|Corporate Governance Guidelines|
The Board of Directors (the “Board”) of NeoPhotonics Corporation (the “Company”) has established the following guidelines (“Governance Guidelines”) for the conduct and operation of the Board.
1. BOARD COMPOSITION AND SELECTION
1.1 Size and Classes of the Board
The number of directors shall be established by the Board in accordance with the Bylaws of the Company. The Board periodically reviews the appropriate size of the Board, which may vary to accommodate the availability of suitable candidates and the needs of the Company. The Board is divided into three classes that serve staggered three-year terms and are as nearly as equal as possible.
1.2 Independence of Directors
It is the policy of the Company that the Board be composed of not less than a majority of independent directors, subject to any exceptions permitted by the New York Stock Exchange (“NYSE”) listing standards. In determining independence, the Board will consider the definition of independence set forth in the NYSE listing standards, as well as other factors that will contribute to effective oversight and decision-making by the Board.
1.3 Management Directors
The Board anticipates that the Company’s Chief Executive Officer will be nominated to serve on the Board. The Board may also appoint or nominate other members of the Company’s management whose experience and role at the Company are expected to assist the Board in fulfilling its responsibilities.
1.4 Selection of Chief Executive Officer and Chairman of the Board; Lead Independent Director
The Board will select the Company’s Chief Executive Officer and Chairman of the Board (“Chairman”) in the manner that it determines to be in the best interests of the Company’s stockholders. It is the policy of the Company that the positions of Chief Executive Officer and Chairman may be held by the same person, as the Board believes that that this practice has been effective for a number of years. The Board recognizes, however, that there may be circumstances that arise in the future that would lead it to separate these offices. The Chairman, or if the Chairman is not an independent director, one of the independent directors, may be designated by the Board as lead independent director to serve until replaced by the Board (the “Lead Independent Director”). The Lead Independent Director will have the following responsibilities:
1.5 Selection of Directors
The Board will be responsible for nominating members for election to the Board by the Company’s stockholders at the annual meeting of stockholders. The Board is also responsible for filling vacancies on the Board that may occur between annual meetings of stockholders. The Nominating and Corporate Governance Committee is responsible for identifying, reviewing and evaluating and recommending to the Board candidates to serve as directors of the Company, in accordance with its charter and consistent with the criteria set by the Board in Section 1.6 below. The invitation to join the Board should be extended by the Chairman.
1.6 Board Membership Criteria
The Board will determine the appropriate characteristics, skills and experience for the Board as a whole and for its individual members. The Board considers recommendations for nominees from the Nominating and Corporate Governance Committee. In selecting candidates and existing directors for service on the Board, the minimum general criteria set forth below will be considered; specific additional criteria may be added with respect to specific searches. An acceptable candidate may not fully satisfy all of the criteria, but is expected to satisfy nearly all of them. The Board believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. In considering candidates recommended by the Nominating and Corporate Governance Committee, the Board intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of the Company’s stockholders. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Board considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the Board and the Company, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Board reviews such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Board also determines whether the nominee must be independent for NYSE purposes.
1.7 Changes in Board Member Criteria
The Board and the Company wish to maintain a Board composed of members who can productively contribute to the success of the Company. From time to time, the Board may change the criteria for Board membership to maximize the opportunity to achieve this success. When this occurs, existing members will be evaluated according to the new criteria. A director who no longer meets the complete criteria for board membership may be asked to adjust his or her committee assignments or resign from the Board.
1.8 Term Limits
The Board does not believe it should limit the number of terms for which an individual may serve as a director. Directors who have served on the Board for an extended period of time are able to provide continuity and valuable insight into the Company, its operations and prospects based on their experience with, and understanding of, the Company’s history, policies and objectives. The Board believes that, as an alternative to term limits, it can ensure that the Board continues to evolve and adopt new ideas and viewpoints through the director nomination process described in these Governance Guidelines.
1.9 Limits on Board Memberships
The Board does not believe that its members should be prohibited from serving on boards or committees of other companies, and the Board has not adopted any guidelines limiting such activities. Directors should advise the Chairman and the Chairman of the Nominating and Corporate Governance Committee in advance of accepting an invitation to serve on the board or board committee of another company. The Board and the Nominating and Corporate Governance Committee will take into account the nature and time involved in a directors’ service on other boards in evaluating the suitability of directors. Service on boards and board committees of other companies should be consistent with the Company’s conflict-of-interest policies.
1.10 Retirement Age
The Board does not believe that a fixed retirement age for directors is appropriate.
1.11 Directors Who Change Their Job Responsibility
A director who retires from his or her present employment or who materially changes his or her position should promptly notify the Board and the Nominating and Corporate Governance Committee. The Board does not believe any director who retires from his or her present employment, or who materially changes his or her position, should necessarily leave the Board; however, there should be an opportunity for the Board, through the Nominating and Corporate Governance Committee, to review the continued appropriateness of Board membership under these circumstances.
1.12 Policy regarding Voting For Election of Directors in Uncontested Elections.
The Board (or any committee thereof) shall nominate for election or re-election as director in an uncontested election of directors (i.e., an election in which the number of nominees at such meeting, determined as of a date that is fourteen (14) days in advance of the date the Company files its definitive proxy statement (regardless of whether or not thereafter revised or supplemented) with the Securities and Exchange Commission, is not more than the number of directors to be elected) only those candidates who have tendered an irrevocable resignation as a director, which resignation shall be conditioned upon both (1) such director having failed to receive more “for” votes than “withheld” votes in an uncontested election and (2) acceptance by the Board of such resignation.
A candidate shall not be required to submit such a conditional resignation in an election that is not an uncontested election.
If, in an uncontested election, a director fails to receive more “for” votes than “withheld” votes for election, then the Nominating and Corporate Governance Committee will act to determine whether to recommend to the Board that the Board accept the director’s conditional resignation and will submit such recommendation for prompt consideration by the Board, and the Board will act on the Nominating and Corporate Governance Committee’s recommendation within 60 days following certification of the stockholder vote. In making their decision, the Nominating and Corporate Governance Committee and the Board will evaluate the best interests of the Company and its stockholders and shall consider all factors and information deemed relevant.
A director shall not participate in the Nominating and Corporate Governance Committee recommendation or Board action regarding whether to accept the conditional resignation of such director. If directors constituting a majority of the members of the Nominating and Corporate Governance Committee fail to receive the required vote in favor of his or her election in the same uncontested election, then the independent directors of the Board, excluding the directors who failed to receive the required vote, shall appoint a committee amongst themselves to consider the conditional resignations and recommend to the Board whether to accept them. If the directors, excluding the directors who failed to receive the required vote, shall be of an insufficient number to constitute a quorum of the Board, then all directors may participate in the action regarding whether to accept the conditional resignations.
If the Board shall determine not to accept the resignation of a director, the Board will promptly disclose its decision-making process and decision to reject the conditional resignation in a Form 8-K furnished to the Securities and Exchange Commission.
2. ROLE OF THE BOARD OF DIRECTORS
The Board is selected by the stockholders to provide oversight of, and strategic guidance to, senior management. The core responsibility of a Board member is to fulfill his or her fiduciary duties of care and loyalty and otherwise to exercise his or her business judgment in the best interests of the Company and its stockholders. Service on the Board requires significant time and attention on the part of directors. More specifically, the Board has responsibilities to review, approve and monitor fundamental financial and business strategies and major corporate actions, assess major risks facing the Company and consider ways to address those risks, select and oversee management and determine its composition and oversee the establishment and maintenance of processes and conditions to maintain the integrity of the Company. Directors must participate in Board meetings, review relevant materials, serve on committees and prepare for meetings and discussions with management. Directors are expected to maintain an attitude of constructive involvement and oversight; they are expected to ask relevant, incisive and probing questions and require honest and accurate answers. Directors must act with integrity and are expected to demonstrate a commitment to the company, its values and its business and to longterm stockholder value. Directors are encouraged to attend the Company’s annual meeting of stockholders, either in person or telephonically.
3. DIRECTOR ORIENTATION AND EDUCATION
The Nominating and Corporate Governance Committee will implement an orientation process for directors that includes background material on the Company’s policies and procedures, meetings with senior management and visits to Company facilities. The Company may, from time to time, offer continuing education programs to assist the directors in maintaining the level of expertise to perform his or her duties as a director.
4. DIRECTOR COMPENSATION
The form and amount of director compensation for Board and committee service for nonmanagement directors shall be determined by the Compensation Committee in accordance with the principles set forth in its charter and applicable legal and regulatory guidelines. The amount of compensation for non-management directors and committee members should be consistent with market practices of similarly situated companies. In determining compensation, the Compensation Committee will consider the impact on the director’s independence and objectivity.
5. BOARD MEETINGS
5.1 Number of Meetings
The Board expects to have at least four (4) regular meetings each year.
Board members are expected to attend all meetings of the Board and committees on which they serve. Directors must notify the Chairman of circumstances preventing attendance at a meeting.
5.3 Preparation and Commitment
The Company will provide directors with appropriate preparatory materials in advance of a meeting, but in any event not later than three days prior to the meeting, except in unusual circumstances. Directors are expected to rigorously prepare for, attend, and participate in all Board and committee meetings. Each director is expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as director.
The Chairman will establish a schedule of subjects to be discussed during the year (to the extent this can be foreseen) and an agenda for each Board meeting. Each Board member is encouraged to suggest the inclusion of items on the agenda at any time. Each Board member is free to raise at any Board meeting subjects that are not on the agenda for that meeting.
5.5 Executive Session
The independent non-management directors of the Board will meet periodically in executive session. Executive session discussions may include such topics as the independent non-management directors determine. The directors generally shall not take formal action at these sessions, but may make recommendations for consideration by the full Board. Executive sessions will be chaired by the Lead Independent Director or on a rotating basis by the Chairmen of the Compensation, Nominating and Audit Committees.
5.6 Committee Reports
At each regular Board meeting, each committee that held a meeting subsequent to the last Board meeting and prior to the current Board meeting will present a brief summary of its committee meeting to the Board, including the principal subjects discussed and the conclusions and actions of the committee. In general, the Chairman of the appropriate committee will present such report.
5.7 Operating Plan
Every year the Board will review and approve an operating plan for the Company.
6. BOARD COMMITTEES
6.1 Number of Committees; Independence of Members
The committee structure of the Board will consist of at least (a) an Audit Committee, (b) a Compensation Committee, and (c) a Nominating and Corporate Governance Committee. The Board may form, merge or dissolve committees as it deems appropriate from time to time. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee shall be composed entirely of independent directors, as and when required under NYSE corporate governance standards.
6.2 Committee Functions
Audit Committee. The Audit Committee oversees the Company’s corporate accounting and financial reporting process. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of the independent auditors; determines and approves the scope of the engagement and compensation of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent auditors on the Company’s audit engagement team as required by law; confers with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviews the financial statements to be included in the Company’s Annual Report on Form 10-K; and discusses with management and the independent auditors the results of the annual audit and the results of the Company’s quarterly financial statements.
Compensation Committee. The Compensation Committee reviews and approves the overall compensation strategy and policies for the Company. The Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of the Company’s executive officers and other senior management; reviews and approves the compensation and other terms of employment of the Company’s Chief Executive Officer; reviews and approves the compensation and other terms of employment of the other executive officers and senior members of management; and administers the Company’s stock option and purchase plans, pension and profit sharing plans, stock bonus plans, deferred compensation plans and other similar programs.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee identifies, reviews and evaluates candidates to serve as directors of the Company (consistent with criteria approved by the Board); reviews and evaluates incumbent directors; selects or recommends to the Board for selection candidates for election to the board of directors; makes recommendations to the Board regarding the membership of the committees of the Board; and assesses the performance of management and the Board, and develops a set of corporate governance principles for the Company.
6.3 Committee Charters
All standing committees will operate pursuant to a written charter, which sets forth the responsibilities of the committee and procedures that the committee will follow. Unless otherwise directed by the Board, new committees formed by the Board will develop a written charter delineating its responsibilities. The charters of all committees will be subject to periodic review and assessment by each committee and each committee shall recommend any proposed charter changes to the Board.
6.4 Board Committee Membership
The Nominating and Corporate Governance Committee oversees the Board’s committee structure and operations, including authority to delegate to subcommittees and committee reporting to the Board. The Nominating and Corporate Governance Committee, after due consideration of the interests, independence and experience of the individual directors and the independence and experience requirements of the NYSE, the rules and regulations of the Securities and Exchange Commission and applicable law, recommends to the Board annually the chairmanship and membership of each committee.
6.5 Committee Meetings and Agenda
The committee Chairman, in consultation with committee members, will determine the frequency and length of the meetings of the committee, consistent with any requirements set forth in the committee’s charter. The Chairman of each committee, in consultation with the appropriate members of the committee and management and the Lead Independent Director, will develop the committee’s agenda.
7. BOARD ACCESS TO MANAGEMENT; USE OF OUTSIDE DIRECTORS
Board members have complete and open access to the Company’s management. It is assumed that Board members will use judgment to ensure that this contact is not distracting to the operations of the Company or to the manages’ duties and responsibilities and that such contact, to the extent reasonably practical or appropriate, will be coordinated with the Chief Executive Officer. Written communications to management should, whenever appropriate, be copied to the Chief Executive Officer.
The Board and each committee shall have the power to hire at the expense of the Company, independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of the Company in advance.
8. CHIEF EXECUTIVE OFFICER EVALUATION; SUCCESSION PLANNING
The Board should conduct an annual review of the Chief Executive Officer’s performance. The evaluation should be based on objective criteria including performance of the business, accomplishment of long-term strategic objectives and the development of management. The evaluation will be used by the Compensation Committee in the course of its deliberations when considering the compensation of the Chief Executive Officer.
The Compensation Committee should periodically review with the Chief Executive Officer the Company’s plan for succession to the offices of the Company’s Chief Executive Officer and make recommendations to the Board with respect to the selection of appropriate individuals to succeed to this position. The Chief Executive Officer should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.
9. BOARD ASSESSMENT
The Nominating and Corporate Governance Committee will conduct an annual self-evaluation to determine whether the Board and its committees are functioning effectively. The Nominating and Corporate Governance Committee will receive feedback from all directors and report annually to the Board with an assessment. The assessment should include an evaluation of (a) the Board’s and each committee’s contribution as a whole and effectiveness in serving the best interests of the Company and its stockholders, (b) specific areas in which the Board and management believe that the performance of the Board and its committees could be improved, (c) and overall Board composition and makeup. The results of these evaluations should be provided to the Board for further discussion as appropriate.
10. STOCK OWNERSHIP GUIDELINES
In order to align the interests of the Company’s directors and Chief Executive Officer with the Company’s stockholders, the Board believes that directors and the Chief Executive Officer should have a significant financial stake in the Company. Accordingly, the Board believes that each non-employee director should own shares of the Company’s Common Stock with a value equal at least to three times the current cash annual retainer for Board service, which as of January 2017 is equivalent to $127,500 based on a $42,500 annual retainer. Non-employee directors have a three year period from either (i) January 1, 2017 or (ii) the date such non-employee director joins the Board, whichever is later, over which to achieve this ownership level.
The Board believes that the Chief Executive Officer should own shares of the Company’s Common Stock with a value equal to or exceeding three times his or her then current annual base salary. The Chief Executive Officer should attain this ownership level within two years from (i) October 24, 2017 or (i) the date of becoming the Chief Executive Officer, whichever is later.
The Board believes that all U.S.-based officers of the Company who are required to file reports of securities ownership and changes in ownership under Section 16 of the Securities Exchange Act of 1934, as amended (“Section 16 Officers”) should own shares of the Company’s Common Stock with a value equal to or exceeding his or her then current annual base salary. Each Section 16 Officer should attain this ownership level within two years from (i) October 24, 2017 or (i) the date of becoming a Section 16 Officer, whichever is later.
At its discretion, the Board may evaluate whether these requirements should be waived in the case of any director, Chief Executive Officer or Section 16 Officer, who, because of his or her personal circumstances, would incur a hardship by complying with these requirements.
11. REVIEW OF GOVERNANCE GUIDELINES
The Nominating and Corporate Governance Committee will review and assess the adequacy of these Governance Guidelines at least annually and recommend any proposed changes to the Board for approval.