<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for use of Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
KOMAG, INCORPORATED
(Name of Registrant as Specified in its Charter)
KOMAG, INCORPORATED
(Name of Person(s) Filing Proxy Statement
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which 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:
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 date of its filing.
1) Amount Previous Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
KOMAG, INCORPORATED
1704 AUTOMATION PARKWAY
SAN JOSE, CALIFORNIA 95131
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 22, 1998
A special meeting of stockholders (the "Special Meeting") of Komag,
Incorporated (the "Company") will be held at the offices of the Company,
located at Building 9, 1705 Automation Parkway, San Jose, California, 95131 on
Wednesday, July 22, 1998, at 10:00 a.m. for the following purposes:
1. To consider and vote upon a proposal to amend the Company's Restated
Certificate of Incorporation to increase the amount of common stock, par
value $0.01 (the "Common Stock"), the Company is authorized to issue
from 85 million shares to 150 million shares.
2. To consider and vote upon a proposal to approve the sale and issuance by
the Company from time to time of up to $350 million of Common Stock or
securities convertible into Common Stock in private transactions during
the next twelve months at a price below book value but at or above the
then current market price of the Common Stock.
3. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Stockholders of record at the close of
business on June 24, 1998 will be entitled to vote at the Special Meeting. A
list of stockholders entitled to vote at the Special Meeting will be available
for inspection at the offices of the Company. WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING IN PERSON, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE REPLY ENVELOPE PROVIDED. If you attend the Special
Meeting and vote by ballot, your proxy will be revoked automatically and only
your vote at the Special Meeting will be counted. The prompt return of your
proxy will assist us in preparing for the Special Meeting.
All stockholders are cordially invited to attend the Special Meeting. A map
to Komag's location is included at the end of the Proxy Statement for
reference.
BY ORDER OF THE BOARD OF DIRECTORS
Stephen C. Johnson,
President and Chief Executive
Officer
Tu Chen,
Chairman of the Board
San Jose, California
July 2, 1998
<PAGE>
KOMAG, INCORPORATED
1704 AUTOMATION PARKWAY
SAN JOSE, CALIFORNIA 95131
PROXY STATEMENT FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 22, 1998
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Komag, Incorporated, a Delaware corporation (the "Company"), for use at the
special meeting of stockholders to be held on July 22, 1998 and all
adjournments and postponements thereof (the "Special Meeting"). The Special
Meeting will begin at 10:00 a.m. at the offices of the Company, located at
Building 9, 1705 Automation Parkway, San Jose, CA 95131. Stockholders of
record on June 24, 1998 (the "Record Date") will be entitled to notice of and
to vote at the Special Meeting.
This Proxy Statement and accompanying proxy were first mailed to
stockholders on or about July 2, 1998.
PURPOSE
The purpose of the Special Meeting is (i) to consider and vote upon a
proposal to amend the Company's Restated Certificate of Incorporation to
increase the amount of common stock, par value $0.01 (the "Common Stock"), the
Company is authorized to issue from 85 million shares to 150 million shares
(the "Charter Amendment"); (ii) to consider and vote upon a proposal to
approve the sale and issuance by the Company from time to time of up to $350
million of Common Stock or securities convertible into Common Stock in private
transactions during the next twelve months at a price below book value but at
or above the then current market price of the Common Stock (the "Financing
Proposal"); and (iii) to transact such other business as may properly come
before the Special Meeting.
VOTING, QUORUM, ABSTENTIONS AND BROKER NON-VOTES
As of the Record Date, there were outstanding 52,935,030 shares of Common
Stock. Each stockholder is entitled to one (1) vote for each share of Common
Stock held by such stockholder. A majority of the issued and outstanding
Common Stock as of the Record Date constitutes a quorum for the Special
Meeting. Abstentions and broker non-votes will be included in determining the
presence of a quorum.
The affirmative vote of a majority of the Common Stock outstanding as of the
Record Date is required to approve the Charter Amendment. The affirmative vote
of a majority of all votes cast at the Special Meeting, whether in person or
by proxy, is required to approve the Financing Proposal. Abstentions and
broker non-votes will have the effect of a vote "against" the Charter
Amendment and will have no effect on the outcome of the Financing Proposal.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company
at the Company's principal executive office, 1704 Automation Parkway, San
Jose, California, 95131, a notice of revocation or another signed proxy with a
later date. You may also revoke your proxy by attending the Special Meeting
and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement and any
additional soliciting materials furnished to stockholders. Copies of
<PAGE>
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward these solicitation materials to such beneficial
owners. In addition, the Company will reimburse such persons for their costs
of forwarding the solicitation materials to such beneficial owners. The
original solicitation of proxies by mail may be supplemented by solicitation
by telephone, telegram or other means by directors, officers or employees of
the Company. No additional compensation will be paid to these individuals for
any such services. In addition, the Company has retained the firm of Georgeson
& Company Inc. to assist in the solicitation of proxies for a fee of
approximately $15,000, plus expenses.
FORWARD LOOKING STATEMENTS
This proxy statement contains forward looking statements, which generally
can be identified by the use of words such as "believes," "expects," "may,"
"will," "should," or "anticipates" or comparable terminology or the negative
thereof. Actual results could differ materially from the results predicted in
such forward looking statements. Factors that could cause actual results to
differ include the following: availability of sufficient cash resources;
changes in the industry supply-demand relationship and related pricing for
enterprise and desktop disk products; timely and successful product
qualification of next-generation products; timely and successful deployment of
new process technologies into manufacturing; utilization of manufacturing
facilities; changes in manufacturing efficiencies, in particular product
yields; extensibility of process equipment to meet more stringent future
product requirements; vertical integration and consolidation within the
Company's limited customer base; increased competition; structural changes
within the disk media industry such as combinations, failures or joint venture
arrangements; availability of certain sole-sourced raw material supplies; and
the risk factors set forth in this Proxy Statement and in the Company's
various SEC filings, including its Form 10-K for the year ended December 28,
1997. The Company undertakes no obligation to publicly release the result of
any revisions to these forward looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
2
<PAGE>
COMPANY BACKGROUND
The Company is a leading component supplier to the data storage industry and
has long been recognized as a technology leader in the media industry.
Throughout much of its corporate history, the Company operated near or at full
capacity. Because the Company historically experienced strong demand and
desired to expand its market share, the Company committed to a capacity
expansion program in late 1995 that significantly increased the Company's
production capabilities by early 1997.
After reaching peak operational and financial performance in the first half
of 1996, the Company's profitability weakened during the second half of 1996
as the Company began a transition to magnetoresistive ("MR") products. During
this transition the Company encountered a series of challenges related to the
production of smoother substrates with fewer and smaller defects. These
production issues depressed product yields during the second half of 1996 and
throughout 1997 despite continuous advancements in the Company's manufacturing
processes. The Company's profitability improved in the first half of 1997 as
average selling prices rose with the product mix shift toward higher-priced MR
products and unit production costs fell due to incremental improvements in
product yields. The Company's recovery, however, was halted by a slowdown in
demand for enterprise and desktop media in the second half of 1997.
During the latter half of 1997 and into 1998, the merchant market for thin-
film disks weakened due to several factors, including: (i) increased supply
within the media industry, which was a result of substantial capacity
additions by captive and independent media suppliers, including the Company;
(ii) lower than expected demand for media products, which was a result of a
decline in the overall growth rate of the data storage industry; (iii) further
reductions in the demand for disk media due to the widespread adoption of MR
technology, which enabled greater disk storage densities and lowered the
number of disks per drive; (iv) market share gains by captive media suppliers,
which reduced the size of the merchant market available to independent media
suppliers such as the Company; and, as a result of (i) through (iv) above, (v)
significant capacity underutilization at independent media suppliers, which
increased competition and accelerated price erosion within the merchant market
segment.
As a result of these unfavorable market conditions, the Company has
experienced sharply lower selling prices and several significant reductions in
customer orders that have idled a sizable portion of its production capacity
during the first half of 1998. Low utilization of the Company's factories
during this period has increased unit production costs substantially as fixed
costs have been spread over fewer production units. The combination of lower
selling prices and higher unit production costs have contributed to the
Company's actual and expected large losses during the first two quarters of
1998.
Increased capacity utilization and more stable pricing will depend, in large
measure, on improved market conditions. To mitigate the negative impact of
current market conditions, the Company has taken steps to reduce its fixed
cost structure and strengthen its competitive position. To improve internal
production yields and enhance product performance, the Company is currently
deploying new substrate and sputtering technologies. Internal production
yields are beginning to show measurable improvement as the new polished
substrate process is introduced into production. The new sputtering process
has supported the development of advanced high density products that have been
favorably received by customers.
Despite current difficult market conditions, management believes that the
underlying strong growth of the data storage industry will restore equilibrium
between the supply of and the demand for disk media. Management also believes
that the Company's investment in research and development has resulted in
process technologies that will support several new generations of higher
density disk products. Through cost-effective, differentiated products the
Company expects to stimulate demand for its product offerings. The Company is
taking actions to meet its needs through financially restructuring and expects
to raise additional funding to support its position as a leading media
supplier.
3
<PAGE>
RECENT EVENTS
JUNE 2, 1998 PRESS RELEASE. As previously announced in its June 2, 1998
press release, at the beginning of the second quarter, the Company had
anticipated that its net sales would rebound sharply from the $76.1 million
recorded in the first quarter of 1998 into the $100-125 million range. As
announced, several customers lowered their orders for the Company's disk
products in response to downward adjustments in their hard disk drive
production build schedules. As a result, the Company announced that it expects
second quarter net sales to be in the $75-85 million range. Excluding the one-
time charge described below, the Company announced that it expects to post a
net loss in the second quarter similar in magnitude to the $58 million net
loss recorded in the first quarter of 1998.
As announced in the June 2, 1998 press release, changes in customer demand
and the Company's belief that the media industry's supply/demand imbalance
will extend into 1999 caused the Company to adjust its expectations for the
utilization of its installed production capacity. In light of these changed
expectations, the Company announced that it would reduce the carrying value of
its assets as described below. Additionally, the Company announced that it
will limit its capital expenditures in the second half of 1998 to
approximately $15 million, thus resulting in capital expenditures of
approximately $100 million for fiscal 1998 instead of the $120 million
originally budgeted.
The Company also announced on June 2, 1998 that it will record a one-time
charge to earnings of $135-185 million in the second quarter ending June 28,
1998. The cash component of the charge is estimated to be approximately 5-10%
of the total charge. The second quarter charge is composed of an impairment
charge that effectively reduces asset valuations to reflect the economic
effect of recent industry price erosion for disk media and the projected
underutilization of the Company's production equipment and facilities. The
one-time charge also includes provisions for facility closure expenses and
severance-related costs. As announced, the Company plans to reduce its U.S.
and Malaysian workforce of 4,800 employees by approximately 10% through
attrition and a reduction in force.
Previously, in the third quarter of 1997, the Company recorded a
restructuring charge of $52 million for the consolidation of its U.S.
manufacturing operations, including closure of two plants and a reduction in
force of approximately 330 people, or 16% of its U.S. workforce.
LIQUIDITY. As of May 24, 1998, the Company had $165 million in cash and
investments. The Company stated in its June 2, 1998 press release that the
size of the Company's expected second quarter net loss would result, unless
cured, in a technical default under certain profitability and tangible net
worth covenants in the Company's senior unsecured bank credit facilities at
the end of the second quarter on June 28, 1998. The Company currently has $260
million of borrowings outstanding under the facilities. While the loan
commitments under these facilities total $345 million, the Company does not
expect that it will be able to access the remaining $85 million under the
facilities due to the pending default.
The Company is currently negotiating with various bank groups either for
amendments to its existing credit facilities or for a new facility or
facilities to replace its existing credit lines. The Company anticipates that
any bank credit arrangements would likely require the Company to pay
additional fees for the arrangement of the facility and higher interest rates
on borrowed funds. The amended or new credit facilities may also require the
Company to provide collateral as security for borrowings and/or may require
the Company to issue warrants to purchase Common Stock to the lenders. In
addition, any new or amended credit facility may be subject to the completion
of a financing transaction that would provide additional funding to the
Company. Any amended facility may also require the Company to repay a portion
of the outstanding balance under its existing credit facilities from the
proceeds of any financing transaction. If the Company is unable to reach
agreement with its existing lenders or replace its existing credit facilities,
the Company's current lenders will, after June 28, 1998, have the right to
accelerate and require the repayment of all amounts due under the facilities.
There can be no assurance that the Company and lenders will successfully reach
a definitive agreement to amend or replace the Company's existing loan
agreements.
4
<PAGE>
OPTION REPRICING. The Company's Board of Directors has authorized the
repricing of outstanding stock options held by all employees, including
executive officers, to the current market price of the Common Stock. Options
held by nonemployee directors will not be repriced. The Company's employees,
including executive officers, hold options to purchase approximately 8.3
million shares of Common Stock at exercise prices ranging from $7.06 to $34.13
per share. The weighted average exercise price of these options is
approximately $15.19 per share. On June 18, 1998, the last sale price of the
Company's Common Stock on The Nasdaq Stock Market was $6.16. The Board of
Directors believes that the current price of the Common Stock is attributable,
in large part, to adverse industry conditions. In addition, the Board believes
that the Company's future performance is dependent in large part on the
skills, capabilities and efforts of the Company's employees, especially the
key management and technical employees who hold the greatest number of
options. Given the disparity between the exercise prices of outstanding
options and the recent trading prices, the Board believes that current options
have little value for retention and motivation of employees and, therefore,
believes it is in the best interests of the Company and its stockholders that
the options be repriced.
In October 1997, the Company exchanged options to purchase 1,806,000 shares
of Common Stock at prices ranging from $19.75 to $36.00 per share for options
with an exercise price of $19.44 per share, which was the fair market value of
the Common Stock at that time. This earlier option exchange program was not
available to the Company's executive officers or nonemployee directors of the
Company.
----------------
Given the Company's current financial situation, the Board of Directors
believes that it is advisable and in the best interests of the Company and its
stockholders to amend the Company's Restated Certificate of Incorporation to
increase the amount of Common Stock the Company is authorized to issue from 85
million shares to 150 million shares and to seek stockholder authorization for
the Company to sell and issue from time to time up to $350 million of Common
Stock or securities convertible into Common Stock in private transactions
during the next twelve months at a price below book value but at or above the
then current market price of the Common Stock. Each of these proposals is
discussed more fully below.
5
<PAGE>
PROPOSAL NO. 1:
CHARTER AMENDMENT
On June 12, 1998, the Board of Directors adopted, subject to stockholder
approval at the Special Meeting, a proposal to amend the Company's Restated
Certificate of Incorporation, which will increase the amount of capital stock
the Company is authorized to issue from 86,000,000 to 151,000,000 shares by
increasing the amount of Common Stock the Company is authorized to issue from
85 million shares to 150 million shares (the "Charter Amendment"). The Charter
Amendment will have no effect on the amount of Preferred Stock the Company is
authorized to issue. The text of the proposed amendments to the Restated
Certificate of Incorporation are set forth as Exhibit A to this Proxy
Statement.
As of the Record Date, 52,935,030 shares of Common Stock were outstanding
and an additional 15,885,573 shares were reserved for issuance upon the
exercise of options granted under the Company's stock option plans and
exercise of awards under the Company's employee stock purchase plan. After
taking into effect the shares reserved for issuance, as of the Record Date,
the Company had approximately 16,179,397 shares of Common Stock available for
issuance.
The Board believes that it is advisable to increase the number of authorized
shares. As discussed more fully in "Company Background" above, the Company is
currently considering several possible financing transactions, including the
sale and issuance of Common Stock in equity and/or equity-linked private
financing transactions as described under "Proposal No. 2: Financing" below.
Without approval of the Charter Amendment, the Company will be constrained in
the amount of capital that it can raise in these types of transactions due to
limitations on the number of shares of Common Stock available for such
transactions.
In addition, the Charter Amendment, if approved by stockholders at the
Special Meeting, will provide the Company with flexibility by assuring the
availability of sufficient authorized but unissued Common Stock for valid
corporate purposes such as stock-based employee benefit plans, financings,
stock dividends and acquisitions. If the Charter Amendment is approved at the
Special Meeting, the newly authorized Common Stock will be available for
issuance without further action by stockholders except as required by law or
applicable requirements of The Nasdaq Stock Market or such successor markets
on which the Common Stock may be traded.
The Board of Directors may use such additional authorized shares to
discourage persons from attempting to gain control of the Company without
prior negotiation with the Board of Directors. For example, additional shares
could be used to dilute the voting power of shares then outstanding or issued
to persons who would support the Board of Directors in opposing a hostile
takeover bid or solicitation in opposition to management. Management is not
currently aware of any effort to obtain control of the Company by means of a
merger, tender offer, proxy solicitation in opposition or otherwise.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE CHARTER
AMENDMENT. ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF A VOTE
"AGAINST" THE CHARTER AMENDMENT. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED
"FOR" THE CHARTER AMENDMENT.
6
<PAGE>
PROPOSAL NO. 2:
FINANCING
The Company is seeking authorization from stockholders to sell and issue up
to $350 million of Common Stock in equity or equity-linked private
transactions from time to time during the next twelve months at a price below
book value but at or above the then current market value as defined by the
National Association of Securities Dealers, Inc. (the "NASD") of the Common
Stock (the "Financing Proposal").
Under the Delaware General Corporation Law and the Company's Restated
Certificate of Incorporation and Bylaws, no action or authorization by the
Company's stockholders is necessary for the Financing Proposal. However,
because the Common Stock is quoted on The Nasdaq Stock Market, the Company is
subject to the rules of the NASD. NASD Rule 4460(i) generally requires
stockholder approval for the issuance by a company of shares of its common
stock (or securities convertible into or exercisable for common stock) equal
to 20% or more of the voting power of all shares of the company if such shares
are sold in a transaction other than a public offering at a price (or with a
conversion price of) less than the greater of book value or market value of
such company's common stock. Approval of the Financing Proposal would not
limit the Company from taking any action for which stockholder approval is not
otherwise required.
If the Financing Proposal is approved at the Special Meeting and if the
Company issues securities in a transaction subject to approval under Rule
4460(i), then the Company will mail to stockholders certain information about
the transaction prior to issuing the securities.
The market price of the Common Stock has been highly volatile in recent
periods as set forth under "Price Range of Common Stock" below. If the
Financing Proposal is approved at the Special Meeting, the Company will be
authorized to issue up to $350 million of Common Stock in equity or equity-
linked private transactions from time to time during the next twelve months at
a price below book value but at or above the then current market value of the
Common Stock. At June 18, 1998 and March 28, 1998, the closing prices of the
Common Stock on The Nasdaq Stock Market were $6.16 and $14.56, respectively.
On a pro forma basis, giving effect to the range of the
restructuring/impairment charges but without giving effect to the Company's
expected second quarter loss, the book value per share of Common Stock would
range from $8.35 to $9.30.
If stockholders approve the Financing Proposal at the Special Meeting, no
further authorization by stockholders for the issuance of securities pursuant
to this authorization will be obtained. The terms of the securities to be
authorized, including dividend or interest rates, conversion prices, voting
rights, redemption prices, maturity dates and similar matters will be
determined by the Board of Directors.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROXY STATEMENT,
STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE ACTING ON
THE FINANCING PROPOSAL.
Dilution to Existing Stockholders; Impact on Market Value of Common Stock
The sale of a significant amount of Common Stock or securities convertible
into Common Stock could cause substantial dilution to the voting power,
earnings per share and interests of current stockholders. In addition, the
sale of a significant number of securities convertible into shares of Common
Stock could cause a decline in the market value of the Common Stock.
Consequences If the Financing Proposal Is Not Approved
If the Financing Proposal is not approved by the Company's stockholders at
the Special Meeting, the consequences could have a material adverse effect on
the Company's business, results of operations and financial
7
<PAGE>
condition. The Company is considering sources of funding, including equity or
equity-linked financings that are dependent, in part, on approval of the
Financing Proposal. The Company is also currently negotiating with various
bank groups to amend or replace its existing credit facilities. Any new or
amended credit facility may be subject to the completion of a financing
transaction that would provide additional funding to the Company. The Company
has not yet selected a course of action from among the available financing
options nor has the Company received firm commitments for any such options.
Accordingly, there can be no assurance that any such funding can be arranged.
Should the stockholders fail to approve the Financing Proposal, or should the
Company otherwise be unable to obtain adequate funding, the Company may not
have sufficient funds in the future to maintain the current scope of its
business operations. If such was the case the Company could be required to
further reduce or suspend operations, seek a merger partner, or sell
securities on less favorable terms than those currently available to the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE FINANCING
PROPOSAL. ABSTENTIONS AND BROKER NON-VOTES WILL HAVE NO EFFECT ON THE OUTCOME
OF THE FINANCING PROPOSAL. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR"
THE FINANCING PROPOSAL.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on The Nasdaq Stock Market under the symbol
"KMAG." The following table sets forth the range of high and low closing sales
prices, as reported on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------- --------
<S> <C> <C>
1996
First Quarter............................................. 33 1/4 23
Second Quarter............................................ 26 9/16 24
Third Quarter............................................. 27 19 3/8
Fourth Quarter............................................ 36 21
1997
First Quarter............................................. 32 7/8 25 13/32
Second Quarter............................................ 33 1/8 16 7/16
Third Quarter............................................. 22 7/16 16 1/8
Fourth Quarter............................................ 21 3/8 14 1/2
1998
First Quarter............................................. 15 5/8 12 1/16
Second Quarter............................................ 15 1/2 5 1/2
Third Quarter (through July 1, 1998)...................... 5 9/16 5 11/32
</TABLE>
8
<PAGE>
BENEFICIAL OWNERSHIP
The following table sets forth certain information known to the Company
regarding the ownership of the Common Stock per Schedule 13G filings prior to
the Record Date for all persons who are known to be beneficial owners of five
percent or more of the Common Stock.
SIGNIFICANT STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT, PERCENTAGE OF CLASS AND
BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP
------------------- --------------------------------
<S> <C> <C>
Franklin Resources, Inc...................... 5,420,485 10.2%
777 Mariners Island Boulevard (sole voting power and dispositive power as
San Mateo, CA 94404 to 5,023,700 shares by Franklin Advisers,
Inc.; sole voting power as to 113,000
shares and sole dispositive power as to
380,900 shares by Franklin Advisory
Services, Inc.; sole dispositive power as
15,885 shares by Franklin Management, Inc.
per February 14, 1998 Schedule 13G filing)
Neuberger & Berman, LLC...................... 4,620,024 8.7%
605 Third Avenue (shared dispositive power as to all shares;
New York, NY 10158-3698 sole voting power as to 2,745,024 of such
shares and shared voting power as to
1,850,000 shares per February 9, 1998
Schedule 13G filing)
Merrill Lynch Asset Management............... 4,562,400 8.6%
800 Scudders Mill Road (shares dispositive power and shared voting
Plainsboro, NJ 0836 power as to all such shares per February
14, 1998 Schedule 13G filing). Note: The
Company believes that this stockholder
disposed of shares subsequent to this
Schedule 13G filing, thereby reducing
ownership to less than 5% of class.
Barclays Global Fund Advisors................ 3,079,463 5.8%
45 Fremont Street (sole disposition power as to all shares;
San Francisco, CA 94105 sole voting power as to 3,055,463 of such
shares per February 13, 1998 Schedule 13G
filing). Note: The Company believes that
this stockholder disposed of shares
subsequent to this Schedule 13G filing,
thereby reducing ownership to less than 5%
of class.
Spears, Benzak, Salomon & Farrell, Inc....... 2,877,094 5.4%
127 Public Square (sole voting power as to all shares, sole
Cleveland, OH 44114-1306 dispositive power as to 2,873,924 of such
shares per February 13, 1998 Schedule 13G
filing). Note: The Company believes that
this stockholder disposed of shares
subsequent to this Schedule 13G filing,
thereby reducing ownership to less than 5%
of class.
</TABLE>
9
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The table below indicates the number of shares of the Common Stock
beneficially owned as of the Record Date by directors, the Chief Executive
Officer and each of the four other most highly compensated executive officers
during the fiscal year ended December 29, 1997, and by all directors and
executive officers as a group. Except as otherwise noted, each person has sole
investment and voting powers with respect to the shares shown as beneficially
owned. Ownership information is based upon information furnished by the
respective individuals.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (12)
--------------------
NAME NUMBER PERCENTAGE
---- --------- ----------
<S> <C> <C>
Tu Chen (1)............................................ 676,791 1.3%
Stephen C. Johnson (2)................................. 468,714 *
Craig R. Barrett (3)................................... 68,000 *
Chris A. Eyre (3)...................................... 47,000 *
Irwin Federman (4)..................................... 87,871 *
George A. Neil (5)..................................... 33,000 *
Max Palevsky (3)....................................... 112,127 *
Anthony Sun (3)........................................ 99,810 *
Masayoshi Takebayashi (6)(7)........................... 99,810 *
Willard Kauffman (8)................................... 145,871 *
Christopher H. Bajorek (9)............................. 71,158 *
Fred J. Wiele (10)..................................... 44,884 *
Executive officers and directors as a group (20
persons) (11)......................................... 2,227,658 4.0%
</TABLE>
- --------
* Less than 1%
(1) Includes 185,185 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after
the Record Date.
(2) Includes 259,650 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after
the Record Date.
(3) Includes 46,000 shares subject to options which are currently exercisable
or which will become exercisable within sixty (60) days after the Record
Date.
(4) Includes 16,750 shares subject to options which are currently exercisable
or which will become exercisable within sixty (60) days after the Record
Date.
(5) Includes 32,000 shares subject to options which are currently exercisable
or which will become exercisable within sixty (60) days after the Record
Date.
(6) Includes 20,250 shares subject to options which are currently exercisable
or which will become exercisable within sixty (60) days after the Record
Date.
(7) Excludes shares held by Kobe Steel, Ltd. and Kobe Steel USA Holdings
Incorporated. Mr. Takebayashi is an Executive Officer of Kobe Precision,
Incorporated, a wholly-owned subsidiary of Kobe Steel, Ltd., and on such
basis may be deemed, under the 1934 Act, the beneficial owner of the
2,000,002 shares beneficially owned by such corporations with shared
voting and investment power with respect thereto. Mr. Takebayashi
disclaims beneficial ownership of these shares.
(8) Includes 103,298 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after
the Record Date.
(9) Includes 69,584 shares subject to options which are currently exercisable
or which will become exercisable within sixty (60) days after the Record
Date.
(10) Includes 43,333 shares subject to options which are currently exercisable
or which will become exercisable within sixty (60) days after the Record
Date. Mr. Wiele resigned as an executive officer of the Company effective
June 12, 1998.
(11) Includes 1,146,186 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after
the Record Date.
(12) Some of the individuals may share voting power with regard to the shares
listed herein with their spouses.
10
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented for
consideration at the Special Meeting. If other matters are properly brought
before the Special Meeting, however, it is the intention of the persons named
in the accompanying proxy to vote the shares represented thereby on such
matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
annual meeting of stockholders to be held in 1999 must be received by the
Company no later than December 18, 1998 in order to be included in the proxy
statement and proxy relating to that meeting.
By Order of the Board of Directors
TU CHEN
Chairman of the Board
11
<PAGE>
EXHIBIT A
PROPOSED AMENDMENTS TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF KOMAG, INCORPORATED
----------------
PROPOSED ADDITIONS ARE INDICATED BY SINGLE UNDERLINE
---------
PROPOSED DELETIONS ARE INDICATED BY STRIKETHROUGH (*__*)
----------------
ARTICLE IV
The Corporation shall be authorized to issue *Eighty-Six Million (86,000,000)*
One Hundred Fifty-One Million (151,000,000) shares of capital stock having an
- -------------------------------------------
aggregate par value of *Eight Hundred Sixty Thousand Dollars ($860,000)* One
---
Million Five Hundred Ten Thousand Dollars ($1,510,000). This Capital Stock
- ------------------------------------------------------
shall be divided into two classes, Common Stock and Preferred Stock, both
classes having a par value. The authorized Common Stock shall be *Eighty-Five
Million shares (85,000,000)* One Hundred Fifty Million (150,000,000) shares
---------------------------------------
having a par value of one cent ($.01) per share for an aggregate class par
value of *Eight Hundred Fifty Thousand Dollars ($850,000)* One Million Five
----------------
Hundred Thousand Dollars ($1,500,000). The authorized Preferred Stock shall be
- -------------------------------------
One Million (1,000,000) shares having a par value of one cent ($.01) per share
for an aggregate class par value of Ten Thousand Dollars ($10,000). The Board
of Directors of the Corporation is hereby empowered (i) to determine the
preferences, privileges, or restrictions of such Preferred Stock, including
(but not limited to) the dividend rights and rate, conversion and voting
rights, redemption rights and the terms and prices thereof (including any
provision for a sinking fund), or liquidation preferences thereof, if any,
(ii) to divide the Preferred Stock into different series consisting of any
number of shares, each series having different rights, provisions, or
conditions from any other series and (iii) to increase or decrease the number
of shares of any series so designated, but not below the number of shares of
any such series then outstanding. The Corporation is also authorized to issue
debentures (convertible into the Common Stock or Preferred Stock or non-
convertible, either with or without voting rights) and/or warrants or options
to purchase Common Stock or Preferred Stock.
<PAGE>
KOMAG, INCORPORATED
The special meeting of Stockholders will be held at 10:00 a.m. on Wednesday,
July 22, 1998, at Komag, Incorporated, Building 9, located at:
1705 Automation Parkway
San Jose, California 95131
[MAP APPEARS HERE]
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF KOMAG, INCORPORATED
The undersigned hereby appoints STEPHEN C. JOHNSON and
TU CHEN, or either of them, as lawful agents and proxies of the
undersigned (with all powers the undersigned would possess if
personally present, including full power of substitution) to
represent and to vote all shares of the Company's capital stock
which the undersigned is entitled to vote at the Company's Special
Meeting of Stockholders on July 22, 1998, and any adjournment or
postponements thereof as follows:
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
Please mark
your votes [X]
as indicated
1. Proposal to amend the Company's Restated Certificate of Incorporation to
increase the amount of Common Stock the Company is authorized to issue from
85 million shares to $150 million shares (the "Charter Amendment").
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Proposal to approve the sale and issuance by the Company from time to time
of up to $350 million of Common Stock or securities convertible into Common
Stock in private transactions during the next twelve months at a price below
book value but at or above the then current market price of the Common Stock
(the "Financing Proposal").
FOR AGAINST ABSTAIN
[_] [_] [_]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
Receipt of the Notice of Special Meeting of Stockholders and Proxy Statement
dated July 2, 1998 is hereby acknowledged. This proxy will be voted as directed,
or if no direction is indicated, will be voted FOR each of the foregoing
proposals. This proxy may be revoked at any time before it is voted. The Board
of Directors recommends a vote FOR items 1 and 2.
Signature(s)______________________________________________ Dated________________
Please sign exactly as shown on your stock certificate and on the envelope in
which this proxy was mailed. When signing as partner, corporate officer,
attorney, executor, administrator, trustee, guardian or in any other
representative capacity, give full title as such and sign your own name as well.
If stock is held jointly, each joint owner should sign.
