<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Southwall Technologies Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
(1) Title of each class of securities to which transaction applies: N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined): N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: N/A
- --------------------------------------------------------------------------------
(5) Total fee paid: N/A
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
SOUTHWALL TECHNOLOGIES INC.
1029 CORPORATION WAY
PALO ALTO, CALIFORNIA 94303
_____________
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Southwall Technologies Inc., a Delaware corporation (the "Company"), will be
held on Thursday, May 30, 1996, at 3:00 p.m. at the Company's principal
executive offices at 1029 Corporation Way, Palo Alto, California, for the
following purposes:
1. To elect five directors to serve for the ensuing year and until
their successors are elected.
2. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending December 31, 1996.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 5,
1996 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and at any continuation or adjournment
thereof.
ALFRED V. LARRENAGA
Secretary
Palo Alto, California
March 31, 1996
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN
YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
<PAGE>
PROXY STATEMENT
__________
SOUTHWALL TECHNOLOGIES INC.
1029 CORPORATION WAY
PALO ALTO, CALIFORNIA 94303
__________
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Southwall Technologies Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held on May 30, 1996, at which stockholders of record on
April 5, 1996 will be entitled to vote. The specific proposals to be considered
and acted upon at the Annual Meeting are summarized in the accompanying Notice
and are described in more detail in this Proxy Statement. On February 29, 1996,
5,977,961 shares of the Company's common stock ("Common Stock"), were issued and
outstanding. No shares of the Company's preferred stock were outstanding. Each
stockholder is entitled to one vote for each share of Common Stock held by said
stockholder.
Directors are elected by a plurality vote. The other matters submitted
for stockholder approval at this Annual Meeting will be decided by the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote on each matter. With regard to the election of
directors, votes may be cast in favor of or withheld from each nominee; votes
that are withheld will be excluded entirely from the vote and will have no
effect. Abstentions may be specified on all proposals except the election of
directors and will be counted as present for purposes of determining the
existence of a quorum regarding the item on which the abstention is noted. If
shares are not voted by the broker who is the record holder of the shares, or if
shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares are not deemed to be present or represented for purposes of determining
whether stockholder approval of that matter has been obtained.
The Company intends to mail this proxy statement and the accompanying
proxy card on or about April 15, 1996 to all stockholders entitled to vote at
the Annual Meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by the holder of
record by filing with the Secretary of the Company at the Company's principal
executive office, 1029 Corporation Way, Palo Alto, California, 94303, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by the holder of record attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.
SOLICITATION
The Company will bear the entire cost of proxy solicitation, including
costs of preparing, assembling, printing and mailing this proxy statement, the
proxy card and any additional material furnished to stockholders. Copies of the
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others, to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be
1
<PAGE>
supplemented by telephone, telegram or personal solicitation by directors,
officers or other regular employees of the Company. No additional compensation
will be paid to directors, officers or other regular employees for such
services.
PROPOSAL 1
NOMINATION AND ELECTION OF DIRECTORS
Each director to be elected will hold office until the next Annual
Meeting of Stockholders and until his successor is elected and has qualified, or
until such director's earlier death, resignation or removal.
There are five nominees for the five positions on the Board of Directors
of the Company (the "Board") authorized pursuant to the Company's Bylaws. Each
of the five nominees listed below is currently a director of the Company and was
elected by the stockholders at the last annual meeting. The five candidates
receiving the highest number of affirmative votes cast at the Annual Meeting
will be elected directors of the Company. Each person nominated for election has
agreed to serve if elected, and management has no reason to believe that any
nominee will be unavailable to serve. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for the five nominees named
below. In the event that any nominee should be unavailable for election as a
result of an unexpected occurrence, such shares will be voted for the election
of such substitute nominee as management may propose.
MANAGEMENT RECOMMENDS A VOTE "FOR"
EACH OF THE NOMINEES FOR DIRECTOR NAMED BELOW.
NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupations for the last
five years, certain other directorships held by them, and their ages as of
February 29, 1996.
<TABLE>
<CAPTION>
Name Age
---- ---
<S> <C>
Bruce J. Alexander(2).................................... 51
Joseph B. Reagan(2)...................................... 61
Martin M. Schwartz....................................... 51
Walter C. Sedgwick (1)(2)................................ 49
J. Larry Smart(1)........................................ 48
</TABLE>
______________
(1) Member of the Audit Committee.
(2) Member of the Human Resources Committee.
_____________________
Mr. Alexander became a director of the Company in April 1981. Since
1994, he has been a Senior Vice President with Needham & Co., Inc., investment
bankers. From 1991 to 1994, he was a General Partner with Materia Ventures,
L.P., a venture capital firm investing in advanced materials companies. From
March 1987 to July 1991, he was President and Chief Executive Officer of the
Company. From 1982 to March 1987, he held various offices with the Company,
including Executive Vice President, Vice Chairman of the Board, Chairman and
acting Chief Executive Officer, and Chief Financial Officer.
2
<PAGE>
Dr. Reagan has served as a director of the Company since June 1993,
and previously served as a director from October 1987 through May 1992. From
January 1959 until his retirement on January 31, 1996, Dr. Reagan was employed
by the Lockheed Corporation, which became the Lockheed Martin Corporation in
March 1995. From 1991 until his retirement, Dr. Reagan was a corporate officer
and the Vice President and General Manager for the Research and Development of
the Missiles and Space Company.
Mr. Schwartz became a director, President and Chief Executive Officer
of the Company in May 1994. From April 1988 to May 1994, he was Vice President,
Operations of the Company.
Mr. Sedgwick has served as a director of the Company since January
1979. He has been a private investor for more than the past five years.
Mr. Smart has served as Chairman of the Board since March 1994 and as
a director of the Company since July 1991. Since July 1995 he has been Chairman,
President and Chief Executive Officer for Micropolis Corporation. From May 1994
to February 1995, he was President and Chief Executive Officer of Maxtor
Corporation. From July 1991 to May 1994, he was President and Chief Executive
Officer of the Company. From November 1987 to July 1991, he was Sr. Vice
President of SCI Systems, Inc. He is also a director of Western Micro
Technologies, Inc.
MANAGEMENT
Set forth below is certain information regarding executive officers of
the Company who are not nominees, including their ages and positions as of
February 29, 1996.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert L. Cormia.................... 60 Senior Vice President, Technology
Leonard H. Garigliano............... 46 Vice President, Operations
Thomas G. Hood...................... 40 Vice President/General Manager, International Operations
Alfred V. Larrenaga................. 48 Senior Vice President, Chief Financial Officer and Secretary
Ted L. Larsen, Ph.D................. 60 Vice President, Aerospace and Engineered Products
Catherine B. Poliak................. 38 Vice President, Human Resources
F. Eugene Woodard, Ph.D............. 46 Vice President, Engineering
</TABLE>
Mr. Cormia became Senior Vice President, Technology in March 1988.
From October 1986 to February 1988, he served as Vice President, Technology and
Operations. From June 1983 to October 1986, he served as the Company's Vice
President, Engineering, and from January 1979 until June 1983, he was Director
of Thin Film Development.
Mr. Garigliano became Vice President, Operations in July 1994.
Previously, he held various positions at Courtaulds Performance Films, a
division of Courtaulds Plc, from September 1990 to July 1994, and at Letrasat
Nielsen & Bainbridge, a division of Esselte from September 1981 to August 1990.
Mr. Hood became Vice President/General Manager International
Operations in January 1995. From October 1991 to January 1995, he was Vice
President, Marketing and Sales. From September 1990 to
3
<PAGE>
October 1991, he was Vice President, Business Development. From June 1989 to
September 1990, he served as Vice President, Glazing Laminates. Previously, from
July 1981 to June 1989, he served in various positions with the Company
including Director of New Product Development and Director of Engineering
Development.
Mr. Larrenaga became Senior Vice President, Chief Financial Officer
and Secretary in May 1994. From August 1988 to May 1994, he was Vice President,
Finance, Chief Financial Officer and Secretary of the Company.
Dr. Larsen became Vice President, Aerospace and Engineered Products in
January 1994. From September 1989 to January 1994, he served as Vice President,
Engineering.
Ms. Poliak became Vice President, Human Resources in January 1994.
From November 1988 to January 1994, she served as Director of Human Resources.
Previously, from January 1983 to November 1988, she served in various other
positions with the Company.
Dr. Woodard became Vice President, Engineering in January 1994. From
September 1989 to January 1994, he served as Director of Advanced Products.
ATTENDANCE, COMMITTEES AND COMPENSATION OF DIRECTORS
The Board, which held eight meetings during 1995, currently has two
standing committees, the Audit Committee and the Human Resources Committee.
The Audit Committee recommends engagement of the Company's independent
accountants, approves the services performed by such accountants, reviews the
results of the annual audit, and evaluates the Company's accounting systems and
internal financial controls. The Audit Committee held two meetings during 1995.
The Human Resources Committee is authorized to periodically make and review
recommendations regarding employee compensation and to perform such other duties
regarding compensation for employees as the Board may delegate to such Committee
from time to time. The Stock Option Committee, a sub-committee of the Human
Resources Committee, is authorized to administer the Company's stock option
plans. The Human Resources Committee held four meetings during 1995. During
1995, each nominee for director attended more than 75% of the aggregate of the
meetings of the Board and of the committees on which he served.
The Company paid during 1995 and currently pays its non-employee
directors (other than the Chairman of the Board) an annual fee of $6,000 for
their services as directors of the Company. In addition, each non-employee,
except the chairman, member of the Board is paid $500 plus expenses for each
Board Meeting attended. Non-employee directors who serve on committees of the
Board receive a fee of $500 for each committee meeting attended, and committee
chairmen receive $750 for each committee meeting attended. The Company pays an
annual fee of $24,000 to the Chairman of the Board. In 1995, the Company paid
Mr. Smart, Chairman, $14,500 in consulting fees.
SECURITY OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the
Company regarding the ownership of the Company's Common Stock as of February 29,
1996 by (i) each stockholder known to the Company to be a beneficial owner of
more than 5% of the Company's Common Stock, (ii) all directors, (iii) the five
most highly compensated executive officers, and (iv) all officers and directors
as a group.
4
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-----------------------
Approximate
Number of Percent of
Name and Address Shares Class
---------------- ------ -----
<S> <C> <C>
Ashley K. Carrithers(2)..................... 554,443 9.3%
Crystal Island Ranch, Box 278
Carbondale, CO 81623
Monsanto Company (3)........................ 459,248 7.4%
800 North Lindbergh Boulevard
St. Louis, MO 63167
Advisory Clients of
Dimensional Fund Advisors, Inc......... 307,900 5.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Bruce J. Alexander (4)(8)................... 136,647 2.2%
Leonard H. Garigliano (8)................... 3,750 *
Thomas G. Hood (5)(8)....................... 49,792 *
Alfred V. Larrenaga (8)..................... 50,436 *
Joseph B. Reagan (8)........................ 26,561 *
Martin M. Schwartz (8)...................... 69,610 1.2%
Walter C. Sedgwick (6)(8)................... 184,369 3.1%
J. Larry Smart (7)(8)....................... 168,198 2.8%
F. Eugene Woodard (8)....................... 32,000 *
All officers and directors as a
group (12 persons) (4)-(8)............. 881,313 13.4%
</TABLE>
_____________
* Less than one percent.
(1) The table is based upon information supplied by officers, directors and
principal stockholders. Unless otherwise indicated, each of the
stockholders named in the table has sole voting and investment power with
respect to all securities shown as beneficially owned, subject to community
property laws where applicable and the information contained in the
footnotes to the table.
(2) Includes 11,039 shares held by Mr. Carrithers' wife and 5,400 shares held
by Mr. Carrithers' son.
(3) Includes 266,332 shares that Monsanto Company had the right to receive upon
conversion of a convertible debenture within 60 days of April 5, 1996.
(4) Includes 654 shares held by Mr. Alexander's wife and 9,421 shares held by
Mr. Alexander's daughter.
5
<PAGE>
(5) Includes 100 shares held by Mr. Hood's daughter and 100 shares held by Mr.
Hood's son.
(6) Includes 10,605 shares held in trust for Mr. Sedgwick's son.
(7) Includes 7,200 shares held by Mr. Smart's son.
(8) For each such officer or director, the number includes shares that such
officer or director had the right to acquire within 60 days of April 5,
1996 pursuant to outstanding options.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain
information concerning compensation paid to or accrued for the Chief Executive
Officer and each of the four most highly compensated executive officers of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Securities
Underlying All Other
Name and Annual Compensation Options/ Compen-
-----------------------
Principal Position Year Salary(1)($) Bonus(1)(2)($) SARs(#)(3) sation($)(4)
- ------------------ ---- ------------ -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Martin M. Schwartz 1995 189,894 30,000 30,000 --
President & Chief 1994 156,764 -- 133,999(5) --
Executive Officer 1993 126,875 11,000 15,000(6) --
Leonard H. Garigliano 1995 121,677 13,500 15,000 55,837
Vice President, 1994 47,808 10,000 40,000 13,368
Operations 1993 -- -- -- --
Thomas G. Hood 1995 121,869 63,058 5,000 930
Vice President/ 1994 115,504 -- 60,217(5) 1,895
General Manager, 1993 109,343 5,000 6,000(6) 1,539
International
Operations
Alfred V. Larrenaga 1995 152,959 14,000 15,000 --
Sr. Vice President & 1994 131,808 -- 135,999(5) --
Chief Financial Officer 1993 117,907 17,000 15,000(6) --
F. Eugene Woodard 1995 119,205 (7) 18,500 20,000 15,813
Vice President, 1994 102,339 -- 49,000(5) 13,772
Engineering 1993 89,659 2,500 8,000(6) 11,530
</TABLE>
(1) The amounts listed under salary and bonus include amounts deferred pursuant
to the Company's 401 (k) Plan.
(2) Cash bonuses have been listed in the year earned, but were generally paid
in the following year. Bonuses were calculated based on the operating
results of the Company and/or performance of the individuals.
6
<PAGE>
(3) Option grants are under the Company's Restated 1987 Stock Option Plan
administered by the Stock Option Committee of the Board. See "Compensation
Pursuant to Plans - Stock Option Plans".
(4) The amounts listed under "All Other Compensation" include $10,000
compensation paid to Dr. Woodard pursuant to his employment agreement;
Company-paid patent awards to Mr. Hood and Dr. Woodard; and reimbursement
of relocation expenses to Mr. Garigliano; and $5,308 paid to Dr. Woodard as
the 1994 portion of a retroactive salary increase paid in 1995.
(5) This number includes shares subject to options that were granted to
replace, in reduced numbers, previously granted options that were canceled
in 1994, as described under "Option Cancellations and Regrants" in the
"Report of the Compensation/Option Committee on Executive Compensation".
The total number of new shares for which each of the named executive
officers received stock options in 1994, after subtracting the number of
shares subject to options that were canceled in 1994 is: Mr. Schwartz,
86,000; Mr. Larrenaga, 52,000; Mr. Hood, 10,000; Dr. Woodard, 10,000.
(6) These options were canceled in 1994 with respect to the following number of
shares, as described under "Option Cancellations and Regrants" in the
"Report of the Compensation/Option Committee on Executive Compensation".
The total number of new shares for which each of the named executive
officers received stock options in 1994 is: Mr. Schwartz, 86,000; Mr.
Larrenaga, 52,000; Mr. Hood, 10,000; Dr. Woodard, 10,000.
(7) Does not include $5,308, the portion of a retroactive salary increase paid
in 1995 attributable to 1994.
STOCK OPTION/SAR GRANTS IN 1994
The following table contains information concerning the grant of stock
options made under the Company's 1987 Stock Option Plan for the 1995 fiscal year
to the Chief Executive Officer and each of the executive officers listed in the
Summary Compensation Table. No stock appreciation rights ("SARs") were granted
during the fiscal year to such individuals.
<TABLE>
<CAPTION>
% of Total
Options Potential Realizable Value at Assumed
Number of Securities Granted to Exercise or Annual Rates of Stock Price
Underlying Options/SARs Employees Base Price Expiration Appreciation for Options Term (2)
---------------------------------
Name Granted (#)(1) in 1995 ($/sh) Date 0% 5% ($) 10% ($)
- ---- -------------- ------- ------ ---- -- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Martin M. Schwartz 30,000 10.87 2.94 3/15/02 $0 $35,906 $83,677
Leonard H. Garigliano 15,000 5.44 2.94 3/15/02 $0 $17,953 $41,838
Thomas G. Hood 5,000 1.81 2.94 3/15/02 $0 $ 5,984 $13,946
Alfred V. Larrenaga 15,000 5.44 2.94 3/15/02 $0 $17,953 $41,838
F. Eugene Woodard 20,000 7.25 2.94 3/15/02 $0 $ 5,984 $13,946
</TABLE>
(1) Option grants are under the Company's Restated 1987 Stock Option Plan
administered by the Stock Option Committee of the Board. In the event of
certain corporate transactions such as an acquisition or liquidation of the
Company, the outstanding options of the Company's executive officers will
become immediately exercisable for fully vested shares of common stock. See
"Severance Agreements". Options were granted on March 15, 1995, at fair
market value and become exercisable at a rate of 25% per year.
(2) Potential realizable value is based on assumption that the stock price of
the common stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the seven year
7
<PAGE>
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.
AGGREGATED OPTION/SAR EXERCISES IN 1994
AND YEAR END OPTION/SAR VALUES
The table below sets forth information concerning the unexercised
options held as of the end of the 1995 fiscal year by the Company's Chief
Executive Officer and the executive officers listed in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options/SAR
Number of Options Number of Securities at Year End
Exercised During the Year Underlying Unexercised (Market Price at Year End
------------------------- -------------------------
Shares Value Options/SARs At Year End $4.25/sh)
-------------------------- ---------
Name Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin M. Schwartz 39,685 126,814 $66,369 $135,680
Leonard H. Garigliano 10,000 $14,938 0 45,000 $ 0 $ 57,150
Thomas G. Hood 45,342 23,375 $75,974 $ 31,956
Alfred V. Larrenaga 41,624 69,875 $72,842 $106,306
F. Eugene Woodard 25,125 33,875 $43,968 $ 50,481
</TABLE>
SEVERANCE AGREEMENTS
The Company has entered into a series of severance agreements with its
executive officers, pursuant to which they may become entitled to special
benefits in connection with certain changes in control of the Company effected
by merger, liquidation or tender offer.
Under each of the agreements, a liquidation or acquisition of the
Company may result in the immediate acceleration of the executive officer's
outstanding options under each of the Option Plans. Accordingly, should there
occur a sale of substantially all of the Company's assets or an acquisition of
the Company by merger or consolidation, then all options at the time held by
such officer will become immediately exercisable for fully-vested shares of
Common Stock. However, such acceleration will not occur to the extent the
options are to be assumed by the acquiring entity.
In the event that (i) the outstanding options are so assumed or the
change in control is effected through the acquisition of 50% or more of the
Company's outstanding voting stock pursuant to a hostile tender offer and (ii)
the officer's employment is involuntarily terminated (other than for cause)
within 18 months following such assumption or acquisition, then any options at
the time held by the officer under the Option Plans will immediately accelerate.
Involuntary termination is defined in each severance agreement as the
officer's discharge or dismissal (other than for cause) or other termination of
employment, whether voluntary or involuntary, following a material reduction in
the officer's compensation or level of responsibilities, a change in the
officer's job location without his or her consent or a material reduction in the
officer's benefits and perquisites. Termination for cause includes any
involuntary termination triggered by the executive officer's willful misconduct,
gross negligence or unauthorized use or disclosure of trade secrets or other
confidential information of the Company.
8
<PAGE>
In addition to the acceleration of the executive officer's outstanding
options, such individual may become entitled to a lump sum severance payment
upon his or her involuntary termination within 18 months after the change in
control. Accordingly, to the extent the spread on the officer's accelerated
options (the excess of the market price, at the time of acceleration, of the
shares of Common Stock for which the options are accelerated over the aggregate
exercise price payable for such shares) does not exceed 2.99 times the officer's
average W-2 wages from the Company for the five fiscal years preceding the
fiscal year in which the change in control occurs, a cash severance payment will
be provided to the officer. However, the cash payment will in no event exceed
the lesser of (i) two times the sum of the 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 or (ii)
the amount necessary to bring the total benefit package (acceleration plus
severance) up to the "2.99 times average W-2 wages" limitation.
In the event benefits had become due as of February 29, 1996 under the
severance agreements currently in effect for the executive officers listed in
the Summary Compensation Table, the maximum cash amounts payable would be as
follows: Mr. Schwartz, $118,807; Mr. Garigliano, $290,621; Mr. Larrenaga,
$154,342; Mr. Hood, $204,863; Dr. Woodard, $190,310.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of the Board participated in deliberations of the Board
concerning executive compensation. Mr. Schwartz, the Company's President and
Chief Executive Officer, is a member of the Board. The other members of the
Board include Messrs. Alexander and Smart, former officers of the Company, and
Messrs. Reagan and Sedgwick.
REPORT OF THE HUMAN RESOURCES COMMITTEE AND THE STOCK OPTION COMMITTEE OF THE
BOARD OF DIRECTORS CONCERNING EXECUTIVE COMPENSATION
It is the duty of the members of the Company's Board to set the base
salary of certain executive officers and to administer the Company's benefit
plans. In addition, the Board approves the individual bonus programs to be in
effect for certain executive officers each fiscal year. The Board acts pursuant
to recommendations of the Human Resources Committee. However, the Company's
Restated 1987 Stock Option, under which stock option grants may be made to such
officers and other key employees, is administered by the Stock Option Committee,
based upon recommendation of the Human Resources Committee of the Board. Mr.
Schwartz abstained with respect to actions of the Board relating to his own
compensation.
For the 1995 fiscal year, the Board established the compensation
payable to Mr. Schwartz, President and Chief Executive Officer, Mr. Garigliano,
Vice President, Operations, Mr. Hood, Vice President/General Manager of
International Operations, Mr. Larrenaga, Senior Vice President and Chief
Financial Officer, and Dr. Woodard, Vice President, Engineering.
GENERAL COMPENSATION POLICY. Executive compensation is competitive in
order to recruit, retain and motivate people of needed capabilities. For
executives, the Company strives to link total compensation to performance. Base
compensation, benefits and perquisites are intended to be competitive. Incentive
compensation is provided in the form of cash bonuses and stock options. The
Company anticipates that compensation levels of its executive officers will
generally be reviewed in the early part of each fiscal year.
FACTORS. Several of the more important factors which were considered
in establishing the components of each executive officer's compensation package
for the 1995 fiscal year are summarized below.
BASE SALARY. The base salary for each executive officer is set on the
basis of personal performance and salary levels for comparable positions at
companies with revenue levels comparable to that of the Company. Information
regarding comparable salary levels is obtained from published surveys of
companies which
9
<PAGE>
may or may not be in industries comparable to that of the Company. Generally,
the Company targets base salaries at the mid-point of such market data.
ANNUAL INCENTIVE COMPENSATION. The annual pool of bonuses for
executive officers is determined solely on the basis of the Company's
achievement of the financial performance targets established at the start of the
fiscal year. Actual bonuses paid reflect an individual's accomplishment of both
corporate and functional objectives, with substantially greater weight being
given to achievement of corporate rather than functional objectives. In
particular, approximately 70% of an executive's target bonus is based on
achieving corporate objectives and the balance on achieving the executive's
functional objectives, such as profitability improvement, asset management,
market position, product leadership and key projects. These factors are
evaluated on a subjective basis without specific weighting.
For 1995, Mr. Hood's incentive compensation was based upon the
International Operations net revenues and operating income.
Due to the need for a continued turnaround period, the bonus plan for
executives was modified for 1993 and 1994 to provide additional incentive for
turnaround.
LONG-TERM INCENTIVE COMPENSATION. In 1995, the Stock Option Committee
approved the grants of stock options to each of the listed officers under the
Company's Restated 1987 Stock Option Plan. The grants are designed to align the
interests of the executive officer with those of the stockholders and provide
each such individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the Company. The decision to
award options to certain officers and the number of shares subject to each such
option grant was based upon the officer's type and level of function,
criticality of function, contribution and performance against objectives as
described above. The Committee considers the number of options already held by
executives when approving new options to executives. Each grant allows the
officer to acquire shares of Common Stock at a fixed price per share (the market
price on the grant date) over a specified period of time (up to 7 years).
Accordingly, the option will provide a return to the executive officer only if
the market price of the Common Stock appreciates over the option term.
CEO COMPENSATION. The annual base salary for the Company's Chief
Executive Officer, Mr. Schwartz, was established primarily on the basis of Mr.
Schwartz's personal performance and the range of base salaries paid to the chief
executive officers of companies with comparable revenue levels. Mr. Schwartz's
new salary was approximately at the midpoint of the range of base salaries paid
to the chief executive officers of comparable companies. The option grants made
to Mr. Schwartz, which were based upon his position and a subjective evaluation
of his performance, were intended to place a significant potion of his total
compensation at risk, since the options will have no value unless there is
appreciation in the value of the Common Stock over the option term.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION. Recently enacted Section
162(m) of the Internal Revenue Code limits federal income tax deductions for
compensation paid after 1993 to the chief executive officer and the four other
most highly compensated officers of a public company to $1 million per year, but
contains an exception for performance-based compensation that satisfies certain
conditions.
The Company believes that stock options granted to its executives with
an exercise price equal to or greater than the fair market value of Common Stock
on the date of grant qualify for the performance based-compensation exception to
the deduction limit, because (i) it is unlikely that other compensation payable
to any Company executive would exceed the deduction limit in the near future and
(ii) the conditions imposed by regulations issued under Section 162(m) would
require the elimination of discretion which the Company believes important in
administering its performance-related compensation plans.
10
<PAGE>
The Human Resources Committee
Joseph B. Reagan, Chairman
Bruce J. Alexander
Walter C. Sedgwick
PERFORMANCE GRAPH
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
Among Southwall Technologies Inc.
Media General Index and Peer Group Index
<TABLE>
<CAPTION>
- ------------------------------- FISCAL YEAR ENDING -----------------------------
COMPANY 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
SOUTHWALL TECHNOLOGIES 100 75.00 133.33 77.78 61.11 94.44
MG GROUP INDEX 100 125.94 156.72 192.77 170.41 225.64
MEDIA GENERAL 100 129.09 134.25 154.11 152.83 198.15
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1991
ASSUMES DIVIDEND REINVESTED
YEAR ENDED DECEMBER 31, 1995
11
<PAGE>
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
In 1989, the Company sold Monsanto Company ("Monsanto") 300,000 shares
of Common Stock for $2,100,00 and a $2,650,000 convertible debenture due May 31,
1999 which bears interest at 2% below prime. During 1995, the Company issued
52,693 shares of Common Stock to Monsanto for payment of interest on the
convertible debenture.
PROPOSAL 2
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected Price Waterhouse LLP as the Company's
independent accountant for the year ending December 31, 1996, and has further
directed that management submit the selection of independent accountants for
ratification by the stockholders at the Annual Meeting. Price Waterhouse LLP has
audited the Company's financial statements since 1983. Representatives of Price
Waterhouse LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse LLP as
the Company's independent accountants is not required by the Company's Bylaws or
otherwise. Nonetheless, the Board is submitting the selection of Price
Waterhouse LLP to the stockholders for ratification as a matter of good
corporate practice. In the event the stockholders fail to ratify the selection,
the Board will reconsider whether to retain Price Waterhouse LLP. Even if the
selection is ratified, the Board in its discretion may direct the appointment of
a different independent accounting firm at any time during the year if the Board
determines that such a change would be in the best interests of the Company and
its stockholders. The affirmative vote of the holders of a majority of the
shares represented and voting at the meeting will be required to ratify the
selection of Price Waterhouse LLP.
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSAL 2.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1997 Annual Meeting of Stockholders must be
received by the Company no later than December 15, 1996 in order to be included
in the proxy statement and proxy relating to that meeting.
OTHER BUSINESS
The Company knows of no other business that may be presented for
consideration at the meeting. If any other matters are properly presented to the
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.
12
<PAGE>
The Board hopes that Stockholders will attend the meeting. Whether or
not you plan to attend, you are urged to complete, sign and return the enclosed
proxy in the accompanying envelope. A prompt response will greatly facilitate
arrangements for the meeting, and your cooperation will be appreciated.
Stockholders who attend the meeting may vote their shares personally even though
they have sent in their proxies.
By Order of the Board of Directors
ALFRED V. LARRENAGA, Secretary
Palo Alto, California
March 31, 1996
13
<PAGE>
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SOUTHWALL TECHNOLOGIES INC.
Annual Meeting of Stockholders
May 30, 1996
The undersigned hereby appoints Martin M. Schwartz and Alfred V. Larrenaga,
and each of them, as attorneys and proxies of the undersigned, with power of
substitution, to vote all of the shares of stock of Southwall Technologies Inc.
(the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Company's principal
executive offices at 1029 Corporation Way, Palo Alto, California on May 30, 1996
at 3:00 p.m. PDT, and at all continuations, and adjournments or postponements
thereof, with all of the powers the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions, with the discretionary authority as to all other matters
that may properly come before the meeting.
Receipt is hereby acknowledged of the Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 31, 1996 (the "Proxy Statement").
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, AND 3 AS MORE SPECIFICALLY
SET FORTH IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
PLEASE VOTE, DATE, SIGN, AND PROMPTLY RETURN THIS PROXY CARD USING THE
ENCLOSED POSTPAID ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
Please mark
[_] votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES FOR DIRECTORS LISTED
BELOW AND "FOR" PROPOSAL 2.
1. Election of directors to hold office until the 1997 Annual Meeting of
Stockholders and until their successors are elected:
NOMINEES: Bruce J. Alexander, Joseph B. Reagan, Martin M. Schwartz,
Walter C. Sedgwick and J. Larry Smart
FOR WITHHELD
[_] ALL [_] FROM ALL
NOMINEES NOMINEES
[_]
__________________________________________________________________
For all nominees except as noted above
2. Ratification of the selection of Price Waterhouse LLP as independent
Public Accountants of the Company for Fiscal Year Ending December 31, 1996.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. In their discretion, the proxies are authorized to vote on such other
business as may properly come before the meeting.
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE AT LEFT
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. If signer is a corporation,
please give full corporate name and have a duly authorized officer sign stating
title. If signer is a partnership, please sign in partnership name by authorized
person.
