<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
APPLIED MATERIALS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Donald A. Slichter, Secretary
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statements)
Payment of Filing Fee (Check the appropriate box):
[X] No fee.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
Set forth the amount on which the filing fee is calculated and state how
it was determined:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
APPLIED MATERIALS
James C. Morgan
CHAIRMAN
CHIEF EXECUTIVE OFFICER
February , 1998
Dear Applied Materials Stockholder:
We cordially invite you to attend Applied Materials' 1998 Annual Meeting of
Stockholders which will be held at the Omni Austin Hotel at Southpark, 4140
Governor's Row, Austin, Texas on Tuesday, March 17, 1998 at 3:00 p.m. At the
meeting, the stockholders will elect nine directors and vote on proposals to
amend the Company's Certificate of Incorporation to increase the number of
shares of Common Stock authorized to be issued from 500,000,000 to
1,100,000,000, and to approve an increase of 18,000,000 in the number of shares
authorized for issuance under the 1995 Equity Incentive Plan (the "1995 Plan").
The need for amending the Certificate of Incorporation has arisen because the
100% stock dividend distributed in October depleted the pool of authorized but
unissued shares of Common Stock by approximately 183,467,000 shares. As of
January 23, 1998, approximately 366,266,000 shares are outstanding, and
approximately 53,404,000 shares are reserved for issuance under the Company's
various employee benefit plans. Under the current authorization of 500,000,000
shares, only about 80,330,000 authorized shares are available to the Company for
such potentially important purposes as additional stock dividends (if any),
public offerings (if any), acquisitions (if any) or other corporate purposes. If
the proposed amendment is approved, the resulting number of authorized, unissued
and unreserved shares would, for example, permit the Board of Directors to
declare an additional 100% stock dividend without another amendment to the
Certificate of Incorporation. Although no such action is currently being
contemplated, the Board of Directors believes such flexibility to be in the best
interest of the Company and its stockholders.
Stock option grants, which are made under the 1995 Plan, constitute an important
incentive for key technical and managerial employees of the Company. Option
grants are a significant part of the Company's ability to attract, retain and
motivate people whose skills and performance are critical to the Company's
success. The 22% growth in the Company's employee population from the end of
fiscal 1996 to the end of fiscal 1997, combined with the extension of stock
option grants to a broader employee base, require the utilization of an ever
increasing number of shares. It is the Company's current practice to grant
options at not less than the fair market value of the underlying shares on the
date of grant and for a term not longer than 7 years. No restricted stock has
been or is expected to be issued under the 1995 Plan.
I urge you to review the proxy materials carefully, to vote FOR the director
nominees, to vote FOR the proposal to authorize additional shares under the
Company's Certificate of Incorporation, and to vote FOR the proposal to
authorize additional shares for the 1995 Plan.
Sincerely,
LOGO
James C. Morgan
<TABLE>
<S> <C>
3050 Bowers Avenue Mailing Address:
Santa Clara, California 95054 Applied Materials, Inc.
Phone: (408) 727-5555 P.O. Box 58039
FAX: (408) 496-6421 Santa Clara, California 95052
Telex: 34-6332
</TABLE>
LOGO
<PAGE> 3
APPLIED MATERIALS, INC.
3050 BOWERS AVENUE
SANTA CLARA, CALIFORNIA 95054
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MARCH 17, 1998
AT 3:00 P.M.
To the Stockholders:
The Annual Meeting of Stockholders of Applied Materials, Inc. will be held
in the Omni Austin Hotel at Southpark, 4140 Governor's Row, Austin, Texas on
Tuesday, March 17, 1998 at 3:00 p.m. for the following reasons:
1. To elect nine directors to serve for a one-year term and until their
successors have been elected and qualified.
2. To approve an amendment of the 1995 Equity Incentive Plan to increase
the number of shares issuable thereunder by 18,000,000 shares.
3. To approve an amendment of the Company's Certificate of Incorporation to
increase the number of shares of Common Stock authorized for issuance
thereunder to 1,100,000,000.
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 23,
1998 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
February XX, 1998
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> 4
APPLIED MATERIALS, INC.
3050 BOWERS AVENUE
SANTA CLARA, CALIFORNIA 95054
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") 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 17, 1998, 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 23, 1998 are entitled to notice of
and to vote at the Annual Meeting. On that date, the Company had outstanding
approximately 366,266,000 shares of Common Stock. Holders of Common Stock are
entitled to one vote for each share held. All references to number of shares,
number of options and exercise prices of options made herein, unless otherwise
indicated in the text, give effect to a two-for-one stock split in the form of a
100% stock dividend, effective October 13, 1997.
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 nine 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 approval of the
amendment of the 1995 Equity Incentive Plan (the "1995 Plan") and the amendment
of the Company's Certificate of Incorporation. 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, (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 approval of the amendment of the 1995 Plan,
and (iii) the affirmative vote of a majority of shares outstanding is required
for the approval of the amendment of the Company's Certificate of Incorporation.
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. Accordingly, a
broker non-vote will have no effect with respect to items 1 and 2 of this Proxy
Statement, but will have the same effect as a vote against item 3 which requires
the approval of a majority of the outstanding shares.
The expense of soliciting proxies 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 the Company by the firm of Skinner & Co., whose fee
($5,000) and expenses (estimated to be $6,000) will be borne by the Company.
This Proxy Statement was first mailed to stockholders on or about February
XX, 1998.
<PAGE> 5
ITEM 1 -- ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting of Stockholders, a Board of nine directors will be
elected, each to hold office until a successor is elected and qualified, or
until the death, resignation or removal of the director. Shares represented by
the accompanying proxy will be voted for the election of the nine 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.
All of the nominees were elected directors by a vote of the stockholders at the
last Annual Meeting of Stockholders which was held on March 19, 1997 (the "1997
Annual Meeting"), except for Deborah A. Coleman, who was appointed a director at
the organizational meeting of the Board that followed the 1997 Annual Meeting to
fill the vacancy created by the retirement of Mr. George B. Farnsworth. 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.
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............ 59 Chairman of the Board and Chief Executive Officer of 1977
the Company
Dan Maydan................. 62 President of the Company and Chairman of Applied 1992
Komatsu Technology, Inc.
Michael H. Armacost*....... 60 President of The Brookings Institution 1993
Deborah A. Coleman*........ 45 Chairman and Chief Executive Officer of Merix 1997
Corporation
Herbert M. Dwight, Jr.**... 67 Chairman and Chief Executive Officer of Optical 1981
Coating Laboratory, Inc.
Philip V. Gerdine*......... 58 Executive Director (Overseas Acquisitions) of 1976
Siemens AG
Tsuyoshi Kawanishi*........ 68 Senior Adviser to Toshiba Corporation 1994
Paul R. Low**.............. 64 Chief Executive Officer of P.R.L. Associates 1992
Alfred J. Stein**.......... 65 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. Mr. Morgan was
elected a director of Cisco Systems, Inc. in January 1998.
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 to December 1993, he was
Executive Vice President of the Company. Dr. Maydan is a director of Electronics
for Imaging, Inc.
Michael H. Armacost has been President of The Brookings Institution, a
nonpartisan public policy research organization, since October 1995. From
September 1993 through September 1995, he was a Distinguished Senior Fellow and
Visiting Professor at the Asia/Pacific Research Center, Stanford University.
2
<PAGE> 6
From 1989 to 1993, he was the U.S. Ambassador to Japan. Mr. Armacost is a
director of TRW, Inc., AFLAC Incorporated and Cargill, Incorporated.
Deborah A. Coleman has been Chairman and Chief Executive Officer of Merix
Corporation, a manufacturer of interconnect solutions for use in electronic
equipment, since April 1994. From November 1992 through March 1994, she was the
Vice President of Materials Operations at Tektronix, Inc. Ms. Coleman is a
director of Synopsys, Inc.
Herbert M. Dwight, Jr. has been Chairman and Chief Executive Officer of
Optical Coating Laboratory, Inc., a manufacturer of optical thin films and
components, since August 1991. Mr. Dwight is a director of Applied Magnetics
Corporation and Optical Coating Laboratory, Inc.
Philip V. Gerdine has been Executive Director (Overseas Acquisitions) of
Siemens AG, Munich, Germany, a manufacturer of electrical and electronic
products, since October 1990.
Tsuyoshi Kawanishi has been Senior Adviser to Toshiba Corporation, a
manufacturer of electrical and electronic products, since June 1994, and
Chairman of the Management Board of the Institute of Microelectronics since June
1996. From June 1990 to June 1994, he was Senior Executive Vice President and a
member of the Board of Directors of Toshiba Corporation. Mr. Kawanishi is a
director of Chartered Semiconductor Manufacturing Ltd. and Asyst Technologies,
Inc.
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. Dr. Low is a director of Network Computing
Devices, Inc., Number Nine Visual Technology Corporation, Solectron Corporation,
Veeco Instruments Inc., VLSI Technology, Inc., Integrated Packaging Assembly
Corporation and Xionics Document Technologies, Inc.
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 1997. Standing
committees of the Board include an Audit Committee, which met three times during
such fiscal year, and a Stock Option and Compensation Committee, which met six
times during such fiscal year. There is no nominating committee. Potential
nominees are interviewed by outside directors, who submit their recommendations
to the Board.
The Audit Committee is comprised of Messrs. Gerdine (Chairman), Armacost
and Kawanishi, and Ms. Coleman, who has served as a member of the Audit
Committee from the date of her appointment as a member of the Board. Messrs. Low
and Stein are alternate members. Mr. Farnsworth served as an alternate member of
the Audit Committee until his retirement as a director after the conclusion of
the 1997 Annual Meeting. 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 potential risk are adequately
covered, and (5) reviewing legal and regulatory matters that may have a material
effect on the Company's financial statements.
The Stock Option and Compensation Committee is comprised of Messrs. Dwight
(Chairman), Low and Stein. Mr. Farnsworth served as a member until his
retirement as a director following the 1997 Annual Meeting. Alternate members
include Mr. Armacost and Ms. Coleman, who has served as an alternate member from
the date of her appointment as a member of the Board. 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 1995 Equity Incentive Plan (the
"1995 Plan") and Senior Executive Bonus Plan.
3
<PAGE> 7
No incumbent director during fiscal 1997 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 the individual has been a
director) and (2) the total number of meetings held by all committees of the
Board on which the director served (during the periods that the director
served), with the exception of Mr. Stein who attended fifty percent (50%) of the
aggregate of such meetings.
COMPENSATION OF DIRECTORS
Directors who are officers of the Company do not receive any additional
compensation for their services as a director. During fiscal 1997, regular fees
for directors who were not officers of the Company were 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 met on a day other than the day
the Board met. Mr. Kawanishi received 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. Mr. Kawanishi is
also reimbursed for the costs of preparing a U.S. federal tax return. In August
1996, the Board voted to accept a 10% reduction in fees in support of the
Company's cost-reduction programs during the industry downturn. The reduction in
fees remained in effect through the March 19, 1997 Board meeting, after which,
the directors' regular fees were reinstated. At the December 10, 1997 meeting of
the Stock Option and Compensation Committee, the Committee approved an increase
from $3,000 to $3,750 in the quarterly retainer paid to Directors who are not
officers of the Company, beginning in the second quarter of fiscal 1998.
Directors who are not officers of the Company participate in one
compensation plan, the 1995 Plan, which was approved by the Company's
stockholders at the 1995 Annual Meeting of Stockholders. Under the 1995 Plan,
options to purchase 20,000 shares of the Company's Common Stock are
automatically granted to each non-employee director on the date such director is
for the first time elected or appointed to the Board of Directors. Thereafter,
each such director is automatically granted options to purchase 6,000 shares on
the last business day of each fiscal year, provided that such automatic option
grants are made only if the director was on the Board of Directors for the
entire fiscal year then ending (including the last business day of the fiscal
year) and was not an employee of the Company or any affiliate for any part of
the fiscal year then ending. The exercise price for all non-employee director
options granted under the 1995 Plan is 100% of the fair market value of the
shares on the grant date and all such options become exercisable over a
four-year period, assuming continued service on the Board of Directors. The
options expire no later than five years after the date of grant (up to six years
in the event of the director's death).
4
<PAGE> 8
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, 1997 by (i) each of
the Company's current directors, (ii) 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 (iii) all
directors and executive officers as a group. No person is known by the Company
to own 5% or more of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-------------------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS NUMBER(1) PERCENT
------------------------------------------------------------- --------- -------
<S> <C> <C>
NON-EMPLOYEE DIRECTORS:
Michael H. Armacost.......................................... 79,000(2) *
Deborah A. Coleman........................................... 0 *
Herbert M. Dwight, Jr........................................ 250,984(3) *
Philip V. Gerdine............................................ 100,600(4) *
Tsuyoshi Kawanishi........................................... 45,000(5) *
Paul R. Low.................................................. 51,000(6) *
Alfred J. Stein.............................................. 57,000(7) *
NAMED EXECUTIVE OFFICERS:
James C. Morgan.............................................. 1,512,967(8) *
Dan Maydan................................................... 660,527 *
Sasson Somekh................................................ 912,040(9) *
Gerald F. Taylor............................................. 108,885(10) *
David N.K. Wang.............................................. 699,837(11) *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(12 PERSONS)............................................... 4,477,840(12) 1.22%
</TABLE>
- ---------------
* Less than 1%
(1) Represents shares held directly and with sole voting and investment power
or with voting and investment power shared with a spouse.
(2) Includes options to purchase 70,600 shares of Common Stock exercisable by
Mr. Armacost within 60 days of November 1, 1997.
(3) Includes options to purchase 51,000 shares of Common Stock exercisable by
Mr. Dwight within 60 days of November 1, 1997.
(4) Includes options to purchase 51,000 shares of Common Stock exercisable by
Dr. Gerdine within 60 days of November 1, 1997.
(5) Includes options to purchase 45,000 shares of Common Stock exercisable by
Mr. Kawanishi within 60 days of November 1, 1997.
(6) Includes options to purchase 51,000 shares of Common Stock exercisable by
Dr. Low within 60 days of November 1, 1997.
(7) Includes options to purchase 21,000 shares of Common Stock exercisable by
Mr. Stein within 60 days of November 1, 1997.
(8) Includes options to purchase 288,000 shares of Common Stock exercisable by
Mr. Morgan within 60 days of November 1, 1997.
5
<PAGE> 9
(9) Includes options to purchase 224,000 shares of Common Stock exercisable by
Dr. Somekh within 60 days of November 1, 1997.
(10) Includes shares held in trust to which Mr. Taylor has sole or shared voting
or investment power.
(11) Includes options to purchase 426,300 shares of Common Stock exercisable by
Dr. Wang within 60 days of November 1, 1997.
(12) Includes options to purchase 1,227,900 shares of Common Stock exercisable
by directors and executive officers within 60 days of November 1, 1997.
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
ANNUAL RESTRICTED SECURITIES ------- ALL
COMPEN- STOCK UNDERLYING LTIP OTHER
NAME AND FISCAL SALARY BONUS SATION AWARDS OPTIONS PAYOUTS COMPENSATION(1)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------------------- ------ ------- --------- -------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James C. Morgan................ 1997 671,539 602,640 0 0 160,000 0 6,750
Chairman of the Board and 1996 645,136 919,215 0 0 140,000 0 6,750
Chief Executive Officer 1995 546,033 1,141,793 0 0 288,000 0 11,637
Dan Maydan..................... 1997 508,094 460,350 0 0 140,000 0 6,750
President of the Company 1996 476,586 683,144 0 0 110,000 0 4,457
and Chairman of Applied 1995 377,308 788,955 0 0 200,000 0 12,084
Komatsu Technology, Inc.
Sasson Somekh.................. 1997 348,077 318,060 0 0 80,000 0 3,742
Senior Vice President 1996 322,596 459,608 0 0 70,000 0 3,562
1995 272,308 464,063 0 0 112,000 0 4,009
Gerald F. Taylor(2)............ 1997 348,636 318,060 0 0 80,000 0 6,750
Senior Vice President and 1996 322,981 459,608 0 0 70,000 0 6,750
Chief Financial Officer 1995 293,463 398,250 0 0 144,000 0 10,436
David N.K. Wang................ 1997 348,077 318,060 0 0 80,000 0 3,742
Senior Vice President 1996 322,596 459,608 0 0 70,000 0 3,562
1995 272,308 464,063 0 0 112,000 0 4,009
</TABLE>
- ---------------
(1) 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.
(2) Mr. Taylor retired as Senior Vice President and Chief Financial Officer on
January 13, 1998, and now serves as Senior Advisor to the Company.
6
<PAGE> 10
The following table contains information concerning the grant of stock
options to the Named Executive Officers during fiscal 1997 under the Company's
1995 Equity Incentive 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........ 160,000 1.21% 17.3125 12/17/03 $1,127,668 $2,627,946
Dan Maydan............. 140,000 1.06% 17.3125 12/17/03 986,710 2,299,453
Sasson Somekh.......... 80,000 0.60% 17.3125 12/17/03 563,834 1,313,973
Gerald F. Taylor....... 80,000 0.60% 17.3125 12/17/03 563,834 1,313,973
David N.K. Wang........ 80,000 0.60% 17.3125 12/17/03 563,834 1,313,973
</TABLE>
- ---------------
(1) The options in this table were granted in December 1996 and have an exercise
price equal to the fair market value of the Company's Common Stock on the
date of grant. For each grant, 100% of the options become exercisable on
April 15, 2000, assuming continued employment with the Company.
The Company has not granted stock appreciation rights.
The following table contains information concerning (i) the exercise of
options by the Named Executive Officers during fiscal 1997 and (ii) unexercised
options held by the Named Executive Officers as of the end of fiscal 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Morgan...... 288,000 11,376,000 288,000 588,000 7,024,522 11,176,231
Dan Maydan........... 400,000 12,025,000 0 450,000 0 8,410,815
Sasson Somekh........ 160,000 3,902,496 224,000 262,000 5,463,517 4,859,613
Gerald F. Taylor..... 496,000 17,853,245 0 294,000 0 5,588,116
David N.K. Wang...... 160,000 4,880,506 426,300 262,000 11,830,693 4,859,613
</TABLE>
7
<PAGE> 11
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.
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 1997 reflected the fact that the Company achieved strong
results in all geographic markets and across all product lines.
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 1995 Equity Incentive 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 20 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 operating and financial results, while the
percentage of the target bonus received is determined with reference to
performance-related parameters.
8
<PAGE> 12
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 45-65% of annual salary.
The percentage of target bonus that a business unit executive (other than
Mr. Morgan 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 for each of the Company's product business groups and
geographical regions consist of 3-5 business unit financial metrics (measurement
standards) and 3-5 business unit operational metrics specific to each business
unit and region based on model performance. The financial metrics for the
corporate functions are an average of the attainment of all of the business
units' financial results. Financial metrics for the business units and regions
include performance factors such as controllable profit attainment, gross margin
attainment, or other similar financial or asset management measures; and
operational metrics for all groups (including the corporate functions) include
market share growth, quality measures, and customer satisfaction metrics.
Individual awards are based on attainment of 3-5 specific individual
management-by-objectives ("MBO") goals as well as the business unit's attainment
of certain performance factors. These MBOs prescribe targeted achievement
relating to the executive's and his or her unit's attainment of the Company's
business objectives. Typically, the financial metrics and operational metrics
are of roughly equal weight. Within the MBO parameter, the specific goals may be
given different weights depending upon the individual. Examples of typical MBO
goals include controlling spending to budget, implementation of quality
improvement programs or business process controls, development and
implementation of key strategic initiatives, development of employees and
internal customer satisfaction.
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 3-5 specific 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 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. For fiscal 1997, the
Committee approved (1) the philosophy behind the determination of the
performance targets for the executive officers, other than Mr. Morgan and Dr.
Maydan and (2) the specific performance targets for Mr. Morgan and Dr. Maydan
(as described in the following paragraph). At the end of the fiscal year, the
Committee determined, after discussions with Company management, whether each
executive officer met, exceeded or fell below these targets.
Bonuses paid to Mr. Morgan and Dr. Maydan for fiscal 1997 were determined
pursuant to the Company's Senior Executive Bonus Plan (the "Bonus Plan").
Bonuses under the Bonus Plan are paid only for the achievement of performance
goals that have been set in advance by the Committee. Under the Bonus Plan, the
performance goals applicable to an eligible executive for any fiscal year
require a targeted level of achievement using one or more of the following
measures: (1) annual revenue, (2) controllable profits, (3) customer
satisfaction MBOs, (4) earnings per share, (5) individual MBOs, (6) net income,
(7) new orders, (8) pro forma net income, (9) asset management, and (10) return
on sales. Each of these measures is
9
<PAGE> 13
defined in the Bonus Plan. For fiscal 1997, the performance goals applicable to
Mr. Morgan and Dr. Maydan combined two equally weighted factors: annual revenue
growth and return on sales (i.e. net profit as a percentage of sales).
Stock Options. The Committee believes that the use of stock options as
long-term incentives 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 1997, Mr. Morgan received a salary of $671,539. In addition,
as described above, Mr. Morgan was eligible to receive a bonus under the Bonus
Plan. 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 fiscal 1997 target bonus at 75% of
his annual salary. The actual bonus payable to Mr. Morgan was determined in
accordance with a formula set by the Committee pursuant to which (1) the
Company's fiscal 1997 revenue growth and return on sales are compared to
preestablished performance goals based on such measures and (2) Mr. Morgan's
actual bonus, relative to his target bonus, is increased or decreased according
to the extent to which the Company exceeded or fell short of such performance
goals. Actual performance for fiscal 1997 exceeded the performance goals.
Accordingly, Mr. Morgan was paid a cash bonus of $602,640, which equaled
approximately 90% of his fiscal 1997 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 Committee's current policy is to seek a tax deduction for all of the
Company's executive compensation, to the extent consistent with the best
interests of the Company. To this end, the Company adopted the 1995 Equity
Incentive Plan and the Bonus Plan with the intent that compensation paid under
those Plans could be "performance-based" and thus fully tax-deductible by the
Company.
Herbert M. Dwight, Jr.
Paul R. Low
Alfred J. Stein
10
<PAGE> 14
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 Semiconductor Index, which is a published industry index. The
Hambrecht & Quist Semiconductor Index contains 34 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, INC., THE HAMBRECHT & QUIST
SEMICONDUCTOR INDEX AND THE S&P 500 INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD 'APPLIED
(FISCAL YEAR COVERED) MATERIALS, INC.' H&Q SEMICONDUCTOR S&P 500
<S> <C> <C> <C>
10/25/92 100 100 100
10/31/93 215 177 116
10/30/94 355 225 120
10/29/95 670 389 151
10/27/96 366 321 186
10/26/97 911 508 253
</TABLE>
- ---------------
* $100 Invested on 10/25/92 in Stock or Index -- Including Reinvestment of
Dividends.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, non-employee directors Herbert M. Dwight, Jr., Paul R.
Low and Alfred J. Stein served as members of the Stock Option and Compensation
Committee. Mr. Farnsworth also served as a member until his retirement as a
director following the 1997 Annual Meeting. None of the Stock Option and
Compensation Committee members or Named Executive Officers have any
relationships which must be disclosed under this caption.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
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.
11
<PAGE> 15
Based on its review of such forms that it received, or written
representations from reporting persons that no Forms 5 were required for such
persons, the Company believes that, during fiscal 1996 and 1997, all Section
16(a) filing requirements were satisfied on a timely basis with the exception of
the following. Due to an administrative oversight by the Company, stock options
that were automatically granted under the 1995 Plan to nonemployee directors
were reported late. Specifically, Mr. George Farnsworth (now retired from the
Board), Drs. Gerdine and Low, and Messrs. Armacost, Dwight, Kawanishi, and Stein
each had one late report with respect to one option grant. Certain stock options
granted under the 1995 Plan to Drs. Maydan, Somekh and Wang, and Messrs. Morgan,
Taylor, and Michael K. O'Farrell, the Company's Vice President and Corporate
Controller, were also inadvertently reported late due to a similar
administrative oversight; accordingly, each such person had one late report with
respect to one option grant. In addition, a sale of stock by Dr. Maydan was
reported late and a stock option exercise and same-day sale of the acquired
shares by Dr. Wang was reported late; accordingly, each such person had one late
report with respect to his respective transaction(s).
In no case did any of the transactions set forth in these late reports
result in any short-swing profits (under Section 16(b) of the Exchange Act) for
any of the foregoing persons. The Company has taken steps to minimize the
likelihood of any such reporting oversights recurring.
LOANS TO MANAGEMENT
Dan Maydan is a Chairman of Applied Komatsu Technology, Inc. ("AKT"), a
joint venture corporation 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. Unpaid interest is added
to the principal balance upon which interest is calculated. The loan is secured
by the shares purchased. As of October 26, 1997, the outstanding principal
amount of the loan was $235,208.80, which was the largest principal amount of
such loan outstanding during fiscal 1997.
12
<PAGE> 16
ITEM 2 -- AMENDMENT OF THE 1995 EQUITY INCENTIVE PLAN
The Stock Option and Compensation Committee (the "Committee") has approved
an amendment of the 1995 Plan to increase the number of shares issuable
thereunder by 18,000,000 shares. Adoption of the amendment 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
1995 Plan was previously approved by stockholders at the 1995 Annual Meeting and
was amended at the 1997 Annual Meeting.
GENERAL
The 1995 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 1995 Plan
participants. While the Company has no current intention to grant Awards other
than stock options, the Board of Directors believes that the ability to utilize
different types of equity compensation vehicles will give the Company the
flexibility needed to adapt most effectively over time to changes in the labor
market and in equity compensation practices.
The total number of shares authorized to be issued pursuant to Awards
granted under the 1995 Plan is 37,200,000. As of October 26, 1997, 34,056,540
shares are subject to options currently outstanding under the 1995 Plan, as well
as two stock option plans that previously expired, and 12,445,010 shares
remained available for any Awards to be granted in the future. If an Award
expires or is canceled without having been fully exercised or vested, the
unvested or canceled shares generally will again be available for grants of
Awards. The number of shares available for grant under the 1995 Plan,
outstanding Awards, the formula for granting non-employee director options, and
the numerical 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 1995 PLAN
The 1995 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 1995 Plan also is designed to encourage stock ownership by participants,
thereby aligning their interests with those of the Company's stockholders.
ADMINISTRATION OF THE 1995 PLAN
The 1995 Plan is administered by the Committee. The members of the
Committee must qualify as "non-employee directors" 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 1995 Plan as "performance-based compensation" under section 162(m)).
Subject to the terms of the 1995 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 1995 Plan will be administered by
the Board of Directors (rather than by 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
1995 Plan cannot be determined because selection for participation in the 1995
Plan is in the discretion of the
13
<PAGE> 17
Committee. The 1995 Plan also provides for the grant of stock options to the
Company's non-employee directors. Such options will be granted pursuant to an
automatic nondiscretionary formula.
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.
The exercise price of each option is set by the Committee but generally is
not 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 the 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 of the exercise price 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 1995 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's current practice is to grant options
which expire no later than seven years after the date of grant.
NON-EMPLOYEE DIRECTOR OPTIONS
Under the 1995 Plan, each new non-employee director automatically will
receive an initial option for 20,000 shares on the date that he or she is first
elected or appointed to the Board of Directors. 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
option shares are forfeited to the Company.
Each non-employee director who has served as a non-employee director for
the entire 1998 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 option 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.
14
<PAGE> 18
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. To date, no SARs have been granted
under the 1995 Plan.
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 respect to which
the SAR is exercised. The per share exercise price of an SAR cannot be less than
100% of fair market value on the date of grant. 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 1995 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. However, in all cases,
shares of restricted stock will not vest until at least three years after the
date of grant unless the Company's stockholders approve an earlier vesting date
or dates, or in the event of death, disability or retirement of the participant,
or major capital change of the Company. 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. To date, no shares of restricted stock have been granted.
In determining the vesting schedule for each Award of restricted stock, the
Committee may impose additional conditions to vesting as it determines to be
appropriate. For example, the Committee may 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 1995 Plan and are the same measures that
are used in setting performance goals under the Company's 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.
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. To date, no performance shares or
performance units have been granted.
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 1995 Plan permits the Committee
to use the same performance goals as are discussed above with respect to
restricted stock.
15
<PAGE> 19
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.
OPTIONS TO BE GRANTED TO CERTAIN INDIVIDUALS AND GROUPS
As described above, the Committee has discretion to determine the number of
Awards (if any) to be granted to any individual under the 1995 Plan.
Accordingly, the actual number of Awards that any individual may receive in the
future is not determinable. To date, only options have been granted under the
1995 Plan. The following table sets forth (a) the aggregate number of shares of
the Company's Common Stock subject to options granted under the 1995 Plan during
fiscal 1997, and (b) the average per share exercise price of such options.
<TABLE>
<CAPTION>
NUMBER OF AVERAGE PER SHARE
NAME OF INDIVIDUAL OR GROUP OPTIONS GRANTED EXERCISE PRICE(1)
- ----------------------------------------------------------------- --------------- ------------------
<S> <C> <C>
James C. Morgan, Chairman of the Board and Chief Executive
Officer........................................................ 160,000 17.31
Dan Maydan, President............................................ 140,000 17.31
Sasson Somekh, Senior Vice President............................. 80,000 17.31
Gerald F. Taylor, Senior Vice President and Chief Financial
Officer........................................................ 80,000 17.31
David N. K. Wang, Group Senior Vice President.................... 80,000 17.31
All executive officers, as a group............................... 540,000 17.31
All directors who are not executive officers, as a group,
excluding Deborah A. Coleman(2)................................ 36,000 33.27
Deborah A. Coleman(3)............................................ 40,000 23.00
All employees who are not executive officers, as a group......... 12,695,618 21.32
</TABLE>
- ---------------
(1) All options were granted with an exercise price equal to 100% of fair market
value on the date of grant. On January 23, 1998, shares of the Company's
Common Stock closed at $30.5625 on the Nasdaq National Market.
(2) Pursuant to the 1995 Plan's automatic, nondiscretionary formula, each
non-employee director received an option for 6,000 shares, except for Ms.
Coleman, who was not a member of the Board of Directors for the entire
fiscal year, and is therefore not granted such option for the 1997 fiscal
year.
(3) Ms. Coleman received an option to purchase 20,000 shares of the Company's
Common Stock under the 1995 Plan, which automatically grants to each
non-employee director on the date such director is for the first time
elected or appointed to the Board of Directors, an option to purchase such
shares. As provided in the 1995 Plan, this option was adjusted to include an
additional 20,000 shares of the Company's Common Stock in order to reflect
the Company's 100% stock dividend, effective October 13, 1997.
NONTRANSFERABILITY OF AWARDS
Awards granted under the 1995 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, in the discretion of the
Committee, a participant may designate one or more beneficiaries to receive any
exercisable or vested Awards following his or her death.
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 1995 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.
16
<PAGE> 20
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 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.
The Company generally 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. 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 section 162(m), 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 1995 Plan of
performance goals which must be achieved prior to payment. The 1995 Plan has
been designed to permit the Committee to grant Awards which qualify as
performance-based compensation.
AMENDMENT AND TERMINATION OF THE 1995 PLAN
The Board generally may amend or terminate the 1995 Plan at any time and
for any reason, but as required under Internal Revenue Code section 162(m),
certain material amendments must be approved by stockholders.
Approval of the proposed amendment requires the affirmative votes of a
majority of shares present, in person or by proxy, at the Meeting and entitled
to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT
OF THE 1995 EQUITY INCENTIVE PLAN.
17
<PAGE> 21
ITEM 3 -- AMENDMENT OF THE CERTIFICATE OF
INCORPORATION TO AUTHORIZE ADDITIONAL COMMON STOCK
Article FIFTH of the Company's Certificate of Incorporation presently
authorizes the issuance of up to 500,000,000 shares of Common Stock, par value
.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01 per
share. The authorized Common Stock is all of a single class, with equal voting,
distribution, liquidation and other rights. The Board now proposes an amendment
of the Certificate of Incorporation in order to increase the number of shares of
Common Stock authorized for issuance from 500,000,000 to 1,100,000,000.
On September 11, 1997, the Company declared a two-for-one stock split in
the form of a 100% stock dividend to the holders of Common Stock of record as of
September 25, 1997, effective October 13, 1997. This 100% stock dividend
depleted the pool of authorized but unissued shares of Common Stock by
approximately 183,467,000 shares. As of January 23, 1998, approximately
366,266,000 shares were outstanding and approximately 53,404,000 shares were
reserved for issuance under the Company's various employee benefit plans.
Consequently, the Board considers it advisable to have the ability to issue
shares for additional stock dividends (if any), public offerings (if any),
acquisitions (if any) or other corporate purposes. Therefore, the Board deems it
to be in the best interest of the Company to amend Article FIFTH of the
Company's Certificate of Incorporation to authorize the issuance of up to
1,100,000,000 shares of Common Stock. If the proposed amendment is approved, the
approximate number of authorized, unissued and unreserved shares will be
approximately 680,330,000. Although no such action is currently being
contemplated, this number of authorized, unissued and unreserved shares would
permit the Board to declare another 100% stock dividend without necessitating
another amendment to the Certificate of Incorporation.
If this amendment is adopted, the additional shares of Common Stock may be
issued by direction of the Board at such times, in such amounts and upon such
terms as the Board may determine, without further approval of the stockholders
unless, in any instance, such approval is expressly required by regulatory
agencies or otherwise. Stockholders of the Company have no preemptive rights to
purchase additional shares. The adoption of the amendment will not of itself
cause any change in the capital accounts of the Company. However, the issuance
of additional shares of Common Stock could dilute the existing stockholders'
equity interest in the Company.
Approval of the proposed amendment requires the affirmative votes of the
holders of a majority of the outstanding Company shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT
OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
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 LLP. The Board of Directors expects that representatives of
Price Waterhouse LLP 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.
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, as 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.
18
<PAGE> 22
STOCKHOLDER PROPOSALS -- 1999 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 1999 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before October XX, 1998 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
February XX, 1998
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> 23
(LOGO)
This Proxy Statement was printed on recycled paper.
<PAGE> 24
APPENDIX A
APPLIED MATERIALS, INC.
1995 EQUITY INCENTIVE PLAN
(As proposed to be amended
March 17, 1998)
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 BACKGROUND, PURPOSE AND DURATION..............................................1
1.1 Background and Effective Date.....................................................1
1.2 Purpose of the Plan...............................................................1
SECTION 2 DEFINITIONS..................................................................1
2.1 "1934 Act"........................................................................1
2.2 "Affiliate".......................................................................1
2.3 "Affiliated SAR"..................................................................1
2.4 "Annual Revenue"..................................................................1
2.5 "Award"...........................................................................2
2.6 "Award Agreement".................................................................2
2.7 "Board"...........................................................................2
2.8 "Code"............................................................................2
2.9 "Committee".......................................................................2
2.10 "Company".........................................................................2
2.11 "Consultant"......................................................................2
2.12 "Controllable Profits"............................................................2
2.13 "Customer Satisfaction MBOs"......................................................2
2.14 "Director"........................................................................2
2.15 "Disability"......................................................................2
2.16 "Earnings Per Share"..............................................................2
2.17 "Employee"........................................................................3
2.18 "ERISA"...........................................................................3
2.19 "Exercise Price"..................................................................3
2.20 "Fair Market Value"...............................................................3
2.21 "Fiscal Year".....................................................................3
2.22 "Freestanding SAR"................................................................3
2.23 "Grant Date"......................................................................3
2.24 "Incentive Stock Option"..........................................................3
2.25 "Individual MBOs".................................................................3
2.26 "Net Income"......................................................................3
2.27 "New Orders"......................................................................3
2.28 "Nonemployee Director"............................................................4
</TABLE>
-i-
<PAGE> 26
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.29 "Nonqualified Stock Option".......................................................4
2.30 "Option"..........................................................................4
2.31 "Participant".....................................................................4
2.32 "Performance Goals"...............................................................4
2.33 "Performance Share"...............................................................4
2.34 "Performance Unit"................................................................4
2.35 "Period of Restriction"...........................................................4
2.36 "Plan"............................................................................4
2.37 "Pro Forma Net Income"............................................................4
2.38 "Restricted Stock"................................................................4
2.39 "Retirement"......................................................................5
2.40 "Return on Designated Assets".....................................................5
2.41 "Return on Sales".................................................................5
2.42 "Rule 16b-3"......................................................................5
2.43 "Section 16 Person"...............................................................5
2.44 "Shares"..........................................................................5
2.45 "Stock Appreciation Right"........................................................5
2.46 "Subsidiary"......................................................................5
2.47 "Tandem SAR"......................................................................5
2.48 "Termination of Service"..........................................................5
SECTION 3 ADMINISTRATION...............................................................6
3.1 The Committee.....................................................................6
3.2 Authority of the Committee........................................................6
3.3 Delegation by the Committee.......................................................6
3.4 Nonemployee Director Options......................................................6
3.5 Decisions Binding.................................................................6
SECTION 4 SHARES SUBJECT TO THE PLAN...................................................6
4.1 Number of Shares..................................................................6
4.2 Lapsed Awards.....................................................................7
4.3 Adjustments in Awards and Authorized Shares.......................................7
SECTION 5 STOCK OPTIONS................................................................7
5.1 Grant of Options..................................................................7
</TABLE>
-ii-
<PAGE> 27
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.2 Award Agreement...................................................................7
5.3 Exercise Price....................................................................7
5.3.1 Nonqualified Stock Options................................................7
5.3.2 Incentive Stock Options...................................................7
5.3.3 Substitute Options........................................................8
5.4 Expiration of Options.............................................................8
5.4.1 Expiration Dates..........................................................8
5.4.2 Death of Optionee.........................................................8
5.4.3 Committee Discretion......................................................8
5.5 Exercisability of Options.........................................................8
5.6 Payment...........................................................................9
5.7 Restrictions on Share Transferability.............................................9
5.8 Certain Additional Provisions for Incentive Stock Options.........................9
5.8.1 Exercisability............................................................9
5.8.2 Termination of Service....................................................9
5.8.3 Company and Subsidiaries Only.............................................9
5.8.4 Expiration................................................................9
SECTION 6 STOCK APPRECIATION RIGHTS...................................................10
6.1 Grant of SARs....................................................................10
6.1.1 Number of Shares.........................................................10
6.1.2 Exercise Price and Other Terms...........................................10
6.2 Exercise of Tandem SARs..........................................................10
6.3 Exercise of Affiliated SARs......................................................10
6.4 Exercise of Freestanding SARs....................................................10
6.5 SAR Agreement....................................................................11
6.6 Expiration of SARs...............................................................11
6.7 Payment of SAR Amount............................................................11
SECTION 7 RESTRICTED STOCK............................................................11
7.1 Grant of Restricted Stock........................................................11
7.2 Restricted Stock Agreement.......................................................11
7.3 Transferability..................................................................11
7.4 Other Restrictions...............................................................11
</TABLE>
-iii-
<PAGE> 28
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.4.1 General Restrictions.....................................................12
7.4.2 Section 162(m) Performance Restrictions..................................12
7.4.3 Legend on Certificates...................................................12
7.5 Removal of Restrictions..........................................................12
7.6 Voting Rights....................................................................12
7.7 Dividends and Other Distributions................................................12
7.8 Return of Restricted Stock to Company............................................13
SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES....................................13
8.1 Grant of Performance Units/Shares................................................13
8.2 Value of Performance Units/Shares................................................13
8.3 Performance Objectives and Other Terms...........................................13
8.3.1 General Performance Objectives...........................................13
8.3.2 Section 162(m) Performance Objectives....................................13
8.4 Earning of Performance Units/Shares..............................................14
8.5 Form and Timing of Payment of Performance Units/Shares...........................14
8.6 Cancellation of Performance Units/Shares.........................................14
SECTION 9 NONEMPLOYEE DIRECTOR OPTIONS................................................14
9.1 Granting of Options..............................................................14
9.1.1 Initial Grants...........................................................14
9.1.2 Ongoing Grants...........................................................14
9.2 Terms of Options.................................................................15
9.2.1 Option Agreement.........................................................15
9.2.2 Exercise Price...........................................................15
9.2.3 Exercisability...........................................................15
9.2.4 Expiration of Options....................................................15
9.2.5 Death of Director........................................................15
9.2.6 Not Incentive Stock Options..............................................15
9.2.7 Other Terms..............................................................15
SECTION 10 MISCELLANEOUS...............................................................15
10.1 Deferrals........................................................................16
10.2 No Effect on Employment or Service...............................................16
10.3 Participation....................................................................16
</TABLE>
-iv-
<PAGE> 29
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.4 Indemnification..................................................................16
10.5 Successors.......................................................................16
10.6 Beneficiary Designations.........................................................16
10.7 Nontransferability of Awards.....................................................16
10.8 No Rights as Stockholder.........................................................17
SECTION 11 AMENDMENT, TERMINATION, AND DURATION........................................17
11.1 Amendment, Suspension, or Termination............................................17
11.2 Duration of the Plan.............................................................17
SECTION 12 TAX WITHHOLDING.............................................................17
12.1 Withholding Requirements.........................................................17
12.2 Withholding Arrangements.........................................................17
SECTION 13 LEGAL CONSTRUCTION..........................................................18
EXECUTION ..................................................................................18
</TABLE>
-v-
<PAGE> 30
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.
<PAGE> 31
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.
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
<PAGE> 32
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).
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.
3
<PAGE> 33
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. Notwithstanding any contrary provision of the
Plan, each Period of Restriction shall have a duration of not less than three
years from the Grant Date unless otherwise approved by the holders of a majority
of the Shares which are present in person or by proxy and entitled to vote at
any Annual or Special Meeting of Stockholders, or unless approved by the
Committee at its discretion solely by reason of death, Disability, Retirement or
major capital change.
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.
4
<PAGE> 34
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.
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 re-engagement of the consultant by the Company or an
Affiliate.
5
<PAGE> 35
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.
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
55,200,000. Shares granted under the Plan may be either authorized but unissued
Shares or treasury Shares.
6
<PAGE> 36
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
7
<PAGE> 37
classes of stock of the Company or any of its 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 percent (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).
8
<PAGE> 38
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.
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.
9
<PAGE> 39
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 (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).
10
<PAGE> 40
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.
11
<PAGE> 41
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.
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. Subject to the minimum Period of
Restriction specified in Section 2.35, the Committee, in its discretion, may
accelerate the time at which any restrictions shall lapse or be removed. 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.
12
<PAGE> 42
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 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
13
<PAGE> 43
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).
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.
14
<PAGE> 44
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
15
<PAGE> 45
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.
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,
16
<PAGE> 46
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, 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
17
<PAGE> 47
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.
EXECUTION
IN WITNESS WHEREOF, Applied Materials, Inc., by its duly authorized
officer, has executed the Plan on the date indicated below.
APPLIED MATERIALS, INC.
Dated: April 5, 1995 By ______________________________________
Title: Secretary
18
<PAGE> 48
APPLIED MATERIALS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON MARCH 17, 1998.
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 17, 1998, 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 reverse side)
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 49
APPLIED MATERIALS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE LISTED PROPOSALS.
1. ELECTION OF DIRECTORS
M. Armacost, D. Coleman, H. Dwight, P. Gerdine, T. Kawanishi, P. Low,
D. Maydan, J. Morgan, A. Stein
For All
For Withheld Except
[ ] [ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual
Nominee, write that Nominee's name in the space
provided below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. To approve the amendment of the 1995 Equity Incentive Plan.
For Against Abstain
[ ] [ ] [ ]
3. To approve the amendment of the Company's Certificate of Incorporation.
For Against Abstain
[ ] [ ] [ ]
THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR THE NINE NOMINEES FOR ELECTION AND FOR PROPOSALS 2 and 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, please sign in full corporate
name by president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.)
-----------------------------------
-----------------------------------
Signature(s) Date
