<PAGE> 1
APPLIED MATERIALS, INC.
3050 Bowers Avenue
Santa Clara, California 95054
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MARCH 14, 1995
3:00 P.M.
To the Stockholders:
The Annual Meeting of Stockholders of Applied Materials, Inc. will be held
in the Santa Clara Room at the Renaissance Meeting Center at Techmart, 5201
Great America Parkway, Santa Clara, California on Tuesday, March 14, 1995 at
3:00 p.m. for the following reasons:
1. To elect ten directors to serve for a one-year term and until their
successors have been elected.
2. To approve the adoption of the 1995 Equity Incentive Plan.
3. To approve the adoption of the Senior Executive Bonus Plan.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on Friday, January 20,
1995 are entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof.
By Order of the Board of Directors
DONALD A. SLICHTER
Secretary
Santa Clara, California
January 31, 1995
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE> 2
APPLIED MATERIALS, INC.
3050 Bowers Avenue
Santa Clara, California 95054
------------------
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Applied Materials, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders of the Company to be held at 3:00 p.m. on March
14, 1995, and at any adjournment or postponement thereof (the "Annual Meeting"
or "Meeting"), for the reasons set forth in the accompanying Notice of Annual
Meeting of Stockholders. Only stockholders of record at the close of business on
January 20, 1995 are entitled to notice of and to vote at the Annual Meeting. On
that date, the Company had outstanding 84,200,464 shares of Common Stock.
Holders of Common Stock are entitled to one vote for each share held.
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the ten directors proposed by the Board unless the authority to vote for the
election of directors (or for any one or more nominees) is withheld and, if no
contrary instructions are given, the proxy will be voted FOR the adoption of the
1995 Equity Incentive Plan and FOR the adoption of the Senior Executive Bonus
Plan. Any stockholder signing a proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to or at the Meeting. A proxy may be
revoked by a writing delivered to the Secretary of the Company stating that the
proxy is revoked, by a subsequent proxy signed by the person who signed the
earlier proxy or by attendance at the Meeting and voting in person. Votes will
be tabulated by the inspector of elections of the Meeting and results will be
announced by the inspector of elections at the conclusion of the Meeting.
A majority of the shares entitled to vote, represented in person or by
proxy, constitutes a quorum. If a quorum is present, (i) a plurality vote of the
shares present, in person or by proxy, at the Meeting and entitled to vote is
required for the election of directors, and (ii) the affirmative vote of the
majority of the shares present, in person or by proxy, at the Meeting and
entitled to vote is required for the adoption of the 1995 Equity Incentive Plan
and the Senior Executive Bonus Plan. Abstentions are considered shares present
and entitled to vote, and therefore have the same legal effect as a vote against
a matter presented at the Meeting. Any shares held in street name for which the
broker or nominee receives no instructions from the beneficial owner, and as to
which such broker or nominee does not have discretionary voting authority under
applicable New York Stock Exchange rules, will be considered as shares not
entitled to vote and will therefore not be considered in the tabulation of the
votes.
The expense of soliciting proxies in the enclosed form will be paid by the
Company. Following the original mailing of the proxies and soliciting materials,
employees of the Company may solicit proxies by mail, telephone, facsimile
transmission and personal interviews. The Company will request brokers,
custodians, nominees and other record holders to forward copies of the proxies
and soliciting materials to persons for whom they hold shares of the Company's
Common Stock and to request authority for the exercise of proxies; in such
cases, the Company will reimburse such holders for their reasonable expenses.
Proxies will also be solicited on behalf of management by the firm of Skinner &
Co., whose fee ($4,000) and expenses (estimated to be $7,000) will be borne by
the Company.
This Proxy Statement was first mailed to stockholders on or about January
31, 1995.
<PAGE> 3
ITEM 1--ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting of Stockholders, a Board of ten directors will be
elected, each to hold office until his successor is elected and qualified, or
until his death, resignation or removal. Shares represented by the accompanying
proxy will be voted for the election of the ten nominees recommended by the
Board of Directors, who are named in the following table, unless the proxy is
marked in such a manner as to withhold authority so to vote. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the Meeting and entitled to vote on the election of
directors. All of the nominees except Mr. Kawanishi were elected directors by a
vote of the stockholders at the last Annual Meeting of Stockholders which was
held on March 3, 1994; Mr. Kawanishi was appointed as a director by the Board on
December 7, 1994. The Company has no reason to believe that the nominees for
election will not be available to serve their prescribed terms. However, if any
nominee for any reason is unable to serve or will not serve, the proxy may be
voted for such substitute nominee as the persons appointed in the proxy may in
their discretion determine.
Dr. Hiroo Toyoda, who has served on the Board of Directors since 1985, has
advised the Board that, for personal reasons, he will not be a candidate for
reelection to the Board and that he will retire as a director immediately upon
conclusion of the 1995 Annual Meeting of Stockholders.
The following table sets forth certain information concerning the nominees
which is based on data furnished by them.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- - - - ------------------------- --- --------------------------------------------- --------
<S> <C> <C> <C>
James C. Morgan 56 Chairman of the Board and Chief Executive 1977
Officer of the Company
James W. Bagley 56 Vice-Chairman of the Board and Chief 1987
Operating Officer of the Company
Dan Maydan 59 President of the Company and Co-Chairman of 1992
Applied Komatsu Technology, Inc.
Michael H. Armacost 57 Distinguished Senior Fellow and Visiting 1993
Professor at the Asia/Pacific Research
Center, Stanford University
Herbert M. Dwight, Jr.** 64 President, Chairman and Chief Executive 1981
Officer of Optical Coating Laboratory, Inc.
George B. Farnsworth** 71 Former Senior Vice President and Group 1974
Executive, Aerospace Business Group, of
General Electric Co.
Philip V. Gerdine* 55 Executive Director (Overseas Acquisitions) of 1976
Siemens AG
Tsuyoshi Kawanishi 65 Senior Adviser to Toshiba Corporation 1994
Paul R. Low* 61 Chief Executive Officer of P.R.L. Associates 1992
Alfred J. Stein** 62 Chairman and Chief Executive Officer of VLSI 1981
Technology, Inc.
</TABLE>
- - - - ---------------
* Member of Audit Committee
** Member of Stock Option and Compensation Committee
There is no family relationship between any of the foregoing nominees or
between any of such nominees and any of the Company's executive officers. The
Company's executive officers serve at the discretion of the Board of Directors.
James C. Morgan has been Chairman of the Board of the Company since 1987
and Chief Executive Officer of the Company since February 1977.
2
<PAGE> 4
James W. Bagley has been Chief Operating Officer of the Company since
December 1987 and Vice-Chairman of the Board of the Company since December 1993.
From December 1987 through December 1993, he was President of the Company. Mr.
Bagley is a director of Kulicke and Soffa Industries, Inc., Tencor Instruments
and Megatest Corp.
Dan Maydan has been President of the Company since December 1993 and a
Chairman of Applied Komatsu Technology, Inc. (formerly Applied Display
Technology, Inc.) since December 1991. From 1990 through December 1993, he was
Executive Vice President of the Company. During 1989 and 1990, Dr. Maydan was a
Group Vice President of the Company. From March 1984 through February 1989, Dr.
Maydan was a Vice President of the Company.
Michael H. Armacost has been a Distinguished Senior Fellow and Visiting
Professor at the Asia/Pacific Research Center, Stanford University since 1993.
From 1989 to 1993, he was the U.S. Ambassador to Japan. From 1984 to 1989, he
was Undersecretary of State for Political Affairs, U.S. Department of State. Mr.
Armacost is a director of TRW, Inc. and AFLAC Incorporated.
Herbert M. Dwight, Jr. has been President, Chairman and Chief Executive
Officer of Optical Coating Laboratory, Inc., a manufacturer of optical thin
films and components, since August 1991. From 1988 through 1991, Mr. Dwight was
President and Chief Executive Officer of Superconductor Technologies, Inc., a
high temperature superconductor research and development company. Mr. Dwight is
a director of Applied Magnetics Corporation, Laserscope and Trans Ocean Leasing
Corp.
George B. Farnsworth has been retired since January 1986. From September
1981 through January 1986, he was Senior Vice President and Group Executive,
Aerospace Business Group, of General Electric Co.
Philip V. Gerdine has been Executive Director (Overseas Acquisitions) of
Siemens AG, Munich, Germany, a manufacturer of electrical and electronic
products, since October 1990. From September 1989 to October 1990, Dr. Gerdine
was Managing Director of The Plessey Company, plc, London. From September 1988
to September 1989, he was a Vice President of Siemens Corporation, New York.
Tsuyoshi Kawanishi has been Senior Adviser to Toshiba Corporation, a
manufacturer of electrical and electronic products, since June 1994. From June
1990 to June 1994, he was Senior Executive Vice President and a member of the
Board of Directors of Toshiba Corporation. From June 1988 to June 1990, he was
Executive Vice President and a member of the Board of Directors of Toshiba
Corporation.
Paul R. Low has been Chief Executive Officer of P.R.L. Associates, a
consulting firm, since July 1992. From July 1990 to July 1992, Dr. Low was a
Vice President, and General Manager of Technical Products, of International
Business Machines Corporation. From July 1987 to July 1990, Dr. Low was a Vice
President, and President of the Storage Division, of International Business
Machines Corporation. Dr. Low is a director of Solectron Corporation.
Alfred J. Stein has been Chairman and Chief Executive Officer of VLSI
Technology, Inc., a manufacturer of semiconductor devices, since March 1982. Mr.
Stein is a director of Tandy Corporation.
BOARD AND COMMITTEE MEETINGS
The Board of Directors met six times during fiscal 1994. Standing
committees of the Board include an Audit Committee, which met four times during
such fiscal year, and a Stock Option and Compensation Committee, which met five
times during such fiscal year. There is no nominating committee. However,
potential nominees are interviewed by outside directors, who submit their
recommendation to the Board.
The Audit Committee is comprised of Messrs. Gerdine (Chairman), Low and
Toyoda. Messrs. Armacost, Dwight, Farnsworth and Stein are alternate members.
All members and alternate members are non-employee directors. Pursuant to the
Audit Committee Charter, the Committee addresses on a regular basis matters
which include, among other things, (1) making recommendations to the Board of
Directors regarding engagement of independent auditors, (2) reviewing with
Company financial management the plans for and results of the independent audit
engagement, (3) reviewing the adequacy of the Company's system of internal
accounting controls, (4) monitoring the Company's internal audit program to
assure that areas of
3
<PAGE> 5
potential risk are adequately covered, and (5) reviewing legal and regulatory
matters that may have a material impact on the Company's financial statements.
The Stock Option and Compensation Committee is comprised of Messrs. Dwight
(Chairman), Farnsworth and Stein. Messrs. Armacost, Gerdine and Low are
alternate members. All members and alternate members are non-employee directors.
The Committee's primary functions are to determine remuneration policies
applicable to the Company's executive officers and to determine the bases of the
compensation of the Chief Executive Officer, including the factors and criteria
on which such compensation is to be based. The Committee also administers the
Company's 1976 Management Stock Option Plan and will administer the 1995 Equity
Incentive Plan and the Senior Executive Bonus Plan.
Except as described below, no incumbent director during fiscal 1994
attended fewer than seventy-five percent (75%) of the aggregate of (1) the total
number of meetings of the Board of Directors (held during the period for which
he has been a director) and (2) the total number of meetings held by all
committees of the Board on which he served (during the periods that he served).
Alfred J. Stein attended seventy-three percent (73%) of the aggregate of such
meetings.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company each receive a quarterly
retainer of $3,000, a fee of $2,000 for each Board meeting attended and a fee of
$500 for each committee meeting attended if the committee meets on a day other
than the day the Board meets. Dr. Toyoda and Mr. Kawanishi receive an additional
$1,200 for each Board meeting. Directors are reimbursed for out-of-pocket costs
incurred in connection with attending meetings, and directors who are not
residents of California are reimbursed for the costs of preparing California tax
returns. Dr. Toyoda and Mr. Kawanishi are also reimbursed for the costs of
preparing a U.S. federal tax return.
Through fiscal 1994, the only compensation plan in which the non-employee
directors participated was the 1985 Stock Option Plan for Non-Employee Directors
(the "1985 Director Plan"), which expired on the last day of fiscal 1994. The
Company is currently proposing to replace the 1985 Director Plan with the 1995
Equity Incentive Plan (the "1995 Plan"), which also governs grants to Company
employees. The 1995 Plan provisions pertaining to non-employee director option
grants are virtually identical to the corresponding provisions in the 1985
Director Plan, with certain exceptions pertaining to option expiration. See
"Item 2-- Adoption of the 1995 Equity Incentive Plan".
Under the 1985 Director Plan, options to purchase 20,000 shares of the
Company's Common Stock were automatically granted to each non-employee director
on the date such director was for the first time elected or appointed to the
Board of Directors. Thereafter, each such director was automatically granted
options to purchase 6,000 shares on the last day of each fiscal year, provided
that such automatic option grants were made only if the director was not an
employee of the Company or any subsidiary for any part of the fiscal year then
ending and had served on the Board of Directors for the entire fiscal year. The
exercise price for all options granted under the 1985 Director Plan was 100% of
the fair market value of the shares on the grant date and all options became
exercisable over a four-year period. The options expired five years after the
date of grant or, if earlier, seven months after the optionee ceased to be a
director or one year after his death.
4
<PAGE> 6
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information regarding beneficial
ownership of the Company's Common Stock as of November 1, 1994 by (i) each
person which is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) the Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers (the five officers shall be referred to as the "Named
Executive Officers"), and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS NUMBER PERCENT
------------------------------------------------------------- --------- -------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:
FMR Corp.
82 Devonshire St.
Boston, MA 02109........................................... 8,144,250(1) 9.68%
NON-EMPLOYEE DIRECTORS:
Michael H. Armacost.......................................... 1,000 *
Herbert M. Dwight, Jr. ...................................... 62,746(2) *
George B. Farnsworth......................................... 82,500(3) *
Philip V. Gerdine............................................ 40,500(4) *
Tsuyoshi Kawanishi........................................... 0 *
Paul R. Low.................................................. 10,500(5) *
Alfred J. Stein.............................................. 22,500(6) *
Dr. Hiroo Toyoda............................................. 34,500(7) *
NAMED EXECUTIVE OFFICERS:
James C. Morgan.............................................. 442,952 *
James W. Bagley.............................................. 142,655 *
Dan Maydan................................................... 118,505 *
Sasson Somekh................................................ 195,775 *
David N.K. Wang.............................................. 153,131(8) *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (15
PERSONS)................................................... 1,332,681(9) 1.58%
</TABLE>
- - - - ---------------
* Less than 1%
(1) This number includes 7,629,450 shares beneficially owned by Fidelity
Management & Research Company, as a result of its serving as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940 and to certain other funds which are
generally offered to limited groups of investors; 427,500 shares
beneficially owned by Fidelity Management Trust Company, as a result of its
serving as trustee or managing agent for various private investment accounts
(primarily employee benefit plans) and also serving as investment adviser to
certain other funds which are generally offered to limited groups of
investors; and 87,300 shares beneficially owned by Fidelity International
Limited, as a result of its serving as investment adviser to various
non-U.S. investment companies. FMR Corp. has sole voting power with respect
to 156,300 shares and sole dispositive power with respect to 8,056,950
shares. Fidelity International Limited has sole voting and dispositive power
with respect to all the shares it beneficially owns.
(2) Includes options to purchase 28,500 shares of Common Stock exercisable by
Mr. Dwight within 60 days of November 1, 1994.
(3) Includes options to purchase 28,500 shares of Common Stock exercisable by
Mr. Farnsworth within 60 days of November 1, 1994.
5
<PAGE> 7
(4) Includes options to purchase 28,500 shares of Common Stock exercisable by
Dr. Gerdine within 60 days of November 1, 1994.
(5) Includes options to purchase 10,500 shares of Common Stock exercisable by
Dr. Low within 60 days of November 1, 1994.
(6) Includes options to purchase 22,500 shares of Common Stock exercisable by
Mr. Stein within 60 days of November 1, 1994.
(7) Includes options to purchase 28,500 shares of Common Stock exercisable by
Dr. Toyoda within 60 days of November 1, 1994.
(8) Includes options to purchase 100,000 shares of Common Stock exercisable by
Dr. Wang within 60 days of November 1, 1994.
(9) Includes options to purchase 247,000 shares of Common Stock exercisable by
directors and executive officers within 60 days of November 1, 1994.
EXECUTIVE COMPENSATION
The following table contains information concerning compensation paid to
the Named Executive Officers for services rendered to the Company and its
subsidiaries in all capacities during the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION
------------------------------ AWARDS
OTHER ----------------------- PAYOUTS ALL
ANNUAL RESTRICTED SECURITIES ------- OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND FISCAL SALARY BONUS SATION(1) AWARDS OPTIONS PAYOUTS SATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- - - - -------------------------------------- ------ -------- -------- -------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James C. Morgan....................... 1994 $520,309 $763,000 $ 0 $0 144,000 $ 0 $6,930
Chairman of the Board 1993 485,000 388,000 636,572 0 0 0 4,497
and Chief Executive Officer 1992 433,238 327,375 117,509 0 100,000 0 --
James W. Bagley....................... 1994 418,448 613,000 0 0 116,000 0 7,392
Vice-Chairman of the Board 1993 390,000 312,000 0 0 0 0 4,497
and Chief Operating Officer 1992 354,692 263,250 0 0 80,000 0 --
Dan Maydan............................ 1994 359,520 527,000 0 0 100,000 0 6,930
President of the Company 1993 335,000 268,000 0 0 0 0 4,497
and Co-Chairman of Applied 1992 312,118 226,125 0 0 96,000 0 --
Komatsu Technology, Inc.
Sasson Somekh......................... 1994 239,520 251,000 0 0 56,000 0 3,465
Senior Vice President, 1993 214,884 206,400 0 0 0 0 4,497
Worldwide Products Operations 1992 200,000 258,000 0 0 40,000 0 --
David N.K. Wang....................... 1994 239,520 251,000 0 0 56,000 0 3,465
Senior Vice President, 1993 214,884 225,800 0 0 0 0 4,497
Worldwide Business Operations 1992 200,000 161,800 0 0 40,000 0 --
</TABLE>
- - - - ---------------
(1) Represents payments made to Mr. Morgan under the Supplemental Income Plan,
which provides supplemental income and death and disability benefits to
certain current and former executives designated by the Stock Option and
Compensation Committee in 1981. In fiscal 1993, the Committee elected to
pay, and the Company paid, to Mr. Morgan a lump sum equal to the discounted
present value of all future payments that would have been paid to him under
the Plan. The lump sum was paid in lieu of such future payments.
(2) Amounts consist of matching contributions made by the Company under the
Employee Savings and Retirement Plan, a "401(k)" plan providing for
broad-based employee participation. Amounts for fiscal 1992 are omitted in
accordance with transition provisions accompanying the new proxy rules.
6
<PAGE> 8
The following table contains information concerning the grant of stock
options to the Named Executive Officers during fiscal 1994 under the Company's
1976 Management Stock Option Plan:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE
---------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 5% 10%
- - - - ---------------------------- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James C. Morgan............. 144,000 6.44% 35.50 12/8/99 $1,738,569 $3,944,220
James W. Bagley............. 116,000 5.19% 35.50 12/8/99 1,400,514 3,177,288
Dan Maydan.................. 100,000 4.47% 35.50 12/8/99 1,207,340 2,739,042
Sasson Somekh............... 56,000 2.51% 35.50 12/8/99 676,110 1,533,863
David N.K. Wang............. 56,000 2.51% 35.50 12/8/99 676,110 1,533,863
</TABLE>
- - - - ---------------
(1) The options in this table were granted in December 1993 and have an exercise
price equal to the fair market value of the Company's Common Stock on the
date of grant. For each grant, 50% of the options become exercisable on July
15, 1996 and 50% become exercisable on July 15, 1997.
The Company has not in the past granted stock appreciation rights.
The following table contains information concerning (i) the exercise of
options by the Named Executive Officers during fiscal 1994 and (ii) unexercised
options held by the Named Executive Officers as of the end of fiscal 1994:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISEABLE
- - - - ----------------------- -------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
James C. Morgan........ 100,000 $ 4,331,250 0 244,000 $ 0 $6,638,250
James W. Bagley........ 80,000 3,135,000 0 196,000 0 5,323,000
Dan Maydan............. 96,000 4,194,000 0 196,000 0 5,780,000
Sasson Somekh.......... 106,000 3,964,375 0 96,000 0 2,630,500
David N.K. Wang........ 100,000 4,744,125 100,000 96,000 4,431,750 2,630,500
</TABLE>
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Notwithstanding any statement to the contrary in any of the Company's
previous or future filings with the Securities and Exchange Commission, this
Report shall not be incorporated by reference into any such filings.
Compensation Philosophy. The Stock Option and Compensation Committee (the
"Committee") has two principal objectives in determining executive compensation
policies: (1) to attract, reward and retain key executive talent, and (2) to
motivate executive officers to perform to the best of their abilities and to
achieve short-term and long-term corporate objectives that will contribute to
the overall goal of enhancing stockholder value. In furtherance of these
objectives, the Committee has adopted the following overriding policies:
- The Company will compensate competitively with the practices of other
leading companies in related fields;
- Performance at the corporate, business unit and individual executive
officer level will determine a significant portion of compensation;
- The attainment of realizable but challenging objectives will determine
performance-based compensation; and
- The Company will encourage executive officers to hold substantial,
long-term equity stakes in the Company so that the interests of executive
officers will coincide with the interests of stockholders--accordingly,
stock or stock options will constitute a significant portion of
compensation.
7
<PAGE> 9
The Committee's specific executive compensation policies discussed below are
designed to achieve the Committee's objectives through the implementation of the
foregoing policies. In the following discussion, terms such as "generally",
"typically" or "approximately" indicate that, while the Committee's analysis is
based primarily on quantitative factors, in years with unusually strong or weak
financial results the Committee complements its quantitative analysis with a
subjective analysis which takes into account efforts expended and
non-quantifiable results achieved by the executive. The Committee's compensation
decisions in fiscal 1994 reflected the fact that the Company achieved record
orders, revenues and profitability.
Elements of Executive Compensation. The elements of the Company's
compensation of executive officers are: (1) annual cash compensation in the form
of base salary and incentive bonuses, (2) long-term incentive compensation in
the form of stock options granted under the Company's 1976 Management Stock
Option Plan and (3) other compensation and employee benefits generally available
to all employees of the Company, such as health insurance and employer matching
contributions under the Company's Employee Savings and Retirement Plan, a
"401(k)" plan.
Total Annual Compensation. Each executive officer's target total annual
compensation (i.e. salary plus bonus) is determined after a review of
independent survey data regarding similarly situated executives at a group of
approximately twenty companies. To construct the survey group, the Company chose
companies which are in the electronics industry and either (1) have revenues
comparable to the Company's revenues or (2) compete with the Company for
executive talent irrespective of revenue. Companies are included in the latter
group if their executives have skills and expertise similar to the skills and
expertise the Company requires of its executives. The survey group is not
identical to the group of companies which comprise the Hambrecht & Quist
Semiconductors Index used in the Performance Graph, because it was constructed
using criteria different from the criteria used by Hambrecht & Quist. For each
executive officer, the Company seeks to establish a total target annual
compensation level that is at or close to the median of compensation paid to
similarly situated executives at the companies surveyed. This policy serves the
Company's objectives of attracting, rewarding and retaining key executive
talent.
Bonuses. The Committee's process for determining annual bonuses is
designed to motivate the Company's executive officers to perform to the best of
their abilities and to enhance stockholder value through the achievement of
corporate objectives. Consequently, the target bonus for an executive is related
to his or her potential impact on corporate results, while the percentage of the
target bonus received is determined with reference to performance-related
parameters.
The percentages of total target annual compensation allocated to salary and
to bonus differ depending on whether the officer is a business unit executive or
a staff executive. Given that business unit executives have more control over
the performance of their business unit than staff executives have over the
multiple business units they support, the target annual compensation of business
unit executives has a higher bonus component than the target compensation of
staff executives. Generally, target bonuses for business unit executives are on
the order of 60-75% of annual salary, while target bonuses for staff executives
are on the order of 40-50% of annual salary.
The percentage of target bonus that a business unit executive (other than
Mr. Morgan, Mr. Bagley and Dr. Maydan) receives depends on performance in three
categories: profitability, market share growth and customer satisfaction. The
weighting of the three categories differs among business units depending on the
maturity of the unit. Within each category are several parameters which are
weighted roughly equally. For example, if there are three parameters in the
customer satisfaction category, the weightings within such category might be
30%, 30%, and 40%. The parameters in the profitability category consist of
business unit earnings per share and business unit return on assets.
The percentage of target bonus that a staff executive receives is a
function of both corporate earnings per share performance and the performance of
the individual and his or her business unit measured against three to five
specific management-by-objective ("MBO") goals. These MBOs prescribe targeted
achievements relating to the executive's and his or her unit's support of the
Company's business units. Typically, the earnings per share parameter and the
MBO parameter are of roughly equal weight. Within the MBO parameter, the
specific goals are given different weights depending upon the individual.
Examples of typical
8
<PAGE> 10
MBO goals might include controlling spending to budget, implementation of
quality improvement processes, development of employees, return on invested
corporate funds and internal customer satisfaction.
For business unit and staff executive officers, the actual targets for all
parameters are set from year to year at levels that take into account general
business conditions and Company strategies for the year. The Committee approves
(1) the specific performance targets for Mr. Morgan, Mr. Bagley and Dr. Maydan
and (2) the philosophy behind the determination of the performance targets for
the other executive officers. At the end of the fiscal year, the Committee
determines, after discussions with Company management, whether each executive
officer has met, exceeded or fallen below these targets.
Bonuses paid to Mr. Morgan, Mr. Bagley and Dr. Maydan for fiscal 1994 were
determined by combining two equally weighted factors: (1) annual revenue growth,
and (2) net profit as a percentage of sales. For fiscal 1995 and later years, it
is expected that any bonuses to Mr. Morgan, Mr. Bagley and Dr. Maydan will be
paid pursuant to the Company's Senior Executive Bonus Plan (the "Bonus Plan")
(assuming that the Bonus Plan is approved at the 1995 Annual Meeting of
Stockholders). Bonuses under the Bonus Plan will be paid only for the
achievement of performance goals that have been set in advance by the Committee.
The performance goals applicable for any fiscal year may require the achievement
of targets for annual revenue growth and net profit as a percentage of sales (as
has been the Committee's past practice), or of other performance goals using
performance measures that are specified in the Bonus Plan. See "Item 3--Adoption
of the Senior Executive Bonus Plan" for a description of the other performance
measures which may be used by the Committee for this purpose.
Stock Options. The Committee believes that the use of stock options as
long-term compensation serves to motivate executive officers to maximize
stockholder value and to remain in the Company's employ. The number of options
granted to each executive is determined by the Committee, in its discretion. In
making its determination, the Committee considers the executive's position at
the Company, his or her individual performance, the number of options held by
the executive (if any) and other factors, including an analysis of the estimated
amount potentially realizable from the options. This analysis takes into
account: (1) a target compensation amount equal to a specified percentage of
salary earned in the year of grant, (2) an assumed rate of appreciation in the
Company stock price, and (3) the number of options which, given the assumed
appreciation rate, would enable the executive to receive (net of the exercise
price) the target amount upon the exercise of the options on the first date that
all the options are exercisable.
Compensation of Chief Executive Officer. The Committee applies the
foregoing principles and policies in determining the compensation of Mr. Morgan,
the Company's Chief Executive Officer.
During fiscal 1994, Mr. Morgan received a salary of $520,309. He also was
eligible to receive an annual bonus. The Committee believes that Mr. Morgan, as
Chief Executive Officer, significantly and directly influences the Company's
overall performance. Accordingly, the Committee set Mr. Morgan's target bonus at
75% of his annual salary. During fiscal 1994, the Company significantly exceeded
Mr. Morgan's bonus target for the combination of revenue growth and net profit
as a percentage of sales. Based on this performance, the Committee approved the
payment to Mr. Morgan of a cash bonus for fiscal 1994 of $763,000, which equals
147% of his fiscal 1994 salary.
Tax Deductibility of Executive Compensation. Section 162(m) of the
Internal Revenue Code limits the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of the
other four most highly compensated executive officers. The Company generally may
deduct compensation paid to such an officer only if the compensation does not
exceed $1 million during any fiscal year or is "performance-based" as defined in
section 162(m). The Senior Executive Bonus Plan and the 1995 Equity Incentive
Plan, for which the Company is seeking stockholder approval at the 1995 Annual
Meeting of Stockholders, are designed to satisfy the conditions required for
compensation payable under the Plans to be deemed "performance-based", so that
the Company may continue to receive an income tax deduction for compensation
paid to the Company's Chief Executive Officer and other executive officers.
Herbert M. Dwight, Jr.
George B. Farnsworth
Alfred J. Stein
9
<PAGE> 11
COMPANY STOCK PERFORMANCE
The following graph shows a five-year comparison of cumulative total return
for the Company's stock, the Standard & Poor's 500 Composite Index and the
Hambrecht & Quist Semiconductors Index, which is a published industry index. The
Hambrecht & Quist Semiconductors Index contains approximately 21 companies in
the semiconductor and semiconductor equipment industries. Notwithstanding any
statement to the contrary in any of the Company's previous or future filings
with the Securities and Exchange Commission, the graph shall not be incorporated
by reference into any such filings.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG APPLIED MATERIALS, THE S&P 500 INDEX
AND THE HAMBRECHT & QUIST SEMICONDUCTORS INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD APPLIED MATER- H&Q SEMICON-
(FISCAL YEAR COVERED) IALS S&P 500 DUCTORS
<S> <C> <C> <C>
10/89 100 100 100
10/90 69 93 85
10/91 95 124 125
10/92 231 136 182
10/93 494 156 317
10/94 816 162 404
</TABLE>
- - - - ---------------
* $100 invested on 10/31/89 in stock or index -- including reinvestment of
dividends. Prices as of last trading day in October.
10
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1994, Herbert M. Dwight, Jr., George B. Farnsworth, and
Alfred J. Stein served as members of the Stock Option and Compensation
Committee. None of the Stock Option and Compensation Committee members or Named
Executive Officers have any relationships which must be disclosed under this
caption.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and holders of more than 10% of the Company's
Common Stock, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Such officers, directors and 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Except as stated below, based solely on its review of such forms that it
received, or written representations from reporting persons that no Form 5s were
required for such persons, the Company believes that, during fiscal 1994, all
Section 16(a) filing requirements were satisfied on a timely basis. In fiscal
1994, Mr. Morgan filed an amended Form 4 to reflect a gift of 400 shares that he
made in August 1993 but did not report at the time. In fiscal 1994, Dr. Wang
filed an amended Form 3 to reflect 654 shares he held in October 1989 but did
not report on his original Form 3 filed at that time.
LOANS TO MANAGEMENT
Dan Maydan is Co-Chairman of Applied Komatsu Technology, Inc. ("AKT"), a
joint venture 50% owned by the Company and 50% owned by Komatsu Ltd., a Japanese
corporation. Pursuant to the AKT Executive Incentive Stock Purchase Plan, in
fiscal 1994 the Company loaned Dr. Maydan $185,500 to purchase shares of
nonvoting convertible preferred stock of AKT. The terms of the loan call for
interest at the rate of 7.16% to be paid on an annual basis, with a balloon
principal payment to be paid January 31, 2004. The loans are secured by the
shares purchased. Komatsu Ltd. also loaned funds to Dr. Maydan on similar terms
for the same purpose.
ITEM 2--ADOPTION OF THE 1995 EQUITY INCENTIVE PLAN
The Company's 1976 Management Stock Option Plan will expire March 5, 1995
and its 1985 Stock Option Plan for Non-Employee Directors expired October 30,
1994 (collectively, the "Terminating Plans"). Consequently, the Stock Option and
Compensation Committee of the Board of Directors has approved, and the Board has
ratified, the adoption of the 1995 Equity Incentive Plan (the "Plan"), which
will replace the Terminating Plans. Adoption of the Plan is subject to the
approval of a majority of the shares of the Company's Common Stock which are
present in person or by proxy and entitled to vote at the Annual Meeting.
GENERAL
The Plan allows the granting of stock options, stock appreciation rights
("SARs"), restricted stock awards, performance unit awards, and performance
share awards (collectively, "Awards") to eligible Plan participants. While the
Company has no current plans to grant Awards other than stock options, the Board
of Directors feels that the ability to utilize different types of equity
compensation vehicles will give it the flexibility needed to most effectively
adapt over time to changes in the labor market and in equity compensation
practices.
The number of shares authorized to be issued pursuant to Awards granted
under the Plan is 6,300,000. If an Award expires or is cancelled without having
been fully exercised or vested, the unvested or cancelled shares generally again
will be available for grants of Awards. The number of shares available for grant
under the Plan (and outstanding Awards, the formula for granting non-employee
director options, and the numerical
11
<PAGE> 13
limits for individual grants) will be adjusted as appropriate to reflect any
stock splits, stock dividends, recapitalizations, reorganizations or other
changes to the capital structure of the Company.
PURPOSE OF THE PLAN
The Plan is intended to attract, motivate, and retain (1) employees of the
Company and its affiliates, (2) consultants who provide significant services to
the Company and its affiliates, and (3) directors of the Company who are
employees of neither the Company nor any affiliate ("non-employee directors").
The Plan also is designed to encourage stock ownership by participants, thereby
aligning their interests with those of the Company's stockholders.
DESCRIPTION OF THE PLAN
The following paragraphs provide a summary of the principal features of the
Plan and its operation. The Plan is set forth in its entirety as Exhibit A to
this Proxy Statement. The following summary is qualified in its entirety by
reference to Exhibit A.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the Stock Option and Compensation
Committee of the Board of Directors (the "Committee"). The members of the
Committee must qualify as "disinterested persons" under Rule 16b-3 under the
Securities Exchange Act of 1934, and as "outside directors" under section 162(m)
of the Internal Revenue Code (for purposes of qualifying amounts received under
the Plan as "performance-based compensation" under section 162(m)).
Subject to the terms of the Plan, the Committee has the sole discretion to
determine the employees and consultants who shall be granted Awards, the size
and types of such Awards, and the terms and conditions of such Awards. The
Committee may delegate its authority to grant and administer awards to a
separate committee appointed by the Committee, but only the Committee may make
awards to participants who are executive officers of the Company.
The non-employee director portion of the Plan will be administered by the
Board of Directors (rather than the Committee).
ELIGIBILITY TO RECEIVE AWARDS
Employees and consultants of the Company and its affiliates (i.e. any
corporation or other entity controlling, controlled by, or under common control
with the Company) are eligible to be selected to receive one or more Awards. The
actual number of employees and consultants who will receive Awards under the
Plan cannot be determined because selection for participation in the Plan is in
the discretion of the Committee. The Plan also provides for the grant of stock
options to the Company's non-employee directors. Such options will automatically
be granted pursuant to a nondiscretionary formula.
As of January 31, 1995, the only Award that has been granted under the Plan
is a nonqualified stock option for 20,000 shares granted on December 7, 1994 to
Mr. Tsuyoshi Kawanishi, a newly appointed director of the Company. The exercise
price of the option is $43.75 per share, which was the fair market value of a
share of Company Common Stock on the date of grant. This grant is subject to
approval of the Plan by the stockholders at the Annual Meeting. The terms and
conditions of options granted to non-employee directors are discussed below
under "Non-Employee Director Options".
OPTIONS
The Committee may grant nonqualified stock options, incentive stock options
(which are entitled to favorable tax treatment) ("ISOs"), or a combination
thereof. The number of shares covered by each option will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted options for more than 350,000 shares.
12
<PAGE> 14
The exercise price of each option is set by the Committee but generally
cannot be less than 100% of the fair market value of the Company's Common Stock
on the date of grant. Thus, an option will have value only if the Company's
Common Stock appreciates in value after the date of grant.
The exercise price of an ISO must be at least 110% of fair market value if,
on the grant date, the participant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
subsidiaries. Also, the aggregate fair market value of the shares (determined on
the grant date) covered by ISOs which first become exercisable by any
participant during any calendar year may not exceed $100,000.
The exercise price of each option must be paid in full at the time of
exercise. The Committee also may permit payment through the tender of shares of
the Company's Common Stock that are already owned by the participant, or by any
other means which the Committee determines to be consistent with the Plan's
purpose. Any taxes required to be withheld must be paid by the participant at
the time of exercise.
Options become exercisable at the times and on the terms established by the
Committee. Options expire at the times established by the Committee but
generally not later than 10 years after the date of grant (13 years in the event
of the optionee's death). The Committee may extend the maximum term of any
option granted under the Plan, subject to the preceding limits.
NON-EMPLOYEE DIRECTOR OPTIONS
Under the Plan, each new non-employee director automatically will receive
an initial option for 20,000 shares on the date that he or she first is elected
or appointed to the Board of Directors. A non-employee director will receive
such a grant only if he or she is first appointed or elected on or after
December 7, 1994. Each such option will become exercisable as to 6,000 shares on
the first anniversary of the grant date, as to an additional 5,500 shares on the
second anniversary of the grant date, as to an additional 5,000 shares on the
third anniversary of the grant date, and as to the remaining 3,500 shares on the
fourth anniversary of the grant date. On the date the non-employee director
terminates service on the Board, all unvested shares are forfeited to the
Company.
Each non-employee director who has served as a non-employee director for
the entire 1995 fiscal year or any later fiscal year, automatically will
receive, as of the last business day of each such fiscal year, an option to
purchase 6,000 shares. Each such option will become exercisable as to 1,500
shares on the first anniversary of the grant date, and as to an additional 1,500
shares on each succeeding anniversary until 100% of the shares subject to such
option have become exercisable. On the date the non-employee director terminates
service on the Board, all unvested shares are forfeited to the Company.
All options granted to non-employee directors generally will have a term of
five years from the date of grant. If a director terminates service on the Board
prior to an option's expiration date, the period of exercisability of the option
will vary depending upon the reason for the termination. An option may be
exercised for up to: (a) seven months following termination of service for any
reason other than death, total disability or retirement, and (b) one year
following termination due to retirement or total disability, but in both cases
no later than the original expiration date. In the event of death, an option may
be exercised for up to one year from the date of death, regardless of the
original expiration date of the option.
STOCK APPRECIATION RIGHTS
The Committee determines the terms and conditions of each SAR. SARs may be
granted in conjunction with an option, or may be granted on an independent
basis. The number of shares covered by each SAR will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted SARs for more than 350,000 shares.
Upon exercise of an SAR, the participant will receive payment from the
Company in an amount determined by multiplying: (1) the difference between (a)
the fair market value of a share of Company Common Stock on the date of exercise
and (b) the exercise price, times (2) the number of shares with
13
<PAGE> 15
respect to which the SAR is exercised. Thus, an SAR will have value only if the
Company's Common Stock appreciates in value after the date of grant.
SARs are exercisable at the times and on the terms established by the
Committee. Proceeds from SAR exercises may be paid in cash or shares of the
Company's Common Stock, as determined by the Committee. SARs expire at the times
established by the Committee, but subject to the same maximum time limits as are
applicable to employee options granted under the Plan.
RESTRICTED STOCK AWARDS
Restricted stock awards are shares of the Company's Common Stock that vest
in accordance with terms established by the Committee. The number of shares of
restricted stock (if any) granted to a participant will be determined by the
Committee, but during any fiscal year of the Company, no participant may be
granted more than 175,000 shares.
In determining the vesting schedule for each Award of restricted stock, the
Committee may impose whatever conditions to vesting as it determines to be
appropriate. For example, the Committee may (but is not required to) provide
that restricted stock will vest only if one or more performance goals are
satisfied. In order for the Award to qualify as "performance-based" compensation
under section 162(m) of the Internal Revenue Code (see "Report of the Stock
Option and Compensation Committee of the Board of Directors--Tax Deductibility
of Executive Compensation"), it must use one or more of the following measures
in setting the performance goals: (1) annual revenue, (2) controllable profits,
(3) customer satisfaction management by objectives, (4) earnings per share, (5)
individual management by objectives, (6) net income, (7) new orders, (8) pro
forma net income, (9) return on designated assets, and (10) return on sales.
These performance measures are defined in the Plan and are the same measures
that are used in setting performance goals under the Company's proposed Senior
Executive Bonus Plan. The Committee may apply the performance measures on a
corporate or business unit basis, as deemed appropriate in light of the
participant's specific responsibilities. The Committee may, in its discretion,
accelerate the time at which any restrictions lapse or remove any restrictions.
PERFORMANCE UNIT AWARDS AND PERFORMANCE SHARE AWARDS
Performance unit awards and performance share awards are amounts credited
to a bookkeeping account established for the participant. A performance unit has
an initial value that is established by the Committee at the time of its grant.
A performance share has an initial value equal to the fair market value of a
share of the Company's Common Stock on the date of grant. The number of
performance units/shares (if any) granted to a participant will be determined by
the Committee, but during any fiscal year of the Company, no participant may be
granted more than 175,000 performance shares or performance units having an
initial value greater than $3 million.
Whether a performance unit/share actually will result in a payment to a
participant will depend upon the extent to which performance goals established
by the Committee are satisfied. The applicable performance goals will be
determined by the Committee. In particular, the Plan permits the Committee to
use the same performance goals as are discussed above with respect to restricted
stock. The Committee may, in its discretion, waive any performance goal
requirements.
After a performance unit/share award has vested (that is, after the
applicable performance goal or goals have been achieved), the participant will
be entitled to receive a payout of cash, Common Stock, or a combination thereof,
as determined by the Committee. Unvested performance units/shares will be
forfeited upon the earlier of the recipient's termination of employment or the
date set forth in the Award agreement.
NONTRANSFERABILITY OF AWARDS
Awards granted under the Plan may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
applicable laws of descent and distribution. However, a participant may
designate one or more beneficiaries to receive any exercisable or vested Awards
following his or her death.
14
<PAGE> 16
TAX ASPECTS
The following discussion is intended to provide an overview of the U.S.
federal income tax laws which are generally applicable to Awards granted under
the Plan as of the date of this Proxy Statement. People or entities in differing
circumstances may have different tax consequences, and the tax laws may change
in the future. This discussion is not to be construed as tax advice.
A recipient of a stock option or SAR will not have taxable income on the
date of grant. Upon the exercise of nonqualified options and SARs, the
participant will recognize ordinary income equal to the difference between the
fair market value of the shares on the date of exercise and the exercise price.
Any gain or loss recognized upon any later disposition of the shares generally
will be capital gain or loss.
Purchase of shares upon exercise of an ISO will not result in any taxable
income to the participant, except for purposes of the alternative minimum tax.
Gain or loss recognized by the participant on a later sale or other disposition
will either be long-term capital gain or loss or ordinary income, depending upon
how long the participant holds the shares. Any ordinary income recognized will
be in the amount, if any, by which the lesser of (1) the fair market value of
such shares on the date of exercise or (2) the amount realized from the sale,
exceeds the exercise price.
Upon receipt of restricted stock or a performance unit/share, the
participant will not have taxable income unless he or she elects to be taxed.
Absent such election, upon vesting the participant will recognize ordinary
income equal to the fair market value of the shares or units at such time.
The Committee may permit participants to satisfy tax withholding
requirements in connection with the exercise or receipt of an Award by: (1)
electing to have the Company withhold otherwise deliverable shares, or (2)
delivering to the Company already-owned shares having a value equal to the
amount required to be withheld.
If applicable withholding requirements are met, the Company will be
entitled to a tax deduction for an Award in an amount equal to the ordinary
income realized by the participant at the time the participant recognizes such
income. In addition, beginning with the Company's 1995 fiscal year, new Internal
Revenue Code section 162(m) contains special rules regarding the federal income
tax deductibility of compensation paid to the Company's Chief Executive Officer
and to each of the other four most highly compensated executive officers. The
general rule is that annual compensation paid to any of these specified
executives will be deductible only to the extent that it does not exceed $1
million. However, the Company can preserve the deductibility of certain
compensation in excess of $1 million if it complies with conditions imposed by
the new rules, including (1) the establishment of a maximum number of shares
with respect to which Awards may be granted to any one employee during a
specified time period, and (2) for restricted stock and performance
units/shares, inclusion in the Plan of performance goals which must be achieved
prior to payment. The Plan has been designed to permit the Committee to grant
Awards which satisfy the requirements of new section 162(m).
AMENDMENT AND TERMINATION OF THE PLAN
The Board generally may amend or terminate the Plan at any time and for any
reason, but in accordance with section 162(m) of the Internal Revenue Code and
Rule 16b-3 under the Securities Exchange Act of 1934, certain material
amendments to the Plan will be subject to stockholder approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION
OF THE 1995 EQUITY INCENTIVE PLAN.
15
<PAGE> 17
ITEM 3--ADOPTION OF THE SENIOR EXECUTIVE BONUS PLAN
The Stock Option and Compensation Committee (the "Committee") of the Board
of Directors has approved the adoption of a new Senior Executive Bonus Plan (the
"Plan"). Adoption of the Plan is subject to the approval of a majority of the
shares of the Company's Common Stock which are present in person or by proxy and
entitled to vote at the Annual Meeting. The Plan provides the Company's key
executives with the opportunity to earn incentive awards based on the
achievement of goals relating to the performance of the Company and its business
units.
BACKGROUND AND REASONS FOR ADOPTION
The Company has a performance-based bonus plan similar to the Plan,
pursuant to which the Company rewards management for achieving certain
performance objectives. However, under new section 162(m) of the Internal
Revenue Code, the federal income tax deductibility of compensation paid to the
Company's Chief Executive Officer and to each of its four other most highly
compensated executive officers may be limited to the extent that such
compensation exceeds $1 million in any one year. Under section 162(m), the
Company may deduct compensation in excess of that amount if it qualifies as
"performance-based compensation," as defined in section 162(m). The Plan is
designed to qualify payments thereunder as performance-based compensation, so
that the Company may continue to to receive a federal income tax deduction for
the payment of incentive bonuses to its executives. The Company will continue to
operate its current bonus plan, as well, for the compensation of executives for
whom section 162(m) is not an issue.
DESCRIPTION OF THE PLAN
The following paragraphs provide a summary of the principal features of the
Plan and its operation. The Plan is set forth in its entirety as Exhibit B to
this Proxy Statement. The following summary is qualified in its entirety by
reference to Exhibit B.
PURPOSE OF THE PLAN
The Plan is intended to increase stockholder value and the success of the
Company by motivating key executives to (1) perform to the best of their
abilities and (2) achieve the Company's objectives.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee in accordance with (1) the
express provisions of the Plan and (2) the requirements of section 162(m).
ELIGIBILITY TO RECEIVE AWARDS
Participation in the Plan is determined annually in the discretion of the
Committee. In selecting participants for the Plan, the Committee will choose
officers of the Company and its affiliates who are likely to have a significant
impact on Company performance. For fiscal 1995, the participants in the Plan are
Messrs. Morgan, Bagley and Maydan. Participation in future years will be in the
discretion of the Committee, but it currently is expected that three to eight
officers will participate each year.
TARGET AWARDS AND PERFORMANCE GOALS
For each fiscal year, the Committee will establish: (1) a target award for
each participant, (2) the performance goals which must be achieved in order for
the participant to be paid the target award, and (3) a formula for increasing or
decreasing a participant's actual award depending upon how actual performance
compares to the pre-established performance goals.
Each participant's target award will be expressed as a percentage of his or
her base salary. Base salary under the Plan means the lesser of: (1) 125% of the
participant's annual salary rate on the first day of the fiscal year, or (2) the
participant's annual salary rate on the last day of the fiscal year.
16
<PAGE> 18
There are ten performance measures which the Committee may use in setting
the performance goals for any fiscal year. Specifically, the performance goals
applicable to any participant will provide for a targeted level of achievement
using one or more of the following measures: (1) annual revenue, (2)
controllable profits, (3) customer satisfaction management by objectives, (4)
earnings per share, (5) individual management by objectives, (6) net income, (7)
new orders, (8) pro forma net income, (9) return on designated assets, and (10)
return on sales. Each of these measures is defined in the Plan. The Committee
may set performance goals which differ from participant to participant. For
example, the Committee may choose performance goals which apply on either a
corporate or business unit basis, as deemed appropriate in light of the
participant's responsibilities.
For fiscal 1995, the Committee has established for the three Plan
participants a combined performance goal with respect to: (1) return on sales
(i.e. fiscal 1995 profit after-tax as a percentage of revenue), and (2) revenue
growth from fiscal 1994 to fiscal 1995. The Committee has also established a
formula, with such measurements as variables, which will determine actual
awards.
DETERMINATION OF ACTUAL AWARDS
After the end of each fiscal year, the Committee must certify in writing
the extent to which the performance goals applicable to each participant were
achieved or exceeded. The actual award (if any) for each participant will be
determined by applying the formula to the level of actual performance which has
been certified by the Committee. However, the Committee retains discretion to
eliminate or reduce the actual award payable to any participant below that which
otherwise would be payable under the applicable formula. Also, no participant's
actual award under the Plan may exceed $3 million for any fiscal year.
The Plan contains a continuous employment requirement. If a participant
terminates employment with the Company prior to the end of a fiscal year, he or
she generally will not be entitled to the payment of an award for that fiscal
year. However, if the participant's termination is due to retirement, disability
or death, the Committee will proportionately reduce (or eliminate) his or her
actual award based on the date of termination and such other considerations as
the Committee deems appropriate.
Awards under the Plan generally will be payable in cash after the end of
the fiscal year during which the award was earned. However, the Committee
reserves the right to declare any award wholly or partially payable in an
equivalent amount of restricted stock issued under the Company's proposed 1995
Equity Incentive Plan. Any restricted stock so granted would vest over a period
not longer than four years.
17
<PAGE> 19
PRO FORMA BENEFITS FOR THE PLAN
Given that payments under the Plan are determined by comparing actual
performance to the annual performance goals established by the Committee, it is
not possible to conclusively state the amount of benefits which will be paid
under the Plan. The following table sets forth the target awards that would be
payable to the Named Executive Officers and to all current executive officers as
a group, if the performance goals established by the Committee for fiscal 1995
are exactly 100% achieved. There can be no assurance that the pre-established
performance goals actually will be achieved, and therefore there can be no
assurance that the target awards shown below actually will be paid.
<TABLE>
<CAPTION>
FISCAL 1995
NAME AND PRINCIPAL POSITION TARGET AWARDS
--------------------------------------------------------------------- -------------
<S> <C>
James C. Morgan...................................................... $ 410,288
Chairman of the Board and Chief Executive Officer
James W. Bagley...................................................... 329,963
Vice Chairman of the Board and Chief Operating Officer
Dan Maydan........................................................... 283,500
President of the Company and Co-Chairman of Applied Komatsu
Technology, Inc.
Sasson Somekh........................................................ N/A(1)
Senior Vice President, Worldwide Products Operations
David N.K. Wang...................................................... N/A(1)
Senior Vice President, Worldwide Business Operations
All current executive officers as a group............................ $ 1,023,751
All directors who are not current employees.......................... N/A(2)
All employees who are not current executive officers................. N/A(2)
</TABLE>
- - - - ---------------
(1) Messrs. Somekh and Wang will not participate in the Plan for fiscal 1995,
but may participate in future years.
(2) The Company's non-employee directors and employees who are not officers are
not eligible to participate in the Plan.
The award (if any) paid under the Plan generally will be the only annual
cash incentive bonus the participants will receive. Officers who are not
participants in the Plan will be eligible for an incentive bonus under the
Company's regular performance-based bonus plan. See "Report of the Stock Option
and Compensation Committee of the Board of Directors".
AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend or terminate the Plan at any time and for any reason,
but in accordance with section 162(m) of the Internal Revenue Code, certain
material amendments to the Plan will be subject to stockholder approval.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION
OF THE SENIOR EXECUTIVE BONUS PLAN.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of independent accountants of the Company recommended by the Audit
Committee and selected by the Board of Directors for the current fiscal year is
Price Waterhouse. The Board of Directors expects that representatives of Price
Waterhouse will be present at the Annual Meeting of Stockholders, will be given
an opportunity to make a statement at such meeting if they desire to do so, and
will be available to respond to appropriate questions.
18
<PAGE> 20
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to bring any other business before the Annual Meeting of Stockholders
and, so far as is known to the Board of Directors, no matters are to be brought
before the Meeting except as specified in the Notice of Annual Meeting of
Stockholders. However, as to any other business that may properly come before
the Meeting, it is intended that proxies, in the form enclosed, will be voted in
respect thereof in accordance with the judgment of the persons voting such
proxies.
STOCKHOLDER PROPOSALS--1996 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
stockholders' meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the 1996 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before October 3, 1995 in order to be considered for inclusion in the Company's
proxy statement and form of proxy relating to such meeting.
DONALD A. SLICHTER
Secretary
January 31, 1995
Santa Clara, California
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
19
<PAGE> 21
EXHIBIT A
APPLIED MATERIALS, INC.
1995 EQUITY INCENTIVE PLAN
APPLIED MATERIALS, INC., hereby adopts the Applied Materials, Inc. 1995
Equity Incentive Plan, effective as of December 7, 1994, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Background and Effective Date. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, and Performance Shares. The Plan is effective as of December
7, 1994, subject to ratification by an affirmative vote of the holders of a
majority of the Shares which are present in person or by proxy and entitled to
vote at the 1995 Annual Meeting of Stockholders. Awards may be granted prior to
the receipt of such vote, but such grants shall be null and void if such vote is
not in fact received.
1.2 Purpose of the Plan. The Plan is intended to attract, motivate, and
retain (1) employees of the Company and its Affiliates, (2) consultants who
provide significant services to the Company and its Affiliates, and (3)
directors of the Company who are employees of neither the Company nor any
Affiliate. The Plan also is designed to encourage stock ownership by
Participants, thereby aligning their interests with those of the Company's
shareholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.2 "Affiliate" means any corporation or any other entity (including, but
not limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.
2.3 "Affiliated SAR" means an SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised.
2.4 "Annual Revenue" means the Company's or a business unit's net sales
for the Fiscal Year, determined in accordance with generally accepted accounting
principles; provided, however, that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be excluded or included
from the calculation of Annual Revenue with respect to one or more Participants.
2.5 "Award" means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, or Performance Shares.
2.6 "Award Agreement" means the written agreement setting forth the terms
and provisions applicable to each Award granted under the Plan.
2.7 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.8 "Code" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section, and
any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
20
<PAGE> 22
2.9 "Committee" means the committee appointed by the Board (pursuant to
Section 3.1) to administer the Plan.
2.10 "Company" means Applied Materials, Inc., a Delaware corporation, or
any successor thereto. With respect to the definitions of the Performance Goals,
the Committee may determine that "Company" means Applied Materials, Inc. and its
consolidated subsidiaries.
2.11 "Consultant" means any consultant, independent contractor, or other
person who provides significant services to the Company or its Affiliates, but
who is neither an Employee nor a Director.
2.12 "Controllable Profits" means as to any Fiscal Year, a business unit's
Annual Revenue minus (a) cost of sales, (b) research, development, and
engineering expense, (c) marketing and sales expense, (d) general and
administrative expense, (e) extended receivables expense, and (f) shipping
requirement deviation expense.
2.13 "Customer Satisfaction MBOs" means as to any Participant, the
objective and measurable individual goals set by a "management by objectives"
process and approved by the Committee, which goals relate to the satisfaction of
external or internal customer requirements.
2.14 "Director" means any individual who is a member of the Board of
Directors of the Company.
2.15 "Disability" means a permanent and total disability within the
meaning of Code section 22(e)(3), provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
2.16 "Earnings Per Share" means as to any Fiscal Year, the Company's Net
Income or a business unit's Pro Forma Net Income, divided by a weighted average
number of common shares outstanding and dilutive common equivalent shares deemed
outstanding.
2.17 "Employee" means any employee of the Company or of an Affiliate,
whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
2.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. Reference to a specific section of ERISA or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.19 "Exercise Price" means the price at which a Share may be purchased by
a Participant pursuant to the exercise of an Option.
2.20 "Fair Market Value" means the last quoted per share selling price for
Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day before and the nearest day after the relevant date, as determined by the
Committee. Notwithstanding the preceding, for federal, state, and local income
tax reporting purposes, fair market value shall be determined by the Committee
(or its delegate) in accordance with uniform and nondiscriminatory standards
adopted by it from time to time.
2.21 "Fiscal Year" means the fiscal year of the Company.
2.22 "Freestanding SAR" means a SAR that is granted independently of any
Option.
2.23 "Grant Date" means, with respect to an Award, the date that the Award
was granted.
2.24 "Incentive Stock Option" means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the requirements
of section 422 of the Code.
2.25 "Individual MBOs" means as to a Participant, the objective and
measurable goals set by a "management by objectives" process and approved by the
Committee (in its discretion).
21
<PAGE> 23
2.26 "Net Income" means as to any Fiscal Year, the income after taxes of
the Company for the Fiscal Year determined in accordance with generally accepted
accounting principles, provided that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be included or excluded
from the calculation of Net Income with respect to one or more Participants.
2.27 "New Orders" means as to any Fiscal Year, the firm orders for a
system, product, part, or service that are being recorded for the first time as
defined in the Company's Order Recognition Policy.
2.28 "Nonemployee Director" means a Director who is an employee of neither
the Company nor of any Affiliate.
2.29 "Nonqualified Stock Option" means an option to purchase Shares which
is not intended to be an Incentive Stock Option.
2.30 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.31 "Participant" means an Employee, Consultant, or Nonemployee Director
who has an outstanding Award.
2.32 "Performance Goals" means the goal(s) (or combined goal(s))
determined by the Committee (in its discretion) to be applicable to a
Participant with respect to an Award. As determined by the Committee, the
Performance Goals applicable to an Award may provide for a targeted level or
levels of achievement using one or more of the following measures: (a) Annual
Revenue, (b) Controllable Profits, (c) Customer Satisfaction MBOs, (d) Earnings
Per Share, (e) Individual MBOs, (f) Net Income, (g) New Orders, (h) Pro Forma
Net Income, (i) Return on Designated Assets, and (j) Return on Sales. The
Performance Goals may differ from Participant to Participant and from Award to
Award.
2.33 "Performance Share" means an Award granted to a Participant pursuant
to Section 8.
2.34 "Performance Unit" means an Award granted to a Participant pursuant
to Section 8.
2.35 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock are subject to restrictions and therefore, the Shares
are subject to a substantial risk of forfeiture. As provided in Section 7, such
restrictions may be based on the passage of time, the achievement of target
levels of performance, or the occurrence of other events as determined by the
Committee, in its discretion.
2.36 "Plan" means the Applied Materials, Inc. 1995 Equity Incentive Plan,
as set forth in this instrument and as hereafter amended from time to time.
2.37 "Pro Forma Net Income" means as to any business unit for any Fiscal
Year, the Controllable Profits of such business unit, minus allocations of
designated corporate expenses.
2.38 "Restricted Stock" means an Award granted to a Participant pursuant
to Section 7.
2.39 "Retirement" means, in the case of an Employee, a Termination of
Service by reason of the Employee's retirement at or after his or her normal
retirement date under the Applied Materials, Inc. Employee Savings and
Retirement Plan, or any successor plan. With respect to a Consultant, no
Termination of Service shall be deemed to be on account of "Retirement". With
respect to a Nonemployee Director, "Retirement" means termination of service on
the Board at or after age 65.
2.40 "Return on Designated Assets" means as to any Fiscal Year, the Pro
Forma Net Income of a business unit, divided by the average of beginning and
ending business unit designated assets, or Net Income of the Company, divided by
the average of beginning and ending designated corporate assets.
2.41 "Return on Sales" means as to any Fiscal Year, the percentage equal
to the Company's Net Income or the business unit's Pro Forma Net Income, divided
by the Company's or the business unit's Annual Revenue.
2.42 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.
22
<PAGE> 24
2.43 "Section 16 Person" means a person who, with respect to the Shares,
is subject to section 16 of the 1934 Act.
2.44 "Shares" means the shares of common stock of the Company.
2.45 "Stock Appreciation Right" or "SAR" means an Award, granted alone or
in connection with a related Option, that pursuant to Section 7 is designated as
an SAR.
2.46 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.47 "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
2.48 "Termination of Service" means (a) in the case of an Employee, a
cessation of the employee-employer relationship between an employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, Retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; and (b) in the
case of a Consultant, a cessation of the service relationship between a
Consultant and the Company or an Affiliate for any reason, including, but not by
way of limitation, a termination by resignation, discharge, death, Disability,
or the disaffiliation of an Affiliate, but excluding any such termination where
there is a simultaneous reengagement of the consultant by the Company or an
Affiliate.
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee. The
Committee shall consist of not less than two (2) Directors. The members of the
Committee shall be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors. The Committee shall be comprised solely of
Directors who both are (a) "disinterested persons" under Rule 16b-3, and (b)
"outside directors" under section 162(m) of the Code.
3.2 Authority of the Committee. It shall be the duty of the Committee to
administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees and Consultants shall be granted Awards, (b)
prescribe the terms and conditions of the Awards (other than the Options granted
to Nonemployee Directors pursuant to Section 9), (c) interpret the Plan and the
Awards, (d)adopt such procedures and subplans as are necessary or appropriate to
permit participation in the Plan by Employees, Consultants and Directors who are
foreign nationals or employed outside of the United States, (e) adopt rules for
the administration, interpretation and application of the Plan as are consistent
therewith, and (f) interpret, amend or revoke any such rules.
3.3 Delegation by the Committee. The Committee, in its sole discretion
and on such terms and conditions as it may provide, may delegate all or any part
of its authority and powers under the Plan to one or more directors or officers
of the Company; provided, however, that the Committee may not delegate its
authority and powers (a) with respect to Section 16 Persons, or (b) in any way
which would jeopardize the Plan's qualification under section 162(m) of the Code
or Rule 16b-3.
3.4 Nonemployee Director Options. Notwithstanding any contrary provision
of this Section 3, the Board shall administer Section 9 of the Plan, and the
Committee shall exercise no discretion with respect to Section 9. In the Board's
administration of Section 9 and the Options granted to Nonemployee Directors,
the Board shall have all of the authority and discretion otherwise granted to
the Committee with respect to the administration of the Plan.
23
<PAGE> 25
3.5 Decisions Binding. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3,
the total number of Shares available for grant under the Plan shall not exceed
6,300,000. Shares granted under the Plan may be either authorized but unissued
Shares or treasury Shares.
4.2 Lapsed Awards. If an Award is settled in cash, or is cancelled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available to be the subject of
an Award.
4.3 Adjustments in Awards and Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limits of Sections 5.1, 6.1, 7.1, and 8.1, in such manner as the
Committee (in its sole discretion) shall determine to be appropriate to prevent
the dilution or diminution of such Awards. In the case of Options granted to
Nonemployee Directors pursuant to Section 9, the foregoing adjustments shall be
made by the Board, and any such adjustments also shall apply to the future
grants provided by Section 9. Notwithstanding the preceding, the number of
Shares subject to any Award always shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Consultants at any time and from time to
time as determined by the Committee in its sole discretion. The Committee, in
its sole discretion, shall determine the number of Shares subject to each
Option, provided that during any Fiscal Year, no Participant shall be granted
Options covering more than 350,000 Shares. The Committee may grant Incentive
Stock Options, Nonqualified Stock Options, or a combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of the
Option, and such other terms and conditions as the Committee, in its discretion,
shall determine. The Award Agreement shall also specify whether the Option is
intended to be an Incentive Stock Option or a Nonqualified Stock Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified
Stock Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date; provided,
however, that if on the Grant Date, the Employee (together with persons
whose stock ownership is attributed to the Employee pursuant to section
424(d) of the Code) owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its
24
<PAGE> 26
Subsidiaries, the Exercise Price shall be not less than one hundred and ten
percent (110%) of the Fair Market Value of a Share on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of Sections
5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates
a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons
who become Employees or Consultants on account of such transaction may be
granted Options in substitution for options granted by their former
employer. If such substitute Options are granted, the Committee, in its
sole discretion and consistent with section 424(a) of the Code, may
determine that such substitute Options shall have an exercise price less
than one hundred (100%) of the Fair Market Value of the Shares on the Grant
Date.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate no later than
the first to occur of the following events:
(a) The date for termination of the Option set forth in the
written Award Agreement; or
(b) The expiration of ten (10) years from the Grant Date; or
(c) The expiration of one (1) year from the date of the Optionee's
Termination of Service for a reason other than the Optionee's death,
Disability or Retirement; or
(d) The expiration of three (3) years from the date of the
Optionee's Termination of Service by reason of Disability; or
(e) The expiration of three (3) years from the date of the
Optionee's Retirement (except as provided in Section 5.8.2 regarding
Incentive Stock Options).
5.4.2 Death of Optionee. Notwithstanding Section 5.4.1, if an
Optionee dies prior to the expiration of his or her options, the Committee,
in its discretion, may provide that his or her options shall be exercisable
for up to three (3) years after the date of death.
5.4.3 Committee Discretion. Subject to the limits of Sections 5.4.1
and 5.4.2, the Committee, in its sole discretion, (a) shall provide in each
Award Agreement when each Option expires and becomes unexercisable, and (b)
may, after an Option is granted, extend the maximum term of the Option
(subject to Section 5.8.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option. However, in no event may any Option granted to a
Section 16 Person be exercisable until at least six (6) months following the
Grant Date (or such shorter period as may be permissible while maintaining
compliance with Rule 16b-3).
5.6 Payment. Options shall be exercised by the Participant's delivery of
a written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to the
Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.
As soon as practicable after receipt of a written notification of exercise
and full payment for the Shares purchased, the Company shall deliver to the
Participant (or the Participant's designated broker), Share certificates (which
may be in book entry form) representing such Shares.
25
<PAGE> 27
5.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
5.8.1 Exercisability. The aggregate Fair Market Value (determined on
the Grant Date(s)) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Employee during any
calendar year (under all plans of the Company and its Subsidiaries) shall
not exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant's Termination of
Service for any reason other than Disability or death, unless (a) the
Participant dies during such three-month period, and (b) the Award
Agreement or the Committee permits later exercise. No Incentive Stock
Option may be exercised more than one (1) year after the Participant's
termination of employment on account of Disability, unless (a) the
Participant dies during such one-year period, and (b) the Award Agreement
or the Committee permit later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be
granted only to persons who are employees of the Company or a Subsidiary on
the Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be exercised after
the expiration of ten (10) years from the Grant Date; provided, however,
that if the Option is granted to an Employee who, together with persons
whose stock ownership is attributed to the Employee pursuant to section
424(d) of the Code, owns stock possessing more than 10% of the total
combined voting power of all classes of the stock of the Company or any of
its Subsidiaries, the Option may not be exercised after the expiration of
five (5) years from the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of the Plan, an
SAR may be granted to Employees and Consultants at any time and from time to
time as shall be determined by the Committee, in its sole discretion. The
Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any
combination thereof.
6.1.1 Number of Shares. The Committee shall have complete discretion
to determine the number of SARs granted to any Participant, provided that
during any Fiscal Year, no Participant shall be granted SARs covering more
than 350,000 Shares.
6.1.2 Exercise Price and Other Terms. The Committee, subject to the
provisions of the Plan, shall have complete discretion to determine the
terms and conditions of SARs granted under the Plan. However, the exercise
price of a Freestanding SAR shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date. The exercise
price of Tandem or Affiliated SARs shall equal the Exercise Price of the
related Option. In no event shall an SAR granted to a Section 16 Person
become exercisable until at least six (6) months after the Grant Date (or
such shorter period as may be permissible while maintaining compliance with
Rule 16b-3).
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and
26
<PAGE> 28
(c) the Tandem SAR shall be exercisable only when the Fair Market Value of the
Shares subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be
exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable
on such terms and conditions as the Committee, in its sole discretion, shall
determine. However, no SAR granted to a Section 16 Person shall be exercisable
until at least six (6) months after the Grant Date (or such shorter period as
may be permissible while maintaining compliance with Rule 16b-3).
6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the Committee, in
its sole discretion, shall determine.
6.6 Expiration of SARs. An SAR granted under the Plan shall expire upon
the date determined by the Committee, in its sole discretion, and set forth in
the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4
also shall apply to SARs.
6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the Committee,
in its sole discretion, shall determine. The Committee, in its sole discretion,
shall determine the number of Shares to be granted to each Participant, provided
that during any Fiscal Year, no Participant shall receive more than 175,000
Shares of Restricted Stock.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the
Committee, in its sole discretion, shall determine. Unless the Committee
determines otherwise, Shares of Restricted Stock shall be held by the Company as
escrow agent until the restrictions on such Shares have lapsed.
7.3 Transferability. Except as provided in this Section 7, Shares of
Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period of Restriction.
However, in no event may the restrictions on Restricted Stock granted to a
Section 16 Person lapse prior to six (6) months following the Grant Date (or
such shorter period as may be permissible while maintaining compliance with Rule
16b-3).
7.4 Other Restrictions. The Committee, in its sole discretion, may impose
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate, in accordance with this Section 7.4.
7.4.1 General Restrictions. The Committee may set restrictions based
upon the achievement of specific performance objectives (Company-wide,
divisional, or individual), applicable Federal or state securities laws, or
any other basis determined by the Committee in its discretion.
27
<PAGE> 29
7.4.2 Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Restricted Stock as "performance-based compensation"
under section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest
date permissible to enable the Restricted Stock to qualify as
"performance-based compensation" under section 162(m) of the Code. In
granting Restricted Stock which is intended to qualify under Code section
162(m), the Committee shall follow any procedures determined by it from
time to time to be necessary or appropriate to ensure qualification of the
Restricted Stock under Code section 162(m) (e.g., in determining the
Performance Goals).
7.4.3 Legend on Certificates. The Committee, in its discretion, may
legend the certificates representing Restricted Stock to give appropriate
notice of such restrictions. For example, the Committee may determine that
some or all certificates representing Shares of Restricted Stock shall bear
the following legend:
"The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation of
law, is subject to certain restrictions on transfer as set forth in the
Applied Materials, Inc. 1995 Equity Incentive Plan, and in a Restricted
Stock Agreement. A copy of the Plan and such Restricted Stock Agreement
may be obtained from the Secretary of Applied Materials, Inc."
7.5 Removal of Restrictions. Except as otherwise provided in this Section
7, Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall be released from escrow as soon as practicable after the last day
of the Period of Restriction. The Committee, in its discretion, may accelerate
the time at which any restrictions shall lapse, and remove any restrictions;
provided, however, that the Period of Restriction on Shares granted to a Section
16 Person may not lapse until at least six (6) months after the Grant Date (or
such shorter period as may be permissible while maintaining compliance with Rule
16b-3). After the restrictions have lapsed, the Participant shall be entitled to
have any legend or legends under Section 7.4.3 removed from his or her Share
certificate, and the Shares shall be freely transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares, unless the Committee determines otherwise.
7.7 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
With respect to Restricted Stock granted to a Section 16 Person, any
dividend or distribution that constitutes a "derivative security" or an "equity
security" under section 16 of the 1934 Act shall be subject to a Period of
Restriction equal to the longer of: (a) the remaining Period of Restriction on
the Shares of Restricted Stock with respect to which the dividend or
distribution is paid; or (b) six (6) months.
7.8 Return of Restricted Stock to Company. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units and Performance
Shares may be granted to Employees and Consultants at any time and from time to
time, as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Participant provided
that during any Fiscal Year, (a) no
28
<PAGE> 30
Participant shall receive Performance Units having an initial value greater than
$3,000,000, and (b) no Participant shall receive more than 175,000 Performance
Shares.
8.2 Value of Performance Units/Shares. Each Performance Unit shall have
an initial value that is established by the Committee on or before the Grant
Date. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the Grant Date.
8.3 Performance Objectives and Other Terms. The Committee shall set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units/Shares
that will be paid out to the Participants. The time period during which the
performance objectives must be met shall be called the "Performance Period".
Performance Periods of Awards granted to Section 16 Persons shall, in all cases,
exceed six (6) months in length (or such shorter period as may be permissible
while maintaining compliance with Rule 16b-3). Each Award of Performance
Units/Shares shall be evidenced by an Award Agreement that shall specify the
Performance Period, and such other terms and conditions as the Committee, in its
sole discretion, shall determine.
8.3.1 General Performance Objectives. The Committee may set
performance objectives based upon the achievement of Company-wide,
divisional, or individual goals, applicable Federal or state securities
laws, or any other basis determined by the Committee in its discretion.
8.3.2 Section 162(m) Performance Objectives. For purposes of
qualifying grants of Performance Units/Shares as "performance-based
compensation" under section 162(m) of the Code, the Committee, in its
discretion, may determine that the performance objectives applicable to
Performance Units/Shares shall be based on the achievement of Performance
Goals. The Performance Goals shall be set by the Committee on or before the
latest date permissible to enable the Performance Units/Shares to qualify
as "performance-based compensation" under section 162(m) of the Code. In
granting Performance Units/Shares which are intended to qualify under Code
section 162(m), the Committee shall follow any procedures determined by it
from time to time to be necessary or appropriate to ensure qualification of
the Performance Units/Shares under Code section 162(m) (e.g., in
determining the Performance Goals).
8.4 Earning of Performance Units/Shares. After the applicable Performance
Period has ended, the holder of Performance Units/Shares shall be entitled to
receive a payout of the number of Performance Units/Shares earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance objectives have been achieved.
After the grant of a Performance Unit/Share, the Committee, in its sole
discretion, may reduce or waive any performance objectives for such Performance
Unit/Share; provided, however, that Performance Periods of Awards granted to
Section 16 Persons shall not be less than six (6) months (or such shorter period
as may be permissible while maintaining compliance with Rule 16b-3).
8.5 Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units/Shares shall be made as soon as practicable after the
expiration of the applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Shares in the form of cash, in
Shares (which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance
Period) or in a combination thereof.
8.6 Cancellation of Performance Units/Shares. On the date set forth in
the Award Agreement, all unearned or unvested Performance Units/Shares shall be
forfeited to the Company, and again shall be available for grant under the Plan.
SECTION 9
NONEMPLOYEE DIRECTOR OPTIONS
The provisions of this Section 9 are applicable only to Options granted to
Nonemployee Directors. The provisions of Section 5 are applicable to Options
granted to Employees and Consultants (and to the extent provided in Section
9.2.7, to Nonemployee Director Options).
29
<PAGE> 31
9.1 Granting of Options.
9.1.1 Initial Grants. Each Nonemployee Director who first becomes a
Nonemployee Director on or after the effective date of this Plan,
automatically shall receive, as of the date that the individual first is
appointed or elected as a Nonemployee Director, an Option to purchase
20,000 Shares.
9.1.2 Ongoing Grants. Each Nonemployee Director who both (a) is a
Nonemployee Director on the last business day of a Fiscal Year, and (b) has
served as a Nonemployee Director for the entire Fiscal Year which includes
such last business day, automatically shall receive, as of such last
business day only, an Option to purchase 6,000 Shares.
9.2 Terms of Options.
9.2.1 Option Agreement. Each Option granted pursuant to this Section
9 shall be evidenced by a written stock option agreement which shall be
executed by the Optionee and the Company.
9.2.2 Exercise Price The Exercise Price for the Shares subject to
each Option granted pursuant to this Section 9 shall be 100% of the Fair
Market Value of such Shares on the Grant Date.
9.2.3 Exercisability. Each Option granted pursuant to Section 9.1.1
shall become exercisable as to 6,000 Shares on the first anniversary of the
Grant Date, as to an additional 5,500 Shares on the second anniversary of
the Grant Date, as to an additional 5,000 Shares on the third anniversary
of the Grant Date, and as to the remaining 3,500 Shares on the fourth
anniversary of the Grant Date. Each Option granted pursuant to Section
9.1.2 shall become exercisable as to 1,500 Shares on the first anniversary
of the Grant Date, and as to an additional 1,500 Shares on each succeeding
anniversary until 100% of the Shares subject to such Option have become
exercisable. Notwithstanding the preceding, once an Optionee ceases to be a
Director, his or her Options which are not exercisable shall not become
exercisable.
9.2.4 Expiration of Options. Each Option shall terminate upon the
first to occur of the following events:
(a) The expiration of five (5) years from the Grant Date; or
(b) The expiration of seven (7) months from the date of the
Optionee's termination of service as a Director for any reason other
than the Optionee's death, Disability or Retirement; or
(c) The expiration of one (1) year from the date of the Optionee's
termination of service by reason of Disability or Retirement.
9.2.5 Death of Director. Notwithstanding Section 9.2.4, if a
Director dies prior to the expiration of his or her options in accordance
with Section 9.2.4, his or her options shall terminate one (1) year after
the date of his or her death.
9.2.6 Not Incentive Stock Options. Options granted pursuant to this
Section 9 shall not be designated as Incentive Stock Options.
9.2.7 Other Terms. All provisions of the Plan not inconsistent with
this Section 9 shall apply to Options granted to Nonemployee Directors;
provided, however, that Section 5.2 (relating to the Committee's discretion
to set the terms and conditions of Options) shall be inapplicable with
respect to Nonemployee Directors.
SECTION 10
MISCELLANEOUS
10.1 Deferrals. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant under an Award. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
30
<PAGE> 32
10.2 No Effect on Employment or Service. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
10.3 Participation. No Employee or Consultant shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
10.4 Indemnification. Each person who is or shall have been a member of
the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
10.5 Successors. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
10.6 Beneficiary Designations. If permitted by the Committee, a
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Award Agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
10.7 Nontransferability of Awards. No Award granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited
extent provided in Section 10.6. All rights with respect to an Award granted to
a Participant shall be available during his or her lifetime only to the
Participant.
10.8 No Rights as Stockholder. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the
rights or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
11.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. However, if and to the extent required to maintain the
Plan's qualification under Rule 16b-3, any such amendment shall be subject to
stockholder approval. In addition, as required by Rule 16b-3, the provisions of
Section 9 regarding the formula for determining the amount, exercise price, and
timing of Nonemployee Director Options shall in no event be amended more than
once every six (6) months, other than to comport with changes in the Code or
ERISA. (ERISA is inapplicable to the Plan.) The amendment, suspension, or
termination of the Plan shall not,
31
<PAGE> 33
without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of the Plan.
11.2 Duration of the Plan. The Plan shall commence on the date specified
herein, and subject to Section 11.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter. However, without further
stockholder approval, no Incentive Stock Option may be granted under the Plan
after December 6, 2004.
SECTION 12
TAX WITHHOLDING
12.1 Withholding Requirements. Prior to the delivery of any Shares or
cash pursuant to an Award (or exercise thereof), the Company shall have the
power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
12.2 Withholding Arrangements. The Committee, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a
Participant to satisfy such tax withholding obligation, in whole or in part by
(a) electing to have the Company withhold otherwise deliverable Shares, or (b)
delivering to the Company already-owned shares having a Fair Market Value equal
to the amount required to be withheld. The amount of the withholding requirement
shall be deemed to include any amount which the Committee agrees may be withheld
at the time the election is made, not to exceed the amount determined by using
the maximum federal, state or local marginal income tax rates applicable to the
Participant with respect to the Award on the date that the amount of tax to be
withheld is to be determined. The Fair Market Value of the Shares to be withheld
or delivered shall be determined as of the date that the taxes are required to
be withheld.
SECTION 13
LEGAL CONSTRUCTION
13.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
13.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
13.4 Securities Law Compliance. With respect to Section 16 Persons,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Award
Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
13.5 Governing Law. The Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of California.
13.6 Captions. Captions are provided herein for convenience only, and
shall not serve as a basis for interpretation or construction of the Plan.
32
<PAGE> 34
EXHIBIT B
APPLIED MATERIALS, INC.
SENIOR EXECUTIVE BONUS PLAN
(EFFECTIVE SEPTEMBER 23, 1994)
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1 Purpose. Applied Materials, Inc. hereby establishes the Applied
Materials, Inc. Senior Executive Bonus Plan (the "Plan"). The Plan is intended
to increase shareholder value and the success of the Company by motivating key
executives (a) to perform to the best of their abilities, and (b) to achieve the
Company's objectives. The Plan's goals are to be achieved by providing such
executives with incentive awards based on the achievement of goals relating to
the performance of the Company and its individual business units. The plan is
intended to qualify as performance-based compensation under Code Section 162(m).
1.2 Effective Date. The Plan is effective as of September 23, 1994,
subject to the approval of a majority of the shares of the Company's common
stock which are present in person or by proxy and entitled to vote at the 1995
Annual Meeting of Stockholders. As long as the Plan remains in effect, it shall
be resubmitted to shareholders as necessary to enable the Plan to continue to
qualify as performance-based compensation under Code Section 162(m).
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "Actual Award" means as to any Plan Year, the actual award (if any)
payable to a Participant for the Plan Year. Each Actual Award is determined by
the Payout Formula for the Plan Year, subject to the Committee's authority under
Section 3.5 to reduce the award otherwise determined by the Payout Formula.
2.2 "Annual Revenue" means the Company's or business unit's net sales for
the Plan Year, determined in accordance with generally accepted accounting
principles; provided, however, that prior to each Plan Year, the Committee shall
determine whether any significant item(s) shall be excluded or included from the
calculation of Annual Revenue with respect to one or more Participants.
2.3 "Base Salary" means as to any Plan Year, the lesser of (a) 125% of the
Participant's annualized salary rate on the first day of the Plan Year, or (b)
100% of the Participant's annualized salary rate on the last day of the Plan
Year. Such Base Salary shall be before both (a) deductions for taxes or
benefits, and (b) deferrals of compensation pursuant to Company-sponsored plans.
2.4 "Board" means the Company's Board of Directors.
2.5 "Code" means the Internal Revenue Code of 1986, as amended. Reference
to a specific Section of the Code shall include such Section, any valid
regulation promulgated thereunder, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such Section or
regulation.
2.6 "Committee" means the committee appointed by the Board to administer
the Plan. The Committee shall consist of no fewer than two members of the Board.
The members of the Committee shall be appointed by, and serve at the pleasure
of, the Board. Each member of the Committee shall qualify as an "outside
director" under Code Section 162(m).
2.7 "Company" means Applied Materials, Inc., a Delaware corporation.
33
<PAGE> 35
2.8 "Controllable Profits" means as to any Plan Year, a business unit's
Annual Revenue minus (a) cost of sales, (b) research, development, and
engineering expense, (c) marketing and sales expense, (d) general and
administrative expense, (e) extended receivables expense, and (f) shipping
requirement deviation expense.
2.9 "Customer Satisfaction MBOs" means as to any Participant for any Plan
Year, the objective and measurable individual goals set by a "management by
objectives" process and approved by the Committee, which goals relate to the
satisfaction of external or internal customer requirements.
2.10 "Determination Date" means as to any Plan Year, (a) the first day of
the Plan Year, or (b) if later, the latest date possible which will not
jeopardize the Plan's qualification as performance-based compensation under Code
Section 162(m).
2.11 "Disability" means a permanent and total disability determined in
accordance with uniform and nondiscriminatory standards adopted by the Committee
from time to time.
2.12 "Earnings Per Share" means as to any Plan Year, the Company's Net
Income or a business unit's Pro Forma Net Income, divided by a weighted average
number of common shares outstanding and dilutive common equivalent shares deemed
outstanding.
2.13 "Individual MBOs" means as to a Participant for any Plan Year, the
objective and measurable goals set by a "management by objectives" process and
approved by the Committee (in its discretion).
2.14 "Maximum Award" means as to any Participant for any Plan Year, $3
million. The Maximum Award is the maximum amount which may be paid to a
participant for any Plan Year.
2.15 "Net Income" means as to any Plan Year, the income after taxes of the
Company and its consolidated subsidiaries for the Plan Year determined in
accordance with generally accepted accounting principles, provided that prior to
each Plan Year, the Committee shall determine whether any significant item(s)
shall be included or excluded from the calculation of Income After Tax with
respect to one or more Participants.
2.16 "New Orders" means as to any Plan Year, the firm orders for a system,
product, part, or service that are being recorded for the first time as defined
in the Company's Order Recognition Policy.
2.17 "Participant" means as to any Plan Year, an officer of the Company
who has been selected by the Committee for participation in the Plan for that
Plan Year.
2.18 "Payout Formula" means as to any Plan Year, the formula or payout
matrix established by the Committee pursuant to Section 3.4 in order to
determine the Actual Awards (if any) to be paid to Participants. The formula or
matrix may differ from Participant to Participant.
2.19 "Performance Goals" means the goal(s) (or combined goal(s))
determined by the Committee (in its discretion) to be applicable to a
Participant for a Plan Year. As determined by the Committee, the Performance
Goals applicable to each Participant shall provide for a targeted level or
levels of achievement using one or more of the following measures: (a) Annual
Revenue, (b) Controllable Profits, (c) Customer Satisfaction MBOs, (d) Earnings
Per Share, (e) Individual MBOs, (f) Net Income, (g) New Orders, (h) Pro Forma
Net Income, (i) Return on Designated Assets, and (j) Return on Sales. The
Performance Goals may differ from Participant to Participant.
2.20 "Plan Year" means the 1995 fiscal year of the Company and each
succeeding fiscal year of the Company.
2.21 "Pro Forma Net Income" means as to any business unit for any Plan
Year, the Controllable Profits of such business unit, minus allocations of
corporate taxes, interest, and other expenses.
2.22 "Retirement" means, with respect to any Participant, a termination of
his or her employment with the Company and all affiliates pursuant to any
mandatory executive retirement program adopted by the Company.
34
<PAGE> 36
2.23 "Return on Designated Assets" means as to any Plan Year, the Pro
Forma Net Income of a business unit, divided by the average of beginning and
ending business unit designated assets, or Net Income of the Company, divided by
the average of beginning and ending designated corporate assets.
2.24 "Return on Sales" means as to any Plan Year, the percentage equal to
the Company's Net Income or the business unit's Pro Forma Net Income, divided by
the Company's or the business unit's Annual Revenue.
2.25 "Target Award" means the target award payable under the Plan to a
Participant for the Plan Year, expressed as a percentage of his or her Base
Salary, as determined by the Committee in accordance with Section 3.3.
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 Selection of Participants. On or prior to the Determination Date, the
Committee, in its sole discretion, shall select the officers of the Company who
shall be Participants for the Plan Year. In selecting Participants, the
Committee shall choose officers who are likely to have a significant impact on
the performance of the Company. Participation in the Plan is in the sole
discretion of the Committee, and on a Plan Year by Plan Year basis. Accordingly,
an officer who is a Participant for a given Plan Year in no way is guaranteed or
assured of being selected for participation in any subsequent Plan Year or
Years.
3.2 Determination of Performance Goals. On or prior to the Determination
Date, the Committee, in its sole discretion, shall establish the Performance
Goals for each Participant for the Plan Year. Such Performance Goals shall be
set forth in writing.
3.3 Determination of Target Awards. On or prior to the Determination
Date, the Committee, in its sole discretion, shall establish a Target Award for
each Participant. Each Participant's Target Award shall be determined by the
Committee in its sole discretion, and each Target Award shall be set forth in
writing.
3.4 Determination of Payout Formula or Formulae. On or prior to the
Determination Date, the Committee, in its sole discretion, shall establish a
Payout Formula or Formulae for purposes of determining the Actual Award (if any)
payable to each Participant. Each Payout Formula shall (a) be in writing, (b) be
based on a comparison of actual performance to the Performance Goals, (c)
provide for the payment of a Participant's Target Award if the Performance Goals
for the Plan Year are achieved, and (d) provide for an Actual Award greater than
or less than the Participant's Target Award, depending upon the extent to which
actual performance exceeds or falls below the Performance Goals. Notwithstanding
the preceding, no Participant's Actual Award under the Plan may exceed his or
her Maximum Award.
3.5 Determination of Actual Awards. After the end of each Plan Year, the
Committee shall certify in writing the extent to which the Performance Goals
applicable to each Participant for the Plan Year were achieved or exceeded. The
Actual Award for each Participant shall be determined by applying the Payout
Formula to the level of actual performance which has been certified by the
Committee. Notwithstanding any contrary provision of the Plan, (a) the
Committee, in its sole discretion, may eliminate or reduce the Actual Award
payable to any Participant below that which otherwise would be payable under the
Payout Formula, (b) if a Participant terminates employment with the Company
prior to the end of a Plan Year for a reason other than Retirement, Disability
or death, he or she shall not be entitled to the payment of an Actual Award for
the Plan Year, and (c) if a Participant terminates employment with the Company
prior to the end of a Plan Year due to Retirement, Disability or death, the
Committee shall reduce his or her Actual Award proportionately based on the date
of termination (and subject to further reduction or elimination under clause (a)
of this sentence).
35
<PAGE> 37
SECTION 4
PAYMENT OF AWARDS
4.1 Right to Receive Payment. Each Actual Award that may become payable
under the Plan shall be paid solely from the general assets of the Company.
Nothing in this Plan shall be construed to create a trust or to establish or
evidence any Participant's claim of any right other than as an unsecured general
creditor with respect to any payment to which he or she may be entitled.
4.2 Timing of Payment. Payment of each Actual Award shall be made within
two and one-half calendar months after the end of the Plan Year during which the
Award was earned.
4.3 Form of Payment. Each Actual Award normally shall be paid in cash (or
its equivalent) in a single lump sum. However, the Committee, in its sole
discretion, may declare any Actual Award, in whole or in part, payable in
restricted stock granted under the Company's 1995 Equity Incentive Plan. The
number of shares granted shall be determined by dividing the cash amount
foregone by the fair market value of a share on the date that the cash payment
otherwise would have been made. For this purpose, "fair market value" shall mean
the closing price on the NASDAQ/National Market for the day in question. Any
restricted stock so awarded shall vest over a period of not more than four
years, subject to acceleration for termination of employment due to death,
Disability, or Retirement.
4.4 Payment in the Event of Death. If a Participant dies prior to the
payment of an Actual Award earned by him or her prior to death for a prior Plan
Year, the Award shall be paid to his or her estate.
SECTION 5
ADMINISTRATION
5.1 Committee is the Administrator. The Plan shall be administered by the
Committee.
5.2 Committee Authority. The Committee shall have all discretion and
authority necessary or appropriate to administer the Plan and to interpret the
provisions of the Plan, consistent with qualification of the Plan as
performance-based compensation under Code Section 162(m). Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive, and binding upon all persons, and shall be given the maximum
deference permitted by law.
5.3 Tax Withholding. The Company shall withhold all applicable taxes from
any payment, including any federal, FICA, state, and local taxes.
SECTION 6
GENERAL PROVISIONS
6.1 Nonassignability. A Participant shall have no right to assign or
transfer any interest under this Plan.
6.2 No Effect on Employment. The establishment and subsequent operation
of the Plan, including eligibility as a Participant, shall not be construed as
conferring any legal or other rights upon any Participant for the continuation
of his or her employment for any Plan Year or any other period. Employment with
the Company is on an at will basis only. The Company expressly reserves the
right, which may be exercised at any time and without regard to when during a
Plan Year such exercise occurs, to terminate any individual's employment with or
without cause, and to treat him or her without regard to the effect which such
treatment might have upon him or her as a Participant.
6.3 No Individual Liability. No member of the Committee or the Board, or
any officer of the Company, shall be liable for any determination, decision or
action made in good faith with respect to the Plan or any award under the Plan.
36
<PAGE> 38
6.4 Severability; Governing. If any provision of the Plan is found to be
invalid or unenforceable, such provision shall not affect the other provisions
of the Plan, and the Plan shall be construed in all respects as if such invalid
provision had been omitted. The provisions of the Plan shall be governed by and
construed in accordance with the laws of the State of California, with the
exception of California's conflict of laws provisions.
6.5 Affiliates of the Company. Requirements referring to employment with
the Company or payment of awards may, in the Committee's discretion, be
performed through the Company or any affiliate of the Company.
SECTION 7
AMENDMENT AND TERMINATION
7.1 Amendment and Termination. The Board may amend or terminate the Plan
at any time and for any reason; provided, however, that if and to the extent
required to ensure the Plan's qualification under Code sec. 162(m), any such
amendment shall be subject to stockholder approval.
37
<PAGE> 39
(LOGO) This Proxy Statement was printed on recycled paper.
<PAGE> 40
APPLIED MATERIALS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON MARCH 14, 1995.
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints James C. Morgan and Donald A. Slichter, or
either of them, each with full power of substitution, as proxies of the
undersigned, to attend the Annual Meeting of Stockholders of Applied Materials,
Inc., to be held on Tuesday, March 14, 1995, at 3:00 p.m. and any adjournment
or postponement thereof, and to vote the number of shares the undersigned would
be entitled to vote if personally present on the following:
(continued and to be signed on other side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. Election of Directors
M. Armacost, J. Bagley, H. Dwight, G. Farnsworth, P. Gerdine,
T. Kawanishi, P. Low, D. Maydan, J. Morgan, A. Stein
INSTRUCTION: To withhold authority to vote for any individual Nominee, write
that Nominee's name in the space provided below.
_____________________________________________________________________________
_____________________________________________________________________________
2. To approve the adoption of the 1995 Equity Inventive Plan.
3. To approve the adoption of the Senior Executive Bonus Plan.
4. In their discretion, upon any and all matters as may properly come before
the meeting or any adjournment or postponement thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED WILL BE
NOTED FOR THE TEN NOMINEES FOR ELECTION, FOR PROPOSAL 2 AND FOR PROPOSAL 3>
(Please sign exactly as your name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, sign in
full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.)
Dated: _____________________________________________________________________
_ Signature
Signature (if held jointly)
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRED NO POSTAGE IF MAILED IN THE UNITED STATES.
FOR all nominees listed (except as indicated to the contrary)
WITHHOLD AUTHORITY to vote for all nominees listed
For Against Abstain
For Against Abstain
<PAGE> 41
JANUARY 31, 1995
DEAR APPLIED MATERIALS STOCKHOLDER:
We cordially invite you to attend Applied Materials' 1995 Annual Meeting of
Stockholders, which will be held in the Santa Clara Room at the Renaissance
Meeting Center at Techmart, 5201 Great America Parkway, Santa Clara, California
on Tuesday, March 14, 1995 at 3:00PM. At the meeting, the stockholders will
elect ten directors and vote on proposals to approve the adoption of the 1995
Equity Incentive Plan and Senior Executive Bonus Plan.
The 1995 Equity Incentive Plan, which replaces the expiring management and
non-employee director option plans, gives the company the flexibility to use a
wide variety of equity-based incentive vehicles. While the Company has no
current plans to grant awards other than nonqualified stock options, the Board
of Directors believes that this flexibility is important to enable the Company
to adapt over time to changes in the labor market and in equity compensation
practices based solely on past experience, we anticipate that the 6,300,000
shares for which we are requesting stockholder authorization will be sufficient
to allow grants of awards over a period of approximately three(3) years. Because
the Company will not use approximately 2,300,000 shares previously authorized by
the stockholders for grant under the expiring plans, the incremental number of
shares for which the company is requesting stockholder authorization is
approximately 4,000,000.
The Board of Directors is pleased to announce the nomination of Tsuyoshi
Kawanishi as a director of the Company. Mr. Kawanishi was most recently a senior
executive vice and member of the Board of Directors of Toshibi Corporation. He
has an excellent reputation in the semiconductor industry and will be a valuable
addition to the Board. We look forward to working with him.
It is with reluctance that we inform you that Dr. Hiroo Toyoda, who served on
the Board for ten years, will retire as a director upon conclusion of the annual
meeting. He has been an outstanding contributor, a respected and trusted
colleague and a good friend. We would like to thank him for his service to
Applied Materials and wish him well.
I urge you to review the proxy materials carefully and to vote FOR the director
nominees, FOR the adoption of the 1995 Equity Incentive Plan and FOR the
adoption of the Senior Executive Bonus Plan.
SINCERELY,
JAMES C. MORGAN
2
