning of Section 422 of the Code.
(r) “Officer”
means a person who is an officer of the Company within the meaning of Section
16
of the Exchange Act and the rules and regulations promulgated
thereunder.
(s) “Option”
means a stock option granted pursuant to the Plan.
(t) “Optioned
Stock” means the Common Stock subject to an Option or a Stock Purchase
Right.
(u) “Parent”
means a “parent corporation,” whether now or hereafter existing, as a defined in
Section 424(e) of the Code.
(v) “Participant”
means the holder of an outstanding Award.
(w) “Plan”
means this 2007 Long-Term Incentive Plan.
(x) “Purchased
Shares” means the shares of Common Stock purchased by a Participant pursuant
to his or her exercise of an Award.
(y) “Purchaser”
means a Participant exercising an Option or Stock Purchase Right.
(z) “Related
Company” means and includes the Company and the Parent and any Subsidiaries
of the Company.
(aa) “Restricted
Shares” means unvested shares of Common Stock acquired pursuant to the
exercise of an Award which are subject to a Right of Repurchase.
(bb) “Right
of Repurchase” means the right of the Company to repurchase
Restricted
Shares issued pursuant to any Award.
(cc) “Sale
of the Company” means: (i) a sale of substantially all of
the assets of the Company; or (ii) a sale or transfer of voting
securities of the Company to an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act), in one transaction or
a
series of related transactions; or (iii) a consolidation or merger of the
Company, in each case, as a result of which the beneficial holders of a majority
of the voting power of the Company’s voting securities entitled to vote
generally in the election of directors (“Voting Power”) prior to such
transaction do not, directly or indirectly, beneficially hold a majority of
the
Voting Power (or of the voting power of the surviving or acquiring entity)
after
such transaction.
(dd) “Section
16(b)” means Section 16(b) of the Exchange Act.
(ee) “Service”
means the Participant’s performance of services for a Related Company in the
capacity of an Employee, Director or Consultant.
(ff) “Service
Provider” means an Employee, Director or Consultant.
(gg) “Share”
means a share of the Common Stock, as adjusted in accordance with Section 12
hereof.
(hh) “Stock
Option Agreement” means a written agreement between the Company and a
Participant evidencing the terms and conditions of an individual Option
grant. A Stock Option Agreement is subject to the terms and
conditions of the Plan.
(ii) “Stock
Purchase Agreement” means a written agreement between the Company and a
Participant evidencing the terms and conditions of a Stock Purchase
Right. A Stock Purchase Agreement is subject to the terms and
conditions of the Plan.
(jj) “Stock
Purchase Right’ means the right of a Participant to purchase Common Stock
pursuant to Section 10 hereof.
(kk) “Subsidiary”
means “subsidiary corporation,” whether now or hereafter
existing, as defined in Section 424(f) of the Code.
(ll) “10%
Stockholder” means the owner of stock (as determined under Section 424(d) of
the Code) possessing more than ten percent (10%) of the voting power of all
classes of stock of a Related Company.
3. Effective
Date and Term of Plan. The Plan shall become effective upon its
adoption by the Board. No Awards shall be granted under the Plan
after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was
approved by the Company’s stockholders, but Awards previously granted may extend
beyond that date.
4. Stock
Subject to the Plan.
(a) Number
of Shares. Subject to the provisions of Section 12 of the Plan,
the maximum aggregate number of Shares which may be subject to Awards and issued
under the Plan is 10,000,000 Shares. The Shares may be authorized but
unissued shares or treasury shares. If an Award expires or becomes
unexercisable without having been exercised in full, the unpurchased Shares
which were subject thereto shall become available for future grant or sale
under
the Plan (unless the Plan has terminated). However, Shares that have
actually been issued under the Plan, upon exercise of an Award, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Restricted Shares are forfeited and repurchased
by the Company at not more than their Exercise Price, such Shares shall become
available for future Awards under the Plan. Shares that are delivered
by the Participant or withheld by the Company upon the exercise of an Option
under the Plan, in payment of the exercise price thereof or tax withholding
thereon, may again by optioned, granted or awarded hereunder, subject to the
limitations of this Section 4(a). Notwithstanding the provisions of
this Section 4(a), no Shares may again be optioned, granted or awarded if such
action would cause an Incentive Stock Option to fail to qualify as an Incentive
Stock Option under Section 422 of the Code.
(b) Per-Participant
Limit. Subject to adjustment under Section 12, for Awards granted
after the Common Stock is registered under the Exchange Act, the maximum number
of shares of Common Stock with respect to which an Award may be granted to
any
Participant under the Plan shall be 1,000,000 per calendar year. The
per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
5. Administration
of the Plan.
(a) Administration
by Board of Directors. The Plan will be administered by the
Board. The Board shall have authority to grant Awards and to adopt,
amend and repeal such administrative rules, guidelines and practices relating
to
the Plan as it shall deem advisable. The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
Award in the manner and to the extent it shall deem expedient to carry the
Plan
into effect and it shall be the sole and final judge of such
expediency. All decisions by the Board shall be made in the Board's
sole discretion and shall be final and binding on all persons having or claiming
any interest in the Plan or in any Award. No director or person
acting pursuant to the authority delegated by the Board shall be liable for
any
action or determination relating to or under the Plan made in good
faith.
(b) Appointment
of Committees. To the extent permitted by Applicable Laws, the
Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board.
(c) Delegation
to Executive Officers. To the extent permitted by Applicable
Laws, the Board may delegate to one or more executive officers of the Company
the power to make Awards and exercise such other powers under the Plan as the
Board may determine, provided that the Board shall fix the maximum number of
shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(d) Powers
of the Administrator. Subject to the provisions of the Plan and,
in the case of a Committee or executive officer, the specific duties delegated
by the Board to such Committee or executive officer, the Administrator shall
have the authority in its discretion:
(i) to
determine the Fair Market Value;
(ii) to
select the Service Providers to whom Awards may from time
to
time be granted hereunder;
(iii) to
determine the number of Shares to be covered by each Award granted
hereunder;
(iv) to
approve forms of agreement for use under the Plan;
(v) to
determine the terms and conditions of any Award granted
hereunder. Such terms and conditions include, but are not limited to,
the Exercise Price or Purchase Price, the time or times when an Award may be
exercised (which may be based on performance criteria), any vesting,
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Award or the Shares relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to
determine whether and under what circumstances an Option may be settled in
cash
under Section 13(f) instead of Common Stock;
(vii) to
prescribe, amend and rescind rules and regulations relating
to the Plan; and
(vii) to
construe and interpret the terms of the Plan and Awards granted pursuant to
the
Plan.
6. Eligibility.
(a) Nonstatutory
Stock Options, Stock Purchase Rights and other stock-based awards (other than
Incentive Stock Options) may be granted to Service
Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each
Option shall be designated in the Stock Option Agreement as either an Incentive
Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year (under all plans of
the
Related Companies) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined
as of the time the Option with respect to such Shares is granted.
7. Term
of Option. The term of each Option shall be stated in the Stock
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an
Incentive Stock Option granted to a 10% Stockholder, the term of the Option
shall be five (5) years from the date of grant or such shorter term as may
be
provided in the Stock Option Agreement.
8. Option
Exercise Price and Consideration.
(a) The
Exercise Price for the Shares to be issued upon exercise of an Option shall
be
such price as is determined by the Administrator; provided,
however, that, in the case of an Incentive Stock Option granted to
a 10%
Stockholder, the Exercise Price shall be no less than 110% of the Fair Market
Value per Share on the date of grant, and providedfurther that, in
the case of an Incentive Stock Option granted to any other Employee, the
Exercise Price shall be no less than 100% of the Fair Market Value per Share
on
the date of grant.
(b) The
consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant and set forth in the Stock Option Agreement). Such
consideration may consist of (i) cash or a check payable to the Company,
(ii) a promissory note of the Participant, (iii) wire transfer,
(iv) when the Common Stock is registered under the Exchange Act, other
Shares which (A) in the case of Shares acquired upon exercise of an
Option, have been owned by the Participant for more than six months on the
date
of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate Exercise Price of the Shares as to which such Option
shall be exercised, (v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan, or (vi) any combination of the foregoing methods of
payment.
9. Exercise
of Option.
(a) Procedure
for Exercise. Any Option granted hereunder shall be exercisable
according to the terms hereof at such times and under such conditions as
determined by the Administrator and set forth in the Stock Option
Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a
Share.
An
Option
shall be deemed exercised when the Company receives: (i) written notice of
exercise (in accordance with the Stock Option Agreement) from the person
entitled to exercise the Option, and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may consist of
any consideration and method of payment authorized by the Administrator and
permitted by the Stock Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Participant or,
if
requested by the Participant, in the name of the Participant and his or her
spouse.
Exercise
of an Option in any manner shall result in a decrease in the number of Shares
thereafter available, both for purposes of the Plan and sale under the Option,
by the number of Shares as to which the Option is
exercised.
(b) Termination
of Service. If a Participant terminates Service other than by
reason of the Participant’s death or Disability, such Participant may exercise
his or her Option within such period of time as is specified in the Stock Option
Agreement to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of the Option as set
forth in the Stock Option Agreement). In the absence of a specified
time in the Stock Option Agreement, the Option shall remain exercisable for
three months following the Participant’s termination of Service. If,
on the date of termination, the Participant is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination of Service, the Participant
does not exercise his or her Option within the time specified by the
Administrator in the Stock Option Agreement, the Option shall terminate, and
the
Shares covered by such Option shall revert to the Plan.
(c) Disability
of Participant. If a Participant terminates Service as a result
of the Participant’s Disability, the Participant may exercise his or her Option
within such period of time as is specified in the Stock Option Agreement to
the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Stock Option
Agreement). In the absence of a specified time in the Stock Option
Agreement, the Option shall remain exercisable for 12 months following the
Participant’s termination of Service as the result of the Participant’s
Disability. If, on the date of termination of Service, the
Participant is not vested as to his or her entire Option, the Shares covered
by
the unvested portion of the Option shall revert to the Plan. If,
after termination of Service, the Participant does not exercise his or her
Option within the time specified in the Stock Option Agreement, the Option
shall
terminate, and the Shares covered by such Option shall revert to the
Plan.
(d) Death
of Participant. If a Participant dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Stock Option Agreement to the extent that the Option is vested on the date
of
death (but in no event later than the expiration of the term of such Option
as
set forth in the Stock Option Agreement) by the Participant’s estate or by a
person who acquires the right to exercise the Option by bequest or
inheritance. In the absence of a specified time in the Stock Option
Agreement, the Option shall remain exercisable for 12 months following the
Participant’s termination of Service because of death. If, at the
time of death, the Participant is not vested as to the entire Option, the Shares
covered by the unvested portion of the Option shall immediately revert to the
Plan. If the Option is not so exercised within the time specified in
the Stock Option Agreement, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(e) Unvested
Shares. The Administrator shall have the discretion to grant
Options which are exercisable for Restricted Shares. Should the
Participant terminate Service or fail to satisfy performance objectives while
holding such Restricted Shares, the Company shall have a Right of Repurchase,
at
the Exercise Price paid per Share or such other price determined by the
Administrator and set forth in the Stock Option Agreement, with respect to
any
or all of those Restricted Shares. The terms upon which such Right of
Repurchase shall be exercisable (including the period and procedure for exercise
and the appropriate vesting schedule for the purchased Shares) shall be
established by the Administrator and set forth in the Stock Option
Agreement or other document evidencing such repurchase right.
10. Stock
Purchase Rights.
(a) Rights
to Purchase. Stock Purchase Rights may be issued either alone, in
addition to, or in tandem with other Awards granted under the Plan and/or cash
awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
Participant in writing of the terms, conditions and restrictions related to
the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer. The offer shall be accepted by execution of a
Stock Purchase Agreement in the form determined by the
Administrator.
(b) Right
of Repurchase. Unless the Administrator determines otherwise, the
Stock Purchase Agreement shall grant the Company a Right of Repurchase
exercisable upon the termination of the Purchaser’s Service with the Company for
any reason (including death or disability) or upon the failure to satisfy any
performance objectives or other conditions specified in the Stock Purchase
Agreement. Shares issued as Restricted Shares may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by will or
the
laws of descent and distribution, or as otherwise determined by the
Administrator in the Stock Purchase Agreement, for such period as the
Administrator shall determine. The purchase price for Restricted
Shares repurchased pursuant to the Right of Repurchase shall be the purchase
price paid by the Purchaser or such other price determined by the Administrator
and set forth in the Stock Purchase Agreement, and may be paid by cancellation
of any indebtedness of the Purchaser to the Company. The Right of
Repurchase shall lapse upon such conditions or at such rate as the Administrator
may determine and set forth in the Stock Purchase Agreement.
Each
certificate for Restricted Shares shall bear an appropriate legend referring
to
the Right of Repurchase and other restrictions and shall be deposited by the
stockholder with the Company together with a stock power endorsed in
blank. Any attempt to dispose of Restricted Shares in contravention
of the Right of Repurchase and other restrictions shall be null and void and
without effect. If Restricted Shares shall be repurchased by the
Company pursuant to the Right of Repurchase, the stockholder shall forthwith
deliver to the Company the certificates for the Restricted Shares, accompanied
by such instrument of transfer, if any, as may reasonably be required by the
Company. If the Company does not exercise its Right of Repurchase,
such Right of Repurchase shall terminate and be of no further force and
effect.
The
Administrator may in its discretion waive the surrender and cancellation of
one
or more Restricted Shares (or other assets attributable thereto) which would
otherwise occur upon the non-completion of the vesting schedule or other
conditions applicable to those Restricted Shares. Such waiver shall
result in the immediate vesting of the Purchaser’s interest in the Restricted
Shares as to which the waiver applies. Such waiver may be effected at
any time, whether before or after the Purchaser’s termination of Service or the
attainment or non-attainment of the applicable conditions.
(c) Other
Provisions. The Stock Purchase Agreement shall contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator in its sole discretion.
11. Other
Stock-Based Awards. The Administrator shall have the
right to grant other Awards based upon the Common Stock having such terms and
conditions as the Administrator may determine, including the grant of Shares
based upon certain conditions, the grant of securities convertible into Common
Stock and the grant of stock appreciation rights.
12. Adjustments
Upon Changes in Capitalization or Dissolution or Sale of the
Company.
(a) Changes
in Capitalization. In the event of any stock split, reverse stock
split, stock dividend, recapitalization, combination of shares, reclassification
of shares, spin-off or other similar change in capitalization or event, or
any
distribution to holders of Common Stock other than a normal cash dividend,
(i) the number and class of securities available under the Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii)
the number and class of securities and exercise price per share subject to
each
outstanding Award, (iv) the price per share at which outstanding
Restricted Shares may be repurchased pursuant to a Right of Repurchase and
(v) the terms of each other outstanding Award shall be appropriately
adjusted by the Company (or substituted Awards may be made, if applicable)
to
the extent the Administrator shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate.
(b) Dissolution
or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Participant
as
soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for a
Participant to have the right to exercise his or her Award until 15 days prior
to such transaction as to all of the Shares covered thereby, including Shares
as
to which the Award would not otherwise be exercisable. In addition,
the Administrator may provide that any Right of Repurchase applicable to any
Restricted Shares purchased upon exercise of an Option or Stock Purchase Right
shall lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an
Award will terminate immediately prior to the consummation of such proposed
dissolution or liquidation of the Company.
(c) Sale
of the Company. Except as otherwise provided in any Stock Option
Agreement or Stock Purchase Agreement or other document evidencing such rights,
in the event of a Sale of the Company when any unexercised Award or any
Restricted Shares remains outstanding, the Administrator may in its discretion
apply one or more or any combination of the following provisions:
(i) the
Administrator may provide that outstanding Awards or Restricted Shares shall
be
assumed or an equivalent option or right or restricted stock substituted by
the
successor entity or a Parent or Subsidiary thereof; or
(ii) the
Administrator may, subject to the provisions of clauses (iv) and (v) below,
after the effective date of the Sale of the Company, permit a holder of an
Award
immediately prior to such effective date, upon exercise of the Award, to receive
in lieu of Shares of Common Stock, shares of stock or other securities or
consideration as the holders of Common Stock received pursuant to the terms
of
the Sale of the Company; or
(iii) the
Administrator may waive any discretionary limitations imposed with respect
to an
Award so that some or all Options or Stock Purchase Rights, from and after
a
date prior to the effective date of the Sale of the Company as specified by
the
Administrator, are exercisable in full and any Restricted Shares shall cease
to
be subject to restrictions in whole or in part; or
(iv) the
Administrator may cause any outstanding Awards to be canceled as of the
effective date of the Sale of the Company, provided that notice of cancellation
is given to each holder of an Award, and each holder of an Award has the right
to exercise the Award in full prior to or contemporaneous with the effective
date of such Sale of the Company; or
(v) the
Administrator may cause any outstanding Awards to be canceled as of the
effective date of the Sale of the Company, provided that notice of such
cancellation is given to each holder of an Award, and each holder of an Award
has the right to exercise the Award, to the extent exercisable in accordance
with any limitations imposed thereon, prior to or contemporaneous with the
effective date of such Sale of the Company.
13. General
Provisions Applicable to Awards. Every Award and all Shares
issued pursuant to the Plan shall be subject to the following
provisions:
(a) Time
of Granting Awards. The date of grant of an Award shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Award, or such other date as is determined by the
Administrator. The Administrator will give notice of the
determination to each Service Provider to whom an Award is so granted within
a
reasonable time after the date of such grant.
(b) No
Rights to Employment or Other Status. Neither the Plan nor any
Award shall confer upon any Participant any rights with respect to continuing
in
Service with any Related Company, nor shall the Plan or any Award interfere
in
any way with the Participant’s right or the Related Company’s right to terminate
the Participant’s Service at any time, with or without cause.
(c) Rights
as a Stockholder. Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Shares,
notwithstanding the exercise of an Award. The Company shall issue (or
cause to be issued) the Shares promptly after an Award is duly
exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except
as
provided in Section 12 hereof.
(d) Acceleration. The
Administrator may at any time provide that any Awards shall become immediately
exercisable in full or in part or that any Restricted Shares shall be free
of
restrictions or conditions in full or in part or otherwise realizable in full
or
in part, as the case may be.
(e) Buyout
Provisions. The Administrator may at any time and from time to
time offer to buy out for a payment in cash or Shares any Award previously
granted, based on such terms and conditions as the Administrator shall establish
and communicate to the holder of such Award at the time such offer is
made.
(f)
Conditions
on Delivery of Shares. The Company shall not be obligated to
deliver any Shares pursuant to the Plan or to remove any restrictions from
Shares previously delivered under the Plan, until (i) all conditions of the
Award have been met or removed to the satisfaction of the Administrator, (ii)
in
the opinion of the Company’s counsel, all other legal matters in connection with
the issuance and delivery of such Shares have been satisfied in accordance
with
Applicable Laws; and (iii) the Participant has executed and delivered to the
Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of Applicable Laws.
(g) Amendment
of Award. The Administrator may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or different type, converting an Incentive Stock Option to
a
Nonstatutory Stock Option, provided that the Participant’s consent to such
action shall be required unless the Administrator determines that the action
would not materially and adversely affect the Participant.
(h) Withholding
Taxes. Each Participant shall pay to the Company, or make
provisions satisfactory to the Administrator for payment of, any taxes required
by Applicable Laws to be withheld in connection with any Awards to the
Participant no later than the date of the event creating the tax
liability. Except as the Administrator may otherwise provide in an
Award, when the Common Stock is registered under the Exchange Act, Participants
may satisfy such tax obligations in whole or in part by delivery of Shares,
including Shares retained from the Award creating the tax obligation, valued
at
their Fair Market Value. The Company may, to the extent permitted by
Applicable Laws, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
(i) Cancellation
and Forfeiture for Misconduct. Notwithstanding the terms of any
Award or other provision of the Plan, in the event of any Misconduct by the
Participant or Purchaser (whether before or after the termination of Service),
(i) all Awards granted to the Participant shall be terminated and the holder
thereof shall have no further rights thereunder and (ii) all Shares then held
by
the Participant or Purchaser (or any successor) which were acquired by the
Participant or Purchaser (or any successor) pursuant to an Award under the
Plan
shall thereupon be (or revert to being) Restricted Shares and shall be subject
to a Right of Repurchase exercisable by the Company at any time
within 180 days after the occurrence of such Misconduct or, if later, 180 days
after the Company has knowledge of such Misconduct. The purchase
price for Shares repurchased by the Company pursuant to the Right of Repurchase
pursuant to this Section 13(j) shall be equal to the purchase price originally
paid by the Participant or Purchaser for such Shares. The following
shall constitute “Misconduct” by an Participant or
Purchaser: (i) the unauthorized use or disclosure of the
confidential information or trade secrets of any Related Company which use
or
disclosure causes material harm to the Related Company; (ii) conviction
of a crime involving moral turpitude, deceit, dishonesty or fraud; (iii)
gross negligence or willful misconduct of the Participant or Purchaser with
respect to any Related Company; or (iv) the breach by the Participant or
Purchaser of any material term of an agreement with a Related Company including
covenants not to compete and provisions relating to confidential information
and
intellectual property rights.
(j) Limits
on Transferability of Awards. An Incentive Stock Option shall be
exercisable only by the Participant during his or her lifetime and shall not
be
assignable or transferable other than by will or by the laws of descent and
distribution following the Participant’s death. A Nonstatutory Stock
Option, Stock Purchase Right or Shares may be assigned in whole or in part
during the Participant’s lifetime to one or more members of the Participant’s
family or to a trust established exclusively for one or more such family members
or to the Participant’s former spouse, to the extent such assignment is in
connection with the Participant’s estate plan or pursuant to a domestic
relations order. The assigned portion may only be exercised by the
person or persons who acquired a proprietary interest in the Nonstatutory Stock
Option, Stock Purchase Right or Shares pursuant to the
assignment. The terms applicable to such assigned portion shall be
the same as those in effect for the Nonstatutory Stock Option, Stock Purchase
Right or Shares immediately prior to such assignment and shall be set forth
in
such documents issued to the assignee as the Administrator may deem
appropriate. Notwithstanding the foregoing, the Participant may also
designate one or more persons as the beneficiary or beneficiaries of his or
her
outstanding Awards under the Plan, and those Awards shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Participant’s death while holding those
Awards. Such beneficiary or beneficiaries shall take the transferred
Awards subject to all terms and conditions of the applicable agreement
evidencing each such transferred Award, including (without limitation) the
limited time period during which Awards may be exercised following the
Participant’s death.
(k) Documentation. Each
Award shall be evidenced by a written instrument in such form as the
Administrator shall determine. Each Award may contain terms and conditions
in
addition to those set forth in the Plan.
(l) Administrator
Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other
Award. The terms of each Award need not be identical, and the
Administrator need not treat Participants uniformly.
14. Amendment
and Termination of the Plan.
(a) Amendment
and Termination. The Board may at any time amend, alter, suspend
or terminate the Plan.
(b) Stockholder
Approval. The Board shall obtain stockholder approval of any Plan
amendment to the extent necessary and desirable to comply with Applicable
Laws.
(c) Effect
of Amendment or Termination. No amendment, alteration, suspension
or termination of the Plan shall impair the rights of any Participant, unless
mutually agreed otherwise between the Participant and the Administrator, which
agreement must be in writing and signed by the Participant and the
Company. Termination of the Plan shall not affect the Administrator’s
ability to exercise the powers granted to it hereunder with respect to Awards
granted under the Plan prior to the date of such termination.
15. Reservation
of Shares. The Company, during the term of the Plan, shall at all
times reserve and keep available such number of Shares as shall be sufficient
to
satisfy the requirements of the Plan.
16. Stockholder
Approval. The Plan shall be subject to approval by the
stockholders of the Company within 12 months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree
and manner required under Applicable Laws.
|
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17.
|
Governing
Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with
the laws
of The Commonwealth of Massachusetts, without regard to any applicable
conflicts of law.
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| MR A SAMPLE | Electronic Voting Instructions | ||||
| DESIGNATION (IF ANY) | |||||
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ADD
1
ADD 2
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You
can vote by Internet or telephone!
Available
24 hours a day, 7 days a week!
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| ADD 3 | |||||
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ADD
4
ADD 5
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Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. | ||||
| ADD 6 | |||||
| VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. | |||||
| Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 24, 2007. | |||||
 |
Vote
by Internet
• Log
on to the Internet and go to
www.investorvote.com
•
Follow the steps outlined on the secured website.
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||||
 |
Vote
by telephone
•
Call toll free 1-800-652-VOTE (8683) within the United States,
Canada & Puerto Rico any time on a touch tone telephone.
There is NO CHARGE to you for the call.
•
Follow the instructions provided by the recorded
message.
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||||
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Using
a black ink pen, mark your votes with an
X as shown in this example. Please do not write
outside
the designated areas.
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x
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||||
|
Annual
Meeting Proxy Card
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123456
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C0123456789
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12345
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€IF
YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.€
A
Proposals — The Board of Directors recommends a vote FOR all the nominees
listed below and FOR Proposals 2 and 3.
1.
Election of Directors to hold office until the 2007 Annual Meeting of
Stockholders and until their successors are elected:
|
01
- William A. Berry
|
02
- George Boyadjieff
|
03
- R. Eugene Goodson
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04
- Andre R. Horn
|
05
- Jami K. Dover Nachtsheim
|
06
- Peter E. Salas
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|
o
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Mark
here to vote FOR all nominees
|
o
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Mark
here to WITHHOLD vote from all
nominees
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|
01
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02
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03
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04
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05
|
06
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||||
|
o
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For
All EXCEPT- To withhold a vote for one or more nominees,
mark the
box to the left and the corresponding numbered box(es) to the
right.
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o
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o
|
o
|
o
|
o
|
o
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For
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Against
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Abstain
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For
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Against
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Abstain
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2.
To approve the adoption of the Company’s 2007 Long-Term Incentive
Plan.
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o
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o
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o
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3.
To ratify the selection of Burr, Pilger & Mayer LLP as our independent
registered public accounting firm for the year ending December
31,
2007.
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o
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o
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o
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4.
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.
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o
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o
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o
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|||||
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B
Non-Voting Items
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Change
of Address— Please print your new address below.
|
Comments—
Please print your comments below.
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Meeting
Attendance
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Mark the box to the right if you plan to attend the Annual Meeting. |
o
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C
Authorized Signatures — This section must be completed for your vote to be
counted. — Date and Sign Below
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 nameand have a duly authorized officer sign stating
title. If signer is a partnership, please sign in partnership name by authorized
person.
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Date
(mm/dd/yyyy) — Please print date below.
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Signature
1 — Please keep signature within the box.
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Signature
2 — Please keep signature within the box.
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€IF
YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
€
Proxy
— SOUTHWALL TECHNOLOGIES INC.
Annual
Meeting of Stockholders- May 24, 2007
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints R. Eugene Goodson and Sylvia Kamenski, and each
of
them, as attorneys and proxies of the undersigned, with power if 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 3788 Fabian Way, Palo Alto, California on Thursday,
May 24, 2007 at 8:30 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 matters as listed
on
the reverse side and in accordance with the instructions designated on
the
reverse side, 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 30, 2007 (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 AND PROPOSAL 3 AS MORE SPECIFICALLY
SET
FORTH IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY
WILL BE VOTED IN ACCORDANCE THEREWITH.
|
SEE
REVERSE SIDE
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CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
|
SEE
REVERSE SIDE
|
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.