OVERVIEW — THE ROLE OF THE BOARD OF DIRECTORS:
To Evaluate Management
It is the paramount duty of the Board of Directors (the “Board”) to oversee the CEO and other senior management in the competent and ethical operation of Komag, Incorporated (“Komag” or the “Company”) on a day-to-day basis. To satisfy this duty, the directors will take a proactive, focused approach to their position, and set standards to ensure that Komag and its management are committed to business success through maintenance of the highest standards of responsibility and ethics.
To Oversee Governance
Directors bring to Komag a wide range of experience, knowledge and judgment, and bring these skills to bear for the Company. These varied skills mean that good governance depends on far more than a “check the box” approach to standards or procedures. The governance structure of Komag is designed to be a working structure for principled actions, effective decision-making and appropriate monitoring of both compliance and performance and the Board has a vital role in overseeing this.
To Gather and Analyze Information
Effective directors maintain an attitude of constructive skepticism and careful review. The directors’ job requires them to ask probing questions of management and to take the action necessary to get accurate and honest answers. The directors also rely on the advice, reports and opinions of management, counsel and the Company’s expert advisers. In doing so the Board constantly evaluates the qualifications of those it relies upon for information and advice, and also looks to the process used by managers and advisers in reaching their recommendations.
To Monitor the Effectiveness of Governance Practices
The Board is responsible for keeping up to date on best governance practices. Working together with management and the advisers, the Board looks to the knowledge and information of others in the governance debate for additional information on how to manage the Company’s affairs. The Board will keep abreast of the recent efforts by the various exchanges, as well as the Securities and Exchange Commission and the Business Roundtable, to promote better governance. The Board shall continually monitor the way the Company governs itself, including reviewing whether there are alternatives or new ideas that would strengthen the Company’s governance structures.
BOARD STRUCTURE AND COMPOSITION:
The Board shall have a majority of directors who meet the criteria for independence established by NASDAQ. Directors will be nominated by the Nominating and Governance Committee of the Board, in accordance with the charter and principles of that committee. The Nominating and Governance Committee is responsible for reviewing with the Board, on an annual basis, the appropriate skills and characteristics required of Board members as well as the composition of the Board as a whole. This assessment will include members’ qualification as independent, as well as consideration of character, diversity, skills, judgment, and experience in such areas as operations, technology, finance, marketing, manufacturing and the general needs of the Board. The Board, together with the Nominating and Governance Committee and the Chairman of the Board, should extend the actual invitation to join the Board.
The Board reviews and approves Komag’s goals and operating plans. On an ongoing basis, the Board monitors Komag’s performance against its operating plan and against the performance of its peers. The Board also stays abreast of economic, regulatory and political trends and developments that may affect Komag’s strategic direction.
The Board currently has 9 members. The Board reviews from time to time the appropriateness of its size. The Board would consider expanding its size to accommodate outstanding candidates.
The Nominating and Governance Committee will review the appropriateness of each Board member’s continued service every three years. The Board, through the Nominating and Governance Committee, will have the opportunity to review the appropriateness of the continued service of directors who change their position or responsibility that they held when they were elected to the Board. See “Nominating and Governance Committee Policies and Procedures for Director Candidates” attached here as Appendix A.
Each Board member must ensure that other existing and anticipated future commitments do not materially interfere with the members’ service as director. Directors should advise the Nominating and Governance Committee of any invitations to join the Board of any other public company prior to accepting another directorship.
Procedure for Meetings
The Board shall meet at least quarterly in regularly scheduled meetings but shall meet more often as necessary.
The Chairman of the Board will establish the agenda for each Board meeting and the Secretary will distribute it in advance to the Board. At the beginning of each year the Chairman will, to the extent foreseeable and practicable, set a schedule of agenda items to be discussed during the year. Each Board member is free to suggest the inclusion of items on the agenda and to raise at any Board meeting subjects that are not on the agenda for that meeting. The Board will review Komag’s long-term strategic plans and the big-picture challenges faced by Komag in executing on these plans during at least one Board meeting per year.
Board members are expected to prepare for, attend and participate in all Board and applicable Committee meetings. To facilitate participation, directors may attend in person, via teleconference or via video conference. At Board meetings, ample time shall be scheduled to assure full discussion of important matters.
Meeting of Independent Directors
The Board’s policy is to have a separate meeting time for the outside directors. Such meetings should occur on at least a quarterly basis. One independent director will be selected by the outside directors and will assume the responsibility of chairing the regularly scheduled meetings of outside directors and bear such further responsibilities that the outside directors as a whole might designate from time to time. The identity of such leading independent director will be disclosed in the annual proxy statement.
Duty to Komag and its Shareholders
The fundamental role of the directors is to exercise their business judgment to act in what they reasonably believe to be the best interests of Komag and its shareholders. In fulfilling that responsibility the directors should be able to rely on the honesty and integrity of Komag’s senior management and expert legal, accounting, financial and other advisors. The directors should have the benefit of directors’ and officers’ insurance, paid by Komag, to indemnification to the fullest extent allowed under Komag’s charter and Delaware law, and to exculpation as provided by Delaware law and Komag’s charter.
Availability, Preparation and Participation
Board members are expected to rigorously prepare for, attend and participate in all Board and applicable committee meetings, and to spend the time needed and meet as often as necessary to properly discharge their obligations. Board members shall use reasonable efforts to make themselves available for meetings in person or by telephone (but not by cellular phone) in order to attend all Board and applicable committee meetings. In the event reasonable notice has been provided and arrangements for Board and applicable committee meetings have been made, meetings shall take place as scheduled in the event there is a quorum in attendance, even if not all members can attend. In the event a meeting is adjourned with unfinished business and then a new meeting is convened for the purpose of finishing such business, the second meeting will not be considered a new meeting for compensation purposes.
Information and data that is important to the Board’s understanding of the business to be conducted at a Board or committee meeting should generally be distributed in writing to the directors prior to the meeting, so that Board meeting time may be conserved and discussion time focused on questions that the Board has about the materials. Particularly sensitive subject matters may be discussed at the meeting without advance distribution of written materials.
Attendance Policy at Annual Stockholder Meeting
Attendance by members of the Board at the Annual Meeting of Stockholders of the Company is encouraged.
The Board believes that management speaks for Komag. Individual Board members may occasionally meet or otherwise communicate with various constituencies that are involved with Komag, but it is expected that Board members would do this with the knowledge of management and, in most instances, absent unusual circumstances or as contemplated by the committee charters, at the request of management.
Composition of Committees
A Nominating and Governance Committee, Audit Committee and Compensation Committee of the Board shall exist at all times. All of the members of these committees will meet the criteria for independence established by the Nasdaq Stock Market. The members of these committees will also meet the other membership criteria specified in the respective charters for these committees. Committee members will be appointed by the Board upon recommendation by the Nominating and Governance Committee of the Board, in accordance with the charter and principles of that committee. There will, from time to time, be occasions on which the Board may want to rotate committee members, but the Board does not believe that a formal policy of rotation is mandated.
The Audit Committee is responsible for overseeing the Company’s financial reporting process. In discharging its responsibilities, the Audit Committee monitors the Company’s system of internal controls, reviews and evaluates independent auditors, including the independence of such auditors, recommends, appoints and replaces such auditors, and reports to the Board the results of such auditors’ examinations and recommendations. In addition, the Audit Committee has such other duties and responsibilities as required by applicable law and regulations.
The Compensation Committee is responsible for recommending the salary of the Company’s chief executive officer to the Company’s Board, and for recommending the salary and incentive compensation arrangements for the Company’s other officers and employees generally. The Compensation Committee is also responsible for administering the Company’s 2002 Qualified Stock Option Plan, the Deferred Compensation Plan, the Retention Bonus Plan, and other stock or incentive plans that the Company might adopt, and is responsible for recommending to the Company’s Board any changes in such plans or the adoption of new plans.
The Nominating and Governance Committee is responsible for, among other things, reviewing and soliciting and making recommendations to the Company’s Board and stockholders with respect to candidates for election to the Board. See “Nominating and Governance Committee Policies and Procedures for Director Candidates” attached here as Appendix A.
Each committee shall have its own charter. The charter will set forth the principles, policies, objectives and responsibilities of the committee in addition to the qualifications for committee membership, procedures for committee member nomination and removal, committee organization and functioning and how the committee will communicate with the Board.
The Chairman of each committee will, in consultation with the appropriate committee members and members of management (or if a committee has no Chairman, then the members of the appropriate committee will, in consultation with management), and in accordance with the committee’s charter, determine the frequency and length of committee meetings and develop the committee’s agenda. At the beginning of the year each committee will establish a schedule of agenda subjects to be discussed during the year (to the extent these can be foreseen). The schedule for each committee will be furnished to the full Board.
The Board and each committee shall have the authority to obtain advice, reports or opinions from internal and external counsel and expert advisors and shall have the power to hire independent legal, financial and other advisors as they may deem necessary, following consulting with the Chief Executive Officer and Chief Financial Officer of Komag in advance.
The Board may, from time to time, form new committees as it deems appropriate.
DIRECTOR ACCESS TO OFFICERS AND EMPLOYEES:
The Board has complete access to all Komag officers and employees. Any meetings or contacts that a director desires to initiate may be arranged directly by the director or through the CEO or other Komag officer. The directors should use their judgment to ensure that any such contact or communication is not disruptive to the business operations of Komag, and copy the CEO with any written communications, to the extent not inappropriate.
The Board welcomes the attendance of senior officers at each Board meeting. The Board also encourages management to schedule managers to present at Board meetings who:
a. can provide additional insight into the items being discussed because of personal involvement in these areas, or
b. have future potential that management believes should be given exposure to the Board.
The form and amount of director compensation will be determined by the Compensation Committee in accordance with the policies, principles and criteria set forth in its charter. It is appropriate for the staff of Komag to report from time to time to the Compensation Committee on the status of Board compensation in relation to other comparable U.S. companies. The Compensation Committee will conduct an annual review of director compensation.
The Compensation Committee will conduct an annual review of the CEO’s performance, in accordance with the charter and principles of that committee. The Board will review the committee’s report to ensure that the current CEO is providing the best leadership for Komag, from a short, intermediate and long-term perspective.
The Nominating and Governance Committee will oversee the annual Board evaluation process in accordance with the charter and principles of that committee. As part of this process directors will conduct a self-evaluation to review the progress and effectiveness of the Board and its committees, and will submit its comments to the Nominating and Governance Committee. The Nominating and Governance Committee will then report back to the Board, and the full Board will consider and discuss the committee’s report.
The Nominating and Governance Committee should conduct a review on succession planning from time to time, in accordance with the charter and principles of that committee. The committee should report its recommendation to the Board. The entire Board, along with the committee, will nominate and evaluate potential successors to the CEO. The CEO should make available his or her recommendation for potential successors, together with the reasons for such recommendation and any suggested strategy or development plans for that person.
DIRECTOR ORIENTATION AND CONTINUING EDUCATION:
Komag will have an orientation program for new directors, and new directors are expected to participate in the program in all material respects. The orientation program will include presentations that review Komag’s business strategies, its financial and accounting systems and risk management controls, its code of business conduct and methods and compliance programs, and its internal and independent auditor. The orientation should include an introduction to Komag’s senior management, visits its corporate headquarters and to the extent practicable its significant facilities.
Incumbent directors are also invited to attend the orientation program.
STOCKHOLDER COMMUNICATIONS TO THE BOARD:
Stockholder’s of the Company may contact any of the Company’s directors by writing to them by mail or express mail c/o Komag, Incorporated, 1710 Automation Parkway, San Jose, California 95131.
1. Any stockholder communications directed to the Board of Directors (other than concerns regarding questionable accounting or auditing matters directed directly to the Audit Committee) will first go to the Corporate Secretary, who will log the date of receipt of the communication as well as (for non-confidential communications) the identity of the correspondent in the Company’s stockholder communications log.
2. The Corporate Secretary will forward all such original stockholder communications to the Board of Directors for review.
NOMINATING AND GOVERNANCE COMMITTEE POLICIES AND
PROCEDURES FOR DIRECTOR CANDIDATES
Stockholder Recommendations and Nominations
It is the policy of the Nominating and Governance Committee of the Board of Directors of the Company (the “Committee”) to consider both recommendations and nominations for candidates to the Board of Directors from stockholders.
A stockholder that desires to recommend a candidate for election to the Board of Directors shall direct the recommendation in writing to the Company Corporate Secretary, 1710 Automation Parkway, San Jose, California 95131, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years and evidence of the nominating person’s ownership or beneficial ownership of Company stock and amount of stock holdings.
A stockholder that instead desires to nominate a person directly for election to the Board of Directors must meet the deadlines and other requirements set forth in Section 3.3 of the Amended and Restated Bylaws and the rules and regulations of the Securities and Exchange Commission.
Identifying and Evaluating Nominees for Director
The Committee’s criteria and process for evaluating and identifying the candidates that it selects, or recommends to the full Board for selection, as director nominees, are as follows:
i. are predominantly independent,
ii. are of high integrity,
iii. have qualifications that will increase overall Board effectiveness and
iv. meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to audit committee members.
The Committee will endeavor to notify, or cause to be notified, in a timely manner all director candidates of its decision as to whether to nominate such individual for election to the Board of Directors.