SCHEDULE
14A
(RULE
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
(Amendment No.)
Filed by
the Registrant S
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))
|
|
S
|
Definitive
Proxy Statement
|
|
¨
|
Definitive
Additional Materials
|
|
¨
|
Soliciting
Material Pursuant to §240.14a-11(c) or
§240.14a-12
|
SOUTHWALL
TECHNOLOGIES INC.
(Name of
Registrant as Specified in Its Charter)
(Name of
Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
|
S
|
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:
|
SOUTHWALL
TECHNOLOGIES INC.
3788
Fabian Way
Palo
Alto, California 94303
April 14,
2008
Dear
Stockholder:
You are
cordially invited to attend our Annual Meeting of Stockholders, which will be
held on May 15, 2008, at 8:30 a.m. local time, at our principal executive
offices at 3788 Fabian Way, Palo Alto, California.
The
following Notice of Annual Meeting of Stockholders and Proxy Statement describe
the items to be considered by the stockholders and contain certain information
about us and our officers and directors.
Please
sign and return the enclosed proxy card as soon as possible in the envelope
provided, or vote by Internet or telephone, so that your shares can be
voted at the meeting in accordance with your instructions. Even if
you plan to attend the meeting, we urge you to sign and promptly return the
proxy card, or vote by Internet or telephone. You may revoke it at
any time before it is exercised at the meeting or vote your shares personally if
you attend the meeting.
Thank you
in advance for your participation and prompt attention. We look
forward to seeing you.
|
Sincerely,
|
|
R.
Eugene Goodson
|
|
|
Executive
Chairman
|
SOUTHWALL
TECHNOLOGIES INC.
3788
Fabian Way
Palo
Alto, California 94303
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on May 15, 2008
To the
stockholders of Southwall Technologies Inc.:
The Board
of Directors of Southwall Technologies Inc. has called an annual meeting to seek
stockholder approval of the matters listed below.
Each of
the matters submitted to our stockholders at the annual meeting is described in
more detail in the accompanying proxy statement. We encourage you to
read the proxy statement in its entirety. The details of the annual
meeting are as follows:
|
Date:
|
May
15, 2008
|
|
Time:
|
8:30
a.m., local time.
|
|
Place:
|
Our
principal executive offices at 3788 Fabian Way, Palo Alto,
California.
|
|
|
Items
of
|
|
Business:
|
At
the annual meeting, you and our other stockholders will be asked
to:
|
|
|
1.
|
Elect
directors to serve for the ensuing
year;
|
|
|
2.
|
Transact
such other business as may properly come before the meeting or any
adjournment.
|
|
Record
Date:
|
You
may vote at the annual meeting if you were a stockholder of record at the
Close of business on March 27,
2008.
|
|
ProxyVoting:
|
Your
vote is important. You may vote on these matters in person or
by proxy. We ask that you complete and return the enclosed proxy card
promptly, whether or not you plan to attend the annual meeting, in the
enclosed addressed, postage-paid envelope, or vote by Internet or
telephone, so that your shares will be represented and voted at the annual
meeting in accordance with your wishes. You can revoke your
proxy at any time prior to its exercise by written notice received by us,
by delivering to us a duly executed proxy bearing a later date, or by
attending the annual meeting and voting your shares in
person.
|
This
notice, the attached proxy statement and form of proxy card are first being
mailed to our stockholders beginning on or about April 14, 2008.
|
By
Order of the Board of Directors,
|
|
R.
Eugene Goodson
|
|
|
Executive
Chairman
|
|
|
Palo
Alto, California
|
April 14,
2008
Table of Contents
|
Page
|
|
|
1
|
|
|
6
|
|
|
8
|
|
|
10
|
|
|
14
|
|
|
16
|
|
|
22
|
|
|
23
|
|
|
23
|
|
|
28
|
|
|
30
|
|
|
31
|
|
|
31
|
|
|
32
|
|
|
32
|
SOUTHWALL
TECHNOLOGIES INC.
3788
Fabian Way
Palo,
Alto, California 94303
PROXY
STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To
Be Held on May 15, 2008
This
proxy statement contains information about the 2008 Annual Meeting of
Stockholders of Southwall Technologies Inc. (“Southwall” or the
“Company”). The meeting will be held on May 15, 2008, beginning at
8:30 a.m., local time, at our principal executive offices at 3788 Fabian Way,
Palo Alto, California.
This
proxy statement is furnished in connection with the solicitation of proxies by
our Board of Directors for use at the annual meeting and at any adjournment of
that meeting. All proxies will be voted in accordance with the
instructions they contain. If no instruction is specified on a proxy,
it will be voted “For” the election of the nominees for directors in
proposal 1 set forth in the notice of the meeting. A stockholder may
revoke any proxy at any time before it is exercised by giving our Principal
Executive Officer written notice to that effect.
Our
Annual Report on Form 10-K to Stockholders for the fiscal year ended December
31, 2007 is being mailed to stockholders with the mailing of these proxy
materials on or about April 14, 2008. The Annual Report does not
constitute any part of this proxy statement.
INFORMATION
ABOUT THE ANNUAL MEETING AND VOTING
We
have included the following discussion of the matters to be presented at the
annual meeting to provide summary answers to some of the questions that you
might have about the annual meeting and the proposals to be presented to our
stockholders at the annual meeting. You are encouraged to read the
entire proxy statement. The information below is qualified in its entirety by
the full text of this proxy statement.
What
is the purpose of the annual meeting?
At the
annual meeting, stockholders will consider and vote on the following
matters:
|
|
1.
|
The
election of directors to serve for the ensuing
year.
|
The
stockholders will also act on any other business that may properly come before
the meeting.
Who
may vote at the annual meeting?
Only
holders of our common stock at the close of business on the record date, March
27, 2008, are entitled to receive notice of, and to vote their shares at, the
annual meeting. As of the record date, there were issued and
outstanding 27,819,622 shares of common stock. Shares of our Series A 10%
Cumulative Convertible Preferred Stock, or the Series A shares, are not entitled
to vote on the matters to be presented at the meeting.
How
many votes do I have?
At the
annual meeting, you will be entitled to one vote for each share of common stock
you held on the record date.
Is
my vote important?
Your vote
is important regardless of how many shares you own. Please take time
to vote. Take a moment to read the instructions below.
How
do I vote?
You can
vote your shares in four ways. You can vote by mail, over the
Internet, by telephone, or in person at the meeting.
You may vote by
mail. You may vote by completing and signing the proxy card
that accompanies this proxy statement and promptly mailing it in the enclosed
postage-prepaid envelope. You do not need to put a stamp on the
enclosed envelope if you mail it in the United States. The shares you
own will be voted according to the instructions on the proxy card you
mail. If you return the proxy card but do not give any instructions
on a particular matter described in this proxy statement, the shares you own
will be voted in accordance with the recommendations of our Board of
Directors. The Board of Directors recommends that you vote “For” the
election of the nominees for directors in Proposal 1.
You may vote over the
Internet. If you have Internet access, you may vote your
shares from any location in the world by following the “Vote by Internet”
instructions set forth on the enclosed proxy card.
You may vote by
telephone. You may vote your shares by following the “Vote by
Telephone” instructions set forth on the enclosed proxy card.
You may vote in
person. If you attend the meeting, you may vote by delivering
your completed proxy card in person or you can vote by completing a ballot.
Ballots will be available at the meeting.
May I
revoke my proxy?
Yes. Even
if you complete and return a proxy, whether by mail, internet, or telephone you
may revoke it at any time before it is exercised by taking one of the following
actions:
|
|
·
|
send
written notice
that you wish to revoke your proxy to R. Eugene Goodson, at our address
set forth in the Notice of Annual Meeting appearing before this proxy
statement;
|
|
|
·
|
send
us another signed
proxy with a later date; or
|
|
|
·
|
attend
the annual meeting, notify. Eugene Goodson that you are present, and then
vote in person.
|
If,
however, you elect to vote in person at the annual meeting and a broker or other
nominee holds your shares, you must bring to the annual meeting a legal proxy
from the broker or other nominee authorizing you to vote the
shares.
What
if a broker holds my shares in “street name”?
If your
shares are held in “street name” by a bank or other nominee, your bank or
nominee, as the record holder of your shares, is required to vote your shares
according to your instructions. You should instruct your broker or
other nominee to vote your shares by following the procedure provided by your
broker or other nominee. Even if you do not give your broker or other
nominee instructions as to how to vote on the other proposals described in this
proxy statement, your broker or other nominee may be entitled to use its
discretion in voting your shares in accordance with industry practice and
applicable law. You may also attend the annual meeting and vote in
person. If you elect to vote in person, however, you must bring to
the annual meeting a legal proxy from the broker or other nominee authorizing
you to vote the shares.
How
many shares must be present in person or by proxy to transact business at the
annual meeting?
Our
by-laws require that shares representing a majority of the votes entitled to be
cast by the holders of common stock outstanding on the record date be present in
person or by proxy at the annual meeting to constitute a quorum to transact
business with regard to each of the proposals. Shares as to which
holders abstain from voting as to a particular matter and broker non-votes will
be counted in determining whether there is a quorum of stockholders present at
the annual meeting.
How
many votes are required to approve the proposals?
The votes
necessary to approve each of the proposals is as follows:
|
|
·
|
Election of
Directors. The seven nominees receiving the highest
number of votes cast at the annual meeting will be elected, regardless of
whether that number represents a majority of the votes
cast.
|
|
|
·
|
Other
Matters. The affirmative vote of a majority of the total
number of shares cast at the meeting is needed to approve other matters if
any to be voted on at the meeting.
|
Abstentions
and broker non-votes will not be counted as votes in favor of a proposal, and
will also not be counted as votes cast or shares voting on such
proposal. Accordingly, abstentions and broker non-votes will have no
effect on the outcome of voting with respect to Proposal 1 (election of
directors).
Who
will count the votes?
The votes
will be counted, tabulated and certified by our transfer agent and registrar,
Computershare Trust Company, N.A.
What
if additional proposals are presented at the annual meeting?
If other
proposals are properly presented at the annual meeting for consideration, and if
you have completed and returned a proxy the persons named in the proxy card that
accompanies this proxy statement will have the discretion to vote on those
proposals for you. As of the date of the mailing of this proxy
statement, we do not know of any other proposals to be presented at the annual
meeting.
Will
any other business be conducted at the annual meeting or other
matters be voted on?
The Board
of Directors does not know of any other matters that may come before the
meeting. If any matter properly comes before the meeting, the persons
named in the proxy card that accompanies this proxy statement will exercise
their judgment in deciding how to vote, or otherwise act, at the meeting with
respect to that matter or proposal.
Where
can I find the voting results?
We will
report the voting results in our quarterly report on Form 10-Q for the second
quarter of 2008, which we expect to file with the Securities and Exchange
Commission, or the SEC, on or before August 14, 2008.
How
and when may I submit a stockholder proposal for the 2009 annual
meeting?
If you
are interested in submitting a proposal for inclusion in the proxy statement for
the 2009 annual meeting, you need to follow the procedures outlined in Rule
14a-8 of the Securities Exchange Act of 1934. To be eligible for
inclusion, your stockholder proposal intended for inclusion in the proxy
statement for the 2009 annual meeting of the stockholders must be received by us
at our principal corporate offices in Palo Alto, California as set forth below
no later than January 15, 2009.
If a
stockholder wishes to present a proposal before the 2009 annual meeting of
stockholders, but does not wish to have the proposal considered for inclusion in
the proxy statement and proxy card, the stockholder must also give written
notice to us at the address written below. If a stockholder provides
notice of a proposal to be presented at the 2009 annual meeting of stockholders
by March 6, 2009, the proxies designated by our Board of Directors will have
discretionary authority to vote on that proposal.
Any
proposals or notices should be sent to:
Southwall
Technologies Inc.
3788
Fabian Way
Palo
Alto, California 94303
Attention:
Chairman of the Boards of Directors
Who
will bear the costs of soliciting these proxies?
We will
bear the costs of solicitation of proxies. Brokers, bankers,
custodians and fiduciaries will be requested to forward proxy soliciting
material to the owners of shares of our common stock they hold in their
names. We will reimburse such brokers, banks, and
custodians and fiduciaries for their reasonable out-of-pocket expense incurred
in connection with the distribution of proxy materials.
How
can I obtain an Annual Report on Form 10-K?
Our
Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is being
mailed to stockholders with the mailing of these proxy materials
and is available on our website at www.southwall.com. If
you would like a copy of our Annual Report, we will send you one without
charge. Please contact:
Southwall
Technologies Inc.
3788
Fabian Way
Palo
Alto, California 94303
Attention:
Investor Relations
Telephone:
(650) 798-1200
Whom
can I contact for more information regarding the proxy materials or voting my
shares?
If you
have any additional questions about the proposals in this proxy statement, you
should contact R. Eugene Goodson, by telephone at (650) 798-1200 or by e-mail
to ggoodsn@southwall.com.
Householding
of Annual Meeting Materials
Some
banks, brokers and other nominee record holders may be participating in the
practice of “householding” proxy statements and annual reports. This
means that only one copy of our proxy statement and Annual Report on Form 10-K
to stockholders may have been sent to multiple stockholders in your
household. We will promptly deliver a separate copy of either
document to you if you contact us at the following address or telephone number:
Investor Relations, Southwall Technologies Inc., 3788 Fabian Way, Palo Alto,
California 94303, Telephone: (650) 798-1200. If you want to receive
separate copies of the proxy statement or Annual Report on Form 10-K in the
future, or if you are receiving multiple copies and would like to receive only
one copy per household, you should contact your bank, broker or other nominee
record holder, or you may contact us at the above address or telephone
number.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth material information regarding beneficial ownership
of our common stock as of March 3, 2008, by:
|
|
·
|
Each
person who we know to own beneficially more than 5% of our common
stock;
|
|
|
·
|
Each
of our current and former executive officers, for whom compensation
information is provided elsewhere in this proxy
statement;
|
|
|
·
|
Each
director and nominee for director;
and
|
|
|
·
|
All
executive officers and directors as a
group.
|
Except as
noted below, the address of each person listed on the table is c/o Southwall
Technologies Inc., 3788 Fabian Way, Palo Alto, California 94303, and each person
has sole voting and investment power over the shares shown as beneficially
owned, except to the extent authority is shared by spouses under applicable
law. Beneficial ownership is determined in accordance with the rules
of the SEC. The information below regarding persons beneficially
owning more than 5% of our common stock is based solely on public filings made
by such persons with the SEC through March 3, 2008.
|
Name and Address
|
Common
Stock
Beneficially
Owned
|
Percent of
Outstanding
Shares(1)
|
||||||
|
Needham
Investment Management, LLC (2)
|
1,428,000 | 4.4 | % | |||||
|
445
Park Avenue
|
||||||||
|
New
York, New York 10022
|
||||||||
|
Needham &
Company, LLC
|
2,009,807 | 7.1 | % | |||||
|
445
Park Avenue
|
||||||||
|
New
York, New York 10022
|
||||||||
|
Needham
Capital Management (Bermuda) L.L.C. (3)
|
1,593,467 | 5.6 | % | |||||
|
445
Park Avenue
|
||||||||
|
New
York, New York 10022
|
||||||||
|
Needham
Capital Management, L.L.C. (4)
|
9,550,838 | 31.2 | % | |||||
|
445
Park Avenue
|
||||||||
|
New
York, New York 10022
|
||||||||
|
Dolphin
Direct Equity Partners, L.P. (5)
|
6,258,062 | 21.38 | % | |||||
|
129
East 17th Street
|
||||||||
|
New
York, New York 10003
|
||||||||
|
William
A. Berry (6)
|
97,519 | * | ||||||
|
George
Boyadjieff (7)
|
565,714 | 2.0 | % | |||||
|
Dennis
Bunday
|
0 | |||||||
|
Jami
K. Dover Nachtsheim (6)
|
95,549 | * | ||||||
|
R.
Eugene Goodson (8)
|
321,000 | 1.1 | % | |||||
|
Andre
R. Horn (9)
|
149,727 | * | ||||||
|
Peter
E. Salas (9)
|
77,857 | * | ||||||
|
Dennis
Capovilla (10)
|
512,642 | 1.8 | % | |||||
|
Mallorie
Burak
|
0 | * | ||||||
|
Sylvia
Kamenski
|
0 | * | ||||||
|
Michael
Vargas (11)
|
120,057 | * | ||||||
|
All
current officers and directors as a group (13 persons)
(12)
|
2,122,540 | 7.2 | % | |||||
_______________
* Less
than 1%
|
(1)
|
The
number of shares of common stock deemed outstanding consists of
(i) 27,819,622 shares of common stock outstanding as of March 3,
2008, and (ii) shares of common stock issuable pursuant to
outstanding Series A shares, options or warrants held by the respective
persons or group that are exercisable within 60 days of March 3,2008, as
set forth below.
|
|
(2)
|
Consists
of shares of common stock owned by private investment partnerships and
registered investment companies with respect to which Needham Investment
Management, LLC is a general partner or investment adviser and, therefore,
may be deemed to own. Needham Investment Management, LLC
disclaims beneficial ownership of these
shares.
|
|
(3)
|
Consists
of 804,063 shares of common stock and 332,704 shares of common stock
issuable upon conversion of Series A shares owned by Needham Capital
Partners III (Bermuda), L.P. and 323,045 shares of common stock and
133,655 shares of common stock issuable upon conversion of Series A shares
owned by Needham Capital Partners II (Bermuda), L.P., with respect to
which, in each case, Needham Capital Management (Bermuda) L.L.C. is a
general partner and, therefore, may be deemed to own. Needham
Capital Management (Bermuda) L.L.C. disclaims beneficial ownership of
these shares.
|
|
(4)
|
Consists
of 2,304,511 shares of common stock and 953,557 shares of common stock
issuable upon conversion of Series A shares owned by Needham Capital
Partners II, L.P.; 4,034,378 shares of common stock and 1,669,338 shares
of common stock issuable upon conversion of Series A shares owned by
Needham Capital Partners III, L.P.; and 416,652 shares of common stock and
172,402 shares of common stock issuable upon conversion of Series A shares
owned by Needham Capital Partners IIIA, L.P., with respect to which, in
each case, Needham Capital Management, L.L.C. is a general partner and,
therefore, may be deemed to own. Needham Capital Management,
L.L.C. disclaims beneficial ownership of these
shares
|
|
(5)
|
Includes
1,630,883 shares of common stock issuable upon conversion of Series A
shares that were issued pursuant to an investment
agreement.
|
|
(6)
|
Includes
currently exercisable options to purchase 67,143
shares.
|
|
(7)
|
Includes
currently exercisable options to purchase 465,714
shares.
|
|
(8)
|
Includes
currently exercisable options to purchase 310,000
shares.
|
|
(9)
|
Includes
currently exercisable options to purchase 27,857
shares.
|
|
(10)
|
Includes
currently exercisable options to purchase 497,321
shares.
|
|
(11)
|
Includes
currently exercisable options to purchase 112,857
shares.
|
|
(12)
|
Includes
currently exercisable options to purchase 1,575,892
shares.
|
PROPOSAL 1
ELECTION
OF DIRECTORS
There are
currently seven members of our Board of Directors. The Board has
fixed the number of directors for the ensuing year at seven and has nominated
for such positions the seven people listed below each of whom is currently
serving as a director. The persons named in the enclosed proxy card
as proxies will vote to elect each of the nominees unless you withhold authority
to vote for the election of one or more nominees by marking the proxy card to
that effect. Each of the seven nominees has agreed to serve, but if
any of them shall become unable or unwilling to serve, the proxies, unless
authority has been withheld as to such nominee, may be voted for election of a
substitute nominee designated by our Board of Directors or the Board may reduce
the number of directors. Proxies may not be voted for more than seven
persons.
There are
no family relationships among any of our executive officers or
directors.
The
following information as of the date of this proxy statement is furnished with
respect to each nominee for election as a director. The information
presented includes information each director and nominee has given us about his
or her age, all positions he or she holds with us, his or her principal
occupation and business experience during the past five years, and the names of
other publicly-held companies of which he or she serves as a
director. Information about the number of shares of common stock and
Series A shares beneficially owned by each director or nominee, directly and
indirectly, as of March 3, 2008, appears above under the heading “Security
Ownership of Certain Beneficial Owners and Management.”
|
Name
|
Age
|
|
William
A. Berry (1)
|
70
|
|
George
Boyadjieff, Chairman (3)
|
69
|
|
Dennis
Bunday (3)
|
57
|
|
R.
Eugene Goodson
|
73
|
|
Andre
R. Horn (1)(2)
|
79
|
|
Jami
K. Dover Nachtsheim (1)(2)
|
49
|
|
Peter
E. Salas (2)(3)
|
53
|
|
(1)
|
Member
of the Audit Committee.
|
|
(2)
|
Member
of the Nominating and Corporate Governance
Committee.
|
|
(3)
|
Member
of the Compensation Committee.
|
Mr. Berry has served on our
Board of Directors since May 2003. Mr. Berry worked for the
Electric Power Research Institute, a non-profit energy research organization
providing science and technology-based solutions to global energy companies,
from April 1996 to his retirement in December 2003. While at EPRI,
Mr. Berry served as Chief Financial Officer from April 1996 to July
2003. From August 2003 to December 2003, Mr. Berry served as
Special Projects Manager. From 1992 to March 1996,
Mr. Berry was the Senior Vice President and Chief Financial Officer of
Compression Labs, Inc., a manufacturer of visual communications systems
based on digital technology, and from 1989 to 1992 was the President of Optical
Shields, Inc. Mr. Berry worked at Raychem Corporation from 1967 until
1988, where he was a Corporate Vice President and Chief Administrative Officer
from 1985 to 1988. He is a director of FAFCO, Inc., a
manufacturer of solar pool heating systems. Mr. Berry holds a BS
in industrial engineering and an MBA from
Stanford University.
Mr. Boyadjieff joined our
Board of Directors as Chairman in December 2003. From August 9, 2006
to October 31, 2006, Mr. Boyadjieff served as our interim Chief Executive
Officer. Mr. Boyadjieff was the Chief Executive Officer of Varco
International, Inc., a diversified oil service company, from 1991 through
2002, and the chairman of the Board of Directors of Varco from 1998 through
2003. Mr. Boyadjieff retired from active leadership of Varco in
2003. Mr. Boyadjieff holds a BS and an MS in mechanical
engineering from the University of California at Berkeley.
Mr. Bunday joined our Board
of Directors in June, 2008. He has been Executive Vice President,
Chief Financial Officer, and Secretary of Williams Control, Inc, (NASDAQ: WMCO),
a manufacturer of electronic throttle controls, since July 2002. From
January 2001 until June 2002, he served as its Chief Financial Officer as an
independent contractor for Williams Control, Inc. Prior to joining
Williams Control, Inc., he served as Vice President-Finance and Chief Financial
Officer from 1998 to 2001, for Babler Bros., Inc., as manufacture of pre-cast
concrete products. From 1996 until 1998, he held the same positions
with Quality Veneer & Lumber, Inc., and its predecessor, the Morgan Company,
a producer of forest products. Mr. Bunday received a Bachelors degree
in Accounting from Washington State University.
Dr. Goodson served as our
Chief Operating Officer from September 18, 2006 through October 31, 2006 and as
Principal Executive Officer of Southwall since November 1, 2006. Dr.
Goodson joined our Board of Directors in April 2006. Dr. Goodson has
been the Chief Executive Officer and President of Williams Controls Inc.
(NASDAQ: WMCO), a manufacturer of electronic throttle controls, from July 2002
until October 2004, and the Chairman of the Board of Williams Controls since
October 2004. From 1990 to 1997, Dr. Goodson was the Chairman and
Chief Executive Officer of Oshkosh Truck Corporation, a developer and producer
of heavy-duty on and off road trucks. After retiring from
Oshkosh in 1998, Dr. Goodson became an Adjunct Professor at the
University of Michigan Business School, teaching operations
management. He was a director of the Executive Officer Association of
American Industrial Partners, a private equity firm, from 1998 to
2005.
Mr. Horn was appointed to our
Board of Directors in February of 2006. Mr. Horn retired in 1985 as
Chairman of Joy Manufacturing Co. in Pittsburgh, Pennsylvania, now known as Joy
Global Inc., a manufacturer of heavy equipment. Mr. Horn served as
the Chairman of Needham & Co., Inc. (“Needham”), from which position he
retired in 1991, and was elected Chairman Emeritus of
Needham. Mr. Horn is currently a director of
Needham. Needham and its affiliates are the beneficial owners of
approximately 44.6% of the Company’s outstanding capital stock as set forth
under the heading “Security Ownership of Certain Beneficial Owners and
Management.” Mr. Horn is currently a director and Chairman of the
Board of REMEC, Inc., a San Diego, California manufacturer of microwave
components for communications and defense electronics, which is in the process
of liquidation. Mr. Horn holds a BA in Mathematics from the
University of Paris and is a graduate from the Ecole des Hautes Etudes
Commerciales.
Ms. Nachtsheim has been a
member of our Board of Directors since
April 2003. Ms. Nachtsheim retired in June, 2000 after
20 years with Intel Corporation, a semiconductor
manufacturer. Ms. Nachtsheim served in a variety of positions at
Intel, most recently as Corporate Vice President of the Sales and Marketing
Group and Director of Worldwide Marketing, from 1998 until her
retirement. In October, 2007, Ms. Nachtsheim joined the Board of
Directors for ACT Conferencing, a telephone conferencing services
company. From January 2003 to December 2003,
Ms. Nachtsheim served on the Board of Directors of Vixel Corporation, a
creator of disruptive storage networking
technologies. Ms. Nachtsheim is a graduate of
Arizona State University with a BA in Business
Management.
Mr. Salas was appointed to
our Board of Directors in November of 2005. Mr. Salas has been
President of Dolphin Asset Management Corporation and its related companies
(“Dolphin”) since he founded it in 1988. Dolphin and its affiliates are the
beneficial owners of approximately 19.1% of the Company’s outstanding capital
stock, as set forth under the heading “Security Ownership of Certain Beneficial
Owners and Management.” Prior to founding Dolphin, he was with J.P.
Morgan Investment Management, Inc. for ten years. Mr. Salas is
currently a director and Chairman of the Board of Tengasco, Inc. (AMEX: TGC), an
independent oil and gas producer and Williams Controls, Inc. (NASDAQ: WMCO), a
manufacturer of electronic throttle controls. Mr. Salas
received an A.B. degree from Harvard.
The
Board of Directors recommends a vote “FOR” the election of all of the above
nominees.
CORPORATE
GOVERNANCE
General
We
believe that good corporate governance is important to ensure that Southwall is
managed for the long-term benefit of its stockholders and are committed to
having sound corporate governance principles. During the past year,
we continued to review our corporate governance policies and practices and to
compare them to those suggested by various authorities in corporate governance
and the practices of other public companies. We have also continued
to review the provisions of the Sarbanes-Oxley Act of 2002, the new and proposed
rules of the SEC and the NASDAQ listing standards. As noted below, we
have attempted to continue to comply with NASDAQ listing standards relating to
corporate governance even though we are no longer listed on NASDAQ.
You can
request copies of the current charters of our Audit Committee, Compensation
Committee and Nominating and Corporate Governance Committee, as well as our
Corporate Governance Guidelines and Code of Business Conduct and Ethics, by
writing to:
R. Eugene
Goodson
c/o
Southwall Technologies Inc.
3788
Fabian Way
Palo
Alto, CA 94303
Phone:
(650) 798-1200
Determination
of Independence
Our Board
of Directors has determined that none of Messrs. Berry, Boyadjieff, Bunday,
Horn or Salas or Ms. Nachtsheim has a material relationship with us
(directly or as a partner, shareholder or officer of an organization that has a
relationship with us) and that each of these directors is “independent” within
the meaning of NASDAQ’s director independence standards. In addition,
our Board of Directors has determined that each of the members of each of our
Audit Committee, Compensation Committee and Nominating and Corporate Governance
Committee has no material relationship with us (either directly or as a partner,
shareholder or officer of an organization that has a relationship with us) and
is “independent” within the meaning of NASDAQ’s director independence
standards.
Director
Candidates
Our
stockholders may recommend director candidates for inclusion by the Board of
Directors in the slate of nominees that the Board recommends to our stockholders
for election. The qualifications of recommended candidates will be
reviewed by our Nominating and Corporate Governance Committee. If the
Board determines to nominate a stockholder-recommended candidate and recommends
his or her election as a director by the stockholders, the name will be included
in our proxy card for the stockholders meeting at which his or her election is
recommended.
Stockholders
may recommend individuals for the Nominating and Corporate Governance Committee
to consider as potential director candidates by submitting their names and
background to the “Southwall Technologies Inc. Nominating and Corporate
Governance Committee” c/o Southwall Technologies Inc., 3788 Fabian Way, Palo
Alto, California 94303. The Nominating and Corporate Governance
Committee will consider a recommendation only if appropriate biographical
information and background material is provided on a timely
basis. The process followed by the Nominating and Corporate
Governance Committee to identify and evaluate candidates includes requests to
Board members and others for recommendations, meetings from time to time to
evaluate biographical information and background material relating to potential
candidates and interviews of selected candidates by members of the Nominating
and Corporate Governance Committee and the Board. Assuming that
appropriate biographical and background material is provided for candidates
recommended by stockholders, the Nominating and Corporate Governance Committee
will evaluate those candidates by following substantially the same process, and
applying substantially the same criteria, as for candidates submitted by Board
members.
In
considering whether to recommend any candidate for inclusion in the Board’s
slate of recommended director nominees, including candidates recommended by
stockholders, the Nominating and Corporate Governance Committee will apply the
criteria set forth in Southwall’s Nominating and Corporate Governance
Guidelines. These criteria include the candidate’s integrity,
business acumen, age, experience, commitment, diligence, conflicts of interest
and the candidate’s ability to act in the interest of all
stockholders. The Nominating and Corporate Governance Committee does
not assign specific weights to particular criteria and no particular criterion
is necessarily applicable to all prospective nominees. We believe
that the backgrounds and qualifications of the directors, considered as a group,
should provide a significant composite mix of experience, knowledge and
abilities that will allow the Board to fulfill its
responsibilities. We have not paid, to date, any third party a fee to
assist in evaluating and identifying nominees. During 2007, Dennis
Bunday was recommended to us as a candidate for the Board by Dolphin Equity
Partners, LP, who are beneficial owners of more than 5% of our common stock and
R. Eugene
Goodson, our Principal Executive Officer.
Communications
from Stockholders and Other Interested Parties with the Board
The Board
of Directors will give appropriate attention to written communications on issues
that are submitted by stockholders and other interested parties, and will
respond if and as appropriate. Absent unusual circumstances or as
contemplated by committee charters, the Chairman of the Nominating and Corporate
Governance Committee will, with the assistance of our legal counsel, (1) be
primarily responsible for monitoring communications from stockholders and other
interested parties and (2) provide copies or summaries of such
communications to the other directors as he or she considers
appropriate.
Communications
will be forwarded to all directors if they relate to substantive matters and
include suggestions or comments that the Chairman of the Nominating and
Corporate Governance Committee considers to be important for the directors to
know. Stockholders and other interested parties who wish to send
communications on any topic to the Board should address such communications
to:
Ms. Jami
K. Dover Nachtsheim
Chair of
the Nominating and Corporate Governance Committee
c/o
Southwall Technologies Inc.
3788
Fabian Way
Palo
Alto, CA 94303
Board
of Directors Meetings and Committees
The Board
of Directors has responsibility for establishing broad corporate policies and
reviewing our overall performance rather than day-to-day
operations. The Board’s primary responsibility is to oversee the
management of the Company and, in so doing, serve the best interests of the
Company and its stockholders. The Board selects, evaluates and
provides for the succession of executive officers and, subject to stockholder
election, directors. It reviews and approves corporate objectives and
strategies, and evaluates significant policies and proposed major commitments of
corporate resources. It participates in decisions that have a
potential major economic impact on the Company and its
stockholder. Management keeps the directors informed of Company
activity through regular written reports and presentations at Board and
committee meetings.
The Board
of Directors met 11 times in 2007. During 2007, each of our directors
attended 75% or more of the total number of meetings of the Board of Directors
and the committees of which such director was a member. The Board has
standing Audit, Compensation and Nominating and Corporate Governance
Committees. Each committee has a charter that has been approved by
the Board. Dr. Goodson is the only director who is
currently also an employee of Southwall. He does not participate in any meetings
at which his compensation is evaluated.
Executive
sessions of non-management directors are held at least four times per year, and
during 2007, there were six such sessions. The sessions are scheduled
and chaired by Mr. Boyadjieff. Any non-management director can
request that an additional executive session be scheduled.
It is our
current policy to have the Chairman of the Board and the President attend the
annual meetings of stockholders. All of our then current directors
and our current President attended the 2007 annual meeting of
stockholders
Audit
Committee
The
current members of our Audit Committee are Messrs. Berry (Chair) and Horn
and Ms. Nachtsheim. The Board of Directors has determined that each
of Messrs. Berry and Horn qualifies as an “audit committee financial
expert” under NASDAQ rules. The Board of Directors has determined
that each of Messrs. Berry and Horn and Ms. Nachtsheim is an “independent
director” under the NASDAQ rules governing the qualifications of the members of
audit committees. In addition, our Board of Directors has determined
that each member of the Audit Committee is financially literate. None
of Messrs. Berry and Horn and Ms. Nachtsheim serves on the audit committees
of more than two other public companies. The Audit Committee met 4
times during 2007. The responsibilities of our Audit Committee and
its activities during 2007 are described in the Report of the Audit Committee
contained below in this proxy statement.
Compensation
Committee
The
current members of the Compensation Committee are Messrs. Salas (Chair)
Boyadjieff and Bunday. The Board of Directors has determined that
Messrs. Boyadjieff, Bunday and Salas are independent as defined under NASDAQ
rules. Our Compensation Committee held 9 meetings during
2007. The Compensation Committee evaluates and sets the compensation
of our Principal Executive Officer and makes recommendations to our Board of
Directors regarding the salaries and bonuses of our other executive
officers. The Compensation Committee also oversees the evaluation of
management by the Board of Directors. The Compensation Committee also
grants stock options and other stock incentives (within guidelines established
by our Board of Directors) to our officers and employees.
Nominating
and Corporate Governance Committee
The
current members of the Nominating and Corporate Governance Committee are
Ms. Nachtsheim (Chair) and Messrs. Horn and Salas. The Board of
Directors has determined that each of Ms. Nachtsheim and Messrs. Horn and
Salas is independent as defined under NASDAQ rules. The purpose of
the Nominating and Corporate Governance Committee is to identify individuals
qualified to become Company Directors recommend candidates to be nominated by
the Board for election as directors, develop and recommend to the Board a set of
corporate governance principles and oversee the evaluation of the
Board. The Nominating and Corporate Governance Committee is
authorized to retain any advisers or consultants. For information
relating to nominations of directors by our stockholders, see “Proposal 1
Election of Directors” above. Our Nominating and Corporate Governance
Committee met 4 times in 2007.
Audit
Committee’s Pre-approval Policy and Procedures
Our Audit
Committee pre-approves all services, including both audit and non-audit
services, provided by our independent registered public accounting firm for the
purpose of maintaining the independence of our independent registered public
accounting firm. For audit services, each year the independent
registered public accounting firm provides us with an engagement letter
outlining the scope of the audit services proposed to be performed during the
year, which must be formally accepted by the Audit Committee before the audit
commences. The independent registered public accounting firm also
submits an audit services fee proposal, which also must be approved by the Audit
Committee before the audit commences.
Each
year, management also submits to the Audit Committee a list of non-audit
services that it recommends the independent registered public accounting firm be
engaged to provide and an estimate of the fees to be paid for each. Management
and the independent registered public accounting firm must each confirm to the
Audit Committee that the performance of the non-audit services on the list would
not compromise the independence of the independent registered public accounting
firm and would be permissible under all applicable legal
requirements. The Audit Committee must approve both the list of
non-audit services and the budget for each such service before commencement of
the work. Management and the independent registered public accounting
firm report to the Audit Committee at each of its regularly scheduled meetings
as to the non-audit services actually provided by the independent registered
public accounting firm and the approximate fees incurred by us for those
services.
During
2007, no services were provided to us by Burr, Pilger & Mayer LLP, our
independent registered public accounting firm, or any other accounting firm
other than in accordance with the pre-approval policies and procedures described
above.
REPORT
OF THE AUDIT COMMITTEE
The Audit
Committee oversees our financial reporting process on behalf of the Board of
Directors. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal
controls. The primary duties and responsibilities of the Audit
Committee are to: (1) select and approve our independent
registered public accounting firm;
(2) serve as an independent and objective party to monitor our financial
reporting process and internal control systems; (3) review and appraise the
audit efforts of our independent registered public
accounting firm; (4) review the independent registered public accounting
firm’s fee; and (5) provide an open avenue of communication among the
independent registered public
accounting firm, financial and senior management and the Board of
Directors.
During
2007, the Audit Committee consisted of three members, Messrs. Berry, Horn and
Ms. Nachtsheim. The Board of Directors has determined that the
members of the Audit Committee satisfy the requirements of NASDAQ as to
independence, financial literacy and expertise. In addition, the
Board of Directors has determined that Messrs. Berry and Horn are audit
committee financial experts as defined by the SEC and have the requisite
financial sophistication to satisfy the requirements of NASDAQ. The
Audit Committee operates under a written charter, approved by the Board of
Directors, which was last amended in April 2004, and reviewed in October,
2007.
In
fulfilling its oversight responsibilities regarding the 2007 financial
statements, the Audit Committee reviewed with management the audited financial
statements in our Annual Report on Form 10-k for year ended December 31, 2007,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements. The Audit
Committee’s review included discussion with the independent registered public
accounting firm of matters required to be discussed pursuant to Statement of
Auditing Standards No. 114 (Codification of Statements on Auditing
Standards), including the process used by management in formulating particularly
sensitive accounting estimates and the basis for the conclusions of the
independent registered public
accounting firm regarding the reasonableness of those estimates.
The Audit
Committee reviewed with the independent registered public
accounting firm, who are responsible for expressing an opinion on the conformity
of those audited financial statements with generally accepted accounting
principles, their judgment as to the quality, not just the acceptability, of
Southwall’s accounting principles and such other matters as are required to be
discussed with the Audit Committee under generally accepted auditing
standards. In addition, the Audit Committee has discussed with the
independent registered public accounting firm their independence from management
and Southwall, including the matters in the written disclosures required by the
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees) and received by the Audit Committee.
The Audit
Committee discussed with Southwall’s independent registered public
accounting firm the overall scope and plans for their audit in
2007. The Audit Committee meets with the independent registered
public accounting firm, with and without management present, to discuss the
results of their examination, and the overall quality of Southwall’s financial
reporting. The Audit Committee held 4 meetings during
2007.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors, and the Board of Directors has
approved, that the audited financial statements be included in the Annual Report
on Form 10-K for the year ended December 31, 2007, for filing with the
SEC.
|
The
Audit Committee
|
|
|
William
A. Berry, Chairman
|
|
|
Jami
K. Dover Nachtsheim
|
|
|
Andre
R. Horn
|
COMPENSATION DISCUSSION AND ANALYSIS
Overview
of Compensation Program
The
Compensation Committee (for purposes of this discussion, the “Committee”) of the
Board of Directors has responsibility for establishing, implementing and
continually monitoring adherence with Southwall’s compensation
philosophy. The Committee ensures that the total compensation paid to
our executive officers is fair, reasonable and competitive. The
members of the Committee are Mr. Salas (Chair), Mr. Boyadjieff and Mr.
Bunday. Messrs. Salas, Boyadjieff and Bunday, are each considered an
independent member of the Board of Directors under NASDAQ rules and
regulations. Our Compensation Committee held nine meetings
during 2007. Messrs. Salas, Boyadjieff and Bunday were chosen to
serve on the Committee because of their status as independent directors and
their experience in compensation matters.
The
Compensation Committee charter, which was created in April 2004, can be found at
www.southwall.com. The
Committee charter can be revised by the approval of the Board of Directors and
gives the Committee authority to determine or recommend to the Board for
determination the Principal Executive Officer and other executive officers’
compensation. The Committee charter also gives the Committee
authority to hire outside consultants to provide assistance in determining
market levels of executive compensation. The Committee did not retain
an outside compensation consultant in 2006 or 2007 as part of the process in
determining executive compensation.
Of the 9
meetings held by the Compensation committee, the Company’s Principal Executive
Officer attended 7 of these meetings. Each member of the Committee got paid $750
for each meeting attended in person or $500 for each committee meeting held via
teleconference. As Chairman of the Compensation Committee, Mr. Salas
was paid a retainer of $9,750 in 2007.
Throughout
this proxy statement, any individual who served as our Principal Executive
Officer or Principal Financial Officer during fiscal 2007, as well as the other
individuals included in the Summary Compensation Table below, are referred to as
the “named executive officers.”
Compensation
Philosophy and Objectives
The
Committee believes that the most effective executive compensation program is one
that evaluates both performance and compensation to ensure that we maintain our
ability to attract and retain superior employees in key positions and that
compensation provided to key employees remains competitive relative to the
compensation paid to similarly situated executives of our Compensation Peer
Group, as defined below. To that end, the Committee believes
executive compensation packages provided by Southwall to its executives,
including the named executive officers should include both cash and stock-based
compensation that reward performance as measured against established
goals.
Role
of Executive Officers in Compensation Decisions
The
Committee makes or recommends to the Board all compensation decisions for the
Company’s executive officers and approves recommendations from the Board of
Directors regarding equity awards to all elected officers of the
Company. Decisions regarding the compensation of non-executive
officers are made by the functional Vice Presidents.
The
Principal Executive Officer annually reviews the performance of each executive
officer (other than the Principal Executive Officer whose performance is
reviewed by the Committee). The conclusions reached and
recommendations based on these reviews, including with respect to salary
adjustments and annual award amounts, are made by the Committee.
Setting
Executive Compensation
Based on
the foregoing objectives, the Committee has structured Southwall’s annual and
long-term incentive-based cash and non-cash executive compensation to motivate
executives to achieve the business goals set by the company and reward the
executives for achieving such goals.
In
determining the particular elements of compensation that will be used to
implement our overall compensation policies, the Committee takes into
consideration a number of factors related to our performance including
competitive practices among our Compensation Peer Group. The
Committee compares each element of compensation given to executive officers
against a Compensation Peer Group of publicly-traded companies which consists of
companies against which the Committee believes Southwall competes for talent
(the “Compensation Peer Group”). The companies comprising the
Compensation Peer Group, which are periodically reviewed and updated by the
Committee, for 2007, consisted of public companies, located in Northern
California, with annual revenues between approximately $40 million and $60
million.
Data on
the compensation practices of the above-mentioned Compensation Peer Group
generally is gathered through searches of publicly available information,
including publicly available databases. Publicly available
information does not typically include information regarding target cash
compensation, so we rely upon compensation surveys (prepared by Assets
Unlimited, an external compensation consultant) to benchmark target cash
compensation levels against the above Compensation Peer
Group. Compensation Peer Group data is gathered with respect to base
salary, bonus targets and all equity awards (including stock options,
performance shares, restricted stock and long-term, cash-based
awards). It does not include deferred compensation benefits or
generally available benefits, such as 401(k) plans or health care
coverage. We compete with many larger companies for top
executive-level talent. Because of the competitive marketplace for
talent, the Committee generally sets compensation for its executive officers at
approximately the midpoint of compensation paid to similarly situated executives
of the companies comprising the Compensation Peer Group. Variations
to this objective may occur as dictated by the experience level and performance
of the individual and market factors.
Compensation
Components
For the
fiscal year ended December 31, 2007, the principal components of compensation
for the named executive officers were: (i) base salary, (ii) bonuses, (iii)
long-term equity incentive compensation, (iv) retirement benefits provided under
a 401(k) plan and (v) perquisites and other generally available benefit
programs. The Compensation Committee has selected these elements
because each is considered useful and/or necessary to meet one or more of the
principal objectives of our compensation policy. For instance, base
salary and bonus target percentage are set with the goal of attracting employees
and adequately compensating and rewarding them on a day-to-day basis for the
time spent and the services they perform, while our equity programs are geared
toward providing an incentive and reward for the achievement of long-term
business objectives and retaining key talent. We believe that these
elements of compensation, when combined, are effective, and will continue to be
effective, in achieving the objectives of our compensation
program.
Base
Salary
We
provide executive officers and other employees with base salary to compensate
them for services rendered during the fiscal year. Base salary ranges
for executive officers are determined for each executive based on his or her
position and responsibility by using market data from the Compensation Peer
Group. Base salary ranges are designed so that salary opportunities
for a given position will be at the midpoint of the base salary established for
each range.
During
its review of base salaries for executives, the Committee primarily
considers:
|
|
·
|
market
data for the Compensation Peer
Group
|
|
|
·
|
internal
review of the executive’s
compensation
|
|
|
·
|
individual
performance of the executive
|
Salary
levels are typically considered annually as part of the company’s performance
review process as well as upon a promotion or other change in job
responsibility. Merit based increases to salaries of executive
officers are based on the Committee’s assessment of the individual’s
performance.
Bonuses
Bonuses
also are paid in order to motivate the achievement of Southwall’s business
goals. Bonuses are intended to reflect an individual’s accomplishment
of both corporate and functional objectives, with substantially greater weight
being given to achievement of corporate rather than functional objectives such
as: profitability improvement, asset management, market position, product
leadership and key products. Achievement of the targeted goals under
the bonus plan are intended to result in compensation that is competitive with
Southwall’s Compensation Peer Group, which the Committee believes is an
appropriate range to enable us to attract and retain key personnel and to
motivate the executives to meet our business goals.
For 2007,
our other named executive officers were eligible to receive a bonus calculated
as a percentage of their respective base annual salaries as
follows:
Dr.
Goodson (50%), Dennis Capovilla (50%), Mallorie Burak (20%), and Michael Vargas
(20%) through 5/31/07 then 35% for the remainder of the year. For 2007, the
corporate objective for executive bonus plan, which determines the Cash Portion,
was tied to a net income after taxes target of $500 thousand. If the
Company made $500,000 in net income after taxes, each of these named executive
officers would have received 100% of the Cash Portion of their bonus
target. For fiscal 2007, our net income after taxes exceeded $500
thousand and, therefore, 100% of bonus was paid. Under the bonus plan for 2007,
the Stock Portion, which related to the executives’ functional objectives, was
issued at 100%.
Long-Term
Equity Incentive Compensation
Southwall
provides long-term incentive compensation through awards of stock options that
generally vest over multiple years. Our equity compensation program
is intended to align the interests of our officers with those of our
stockholders by creating an incentive for our officers to maximize stockholder
value. The equity compensation program also is designed to encourage
our officers to remain employed with Southwall despite a very competitive labor
market.
Equity-based
incentives are granted to our officers under our stockholder-approved 2007 Stock
Incentive Plan. The Committee has granted equity awards at its
scheduled meetings or by unanimous written consent. Grants approved
during scheduled meetings become effective and are priced as of the date of
approval. Grants approved by unanimous written consent become effective and are
priced as of the date the last signature is obtained or as of a predetermined
future date. All stock option grants have a per share exercise price
equal to the fair market value of our common stock on the grant
date. The Committee has not granted, nor does it intend in the future
to grant, equity compensation awards to executives in anticipation of the
release of material nonpublic information that is likely to result in changes to
the price of our common stock, such as a significant positive or negative
earnings announcement. Similarly, the Committee has not timed, nor
does it intend in the future to time, the release of material nonpublic
information based on equity award grant dates. Because equity
compensation awards typically vest over a four-year period, the value to
recipients of any immediate increase in the price of our stock following a grant
is diminished
We grant
stock options because they can be an effective tool for meeting our compensation
goal of increasing long-term stockholder value by tying the value of the stock
options to our performance in the future. Employees are able to
profit from stock options only if the trading price our stock increases over the
stock option’s exercise price.
The
number of stock options our Committee grants to each officer and the vesting
schedule for each grant is determined based on a variety of factors, including
the number of options already held by the officer, market data collected
regarding the equity grant ranges for the Compensation Peer Group listed above
and our goal to award grants in line with the competitive benchmark data, as
well as the performance rating each executive is given by our Principal
Executive Officer.
The Principal Executive Officer assigns a performance rating to each named
executive officer based on a number of factors, including the individual’s
accomplishments during the prior fiscal year and over the course of his or her
service with Southwall. The Principal Executive Officer then makes a
recommendation to the Compensation Committee as to the number of options to be
granted to each named executive officer, as well as the total options to be
granted to other employees. In deciding the number of stock options
granted to the named executive officers, the Principal Executive Officer and the
Compensation Committee consider the officer’s position, the number of options
already held by the officer, the performance assessment (both historical and
future potential), and the number of shares available in the 2007 Long Term
Incentive Plan. For 2007, the Committee accepted the Principal
Executive Officer’s recommendations with respect to stock option grants, and the
Board of Directors voted to grant the stock options as presented by the
Compensation Committee.
In 2007,
our Committee and Board of Directors relied upon the above-mentioned factors to
approve stock option grants for the named executive officers and other senior
officers. The Principal Executive Officer made recommendations to the
Committee based on guidelines that include award ranges for employees at
specific job responsibility levels and performance ratings. Stock
options generally vest 25% per year over a period of four
years. Stock option awards to employees, other than the named
executive officers, were made under our 2007 Long Term Incentive Plan for
Employees and Consultants.
Retirement
Benefits under 401(k) Plans, Perquisites and Generally Available Benefit
Programs
In fiscal
2007, the named executive officers were eligible to receive health care coverage
that is generally available to other Southwall employees. In
addition, we provided a car allowance of $1,350 per month from January 1 through
March 31, 2007 and $675 per month for the remainder of the year to
Dr. Goodson and $950 per month for Dennis Capovilla and $950 per month for
Michael Vargas from June 1, 2007 through the end of the year. We also
maintain a tax-qualified 401(k) Plan and Roth 401(k) Plan (established in April
2007), which provides for broad-based employee participation. Under
both 401(k) Plans, all Southwall employees are eligible to receive matching
contributions from Southwall. The matching contribution for the
401(k) Plan in 2007 was 25% on the first $6,000 contributed by the employee up
to a maximum company match of $1,500 subject to applicable Federal
limits. We do not provide defined benefit pension plans or defined
contribution retirement plans to our executives or other employees other than
the 401(k) Plan or Roth 401(k) Plan.
We also
offer a number of other benefits to the named executive officers pursuant to
benefit programs that provide for broad-based employee
participation. These benefits programs include medical, dental and
vision insurance, long-term and short-term disability insurance, life and
accidental death and dismemberment insurance, business travel insurance,
employee assistance plans and certain other benefits.
The
401(k) Plan and other generally available benefit programs allow us to remain
competitive for qualified employees, and we believe that the availability of the
benefit programs generally enhances employee productivity and loyalty to
Southwall. The main objectives of our benefit programs are to give
our employees access to quality healthcare, financial protection from unforeseen
extraordinary events, assistance in achieving retirement financial goals,
enhanced health and productivity and to provide support for global workforce
mobility, in full compliance with applicable legal
requirements. These generally available benefits typically do not
specifically factor into decisions regarding an individual executive’s total
compensation or equity award package.
On an
annual basis, we benchmark our overall benefits programs, including our 401(k)
Plan, against external benchmark data and surveys from our benefit consultants
and plan administrators. We generally target our overall benefits
programs, to be the mid range of overall benefits offered by the Compensation
Peer Group to their employees, which we believe allows us to remain competitive
in attracting and retaining talent. We consider possible changes to
our benefits programs in light of the overall objectives of the program,
including the effectiveness of the retention and incentive features of such
programs and our targeted percentile range compared to our Compensation Peer
Group.
Stock
Ownership Guidelines
We have
not adopted stock ownership guidelines that require our directors and named
executive officers to maintain a certain amount of Southwall
stock. We believe such guidelines are unnecessary because we believe
that the interests of directors and named executive officers are already closely
aligned with the interests of stockholders through grants of stock options made
under our stock option plan. We have an insider trading policy which,
among other things, prohibits covered employees from short sales and trading in
publicly listed options for Southwall shares. We have no specific
policy regarding hedging of stock ownership positions, but any such hedging must
be accomplished within the requirements of the insider trading
policy.
Compensation
of Principal Executive Officer
During
2007, Dr. Goodson received a salary of $215,411 and a car allowance of
$10,125 In setting Dr. Goodson’s salary, target bonus and equity
compensation grant, the Committee relied on market-competitive pay data and the
strong belief that the Principal Executive Officer significantly and directly
influences Southwall’s overall performance. The Committee also took
into consideration the overall compensation policies discussed
above.
Accounting
and Tax Considerations
In
designing our compensation programs, we take into consideration the accounting
and tax effect that each element will or may have on Southwall and the executive
officers and other employees as a group. Our goal is to keep the
expense related to our compensation programs as a whole within certain
affordability levels. We recognize a charge to earnings for
accounting purposes when stock options are granted. We also take into
account that the 401(k) Plan provides a tax-advantaged retirement planning
vehicle for our executives.
In
addition, we have not provided any employee or director with a gross-up or other
reimbursement for tax amounts the executive might pay pursuant to
Section 280G or Section 409A of the Internal Revenue
Code. Section 280G and related Internal Revenue Code sections
and regulations provide employees, directors and certain other service providers
could be subject to significant additional taxes if they receive payments or
benefits in connection with a change in control of Southwall that exceeds
certain limits, and that Southwall or its successor could lose a deduction on
the amounts subject to the additional tax. Section 409A also
imposes additional significant taxes in the event that an executive officer,
director or service provider receives “deferred compensation” that does not meet
the requirements of Section 409A. To assist in the avoidance of
additional tax under Section 409A, we structure our equity awards in a
manner intended to comply with the applicable Section 409A
requirements.
In
determining which elements of compensation are to be paid, and how they are
weighted, we also take into account whether a particular form of compensation
will be considered “performance-based” compensation for purposes of Section
162(m) of the Internal Revenue Code. Under Section 162(m), we
generally receive a federal income tax deduction for compensation paid to any of
our named executive officers only if the compensation is less than $1 million
during any fiscal year or is “performance-based” under
Section 162(m). Both our prior 1997 Stock Incentive Plan and
1998 Stock Option Plan for Employees and Consultants and the current 2007 Long
Term Incentive Plan permit our Committee to pay compensation that is
“performance-based” and thus fully tax-deductible by Southwall. Our
Committee currently intends to continue seeking a tax deduction for all of our
executive compensation, to the extent we determine it is in the best interests
of Southwall. All of the stock options granted to our executive
officers qualify under Section 162(m) as performance-based
compensation.
Severance
Agreements
During
2007, we had in place a severance policy that covered three named employees,
under which they might become entitled to annual benefits in connection with
certain changes in control of Southwall in connection with a merger, liquidation
or tender offer. Under the policy, each participant might become
entitled to a lump sum severance payment upon his or her involuntary termination
or a material change in responsibilities within twelve months after a change in
control. The cash payment would have been equal to (i) in
the case of our President, one and half times the sum of the President’s annual
base salary in effect at the time of his involuntary termination plus
the bonuses earned by him or her for the immediately preceding fiscal year and
(ii) in the case of each other participant, up to twelve months severance
based on the sum of the participant’s annual rate salary in effect at
the time of his or her involuntary termination. In addition, the
amount paid to each participant would have been grossed up if the amount
received by the participant is subject to federal excise tax as an “excess
parachute payment” for federal tax purposes.
COMPENSATION COMMITTEE REPORT
The
Compensation Committee of the Board of Directors oversees our compensation
program on behalf of the Board of Directors. In fulfilling its
oversight responsibilities, the Compensation Committee reviewed and discussed
with management the Compensation Discussion and Analysis set forth in this proxy
statement.
In
reliance on this review and these discussions referred to above, the
Compensation Committee recommended to the Board that the Compensation Discussion
and Analysis be included in this proxy statement.
|
The
Compensation Committee
|
|
|
Peter
E. Salas, Chairman
|
|
|
George
Boyadjieff
|
|
|
Dennis
Bunday
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Our
Compensation Committee is composed of Messrs. Salas, Boyadjieff and
Bunday. Mr. Salas has not at any time since our formation been an
officer or employee of Southwall. Mr. Boyadjieff was interim Chief
Executive Officer from August 9, 2006 through October 31, 2006. At
that time, he was not a member of the Compensation Committee. Mr.
Bunday serves as a consultant to Southwall. None of our present
executive officers currently serves, or in the past has served as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving on our Board of Directors or Compensation
Committee.
Management
The
following sets forth certain information with respect to the Company’s officers
as of March 3, 2008.
Dr. R. Eugene Goodson, age
73, joined Southwall’s Board of Directors in April 2006 and in November
2006, Dr. Goodson became Principal Executive Officer and Director. He has held
leadership positions in industry, government and universities. Most recently, he
served as the Chief Executive Officer and President of Williams Controls Inc., a
manufacturer of electronic throttle controls, where he remains Chairman of the
Board. Prior to Williams Controls, Dr. Goodson was Chairman and Chief Executive
Officer of Oshkosh Truck Corporation, a developer and producer of heavy-duty on
and off road trucks. After retiring from Oshkosh in 1998, he became an Adjunct
Professor at the University of Michigan Business School, teaching operations
management. Dr. Goodson was also a director of the Executive Officer Association
of American Industrial Partners, a private equity firm, from 1998 to
2005.
Dennis Capovilla, age 48, joined Southwall in
July, 2003 and became President in April, 2007. Prior to joining Southwall Mr.
Capovilla was employed by Palm, Inc., a manufacturer of personal
digital assistant devices, where he was the Vice President, Enterprise sales
since 2002. From 1997 to 2002 he was employed by FATBRAIN, LLC, an e-commerce
provider of books and information products, as the President and Chief Executive
Officer from 2000-2002, the President and Chief Operating Officer from 1999 to
2000, and the VP of Sales and Business Development from 1997-1999. From
1993-1997, Mr. Capovilla was with Apple Computer, Inc., a computer manufacturer,
as the Director, Americas Imaging Division and Worldwide Printer Supplies
(1996-1997), Manager Printer Supplies Business unit (1995-1996) and as Worldwide
Product Marketing Manager, Imaging Systems (1993-1995). Mr. Capovilla
held various Sales and Marketing Management positions with Versatec, Inc. and
Xerox Corporation. Dennis holds a B.S. in Marketing from the University of Santa
Clara.
Mallorie Burak, age 37,
joined Southwall in September, 2007 as Chief Accounting Officer and
Corporate
Controller. Ms.
Burak was previously employed by Oracle Corporation, a software company, where
she was the Finance Director for the Communications Global Business Unit, a
business unit created as a result of Oracle’s acquisition of Portal Software,
where Ms. Burak served as Director of Revenue (2005-2007). Prior to
Portal, Ms. Burak was the US Corporate Controller at Ilog, Inc., a software
company (2004 – 2005). From 2002 to 2004, Ms. Burak was with Iverson
Financial Systems, Inc., a financial reference data management company, as
Director of Finance. Ms. Burak has held various Financial Management
positions with TrueSan Networks, Zilog, Inc. and Hewlett Packard
Company. Ms. Burak earned her Masters in Business Administration and
Bachelor of Science in Business Administration from San
Jose State University.
Michael Vargas, age 49,
joined Southwall Technologies, Inc. in 2004 from Agilent, where he was
Senior Business Human Resources Manager for the I/O Solutions Division a $2
billion Semiconductor Products Group from 1999 to 2004. Previously he
spent 15 years at Hewlett Packard in various Human Resources business and
recruiting management roles in the semiconductor and personal computer
businesses.
Summary
Compensation Table
The
following table sets forth information about the compensation of each person who
served as Principal Executive Officer, Principal Financial Officer, and each of
the three other most highly compensated executive officers (the “named executive
officers”) during 2007.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)(12)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
All
Other Compensation
($)
|
Total
($)
|
||||||||||||||||||
|
R.
Eugene Goodson
|
2007
|
$ | 215, 411 | $ | 106,250 | $ | 18,300 | (3) | $ | 339,961 | |||||||||||||||
| Principal Executive Officer (8) |
2006
|
$ | 67,058 | (2) | -- | $ | 91,691 | $ | 4,214 | $ | 162,963 | ||||||||||||||
|
Dennis
Capovilla Capovilla,
|
2007
|
$ | 300,000 | $ | 150,000 | $ | 67,500 | $ | 12,900 | (4) | $ | 530,400 | |||||||||||||
|
President,
COO
|
2006
|
$ | 247,500 | -- | $ | 33,009 | $ | 74,63 | (5) | $ | 355,172 | ||||||||||||||
|
Mallorie
Burak
|
2007
|
$ | 50,135 | $ | 10,154 | $ | 48,000 | $ | 108,289 | ||||||||||||||||
|
Chief
Accounting Officer
|
|||||||||||||||||||||||||
|
and
Corporate Controller (6)
|
|||||||||||||||||||||||||
|
Sylvia
Kamenski Vice President
|
2007
|
$ | 78,593 | $ | 30,150 | $ | 49,744 | (8) | $ | 158,487 | |||||||||||||||
|
V P
Finance(7)
|
2006
|
$ | 175,000 | -- | -- | $ | 22,006 | $ | 12,900 | (9) | $ | 209,906 | |||||||||||||
|
Michael Vargas
|
2007
|
$ | 143,000 | $ | 41,113 | $ | 30,150 | $ | 8,150 | (10) | $ | 222,413 | |||||||||||||
|
Vice
President
|
2006
|
$ | 143,000 | - | $ | 21,300 | $ | 1,500 | (11) | $ | 165,800 | ||||||||||||||
|
Administration
|
|||||||||||||||||||||||||
|
And
Human Resources
|
|||||||||||||||||||||||||
|
(1)
|
The
assumptions used to value these option awards are consistent with
contemporary practices for their accounting treatment and recognized in
accordance with SFAS No. 123R, “Share Based Payments.” These
assumptions are set forth in Note 2, “Stock Based Compensation,” of the
footnotes to our Consolidated Financial Statements contained in our Annual
Report on Form 10-K for year ended December 31, 2007 which is being mailed
along with this proxy statement.
|
|
(2)
|
Dr.
Goodson became our Chief Operating Officer on September 18, 2006 and our
Chief Executive Officer on November 1, 2006. The amounts set
forth under Salary for 2006 in include
$4,750 paid to Dr. Goodson in his role as a non-employee director prior to
becoming Chief Executive Officer, and the amount set forth under “Option
Awards” includes the value of options to acquire 40,000 shares received by
Dr. Goodson for his service as a non-employee
director.
|
|
(3)
|
Consists
of $10,125of car allowance, $1,500 of Company matching contribution to 401
(k) plan and $6,675 of COBRA
benefits.
|
|
(4)
|
Consists
of $11,400 car allowance and $1,500 of Company matching contributions to
401(k) plan.
|
|
(5)
|
Consists
of $61,923 of commissions, $11,400 car allowance, and $1,340 of Company
matching contribution to 401 (k)
plan.
|
|
(6)
|
Ms.
Burak joined the Company as Chief Accounting Officer and Corporate
Controller in September 2007.
|
|
(7)
|
Ms.
Kamenski resigned from the Company in April
2007.
|
|
(8)
|
Consist
of $4,750 car allowance, $788 of Company matching contribution
to 401 (k) plan and $44,206 from the exercise of stock
options.
|
|
(9)
|
Consists
$11,400 of car allowance and $1,500 of Company matching contributions to
401(k) plan.
|
|
(10)
|
Consists
of $6,650 of car allowance and $1,500 of Company matching
contributions to 401(k) plan.
|
|
(11)
|
Consists
of $1,500 of Company matching contributions to 401 (k)
plan.
|
|
(12)
|
Represents
bonus paid in 2007 and 2008 for annual performance in 2006 and 2007
respectively.
|
Grants
of Plan-Based Awards
All
grants of plan-based awards to the named executive officers in 2007 are
presented in the table below.
|
Name
|
Grant
Date
|
All
Other Option Awards: Number of Securities Underlying Options
(#)
|
Exercise
or Base Price of Option Awards ($/Sh)
|
Market
Price on the Date of Grant($)
|
Grant
Date Fair Value of Stock and Option Awards($)
|
||||||||||||
|
Dennis
Capovilla
|
2/6/07
|
150,000 | (1) | $ | 0.45 | $ | 0.45 | $ | 48,360 | ||||||||
|
Mallorie
Burak
|
10/30/07
|
75,000 | (1) | $ | 0.64 | $ | 0.64 | $ | 34,230 | ||||||||
|
Sylvia
Kamenski
|
2/6/07
|
50,000 | (1) | $ | 0.45 | $ | 0.45 | $ | 16,120 | ||||||||
|
2/12/07
|
15,000 | (1) | $ | 0.51 | $ | 0.51 | $ | 5,481 | |||||||||
|
Mike
Vargas
|
2/6/07
|
50,000 | (1) | $ | 0.45 | $ | 0.45 | $ | 16,120 | ||||||||
|
2/12/07
|
15,000 | (1) | $ | 0.51 | $ | 0.51 | $ | 5,481 | |||||||||
_______________
|
(1)
|
These
options will vest in four equal annual installments beginning with the
first anniversary of the grant
date.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information about all equity awards held by the named
executive officers at December 31, 2007
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options(#)
Unexercisable
|
Option
Exercise Price($)
|
Option
Expiration Date
|
|||||||||
|
R.
Eugene Goodson
|
181,818 | $ | 0.41 |
11/1/16
|
|||||||||
| 118,182 | $ | 0.41 |
11/1/16
|
||||||||||
| 10,000 | 30,000 | (1) | $ | 0.62 |
7/28/16
|
||||||||
|
Dennis
Capovilla
|
37,500 | 112,500 | (1) | $ | 0.45 |
02/06/17
|
|||||||
| 18,750 | 56,250 | (1) | $ | 0.71 |
5/11/16
|
||||||||
| 91,071 | 58,929 | (2) | $ | 0.58 |
12/9/15
|
||||||||
| 200,000 | 0 | $ | 0.50 |
10/5/14
|
|||||||||
| 50,000 | 0 | $ | 1.81 |
2/24/11
|
|||||||||
| 100,000 | 0 | $ | 1.05 |
7/17/10
|
|||||||||
|
Mallorie
Burak
|
0 | 75,000 | (1) | $ | 0.64 |
10/30/17
|
|||||||
|
Mike
Vargas
|
3,750 | 11,250 | (1) | $ | 0.51 |
2/17/17
|
|||||||
| 12,500 | 37,500 | (1) | $ | 0.45 |
2/06/17
|
||||||||
| 7,500 | 22,500 | (1) | $ | 0.71 |
5/11/16
|
||||||||
| 17,857 | 19,643 | $ | 0.58 | ||||||||||
| 12,500 | 0 | $ | 0.58 | ||||||||||
| 41,250 | 11,250 | $ | 1.22 | ||||||||||
_______________
|
(1)
|
These
options vest at a rate of 25% per year over four
years.
|
|
(2)
|
These
options vest at a rate of 25% after six months and then monthly thereafter
for 42 months.
|
Option
Exercises and Stock Vested Table
|
Number
of Shares
|
||||||||
|
Acquired
|
Value
Realized
|
|||||||
|
on
Exercise
|
on
Exercise
|
|||||||
|
Name
|
(#)
|
($)
|
||||||
|
Sylvia
Kamenski
|
18,750 | $ | 8,809 | |||||
| 14,732 | $ | 6,921 | ||||||
| 12,500 | $ | 7,189 | ||||||
| 52,500 | $ | 21,286 | ||||||
Pension
Benefits
We do not
have any pension plans.
During
2007, we paid each of our non-employee directors a $1,000 per month retainer for
his or her services. As chairman of the Audit Committee, Mr. Berry
was paid an additional retainer of $6,000. As chairman of the
Compensation Committee, Mr. Salas was paid an additional retainer of
$3,000. As chairperson of the Nominating and Corporate Governance
Committees, Ms. Nachtsheim was paid an additional retainer of
$3,000. In addition, each non-employee director received $1,000 plus
expenses for each Board meeting attended and a fee of $500 for each Board
meeting held via teleconference. In 2007, non-employee directors who
served on committees of the Board also received $750 for each committee meeting
attended and a fee of $500 for each committee meeting held via
teleconference.
Directors
may also from time to time be granted options to purchase shares of common stock
under our 2007 Stock Incentive Plan. During 2007, each non-employee
director received options to purchase 20,000 shares of Common Stock, all at an
exercise price of $0.54 per share. These options vest at a rate of
25% per year over four years.
Assuming
the election of the nominees for directors presented pursuant to Proposal 1, the
non-employee directors’ annual retainer fees for 2008 are as follows: Mr.
Berry—$18,000; Mr. Boyadjieff-$12,000; Mr. Bunday-$12,000; Mr.
Horn—$12,000; Ms. Nachtsheim—$15,000; and Mr. Salas—$15,000. In
addition, each non-employee director will receive $1,000 plus expenses for each
Board meeting attended. Non-employee directors also receive a fee of
$500 for each Board meeting held via teleconference.
The total
compensation paid to our non-employee directors during 2007 is shown in the
following table. Because Dr. Goodson is among our named executive officers and
all compensation he received during 2007, including as director, is reflected in
the “Summary Compensation Table” above, information about his compensation as a
director is not provided in the table below.
|
Name
|
Fees
Earned or Paid in Cash ($)
|
Option
Awards ($)(1)
|
Total
($)
|
|||||||||
|
William
A. Berry
|
$ | 36,500 | $ | 7,738 | $ | 44,238 | ||||||
|
George
Boyadjeff
|
$ | 26,500 | $ | 7,738 | $ | 34,238 | ||||||
|
Dennis
Bunday
|
$ | 28,750 | $ | 29,8088 | $ | 58,558 | ||||||
|
Andre
R. Horn
|
$ | 28,000 | $ | 7,738 | $ | 35,738 | ||||||
|
Jami
K. Nachtsheim
|
$ | 37,000 | $ | 7,738 | $ | 44,738 | ||||||
|
Peter
E. Salas
|
$ | 33,250 | $ | 7,738 | $ | 40,988 | ||||||
|
(1)
|
The
assumptions used to value these option awards are consistent with
contemporary practices for their accounting treatment and recognized in
accordance with FAS 123R, “Share Based Payments.” These
assumptions are set forth in Note 2, “Stock Based Compensation,” of the
footnotes to our Consolidated Financial Statements included in the
Company’s Annual Report on Form 10-K mailed with this
proxy.
|
|
(2)
|
On
March 1, 2007 each of the above directors except Mr. Bunday received an
option to purchase 20,000 shares of Common Stock at $0.54 per share the
OTC closing price Mr. Bunday upon his election to the
Board of Directors, on July 2, 2007 received an option to purchase 40,000
shares of Common Stock at $1.08. All of the above options
vest at the rate of 25% per year commencing on the first anniversary of
this grant and each successive year thereafter for three years. The
amounts in the columns reflect the dollar amount to be recognized for
financial statements reporting purposes, in accordance with
FAS123R. Assumptions used in the calculation of amounts
are described in Note 2 to the Company’s audited financial statements for
the year ended December 31, 2007 included in the Company’s Annual Report
on Form 10-k mailed with this
proxy.
|
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS
The
following table sets forth information as of March 3, 2008 regarding our 1997
Stock Incentive Plan, 1998 Stock Option Plan for Employees and Consultants, 1997
Employee Stock Purchase Plan and 2007 Long-Term Incentive Plan. Our
stockholders previously approved each of these plans and all amendments that
were subject to stockholder approval. We have no other equity
compensation plans that have not been approved by stockholders.
|
Number
of Shares of Common Stock to be Issued Upon Exercise of Outstanding Stock
Options
|
Weighted-Average
Exercise Price of Outstanding Stock Options
|
Number
of Shares of Common Stock Remaining Available for Future Issuance
(excluding those in column (a)) Under the Stock Option
Plans
|
||||||||||
|
1997
Stock Incentive Plan (1)
|
2,986,886
|
$ |
1.16
|
0
|
||||||||
|
1997
Employee Stock Purchase Plan (2)
|
Not applicable
|
|||||||||||
|
1998
Stock Option Plan for Employees and Consultants (1)
|
1,846,854
|
$ |
0.92
|
383,044
|
||||||||
|
2007
Long-Term Incentive Plan(1)
|
1,163,000
|
$ |
0.83
|
8,837,000
|
||||||||
|
Total
|
5,996,740
|
$ |
1.08
|
9,220,044
|
||||||||
In
addition to the issuance of stock options, each of the 1997 Stock Incentive Plan
and the 1998 Stock Option Plan allows for the issuance of stock and restricted
stock. Since the adoption of the 2007 Long-Term Incentive Plan, no
additional equity awards or other grants will be made pursuant to the 1997 Stock
Incentive Plan or the 1998 Stock Option Plan.
|
(2)
|
A
total of 325,000 shares of common stock are reserved for issuance under
the 1997 Employee Stock Purchase Plan. Through May 31, 2007, we
had issued 280,934 shares under the 1997 Employee Stock Purchase Plan
which was suspended on May 31,
2007.
|
CERTAIN
RELATIONSHIPS AND OTHER TRANSACTIONS
As a
result of the consummation of the financing transactions in December 2003 and
February 2004 with Needham & Company, Inc. and its affiliates and Dolphin
Direct Equity Partners, L.P., these shareholders at December 31, 2007 owned
common stock and securities convertible into common stock, constituting in the
aggregate 63.7% of our outstanding common stock
During
2007, no transactions were required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
PRINCIPAL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND
SERVICES
The
following able shows the fees paid or accrued by us for the audit and other
services provided by our principal independent registered public
accounting firms for 2007 and 2006.
|
2007
|
2006
|
|||||||
|
Audit
fees(1)
|
$ | 301,810 | $ | 250,148 | ||||
|
Tax
fees
|
-- | -- | ||||||
|
Audit
related fees (2)
|
$ | 9,660 | -- | |||||
|
Total
|
$ | 311,470 | $ | 250,148 | ||||
|
(1)
|
Audit
fees represent fees for professional services provided by Burr, Pilger
& Mayer LLP in connection with the audit of our financial statements
for the fiscal years ended December 31, 2006 and 2007 and the review of
quarterly reports on Form 10-Q filed during 2006 and
2007.
|
|
(2)
|
Audit
related fees for professional services provided by Burr, Pilger, &
Mayer LLP in connection with responses to comment letters form the
Securities and Exchange Commission and accounting
consultation.
|
All audit
and non-audit services provided by our independent registered public accounting
firm are approved by the Audit Committee, which considers whether the provision
of non-audit services is compatible with maintaining the independent registered
public accounting firm’s independence.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of
the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires
our officers and directors and persons who own more than ten percent of our
common stock to file reports with the SEC disclosing their ownership of stock in
Southwall and changes in such ownership. Officers, directors and 10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely on a review of the
copies of such reports received by us and the written representations received
from one or more such persons, these report were timely filed except that Dennis
Bunday filed a Form 4 on July 31, 2007 which was due on July 5, 2007 and
Mallorie Burak filed a Form 3 on February 14, 2008 which was due on November 1,
2007.
OTHER BUSINESS
We know
of no other business that may be presented for consideration at the 2008 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
of Directors hopes that stockholders will attend the annual meeting. Whether or not you plan
to attend, you are urged to complete, sign and return the enclosed proxy in the
accompanying envelope, or vote by Internet or telephone. A prompt
response will greatly facilitate arrangements for the annual 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
|
|
R.
Eugene Goodson
|
|
|
Executive
Chairman
|
Palo
Alto, California
April 14,
2008
|
0000000000.000000
ext
|
0000000000.000000
ext
|
|||
|
0000000000.000000
ext
|
0000000000.000000
ext
|
|||
|
0000000000.000000
ext
|
0000000000.000000
ext
|
|
MR
A SAMPLE
|
Electronic
Voting Instructions
|
|||
|
DESIGNATION
(IF ANY)
|
||||
|
ADD
1
ADD
2
|
You
can vote by Internet or telephone!
Available
24 hours a day, 7 days a week!
|
|||
|
ADD
3
|
||||
|
ADD
4
ADD
5
|
Instead
of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy.
|
|||
|
ADD
6
|
||||
|
VALIDATION
DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
|
||||
|
Proxies
submitted by the Internet or telephone must be received by 1:00 a.m.,
Central Time, on May 22, 2008.
|
||||
 |
Vote
by Internet
• Log
on to the Internet and go to
www.investorvote.com
•
Follow the steps outlined on the secured website.
|
|||
 |
Vote
by telephone
•
Call toll free 1-800-652-VOTE (8683) within the United States, Canada
& Puerto Rico any time on a touch tone telephone. There is NO CHARGE to
you for the call.
•
Follow the instructions provided by the recorded
message.
|
|||
|
Using
a black ink pen, mark your
votes with an X as
shown in this example. Please do not write outside the designated
areas.
|
x
|
|
Annual
Meeting Proxy Card
|
123456
|
C0123456789
|
12345
|
€IF YOU
HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE,
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.
A Proposals
— The Board of Directors recommends a vote FOR all the nominees
listed below.
1.
Election of Directors to hold office until the 2009 Annual Meeting of
Stockholders and until their successors are elected:
|
01
- William A. Berry
|
02
- George I. Boyadjieff
|
03-Dennis
E. Bunday
|
04
- R. Eugene Goodson
|
|
05
- Andre R. Horn
|
06
- Jami K. Dover Nachtsheim
|
07
- Peter E. Salas
|
|
o
|
Mark
here to vote FOR all
nominees
|
o
|
Mark
here to WITHHOLD vote from all
nominees
|
|
01
|
02
|
03
|
04
|
05
|
06
|
07
|
||
|
o
|
For All EXCEPT- To withhold a
vote for one or more nominees, mark the box to the left and the
corresponding numbered box(es) to the right.
|
o
|
o
|
o
|
o
|
o
|
o
|
o
|
|
For
|
Against
|
Abstain
|
For
|
Against
|
Abstain
|
||
|
2. In
their discretion, the proxies
|
o
|
o
|
o
|
||||
|
are
authorized to vote upon
|
|||||||
|
such
other business as may
|
|||||||
|
properly
come before the
|
|||||||
|
Annual
Meeting and at any
|
|||||||
|
adjournment
or postponement
|
|||||||
|
Thereof.
|
B
Non-Voting Items
|
Change of Address—
Please print your new address below.
|
Comments— Please print
your comments below.
|
Meeting
Attendance
|
|
Mark
the box to the right if you plan to attend the Annual
Meeting.
|
o
|
||||
C
Authorized Signatures — This section must be completed for your vote to be
counted. — Date and Sign Below
Please
sign exactly as your name appears hereon. If the stock is registered in the
names of two or more persons, each should sign. If signer is a corporation,
please give full corporate name and have a duly authorized officer sign stating
title. If signer is a partnership, please sign in partnership name by authorized
person.
|
Date
(mm/dd/yyyy) — Please print date below.
|
Signature
1 — Please keep signature within the box.
|
Signature
2 — Please keep signature within the box.
|
||
IF YOU
HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE. €
Proxy
— SOUTHWALL TECHNOLOGIES INC.
Annual
Meeting of Stockholders- May 15, 2008
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints R. Eugene Goodson and Dennis Capovilla, and each of
them, as attorneys and proxies of the undersigned, with power if substitution,
to vote all of the shares of stock of Southwall Technologies Inc. (the
“Company”) which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Company’s principal executive
offices at 3788 Fabian Way, Palo Alto, California on Thursday, May 15, 2008 at
8:30 a.m., local time, and at all continuations, and adjournments or
postponements thereof, with all of the powers the undersigned would possess if
personally present, upon and in respect of the matters as listed on the reverse
side and in accordance with the instructions designated on the reverse side,
with the discretionary authority as to all other matters that may properly come
before the meeting.
Receipt
is hereby acknowledged of the Notice of Annual Meeting of Stockholders and Proxy
Statement dated April 14, 2008 (the “Proxy Statement”).
UNLESS
A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES
LISTED IN PROPOSAL 1 AS MORE SPECIFICALLY SET FORTH IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
|
SEE
REVERSE SIDE
|
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
|
SEE
REVERSE SIDE
|
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
_______________________________________________
-36-