CORPORATE GOVERNANCE GUIDELINES
I. THE ROLES OF THE BOARD OF DIRECTORS AND MANAGEMENT
A. The Board of Directors - The business of PortalPlayer, Inc. (the "Company") is conducted under the oversight of the Board of Directors (the "Board"). The Board selects the Chairman and Chief Executive Officer (the "CEO") and delegates to the CEO the authority and responsibility to manage the Company's operations. The Board serves as elected representatives of the stockholders, acts as an advisor and counselor to the CEO and senior management, and oversees management performance on behalf of stockholders.
B. Management - The CEO and senior management are responsible for running the Company's business operations.
II. BOARD COMPOSITION AND LEADERSHIP
A. Chairman of the Board and Chief Executive Officer - The Board has the authority to decide whether the positions of Chairman and CEO should be held by the same person and shall determine the best arrangement for the Company and its stockholders in light of all relevant and changing circumstances.
B. Size of the Board - The number of directors should not exceed a number that can function efficiently. The Nominating and Corporate Governance Committee considers and makes recommendations to the Board concerning the appropriate size of the Board.
D. Board Membership Criteria - The Nominating and Corporate Governance Committee shall periodically review with the Board the appropriate skills and characteristics required of Board members given the current Board composition. The Board will be comprised of individuals who have distinguished records of leadership and success in their arena of activity and who will make substantial contributions to Board operations. The Board's assessment of Board candidates includes, but is not limited to, consideration of relevant industry experience, general business experience, relevant financial experience, and compliance with independence and other qualifications necessary to comply with any applicable tax and securities laws and the rules and regulations thereunder, and the NASD rules. Specific consideration shall also be given to: (i) roles and contributions valuable to the business community, (ii) personal qualities of leadership, character, judgment and whether the candidate possesses and maintains throughout service on the Board a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards, (iii) relevant knowledge and diversity of background and experience in such things as business, manufacturing, technology, finance and accounting, marketing, international business, government and the like; or (iv) whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at all meetings. A director's qualifications in light of these criteria is considered at least each time the director is re-nominated for Board membership.
Selection of New Director Candidates
- The Nominating and Corporate Governance Committee screens and recommends
Board candidates to the Board.
Director Education. The Company encourages all Board members to participate in continuing education programs and provides them access to continuing education programs and materials relevant to Board responsibilities.
Directors Who Experience Change in Present Job Responsibilities or Other Relevant Circumstances - When a director's principal occupation or a significant business affiliation changes, or other circumstances arise which may raise questions about the Director's continuing qualifications in relation to the Board Membership Criteria set forth above, then the director should tender her/his resignation, or the Nominating and Corporate Governance Committee will ask for such tender. The Nominating and Corporate Governance Committee will consider the tendered resignation and recommend to the Board the action to be taken.
Service On Other For-Profit Boards
- Independent directors are encouraged to evaluate carefully the time required
to serve on other boards (excluding non-profit) taking into account board
attendance, preparation, participation and effectiveness on these boards.
Independent directors must advise the Chairman before accepting an invitation
to serve on another board to enable the Company to determine whether (i) any regulatory issues or potential conflicts are raised
by the director accepting such an invitation and (ii) the director will have
the time required for preparation, participation and attendance at Board
Board Compensation Review - The Nominating and Corporate Governance Committee will periodically receive reports on the status of Board compensation in relation to other companies, as it deems appropriate, and is responsible for recommending to the Board changes in compensation for non-employee directors.
G. Board's Interaction With Stakeholders - The CEO is responsible for establishing effective communications with the Company's stakeholders, including stockholders, customers, employees, communities, suppliers, creditors, governments, and corporate partners. It is the policy of the Board that management speaks for the Company. This policy does not preclude independent directors from meeting with stakeholders, but management, where appropriate, should be present at such meetings.
III. BOARD OPERATIONS
A. Selection of Agenda Items for Board Meetings - At the first Board meeting of each year, the Chairman will propose for the Board's approval agenda items to be discussed during the course of the year. Before each meeting, the Chairman will review proposed agenda items that fall within the scope of responsibilities of a Board committee with the chair of that committee and distribute the agenda in advance to the Board. Any Board member may ask to include items on the agenda.
B. Board Materials Distributed in Advance - Board members receive materials related to agenda items in advance of Board meetings so that the directors may prepare to discuss the items at the meeting. Sensitive subjects may be discussed at the meeting without distributing written materials in advance or at the meeting.
C. Director Responsibilities - Directors must exercise their business judgment to act in the best interests of the stockholders and the Company. In discharging this obligation, directors reasonably may rely on the Company's senior executives and its advisors and auditors. Directors are expected to attend and participate in all meetings of the Board and of committees on which they serve and to spend the time needed and prepare for and meet as frequently as necessary to discharge their responsibilities. The Board shall make the determination that at least one of the members of the Audit Committee meets the Audit Committee financial expert requirements.
D. Board Presentations and Access to Employees - Members of senior management may be invited to attend part or all of a Board meeting in order to participate in discussions. Generally, the executive responsible for an area of the Company's operations the Board is to consider makes the presentation. Board members have complete access to all other members of management and Company employees.
E. Board Access to Independent Advisors - The Board and its committees may seek advice from outside advisors as appropriate.
F. Executive Sessions of Independent Directors - Independent directors regularly meet outside the presence of nonindependent directors. If the Chairman of the Company is not an independent director, then the independent directors may select a director to facilitate the meeting. The chairs of the Executive, Audit, Compensation, and Nominating and Corporate Governance Committees of the Board may chair executive sessions of the independent directors at which the principal items to be considered are within the scope of the committee chair's authority.
IV. BOARD COMMITTEES
A. Committees - The current committees are the Audit, Compensation and Nominating and Corporate Governance Committees.
B. Assignment and Term of Service of Committee Members - The Board is responsible for the appointment of committee members and chairs, based on recommendations of the Nominating and Corporate Governance Committee. Every year, after its first meeting following the Annual Meeting of Stockholders, the Board shall elect the members of each committee.
C. Agenda, Frequency, Length and Reports of Committee Meetings - The chair of each committee approves the agenda, length of and attendance at each committee meeting and determines the frequency of meetings. Materials related to agenda items are given to the committee members sufficiently in advance to allow the members to prepare for discussing the items at the meeting. The committee chairs report a summary of their meeting to the Board following each regular committee meeting.
D. Membership - Only independent directors may serve on the Audit, Compensation, and Nominating and Corporate Governance Committees, unless otherwise permitted under Nasdaq rules.
E. Responsibilities - The Board periodically reviews the responsibilities of each committee and approves each committee's charter.
V. BOARD AND MANAGEMENT EVALUATION
A. Formal Evaluation of the CEO and other Officers - The Compensation Committee shall review and approve corporate goals and objectives relevant to the compensation of the Company's CEO and other officers who are reporting persons under Section 16 of the Securities Exchange Act of 1934 and the rules promulgated thereunder ("Officers") The Compensation Committee shall also evaluate the CEO's and Officers' performance in light of such goals and objectives at least annually and communicate the results to the chief executive officer and the Board. Based on such evaluation, the Compensation Committee shall establish and approve annually for the CEO and Officers, the compensation levels for those persons, including, as applicable, (a) base salary, (b) bonus, (c) long-term incentive and equity compensation, and (d) any other compensation, perquisites, and special or supplemental benefits. The CEO may not be present during discussion of his compensation, but may be present during discussion of, but may not vote on, compensation of the other executive officers.
B. Board Self-Assessment - The Board will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Nominating and Corporate Governance Committee shall review on an annual basis the functioning and effectiveness of the Board, its committees and its individual members, and to the extent the Committee deems appropriate, recommend changes to increase the effectiveness of the Board and its committees. The Board, based on such recommendations of the Nominating and Corporate Governance Committee and comments from each Board member, will make a self-assessment specifically reviewing areas in which the Board and/or the management believe improvements could be made to increase the effectiveness of the Board and its committees.
C. Succession Planning - The Board, with the assistance of the Compensation Committee, plans the succession to the position of CEO and certain other senior management positions. To assist the Board and Compensation Committee, the CEO annually assesses senior managers and their succession potential. The CEO also provides the Board and Compensation Committee with an assessment of persons considered potential successors to certain senior management positions.
D. Management Development - The CEO annually should report to the Board on the Company's program for management development.
VI. Posting on Website
These Corporate Governance Guidelines shall be posted on the Company's website.