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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
SOUTHWALL TECHNOLOGIES INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] 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 transactions applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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.:
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(3) Filing party:
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(4) Date filed:
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<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 Wednesday, May 20, 1998, 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 directors to serve for the ensuing year.
2. To ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending December 31, 1998.
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 March 26,
1998 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.
L. RAY CHRISTIE
/s/ L. RAY CHRISTIE
-----------------------------
Secretary
Palo Alto, California
April 20, 1998
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 20, 1998 (the "Annual Meeting"), at which
stockholders of record on March 26, 1998 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 (the "Proxy Statement"). On March 26, 1998, 7,618,095 shares of the
Company's common stock (the "Common Stock"), $0.001 par value, 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 20, 1998 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
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<PAGE>
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 Annual Meeting and voting in person. Attendance at the
Annual 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. The original solicitation of
proxies by mail may be supplemented by telephone, telegram, telefax 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
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. Martin M. Schwartz
resigned as President and Chief Executive Officer of the Company in March 1998.
Consequently, Mr. Schwartz will not be nominated as a director at the Annual
Meeting.
There are six nominees for the six positions on the Board of Directors
of the Company (the "Board") authorized pursuant to the Company's Bylaws. Each
of the six nominees listed below is currently a director of the Company and five
members were elected by the stockholders at the last annual meeting. Dr.
Yoshimichi Hase was appointed by resolution of the Board of Directors at its
regularly scheduled meeting of the Board on May 21, 1997. The six 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 six 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 the Board may propose.
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<PAGE>
NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupations for at least the
last five years, certain other directorships held by them, and their ages as of
March 31, 1998.
Name Age
---- ---
Bruce J. Alexander (2)..................................... 53
Yoshimichi Hase (1)......................................... 59
Thomas G. Hood.............................................. 42
Joseph B. Reagan (2)........................................ 63
Walter C. Sedgwick (1)(2)................................... 51
J. Larry Smart (1).......................................... 50
- --------------
(1) Member of the Audit Committee.
(2) Member of the Human Resources Committee.
---------------------
Mr. Alexander has served as a member of the Board of Directors of the
Company since May 1981. In June 1997 he joined Black & Company and serves as
President and Chief Executive Officer. From May 1994 to June 1997, he was with
Needham & Co., Inc., an investment bank, most recently serving as a Managing
Director. From January 1992 to May 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 February 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.
Dr. Hase has served as a member of the Board of Directors of the
Company since July 1997. Since 1996 he has served as the President of Teijin
America, Inc. in New York, a wholly owned subsidiary of Teijin Limited, of
Osaka, Japan. From 1964 to 1996 he served in various other positions with Teijin
Limited or their subsidiaries, including serving as Director, Film Research
Laboratories from 1991 to 1995 and Director, Corporate Strategy Department from
June 1995 to May 1996.
Mr. Hood has served as the Company's Interim President and Chief
Executive Officer since March 1998. From July 1996 to March 1998, he served as
Senior Vice President, General Manager, Energy Products Division. From January
1995 to July 1996, he was Vice President, General Manager International
Operations, and from October 1991 to January 1995, he was Vice President,
Marketing and Sales. From September 1990 to 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
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<PAGE>
positions with the Company including Director of New Product Development and
Director of Engineering Development.
Dr. Reagan has served as a member of the Board of Directors of the
Company since June 1993, and previously served as a director from October 1987
through May 1992. Dr. Reagan is a technology and senior management consultant to
industry and to the United States Government. He retired in 1996 after 37 years
with the Lockheed Martin Corporation where he was a corporate officer and
Corporate Vice President and General Manager of the Research and Development
Division of the Missiles and Space Company.
Mr. Sedgwick has served as a member of the Board of Directors of the
Company since January 1979. Mr. Sedgwick has worked as a private investor for
the past seven years.
Mr. Smart has served as Chairman of the Board of Directors of the
Company since March 1994 and as a director of the Company since July 1991. Since
April 1997 Mr. Smart has served as President and Chief Executive Officer of
Visioneer, Inc. From July 1995 to February 1997, he served as Chairman,
President and Chief Executive Officer for Stream Logic 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 Senior Vice
President of SCI Systems, Inc. Mr. Smart also serves on the board of directors
of Western Micro Technologies, Inc., Midisoft Corporation and International
Manufacturing Services, Inc.
The Board Of Directors recommends a vote "FOR" the election of all of
the above nominees for election as directors.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company, which held eight meetings during
1997, currently has two standing committees, the Audit Committee and the Human
Resources Committee. During 1997, 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 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 1997.
The Human Resources Committee is authorized to periodically make and
review recommendations regarding employee compensation and to perform other
duties regarding compensation for employees as the Board may delegate to such
Committee from time to time. The Human Resources Committee is also authorized to
administer the Company's stock option plans. The Human Resources Committee held
four meetings during 1997.
4
<PAGE>
DIRECTOR COMPENSATION
The Company paid during 1997, 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
member of the Board, except the chairman, receives $800 plus expenses for each
Board Meeting attended. Non-employee directors who serve on committees of the
Board also receive $500 for each committee meeting attended. Committee chairmen
receive $750 for each committee meeting attended. The Company pays an annual fee
of $24,000 to the Chairman of the Board.
Board members are also eligible to receive options to purchase shares
of Common Stock under the Company's 1997 Stock Incentive Plan. During 1997, the
non-employee Board members received options to purchase the following number of
shares: Mr. Alexander - 5,000 shares at an exercise price of $7.00 per share;
Dr. Hase - 20,000 shares at an exercise price of $6.875 per share; Dr. Reagan -
5,000 shares at an exercise price of $7.00 per share; Mr. Sedgwick - 5,000
shares at an exercise price of $7.00 per share; and Mr. Smart - 5,000 shares at
an exercise price of $7.00 per share. For option grants made to Mr. Hood, please
see "Executive Compensation--Stock Options" below.
No other compensation is paid to directors of the Company in respect of
their services as directors.
MANAGEMENT
Set forth below is certain information regarding any executive officer
of the Company who is not a director, including age and position as of March 31,
1998.
Name Age Position
- ---- --- --------
L. Ray Christie .................... 53 Vice President, Chief Financial
Officer and Secretary
Mr. Christie has served as the Company's Vice President, Chief
Financial Officer and Secretary since November 1996. From April 1996 to November
1996, he served as Controller for the Company. From November 1993 to March 1996,
he served in various positions with a subsidiary of California Microwave, Inc.,
including Vice President Finance and Administration. From February 1990 to
November 1993, he served as Controller for the Company. From June 1981 to
January 1990 he served as Controller of the Farinon Division of Harris
Corporation. From May 1969 to June 1981 he served in various positions of
Potlatch Corporation, including Controller of their Packaging Division.
5
<PAGE>
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 March 26, 1998 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 Company's Named
Executive Officers, and (iv) all current executive officers and directors as a
group. Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended. Under this rule, certain
shares may be deemed to be beneficially owned by more than one person (if, for
example, persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire shares (for example, upon exercise of an option
or warrant) within sixty (60) days of the date as of which the information is
provided; in computing the percentage ownership of any person, the amount of
shares is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of such acquisition rights. As a result,
the percentage of outstanding shares of any person as shown in the following
table does not necessarily reflect the person's actual voting power at any
particular date.
Beneficial Ownership(1)
-------------------------
Approximate
Number of Percent of
Name and Address Shares Class
- ---------------- ------ -----
Teijin Limited (2) 825,000 10.8%
6-7, Minami-honmachi, 1-chome
Chuo-ku, Osaka 541, Japan
Ashley K. Carrithers (3) 479,001 6.4%
Crystal Island Ranch, Box 278
Carbondale, CO 81623
Solutia, Inc. (4) 431,482 5.5%
800 North Lindbergh Boulevard
St. Louis, MO 63167
Advisory Clients of
Dimensional Fund Advisors, Inc. 421,900 5.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Bruce J. Alexander (8) 137,476 1.8%
L. Ray Christie (8) 25,600 *
Thomas G. Hood (5)(8) 47,975 *
6
<PAGE>
Beneficial Ownership(1)
-------------------------
Approximate
Number of Percent of
Name and Address Shares Class
- ---------------- ------ -----
Joseph B. Reagan (8) 46,283 *
Martin M. Schwartz (6)(8) 150,649 2.0%
Walter C. Sedgwick (7)(8) 189,281 2.5%
J. Larry Smart (8) 206,249 2.7%
All current officers and directors as a 1,122,747 13.6%
group (15 persons) (5)-(8)
- --------------
* 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 158,000 shares that Teijin Limited had the right to acquire upon
the exercise of warrants within 60 days of March 26, 1998.
(3) Includes 3,000 shares held by Mr. Carrithers' mother and 2,310 shares held
by Mr. Carrithers' son.
(4) Includes 272,074 shares that Solutia, Inc. had the right to receive upon
conversion of a convertible debenture within 60 days of March 26, 1998.
(5) Includes 100 shares held by Mr. Hood's daughter and 100 shares held by Mr.
Hood's son.
(6) Includes 3,000 shares held in a living trust owned by Mr. & Mrs. Schwartz.
(7) Includes 17,272 shares held in trust for Mr. Sedgwick'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 March 26,
1998 pursuant to outstanding options.
7
<PAGE>
Certain Relationships and Other Transactions
In 1989, the Company sold to Monsanto Company ("Monsanto") 300,000
shares of Common Stock for $2,100,000 and a $2,650,000 convertible debenture due
May 31, 1999 which bears interest at 2% below prime, but not less than 7% nor
more than 11%. On September 1, 1997, Monsanto completed a spin-off of the
company's chemical business, creating a new company, Solutia, Inc. ("Solutia"),
to which it transferred ownership of the convertible debenture. During 1997, the
Company issued 13,282 shares of Common Stock to Monsanto and 11,581 shares of
Common Stock to Solutia for payment of interest on the convertible debenture.
On April 9, 1997, the Company signed a comprehensive set of
collaborative agreements with a major supplier of raw materials to the Company,
Teijin Limited of Osaka, Japan ("Teijin"). The agreements included purchase by
Teijin of 667,000 shares of the Company's Common Stock at a price of $7.50 per
share; a guarantee by Teijin of a $10 million loan for the Company; and
agreement to collaborate to achieve closer marketing and product development
ties between the two companies. The Company agreed to pay a loan guarantee fee
to Teijin at the rate of .5625% per year on the outstanding balance of the loan
guaranteed by Teijin. The Company paid a loan guarantee fee of $14,375 to Teijin
during 1997. Teijin also received warrants to purchase an additional 158,000
shares of the Company's Common Stock at $9.00 per share within three years.
Subsequent to these agreements, Dr. Yoshimichi Hase, President of Teijin
America, Inc., a wholly owned subsidiary of Teijin, was appointed by resolution
of the Board to the Board of Directors of the Company at the meeting of the
Board on May 21, 1997. Also subsequent to the agreements, Teijin has become a
customer of the Company for certain of its products, and the Company has
acquired a license from Teijin for rights to manufacture and sell under certain
patents owned by Teijin in Japan.
8
<PAGE>
Executive Compensation
The following Summary Compensation Table sets forth certain information
concerning compensation earned by the Chief Executive Officer and each of the
executive officers of the Company who earned salary and bonus for the 1997
fiscal year in excess of $100,000 for services rendered in all capacities to the
Company (collectively, the "Named Executive Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual ----------------------
Compensation Awards
---------------------------------- ----------------------
Securities
Salary Bonus Underlying All Other
Name and Principal Position Year ($)(1) ($) Options (#) Compensation($)(2)
--------- ------------ ----------- ------------------ ------------------------
<S> <C> <C> <C> <C> <C>
Martin M. Schwartz (3) 1997 $232,427 $ 1,948 20,000 $1,000
President and Chief Executive 1996 198,846 70,000 96,500 1,000
Officer 1995 189,894 30,000 30,000 --
Thomas G. Hood (4) 1997 167,379 33,548 30,000 1,000
Sr. Vice President, General 1996 132,899 75,815 40,800 1,310
Manager, Energy Products Division 1995 121,869 63,058 5,000 930
William K. Woodrow (5) 1997 153,172 1,948 30,000 1,000
Sr. Vice President, General 1996 74,348 13,154 60,000 1,000
Manager, Electronics
Products Division
L. Ray Christie (6) 1997 141,073 11,348 20,000 1,000
Vice President & Chief 1996 89,606 17,728 50,000 1,000
Financial Officer
<FN>
- ---------------
(1) The amounts listed under Salary and Bonus include amounts deferred pursuant
to the Company's 401(k) Plan.
(2) The amounts listed under "All Other Compensation" include the Company's
matching contributions up to $1,000 per year, starting in 1996.
(3) Mr. Schwartz ceased employment as President and Chief Executive Officer in
March 1998.
(4) Mr. Hood was promoted to the position of Interim President and Chief
Executive Officer in March 1998.
(5) Mr. Woodrow ceased employment as Sr. Vice President, General Manager,
Electronics Products Division in March 1998.
(6) Mr. Christie joined the Company in April 1996 and was promoted to Vice
President and Chief Financial Officer in November 1996.
</FN>
</TABLE>
9
<PAGE>
Stock Options
The following table contains information concerning the grant of stock
options made under the Company's 1997 Stock Incentive Plan for the 1997 fiscal
year to the Named Executive Officers. No stock appreciation rights ("SARs") were
granted during the fiscal year to such individuals.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price
Appreciation for
Individual Grants Option Term (1)
------------------------------------------------------------------ -------------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted (#)(2) Fiscal Year ($/Sh) (3) Date 5% ($) 10% ($)
---- -------------- ----------- ---------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Martin M. Schwartz 20,000 5.2% $6.875 05/21/07 $ 86,473 $219,140
Thomas G. Hood 30,000 7.8 6.875 05/21/07 129,710 328,709
William K. Woodrow 30,000 7.8 6.875 05/21/07 129,710 328,709
L. Ray Christie 20,000 5.2 6.875 05/21/07 86,473 219,140
<FN>
- ---------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any Named Executive Officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the Named Executive Officers.
(2) Option grants were made under the Company's 1997 Stock Incentive Plan which
is administered by the Human Resources Committee of the Board. The options
vest in four equal annual installments, with the first such 25% installment
vesting one year after the grant date. In the event of certain corporate
transactions such as an acquisition or sale of assets of the Company, the
outstanding options of the Company's Named Executive Officers will become
immediately exercisable for fully vested shares of common stock, unless the
options are assumed or substituted with a comparable option by the
acquiring company or its parent. In any event, the Human Resources
Committee has the discretion to accelerate the vesting of outstanding
options upon certain corporate transactions or involuntary terminations
following a corporate transaction. See also "Severance Agreements."
(3) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. The exercise
price may be paid in cash or cash equivalents, in shares of the Company's
Common Stock valued at fair market value on the exercise date or in a
same-day sale program with the assistance of a designated brokerage firm.
</FN>
</TABLE>
10
<PAGE>
Option Exercises and Holdings
The following table provides information with respect to the Named
Executive Officers concerning the exercise of options during the 1997 fiscal
year and unexercised options held as of the end of the 1997 fiscal year.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Shares Value Number of Securities Underlying Value of Unexercised
Acquired on Realized Unexercised Options at Fiscal in-the-Money Options at
Name Exercise (#) ($)(1) Year-End (#) Fiscal Year-End ($)(2)
- ------------------------------- --------------- --------------- -------------- ---------------- -------------- ----------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin M. Schwartz 12,000 $49,996 68,561 173,938 $253,081 $325,027
Thomas G. Hood 6,750 34,594 35,200 64,975 111,438 52,825
William K. Woodrow 0 0 15,000 75,000 16,875 54,375
L. Ray Christie 0 0 12,500 57,500 15,625 49,375
<FN>
- --------------------
(1) Based on the fair market value of the shares on the exercise date less the
exercise price paid for the shares.
(2) Based on the fair market value of the Company's Common Stock at the end of
the 1997 fiscal year ($7.00 per share) less the exercise price payable for
such shares.
</FN>
</TABLE>
Severance Agreements
The Company has entered into a series of severance agreements with its
Named 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 vesting of the Named
Executive Officers' outstanding options granted under the Company's 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 each such officer will become immediately
exercisable for fully-vested shares of Common Stock. However, such vesting
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 the vesting of
any options at the time held by each officer granted under the Company's option
plans will immediately accelerate.
11
<PAGE>
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.
In addition to the acceleration of vesting of each Named 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
a change in control. Accordingly, to the extent that 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 March 31, 1998 under the
severance agreements currently in effect for the Named Executive Officers, the
maximum cash amounts payable would be as follows: Mr. Hood, $540,487; and Mr.
Christie, $313,230.
Compensation Committee Interlocks and Insider Participation
All members of the Board participated in deliberations of the Board
concerning executive compensation for fiscal year 1997. Mr. Schwartz, the
Company's former President and Chief Executive Officer, was a member of the
Board. The other members of the Board are Messrs. Alexander and Smart, former
officers of the Company, and Messrs. Hase, Reagan and Sedgwick.
Report of the Human Resources 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. The Company's 1997 Stock
Incentive Plan, under which stock option grants may be made to such officers and
other key employees, is administered by the Human Resources Committee. Mr.
Schwartz abstained with respect to actions of the Board relating to his own
compensation.
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For the 1997 fiscal year, the Board established the compensation
payable to Mr. Schwartz, former President and Chief Executive Officer; Mr. Hood,
Sr. Vice President, General Manager, Energy Products Division for 1997 fiscal
year and current interim President and Chief Executive Officer; Mr. Woodrow,
former Sr. Vice President, General Manager, Electronics Products Division; and
Mr. Christie, Vice President, Chief Financial Officer and Secretary.
General Compensation Policy. The Company's executive compensation
policy 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 the 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 1997 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 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.
Long-Term Incentive Compensation. In 1997, the Human Resources
Committee approved stock option grants to each of the Named Executive Officers
under the Company's 1997 Stock Incentive Plan. The grants are designed to align
the interests of each of the Named Executive Officers with those of the
stockholders and provide each such individual with a significant incentive to
manage 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 option
grant allows the officer to acquire shares of Common Stock
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at a fixed price per share (the market price on the grant date) over a specified
period of time (up to 10 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 1997 fiscal year for
the Company's former President and 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 1997 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 portion of his total compensation at risk, since
the options will have no value unless there is appreciation in the value of the
Common Stock over the option term.
Deduction Limit for Executive Compensation. Section 162(m) of the
Internal Revenue Code of 1986, as amended, limits federal income tax deductions
for compensation paid after 1993 to the chief executive officer and the four
other most highly compensated officers of a public company to $1 million per
year, but contains an exception for performance-based compensation that
satisfies certain conditions. The Company does not believe that the components
of the Company's compensation will be likely to exceed $1 million per year for
any executive officer in the foreseeable future and, therefore, concluded that
no further action with respect to qualifying such compensation for federal
income tax deductibility was necessary at this time. In the future, the Company
will continue to evaluate the advisability of qualifying its executive
compensation for such deductibility. The Company's policy is to qualify its
executive compensation for deductibility under applicable tax laws as
practicable.
The Human Resources Committee
Joseph B. Reagan, Chairman
Bruce J. Alexander
Walter C. Sedgwick
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PERFORMANCE GRAPH
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
Among Southwall Technologies Inc.
Media General Index and Peer Group Index
[The following descriptive is supplied in accordance with Rule 304(d) of
Regulation S-T]
- -------------------------------FISCAL YEAR ENDING-------------------------------
Company 1992 1993 1994 1995 1996 1997
SOUTHWALL TECHNOLOGIES 100 58.33 45.83 70.83 104.17 116.67
INDUSTRY INDEX 100 123.00 108.73 143.98 159.98 187.25
BROAD MARKET 100 114.79 113.84 147.60 178.25 231.46
ASSUMES $100 INVESTED ON JAN. 1, 1992
ASSUMES DIVIDEND REINVESTED
YEAR ENDED DECEMBER 31, 1997
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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, 1998, 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.
The Board of Directors recommends a vote "FOR" the ratification of the
selection of Price Waterhouse LLP to serve as the Company's independent
accountants for the fiscal year ending December 31, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for the 1997 fiscal year
transactions in the Common Stock and their Common Stock holdings and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for the 1997 fiscal year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its executive officers, Board members
and greater than ten-percent stockholders except that Mr. Schwartz had one late
filing for three transactions, Mr. Hood had one late filing for one transaction
and Mr. Reagan had one late filing for three transactions.
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STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders that are intended to be presented by such
stockholders at the Company's 1999 Annual Meeting of Stockholders must be
received by the Company no later than December 22, 1998 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 Annual Meeting. If any other matters are properly presented
to the Annual Meeting, however, it is the intention of the persons named in the
accompanying proxy card to vote, or otherwise to act, in accordance with their
best judgment on such matters.
The Board hopes that Stockholders will attend the Annual Meeting.
Whether or not you plan to attend, you are urged to complete, sign and return
the enclosed proxy in the accompanying envelope. A prompt response will greatly
facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the Annual Meeting may vote their shares
personally even though they have sent in their proxies.
By Order of the Board of Directors
/s/ L. RAY CHRISTIE
-----------------------------------
L. RAY CHRISTIE, Secretary
Palo Alto, California
April 20, 1998
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APPENDIX A
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SOUTHWALL TECHNOLOGIES INC.
Annual Meeting of Stockholders
May 20, 1998
The undersigned hereby appoints Thomas G. Hood and L. Ray Christie, 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 20, 1998
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 April 20, 1998 (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.
- ------------- -------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ------------- -------------
<PAGE>
DETACH HERE
- --- Please mark
X 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 1999 Annual Meeting of
Stockholders and until their successors are elected.
Nominees: Bruce J. Alexander, Yoshimichi Hase, Thomas G. Hood, Joseph B.
Reagan, 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 FOR AGAINST ABSTAIN
Price Waterhouse LLP as independent [] [] []
public accountants of the Company
for Fiscal Year Ending December 31,
1998.
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting and at any
adjournment or postponement thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT []
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.
