<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
SOUTHWALL TECHNOLOGIES INC
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / 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:
----------------------------------------------------------
</TABLE>
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
1029 CORPORATION WAY
PALO ALTO, CALIFORNIA 94303
April 28, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Southwall Technologies Inc. (the "Company"), a Delaware corporation, which will
be held on Thursday, May 25, 2000 at 3:00 p.m., at the Company's principal
executive offices at 1029 Corporation 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 the Company and its officers and directors.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in accordance
with your instructions. Even if you plan to attend the meeting, we urge you to
sign and promptly return the proxy card. You may revoke it at any time before it
is exercised at the meeting or vote your shares personally if you attend the
meeting.
We look forward to seeing you.
Sincerely,
THOMAS G. HOOD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<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. (the "Company"), a Delaware corporation, will be held on
Thursday, May 25, 2000, 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 PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending
December 31, 2000; and
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 17, 2000 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.
By Order of the Board of Directors
BILL R. FINLEY
SECRETARY
Palo Alto, California
April 28, 2000
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 FOR
ANNUAL MEETING OF STOCKHOLDERS
SOUTHWALL TECHNOLOGIES INC.
1029 CORPORATION WAY
PALO ALTO, CALIFORNIA 94303
------------------------
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 (the "Annual Meeting") to be held on May 25, 2000 and at any
adjournments of that meeting, at which stockholders of record on April 17, 2000
(the "record date") 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.
Each properly signed proxy will be voted in accordance with the instructions
contained therein, and, if no choice is specified, the proxy will be voted in
favor of the proposals set forth in the Notice of Annual Meeting. Only holders
of the Company's common stock, $.001 par value (the "Common Stock"), of record
on the stock transfer books of the Company at the close of business on the
record date will be entitled to vote at the meeting. There were 7,608,547 shares
of Common Stock issued, outstanding and entitled to vote on the record date. No
shares of the Company's preferred stock were outstanding on the record date.
Each stockholder is entitled to one vote for each share of Common Stock held
by said stockholder. For purposes of matters before the Annual Meeting, under
the Company's By-Laws, a quorum consists of a majority of the issued and
outstanding shares entitled to vote on such matters as of the record date. The
affirmative vote of the holders of a plurality of the shares represented at the
meeting, if a quorum is present, is required for the election of directors. If a
quorum is present, approval of each other matter that is before the meeting will
require the affirmative vote of the holders of a majority of votes cast with
respect to such 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 28, 2000 to all stockholders entitled to vote at the
Annual Meeting. The Company's Annual Report to Stockholders for the year ended
December 31, 1999 is being mailed together with this Proxy Statement.
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 Annual Meeting and voting in
person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.
1
<PAGE>
SECURITY OWNERSHIP OF OFFICERS, DIRECTORS, NOMINEES 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 April 17, 2000 by
(i) each stockholder known to the Company to be a beneficial owner of more than
5% of the Company's Common Stock, (ii) each director and nominee for director of
the Company, (iii) each of the executive officers named in the Summary
Compensation Table below, and (iv) all current executive officers and directors
as a group. Except as otherwise indicated, each person has sole investment and
voting power with respect to the shares shown as being beneficially owned by
such person, based on information provided by such owners. Beneficial ownership
has been determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED (1) OUTSTANDING SHARES (1)
- ---------------- ------------ ----------------------
<S> <C> <C>
Teijin Limited (2).......................................... 825,000 10.6%
67, Minamihonmachi, 1chome
Chuoku, Osaka 541, Japan
Advisory clients of Dimensional Fund Advisors, Inc.......... 468,200 6.2
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Robert M. Sussman........................................... 421,500 5.5
520 Madison Avenue
41st Floor
New York, New York 10022
Bruce J. Alexander (3)...................................... 153,843 2.0
Tadahiro Murakami........................................... -- *
Hideo Nakamori (4).......................................... 5,696 *
Joseph B. Reagan (5)........................................ 62,643 *
Walter C. Sedgwick (6)...................................... 216,089 2.8
J. Larry Smart (7).......................................... 215,282 2.8
Robert C. Stempel........................................... -- *
Thomas G. Hood (8).......................................... 95,225 1.3
Catherine B. Poliak (9)..................................... 76,013 1.0
Bill R. Finley (10)......................................... 19,057 *
Vahid Ghassemian (11)....................................... 13,100 *
Eric Buonassisi............................................. 4,600 *
Sicco Westra (10)........................................... 16,100 *
All current officers and directors as a Group (11 persons) 877,648 11.1
(12)......................................................
</TABLE>
- --------------------------
* Less than one percent.
(1) The table is based upon information supplied by Boston EquiServe. 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.
(3) Includes options to purchase 7,500 shares that are exercisable within
60 days of April 17, 2000, 654 shares held by Mr. Alexander's spouse and
9,421 shares held by Mr. Alexander's daughter.
(4) Includes options to purchase 5,000 shares that are exercisable within
60 days of April 17, 2000.
(5) Includes options to purchase 46,576 shares that are exercisable within
60 days of April 17, 2000.
2
<PAGE>
(6) Includes options to purchase 41,324 shares that are exercisable within
60 days of April 17, 2000, and 17,272 shares held by Mr. Sedgwick's son and
3,700 held in trust for Mr. Sedgwick's son.
(7) Includes options to purchase 7,500 shares that are exercisable within
60 days of April 17, 2000, 9,000 shares held by Mr. Smart's son and 18,000
shares held by Mr. Smart's daughter.
(8) Includes options to purchase 70,820 shares that are exercisable within
60 days of April 17, 2000, 100 shares held by Mr. Hood's daughter and 100
shares held by Mr. Hood's son.
(9) Includes options to purchase 63,150 shares that are exercisable within
60 days of April 17, 2000.
(10) Includes options to purchase 15,500 shares that are exercisable within
60 days of April 17, 2000.
(11) Includes options to purchase 12,500 shares that were exercisable within
60 days of April 17, 2000.
(12) Includes options to purchase an aggregate of 285,350 shares that are
exercisable within 60 days of April 17, 2001 held by executive officers and
directors of the Company.
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.
The Company's Board of Directors has fixed the number of directors for the
ensuing year at six and has nominated for such positions the six persons listed
below. Teijin Limited has the right to nominate one of the six directors each
year. This year Teijin Limited has nominated Tadahiro Murakami. 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.
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,
2000.
<TABLE>
<CAPTION>
NAME AGE
- ---- --------
<S> <C>
Bruce J. Alexander (1)(2)................................... 55
Thomas G. Hood.............................................. 44
Tadahiro Murakami........................................... 58
Joseph B. Reagan (1)(2)..................................... 65
Walter C. Sedgwick (1)(2)................................... 53
Robert C. Stempel........................................... 52
</TABLE>
- --------------------------
(1) Member of the Human Resources Committee.
(2) Member of the Audit 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 within the Company, including Executive Vice President, Vice Chairman of
the Board, Chairman and acting Chief Executive Officer, and Chief Financial
Officer.
3
<PAGE>
Mr. Hood has served as the Company's President and Chief Executive Officer
since July 1998 and as a member of the Board of Directors of the Company since
March 1998. From March 1998 until July 1998 he served as Interim President and
Chief Executive Officer. From July 1996 to March 1998, he served as Senior Vice
President, General Manager, Energy Products Division. From January 1995 to
July 1996, he was Vice President, General Manager, International Operations, and
from October 1991 to January 1995, he was Vice President, Marketing and Sales.
From September 1990 to October 1991, he was Vice President, Business
Development. From June 1989 to September 1990, Mr. Hood served as Vice
President, Glazing Laminates. Previously, from July 1981 to June 1989, he served
in various positions within the Company including Director of New Product
Development and Director of Engineering Development.
Mr. Murakami has served, since April 1999, as the President of Teijin-Bayer
Polytec Ltd., a subsidiary of Teijin Limited. He served, from February 1997
until April 1999, as Director of the Plastics Division for Teijin DuPont Films
S.A., a subsidiary of Teijin Limited, and was the General Manager of the Sales
Department for Teijin DuPont Films S.A., a subsidiary of Teijin Limited, from
December 1994 until February 1997.
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. Stempel is Chairman of Energy Conversion Devices, Inc. (ECD), an energy
and information company headquartered in Troy, Michigan. Mr. Stempel retired as
Chairman and Chief Executive Officer from General Motors Corporation in
November 1992. He was named Chairman and CEO in August 1990. Prior to serving as
Chairman, he had been President and Chief Operating Officer of General Motors
since September 1987.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
ABOVE NOMINEES FOR ELECTION AS DIRECTORS.
4
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held seven meetings during 1999 and
currently has two standing committees; the Audit Committee and the Human
Resources Committee. During 1999, each nominee for director, who is currently a
director, attended more than 95% 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 one meeting during 1999.
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
five meetings during 1999.
DIRECTOR COMPENSATION
During 1999, the Company paid each of its non-employee directors (other than
the Chairman of the Board) an annual fee of $6,000 for their services as a
director of the Company. The Company paid an annual fee of $24,000 to the
Chairman of the Board. Per an agreement on July 16, 1999, the Directors fees
were payable in shares of the Company's Common Stock for all meetings subsequent
to July 1, 1999. In addition, non-employee members of the Board (except the
Chairman) received $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 received $750 for each
committee meeting attended.
Per an agreement on April 6, 2000 the Company will increase the annual fee
paid each of its non-employee directors (other than the Chairman of the Board)
to $8,000 and $30,000 for the Chairman paid in shares of the Company's Common
Stock. The non-employee members of the Board (except the Chairman) will receive
$1,000 plus expenses for each Board meeting attended but there will be no change
to the amounts paid for attendance at committee meetings.
Board members are also eligible to receive options to purchase shares of
Common Stock under the Company's 1997 Stock Incentive Plan. During 1999, the
non-employee Board members received options to purchase the following number of
shares: Mr. Alexander--5,696 shares at an exercise price of $4.31 per share;
Mr. Nakamori--5,696 shares at an exercise price of $4.31 per share;
Dr. Reagan--5,696 shares at an exercise price of $4.31 per share;
Mr. Sedgwick--5,696 shares at an exercise price of $4.31 per share; and
Mr. Smart--7,783 shares at an exercise price of $4.31 per share and 32,000
shares at an exercise price of $4.50 per share. For option grants made to
Mr. Hood, please see "Executive Officer Compensation--Option Grants in Last
Fiscal Year" below.
No other compensation is paid to directors of the Company in respect of
their services as directors.
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 that was due
on May 31, 1999 and retired in June 1999.
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 provided for, among other things, the
purchase by Teijin of 667,000 shares of the Company's Common
5
<PAGE>
Stock at a price of $7.50 per share; a guarantee by Teijin of a $10 million loan
for the Company; and an 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 $57,500 to Teijin during 1999. Teijin also received warrants to purchase an
additional 158,000 shares of the Company's Common Stock at $9.00 per share,
exercisable within three years from the date of grant. Subsequent to these
agreements, Dr. Yoshimichi Hase, President of Teijin America, Inc., a wholly
owned subsidiary of Teijin Limited, was appointed to the Board of Directors of
the Company by resolution of the Board in May 1997 and served as a member of the
Board until May 1999. Mr. Hideo Nakamori, President and CEO of Metton
America, Inc., a subsidiary of Teijin Limited, was appointed to the Board of
Directors of the Company by resolution of the Board in May 1999. Mr. Tadahiro
Murakami, President of Teijin-Bayer Polytec Ltd., a subsidiary of Teijin
Limited, is a nominee to the Board of Directors of the Company. 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. During 1999
the Company paid Teijin $100,000 for license fees and approximately $10,700,000
for purchases of raw material substrates.
During 1999, the Company lent certain amounts to Bruce J. Alexander
($41,396), Thomas G. Hood ($26,388) and Catherine B. Poliak ($4,144), to permit
them to exercise Company stock options held by each of them. In each case the
indebtedness is represented by a note payable to the Company due December 31,
1999 bearing interest at the rate of 7.0% per annum. Interest is payable at the
time the loan is due. Loans may be extended for one-year terms if approved by
the Board of Directors. In addition, Messrs. Alexander and Hood were indebted to
the Company during 1999 for additional amounts lent to them prior to 1999 to
permit them to exercise options. Such indebtedness is also represented by notes
payable to the Company which have been extended to December 31, 2000 bearing
interest at the rate of 7.0% per annum. The largest amount of indebtedness
outstanding under such notes at any time during 1999 was $381,164 in the case of
Mr. Alexander, $73,050 in the case of Mr. Hood and $22,136 in the case of
Ms. Poliak. As of April 17, 2000, the amount of indebtedness under such notes
was $0 in the case of Mr. Alexander, $73,050 in the case of Mr. Hood and $11,836
in the case of Ms. Poliak.
6
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning compensation earned for services rendered in 1999, 1998 and 1997 by
the Chief Executive Officer and each of the other executive officers of the
Company who earned salary and bonus for the 1999 fiscal year in excess of
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL AWARDS
COMPENSATION ------------------
--------------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (1) UNDERLYING OPTIONS COMPENSATION (2)
- --------------------------- -------- ---------- --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Thomas G. Hood (3)......................... 1999 $257,288 $ 0 26,666 $ 1,000
President & Chief Executive Officer 1998 198,365 32,924 125,000 1,000
1997 167,379 33,548 30,000 1,000
Sicco W. T. Westra (4)..................... 1999 $177,817 $ 0 12,000 $ 1,000
Senior Vice President, Engineering and 1998 162,672 1,324 50,000 1,000
Product Development
Catherine B. Poliak........................ 1999 $137,908 $ 0 12,000 $ 1,000
Vice President, Human Resources 1998 119,418 9,324 10,000 1,000
1997 113,739 31,223 10,000 1,000
Vahid Ghassemian (5)....................... 1999 $125,513 $ 0 50,000 $ 1,000
Senior Vice President, Operations
Bill R. Finley (6)......................... 1999 $190,446 $ 0 12,000 $ 1,000
Vice President & Chief Financial Officer 1998 181,158 5,696 50,000 1,000
</TABLE>
- ------------------------
(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" for 1999 consist of the
Company's matching contributions under the Company's 401(k) Plan and
severance compensation.
(3) Mr. Hood was promoted to the position of President and Chief Executive
Officer in July 1998.
(4) Mr. Westra joined the Company in 1998 as the Senior Vice President,
Engineering and Product Development.
(5) Mr. Ghassemian joined the Company in May 1999 as Senior Vice President,
Operations.
(6) Mr. Finley joined the Company in June 1998 as the Vice President & Chief
Financial Officer.
7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options made under the Company's 1997 Stock Incentive Plan during 1999 to the
Named Executive Officers. No stock appreciation rights ("SARs") were granted
during the fiscal year to such individuals.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR ($/SH) (2) DATE 5% 10%
- ---- ----------- ------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Hood....................... 26,666 4.2% $2.75 4/22/09 $ 46,118 $116,872
Sicco W. T. Westra................... 12,000 1.9% 3.19 4/15/09 24,055 60,961
Catherine B. Poliak.................. 12,000 1.9% 3.19 4/15/09 24,055 60,961
Vahid Ghassemian..................... 50,000 7.8% 3.06 5/24/09 96,299 244,042
Bill R. Finley....................... 12,000 1.9% 3.19 4/15/09 24,055 60,961
</TABLE>
- ------------------------
(1) Option grants were made under the Company's 1997 Stock Incentive Plan that
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."
(2) All options were granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant. The exercise price may be paid in
cash or cash equivalents, in shares of the Common Stock valued at fair
market value on the exercise date or in a same-day sale program with the
assistance of a designated brokerage firm.
(3) As required by the rules of the Securities and Exchange Commission,
potential realizable values stated are based on the prescribed assumption
that the Common Stock will appreciate in value from the date of grant to the
end of the option term at rates (compounded annually) of 5% and 10%,
respectively, and therefore are not intended to forecast possible future
appreciation, if any, in the price of the Common Stock.
8
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table provides information with respect to the Named Executive
Officers concerning unexercised options held as of the end of 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END YEAR-END (1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas G. Hood.................................... 68,100 166,866 $24,375 $49,999
Sicco W. T. Westra................................ 12,500 49,500 1,563 21,938
Catherine B. Poliak............................... 55,400 26,750 59,569 17,250
Vahid Ghassemian.................................. -- 50,000 -- 78,125
Bill R. Finley.................................... 12,500 49,500 -- 17,250
</TABLE>
- ------------------------
(1) Based on the fair market value of the Company's Common Stock at the end of
1999 ($4.625 per share) less the exercise price payable for such shares.
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.
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
9
<PAGE>
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, 2000 under the
severance agreements currently in effect for the Named Executive Officers, the
maximum cash amounts payable would be as follows: Mr. Hood, $540,000;
Mr. Westra, $180,000; Mr Ghassemian, $209,000; Mr. Finley, $192,000; and
Ms. Poliak, $135,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of the Board participated in deliberations of the Board
concerning executive compensation for fiscal year 1999. The members of the Board
in 1999 were Messrs. Alexander and Smart, former officers of the Company, and
Mr. Hood, Mr. Nakamori, Dr. Reagan and Mr. Sedgwick. Messrs. Stempel and
Murakami are nominees for the Board in place of Messrs. Smart and Nakamori.
The Company's 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 members of the Human Resources
Committee are Mr. Alexander, Dr. Reagan and Mr. Sedgwick.
HUMAN RESOURCES COMMITTEE REPORT ON 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 Human Resources Committee
administers the Company's 1997 Stock Incentive Plan, under which stock option
grants may be made to such officers and other key employees.
For 1999, the Board established the compensation payable to Mr. Hood,
President and Chief Executive Officer; Mr. Finley, Vice President and Chief
Financial Officer; Mr. Ghassemian, Vice President of Operations; Ms. Poliak,
Vice President, Human Resources; and all other executive officers of the
Company.
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 that were considered in
establishing the components of each executive officer's compensation package for
1999 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 that
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
10
<PAGE>
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 1999, 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 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 1999 for the Company's
President and Chief Executive Officer, Mr. Hood, was established primarily on
the basis of Mr. Hood's personal performance and the range of base salaries paid
to the chief executive officers of companies with comparable revenue levels.
Mr. Hood's 1999 salary was within the range of base salaries paid to the chief
executive officers of comparable companies. The option grants made to Mr. Hood
that were based upon his position and a subjective evaluation of his
performance, were intended to place a significant portion of his total
compensation at risk, since the options will have no value unless there is
appreciation in the value of the Common Stock over the option term.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION. Section 162(m) of the Internal
Revenue Code of 1986, as amended, limits federal income tax deductions for
compensation paid after 1993 to the chief executive officer and the four other
most highly compensated officers of a public company to $1 million per year, but
contains an exception for performance-based compensation that satisfies certain
conditions. 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
11
<PAGE>
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
The following performance graph assumes an investment of $100 on January 1,
1994 and compares the changes thereafter in the market price of the Company's
common stock with a broad market index (Media General Financial
Services--Composite Market Value) and an industry index (MGFS Group--General
Building Materials). MGFS no longer supports the industry group index previously
used for comparison (Other Building Materials) and the Company is now using the
index MGFS Group--General Building Materials for industry comparison. The
Company paid no dividends during the periods shown; the performance of the
indexes is shown on a total return (dividend reinvestment) basis. The graph
lines merely connect fiscal year-end dates and do not reflect fluctuations
between those dates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
SOUTHWALL TECHNOLOGIES, INC. 100 154.55 227.27 254.55 163.64 168.18
MG INDUSTRY INDEX 100 126.41 151.87 166.69 190.31 162.83
MG MARKET INDEX 100 129.66 156.58 203.33 248.56 303.21
</TABLE>
DATA TABLE
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Southwall Tech.............. 100.00 154.55 227.27 254.55 163.64 168.18
MG Industry Index........... 100.00 126.41 151.87 166.69 190.31 162.83
MG Market Index............. 100.00 129.66 156.58 203.33 248.56 303.21
</TABLE>
THE HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND THE
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN INFORMATION ABOVE SHALL NOT BE
DEEMED "SOLICITING MATERIAL" OR INCORPORATED BY REFERENCE INTO ANY OF THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION BY IMPLICATION OR
BY ANY REFERENCE IN ANY SUCH FILING TO THIS PROXY STATEMENT.
12
<PAGE>
PROPOSAL 2
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent accountant for the year ending December 31, 2000, and has further
directed that management submit the selection of independent accountants for
ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers
LLP has audited the Company's financial statements since 1983. Representatives
of PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP as
the Company's independent accountants is not required by the Company's By-Laws
or otherwise. Nonetheless, the Board is submitting the selection of
PricewaterhouseCoopers 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 PricewaterhouseCoopers
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 PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSE COOPERS LLP TO SERVE AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act, requires the Company's officers and directors
and persons who own more than ten percent of its common stock to file reports
with the Securities and Exchange Commission disclosing their ownership of stock
in the Company and changes in such ownership. The Company requires copies of
such reports to be furnished to them as well. Based solely on a review of the
copies of such reports received by it and the written representations received
from one or more such persons that no annual Form 5 reports were required to be
filed by them for 1999 the Company believes that, during 1999 all such filing
requirements were complied with.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be presented on or before December 29, 2000 for
inclusion in the proxy materials relating to that meeting and on or before
March 14, 2001 for matters to be considered timely such that, pursuant to
Rule 14a-4 under the 1934 Act, the Company may not exercise its discretionary
authority to vote on such matters at that meeting. Any such proposals should be
sent to the Company at its principal offices addressed to the Secretary of the
Company. Other requirements for inclusion are set forth in Rules 14a-4 and 14a-8
under the 1934 Act.
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 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
13
<PAGE>
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.
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
BILL R. FINLEY
SECRETARY
Palo Alto, California
April 28, 2000
14
<PAGE>
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SOUTHWALL TECHNOLOGIES INC.
Annual Meeting of Stockholders
May 25, 2000
The undersigned hereby appoints Thomas G. Hood and Bill R. Finley, 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 25, 2000 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 28, 2000 (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 POSTAGE PAID ENVELOPE.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
- ------ 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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1. Election of Directors to hold office until the 2001 2. Ratification of the selection of FOR AGAINST ABSTAIN
Annual Meeting of Stockholders and until their PricewaterhouseCoopers LLP as
successors are elected. independent public accountants / / / / / /
of the Company for fiscal year
Nominees: (01) Bruce J. Alexander, (02) Thomas G. ending December 31, 2000.
Hood, (03) Tadahiro Murakami, (04) Joseph B. Reagan,
(05) Walter C. Sedgwick and (06) Robert C. Stemple 3. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Annual
FOR WITHHELD Meeting and at any adjournment or postponement thereof.
ALL / / / / FROM ALL
NOMINEES NOMINEES
/ / _______________________________________ MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
For all nominees except as noted above.
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 corporation name and
have a duly authorized officer sign stating title. If signer is a
partnership, please sign in partnership name by authorized person.
</TABLE>
