SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment no. 1)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
KOMAG INCORPORATED
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
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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 transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(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):
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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<PAGE>
[KOMAG LOGO GOES HERE]
NOTICE OF
2000 ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
Beneficial owners of stock held by banks, brokers
or investments plans in "street name" will need
proof of ownership to be admitted to the meeting.
A recent brokerage statement or letter from your
broker are examples of proof of ownership.
<PAGE>
KOMAG, INCORPORATED
1710 Automation Parkway
San Jose, California 95131
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 2000
The annual meeting of stockholders (the "Annual Meeting" of Komag,
Incorporated) (the "Company") will be held at Komag, Incorporated, Building 10,
1710 Automation Parkway, San Jose, California, 95131 on Wednesday, May 10, 2000,
at 10:00 a.m. for the following purposes:
1) To elect the Board of Directors for the following year.
2) To renew the approval for the sale and issuance by the Company
from time to time of up to $250 million of Common Stock or
securities convertible into Common Stock in private
transactions through June 30, 2001 at a price not less than the
greater of book value and 90% of the then current market value
of the Common Stock.
3) To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31,
2000.
4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Stockholders of record at the close of
business on March 13, 2000 will be entitled to vote at the Annual Meeting. A
list of stockholders entitled to vote at the Annual Meeting will be available
for inspection at the offices of the Company. If you attend the Annual Meeting
and vote by ballot, your proxy will be revoked automatically and only your vote
at the Annual Meeting will be counted. The prompt return of your proxy will
assist us in preparing for the Annual Meeting.
All stockholders are cordially invited to attend the Annual 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
Thian Hoo Tan,
President and Chief Executive Officer
San Jose, California
April 14, 2000
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED
TO VOTE PROMPTLY ON THE ENCLOSED PROXY
<PAGE>
TABLE OF CONTENTS
General ................................................................... 1
Principal Stockholders .................................................... 2
Stock Ownership Table ..................................................... 3
Item No. 1 - Election of Directors ........................................ 4
Director Nominees ......................................................... 5
Committees and Meetings of the Board of Directors ......................... 6
Director Remuneration ..................................................... 7
Item No. 2 - Financing .................................................... 8
Item No. 3 - Ratification of Independent Auditors ......................... 10
Executive Compensation and Related Information ............................ 10
Stock Performance Graph ................................................... 14
Summary Compensation Table ................................................ 15
Options Grant Table ....................................................... 17
Option Exercises and Year-End Value Table ................................. 19
Compliance with Section 16(a) Beneficial Ownership Reporting .............. 20
Certain Relationships and Related Transactions ............................ 20
Other Business ............................................................ 20
Stockholder Proposals ..................................................... 21
A copy of the Annual Report to Stockholders of Komag, Incorporated,
which includes financial statements, is being mailed with this Proxy Statement.
You may receive an additional copy of the Annual Report to Stockholders at no
charge upon request directed to:
Komag, Incorporated
Attn: Investor Relations
1710 Automation Parkway
San Jose, California 95131
Financial Information may also be accessed on our Web site at: www.komag.com
<PAGE>
KOMAG, INCORPORATED
1710 Automation Parkway
San Jose, California 95131
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 2000
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
Annual Meeting to be held on May 10, 2000. The Annual Meeting will begin at
10:00 a.m. at Komag, Incorporated, Building 10, 1710 Automation Parkway, San
Jose, CA 95131. Stockholders of record on March 13, 2000 will be entitled to
notice of and to vote at the Annual Meeting.
This Proxy Statement and accompanying proxy (the "Proxy") were first
mailed to stockholders on or about April 14, 2000.
Voting
Your vote is important. Because many stockholders cannot attend the
meeting, it is necessary that a large number be represented by proxy. As
described in more detail below, if you are a stockholder of record you may vote
four ways: (1) by attending the meeting, (2) by using the toll-free number
listed on the proxy card, (3) by voting on the Internet at the address listed on
the proxy card, or (4) by marking, signing, dating, and mailing your proxy in
the envelope provided.
On March 13, 2000, the record date for determination of stockholders
entitled to vote at the Annual Meeting, there were 65,874,918 shares of Common
Stock outstanding. Each stockholder is entitled to one (1) vote for each share
of Common Stock held by such stockholder. Directors will be elected by a
plurality vote. Other matters submitted for stockholder approval at this Annual
Meeting will be decided by the affirmative vote of a majority of the shares
present or represented and entitled to vote on each such matter. Abstentions
with respect to any matter other than the election of directors are treated as
shares present or represented and have the same effect as negative votes. If
shares are not voted by the broker who is the record holder of the shares, or if
shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares are not deemed to be present or represented for purposes of determining
whether stockholder approval of that matter has been obtained. Each stockholder
voting for the election of directors may cumulate such stockholder's vote. Under
cumulative voting, a stockholder is allowed one (1) vote per share multiplied by
the number of directors to be elected (seven (7) at this meeting) and may cast
such cumulative total for one (1) nominee or may distribute such number among as
many nominees as such stockholder chooses.
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, 1710 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 Annual Meeting and voting
in person.
1
<PAGE>
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
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 may 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, employees or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
Principal Stockholders
<TABLE>
The following table sets forth certain information known to the Company
regarding the ownership of the Company's Common Stock per Schedule 13G filings
prior to March 13, 2000 for all persons who are known to be beneficial owners of
five percent or more of the Company's Common Stock.
<CAPTION>
Name and Address of Percent
Beneficial Owner Amount and Nature of Beneficial Ownership of Class
---------------- ----------------------------------------- --------
<S> <C> <C>
Western Digital Corporation 10,783,132 16.4%
8105 Irvine Center (sole voting power and dispositive power as to
10,783,132 shares by Western Digital Corporation per
Irvine, CA 92718 April, 1999 Schedule 13G filing)
Franklin Advisors, Inc. 4,540,100 6.9%
777 Mariners Island Boulevard (sole voting power and dispositive power as to 4,540,100
shares by Franklin Advisers, Inc. per January, 2000
San Mateo, CA 94404 Schedule 13G filing)
Dimensional Fund Advisors, Inc. 3,712,200 5.6%
1299 Ocean Avenue (sole voting power and dispositive power as to 3,712,200
shares by Dimensional Fund Advisors, Inc. per February,
11th Floor 2000 Schedule 13G filing)
Santa Monica, CA 90401
</TABLE>
2
<PAGE>
Stock Ownership Table
The table below indicates the number of shares of the Corporation's
common stock beneficially owned as of March 13, 2000 by directors, the nominees
recommended by the Nominating Committee and nominated by the Board of Directors
for election as directors, by each of the current executive officers listed in
the Summary Compensation Table below, and by all current 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.
DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS
Shares Beneficially Owned(12)
-----------------------------
Name Number Percentage
---- ------ ----------
Thian Hoo Tan (1)....................... 144,745 *
Chris A. Eyre (2) ...................... 54,500 *
Irwin Federman (3)...................... 115,371 *
George A. Neil (4)...................... 40,500 *
Michael R. Splinter..................... 0 *
Anthony Sun (2)......................... 127,310 *
Masayoshi Takebayashi (5)(6)............ 47,750 *
Christopher H. Bajorek(7) .............. 326,431 *
Ray Martin(8)........................... 125,425 *
William L. Potts, Jr.(9) ............... 264,843 *
Tsutomu T. Yamashita(10)................ 181,677 *
Current executive officers and directors as
a group (12 persons) (11) .............. 1,293,695 2.0%
* Less than 1%
(1) Includes 109,303 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(2) Includes 53,500 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
3
<PAGE>
(3) Includes 24,250 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(4) Includes 39,500 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(5) Includes 27,750 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(6) 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.
(7) Includes 290,644 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(8) Includes 123,030 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(9) Mr. Potts, Jr. resigned from the company in February, 2000.
Includes 202,616 shares which are currently exercisable or which will become
exercisable within sixty (60) days after March 13, 2000.
(10) Includes 177,228 shares subject to options which are currently
exercisable or which will become exercisable within sixty (60) days after March
13, 2000.
(11) Includes 1,022,735 shares, of current executive officers, subject
to options which are currently exercisable or which will become exercisable
within sixty (60) days after March 13, 2000.
(12) Some of the individuals may share voting power with regard to the
shares listed herein with their spouses.
ITEM NO. 1 --
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be
comprised of between eight (8) and twelve (12) directors, with the exact number
to be fixed by the Board. During the 1999 fiscal year the Board consisted of
seven (7) members. The Company intends to appoint two (2) additional members to
the Board following the Annual Meeting. At the Annual Meeting, seven (7)
directors will be elected to serve until the Company's next Annual Meeting and
until their successors are elected and qualified. The Board of Directors has
selected seven (7) nominees, all seven (7) of whom are current directors of the
Company.
Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominees named below. The seven (7) candidates
receiving the highest number of affirmative votes of the shares entitled to vote
at the Annual Meeting will be elected directors of the Company.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote FOR the
election of each of the following nominees to serve as directors of the Company
for the ensuing year until the next Annual Meeting at which time their
successors are elected and qualified.
4
<PAGE>
Director Nominees
<TABLE>
Set forth below is information regarding the director nominees,
including information furnished by them as to principal occupations, business
experience, certain other directorships held by them, any arrangements pursuant
to which they were selected as directors or nominees.
<CAPTION>
Year
First Elected
Nominees Age Director
-------- --- --------
<S> <C> <C> <C>
Thian Hoo Tan....................... President and Chief Executive Officer of the 51 1999
Company
Chris A. Eyre....................... Private Investor 53 1983
Irwin Federman...................... General Partner, U.S. Venture Partners 64 1983
George A. Neil...................... Consultant to Asahi Glass America, Incorporated 62 1994
Michael R. Splinter................. Senior Vice President & General Manager, 59 1999
Technology and Manufacturing Group,
Intel Corporation
Anthony Sun......................... General Partner, Venrock Associates 47 1983
Masayoshi Takebayashi .............. President, Chief Executive Officer, 65 1992
Kobe Precision, Incorporated
</TABLE>
Mr. Thian Hoo Tan was appointed President, Chief Executive Officer and
director in August 1999. Mr. Tan started the Company's first San Jose,
California manufacturing facility in 1989 and managed Komag's Penang and Sarawak
operations from 1992 through 1996. Mr. Tan returned to the U.S. to assume the
position of Senior Vice President-Worldwide Operations from 1996 through his
appointment by the Board to the present position. Before joining Komag in 1989,
Mr. Tan was Vice President of Operations at HMT Technology. Mr. Tan holds an
M.S. degree in Physics from the University of Malaya at Kuala Lumpur.
Mr. Eyre has served as a director of the Company since September 1983.
Mr. Eyre is a private investor and from 1980 to 1987 served as a general partner
of Merrill, Pickard, Anderson & Eyre, a general partnership which manages a
series of venture capital partnerships.
Mr. Federman has served as a director of the Company since September
1983. In April 1990, Mr. Federman joined U.S. Venture Partners, a general
partnership which manages a series of venture capital partnerships, as a general
partner. From February 1988 to March 1990, Mr. Federman served as Managing
Director of Dillon, Read & Co. Incorporated, an investment banking and
securities firm. From 1979 until August 1987, Mr. Federman was President and
Chief Executive Officer of Monolithic Memories, Incorporated. Mr. Federman was
elected Vice Chairman of the Board of Directors of Advanced Micro Devices,
Incorporated ("AMD") when Monolithic Memories merged with AMD, and served in
that capacity until January 1988. He is also a director of Checkpoint Software
Technologies, MMC Networks, Inc., Neomagic, Incorporated, Netro Corporation, and
SanDisk Corporation, Ltd.
Mr. Neil has served as Consultant to Asahi Glass Co., Ltd. since 1990
and Senior Vice President of Asahi Glass America from 1990 through 1996. From
August 1986 Mr. Neil held executive positions at two specialty ceramic
companies. From August 1988 to July 1990 Mr. Neil was consultant to and
President of Thunderbird Technologies. Mr. Neil served in various management
positions with Corning, Incorporated including Executive Vice President of Iwaki
Glass and President of Corning Japan.
5
<PAGE>
Mr. Splinter has served as a director of the Company since May 25,
1999. Mr. Splinter is the Senior Vice President and General Manager of Intel's
Technology and Manufacturing Group. Mr. Splinter joined Intel's management team
in 1984, was elected vice-president in 1993 and assumed the role of Assistant
General Manager of the Technology Manufacturing Group in October 1996. Prior to
joining Intel, Mr. Splinter held a management position with Rockwell
International. Mr. Splinter is a director of SEMATECH and Ayurcore Corporation.
He holds two patents on semiconductor processing.
Mr. Sun has served as a director of the Company since September 1983.
Since 1979, he has been associated with Venrock Associates, a venture capital
partnership, and has been a general partner since 1980. Mr. Sun is a director of
3Dfx Interactive Corporation, Cognex Corporation, Phoenix Technologies Ltd.,
Ramp Networks, Worldtalk Communications Corporation, and several privately held
companies.
Mr. Takebayashi has served as a director of the Company since May 1992.
Since September 1964, he has served in various positions with Kobe Steel, Ltd.
and its subsidiaries, most recently as President, Chief Executive Officer of
Kobe Precision, Incorporated, a wholly-owned subsidiary of Kobe Steel, Ltd.,
since January 1988. From January 1986 to December 1988, he was the General
Manager, International Marketing and Sales Overseas Department of the Aluminum &
Copper Division of Kobe Steel, Ltd. He is a member of the board of directors for
Kobe Precision Technology Malaysia, Sdn. Bhd., and a member of the Board of
Directors of Komag Material Technology, Incorporated. Mr. Takebayashi was
selected as a nominee pursuant to the terms of a Common Stock Purchase Agreement
between the Company and Kobe Steel USA Holdings Incorporated.
Committees and Meetings of the Board of Directors
During the fiscal year ended January 2, 2000, the Board of Directors
held eight (8) meetings. During this period, each of the directors, attended or
participated in at least seventy-five percent (75%) of the aggregate number of
Board of Directors meetings and committee meetings of the Board on which he
served.
The Company has five standing committees: an Audit Committee, a
Compensation Committee, a Primary Stock Option Plan Committee, a Nominating
Committee, and a Special Stock Option Plan Administration Committee.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's auditors regarding the Company's accounting practices and systems of
internal accounting controls. The Audit Committee formally met four (4) times
during the last fiscal year. This Committee currently consists of Messrs. Eyre,
Neil and Sun.
The Compensation Committee reviews and approves the Company's general
compensation policies and sets compensation levels for the Company's executive
officers. This Committee currently consists of Messrs. Federman, Splinter and
Takebayashi. During fiscal 1999, the Compensation Committee formally met two (2)
times.
The Primary Stock Option Plan Committee administers the discretionary
option grant program of the Company's Restated 1987 Stock Option Plan and the
Company's 1997 Supplemental Stock Option Plan (the "Option Plans") with respect
to the Company officers who are subject to the short-swing profit restrictions
of the federal securities laws. The Committee also administers the Company's
Employee Stock Purchase Plan. This Committee currently consists of Messrs.
Federman and Splinter. The Primary Stock Option Plan Committee met two (2) times
during the last fiscal year.
The Nominating Committee is responsible for recommending nominees for
members of the Company's Board of Directors. This Committee currently consists
of Messrs. Eyre, Neil and Takebayashi. This Committee met one (1) time during
1999. The Nominating Committee has not instituted proceedings to consider
nominees recommended by security holders, but may do so in the future.
6
<PAGE>
The Special Stock Option Plan Administration Committee (the "Secondary
Committee") has separate but concurrent jurisdiction with the Primary Stock
Option Plan Committee to administer the discretionary option grant program of
the Option Plans with respect to non-officer employees. The option grants made
by the Secondary Committee will comply with certain guidelines established by
the Primary Stock Option Plan Committee. The Secondary Committee currently
consists of Mr. Tan and Edward H. Siegler, an executive officer of the company
as of February, 2000, and performs its duties on an ongoing basis.
Director Remuneration
Non-employee Board members receive $4,500 per fiscal quarter and a
$1,000 meeting fee for each Board of Directors meeting or Board Committee
meeting attended, including telephonic meetings. Non-employee Board members also
receive periodic option grants under the Automatic Option Grant Program in
effect for them under the Option Plans. Each individual who first becomes a
non-employee Board member, whether through election by the stockholders or
appointment by the Board, will receive, at the time of such initial election or
appointment, a stock option grant to purchase 30,000 shares of Common Stock. On
the date of each Annual Stockholders Meeting, each individual who is re-elected
as a non-employee Board member will receive an option to purchase 12,000 shares
of Common Stock, provided such individual has served on the Board for at least
six months. Each option grant will have an exercise price equal to the fair
market value of the option shares on the grant date and will have a maximum term
of ten years, subject to earlier termination upon the optionee's cessation of
Board service.
Each non-employee director re-elected at the 1999 Annual Meeting
(Messrs. Eyre, Federman, Neil, Sun and Takebayashi) received at that time an
option to purchase 12,000 shares with an exercise price of $4.03 per share. As a
newly elected Director, Mr. Splinter was granted an option to purchase 30,000
shares with an exercise price of $4.03 per share. Each option will become
exercisable for all the option shares upon the optionee's completion of one year
of non-employee director service measured from the grant date. However, the
option will become immediately exercisable for all of the option shares upon an
acquisition of the Company by merger, consolidation or asset sale or upon
certain other changes in control or ownership of the Company. Upon the
successful completion of a hostile tender offer for more than 50% of the
Company's outstanding Common Stock, each of these options will automatically be
canceled, and each optionee will in return receive a cash distribution from the
Company in an amount per canceled option share equal to the excess of (i) the
highest reported price per share of Common Stock paid in the tender offer over
(ii) the option exercise price payable per share.
7
<PAGE>
ITEM NO. 2 --
FINANCING
The Company is seeking to renew authorization from stockholders to sell
and issue up to $250 million of Common Stock in equity or equity-linked private
transactions from time to time until June 30, 2001 at a price not less than the
greater of book value and 90% of the then current market value as defined by the
National Association of Securities Dealers, Inc. (the "NASD") of the Common
Stock (the "Financing Proposal").
Background
The Company continues to negotiate with its lenders proposed terms for
a Restructuring Agreement. Even if the Company restructures its current credit
facilities, the Company believes that it will require additional funding prior
to the maturity of its existing bank debt to facilitate full repayment of these
loans. If the Company is unable to obtain adequate new funding, the Company will
be required to further restructure its bank credit facilities, and may be
required to further reduce its operations and capital spending which could have
a material adverse effect on the Company's results of operations. No assurance
can be given that the company will be able to further restructure its bank
credit facilities.
In July 1998, the Company solicited and received authorization from
stockholders to engage in transactions similar to those that would be authorized
by the Financing Proposal in amounts of up to $350 million. The authority
granted by the July 1998 stockholder resolution was limited to one year.
However, because of unfavorable market conditions and other factors, management
elected not to engage in any transactions authorized by the July 1998
stockholder resolution. In May, 1999 approval was extended to October, 2000 for
the company to enter into transactions up to $250 million. The company seeks
this authority to allow for a potential new financing prior to the expiration
date of its bank credit facilities.
Reasons For the Financing Proposal
Under the Delaware General Corporation Law and the Company's
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) not less than the greater of bank value and 90% of the then current 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 Annual 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. If the Financing Proposal is approved at the Annual Meeting, the
Company will be authorized to issue up to $250 million of Common Stock in equity
or equity-linked private transactions from time to time until June 30, 2001 at a
price no less than the greater of book value and 90% of the then current market
value of the Common Stock. At March 13, 2000, the closing price of the Common
Stock on the Nasdaq Stock Market was $4.00 and the book value per share of the
Common Stock on January 2, 2000 was $0.79.
8
<PAGE>
If stockholders approve the Financing Proposal at the Annual 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 Annual Meeting, the consequences could have a material adverse effect on
the Company's business, results of operations and financial 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.
As discussed above, the Company believes that it will require new funding prior
to the maturity of its existing bank debt to facilitate full repayment of these
loans. If the Company is unable to obtain adequate new funding, the Company will
be required to restructure its bank credit facilities, and may be required to
further reduce its operations and capital spending which could have a material
adverse effect on the Company's results of operations.
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.
9
<PAGE>
ITEM NO. 3 --
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of Ernst
& Young LLP as the Company's independent auditors for the fiscal year ending
December 31, 2000. The affirmative vote of the holders of a majority of the
shares represented and voting at the Annual Meeting will be required to ratify
the selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Board
of Directors will reconsider its selection. Even if the selection is ratified,
the Board in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board feels that
such a change would be in the best interests of the Company and its
stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them FOR the ratification of the selection of Ernst & Young
LLP.
Ernst & Young LLP have audited the Company's financial statements
annually beginning in 1986. Representatives of the firm, who are expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
The affirmative vote of a majority of the issued and outstanding voting
shares is sought for the ratification of the selection of Ernst & Young LLP. The
Board of Directors recommends that the stockholders vote FOR this proposal.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
In compliance with the Securities and Exchange Commission's regulations
on disclosure of Executive Compensation, this section presents the Reports of
the Compensation Committee and of the Primary Stock Option Committee, a Stock
Performance Graph comparing Company stockholder return relative to a broad
market index and a peer group index, and Summary and Companion Compensation
Tables presenting a detailed representation of the Company's executive
compensation practices.
REPORT OF THE COMPENSATION AND PRIMARY STOCK OPTION COMMITTEES
ON EXECUTIVE COMPENSATION
The Compensation Committee's members, Irwin Federman, Michael Splinter
and Masayoshi Takebayashi, are independent directors who are not employees of
the Company and who further qualify as outside directors under Section 162(m) of
the Internal Revenue Code. The Compensation Committee is accountable for the
approval of cash compensation programs that fairly compensate key executives and
employees and that relate the pay levels of officers to the performance of the
Company. The Primary Stock Option Committee's members, Irwin Federman and
Michael Splinter qualify as disinterested persons for purposes of Rule 16b-3
adopted under the 1934 Act. The Primary Stock Option Committee is responsible
for all stock option grants to executive officers.
10
<PAGE>
Objectives of the Company's Executive Compensation Plan
The Company's executive compensation is based on the premise that the
executive officers are responsible for achievement of the Company's goals and
objectives and are rewarded when achievement of these goals results in
successful financial performance. The Committee intends to control fixed salary
costs, to provide a high degree of leverage in officers' pay based on the actual
performance of the Company, to allow flexibility to respond to specific
individual issues such as retention, and to balance cost to stockholders against
providing appropriate incentives for value creation. To structure the actual
annual compensation plans, the Compensation Committee relies on research
performed by an independent compensation consulting firm, and advice from the
Company's human resources department. For comparison purposes, the Company has
identified a group of high-performing companies ("peer companies") both within
and outside the Company's industry. The Company competes with the peer companies
for the hiring and retention of key executives and accordingly compares its
executive compensation practices to these companies. Each peer company shares at
least one attribute, such as high technology, location or size with the Company.
Such comparisons also include the relative financial performance of the Company
and the peer companies. Since executive search and retention is not necessarily
industry specific, no attempt is made to correlate the list of peer companies
with the companies in Nasdaq Computer Manufacturers Index, the Company's
Industry index in the "Stock Performance Graph."
The total compensation plan developed for each officer includes base
salary, incentive bonus and stock options in addition to participation in the
Company's Cash and Deferred Profit Sharing and Employee Stock Purchase plans
subject to the same eligibility criteria applicable to all employees. Executive
officers are also eligible to defer salary under the Company's 401(k) Plan.
Average base salary is targeted at or below the 50th percentile of base salaries
for executives with similar positions among the peer companies. The Compensation
Committee considers this level of base salary sufficient, in the context of the
total compensation package, to attract and retain executives of the caliber
required to manage a company that employs leading edge technology in a fiercely
competitive, rapidly changing industry, while controlling this fixed component
of compensation in the event of poor business conditions or company performance.
On an individual basis, the base salaries of the Company's executive officers
range from the 30th percentile to the 75th percentile. Variation from the
targeted range is due to individual qualifications, including performance,
specific technical knowledge, experience and/or total targeted cash compensation
as judged by the Compensation Committee.
To complement base salary, the Compensation Committee administers the
Management Bonus Plan (the "Bonus Plan"). This Bonus Plan is designed to provide
substantial rewards for exceeding financial performance targets and little or no
payout when the Company performs poorly. Specifically, the Bonus Plan provides a
pool of funds available for bonus payments based on the Company's operating
income as compared to the Annual Operating Plan as approved by the Board of
Directors in the first quarter of each fiscal year. The maximum pool is equal to
7% of operating income when actual operating income is greater than or equal to
122% of the Annual Operating Plan. This percentage declines linearly to 2% of
operating income at a level of 66.67% of the Annual Operating Plan and to 0%
when there is no operating income or an operating loss. The Compensation
Committee allocates this pool to the executives, up to each executive's
pre-established maximum, and to other non-executive employees, based on its
judgment of each individual's contributions to the Company's financial and
operating performance. Since the Company sustained an operating loss in 1999, no
payments were accrued or paid under the Bonus Plan for the fiscal year.
The Compensation Committee also administers the Company's Discretionary
Bonus Plan (the "Discretionary Plan"). The Discretionary Plan is designed to
allow the Compensation Committee the flexibility to grant a bonus to an
executive if an executive has achieved a substantial objective during a time
when the Bonus Plan cannot provide a payout or if there is a specific retention
issue related to the executive's level of income. No payments were accrued or
made to officers under this plan for the 1999 fiscal year.
11
<PAGE>
In addition to cash compensation the Company's executive compensation
plan includes stock options that are designed to align the interests of the
executive officers with those of stockholders, providing each officer with a
significant incentive to manage the Company from the long-term perspective of an
owner with an equity stake in the business. The stock option plan encourages
long-term retention and provides rewards to executives and other eligible
employees commensurate with growth in stockholder value. The Primary Stock
Option Committee had the sole responsibility for making option grants to the
Company's executive officers during 1999. The Primary Stock Option Committee
also approved the guidelines for option grants made to other key employees
during that fiscal year. Based on a review of competitive data, the Primary
Stock Option Committee targeted total option grants for 1999 to fall within a
range of 2.5% - 4.0% of total shares outstanding. Due to continued difficult
market conditions, the inability to pay cash bonuses and the need to retain key
employees, actual option grants, net of cancellations, for the fiscal year
totaled 10.0% of the weighted average number of shares issued and outstanding.
All stock options were granted at market price on the date of grant and have a
maximum term of ten years.
The Primary Stock Option Committee has established guidelines for the
number of options to be granted to each level of executive officer,
non-executive management and key individual contributor based on analysis of
competitive data and internal estimates of the number of options necessary to
attract and retain these employees. These guidelines were used to determine the
range of options to be granted to each employee through the Company's annual
grant program. The Primary Stock Option Committee applied its judgment of
individual performance, with some consideration for the number of unvested
options held by an individual, when making specific grants to each executive
officer. These options will vest entirely in the fourth year after grant so that
generally the vesting will not overlap with previously granted options.
The Primary Stock Option Committee deemed it in the best interest of
the Company to grant new options, as a retention tool, since it was clear that
there would be no cash bonuses paid during 1999. Accordingly, in February, 1999
the Primary Stock Option Committee granted 228,455 shares to 5 current executive
officers. Each of these options becomes exercisable in the thirty-seventh (37th)
month following the date of grant. Each option will thereupon become exercisable
in a series of twelve (12) successive equal monthly installments over the
optionee's period of continued employment with the company. In August 1999, the
Primary Stock Option Committee granted 420,000 options to 5 current executive
officers. Each of these options becomes exercisable in a series of installments
with 25% vesting six months following grant date, and the remainder vesting over
the next nine months. In December, 1999, the Primary Stock Option Committee
granted 269,420 options to 5 current executive officers. Each of these options
becomes exercisable in a series of installments with 25% vesting one year
following grant date, and the remainder vesting in successive 25% annual
installments. Additionally in December, 1999 397,500 shares were granted to 4
current executive officers. Each of these options becomes exercisable in a
series of installments with 16.67% vesting nine months following grant date, and
the remainder vesting over the next 15 months. No former executive officer
option grants are included in the above numbers. Additionally, options granted
to Mr. Tan are detailed in the following discussion.
Compensation of the Chief Executive Officer
Base salary of Thian Hoo Tan for 1999 was at approximately the 50th
percentile of salaries paid to executives in comparable positions at the peer
companies, in accordance with the Compensation Committee's target. As no cash
bonuses were paid for 1999 under the Company's plans, Mr. Tan received no
variable compensation during the year. Mr. Tan was granted stock options for
1,714,595 shares during the year.
Compliance with Internal Revenue Code Section 162(m)
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a Federal income tax
deduction for compensation paid to certain officers, to the extent that
compensation exceeds one (1) million dollars per officer in any one year. This
limitation will be in effect for each fiscal year of the Company beginning after
December 31, 1993 and will apply to all compensation paid to the covered
executive officers which is not considered to be performance based.
Compensation, which does qualify as performance-based compensation, will not
have to be taken into account for purposes of this limitation. At the 1994
12
<PAGE>
Annual Meeting, the Company obtained stockholder approval for certain amendments
to the Company's Stock Option Plan which were designed to assure that any
compensation deemed paid in connection with the exercise of stock options
granted under that plan, with an exercise price equal to the market price of
Common Stock on the grant date, would qualify as performance-based compensation.
The Bonus Plan was restructured in 1996 and approved by stockholders so that the
payments made under that plan would also qualify as performance-based
compensation under Section 162(m) and the Company obtained a ruling from the
Internal Revenue Service that the payments under the Bonus Plan will qualify as
performance-based compensation. Stockholders subsequently approved an amendment
to the Bonus Plan in 1997, and future payments thereunder should continue to
qualify as performance-based compensation that would not be subject to the Code
Section 162(m) limitation on deductibility.
1999 MEMBERS OF THE COMPENSATION COMMITTEE
Irwin Federman Michael Splinter Masayoshi Takebayashi
1999 MEMBERS OF THE PRIMARY STOCK OPTION COMMITTEE
Irwin Federman Michael Splinter
The members of the Compensation Committee and the Primary Stock Option
Committee of the Company's Board of Directors are as named in the above report.
No member of either committee was at any time during the 1999 fiscal year, or at
any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more of its executive
officers serving as a member of the Company's Board of Directors, the
Compensation Committee, or the Primary Stock Option Committee. Mr. Takebayashi,
a member of the Company's Board of Directors, is an executive officer of Kobe
Precision, Inc. a wholly-owned subsidiary of Kobe Steel, Ltd. ("Kobe") and is a
member of the Board of Komag Materials Technology, a joint venture of the
Company and Kobe.
13
<PAGE>
Stock Performance Graph
The following graph shows a five-year comparison of cumulative total
return on common stock for the Company, the Nasdaq Composite Index, and the
Nasdaq Computer Manufacturers Index from December 30, 1994 through December 31,
1999.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
OF KOMAG, INCORPORATED, THE NASDAQ STOCK MARKET (US COMPANIES)
INDEX, AND THE NASDAQ COMPUTER MANUFACTURERS INDEX
<TABLE>
The chart above assumes $100 invested on December 30, 1994, in Komag,
Incorporated Common Stock, Nasdaq Composite Index and Nasdaq Computer
Manufacturers Index, and the reinvestment of dividends (although dividends have
not been declared on the Company's Common Stock). Historical returns are not
necessarily indicative of future performance. The graph was plotted using the
following data:
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Prices indexed to an
initial investment of
$100 12/30/94 12/29/95 12/27/96 12/26/97 12/31/98 12/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Komag, Incorporated $100.00 $176.56 $205.74 $109.57 $ 79.43 $ 23.92
- --------------------------------------------------------------------------------------------------------------------
Nasdaq Composite $100.00 $141.33 $174.11 $205.07 $300.25 $ 542.43
- --------------------------------------------------------------------------------------------------------------------
Nasdaq Computer Mfg $100.00 $157.45 $217.56 $242.85 $553.26 $1,163.21
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Summary of Cash and Certain Other Compensation
<TABLE>
The following table sets forth the compensation earned by the Company's
Chief Executive Officer, each of the Company's five most highly compensated
executive officers whose base salary and bonus for the 1999 fiscal year was in
excess of $100,000, and two additional former executive officers of the Company
who earned in excess of $100,000, for services rendered in all capacities to the
Company and its subsidiaries for the 1999, 1998 and 1997 fiscal years (the
"Named Executive Officers").
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
------------------- ------------
Name and All Other
Principal Stock Options Compen-
Position Year Salary Bonus Granted sation
-------- ---- ------ ----- ------- ------
($) (1) ($) (2) (# of shares) ($) (3)
<S> <C> <C> <C> <C> <C>
Thian H. Tan........................ 1999 $331,399 -- 1,714,595 $ 625
President and Chief Executive 1998 $257,216 -- 63,067 $ 625
Officer 1997 $230,000 $ 5,708 77,390 $ 5,161
Christopher H. Bajorek............ 1999 $372,922 -- 466,460 $ 625
Senior Vice President -- 1998 $321,000 -- 86,640 $ 625
Chief Technical Officer 1997 $316,654 $ 7,966 160,825 $ 6,956
William L. Potts, Jr. (5)...... 1999 $284,462 -- 445,190 $ 625
Senior Vice President, Chief 1998 $245,999 -- 49,150 $ 625
Financial Officer & Secretary 1997 $246,000 $ 6,105 29,835 $ 5,477
Ray L. Martin............. 1999 $275,464 -- 201,530 $ 625
Senior Vice President - Customer 1998 $252,847 -- 90,000 $ 625
Sales and Service 1997 $ 46,538 -- 60,000 --
Tsotomu T. Yamashita............. 1999 $209,744 -- 269,120 $ 625
Vice President - Process 1998 $199,526 -- 50,055 $ 625
Development 1997 $197,999 $ 4,913 77,165 $ 4,530
Tu Chen (4)...................... 1999 $287,416 -- 150,000 $ 147,551
Former Chairman of the Board of 1998 $428,000 -- 113,500 $ 625
Directors 1997 $428,000 $10,621 113,810 $ 9,067
Stephen C. Johnson (4)........... 1999 $287,414 -- 150,000 $ 109,290
Former President, Chief 1998 $428,000 -- 113,500 $ 625
Executive Officer 1997 $428,000 $10,621 113,810 $ 9,067
- ------------------------------------------------------------------------------------------------------------
15
<PAGE>
<FN>
(1) Includes salary deferred under the Komag Savings and Deferred Profit
Sharing Plan and the Company's Non-Qualified Deferred Compensation Plan.
(2) Includes amounts earned for the indicated year under the Company's Cash
Profit Sharing Plan, the Management Bonus Plan and the Discretionary Bonus
Plan. Amounts earned under the Cash Profit Sharing Plan are accrued during
a given year and are paid in July of that year and January or February of
the following year. Bonuses earned under the Management Bonus Plan are
accrued during a given year and paid in January or February of the
following year. Bonuses under the Discretionary Bonus Plan are awarded by
the Compensation Committee for a particular fiscal year solely on the basis
of such Committee's competitive compensation analysis for that year and are
paid in January or February of the following year. For the 1999 fiscal
year, no bonuses were paid.
(3) Includes for the fiscal years indicated below: (i) the matching
contributions ($0.25 match per $1.00 individual contribution) made by the
Company on behalf of each Named Executive Officer to the Section 401(k)
Savings Program, up to a maximum match of $625 and (ii) the semi-annual
profit sharing contributions made by the Company on behalf of each Named
Executive Officer to the Savings and Deferred Profit-Sharing Plan and
Deferred Compensation Plan, and (iii) payments made to former officers upon
their termination for accrued but unused vacation.
(4) Dr. Chen and Mr. Johnson resigned from the company in August, 1999.
(5) Mr. Potts resigned from the company in February, 2000.
</FN>
</TABLE>
<TABLE>
<CAPTION>
All Other Compensation
------------------------------------------------- ---------------- ------------------- -------------------
Matching Profit Sharing Vacation
Contribution Contribution Payouts
<S> <C> <C> <C> <C>
Thian H. Tan 1999 $625 -- --
1998 $625 -- --
1997 $625 $4,536 --
Christopher H. Bajorek 1999 $625 -- --
1998 $625 -- --
1997 $625 $6,331 --
William L. Potts, Jr. 1999 $625 -- --
1998 $625 -- --
1997 $625 -- --
Ray L. Martin 1999 $625 -- --
1998 $625 -- --
1997 -- -- --
Tsutomu T. Yamashita 1999 $625 -- --
1998 $625 -- --
1997 $625 -- --
Tu Chen 1999 $625 -- $146,926
1998 $625 -- --
1997 $625 $8,442 --
Stephen C. Johnson 1999 $625 -- $108,655
1998 $625 -- --
1997 $625 $8,442 --
-------------------------------- ---------------- ---------------- ------------------- -------------------
</TABLE>
16
<PAGE>
Stock Options
<TABLE>
The following table provides information with respect to the stock
option grants made for the 1999 fiscal year under the Company's Restated 1987
Stock Option Plan to the Named Executive Officers. Except for the limited stock
appreciation right described below, which formed part of the option grant made
to each of the Named Executive Officers, no stock appreciation rights were
granted to such individuals during the 1999 fiscal year. Potential Realizable
Values noted below reflect hypothetical appreciation based on the stock price at
grant date.
<CAPTION>
OPTION GRANTS TABLE
Potential Realizable
Value at
Assumed Annual Rates
Stock Price Appreciation
Individual Grants For Option Term
----------------- ---------------
% of Total
Number of Options Exercise or Valuation
Securities Granted to Base Price Expira- per SFAS
Date of Underlying Employees in ($/Share) tion 123
Name Grant Options Granted Fiscal Year (1) Date 5% ($) (2) 10%($) (2) pro forma(3)
- ---- ------ --------------- ----------- --- ---- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thian H. Tan 2/4/99 109,800 1.1248 $9.6875 2/4/09 $668,947 $1,695,244 $236,520
8/4/99 1,000,000 10.2438 $3.9063 8/4/09 $2,456,651 $6,225,636 $868,600
11/3/99 500,000 5.1218 $1.6875 11/3/09 $530,630 $1,344,720 $187,600
12/23/99 104,795 1.0735 $3.0000 12/23/09 $197,715 $501,049 $69,909
Christopher H. Bajorek 2/4/99 83,230 0.8526 $9.6875 2/4/09 $507,072 $1,285,020 $179,286
8/26/99 150,000 1.5365 $3.5625 8/26/09 $336,066 $851,656 $118,830
12/7/99 150,000 1.5366 $2.2500 12/7/09 $212,252 $537,888 $75,045
12/23/99 83,230 0.8526 $3.0000 12/23/09 $157,029 $397,942 $55,523
William L. Potts, Jr. 2/4/99 61,960 0.6347 $9.6875 2/4/09 $377,486 $956,624 $133,468
8/26/99 150,000 1.5366 $3.5625 8/26/09 $336,066 $851,656 $118,830
12/7/99 150,000 1.5366 $2.2500 12/7/09 $212,252 $537,888 $75,045
12/23/99 83,230 0.8526 $3.0000 12/23/09 $157,029 $397,942 $55,523
Ray L. Martin 2/4/99 49,570 0.5078 $9.6875 2/4/09 $302,001 $765,330 $106,779
8/26/99 90,000 0.9219 $3.5625 8/26/09 $201,639 $510,994 $71,298
12/23/99 61,960 0.6347 $3.0000 12/23/09 $116,899 $296,245 $41,334
Tsutomu T. Yamashita 2/4/99 39,610 0.4057 $9.6875 2/4/09 $241,321 $611,554 $85,324
8/26/99 90,000 0.9219 $3.5625 8/26/09 $201,639 $510,994 $71,298
12/7/99 90,000 0.9219 $2.2500 12/7/09 $127,351 $322,733 $45,027
12/23/99 49,510 0.5071 $3.0000 12/23/09 $93,410 $236,719 $33,028
Tu Chen 2/4/99 150,000 1.5366 $9.6875 2/4/09 $913,863 $2,315,907 $323,115
Stephen C. Johnson 2/4/99 150,000 1.5366 $9.6875 2/4/09 $913,863 $2,315,907 $323,115
</TABLE>
17
<PAGE>
Each new option has a maximum term of 10 years, subject to earlier
termination upon the optionee's cessation of service. Each option will become
immediately exercisable for all the option shares in the event the Company is
acquired by a merger or asset sale (unless the option is assumed or replaced by
the acquiring entity) or in the event the optionee's employment terminates by
reason of death or permanent disability. Each option includes a limited stock
appreciation right which would result in the cancellation of that option upon a
take-over of the Company effected through a hostile tender offer for more than
50% of the Company's outstanding Common Stock. In return, the optionee will be
entitled to a cash distribution from the Company per canceled option share equal
to the highest reported price paid per share of Common Stock in such tender
offer less the option exercise price per share.
(1) The exercise price may be paid in cash, in shares of the Company's
Common Stock valued at fair market value on the exercise date, or
through a cashless exercise procedure involving a same-day sale of the
purchased shares.
(2) There is no assurance provided to any executive officer, or any other
holder of the Company's securities, that the actual stock price
appreciation from the grant date and over the 10 year option term will
be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the Common Stock appreciates over the option
term, no value will be realized from the option grants made to the
executive officers.
(3) For purposes of such pro forma disclosure, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk-free interest
rate of 5.75%; volatility factor of the expected market price of the
Company's Common Stock of 90.4%; and a weighted-average expected life
of such options of 4.3 years. There was no dividend yield included in
the calculation since the Company does not pay dividends. The
weighted-average fair value of options granted to all employees during
1999 was $4.38. For officer grants during 1999, the weighted-average
fair value of the options was $3.99.
Option Exercises and Holdings
The table below sets forth information concerning the exercise of
options during the 1999 fiscal year and unexercised options held as of the end
of such year by the Named Executive Officers. No stock appreciation rights were
exercised during such fiscal year, and except for the limited stock appreciation
rights described immediately following the Option Grant Table above which form
part of each stock option grant, no stock appreciation rights were outstanding
at the end of such fiscal year.
18
<PAGE>
<TABLE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Value:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Securities Underlying In-The-Money
Shares Unexercised Options Options at Fiscal
Acquired Value At Fiscal Year-End (#) Year-End ($) (2)
on Exercise Realized (1) Exercisable (E)/ Exercisable (E)/
Name (#) (#) Unexercisable (U) Unexercisable(U)
---- --- --- ----------------- ----------------
<S> <C> <C> <C> <C>
Thian H. Tan -- -- 78,539 E $ -- E
1,806,629 U $ 731,849 U
Christopher H. Bajorek -- -- 154,072 E $ -- E
634,528 U $ 141,654 U
William L. Potts, Jr. -- -- 115,369 E $ -- E
521,541 U $ 141,654 U
Tsutomu T. Yamashita -- -- 104,212 E $ -- E
353,635 U $ 84,939 U
Ray L. Martin. -- -- 61,244 E $ -- E
290,286 U $ 7,745 U
Tu Chen -- -- 294,846 E $ -- E
-- U $ -- U
Stephen C. Johnson -- -- 369,306 E $ -- E
-- U $ -- U
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) Value Realized equals the market price value of the shares at the time of
exercise less the exercise price thereof.
(2) Excess of the closing price per share of the Company's Common Stock at the
end of the fiscal year ($3.125) over the option exercise price. If the
closing price is less than the exercise price, then the value of
unexercised options equals zero.
</FN>
</TABLE>
Officer Loans
The Company has advanced a total sum of $281,010 to Mr. Bajorek during
the 1997, 1998, and 1999 fiscal years as a personal loan. The advances bear
interest at the market rate required under the federal tax laws. The highest
amount outstanding under these advances during the 1999 fiscal year was
$281,010, and as of February 27, 2000, the amount outstanding was $283,772.
The Company has advanced a total sum of $233,684 to Mr. Thian H. Tan
during the 1998 fiscal year as a personal loan. The advances bear interest at
the market rate required under the federal tax laws. The highest amount
outstanding under these advances during the 1999 fiscal year was $63,684, and as
of February 27, 2000, the amount outstanding was $33,933.
19
<PAGE>
Compliance with Section 16(a) Beneficial Ownership Reporting
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Commission initial reports of ownership and reports of changes in ownership
of common stock and other equity securities of the Company. Officers, directors
and greater than ten percent stockholders are required by Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon written review of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 2, 2000, all Section
16(a) filing requirements applicable to the Company's officers, directors and
greater than ten percent stockholders were met in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1999, the Company purchased the assets of Western Digital
Corporation's ("WDC's") media operations through the issuance of approximately
10.8 million shares of the Company's Common Stock and a note in the principal
amount of $30.1 million. The shares issued in the transaction, which represented
16.7% of the Company's outstanding shares on a post-issuance basis, were
originally unregistered and subject to trading restrictions. WDC may resell
these shares in specified increments over a three and one-half year period under
registration rights granted by the Company or under SEC rules after expiration
of the required holding periods. The Company registered 30% of the shares in
January 2000 pursuant to the agreement. Principal and interest accrued on the
note are due in three years and the note is subordinated to the Company's senior
credit facilities. In the event WDC realizes a return on its Komag equity
holdings in excess of a targeted amount within three years, the excess amount
will reduce the balance due under the note. The Company discounted the principal
amount of the subordinated note payable to $21.2 million based on the Company's
estimated incremental borrowing rate at the time of the acquisition of 18% for
this class of financial instrument.
Additionally, the Company and WDC signed a volume purchase agreement
under which the Company agreed to supply a substantial portion of WDC's media
needs over the next three years. Under the volume purchase agreement WDC began
to purchase the majority of its media requirements from the Company after the
closing date. During 1999, revenue from WDC approximated $183,511,000 subsequent
to the asset purchase.
OTHER BUSINESS
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other matters are properly
brought before the Annual 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.
20
<PAGE>
STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proposals that they believe
should be voted upon at the Annual Meeting or nominate persons for election to
the Board of Directors. In accordance with the Company's Bylaws and applicable
rules under the Securities Exchange Act of 1934, as amended, any such proposal
or nomination must be submitted in writing to the Secretary of the Company no
later than December 31, 2000. As set forth in the Company's Bylaws, this
submission must include certain specified information concerning the proposal or
nominee, as the case may be. Proposals or nominations not meeting these
requirements will not be entertained at the Annual Meeting. The Secretary should
be contacted in writing at the address on the first page of this Proxy Statement
to make any submission or to obtain additional information as to the proper form
and content of submissions. Stockholders interested in submitting such a
proposal are advised to contact knowledgeable counsel with regards to the
detailed requirements of submitting such a proposal.
By Order of the Board of Directors
Thian H. Tan
President and Chief Executive Officer
21
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KOMAG, INCORPORATED
The annual meeting of Stockholders will be held at 10:00 a.m. on
Wednesday, May 10, 2000, at Komag, Incorporated, Building 10, located at:
1710 Automation Parkway
San Jose, California 95131
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