APPLIED MATERIALS INC /DE, 10-Q, 1999-03-09

APPLIED MATERIALS INC /DE
10-Q, 1999-03-09
SPECIAL INDUSTRY MACHINERY, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JANUARY 31, 1999 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 0-6920

APPLIED MATERIALS, INC.
(Exact name of registrant as specified in its charter)

Delaware 94-1655526
-------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

3050 Bowers Avenue, Santa Clara, California 95054-3299
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (408) 727-5555
--------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ].

Number of shares outstanding of the issuer's common stock as of
January 31, 1999: 372,974,320

===============================================================================

<PAGE>

APPLIED MATERIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
(In thousands, except per Jan. 25, Jan. 31,
share amounts) 1998 1999
- ---------------------------------- ------------ ------------
<S> <C> <C>
Net sales.......................... $1,307,685 $742,477
Cost of products sold.............. 678,244 421,374
------------ ------------
Gross margin....................... 629,441 321,103

Operating expenses:
Research, development and
engineering................... 182,329 141,207
Marketing and selling........... 86,389 70,733
General and administrative...... 65,768 61,594
Non-recurring items ............ 32,227 5,000
------------ ------------
Income from operations............. 262,728 42,569

Income from litigation settlements. 80,000 20,000

Interest expense................... 11,864 11,470
Interest income.................... 21,279 25,546
------------ ------------
Income before taxes................ 352,143 76,645
Provision for income taxes......... 123,250 23,760
------------ ------------
Net income......................... $228,893 $52,885
============ ============
Earnings per share:
Basic........................... $0.62 $0.14
Diluted......................... $0.60 $0.14

Weighted average number of shares:
Basic........................... 366,894 370,530
Diluted......................... 379,101 388,233
</TABLE>
See accompanying notes to consolidated condensed financial statements.

<PAGE>

APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS*
<TABLE>
<CAPTION>
Oct. 25, Jan. 31,
(In thousands) 1998 1999
- -------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents..................... $575,205 $562,401
Short-term investments........................ 1,188,351 1,361,912
Accounts receivable, net...................... 764,472 671,319
Inventories................................... 555,881 552,779
Deferred income taxes......................... 337,906 338,217
Other current assets.......................... 97,140 110,911
------------ ------------
Total current assets............................. 3,518,955 3,597,539

Property, plant and equipment, net............... 1,261,520 1,226,701
Other assets..................................... 149,217 136,497
------------ ------------
Total assets..................................... $4,929,692 $4,960,737
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable................................. $644 $ --
Current portion of long-term debt............. 7,367 7,652
Accounts payable and accrued expenses......... 1,041,341 876,618
Income taxes payable.......................... 68,974 158,689
------------ ------------
Total current liabilities........................ 1,118,326 1,042,959

Long-term debt................................... 616,572 616,902
Deferred income taxes and other liabilities...... 74,173 80,761
------------ ------------
Total liabilities................................ 1,809,071 1,740,622
------------ ------------
Stockholders' equity:
Common stock.................................. 3,679 3,730
Additional paid-in capital.................... 792,145 842,664
Retained earnings............................. 2,328,940 2,381,825
Accumulated other comprehensive income........ (4,143) (8,104)
------------ ------------
Total stockholders' equity....................... 3,120,621 3,220,115
------------ ------------
Total liabilities and stockholders' equity....... $4,929,692 $4,960,737
============ ============
</TABLE>
* Amounts as of January 31, 1999 are unaudited. Amounts as of October 25, 1998
are from the October 25, 1998 audited financial statements.

See accompanying notes to consolidated condensed financial statements.
<PAGE>
APPLIED MATERIALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
Jan. 25, Jan. 31,
(In thousands) 1998 1999
- --------------------------------------------------- ------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $228,893 $52,885
Adjustments required to reconcile net income
to cash provided by operations:
Acquired in-process research and
development expense.......................... 32,227 --
Depreciation and amortization................. 66,889 70,788
Deferred income taxes......................... (383) 92
Changes in assets and liabilities, net of
amounts acquired:
Accounts receivable........................ (77,545) 104,530
Inventories................................ (65,223) 3,702
Other current assets....................... (74,662) (7,750)
Other assets............................... (1,572) 9,081
Accounts payable and accrued expenses...... (47,182) (171,883)
Income taxes payable....................... 33,332 86,847
Other liabilities.......................... 8,437 3,904
------------ ------------
Cash provided by operations....................... 103,211 152,196
------------ ------------
Cash flows from investing activities:
Capital expenditures, net of retirements........ (152,636) (39,267)
Cash paid for licensed technology............... (32,227) --
Proceeds from sales of short-term investments... 252,429 194,831
Purchases of short-term investments............. (228,030) (368,392)
------------ ------------
Cash used for investing........................... (160,464) (212,828)
------------ ------------
Cash flows from financing activities:
Short-term debt activity, net................... (1,943) (2,699)
Long-term debt activity, net.................... (1,399) (2,183)
Common stock transactions, net.................. (58,331) 52,130
------------ ------------
Cash provided by/(used for) financing............. (61,673) 47,248
------------ ------------
Effect of exchange rate changes on cash........... (804) 580
------------ ------------
Decrease in cash and cash equivalents............. (119,730) (12,804)
Cash and cash equivalents - beginning of period... 448,043 575,205
------------ ------------
Cash and cash equivalents - end of period......... $328,313 $562,401
============ ============

</TABLE>
For the three months ended January 25, 1998, cash payments for interest and
income taxes were $870 and $86,300, respectively. For the three months ended
January 31, 1999, cash payments for interest were $1,392 and net income tax
refunds were $63,787.

See accompanying notes to consolidated condensed financial statements.
<PAGE>

APPLIED MATERIALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
THREE MONTHS ENDED JANUARY 31, 1999

1) Basis of Presentation

In the opinion of management, the unaudited consolidated condensed
financial statements of Applied Materials, Inc. (the Company)
included herein have been prepared on a consistent basis with the
October 25, 1998 audited consolidated financial statements and
include all material adjustments, consisting of normal recurring
adjustments, necessary to fairly present the information set forth
therein. These interim consolidated financial statements should
be read in conjunction with the October 25, 1998 audited
consolidated financial statements and notes thereto. The
Company's results of operations for the three months ended January
31, 1999 are not necessarily indicative of future operating
results.

The Company's fiscal year ends on the last Sunday in October of
each year. Fiscal 1998 contained 52 weeks, whereas fiscal 1999
will contain 53 weeks. The extra week in 1999 is in the first
fiscal quarter.

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ materially from those estimates.

2) Earnings Per Share

The Company calculates earnings per share according to the
provisions of Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share." Basic earnings per share is
determined using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
determined using the weighted average number of common shares and
equivalents (representing the dilutive effect of stock options)
outstanding during the period. For purposes of computing basic
and diluted earnings per share, SFAS 128 does not require the
Company's net income to be adjusted for any period presented.

For purposes of computing diluted earnings per share, weighted
average common share equivalents do not include stock options with
an exercise price that exceeds the average fair market value of
the Company's common stock for the period. For the three months
ended January 25, 1998, options to purchase approximately
1,999,000 shares of common stock at an average price of $41.14
were excluded from the computation, and for the three months ended
January 31, 1999, options to purchase approximately 681,000 shares
of common stock at an average price of $48.93 were excluded from
the computation.

3) Inventories

Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out (FIFO) basis. The components
of inventories are as follows (in thousands):

<TABLE>
<CAPTION>
October 25, January 31,
1998 1999
------------ ------------
<S> <C> <C>
Customer service spares............ $239,139 $229,627
Raw materials...................... 98,180 85,540
Work-in-process.................... 126,533 149,218
Finished goods..................... 92,029 88,394
------------ ------------
$555,881 $552,779
============ ============
</TABLE>

4) Other Assets

The components of other assets are as follows (in thousands):

<TABLE>
<CAPTION>
October 25, January 31,
1998 1999
------------ ------------
<S> <C> <C>
Purchased technology, net.......... $91,218 $87,519
Goodwill, net...................... 11,614 11,111
Other.............................. 46,385 37,867
------------ ------------
$149,217 $136,497
============ ============
</TABLE>

Purchased technology and goodwill are presented at cost, net of
accumulated amortization, and are being amortized over their
estimated useful lives of eight years using the straight-line
method. The Company periodically analyzes these assets to
determine whether an impairment in carrying value has occurred.

5) Accounts Payable and Accrued Expenses

The components of accounts payable and accrued expenses are as
follows (in thousands):

<TABLE>
<CAPTION>
October 25, January 31,
1998 1999
------------ ------------
<S> <C> <C>
Accounts payable................... $182,616 $203,896
Compensation and benefits.......... 185,391 127,097
Installation and warranty.......... 179,742 161,833
Restructuring...................... 91,781 41,160
Other.............................. 401,811 342,632
------------ ------------
$1,041,341 $876,618
============ ============
</TABLE>

6) Accrued Restructuring Costs

Restructuring activity during the first fiscal quarter of 1999 was as
follows (in thousands):

<TABLE>
<CAPTION>
Severance
and
Benefits Facilities Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, October 25, 1998.......... $35,286 $56,495 $91,781
Amount utilized.................... (27,792) (22,829) (50,621)
------------ ------------ ------------
Balance, January 31, 1999.......... $7,494 $33,666 $41,160
============ ============ ============
</TABLE>

During the first fiscal quarter of 1999, $34 million of cash was
used for restructuring costs. The majority of the remaining cash
outlays of $29 million is expected to occur before the end of
fiscal 1999. The remaining non-cash restructuring costs of $12
million relate primarily to asset write-offs.

7) Acquisition

On October 12, 1998, the Company announced that it had entered
into an agreement to acquire Consilium, Inc. (Consilium), a
leading independent supplier of integrated semiconductor and
electronics manufacturing execution systems software and services,
in a stock-for-stock merger. The acquisition was consummated on
December 11, 1998 and has been accounted for as a pooling of
interests. The Company issued 1.7 million shares of its common
stock to complete this transaction. Since Consilium's historical
financial position and results of operations are not material in
relation to the Company's historical financial position and
results of operations, the Company's prior period financial
statements have not been restated. Except for one-time
transaction costs of $5 million, the acquisition did not have a
material effect on the Company's results of operations for the
first fiscal quarter of 1999.

8) Licensed Technology

During the first fiscal quarter of 1998, the Company entered into
an agreement with Trikon Technologies, Inc. for a non-exclusive,
worldwide, perpetual license of MORI(tm) plasma source and Forcefill(tm)
deposition technology. Because the development of this technology
had not yet reached technological feasibility at the time of its
acquisition and had no alternative future use, the Company
recognized $32 million, including transaction costs, of acquired
in-process research and development expense at the time of its
acquisition.

9) Litigation Settlement

During the first fiscal quarter of 1998, the Company settled all
outstanding litigation with ASM International, N.V. (ASMI). As a
result of this settlement, the Company received a convertible note
for $80 million, against which $15 million was collected in
November 1997.

During the fourth fiscal quarter of 1998, the Company determined,
based on facts and circumstances known at the time, that
collection of the remaining note balance was doubtful and recorded
a $65 million pre-tax, non-operating charge to fully reserve the
outstanding note balance.

During the first fiscal quarter of 1999, and subsequent to the
original maturity date of the note, the Company received a $20
million payment from ASMI and recorded the amount as pre-tax, non-
operating income. ASMI's payment was made in accordance with a
restructuring of ASMI's obligations under the November 1997
litigation settlement agreement. Pursuant to the new agreement,
ASMI agreed to pay $20 million upon completion of the
restructuring, $10 million on November 2, 1999 and $35 million no
later than November 2, 2000. The Company will recognize non-
operating income related to the remaining balance of the note
receivable on a cash receipts basis going forward. Certain other
obligations of ASMI were also modified under the new agreement;
however, these modifications are not expected to be material to
the Company's financial condition or results of operations.
Royalties received from ASMI pursuant to the settlement agreement
have not been, and are not expected to be, material.

10) Comprehensive Income

The Company adopted Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income," in the
first fiscal quarter of 1999. SFAS 130 establishes new rules for
the reporting and display of comprehensive income and its
components, but does not impact net income or total stockholders'
equity. The components of comprehensive income, on an after-tax
basis, are as follows (in thousands):

<TABLE>
<CAPTION>
Three Months Ended
-------------------------
January 25, January 31,
1998 1999
------------ ------------
<S> <C> <C>
Net income......................... $228,893 $52,885
Foreign currency translation
adjustments...................... (8,649) (3,961)
------------ ------------
Comprehensive income............... $220,244 $48,924
============ ============
</TABLE>

Accumulated other comprehensive income presented in the
accompanying consolidated condensed balance sheets consists
entirely of accumulated foreign currency translation adjustments.

11) Subsequent Event

In February 1999, the Company announced that it had reached a
settlement of patent litigation with STEAG AST Elektronik GmbH and
its subsidiary STEAG AST Elektronik USA, Inc. (collectively
"AST"). Under the settlement, patent suits and countersuits
concerning rapid thermal processing (RTP) technologies were
dismissed, certain technology was cross-licensed, and the Company
agreed not to sue AST on its illuminator patents if AST does not
use a particular RTP lamp array. The settlement is not expected
to have a material effect on the Company's financial condition or
results of operations.

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

In addition to historical statements, this Quarterly Report on Form
10-Q contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to
differ materially from those stated or implied. Forward-looking
statements are those that use the words "expects," "estimates,"
"will," "may," "anticipates," "believes" or similar
expressions. These forward-looking statements reflect management's
opinions only as of the date hereof, and Applied Materials, Inc.
(the Company) assumes no obligation to update this information.
Risks and uncertainties include, but are not limited to, those
discussed below and in the section entitled "Trends, Risks and
Uncertainties." Other risks and uncertainties are disclosed in
the Company's prior SEC filings, including the Annual Report on
Form 10-K for the fiscal year ended October 25, 1998.

Results of Operations

There continues to be uncertainty regarding global economies,
demand for semiconductors, advanced technology requirements and the
stability of memory device prices; therefore, for these and other
reasons, the Company's results of operations for the three months
ended January 31, 1999 are not necessarily indicative of future
operating results.

New Orders and Backlog

The Company received new orders of $1.0 billion for the first
fiscal quarter of 1999, versus $684 million for the fourth fiscal
quarter of 1998 and $1.3 billion for the first fiscal quarter of
1998. New orders improved from the fourth fiscal quarter of 1998
primarily due to higher Dynamic Random Access Memory (DRAM) prices
and continued customer migration to advanced technologies. The
decrease in new orders from the first fiscal quarter of 1998 is
primarily the result of a lower level of capacity investments by
semiconductor manufacturers.

<PAGE>

New orders by region were as follows (dollars in millions):

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
October 25, 1998 January 31, 1999
---------------- ----------------
($) (%) ($) (%)
------- ------- ------- -------
<S> <C> <C> <C> <C>
North America*..................... 357 52 391 38
Europe............................. 83 12 178 17
Japan.............................. 115 17 206 20
Korea.............................. 34 5 64 6
Taiwan............................. 49 7 142 14
Asia-Pacific....................... 46 7 48 5
------- ------- ------- -------
Total.............................. 684 100 1,029 100
======= ======= ======= =======
</TABLE>
*Primarily the United States

The Company's backlog at January 31, 1999 was $1.2 billion, versus
$917 million at October 25, 1998 and $1.6 billion at January 25,
1998.

Net Sales

The Company's net sales for the first fiscal quarter of 1999
increased 10.3 percent from the fourth fiscal quarter of 1998 due
primarily to a stronger DRAM market, as discussed above. Net sales
for the first fiscal quarter of 1999 decreased 43.2 percent from
the corresponding period of fiscal 1998, reflecting the lower order
levels achieved during the industry downturn in the second half of
fiscal 1998. For the first fiscal quarter of 1998, the Company
achieved record net sales of $1.3 billion, driven by strengthening
demand for 0.25 micron and below leading-edge capability from logic
device manufacturers, foundry capacity investments by customers
located primarily in Taiwan and selected strategic investments by
DRAM manufacturers.

<PAGE>

Net sales by region were as follows (dollars in millions):

<TABLE>
<CAPTION>
Three Months Ended
------------------------------
January 25, January 31,
1998 1999
-------------- --------------
($) (%) ($) (%)
------- ------ ------- ------
<S> <C> <C> <C> <C>

North America*. 471 36 324 44
Europe......... 196 15 135 18
Japan.......... 222 17 121 16
Korea.......... 52 4 30 4
Taiwan......... 288 22 96 13
Asia-Pacific... 79 6 36 5
------- ------ ------- ------
Total......... 1,308 100 742 100
======= ====== ======= ======
</TABLE>
*Primarily the United States

Gross Margin

The Company's gross margin decreased from 48.1 percent for the
three month period ended January 25, 1998 to 43.2 percent for the
three month period ended January 31, 1999. The decrease in gross
margin was caused primarily by a decrease in business volume,
partially offset by the Company's efforts to improve efficiencies,
reduce cycle times and lower material costs.

Operating Expenses (Excluding Non-Recurring Items)

Excluding non-recurring items, operating expenses as a percentage
of net sales for the three months ended January 31, 1999 were 36.8
percent, versus 25.6 percent for the first fiscal quarter of 1998.
The increase as a percentage of net sales is primarily attributable
to lower business volume.

Non-Recurring Items

The Company's results of operations for the first fiscal quarter of
1999 include $5 million of pre-tax operating expenses incurred in
connection with the acquisition of Consilium, Inc., which was
completed on December 11, 1998 and has been accounted for as a
pooling of interests.

Litigation Settlements

During the first fiscal quarter of 1999, and subsequent to the
original maturity date of a note received in connection with the
November 1997 settlement of all outstanding litigation with ASM
International, N.V. (ASMI), the Company received a $20 million
payment from ASMI and recorded the amount as pre-tax, non-operating
income. Pursuant to a restructuring of the November 1997
settlement agreement, ASMI has also agreed to pay $10 million on
November 2, 1999 and $35 million no later than November 2, 2000.
The Company will recognize non-operating income related to the
remaining balance of the note receivable on a cash receipts basis
going forward. For further information, see Note 9 of Notes to
Consolidated Condensed Financial Statements.

Interest Expense

Interest expense remained relatively consistent with the prior
year, decreasing from $12 million for the three months ended
January 25, 1998 to $11 million for the three months ended January
31, 1999. The Company's outstanding weighted average interest-
bearing obligations and interest rates did not change significantly
from period to period.

Interest Income

Interest income increased from $21 million for the three months
ended January 25, 1998 to $26 million for the three months ended
January 31, 1999. The increase resulted primarily from higher
average cash, cash equivalents and short-term investment balances.

Provision for Income Taxes

The Company's effective income tax rate for the first fiscal quarter
of 1999 was 31 percent, versus 35 percent for the first fiscal
quarter of 1998. The reduced rate primarily reflects the
reinstatement of the federal research and development (R&D) tax
credit and favorable California income tax legislation with respect
to R&D and manufacturers investment tax credits.

Subsequent Event

In February 1999, the Company announced that it had reached a
settlement of patent litigation with STEAG AST Elektronik GmbH and
its subsidiary STEAG AST Elektronik USA, Inc. (collectively
"AST"). Under the settlement, patent suits and countersuits
concerning rapid thermal processing (RTP) technologies were
dismissed, certain technology was cross-licensed, and the Company
agreed not to sue AST on its illuminator patents if AST does not
use a particular RTP lamp array. The settlement is not expected to
have a material effect on the Company's financial condition or
results of operations.

Foreign Currencies

Significant operations of the Company are conducted in foreign
currencies, primarily Japanese yen. Forward exchange and currency
option contracts are purchased to hedge certain existing firm
commitments and foreign currency denominated transactions expected
to occur during the next year. Gains and losses on these contracts
are recognized in income when the related transactions being hedged
are recognized. Because the effect of movements in currency
exchange rates on forward exchange and currency option contracts
generally offsets the related effect on the underlying items being
hedged, these financial instruments are not expected to subject the
Company to risks that would otherwise result from changes in
currency exchange rates. Net foreign currency gains and losses
were not material for the three months ended January 31, 1999 or
January 25, 1998.

Financial Condition, Liquidity and Capital Resources

The Company's financial condition at January 31, 1999 improved,
with a ratio of current assets to current liabilities of 3.4:1,
compared to 3.1:1 at October 25, 1998. The Company ended the
quarter with cash, cash equivalents and short-term investments of
$1.9 billion.

The Company generated $152 million of cash from operations during
the first three months of fiscal 1999. The primary sources of
cash from operations were net income (plus non-cash charges for
depreciation and amortization expense) of $124 million, a decrease
in accounts receivable of $105 million and an increase in income
taxes payable of $87 million. These sources were partially offset
by a decrease in accounts payable and accrued expenses of $172
million. During the first fiscal quarter of 1999, approximately
$159 million of trade notes and accounts receivable were sold at a
discount to financial institutions.

The Company used $213 million of cash for investing activities
during the first three months of fiscal 1999, primarily for net
purchases of property, plant and equipment ($39 million) and short-
term investments ($174 million).

The Company generated $47 million of cash from financing activities
during the first three months of fiscal 1999, primarily from stock
option exercises and stock sales to employees through a stock
purchase plan.

The Company is authorized to systematically repurchase shares of
its common stock in the open market to reduce the dilution
resulting from its stock-based employee benefit and incentive
plans. This authorization is effective until the March 2001 Annual
Meeting of Stockholders. The Company did not repurchase any shares
of its common stock during the three months ended January 31, 1999.

As of January 31, 1999, the Company's principal sources of
liquidity consisted of $1.9 billion of cash, cash equivalents and
short-term investments and approximately $600 million of available
credit facilities. In addition to cash and available credit
facilities, the Company may from time to time raise additional
capital in the debt and equity markets. The Company's liquidity is
affected by many factors, some of which are based on the normal
ongoing operations of the business, and others of which relate to
the uncertainties of global economies and the semiconductor and
semiconductor equipment industries. Although the Company's cash
requirements will fluctuate based on the timing and extent of these
factors, management believes that cash generated from operations,
together with the liquidity provided by existing cash balances and
borrowing capability, will be sufficient to satisfy the Company's
liquidity requirements for the next twelve months.

Acquisition

On October 12, 1998, the Company announced that it had entered into
an agreement to acquire Consilium, Inc. (Consilium), a leading
independent supplier of integrated semiconductor and electronics
manufacturing execution systems software and services, in a stock-
for-stock merger. The acquisition was consummated on December 11,
1998 and has been accounted for as a pooling of interests. The
Company issued 1.7 million shares of its common stock to complete
this transaction. Since Consilium's historical financial position
and results of operations are not material in relation to the
Company's historical financial position and results of operations,
the Company's prior period financial statements have not been
restated. Except for one-time transaction costs of $5 million, the
acquisition did not have a material effect on the Company's results
of operations for the first fiscal quarter of 1999.

Trends, Risks and Uncertainties

Industry Volatility

The semiconductor equipment industry has historically been cyclical
and subject to sudden changes in supply and demand. The timing,
length and severity of these cycles are difficult to predict.
During periods of reduced and declining demand, the Company must be
able to quickly and effectively align its cost structure with
prevailing market conditions, and motivate and retain key
employees. During periods of rapid growth, the Company must be
able to acquire and/or develop sufficient manufacturing capacity to
meet customer demand, and hire and assimilate a sufficient number
of qualified people. There can be no assurance that the Company
will be able to achieve these objectives in a timely manner during
these industry cycles.

DRAM Prices

The DRAM market improved during the first fiscal quarter of 1999 as
device prices reached a level that enabled semiconductor
manufacturers to increase capital spending. If DRAM pricing
deteriorates, demand for the Company's products could be materially
and adversely affected.

PC Demand

Further shifts in demand from more expensive, high-performance
products to lower-priced products (sub-$1,000 PCs), or lower
overall demand for PCs, could result in reduced profitability for,
and lower capital spending by, semiconductor manufacturers, which
could materially and adversely affect demand for the Company's
products.

Asian Economies

Although Asian economies have stabilized to some degree, the
Company remains cautious about macroeconomic developments in Japan
and China. These two countries are primarily responsible for the
overall financial health of the region and if their economies
remain stagnant or deteriorate further, the economies of other
countries, particularly those in Asia, could also be negatively
affected. This could have a material adverse effect on demand for
the Company's products.

Global Business

The Company sells systems and provides services to customers
located throughout the world. Managing global operations and sites
located throughout the world presents challenges associated with,
among other things, cultural diversities and organizational
alignment. Moreover, each region in the global semiconductor
equipment market exhibits unique characteristics that can cause
capital equipment investment patterns to vary significantly from
period to period. Periodic economic downturns, trade balance
issues, political instability and fluctuations in interest and
currency exchange rates are all risks that could materially and
adversely affect global demand for the Company's products and
services.

Highly Competitive Industry and Rapid Technological Change

The Company operates in a highly competitive industry characterized
by increasingly rapid technological changes. The Company's
competitive advantage and future success depend on its ability to
develop new products and technologies, to develop new markets in
the semiconductor industry for its products and services, to
introduce new products to the marketplace on a timely basis, to
qualify new products with its customers, and to commence production
to meet customer demands.

New products and technologies include those for copper
interconnect, processing of 300mm wafers and production of 0.18
micron and below devices. The introduction of new products and
technologies grows increasingly complex over time. If the Company
does not develop and introduce new products and technologies in a
timely manner in response to changing market conditions or customer
requirements, its financial condition and results of operations
could be materially and adversely affected.

The Company seeks to develop new technologies from both internal
and external sources. As part of this effort, the Company may make
acquisitions of, or significant investments in, businesses with
complementary products, services and/or technologies. Acquisitions
involve numerous risks, including, but not limited to: difficulties
and increased costs in connection with integration of the
operations, technologies, and products of the acquired companies;
possible write-downs of impaired assets; diverting management's
attention; and the potential loss of key employees of the acquired
companies. The inability to effectively manage these risks could
materially and adversely affect the Company's business, financial
condition and results of operations.

Dependence Upon Key Suppliers

The Company uses numerous suppliers to supply parts, components and
subassemblies (collectively "parts") for the manufacture and
support of its products. Although the Company makes reasonable
efforts to ensure that parts are available from multiple suppliers,
this is not always possible; accordingly, certain key parts may be
obtained from a single supplier or a limited group of suppliers.
These suppliers are, in some cases, thinly capitalized, independent
companies that generate significant portions of their business from
the Company and/or a small group of other companies in the
semiconductor industry. The Company has sought, and will continue
to seek, to minimize the risk of production and service
interruptions and/or shortages of key parts by: 1) selecting and
qualifying alternative suppliers for key parts; 2) monitoring the
financial stability of key suppliers; and 3) maintaining
appropriate inventories of key parts. There can be no assurance
that the Company's results of operations will not be materially and
adversely affected if, in the future, the Company does not receive
sufficient parts to meet its requirements in a timely and cost-
effective manner.

Backlog

The Company's backlog increased from $917 million at October 25,
1998 to $1.2 billion at January 31, 1999. The Company schedules
production of its systems based upon order backlog and customer
commitments. Backlog includes only orders for which written
authorizations have been accepted and shipment dates within 12
months have been assigned. However, customers generally may delay
delivery of products or cancel orders. Due to possible customer
changes in delivery schedules and cancellation of orders, the
Company's backlog at any particular date is not necessarily
indicative of actual sales for any succeeding period. A reduction
of backlog during any particular period could have a material
adverse effect on the Company's business, financial condition and
results of operations.

Risks Related to "Year 2000" Compliance

The Company has established a Year 2000 Program Office to address
certain Year 2000 issues. This office focuses on four key
readiness programs: 1) Internal Infrastructure Readiness,
addressing internal hardware and software, including both
information technology and non-information technology systems; 2)
Supplier Readiness, addressing the preparedness of suppliers
providing material incorporated into the Company's products; 3)
Product Readiness, addressing product functionality; and 4)
Customer Readiness, addressing customer support and transactional
activity. For each readiness area, the Company is systematically
performing a global risk assessment, conducting testing and
remediation (renovation and implementation), developing contingency
plans to mitigate unknown risk, and communicating Year 2000
information to employees, suppliers, customers and other third
parties.

Internal Infrastructure Readiness Program
The Company, assisted by a third party, has completed an inventory
of internal applications and information technology hardware and has
commenced work on remediation strategies and testing. Readiness
activities are intended to encompass all major categories of
applications in use by the Company, including applications used for
manufacturing, engineering, sales, finance and human resources.
Approximately 70 percent of mission critical applications have
either been tested and determined to be Year 2000 ready or are
undergoing testing but are believed to be Year 2000 ready based upon
representations by the supplier of the application. All other
mission critical applications are in the process of remediation.
All software remediation is scheduled to be completed by July 1,
1999. The Year 2000 compliance evaluation of hardware, including
hubs, routers, telecommunication equipment, workstations and other
items, is complete, and corrective action is scheduled to be
completed by July 1, 1999. In addition to applications and
information technology hardware, the Company has assessed its
non-information technology systems, including embedded systems,
facilities and other operations, such as financial, banking,
security and utility systems. Remediation activity is underway and
scheduled for completion by July 1, 1999. A contingency plan
addressing issues related to the Company's internal infrastructure
will be developed when ongoing testing and remediation activities
are complete. Although the Company believes it is feasible to
complete its evaluation and remediation efforts according to its
current schedule, there can be no assurance that all such activities
will be completed on time, or that such efforts will be successful.

Supplier Readiness Program
This program focuses on minimizing two areas of risk associated with
suppliers: 1) a supplier's product integrity; and 2) a supplier's
business capability to continue providing products and services.
The Company has identified and contacted key suppliers regarding
their relative risks in these two areas. To date, the Company has
received responses from approximately 95 percent of its key
suppliers, most of which indicate that the products provided to the
Company are either Year 2000 compliant or will be made Year 2000
compliant before the year 2000. The responses also indicate that
most suppliers are in the process of developing or executing
remediation plans to address Year 2000 issues that may affect their
ability to continue providing products and services to the Company.
For key suppliers, the Company has entered into an agreement with an
external consultant to conduct onsite audits of the suppliers' Year
2000 readiness. These audits are scheduled to be completed by June
30, 1999. Based on the results of these audits and the Company's
assessment of each supplier's Year 2000 readiness, the Company will
develop a supplier action list and contingency plan for each
supplier at risk. However, no assurance can be provided regarding
the effect or timely implementation of such action list or
contingency plans, or that suppliers will sufficiently address their
Year 2000 issues to enable them to continue providing products and
services to the Company in a timely manner.

Product Readiness Program
This program focuses on identifying and resolving Year 2000 issues
existing in the Company's products. The program encompasses a
number of activities, including testing, evaluation, engineering and
manufacturing implementation. The Company has completed a Year 2000
readiness evaluation for its current generation of released products
based upon a series of industry-recognized testing scenarios.

In connection with the Company's Year 2000 readiness evaluation,
the Company focused on identifying Year 2000 issues in two major
categories: machine control software and product embedded
processors. The Company performed impact studies for each product,
based on a representative configuration. In addition, by focusing
on the Company's parts most likely to include embedded processors,
the Company narrowed the number of parts requiring further
evaluation from several thousand to approximately 600 that could
contain embedded processors that may present potential Year 2000
issues. These 600 parts were evaluated further and tested as
required.

The Company's evaluation indicated that no human or equipment
safety impacts or product process control impacts are expected due
to the Year 2000 problem, but that certain screen displays, log
files and interface programs may be affected. The Company has
taken corrective action to address these affected displays, files
and programs, and has remediated any affected embedded processors.
In addition, the Company has informed customers of certain
potential product-specific impacts of the Year 2000 on the
Company's products.

Testing and engineering activity for the Company's current
generation of products is complete, and unless otherwise requested
by a customer, all products that shipped on or after January 1,
1999 were Year 2000 ready. However, the Company plans to make a
contingency team available to address issues related to product
readiness as a component of its Customer Readiness Program
discussed below. There can be no assurance that product testing
has identified all Year 2000 related issues or that the Company
will effectively address every failure of its products resulting
from Year 2000 issues.

Customer Readiness Program
This program focuses on customer support issues, including the
coordination of retrofit activity, testing existing customer
electronic transaction capability, and providing other services to
the Company's customers. The Company, in cooperation with its
customers, has completed an inventory and assessment of products in
use at substantially all of its customers' sites. The Company is
offering different upgrade packages for its products, including
various parts, software and services in the form of "Year 2000 ready
kits." For any customer requesting an upgrade to a system that
shipped after January 1, 1997, the upgrade is scheduled to be
completed by June 30, 1999. For systems that shipped prior to
January 1, 1997, the upgrade schedule is determined by customer
requirements. The Customer Readiness Program plans to make a
contingency team available, through the year 2000, to customers
experiencing difficulty with the Company's products. There can be no
assurance, however, that these activities will prevent or effectively
address the occurrence of Year 2000 related problems in the Company's
products in use at customer sites.

The Company estimates that total Year 2000 costs will range from
$30 million to $50 million, the majority of which will be incurred
by January 2000. To date, costs incurred directly for Year 2000
activities have totaled $6 million. This amount includes costs to
support customer satisfaction programs and services and other
internal costs, but does not include the cost of internal hardware
and software that was to be replaced in the normal course of
business but has been accelerated because of Year 2000 capability
concerns. The Company is continuing its assessments and developing
alternatives that will require changes to this estimate over time.
There can be no assurance, however, that there will not be a delay
in, or increased costs associated with, the programs described in
this section.

In conjunction with the Company's due diligence examination of
Consilium, which was acquired in December 1998, the Company
conducted a limited evaluation of Consilium's Year 2000 readiness.
Since then, the Company has further evaluated certain areas related
to Consilium's internal information technology and other systems,
and has discussed other readiness areas with the employees
responsible for Consilium's Year 2000 program. The Company is
currently evaluating Consilium's Year 2000 policies and programs
regarding their information technology and other systems, suppliers
and products, and is also integrating Consilium's policies and
programs into the Company's Year 2000 program. Until the Company
has completed its evaluation, there can be no assurances concerning
the Year 2000 readiness of Consilium's products and systems, the
probability that remediation efforts related to Consilium's
products and systems will be successful, or the materiality of the
costs of such assessment and remediation.

The programs described in this section are ongoing and, as such,
the Company may not yet have identified all potential Year 2000
complications. Therefore, at this time, the Company cannot
determine the potential impact of these complications and
contingencies on the Company's financial condition and results of
operations. If computer systems used by the Company or its
suppliers, or the software applications used in systems
manufactured and sold by the Company, fail or experience
significant difficulties related to the Year 2000, the Company's
financial condition and results of operations could be materially
and adversely affected.

Foreign Currency

Significant operations of the Company are conducted in foreign
currencies, primarily Japanese yen. The Company actively manages
its exposure to changes in currency exchange rates, but there can
be no assurance that future changes in currency exchange rates will
not have a material and adverse effect on the Company's financial
condition or results of operations.

Euro Conversion

On January 1, 1999, 11 of the 15 member countries of the European
Union established fixed conversion rates between each of their
existing sovereign currencies and the Single European Currency (the
"euro"). The participating countries adopted the euro as their
common legal currency on that date, with a transition period
through January 1, 2002 regarding certain elements of the euro
change. In early January, the Company implemented changes to its
internal systems to make them euro capable. The cost of systems
modifications to date has not been material, nor are future systems
modifications expected to be material. The Company does not expect
the transition to, or use of, the euro to materially and adversely
affect its business, financial condition or results of operations.

Litigation

The Company is currently involved in litigation regarding patent
infringement, intellectual property rights, antitrust and other
matters (see Part II, Item 1) and could become involved in
additional litigation in the future. The Company from time to time
receives and makes inquiries regarding possible patent
infringement, and is subject to various other legal proceedings and
claims, either asserted or unasserted. Any such claims, whether
with or without merit, could be time-consuming and expensive to
defend and could divert management's attention and resources.
There can be no assurance regarding the outcome of current or
future litigation or patent infringement inquiries.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has performed an analysis to assess the potential
effect of reasonably possible near-term changes in interest and
foreign currency exchange rates. The effect of such rate changes
is not expected to be material to the Company's cash flows,
financial condition or results of operations. Net foreign currency
gains and losses were not material for the three months ended
January 31, 1999.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

AST and AG

In April 1997, the Company initiated separate lawsuits against
STEAG AST Electronik GmbH and STEAG AST Electronik USA, Inc.
(collectively "AST"), and AG Associates, Inc. (AG) (case no. C-97-
20375-RMW) in the United States District Court for the Northern
District of California, alleging infringement of certain patents
concerning rapid thermal processing (RTP) technology. In October
1997, AST and AG each filed counterclaims against the Company
alleging patent infringement concerning related technology.

In February 1999, the Company announced that it had reached a
settlement of patent litigation with AST. Under the settlement,
patent suits and countersuits concerning RTP technologies were
dismissed, certain technology was cross-licensed, and the Company
agreed not to sue AST on its illuminator patents if AST does not
use a particular RTP lamp array. The settlement is not expected to
have a material effect on the Company's financial condition or
results of operations.

Discovery in the case the Company brought against AG has commenced,
and trial has been set for September 1999. In August 1998, AG
filed two separate patent infringement lawsuits against the
Company, one in the United States District Court for the Northern
District of California (case no. C98-03044-WHO) and one in the
United States District Court for the District of Delaware (civil
action no. 98-479). On February 2, 1999, the Delaware District
Court issued an order transferring that case to the Northern
District of California. No trial dates have been set in these
actions. The Company continues to believe it has meritorious
claims and defenses against AG, and intends to pursue them
vigorously.

KLA

As a result of the Company's acquisition of Orbot Instruments, Ltd.
(Orbot), the Company is involved in a lawsuit captioned KLA
Instruments Corporation (KLA) v. Orbot (case no. C93-20886-JW) in
the United States District Court for the Northern District of
California. KLA alleges that Orbot infringes a patent regarding
equipment for the inspection of masks and reticles, and seeks an
injunction, damages and such other relief as the Court may find
appropriate. There has been limited discovery, but no trial date
has been set. Management believes it has meritorious defenses and
intends to pursue them vigorously.

Varian and Novellus

On June 13, 1997, the Company filed a lawsuit against Varian
Associates, Inc. (Varian) captioned Applied Materials, Inc. v.
Varian Associates, Inc. (case no. C-97-20523-RMW), alleging
infringement of several of the Company's patents concerning
physical vapor deposition (PVD) technology. The complaint was
later amended on July 7, 1997 to include Novellus Systems, Inc.
(Novellus) as a defendant as a result of Novellus' acquisition of
Varian's thin film systems PVD business. The Company seeks damages
for past infringement, a permanent injunction, treble damages for
willful infringement, pre-judgment interest and attorneys' fees.
Varian answered the complaint by denying all allegations,
counterclaiming for declaratory judgment of invalidity and
unenforceability and alleging conduct by the Company in violation
of antitrust laws. On June 23, 1997, Novellus filed a separate
lawsuit against the Company captioned Novellus Systems, Inc. v.
Applied Materials, Inc. (case no. C-97-20551-EAI), alleging
infringement by the Company of three patents concerning PVD
technology that were formerly owned by Varian. On July 8, 1997,
Varian filed a separate lawsuit against the Company captioned
Varian Associates, Inc. v. Applied Materials, Inc. (case no. C-97-
20597-PVT), alleging a broad range of conduct in violation of
federal antitrust laws and state unfair competition and business
practice laws. Discovery has commenced in these actions, but no
trial dates have been set. Management believes it has meritorious
claims and defenses and intends to pursue them vigorously.

OKI

In November 1997, OKI Electric Industry, Co., Ltd. (OKI) filed suit
against one of the Company's wholly-owned subsidiaries, Applied
Materials Japan (AMJ), in Tokyo District Court in Japan, alleging
that AMJ is obligated to indemnify OKI for a portion of patent
license royalties paid by OKI to Texas Instruments, Inc. Several
hearings have been held, but no trial date has been set.
Management believes it has meritorious defenses and intends to
pursue them vigorously.

The Company is subject to various other legal proceedings and
claims, either asserted or unasserted, that arise in the ordinary
course of business. Although the outcome of these claims cannot be
predicted with certainty, management does not believe that any of
these legal matters will have a material adverse effect on the
Company's financial condition or results of operations.

Item 5. Other Information

The ratio of earnings to fixed charges for the three months ended
January 25, 1998 and January 31, 1999, and for each of the last
five fiscal years, was as follows:

<TABLE>
<CAPTION>
Three Months Ended
Fiscal Year ----------------------
------------------------------------------------ Jan. 25, Jan. 31,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ---------- ----------
<C> <C> <C> <C> <C> <S> <C>
13.37x 21.25x 20.14x 18.96x 6.92x 20.10x 5.26x
======== ======== ======== ======== ======== ========== ==========
</TABLE>

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits are numbered in accordance with the Exhibit Table
of Item 601 of Regulation S-K:

3(ii)(a) Amendment to Bylaws dated September 4, 1998.

3(ii)(b) Bylaws of Applied Materials, Inc. (as amended to
September 4, 1998).

10.1 Applied Materials, Inc. Employees' Stock Purchase Plan
(as amended and restated December 10, 1998),
previously filed as Appendix A to the Company's
Definitive Proxy Statement dated February 22, 1999,
and incorporated herein by reference.

10.2 Amendment dated January 26, 1999 to Receivables
Purchase Agreement dated October 22, 1998 between
Applied Materials, Inc. and Deutsche Financial
Services Corporation.

10.3 Receivables Purchase Agreement dated January 26, 1999
between Applied Materials, Inc. and Deutsche Financial
Services (UK) Limited.

27.0 Financial Data Schedule for the three months ended
January 31, 1999: filed electronically.

b) The Company did not file a report on Form 8-K during its
first fiscal quarter of 1999.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

APPLIED MATERIALS, INC.

March 9, 1999 By: /s/ Joseph R. Bronson
------------------------------
Joseph R. Bronson
Senior Vice President,
Office of the President,
Chief Financial Officer and
Chief Administrative Officer
(Principal Financial Officer)

By: /s/ Michael K. O'Farrell
------------------------------
Michael K. O'Farrell
Vice President,
Global Controller and
Chief Accounting Officer
(Principal Accounting Officer)

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
3.(ii)(a) Amendment to Bylaws dated September 4, 1998.

3.(ii)(b) Bylaws of Applied Materials, Inc. (as amended to
September 4, 1998).

10.2 Amendment dated January 26, 1999 to Receivables
Purchase Agreement dated October 22, 1998 between
Applied Materials, Inc. and Deutsche Financial
Services Corporation.

10.3 Receivables Purchase Agreement dated January 26, 1999
between Applied Materials, Inc. and Deutsche Financial
Services (UK) Limited.

27.0 Financial Data Schedule for the three months ended
January 31, 1999: filed electronically.

</TABLE>

RESOLUTIONS OF THE
BOARD OF DIRECTORS OF
APPLIED MATERIALS, INC.

Adopted on September 4, 1998

EXHIBIT A
AMENDMENT TO BYLAWS - ADVANCE NOTICE

RESOLVED, that the first sentence of the first paragraph of
Section 2.5 of this Company's Bylaws be amended to read in full as follows:
"No nominations for director of the corporation by any person other than the
board of directors shall be presented to any meeting of stockholders unless
the person making the nomination is a record stockholder and shall have
delivered a written notice to the secretary of the corporation no later than
the close of business forty-five days prior to the month and day of mailing
the prior year's proxy statement."

RESOLVED, FURTHER, that the first sentence of the second paragraph
of Section 2.5 of this Company's Bylaws be amended to read in full as follows:
"No proposal by any person other than the board of directors shall be
submitted for the approval of the stockholders at any regular or special
meeting of the stockholders of the corporation unless the person advancing
such proposal shall have delivered a written notice to the secretary of the
corporation no later than the close of business forty-five days prior to the
month and day of mailing the prior year's proxy statement."

BYLAWS
OF
APPLIED MATERIALS, INC.
(a Delaware corporation)

(As amended to September 4, 1998)

ARTICLE I OFFICES 1
1.1 Registered Office 1
1.2 Other Offices 1

ARTICLE II STOCKHOLDERS 1
2.1 Place of Meetings 1
2.2 Annual Meeting 1
2.3 Special Meeting 1
2.4 Notice of Stockholders' Meetings 2
2.5 Advance Notice of Stockholder Nominees 2
2.6 Manner of Giving Notice; Affidavit of Notice 2
2.7 Quorum 2
2.8 Adjourned Meeting; Notice 3
2.9 Conduct of Business 3
2.10 Voting 3
2.11 Waiver of Notice 3
2.12 Record Date for Stockholder Notice; Voting; Giving Consents 3
2.13 Proxies 4

ARTICLE III DIRECTORS 4
3.1 Powers 4
3.2 Number of Directors 4
3.3 Election, Qualification and Term of Office of Directors 4
3.4 Resignation and Vacancies 4
3.5 Place of Meetings; Meetings by Telephone 5
3.6 Regular Meetings 6
3.7 Special Meetings; Notice 6
3.8 Quorum 6
3.9 Waiver of Notice 6
3.10 Board Action by Written Consent Without a Meeting 7
3.11 Fees and Compensation of Directors 7
3.12 Approval of Loans to Officers 7
3.13 Removal of Directors 7
3.14 Chairman of the Board of Directors 7

ARTICLE IV COMMITTEES 7
4.1 Committees of Directors 7
4.2 Committee Minutes 8
4.3 Meetings and Action of Committees 8

ARTICLE V OFFICERS 8
5.1 Officers 8
5.2 Election of Officers 9
5.3 Appointed Officers 9
5.4 Removal and Resignation of Officers 9
5.5 Vacancies in Offices 9
5.6 Chairman of the Board 9
5.7 President 9
5.8 Senior Vice Presidents and Vice Presidents 9
5.9 Secretary 10
5.10 Chief Financial Officer 10
5.11 Representation of Shares of Other Corporations 10
5.12 Authority and Duties of Officers 10

ARTICLE VI RECORDS AND REPORTS 11
6.1 Maintenance and Inspection of Records 11
6.2 Inspection by Directors 11

ARTICLE VII GENERAL MATTERS 11
7.1 Execution of Corporate Contracts and Instruments 11
7.2 Stock Certificates; Partly Paid Shares 11
7.3 Special Designation on Certificates 12
7.4 Lost Certificates 12
7.5 Construction; Definitions 12
7.6 Dividends 13
7.7 Fiscal Year 13
7.8 Seal 13

ARTICLE VIII AMENDMENTS 13
8.1 Amendments 13

<PAGE>

BYLAWS
OF
APPLIED MATERIALS, INC.

ARTICLE I

OFFICES

.1 Registered Office. The registered office of the
corporation in the State of Delaware shall be Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of the registered agent of the corporation at such location is The
Corporation Trust Company.

.2 Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the
board of directors may from time to time determine or the business of the
corporation may require.

ARTICLE II

STOCKHOLDERS

.1 Place of Meetings. Meetings of stockholders shall be
held at such place, either, within or without the State of Delaware, as
may be designated by the board of directors. In the absence of any such
designation, stockholders' meetings shall be held at the corporation's
principal executive offices.

.2 Annual Meeting. The annual meeting of stockholders shall
be held each year on a date and at a time designated by the board of
directors. At the meeting, directors shall be elected and any other
proper business may be transacted.

.3 Special Meeting. Special meetings of the stockholders
may be called at any time by the board of directors, or by the chairman
of the board, or by the president of the corporation.
If a special meeting is called by any person or persons other than
the board of directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to
be transacted, and shall be delivered personally or sent by registered
mail or by telegraphic or other facsimile transmission to the chairman of
the board, the president, any vice president, or the secretary of the
corporation. No business may be transacted at such special meeting
otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders
entitled to vote, in accordance with the provisions of Sections 4 and 5
of this Article II, that a meeting will be held at the time requested by
the person or persons calling the meeting, not less than 35 nor more than
60 days after the receipt of the request. If the notice is not given
within 20 days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the
board of directors may be held.

.4 Notice of Stockholders' Meetings. All notices of
meetings with stockholders shall be in writing and shall be sent or
otherwise given in accordance with Section 2.5 of these bylaws not less
than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.

.5 Advance Notice of Stockholder Nominees. No nominations
for director of the corporation by any person other than the board of
directors shall be presented to any meeting of stockholders unless the
person making the nomination is a record stockholder and shall have
delivered a written notice to the secretary of the corporation no later
than the close of business forty-five days prior to the month and day of
mailing the prior year's proxy statement. Such notice shall (i) set
forth the name and address of the person advancing such nomination and
the nominee, together with such information concerning the person making
the nomination and the nominee as would be required by the appropriate
Rules and Regulations of the Securities and Exchange Commission to be
included in a proxy statement soliciting proxies for the election of such
nominee, and (ii) shall include the duly executed written consent of such
nominee to serve as director if elected.

No proposal by any person other than the board of directors shall
be submitted for the approval of the stockholders at any regular or
special meeting of the stockholders of the corporation unless the person
advancing such proposal shall have delivered a written notice to the
secretary of the corporation no later than the close of business forty-
five days prior to the month and day of mailing the prior year's proxy
statement. Such notice shall set forth the name and address of the
person advancing the proposal, any material interest of such person in
the proposal, and such other information concerning the person making
such proposal and the proposal itself as would be required by the
appropriate Rules and Regulations of the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies for the
proposal.

.6 Manner of Giving Notice; Affidavit of Notice. Written
notice of any meeting of stockholders, if mailed, is given when deposited
in the United States mail, postage prepaid, directed to the stockholder
at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.

.7 Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided
by statute or by the certificate of incorporation. Except as otherwise
required by law, the certificate of incorporation or these bylaws, the
affirmative vote of the majority of such quorum shall be deemed the act
of the stockholders. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the
chairman of the meeting or (ii) the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented.
At such adjourned meeting at which a quorum is present or represented,
any business may be transacted that might have been transacted at the
meeting as originally noticed.

.8 Adjourned Meeting; Notice. When a meeting is adjourned
to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting the corporation
may transact any business that might have been transacted at the original
meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.

.9 Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at
the meeting, including such regulation of the manner of voting and the
conduct of business.

.10 Voting. Except as may be otherwise provided in the
certificate of incorporation, each stockholder shall be entitled to one
vote for each share of capital stock held by such stockholder. Voting
may be by voice or by ballot as the presiding officer of the meeting of
the stockholders shall determine. On a vote by ballot, each ballot shall
be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.

.11 Waiver of Notice. Whenever notice is required to be
given under any provision of the General Corporation Law of Delaware or
of the certificate of incorporation or these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation
or these bylaws.

.12 Record Date for Stockholder Notice; Voting; Giving Consents.
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may
fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior
to any other action.

If the board of directors does not so fix a record date:

(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice
is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.

(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the board of directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.

.13 Proxies. Each stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him by
a written proxy, signed by the stockholder and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after
one year from its date, unless the proxy provides for a longer period. A
proxy shall be deemed signed if the stockholder's name is placed on the
proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the stockholder or the stockholder's attorney-in-fact.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation
generally.

ARTICLE III

DIRECTORS

.1 Powers. Subject to the provisions of the General
Corporation Law of Delaware and any limitations in the certificate of
incorporation or these bylaws relating to action required to be approved
by the stockholders, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the
direction of the board of directors.

.2 Number of Directors. The board of directors shall
consist of eleven persons until changed by a proper amendment of this
Section 3.2.

No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires.

.3 Election, Qualification and Term of Office of Directors.
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders. Directors need not be
stockholders. Each director, including a director elected to fill a
vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.

Elections of directors need not be by written ballot.

.4 Resignation and Vacancies. Any director may resign at
any time upon written notice to the attention of the secretary of the
corporation. When one or more directors so resigns and the resignation
is effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of
other vacancies.

Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by
a majority of the directors then in office, although less than a quorum,
or by a sole remaining director.

Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.

If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for
the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of the certificate of
incorporation or these bylaws, or may apply to the Court of Chancery for
a decree summarily ordering an election as provided in Section 211 of the
General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the
total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the
General Corporation Law of Delaware as far as applicable.

The stockholders may elect a director at any time to fill any
vacancy not filled by the directors.

If a vacancy is the result of action taken by the shareholders
under Section 3.13 of these bylaws, then the vacancy shall be filled by
the holders of a majority of the shares then entitled to vote at an
election of directors.

.5 Place of Meetings; Meetings by Telephone. The board of
directors of the corporation may hold meetings, both regular and special,
either within or outside the State of Delaware.

Members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of
directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant
to this bylaw shall constitute presence in person at the meeting.

.6 Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and at such place as
shall from time to time be determined by the board.

.7 Special Meetings; Notice. Special meetings of the board
of directors for any purpose or purposes may be called at any time by the
chairman of the board, the president, any vice president, the secretary
or any two directors.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail
or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If
the notice is mailed, it shall be deposited in the United States mail at
least four days before the time of the holding of the meeting. If the
notice is delivered personally or by telephone or by telegram, it shall
be delivered personally or by telephone or to the telegraph company at
least 48 hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of
the meeting, if the meeting is to be held at the principal executive
office of the corporation.

.8 Quorum. At all meetings of the board of directors, a
majority of the authorized number of directors shall constitute a quorum
for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the
act of the board of directors, except as may be otherwise specifically
provided by statute or by the certificate of incorporation. If a quorum
is not present at any meeting of the board of directors, then the
directors present thereat may adjourn the meeting from time to time,
without notice other than the announcement at the meeting, until a quorum
is present.

A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any
action taken is approved by at least a majority of the required quorum
for that meeting.

.9 Waiver of Notice. Whenever notice is required to be
given under any provision of the General Corporation Law of Delaware or
of the certificate of incorporation or these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.

.10 Board Action by Written Consent Without a Meeting. Any
action required or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a meeting if
all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes
of proceedings of the board or committee.

.11 Fees and Compensation of Directors. The board of
directors shall have the authority to fix the compensation of directors.

.12 Approval of Loans to Officers. The corporation may lend
money to, or guarantee any obligations of, or otherwise assist any
officer or other employee of the corporation or any of its subsidiaries,
including any officer or employee who is a director of the corporation or
any of its subsidiaries, whenever, in the judgment of the directors, such
loan, guaranty or assistance, or an employee benefit or employee
financial assistance plan adopted by the board of directors or any
committee thereof authorizing any such loan, guaranty or assistance, may
reasonably be expected to benefit the corporation. The loan, guaranty or
other assistance may be with or without interest and may be unsecured, or
secured in such a manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the
corporation. Nothing in this section contained shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.

.13 Removal of Directors. Any director or the entire board
of directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such
director's term of office.

.14 Chairman of the Board of Directors. The corporation may
also have, at the discretion of the board of directors, a chairman of the
board of directors who may be considered an officer of the corporation.

ARTICLE IV

COMMITTEES

.1 Committees of Directors. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members
present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors, or in the bylaws of
the corporation, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and affairs
of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall
have the power or authority in reference to amending the certificate of
incorporation (except that a committee may, to the extent authorized in
the resolution or resolutions providing for the issuance of shares of
stock adopted by the board of directors as provided in Section 151(a) of
the General Corporation Law of Delaware, fix the designations and any of
the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or
the conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other class
or classes of stock of the corporation, or fix the number of shares of
any series of stock or authorize the increase or decrease of the shares
of any series), adopting an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation; and, unless the
resolution, bylaws or certificate of incorporation expressly so provides,
no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate
of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.

.2 Committee Minutes. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors
when required.

.3 Meetings and Action of Committees. Meetings and actions
of committees shall be governed by, and held and taken in accordance
with, the provisions of Article III of these bylaws, Section 3.5 (place
of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a
meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular
meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for
the government of any committee not inconsistent with the provisions of
these bylaws.

ARTICLE V

OFFICERS

.1 Officers. The officers of the corporation shall be a
president, a chief financial officer (who may be a vice president or
treasurer of the corporation) and a secretary. The corporation may also
have, at the discretion of the board of directors, a chairman of the
board of directors, one or more senior vice presidents and one or more
other officers. One or more officers may be appointed in accordance with
the provisions of Section 5.3 of these bylaws. Any number of offices may
be held by the same person.

.2 Election of Officers. The officers of the corporation,
except such officers as may be appointed in accordance with the
provisions of Sections 5.3 or 5.5 of these bylaws, shall be elected by
the board of directors.

.3 Appointed Officers. The chief executive officer of the
corporation, or such other officer as the board of directors shall
select, may appoint, or the board of directors may appoint, such officers
and agents of the corporation as, in his or their judgment, are necessary
to conduct the business of the corporation. Each such officer shall hold
office for such period, have such authority, and perform such duties as
are provided in these bylaws or as the board of directors or the chief
executive officer may from time to time determine.

.4 Removal and Resignation of Officers. Any officer may be
removed, either with or without cause, by an affirmative vote of the
majority of the board of directors at any regular or special meeting of
the board or, except in the case of an officer elected by the board of
directors, by the chief executive officer or such other officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice;
and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.

.5 Vacancies in Offices. Any vacancy occurring in any
office of the corporation shall be filled by the board of directors,
except for vacancies in the offices of subordinate officers which may be
filled pursuant to Section 5.3 hereof.

.6 Chairman of the Board. The chairman of the board, if
such an officer be elected, shall, if present, preside at meetings of the
board of directors and the stockholders and exercise and perform such
other powers and duties as may be from time to time assigned by the board
of directors or prescribed by the bylaws.

.7 President. Subject to such supervisory powers, if any,
as may be given by the board of directors to the chairman of the board,
the president shall be the chief executive officer of the corporation and
shall, subject to the control of the board of directors, have general
supervision, direction, and control of the business and the officers of
the corporation. In the absence or nonexistence of a chairman of the
board, he shall preside at all meetings of the stockholders and at all
meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these bylaws.

.8 Senior Vice Presidents and Vice Presidents. In the
absence or disability of the president, the vice presidents, if any, in
order of their rank as fixed by the board of directors or, if not ranked,
a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the board of
directors, these bylaws, the president or the chairman of the board.

.9 Secretary. The secretary shall keep or cause to be kept,
at the principal executive office of the corporation or such other place
as the board of directors may direct, a book of minutes of all meetings
and actions of directors, committees of directors, and stockholders. The
minutes shall show the time and place of each meeting, the names of those
present at directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and the
proceedings thereof.

The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the
names of all stockholders and their addresses, the number and classes of
shares held by each, the number and date of certificates evidencing such
shares, and the number and date of cancellation of every certificate
surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required to be
given by law or by these bylaws. He shall keep the seal of the
corporation, if one be adopted, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or by these bylaws.

.10 Chief Financial Officer. The chief financial officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital retained
earnings, and shares. The books of account shall at all reasonable times
be open to inspection by any director.

The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they
request it, an account of all his transactions as chief financial officer
and of the financial condition of the corporation, and shall have other
powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.

.11 Representation of Shares of Other Corporations. The
chairman of the board, the president, any vice president, the treasurer,
the secretary or assistant secretary of this corporation, or any other
person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation.
The authority granted herein may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.

.12 Authority and Duties of Officers. In addition to the
foregoing authority and duties, all officers of the corporation shall
respectively have such authority and perform such duties in the
management of the business of the corporation as may be designated from
time to time by the board of directors.

ARTICLE VI

RECORDS AND REPORTS

.1 Maintenance and Inspection of Records. The corporation
shall, either at its principal executive offices or at such place or
places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class
of shares held by each stockholder, a copy of these bylaws as amended to
date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper
purpose the corporation's stock ledger, a list of its stockholders, and
its other books and records and to make copies or extracts therefrom. A
proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other
agent is the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing
that authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation
at its registered office in Delaware or at its principal place of
business.

.2 Inspection by Directors. Any director shall have the
right to examine the corporation's stock ledger, a list of its
stockholders, and its other books and records for a purpose reasonably
related to his position as a director. The Court of Chancery is hereby
vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such
other and further relief as the Court may deem just and proper.

ARTICLE VII

GENERAL MATTERS

.1 Execution of Corporate Contracts and Instruments. The
board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent or employee
shall have any power or authority to bind the corporation by any contract
or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.

.2 Stock Certificates; Partly Paid Shares. The shares of a
corporation shall be represented by certificates, provided that the board
of directors of the corporation may provide by resolution or resolutions
that some or all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the
board of directors, every holder of stock represented by certificates and
upon request every holder of uncertificated shares shall be entitled to
have a certificate signed by, or in the name of the corporation by the
chairman or vice-chairman of the board of directors, or the president or
vice president, and by the chief financial officer, the treasurer, or an
assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at
the date of issue.

The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to
be paid therefor. Upon the face or back of each stock certificate issued
to represent any such partly paid shares, or upon the books and records
of the corporation in the case of uncertificated partly paid shares, the
total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated. Upon the declaration of any dividend on fully
paid shares, the corporation shall declare a dividend upon partly paid
shares of the same class, but only upon the basis of the percentage of
the consideration actually paid thereon.

.3 Special Designation on Certificates. If the corporation
is authorized to issue more than one class of stock or more than one
series of any class, then the powers, the designations, the preferences,
and the relative, participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full
or summarized on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there
may be set forth on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, the designations, the
preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.

.4 Lost Certificates. The corporation may issue a new
certificate of stock or uncertificated shares in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative to give the
corporation a bond sufficient to indemnify it against any claim that may
be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate or
uncertified shares.

.5 Construction; Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
in the Delaware General Corporation Law shall govern the construction of
these bylaws. Without limiting the generality of this provision, the
singular number includes the plural, the plural number includes the
singular, and the term "person" includes both a corporation and a
natural person.

.6 Dividends. The directors of the corporation, subject to
any restrictions contained in the General Corporation Law of Delaware or
the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock. Dividends may be paid in cash, in property,
or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the
funds of the corporation available for dividends a reserve or reserves
for any proper purpose and may abolish any such reserve.

.7 Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors and may be changed by the
board of directors.

.8 Seal. The board of directors may adopt a corporate seal,
and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.

ARTICLE VIII

AMENDMENTS

.1 Amendments. The bylaws of the corporation may be
altered, amended or repealed or new bylaws may be adopted by the
stockholders or by the board of directors

EXECUTION COPY

AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT

THIS AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT ("Amendment") is
entered into as of the 26th day of January, 1999 by and between DEUTSCHE
FINANCIAL SERVICES CORPORATION ("Purchaser")and APPLIED MATERIALS, INC.
("Seller").

RECITALS

A. Purchaser and Seller are parties to that certain Receivables
Purchase Agreement dated as of October 22, 1998 (as amended from time to
time, the "Purchase Agreement"). Capitalized terms used but not defined
herein shall have the meanings given them in the Purchase Agreement.

B. Pursuant to the terms of the Purchase Agreement, Purchaser
purchased from Seller certain Receivables, as defined therein.

C. The parties now desire to provide for the purchase of a new pool
of Receivables, as will be described more fully herein.

D. The parties now desire to amend certain terms and conditions of
the Purchase Agreement, on and subject to the terms hereof.

NOW, THEREFORE, in consideration of the forgoing premises and for
other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:

1. Tranche B Receivables. For purposes hereof, the "Tranche B
Receivables" shall mean those Receivables that the Purchaser and the
Seller agree shall be treated as Tranche B Receivables. The Tranche B
Receivables are subject to the Payment Terms described on Exhibit III
(Tranche B) attached hereto and incorporated herein by this reference.
All other Receivables shall be referred to as "Tranche A Receivables".

2. Amendments Regarding the Tranche B Receivables. Purchaser and
Seller each hereby agree that the Purchase Agreement is hereby amended
as follows, solely with respect to the Tranche B Receivables:

(a) Section 1.1 - New Definitions. Solely with respect to the
Tranche B Receivables, the following terms are hereby amended in their
entirety to read as follows:

Collection Settlement Date. With respect to each Funding Date
in connection with the sale of Sold Receivables to Purchaser, the
related First Collection Settlement Date (the 90th day after such
Funding Date or if such date is not a Business Day, the Business
Day thereafter), and to the extent the Outstanding Balances of
such Sold Receivables have not been reduced to zero, each
succeeding Business Day.

Defaulted Receivable. (i) A Sold Receivable that the
Collection Agent determines in good faith to be uncollectible, or
(ii) a Sold Receivable which remains unpaid, for any reason,
including without limitation, set off by the Obligor (whether in
connection with the same or a related transaction or unrelated
transaction) or a bankruptcy proceeding of the Obligor where the
Obligor is the debtor, more than 60 days from the Billing Date.

Discount. With respect to any Sold Receivable, an amount equal
to the product of: (a) the LIBOR Rate-Three Month plus ninety-eight
one-hundredths of one percent (0.98%) per annum of the Outstanding
Balance of such Sold Receivable, and (b) 90/365.

First Collection Settlement Date. With respect to each Funding
Date that date which is ninety (90) days after such Funding Date,
provided that if such date is not a Business Day, then the First
Collection Settlement Date shall be the next succeeding Business
Day.

Ineligible Receivables. Shall mean any of the following, as
determined by Purchaser in its reasonable discretion, at the time of
each Purchase hereunder:

(a) Receivables created from the sale of Goods and services
not in accordance with Seller's Payment Terms as described in
Exhibit III (Tranche B), attached hereto;

(b) Receivables created from the sale of Goods that allow for
payment to be made more than sixty (60) days after the Billing
Date and/or Receivables which are unpaid more than sixty (60)
days from the Billing Date;

(c) all Receivables of an Obligor if fifty percent (50%) or
more of the Outstanding Balance of all such Obligor's
Receivables are more than sixty (60) days past the applicable
due date;

(d) all Receivables of an Obligor if the Outstanding Balance
of all Sold Receivables of such Obligor exceeds either (i)
Fifty Million Dollars ($50,000,000.00) (or any other Dollar
limitations as may be set forth on Schedule B hereto, as
amended from time to time) or as otherwise agreed to by
Purchaser, or (ii) fifty percent (50%) of the Outstanding
Balance of all Eligible Receivables;

(e) Receivables with respect to which the Obligor is an
officer, employee, agent, parent, Subsidiary or affiliate of
Seller or has common officers or directors with Seller;

(f) Receivables arising out of any consignment sale;

(g) Receivables with respect to which the payment by the
Obligor is conditional, other than as may be required by
applicable statute;

(h) Receivables with respect to which the Obligor is not a
commercial or institutional entity;

(i) Receivables with respect to which Seller is or may become
liable to the Obligor thereof for goods sold or services
rendered by such Obligor to Seller, other than as may be
required by applicable statute;

(j) Receivables with respect to which any warranty or
representation provided in Sections 7.3, 8.4 or 8.8 is not true
and correct;

(k) Receivables which represent goods purchased for a
personal, family or household purpose;

(l) Receivables which are progress payment, retention or
contra accounts;

(m) Receivables with respect to which the Obligor is in
default of any material provision of any agreement between
Seller and Obligor governing such Receivable, including,
without limitation, Receivables paid with checks returned and
marked "Insufficient Funds" and Receivables which are otherwise
in dispute and, in each case, not resolved within thirty (30)
days;

(n) Receivables arising pursuant to documentation not
satisfactory to Purchaser in its sole discretion;

(o) Receivables on which the Obligor is not located in the
United States if such Receivable is not fully secured by
foreign credit insurance or letter of credit, in each case
acceptable to Purchaser in its sole discretion;

(p) Receivables which were not incurred in the ordinary course
of Seller's business;

(q) Receivables which, prior to sale, were not owned by
Seller; or

(r) any and all other Receivables which Purchaser deems to be
unacceptable; provided, however, that Receivables of the
Obligors listed on Schedule B (Tranche B) which also satisfy
paragraphs (c) through (q) above, shall be deemed acceptable to
Purchaser, subject to any limitations in such Schedule B
(Tranche B);

provided, however, that Seller and Purchaser may agree in
writing that any Receivable that would otherwise be an
Ineligible Receivable shall be treated for all purposes as an
Eligible Receivable.

LIBOR Rate-Three Month. Shall mean for any Purchase, the London
Interbank Offered Rate (LIBOR) for three-month deposits in U.S.
Dollars that appears on Page 3745 of the Bloomberg News Service (or
any other page that may replace any such page on such service in the
reasonable judgment of Purchaser) on the third Business Day
immediately preceding a Funding Date.

Net Purchase Price. With respect to any Eligible Receivable,
the total Outstanding Balance of such Eligible Receivable, minus:
(i) the Discount attributable to such Eligible Receivable, as
determined as of the Settlement Date and (ii) Thirty One-Hundredths
of One Percent (0.30%) of the total Outstanding Balance of such
Eligible Receivable, as of such Settlement Date.

(b) Section 3.1(B)(4). Solely with respect to the Tranche B
Receivables, Section 3.1(B)(4) is hereby amended in its entirety to read
as follows:

"(4) In the enforcement or collection of any Sold Receivable,
the Collection Agent must obtain Purchaser's prior written consent
to name Purchaser as a party in any legal proceeding; provided,
however, that nothing contained herein shall limit Purchaser's
right, exercisable in its sole discretion, following demand made by
Purchaser on Seller and Seller's refusal or inability to proceed
against an Obligor, to sue or proceed against any Obligor in its own
name at any time upon two (2) days prior written notice to Seller
after the 90th day after the applicable Funding Date. Moreover,
notwithstanding the foregoing, (i) following the occurrence and
during the continuance of any Event of Default after notice to
Seller, (ii) if Seller has determined in good faith that a Sold
Receivable is uncollectible, or (iii) if (1) an Obligor becomes
insolvent or becomes subject to the Federal Bankruptcy Code, any
state insolvency law or any similar law, as a debtor, (2) an Obligor
makes a general assignment for the benefit of creditors, or (3) a
receiver is appointed for any assets of an Obligor; no demand by
Purchaser on Seller shall be required before Purchaser may sue or
proceed against any Obligor in its own name."

(c) Section 3.2(B). Solely with respect to the Tranche B
Receivables, Section 3.2(B) is hereby amended in its entirety to read as
follows:

"B. Status Reports. Seller shall submit to Purchaser a Status
Report on the dates specified in the immediately following sentence,
substantially in the form of Exhibit V ("Status Report") consisting
of information concerning Collections, Credit Adjustments, and
Defaulted Receivables. Seller shall submit a Status Report to Seller
(i) no later than the fiftieth (50th) day after a Funding Date, with
respect to the 45-day period which commenced on such Funding Date,
and (ii) no later than two (2) days after a First Collection
Settlement Date, with respect to the 45-day period immediately
preceding such First Collection Settlement Date. The Status Report
shall include such other reports as Purchaser shall reasonably
request. If any date for the delivery of a Status Report is not a
Business Day, then such report shall be due on the next succeeding
Business Day."

(d) Section 3.3(B)(i). Solely with respect to the Tranche B
Receivables, Section 3.3(B)(i) is hereby amended in its entirety to read
as follows:

"(i) Delinquent Receivables. If the Outstanding Balance of a
Sold Receivable has not been paid in full on or before the 90th day
after the Funding Date on which the Purchaser purchased such Sold
Receivable, then, the Seller shall pay to the Purchaser an amount
equal to the Payment Percentage of the unpaid Outstanding Balance of
such Sold Receivable for each day after such 90th day that the
Outstanding Balance is greater than zero until the earlier of (A)
the date on which the Seller notifies Purchaser that it has
determined in good faith that such Sold Receivable is uncollectible,
(B) the date that is the 115th day after the Funding Date on which
the Purchaser purchased such Sold Receivable, and (C) the date on
which the Outstanding Balance is reduced to zero. Any amount
required to be paid under this paragraph shall be paid to the
Purchaser on the immediately following Collection Settlement Date.
As used herein, the "Payment Percentage" is equal to the sum of:
(a) the LIBOR Rate-Three Month relating to the Purchase of such Sold
Receivables plus ninety-eight one-hundredths of one percent (0.98%)
per annum, divided by 365, plus (b) Thirty One-Hundredths of One
Percent (0.30%), divided by 90."

(e) Amendments Generally. The remainder of the Purchase
Agreement, to the extent not amended specifically hereby, shall be
deemed amended with respect to the Tranche B Receivables so that such
terms and conditions apply with the same force and effect to such
Tranche B Receivables and the documents, certificates and agreements
delivered in connection therewith and herewith.

3. Additional Amendments. The Purchase Agreement is hereby further
amended as follows:

(a) Section 6.1.C is hereby amended by inserting immediately
preceding the ";" therein, the following: "provided that Seller may
satisfy this obligation by filing such reports with the SEC".

(b) Section 12.1(f) and all references to Section 12(f) are
hereby deleted in their entirety.

(d) The title of Section 13.1 is hereby deleted in its
entirety and replaced with "Costs and Expenses".

(e) The definition of "Ineligible Receivables" is amended by
adding the following at the end of such definition:

"provided, however, that Seller and Purchaser may agree in writing
that any Receivable that would otherwise be an Ineligible Receivable
shall be treated for all purposes as an Eligible Receivable."

(f) Schedule B is hereby deleted in its entirety and replaced
with the new Schedule B attached hereto.

(g) The defined term "LIBOR Rate-One Month" is hereby deleted
in its entirety and replaced with the following:

LIMEAN Rate-One-Month. Shall mean, for purposes solely of
calculation of the Collection Agent Fee, the London Interbank Mean
Rate (LIMEAN) for one-month deposits in U.S. Dollars that appears on
the London Interbank Rate page (referenced as LIUS01M; "MID"), of
the Bloomberg News Service (or any other page that may replace any
such page on such service in the reasonable judgment of Purchaser)
for the Business Day of any such Collection Agent Fee payment.

(h) Section 4.1 is hereby amended in its entirety to read as
follows:

"Section 4.1. Collection Agent Fee. A fee shall be payable by
Purchaser to Seller in its capacity as Collection Agent (the
"Collection Agent Fee"), in an amount equal to the LIMEAN Rate -One
Month per annum, on the average daily balance of the Collections
received by Purchaser during the 30-day period preceding each
Collection Agent Fee payment date specified in the immediately
following sentence. The Collection Agent Fee shall be payable, in
arrears, every thirty (30) days after a Funding Date and on the
First Collection Settlement; provided, however, that if any such
payment date is not a Business Day, then such payment shall be made
on the next succeeding Business Day. In no event, however, shall
any Collection Agent Fee be payable to Seller for Collections
relating to the applicable Sold Receivables received after the
related First Collection Settlement Date. The Collection Agent Fee
is to be paid by the Purchaser to the Seller as Collection Agent in
consideration of Seller's agreement to serve as a Collection Agent
and as compensation for such Collection Agent's services. Any
amounts due to Purchaser from Seller hereunder, may be deducted from
any Collection Agent Fee and credited to Purchaser, upon notice to
Seller. Following the termination of Seller as a Collection Agent,
Seller shall not continue to earn any Collection Fees."

(i) Sections 3.3.A. and B. are hereby amended by replacing each
reference therein to "2:00 p.m., Pacific time" with "11:30 a.m., Pacific
time".

4. Conditions Precedent. Notwithstanding the foregoing, the
transactions contemplated by this Amendment shall not be effective until
the satisfaction of the following terms and conditions:

(a) Seller shall have satisfied all of the conditions
precedent to such Purchase as are described more fully in Section 9.2 of
the Purchase Agreement, which include but are not limited to preparation
and delivery to Purchaser of: (i) the new Schedule B referred to herein,
(ii) a new Receivables Purchase Settlement Statement for the Receivables
described herein, (iii) new UCC Searches, (iv) new UCC-1s, and (v) the
new Exhibit III (Tranche B) regarding the payment terms applicable to
the Tranche B Receivables.

(b) Seller shall have delivered such other documents,
certificates, submissions, instruments, and agreements as reasonably
requested by Purchaser relating to the transactions herein contemplated.

5. Miscellaneous. The terms of the Purchase Agreement and the
other documents executed and delivered in connection therewith are
hereby ratified and reaffirmed and shall remain in full force and
effect.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first written above.

APPLIED MATERIALS, INC.

By:/s/ Nancy H. Handel
Print Name: Nancy H. Handel
Title: Vice President Global
Finance and Treasurer

By:/s/ Joseph R. Bronson
Print Name: Joseph R. Bronson
Title: Senior Vice President,
Chief Financial Officer
and Chief Administrative
Officer

DEUTSCHE FINANCIAL SERVICES CORPORATION

By:/s/ R. L. Shirley
Print Name: R. L. Shirley
Title:Executive V.P., Director
of Portfolio

RECEIVABLES PURCHASE AGREEMENT

THIS RECEIVABLES PURCHASE AGREEMENT ("Agreement") is dated
as of the 26th day of January, 1999, by and between APPLIED
MATERIALS, INC., a Delaware corporation ("Seller") and DEUTSCHE
FINANCIAL SERVICES (UK) LIMITED, a corporation registered in
England and Wales ("Purchaser").

R E C I T A L S

A. Among other things, Seller sells certain manufacturing
products and provides services related thereto in the ordinary
course of its business throughout Europe (the "Products" and
the "Services", respectively, or collectively, the "Goods").

B. Seller may sell and Purchaser may purchase from time to
time, on the terms and conditions set forth herein, all of
Seller's right, title and interest in and to payment for the
Products sold and Services rendered by Seller to the Obligors
(as defined herein) (such accounts collectively referred to
herein as the "Receivables" or, individually, a "Receivable").

C. Purchaser wishes that Seller act as Purchaser's initial
Collection Agent with respect to Receivables sold by Seller in
connection with the collection of the amounts owing on the
Receivables, and wishes to pay the Seller a Collection Agent
Fee, as herein defined, in return for the Seller's services as
Collection Agent.

D. Seller and Purchaser desire to enter into this
Agreement to govern the purchase and sale of the Receivables,
the administration and collection thereof, and related matters.

NOW, THEREFORE, in consideration of the agreements
contained herein and for other good and valuable consideration,
the parties hereto mutually agree as follows:

ARTICLE 1
Definitions

Section 1.1. Definitions.

Except as otherwise specified in this Agreement, all
references (i) to any Person, other than Seller, shall be
deemed to include such Person's successors and assigns, and
(ii) to any law, agreement, statute or contract specifically
defined or referred to in this Agreement shall be deemed
references to such agreement, or contract as the same may be
supplemented, amended, waived, consolidated, replaced or
modified from time to time, but only to the extent permitted
by, and effected in accordance with, the terms hereof. The
words "herein," "hereof" and "hereunder" and words of similar
import, when used in this Agreement shall refer to this
Agreement as a whole and not to any provision of this
Agreement, and "Article," "Section," "paragraph," "Schedule"
and respective references are to this Agreement unless
otherwise specified. Whenever the context so requires, words
importing any gender include the other genders. Any of the
terms defined in this Article 1 may, unless the context
otherwise requires, be used in the singular or the plural
depending on the reference; the singular includes the plural
and the plural includes the singular.

All terms defined in this Article 1 shall have the defined
meanings when used in this Agreement or, except as otherwise
expressly stated therein, any certificate, opinion or other
document delivered pursuant to this Agreement.

All accounting terms not otherwise defined in this Article
1 or elsewhere in this Agreement shall have the meanings
assigned them in conformity with GAAP.

All terms used in Article 9 of the UCC and not specifically
defined in Article 1 or elsewhere in this Agreement shall be
defined herein as such terms are defined in the UCC as in
effect in the State of California on the date hereof.

References to "writing" include printing, typing,
lithography and other means of reproducing words in a tangible
visible form. References to "written" include "printed,"
"typed," "lithographed" and other adjectives relating to words
reproduced in a tangible visible form consistent with the
preceding sentence including electronic mail. The words
"including," "includes" and "include" shall be deemed to be
followed by the words "without limitation."

A/R Limit. As defined in Section 2.1.B.

Balance. As defined in Section 2.1.B.

Billing Date. The date on which an invoice is issued with
respect to the sale of Goods resulting in the creation of a
Receivable.

Business Day. Any day on which dealings in currencies and
exchange may be carried on in the interbank eurodollar market,
excluding Saturday, Sunday and any day which is a day on which
banking institutions in London are authorized or required by
law or other governmental action to close.

Collateral. As defined in Section 5.1.

Collection Agent. A Person that is selected and appointed
by Purchaser, in accordance with Section 3.1, to act on
Purchaser's behalf in the administration, servicing and
collection of the Sold Receivables. Such Person may be Seller.
The term "Collection Agent" includes a Successor Collection
Agent.

Collection Agent Fee. A fee calculated and payable by
Purchaser to Seller in accordance with the terms of Article 4
hereof.

Collection Settlement Date. With respect to each Funding
Date in connection with the sale of Sold Receivables to
Purchaser, the related First Collection Settlement Date (the
75th day after such Funding Date or if such date is not a
Business Day, the Business Day thereafter), and to the extent
the Outstanding Balances of such Sold Receivables have not been
reduced to zero, each succeeding Business Day.

Collections. All amounts received by the Collection Agent
or Purchaser from any Obligor as a payment with respect to a
Sold Receivable.

Contract. An agreement pursuant to which an Obligor agrees
to pay money to Seller for Products sold or Services rendered
by Seller in the ordinary course of its business.

Credit Adjustment. Any refund, rebate, credit, early pay
discount or other adjustment granted to an Obligor with respect
to a Sold Receivable after such Receivable is sold to
Purchaser.

Defaulted Receivable. (i) A Sold Receivable that the
Collection Agent determines in good faith to be uncollectible,
or (ii) a Sold Receivable which remains unpaid, for any reason,
including without limitation, set off by the Obligor (whether
in connection with the same or a related transaction or
unrelated transaction) or a bankruptcy or insolvency proceeding
of the Obligor where the Obligor is the debtor, more than 60
days from the Billing Date.

Discount. [ * ].

Dollars. Lawful money of the United States of America.

[ * ] Confidential portions omitted and filed separately
with the Securities and Exchange Commission.

Eligible Receivable. Any Receivable which does not
otherwise constitute an Ineligible Receivable.

Event of Default. As defined in Section 12.1.

Facility Termination Date. The earlier of the Termination
Date or when Purchaser terminates this Agreement under Section
12.2.

Federal Bankruptcy Code. The bankruptcy code of the United
States of America codified in Title 11 of the United States
Code, as amended.

Financing Statement. The financing statements that are
properly filed with the various Secretaries of State or other
jurisdictions to perfect security interests in any property
described by such financing statements.

First Collection Settlement Date. With respect to each
Funding Date that date which is seventy-five (75) days after
such Funding Date, provided that if such date is not a Business
Day, then the First Collection Settlement Date shall be the
next succeeding Business Day.

Funding Date. The Initial Funding Date, and such other and
further dates as the parties hereto may agree to in writing as
of the date on which Purchaser acquires additional Receivables
hereunder.

GAAP. Generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the
accounting profession, which are applicable to the
circumstances as of the date of determination.

Goods. As defined in the Recitals to this Agreement.

Indemnitees. As defined in Section 10.1.

Ineligible Receivables. Shall mean any of the following,
as determined by Purchaser in its reasonable discretion, at the
time of each Purchase hereunder:

(a) Receivables created from the sale of Goods and Services
not in accordance with Seller's Payment Terms as
described in Exhibit III attached hereto;

(b) [ * ];

(d) [ * ];

(e) Receivables with respect to which the Obligor is an
officer, employee, agent, parent, Subsidiary or
affiliate of Seller or has common officers or directors
with Seller;

(f) Receivables arising out of any consignment sale;

[ * ] Confidential portions omitted and filed separately
with the Securities and Exchange Commission.

(g) Receivables with respect to which the payment by the
Obligor is conditional, other than as may be required
by applicable statute;

(h) Receivables with respect to which the Obligor is not a
commercial or institutional entity;

(i) Receivables with respect to which Seller is or may
become liable to the Obligor thereof for goods sold or
services rendered by such Obligor to Seller, other than
as may be required by applicable statute;

(j) Receivables with respect to which any warranty or
representation provided in Sections 7.3, 8.4 or 8.8 is
not true and correct;

(k) Receivables which represent goods purchased for a
personal, family or household purpose;

(l) Receivables which are progress payment, retention or
contra accounts;

(m) Receivables with respect to which the Obligor is in
default of any material provision of any agreement
between Seller and Obligor governing such Receivable,
including, without limitation, Receivables paid with
checks returned and marked "Insufficient Funds" and
Receivables which are otherwise in dispute and, in each
case, not resolved within thirty (30) days;

(n) Receivables arising pursuant to documentation not
satisfactory to Purchaser in its sole discretion;

(o) Receivables on which the Obligor is not located in
Europe and Israel if such Receivable is not fully
secured by foreign credit insurance or letter of
credit, in each case acceptable to Purchaser in its
sole discretion;

(p) Receivables which were not incurred in the ordinary
course of Seller's business;

(q) Receivables which, prior to sale, were not owned by
Seller; or

(r) any and all other Receivables which Purchaser deems to
be unacceptable; provided, however, that Receivables of
the Obligors listed on Schedule B hereto which also
satisfy paragraphs (c) through (q) above, shall be
deemed acceptable to Purchaser, subject to any
limitations in such Schedule B;

provided, however, that Seller and Purchaser may agree
in writing that any Receivable that would otherwise be
an Ineligible Receivable shall be treated for all
purposes as an Eligible Receivable.

Initial Funding Date. The date that Purchaser makes its
initial Purchase of Receivables, in accordance with Section
2.1, which, unless otherwise agreed to by the parties in
writing, shall be January 28, 1999.

LIMEAN Rate-One Month. Shall mean, for purposes solely of
calculation of the Collection Agent Fee, the London Interbank
Mean Rate (LIMEAN) for one-month deposits in U.S. Dollars that
appears on the London Interbank Rates Page (referenced as
LIUSO1M) of the Bloomberg News Service (or any other page that
may replace any such page on such service in the reasonable
judgment of Purchaser) for the Business Day of any such
Collection Agent Fee payment.

LIBOR Rate-Two Month. Shall mean for any Purchase, the
London Interbank Offered Rate (LIBOR) for two-month deposits in
U.S. Dollars that appears on Page 3745 of the Bloomberg News
Service (or any other page that may replace any such page on
such service in the reasonable judgment of Purchaser) on the
third Business Day immediately preceding a Funding Date.

Lien. A mortgage, pledge, lien, security interest or other
charge or encumbrance of any kind (including without limitation
any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any
security interest).

Net Purchase Price. [ * ].

Notices. All notices, requests, demands and other
communications provided for under this Agreement.

Obligor. Each customer to whom Seller has sold Products or
provided Services and who has agreed to pay money to Seller
therefor whether or not pursuant to a Contract.

Officer's Certificate. A certificate executed on behalf of
Seller by its chief financial officer, treasurer or other
authorized officer.

Outstanding Balance. With respect to any Sold Receivable
as of any date, the total outstanding principal balance thereof
as of such date.

Outstanding Eligible Receivables. As at any moment, all
Eligible Receivables which are then outstanding (i.e., not yet
paid by their respective Obligors).

Party. Seller or Purchaser, as defined.

Person. Natural persons, corporations, limited
partnerships, general partnerships, joint stock companies,
joint ventures, incorporated or unincorporated associations,
companies, limited liability companies, trusts or other
organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof, or any other
entity of any kind.

Prime Rate. The prime rate as published in The Wall Street
Journal. The Prime Rate will change and take effect for
purposes of this Agreement on the day of any change in the
prime rate published in The Wall Street Journal.

Products. As defined in the Recitals to this Agreement.

Purchase. A purchase of Receivables made by Purchaser
pursuant to Section 2.1.

Receivables. As defined in the Recitals to this Agreement.

Receivables Purchase Settlement Statement. A statement
substantially in the form of Exhibit II to be executed by
Seller and Purchaser, prepared in accordance with Section 2.1.C
and other provisions of this Agreement.

Releases. The termination statements or other documents
that are filed with the various Secretaries of State or other
jurisdictions for the purpose of releasing any security
interests that have been filed or perfected through the filing
of one or more Financing Statements.

Request for Information or Copies. The documents that are
submitted to the various Secretaries of State or other
jurisdictions for the purpose of ascertaining whether or not
any financing statements, tax liens, judgment liens or other
filings have been filed with respect to some item of property.

Secretary of State. Any Secretary of State, or any person
acting in an official capacity for such person or for other
jurisdictions, elected or appointed, to receive filings of
Financing Statements, articles of

[ * ] Confidential portions omitted and filed separately
with the Securities and Exchange Commission.

incorporation or other documents pertaining to the business
structure or operation of any of the entities referred to in
this Agreement.

Services. As defined in the Recitals to this Agreement.

Settlement Date. The first Business Day immediately
preceding each Funding Date, and such other dates as may be
agreed to in writing by Seller and Purchaser.

Sold Receivable. A Receivable purchased by Purchaser until
paid in full by the Obligor.

Status Report. As defined in Section 3.2.B.

Subsidiary. With respect to any Person, any corporation,
association or other business entity of which more than 50% of
the total voting power of shares of common stock or units of
ownership or beneficial interest entitled to vote in the
election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such
Person.

Successor Collection Agent. As defined in Section 3.1.C.

Termination Date. As defined in Section 11.1.

UCC. The California Uniform Commercial Code.

ARTICLE 2

Amount and Terms of Purchase Commitments

Section 2.1. Purchase of Receivables.

A. Sale; Effective Date of Sale.

(i) Generally. On each Funding Date, Purchaser shall
Purchase the Eligible Receivables from Seller, in accordance
with the terms hereof, that Purchaser has elected, in its sole
discretion, to Purchase. Purchaser's decision to make a
Purchase hereunder will not be binding until the funds are
actually paid. A condition of each Purchase on any Funding Date
shall be delivery by Seller of the Receivables Purchase
Settlement Statement required pursuant to Section 2.1.C on the
Settlement Date. No Purchase shall occur after the Facility
Termination Date or if Purchaser exercises its rights under
Section 12.2.

(ii) Limitations. Notwithstanding anything herein,
Seller shall have no obligation to sell, and Purchaser shall
have no obligation to Purchase, any Receivables: (1) on any
dates other than the Funding Dates, and (2) which fail to
comply with the terms hereof.

B. Purchase; Transfer of Receivables. Each Purchase
hereunder shall take place on the applicable Funding Date, at
the office of Seller at 3050 Bowers Avenue, Santa Clara, CA
95054, or such other place as may be mutually agreed upon by
Seller and Purchaser. Purchaser shall purchase the applicable
Receivables on any Funding Date for an aggregate purchase price
equal to the Net Purchase Price of the Eligible Receivables
reflected on the Receivables Purchase Settlement Statement
prepared in connection with such Purchase. Seller agrees
further that, at all times during the term of this Agreement,
the aggregate cumulative amount of all Net Purchase Prices
received by Seller in respect of the then Outstanding Eligible
Receivables, minus all Collections received thereon (the
"Balance"), shall not exceed One Hundred Million Dollars
($100,000,000) (the "A/R Limit"). Title to all Receivables
which are acquired by Purchaser shall pass to Purchaser on the
applicable Funding Date. Each Purchase shall be made without
recourse, except as specifically provided herein.

C. Receivables Purchase Settlement Statements. On each
Settlement Date, Seller shall execute a Receivables Purchase
Settlement Statement, dated as of such date, which, among other
things: (i) assigns and transfers to Purchaser, effective as of
the Funding Date, all right, title and interest of Seller in
and to the Sold Receivables described in the schedule attached
to such Receivables Purchase Settlement Statement, free and
clear of all security interests, liens, charges, encumbrances
and rights of others, other than the respective Obligor's
interest in the Products and/or Services, as appropriate,
relating thereto, (ii) includes copies of all invoices and a
summary of all sales resulting in Sold Receivables, and a
calculation of the Eligible Receivables to be sold, a schedule
of the Sold Receivables, and the Net Purchase Price, and (iii)
provides such other information as Purchaser may reasonably
request at least five (5) days in advance of such Settlement
Date for the purpose of effecting the transactions contemplated
hereby.

D. Collateral Assignment. Certain of the Obligors have
granted Seller a Lien on certain of such Obligor's assets as
security for the obligations of such Obligor to Seller. On or
prior to each Settlement Date, Seller shall deliver to
Purchaser, assignments of all security agreements, instruments
or other documents pursuant to which such Obligors have granted
Seller such a Lien in its assets.

E. Power of Attorney. Seller hereby grants to Purchaser
an irrevocable power of attorney, with full power of
substitution, coupled with an interest, to take in the name of
Seller or in Purchaser's own name all steps necessary or
advisable to (i) whether or not an Event of Default has
occurred and is continuing, endorse and negotiate any writing
or other right of any kind held or owned by Seller or
transmitted to or received by Purchaser as payment on account
or otherwise in respect of any Sold Receivables, and (ii)
effective upon the occurrence and during the continuance of any
Event of Default, enforce, foreclose, demand or accelerate on
any writing or other right of any kind held or owned by Seller
or transmitted to or received by Purchaser as payment on
account or otherwise in respect of any Sold Receivable.

ARTICLE 3

Collections; Maintenance of Records;
Disbursements of Collections

Section 3.1. Collection Procedure.

A. Appointment of Seller as Collection Agent. Purchaser
hereby appoints Seller to act as Collection Agent with respect
to Sold Receivables and Seller hereby accepts such appointment
until a Successor Collection Agent is appointed in accordance
with the terms hereof.

B. Duties and Standard of Care as Collection Agent.

(1) The Collection Agent will endeavor to collect the
amount owing to Purchaser on each Sold Receivable in accordance
with terms hereof, as and when the same becomes due, at
Seller's cost and expense and as agent for Purchaser, but
subject to the right of Purchaser to direct and control such
activities in accordance with the terms hereof.

(2) In performing its functions and duties on behalf
of Purchaser as the Collection Agent, Seller shall exercise the
same care that it would exercise in the collection of
Receivables for its own account, in accordance with, among
other things, Seller's current Collection Procedures attached
hereto as Exhibit IV, which standard of care shall not be less
than the standard of care prevalent in the industry in which
Seller engages. Collection Agent may amend, from time to time,
its Collection Procedures with the consent of Purchaser, such
consent not to be unreasonably withheld.

(3) The Collection Agent may allow such Credit
Adjustments for Purchaser's account as the Collection Agent may
determine in good faith to be either (i) appropriate to
facilitate maximum Collections or (ii) required by applicable
law or any applicable Contract and may receive any Products
relating thereto, subject to Purchaser's aforesaid interests,
as may be returned or rejected by, or repossessed from, the
Obligors; provided, however, that any Credit Adjustment shall
be reflected in a Status Report or other writing delivered by
Collection Agent to Purchaser prepared for the period in which
the Credit Adjustment was made,

and the amount of any such Credit Adjustment shall be paid to
Purchaser in full, in good funds, on each Collection Settlement
Date. With respect to each Defaulted Receivable, the
Collection Agent shall have the power and authority, on behalf
of Purchaser, to take action in accordance with Seller's
standard collection policies (including, in the case of any
such Receivable in respect of which a security interest in
Products shall have been obtained, the repossession and resale
of such Products). Purchaser may request, to the extent
reasonable, from time to time information relating to any
Defaulted Receivable. A Collection Agent other than Seller may
also make Credit Adjustments for Purchaser's account with the
consent of Purchaser. Any such Credit Adjustment made pursuant
to clause (ii) above by a Collection Agent other than Seller,
shall be treated the same as a Credit Adjustment made by Seller
as Collection Agent, including for purposes of requiring
payment or credit by Seller.

(4) In the enforcement or collection of any Sold
Receivable, the Collection Agent must obtain Purchaser's prior
written consent to name Purchaser as a party in any legal
proceeding; provided, however, that nothing contained herein
shall limit Purchaser's right, exercisable in its sole
discretion, following demand made by Purchaser on Seller and
Seller's refusal or inability to proceed against an Obligor, to
sue or proceed against any Obligor in its own name at any time
upon two (2) days prior written notice to Seller after the 75th
day after the applicable Funding Date. Moreover,
notwithstanding the foregoing, (i) following the occurrence and
during the continuance of any Event of Default after notice to
Seller, (ii) if Seller has determined in good faith that a Sold
Receivable is uncollectible, or (iii) if (1) an Obligor becomes
insolvent or becomes subject to the Federal Bankruptcy Code,
any insolvency law or any similar law, as a debtor, (2) an
Obligor makes a general assignment for the benefit of
creditors, or (3) a receiver is appointed for any assets of an
Obligor; no demand by Purchaser on Seller shall be required
before Purchaser may sue or proceed against any Obligor in its
own name.

(5) Purchaser may at any time with contemporaneous
notice to Seller, contact any Obligor utilizing the form of
verification letter attached hereto as Schedule C, for any
purpose related to the performance of audits and verification
analyses, and the determination of account balances and other
data maintained by Seller. Except for sending the verification
letter to the Obligors and except as otherwise provided herein,
Purchaser shall not contact any Obligor with respect to the
transactions contemplated herein. Purchaser may at any time
following (i) the occurrence and during the continuance of an
Event of Default; or (ii) the termination of Seller as
Collection Agent: (a) notify any Obligor of the purchase by
Purchaser of any Sold Receivable hereunder; (b) direct any
Obligor to make all payments in respect of Sold Receivables
directly to Purchaser at an address designated by Purchaser, or
to a third party or a bank or depositary designated by
Purchaser; and/or (c) proceed directly against any Obligor,
either with respect to the collection of any Sold Receivable or
any related matter.

(6) All Collections received by the Collections Agent
on and prior to the related First Collection Settlement Date
shall be paid on each Wednesday (for Collections received by
the Collection Agent during the immediately preceding calendar
week), directly to the Purchaser as provided in Section 3.3.
All Collections received by the Collections Agent after the
related First Collection Settlement Date, shall be paid within
two Business Days directly to the Purchaser as provided in
Section 3.3. On any Collection Settlement Date, Seller shall
remit to Purchaser, for Purchaser's own account, all amounts
representing Credit Adjustments which relate to the Sold
Receivables which are applicable to each such Collection
Settlement Date. All payments and all amounts received in
settlement, adjustment or liquidation of any Sold Receivable
will be credited by Purchaser on the Business Day good funds
are received by Purchaser. All payments in respect of Sold
Receivables of a particular Obligor shall be applied against
specific items of Sold Receivables as specifically identified
in writing by the Obligor thereon. If an Obligor fails to so
specify, then the Collection Agent shall use its best efforts,
including contacting such Obligor, to determine the appropriate
application of the payment.

C. Termination of Appointment. Upon the occurrence and
continuance of an Event of Default or upon termination of this
Agreement, Purchaser may at any time immediately terminate
Seller's appointment as the Collection Agent by delivery of a
notice of such termination in writing to Seller, provided,
however, that if there exists no Event of Default, Purchaser's
termination of Seller as Collection Agent shall be effective
fifteen (15) days after Purchaser's giving of notification
thereof to Seller. Upon the termination of Seller as the

Collection Agent, without limitation, (i) Purchaser, or a
financial institution designated by Purchaser (Purchaser in
such capacity or such third party, a "Successor Collection
Agent"), shall administer the administrative, servicing and
collection functions with respect to Purchases from Seller in
any commercially reasonable manner and in accordance with this
Agreement; (ii) Purchaser shall, at any time thereafter, be
entitled to notify the Obligors on any Sold Receivables to make
payment of amounts due thereunder directly to Purchaser at an
address designated by Purchaser or to such third party or to a
bank or other depositary designated by Purchaser; and (iii)
Seller shall, at its own expense, (a) if so requested by
Purchaser, endorse each instrument, if any, evidencing any Sold
Receivable to Purchaser in such manner as Purchaser shall
reasonably direct and (b) perform any and all acts and execute
any and all documents as may be reasonably requested by
Purchaser in order to effect the purposes of this Agreement and
the Purchase of Receivables and to perfect and protect the
ownership interest of Purchaser in the Sold Receivables.

Section 3.2. Records and Reports.

A. Maintenance of Records. Until the earlier of the
termination of this Agreement or until each Sold Receivable has
been paid in full, Purchaser shall have the right (but not the
obligation), for the purposes hereunder described, to enter
upon Seller's premises from time to time during normal business
hours following three (3) Business Days notice to Seller
(unless an Event of Default has occurred and is continuing, in
which event no advance notice will be required hereunder, but
such entry shall be during normal business hours) during the
term of this Agreement. The purposes for which Purchaser may
enter pursuant to the terms of this Section 3.2 are as follows:
(i) to examine Seller's books, accounts, records or other
papers pertaining to Sold Receivables and otherwise pertaining
to the transactions which are the subject of this Agreement,
and for no other purposes; (ii) to examine the Collateral;
(iii) to appraise the Collateral as security; (iv) to verify
the condition of the Collateral; (v) to verify that all
Collateral has been properly accounted for; and (vi) to verify
that Seller is in compliance with all terms and provisions of
this Agreement; provided, in all cases, that Purchaser shall
have no right to examine any documents covered by attorney-
client privileges or attorney work-product. Any fees, costs or
expenses incurred by Purchaser in connection with such
inspections, audits and examinations as aforesaid, shall be the
sole responsibility of Purchaser (unless an Event of Default
has occurred and is continuing, in which event Seller shall be
solely responsible for such fees, costs and expenses). From
time to time upon the reasonable written request of Purchaser,
Seller, at its own expense, will deliver to Purchaser, or any
agent selected by Purchaser (which agent Seller shall have
consented to, such consent not to be unreasonably withheld), as
the case may be: (i) a schedule of the Sold Receivables (or
Sold Receivables relating to such Obligors as Purchaser may
specify) sold by Seller to Purchaser indicating as to each such
Sold Receivable information as to the Obligor thereon, the
Outstanding Balance thereof, the location of any Contract
evidencing such Sold Receivable and such other information as
Purchaser may reasonably deem appropriate; and (ii) copies of
any such Contract and such records and invoices pertaining
thereto and evidence thereof as Purchaser may reasonably deem
necessary to enable Purchaser to enforce its rights thereunder.
At Purchaser's request, Seller shall: (a) identify and hold as
agent for Purchaser at the offices of Seller listed in Schedule
A hereto (including without limitation for the purpose of
protecting Purchaser's ownership interest therein) all books,
records and documents evidencing or relating to the Sold
Receivables, including any underlying Contracts, and maintain a
current record of all Sold Receivables owned by Purchaser at
any time in such reasonable detail and in form and substance
satisfactory to Purchaser; (b) mark the legend "Receivables
assigned to Deutsche Financial Services (UK) Limited, under a
Receivables Purchase Agreement, dated as of January 26,1999" on
Seller's aging schedule applicable to the Sold Receivables, and
upon the occurrence of an Event of Default, on such instruments
as Purchaser may from time to time reasonably designate; and/or
(c) maintain and implement administrative and operating
procedures (including without limitation an ability to recreate
records evidencing the Sold Receivables in the event of the
destruction of the original records), and keep and maintain all
documents, books, records and other information reasonably
necessary for the collection of the Sold Receivables for
Purchaser.

B. Status Reports. Seller shall submit to Purchaser a
Status Report on the dates specified in the immediately
following sentence, substantially in the form of Exhibit V
("Status Report") consisting of information concerning
Collections, Credit Adjustments, and Defaulted Receivables.
Seller shall submit a Status Report to Purchaser (i) no later
than the thirty-fifth (35th) day after a Funding Date, with
respect to the

30-day period which commenced on such Funding Date; (ii) no
later than the sixty-fifth (65th) day after a Funding Date,
with respect to the 30-day period immediately following the 30-
day period referenced in (i); and (iii) no later than two (2)
days after a First Collection Settlement Date, with respect to
the 15-day period immediately preceding such First Collection
Settlement Date. The Status Report shall include such other
reports as Purchaser shall reasonably request. If any date for
the delivery of a Status Report is not a Business Day, then
such report shall be due on the next succeeding Business Day.

Section 3.3. Manner and Time of Payments.

A. Payments to Seller. (i) On the Funding Date. With
respect to any Funding Date, so long as Purchaser receives the
Receivables Purchase Settlement Statement by 10:00 a.m.,
Pacific time, on the related Settlement Date, Purchaser shall
pay the amounts that are payable to Seller hereunder on such
Funding Date, as applicable, in immediately available funds
deposited to the account of Seller listed in Section 13.2
hereof, no later than 11:30 a.m., Pacific time, and subject to
the provisions of any other information reasonably requested by
Purchaser from Seller in connection therewith in effect on or
prior to such date. (ii) Collection Agent Fee. Purchaser's
payment of the Collection Agent Fee to Seller shall be made in
immediately available funds deposited to the account of Seller
listed in Section 13.2 hereof, no later than 2:00 p.m., Pacific
time, on the dates and as otherwise provided under the terms of
Article 4 hereof. (iii) Generally. The foregoing
notwithstanding, any amounts due Purchaser from Seller
hereunder or in connection herewith, may be deducted by
Purchaser from any amounts owed to Seller, with notice to
Seller.

B. Payments to Purchaser. Seller shall pay the amounts
that are payable to Purchaser hereunder, in immediately
available funds, deposited to the account of Purchaser listed
in Section 13.2 hereof, no later than 11:30 a.m., London time,
on any Collection Settlement Date, or as otherwise provided,
subject to the provisions of any Status Report, or other
information reasonably requested by Purchaser from Seller in
connection therewith in effect on or prior to such date. In no
way limiting the foregoing, Seller agrees to pay Purchaser the
following:

(i) Delinquent Receivables. If the Outstanding Balance
of a Sold Receivable has not been paid in full on or before the
[ * ] day after the Funding Date on which the Purchaser
purchased such Sold Receivable, then, the Seller shall pay to
the Purchaser an amount equal to the Payment Percentage of the
unpaid Outstanding Balance of such Sold Receivable for each day
after such [ * ] day that the Outstanding Balance is greater
than zero until the earlier of (A) the date on which the Seller
notifies Purchaser that it has determined in good faith that
such Sold Receivable is uncollectible, (B) the date that is the
[ * ] day after the Funding Date on which the Purchaser
purchased such Sold Receivable, and (C) the date on which the
Outstanding Balance is reduced to zero. Any amount required to
be paid under this paragraph shall be paid to the Purchaser on
the immediately following Collection Settlement Date. As used
herein, the "Payment Percentage" [ * ].

Section 3.4. Eurodollar Deposits Unavailable or Rate
Unascertainable. In the event that on or prior to the date
the LIBOR Rate-Two Month is determined, Purchaser shall have
determined (which determination shall be conclusive and binding
on the parties hereto) that by reason of circumstances
affecting the interbank eurodollar market, adequate and
reasonable means do not exist for ascertaining the LIBOR Rate-
Two Month applicable to a Purchase, Purchaser shall promptly
give notice of such determination to Seller, and any such
Purchase shall be made using a Discount based upon the Prime
Rate less the difference in the per annum interest rate between
the Prime Rate (at the date the LIBOR Rate-Two Month ceased to
exist) and the average of the LIBOR Rate-Two Month over the 30-
day period immediately preceding the date the LIBOR Rate-Two
Month ceased to exist.

ARTICLE 4

Collection Agent Fee

[ * ] Confidential portions omitted and filed separately
with the Securities and Exchange Commission.

Section 4.1. Collection Agent Fee. A fee shall be
payable by Purchaser to Seller in its capacity as Collection
Agent (the "Collection Agent Fee"), in an amount equal to [ * ]
on the average daily balance of the Collections received by
Purchaser during the 30-day period or the 15-day period, as
applicable, preceding each Collection Agent Fee payment date
specified in the immediately following sentence. The
Collection Agent Fee shall be payable, in arrears, on that date
which is thirty (30) days after a Funding Date (for the 30-day
period preceding such payment date), the date which is 60 days
after a Funding Date (for the 30-day period preceding such
payment date), and the First Collection Settlement Date ( for
the 15-day period preceding such payment date); provided that
if any of such dates is not a Business Day, then on the next
succeeding Business Day). In no event, however, shall any
Collection Agent Fee be payable to Seller for Collections
relating to the applicable Sold Receivables received after the
related First Collection Settlement Date. The Collection Agent
Fee is to be paid by the Purchaser to the Seller as Collection
Agent in consideration of Seller's agreement to serve as a
Collection Agent and as compensation for such Collection
Agent's services. Any amounts due to Purchaser from Seller
hereunder, may be deducted from any Collection Agent Fee and
credited to Purchaser, upon notice to Seller. Following the
termination of Seller as a Collection Agent, Seller shall not
continue to earn any Collection Fees.

ARTICLE 5

Security Interest

Section 5.1. Sale; Grant of Security Interest. The
parties hereto intend that the Purchase by Purchaser of Sold
Receivables pursuant to this Agreement shall constitute a sale
under all applicable laws. Notwithstanding such intent, if for
any reason the Sold Receivables are not under applicable law
deemed to have been Purchased by Purchaser, Purchaser shall be
deemed to have made a loan to Seller in the amount of the
purchase price paid to Seller, secured by the following grant
of security in Seller's assets. In the event of any such
designation as a loan, all provisions of this Agreement
referring to the sale of the Sold Receivables shall be
construed as the context may require as references to the grant
of a security interest in such Receivables. In such regard and
in any event to secure all of Seller's current and future debts
to Purchaser under this Agreement or any side letters entered
into between Purchaser and Seller in connection with this
Agreement, whether now or hereafter existing, due or to become
due, direct or indirect, or absolute or contingent,
indemnification obligations pursuant to Section 10.1 and
payments on account of Collections received, Seller hereby
assigns and grants to Purchaser a security interest in all of
Seller's right, title and interest now or hereafter existing
in, to and under (i) all Sold Receivables, now owned or
hereafter acquired, (ii) all contract rights, chattel paper,
security agreements, instruments, documents of title, deposit
accounts, reserves and general intangibles, now owned or
hereafter acquired, all returned, reclaimed or repossessed
inventory and Products, in each case securing or otherwise
supporting such Sold Receivables, and (iii) all proceeds of any
of the foregoing (the "Collateral"). To the extent so defined,
the above assets shall have the same meanings as in Article 9
of the UCC. Seller will hold all of the Collateral in trust
for Purchaser and will account for and remit directly to
Purchaser all such proceeds when payment is required under
terms of this Agreement. Purchaser's lien or security interest
will not be impaired by any payments Seller may make to any
other person or entity. This Agreement shall constitute a
security agreement under applicable law with regard to the
security interest granted pursuant to this Section 5.1.

ARTICLE 6

Seller's Affirmative Covenants

Seller covenants and agrees that, unless Purchaser shall
otherwise give its express prior written consent, until the
earlier of the termination of this Agreement or each Sold
Receivable has been paid in full, Seller shall comply with and
perform in accordance with all covenants contained in this
Article 6.

Section 6.1. Financial Statements and Other Reports.
Seller will maintain a system of accounting established and
administered in accordance with sound business practices to
permit preparation of financial statements of Seller in
conformity with GAAP. Seller will deliver to Purchaser:
A. as soon as available and in any event within 50
days after the end of each of the first three quarters of each
fiscal year of Seller, consolidated balance sheets of Seller
as of the end of such quarter and
[ * ] Confidential portions omitted and filed separately
with the Securities and Exchange Commission.

consolidated statements of income and of cash flows of Seller
for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, certified by the
Treasurer of Seller; provided that Seller may satisfy this
obligation by filing its Form 10-Q for such fiscal quarter with
the Securities and Exchange Commission;

B. as soon as available and in any event within 105
days after the end of each fiscal year of Seller a copy of the
annual report of such year for Seller containing consolidated
financial statements for such year certified by Seller's
independent public accountants; provided that Seller may
satisfy this obligation by filing its Form 10-K for such fiscal
year with the Securities and Exchange Commission;

C. promptly after the sending or filing thereof,
copies of all reports which Seller sends to its security
holders generally, and copies of all registration statements
which Seller files with the Securities and Exchange Commission
or any national securities exchange (other than those on Form
S-8); provided that Seller may satisfy this obligation by
filing its reports with the SEC;

D. promptly upon any vice president or president of
Seller obtaining knowledge or becoming aware of an occurrence
of a breach of Seller's obligations under this Agreement which
would give rise to an Event of Default, an Officer's
Certificate specifying the nature and period of existence of
any such breach, condition or event, or specifying the notice
given or action taken by such holder or Person and the nature
of such claimed breach, event or condition, and what action, if
any, Seller has taken, is taking and proposes to take with
respect thereto;

E. thirty (30) days' notice prior to Seller's changing
its name or any name under which it does business or relocating
its chief executive offices or relocating the books, records
and documents evidencing the Receivables owned or to be
purchased by Purchaser hereunder;

F. prior to the implementation of any material change
in Seller's policies, procedures or practices with respect to
extending credit to its customers, making Credit Adjustments or
collecting amounts owed by customers, in each case that would
affect Sold Receivables, a written description of such proposed
change at least ten (10) days in advance of such change;

G. with reasonable promptness, such other information,
reports or documents concerning the Receivables which are owned
or to be purchased by Purchaser hereunder, the underlying
Contracts, or the credit or collection policies, practices and
procedures of Seller, as Purchaser may from time to time
reasonably request; and

H. such other information respecting the financial
condition or operations of Seller as Purchaser may from time to
time reasonably request.

Section 6.2. Corporate Existence, etc. Subject to Section
7.5 hereof, Seller will at all times preserve and keep in full
force and effect its corporate existence and all material
licenses, rights and privileges relating to Sold Receivables,
and qualify and remain qualified as a foreign corporation in
each jurisdiction in which such qualification is necessary to
avoid a material adverse effect on the validity, enforceability
and collectibility of Sold Receivables.

Section 6.3. Compliance with Laws, etc. Seller will
comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which would
adversely affect the validity, enforceability or collectibility
of Sold Receivables.

Section 6.4. Transfer of Receivables. Seller shall take
all steps necessary or, in the reasonable opinion of Purchaser,
advisable to validate or protect the ownership interest of
Purchaser in, or to defeat the assertion by any third party of
any adverse claims with respect to, the Sold Receivables or any
underlying Contracts. If an Event of Default by Seller
hereunder has occurred and is continuing, Seller hereby
irrevocably authorizes Purchaser to execute and deliver, in
Seller's name and on Seller's behalf, such

instruments and documents (including bills of sale and
assignments) necessary or desirable to evidence or protect
Purchaser's ownership interest in the Sold Receivables.
Regardless of whether an Event of Default by Seller has
occurred and is continuing, Seller hereby irrevocably
authorizes Purchaser to execute and file, in Seller's name and
on Seller's behalf, financing statements (including amendments
and continuation statements) under the UCC (or similar law
where the UCC is not enacted) in such jurisdictions where it
may be necessary to validate or protect Purchaser's position as
owner of, or, as provided in Section 5.1, secured party with
respect to, such Sold Receivables. Seller shall execute and
deliver such additional documents and shall take such further
action as Purchaser may reasonably request to effect or
evidence the transfer of the Sold Receivables and shall execute
and deliver to Purchaser such powers-of-attorney as may be
necessary or appropriate to enable Purchaser to endorse for
payment any check, draft or other instrument delivered in
payment of any amount under or in respect of a Sold Receivable.
If, at any time, Seller receives any cash or checks, drafts or
other instruments for the payment of money on account or
otherwise in respect of Sold Receivables, Seller shall
segregate such cash and other items, hold such cash and other
items (properly endorsed, where required, so that such items
may be collected by Purchaser) in trust for Purchaser, and
promptly paid directly to Purchaser in accordance with Section
3.1.B(6).

Section 6.5. Assignment of Contracts; Instruments. Seller
hereby assigns to Purchaser all rights of Seller under each
Contract underlying a Sold Receivable relating to the
collectibility of payments thereunder, security interests and
other liens created in connection therewith and the enforcement
thereof, but Purchaser does not and shall not thereby assume
any obligations of Seller under any such Contract. Such
assignment shall include without limitation security interests
in favor of Seller in any property (including without
limitation any Goods) securing any Sold Receivable, whether
pursuant to the contract underlying such Sold Receivables or
otherwise, and all terms and conditions of this Agreement shall
be deemed applicable to such assigned security interests
generally in the same manner and to the same extent as applied
to the related Sold Receivable. In the event any Sold
Receivable becomes, either at the time of creation of such Sold
Receivable or any time thereafter, evidenced by a promissory
note or other document or instrument (other than a Contract),
Seller will promptly endorse and physically deliver such
promissory note, document or instrument to Purchaser.

ARTICLE 7

Seller's Negative Covenants

Until the earlier of the termination of this Agreement or
each Sold Receivable has been paid in full, unless Purchaser
shall otherwise give prior written consent, Seller will perform
all covenants contained in this Article 7.

Section 7.1. Character of Business. Seller will make no
material change in its Collection Procedures that would
adversely affect the validity, enforceability or collectibility
of the Sold Receivables or materially adversely affect the
ability of Seller to perform its obligations hereunder without
the consent of Purchaser.

Section 7.2. Modification of Contracts. Except as set
forth in Section 3.1.B(3), without the prior written consent of
Purchaser, Seller will not amend, modify or waive any term or
condition of any Contract underlying any Sold Receivable, which
amendment, modification or waiver would adversely affect the
validity, enforceability or collectibility of such Receivable
or adversely affect Purchaser's right to collect any Sold
Receivables.

Section 7.3. Quality of Receivables. Seller will not sell
to Purchaser any Receivable that is not an Eligible Receivable
on the date of sale. Seller will not sell to Purchaser any
Receivable, that, on the date of sale : (i) is an Ineligible
Receivable; (ii) is evidenced by a promissory note or other
document or instrument (other than a Contract); (iii) does not
conform with applicable laws, rules or regulations or is based
on a Contract that does not conform in all material respects
with applicable laws, rules or regulations; (iv) is a Defaulted
Receivable; (v) is a Receivable with respect to which Seller is
engaged in any dispute or warranty claim or which is subject to
any lien, claim, security interest, offset, counterclaims or
defense; (vi) permits the Obligor to pay less than the
Outstanding Balance for any reason other than a Credit
Adjustment; (vii) does not satisfy the requirements of Sections
8.4 and 8.8 hereof in all material respects; or (viii) the
Purchase of

which by Purchaser, or the sale of which by Seller, is subject
to any order, judgment or decree of any court, arbitrator or
similar tribunal or governmental authority, or is the subject
of any proceedings before any such court, arbitrator or similar
tribunal or government authority purporting to enjoin or
restrain Purchaser from making any Purchase, Seller from
selling such Receivable or the Collection Agent or Purchaser
from making any Collection of such Receivables. Purchaser may
from time to time, in its discretion, upon advance written
notification to Seller, withdraw its approval of any or all of
the Obligors, including but not limited to those listed on
Schedule B hereto.

Section 7.4. Financial Statements. Seller will not
prepare, or permit the preparation of, any financial statements
which shall account for the transactions contemplated hereby in
a manner that is inconsistent with Purchaser's ownership
interest in the Sold Receivables.

Section 7.5. Restriction on Fundamental Changes. Seller
can merge with another Person if immediately thereafter, giving
effect to such merger, no Event of Default exists and either
(i) the Seller survives the merger or (ii) the successor agrees
to be bound by this Agreement.

Section 7.6. Seller's Interest. Seller will not retain
any interest in any Sold Receivable hereunder and each sale of
a Sold Receivable hereunder shall be of all of Seller's right,
title and interest in such Sold Receivable.

Section 7.7. Negative Pledge. Seller will not mortgage,
pledge, grant or permit to exist a security interest or Lien
caused by it, in or upon any of the Sold Receivables or the
Collateral.

ARTICLE 8

Seller's Representations and Warranties

In order to induce Purchaser to enter into this Agreement
and to make the Purchases, Seller represents and warrants to
Purchaser that the following statements are true, correct and
complete in all material respects (except to the extent such
representations and warranties are already qualified as to
materiality in which case they are true, correct and complete)
as of the date hereof and as of the date of each sale of
Receivables hereunder (all representations and warranties
concerning Receivables shall be made solely as of the date of
the sale of such Receivables hereunder):

Section 8.1. Organization, Powers and Good Standing.

A. Organization and Powers. Seller is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Seller has all requisite
corporate power and authority to own and operate its
properties, to carry on its business as such business is now
conducted and as it is proposed to be conducted hereunder, to
enter into this Agreement and to carry out the transactions
contemplated hereby, except where failure to have such licenses
and permits would not have a material adverse effect on the
financial condition or assets of Seller.

B. Good Standing. Seller is in good standing wherever
necessary to carry on its present business and operations,
except in jurisdictions in which the failure to be in good
standing has and will have no material adverse effect on the
conduct of the business of Seller or any adverse effect on the
validity, enforceability or collectibility of any Sold
Receivable.

Section 8.2. Authorization of Sales, etc.

A. Authorization of Sales. The execution, delivery and
performance of this Agreement and the sales of Receivables sold
and to be sold to Purchaser hereunder and the grant of the
security interest in the Collateral have been duly authorized
by all necessary corporate action by Seller.

B. No Conflict. The execution, delivery and performance
by Seller of this Agreement and the sales of Receivables do not
and will not: (i) violate any provision of law applicable to
Seller, the Certificate of Incorporation or Bylaws of Seller,
or any order, judgment or decree of any court or other agency
of government binding on Seller; (ii) conflict with, result in
a breach of or constitute (with due notice or lapse of time or
both) a default under or permit an acceleration or increased
amortization of any material obligation of Seller; (iii) result
in or require the creation or imposition of any Lien, charge or
encumbrance of any nature whatsoever upon any of the properties
or assets of Seller except as provided herein or pursuant to
the terms hereof; or (iv) require any approval of stockholders
or any approval or consent of any Person under any obligation
of Seller or Contract to which Seller is a party other than
approvals or consents that have been obtained and disclosed in
writing to Purchaser.

C. Governmental Consents. The execution, delivery and
performance by Seller of this Agreement and the Purchases of
Receivables do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with
or by, any federal, state or other governmental authority or
regulatory body or other Person, other than a filing with
certain Secretaries of State and other jurisdictions evidencing
the Purchase of Receivables hereunder, and no transaction
contemplated hereby requires compliance with any bulk sales act
or similar law.

D. Binding Obligation. This Agreement creates and
constitutes legal, valid and binding obligations of Seller,
enforceable in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency or similar
laws and principles of equity.

Section 8.3. No Material Adverse Change. Since January
20, 1999, there has been no material adverse change in the
business, operations, properties, or financial position of the
Seller and its subsidiaries taken as a whole.

Section 8.4. Protection of Ownership Interest. All
filings or other actions under the UCC have been made or taken
in each jurisdiction that are necessary or appropriate to
validate and perfect Purchaser's ownership interest in and
rights to collect any and all Sold Receivables and the proceeds
thereof; Purchaser has a valid and perfected ownership or
security interest in the Sold Receivables and the proceeds
thereof, free and clear of all security interests, liens,
charges, encumbrances or rights of others except as otherwise
expressly provided herein; and no effective financing statement
or other instrument similar in effect covering all or any part
of the Sold Receivables is currently on file or of record at
any location except as has been filed or recorded from time to
time in favor of Purchaser in accordance with this Agreement.

Section 8.5. Office Locations. As of the date hereof, the
chief executive office of Seller is located at the address of
Seller's business office appearing in Schedule A hereof, and
the books, records and documents evidencing the Receivables to
be sold hereunder are located at Seller's business offices
located at the address appearing in Schedule A hereof.

Section 8.6. Taxes, etc. Seller's federal tax
identification number is 94-1655526. There is no federal,
state or local law or ordinance (other than income or franchise
tax laws applicable to Purchaser generally) under which any
Receivable which is sold to Purchaser under this Agreement
shall be subjected to any property, excise, sales or other tax,
assessment or governmental charge other than income or
franchise taxes of Purchaser. To the extent any such
Receivable is subject to any such tax, assessment or
governmental charge, Seller hereby agrees to pay all such
taxes, assessments and governmental charges.

Section 8.7. Disclosure. No representation or warranty of
Seller contained in this Agreement or any other document,
certificate or written statement furnished to Purchaser by
Seller in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading;
provided that any projections, proforma or preliminary
financial information furnished are based on good faith
estimates and assumptions believed to be reasonable at the time
made and Purchaser acknowledges that such projections as to
future events are not to be viewed as facts and that actual
results for such period may differ from such projected results.
There is

no fact known to Seller (other than matters of a general
economic nature) that materially adversely affects the
business, operations, property, assets or condition (financial
or otherwise) of Seller and its Subsidiaries, taken as a whole,
that has not been disclosed herein or in such other documents,
certificates and statements furnished to Purchaser for use in
connection with the transactions contemplated hereby.

Section 8.8. Receivables Valid and Binding; No Litigation.
Each Receivable sold to Purchaser hereunder constitutes at the
time of sale the legal, valid and binding obligation of the
Obligor to Seller, subject to laws affecting the rights of
creditors generally. Each such Receivable complies at the time
of sale with the provisions of all applicable laws and
regulations, whether federal, state or local, applicable
thereto, other than provisions as to which the failure to
comply would not adversely affect the validity, enforceability
or collectibility of the Receivables, and satisfies at the time
of sale the requirements of Section 7.3 hereof in all respects.
Each such Receivable is denominated and payable in Dollars.
There are no known counterclaims or rights of set-off limiting
the right of Purchaser to collect the Outstanding Balance, as
adjusted for Credit Adjustments, of each such Receivable. To
the best of Seller's knowledge, there is no order, judgment or
decree of any court, arbitrator or similar tribunal or
governmental authority purporting to enjoin or restrain
Purchaser from making any Purchase, Seller from selling any
Receivable or the Collection Agent or Purchaser from making any
Collection, or which might otherwise adversely affect Seller's
ability to perform its obligations hereunder. To the best of
Seller's knowledge, there are no proceedings before any court,
arbitrator or similar tribunal or governmental authority
seeking to enjoin or restrain Purchaser from making any
Purchase, Seller from selling any Receivable or the Collection
Agent or Purchaser from making any Collection, or which might
otherwise adversely affect Seller's ability to perform its
obligations hereunder.

Section 8.9. Satisfaction of Conditions Precedent. At the
time of each Purchase hereunder, each of the conditions
precedent to such Purchase set forth in Article 9 will have
been (i) waived in writing by Purchaser, or (ii) satisfied.

ARTICLE 9

Conditions To Purchases

Section 9.1. Conditions to Initial Purchases. The
obligation of Purchaser to make its initial Purchase is, in
addition to the conditions precedent specified in Sections 9.2
and 9.3 hereof, subject to prior or concurrent satisfaction of
the following conditions. On or before the Initial Closing
Date, Seller shall deliver to Purchaser:

A. Good Standing, Etc. Evidence reasonably satisfactory
to Purchaser that Seller is duly organized and existing under
the laws of Seller's state of incorporation and in California;

B. Corporate Resolutions. Resolutions of the Board of
Directors of Seller approving and authorizing the execution,
delivery and performance of this Agreement and the sales of
Receivables to be made hereunder, certified as of the Initial
Funding Date by its corporate secretary or an assistant
secretary;

C. Signature and Incumbency Certificate. Signature and
incumbency certificates of the officers of Seller executing
this Agreement;

D. UCC Searches. A certificate copy of each Request for
Information or Copies (Form UCC-11) (or a similar search report
acceptable to Purchaser) listing the Financing Statements filed
with respect to the Collateral (or similar search reports for
jurisdictions where the UCC is not enacted), and showing that
no Financing Statements have been filed with respect to, and
presently cover, such Receivables (except those filed pursuant
to this Agreement); the foregoing notwithstanding, Purchaser
hereby confirms that with respect to the Initial Funding Date,
Purchaser shall obtain such searches required hereunder;

E. Agreement. Executed original of this Agreement;

F. Opinion of Counsel. Executed original of one or more
favorable written opinions of counsel, substantially in the
form of Exhibit I hereto, reasonably satisfactory to Purchaser,
dated as of the Initial Funding Date;

G. UCC-1s. Purchaser shall have received from Seller
acknowledgment copies of all Financing Statements (Form UCC-1)
filed with respect to the Collateral in each jurisdiction where
necessary or appropriate to perfect Purchaser's ownership
interest in such Collateral (or evidence of the satisfaction of
such similar filing or other requirements as may be so
necessary in each jurisdiction where the UCC is not enacted),
Purchaser hereby agreeing that with respect to the Initial
Funding Date, if Purchaser has received duly executed originals
of the Financing Statements required hereunder at least two (2)
days prior to the Initial Funding Date, then the acknowledgment
copies of such filings required hereunder will be acceptable if
received by Purchaser no later than ten (10) Business Days
after such Initial Funding Date;

H. Receivables Purchase Settlement Statement. As of the
Settlement Date in respect of the Initial Funding Date, Seller
shall deliver the Receivables Purchase Settlement Statement
required by Section 2.1.C;

I. Subordination Agreements. Subordination agreements in
form and substance acceptable to Purchaser from any and all
prior filers with conflicting security interests in the
Collateral; and

J. Other Documents. Such other documents, certificates,
submissions, instruments, and agreements as reasonably
requested by Purchaser relating to the transaction herein
contemplated.

Section 9.2. Conditions to All Purchases. The obligation
of Purchaser to make each Purchase, including the initial
Purchase, is subject to the following further conditions
precedent:

A. Purchaser shall have received, in accordance with the
provisions of Section 2.1 as of any Settlement Date, an
originally executed Receivables Purchase Settlement Statement
relating to such Purchase, signed by the chief executive
officer, the chief financial officer, the treasurer or any
other authorized officer or designee of Seller on behalf of
Seller.

B. As of the date of any Purchase:

1. The representations and warranties of Seller contained
herein shall be true, correct and complete in all material
respects on and as of the date of Purchase to the same
extent as though made on and as of that date;

2. All Receivables sold by Seller on such date hereunder
shall comply in all material respects with Section 7.3
hereof;

3. No event shall have occurred and be continuing or would
result from the consummation of the Purchase contemplated
by such Receivables Purchase Settlement Statement that
would constitute an Event of Default or permit the
acceleration or the increased amortization of the
obligations created, or but for the passage of time or the
giving of notice or both would constitute an Event of
Default or permit the acceleration or the increased
amortization of the obligations created, under this
Agreement or any other agreement to which Seller is a
party;

4. Seller shall have performed in all material respects
all agreements and satisfied all conditions which this
Agreement provides shall be performed by it on or before
such date of Purchase;

5. Seller shall have delivered such other and further
Receivables Purchase Settlement Statements as may be
required hereunder;

6. There shall not have occurred and be continuing an
Event of Default by Seller under this Agreement;

7. Seller shall have delivered such other and further UCC-
1s, amendments thereto and Subordination Agreements as
Purchaser shall deem reasonably necessary; and

8. Seller shall have delivered such other documents,
certificates, submissions, instruments, and agreements as
reasonably requested by Purchaser relating to the
transaction herein contemplated.

ARTICLE 10

Indemnities By Seller

Section 10.1. Right to Indemnification. Without prejudice
to any other rights that Purchaser may have hereunder or under
applicable law, Seller agrees to indemnify, pay and hold
Purchaser and the employees and agents of Purchaser
(collectively called the "Indemnitees") harmless from and
against, any and all liabilities, obligations, losses, damages
(including consequential damages, except as expressly set forth
below), penalties, actions, judgments, suits, claims, costs and
expenses (including without limitation the reasonable fees and
disbursements of counsel for such Indemnitees and reasonable
costs of investigation and accountants) (collectively,
"Indemnified Amounts"), which arise or result from: (i) any
breach by Seller of its duties hereunder individually or as the
Collection Agent, in connection with the collection of Sold
Receivables; (ii) any dispute, claim, offset or defense of any
Obligor (other than as a result of the Obligor's bankruptcy or
insolvency) to the payment of any Receivable owned by Purchaser
(including without limitation a defense based on such
Receivable or the underlying Contract not being the legal,
valid and binding obligation of such Obligor enforceable
against such Obligor in accordance with its terms), in either
case other than as a result of an act or omission of Purchaser
not required or permitted under this Agreement; (iii) any other
claim resulting from the sale of the Products and Services
underlying the Receivable (including without limitation any
warranty or product liability claims); or (iv) any breach by
Seller of any of the terms, covenants, conditions or
representations of this Agreement; excluding, in all cases
however, (A) Indemnified Amounts to the extent resulting from
gross negligence or willful misconduct on the part of such
Indemnitee, (B) consequential, indirect, punitive or exemplary
damages, except such damages which are imposed on the
Indemnitee in favor of any third party in connection with the
actions described in (i) through (iv) above, and (C) recourse
for uncollectible Receivables and all income and franchise
taxes on Purchaser; provided, further, that if an arbitrator or
court of competent jurisdiction in a final non-appealable order
determines that such Indemnified Amounts arose in part from
such Indemnitee's gross negligence or willful misconduct,
Seller shall reimburse such Indemnitee for the portion of such
claim not resulting from such Indemnitee's gross negligence or
willful misconduct. The obligations of Seller pursuant to this
Section 10.1 shall survive any termination of this Agreement.

Section 10.2. Notification of Potential Liability. Each
party will make good faith efforts to identify potential
situations involving possible liability under this Article 10,
and to determine the amount, if any, of such liability or
obligations, and will, upon learning of such potential
situations, promptly advise the other party.

Section 10.3. Litigation. The Seller agrees at its
expense, at the Purchaser's request, to cooperate with the
Purchaser in any action, suit or proceeding brought by or
against the Purchaser relating to any of the transactions
contemplated by this Agreement or to any of the Sold
Receivables owned by the Purchaser (other than an action, suit
or proceeding by the Seller against the Purchaser). In
addition, the Seller agrees to notify the Purchaser and the
Purchaser agrees to notify the Seller, at the Seller's expense,
promptly upon learning of any pending or threatened action,
suit or proceeding if the judgment or expenses of defending
such action, suit or proceeding would be covered by Section
10.1 and (except for an action, suit or proceeding by the
Seller against the Purchaser) to consult with the Purchaser,
concerning the defense and prior to settlement; provided,
however, that if (i) the Seller shall have acknowledged that
Section 10.1 would cover any judgment or expenses in any
action, suit or proceeding and (ii) in the Purchaser's sole
determination, the Seller has the financial ability to satisfy
such judgment or expenses, then the Seller shall have the
right, on the Purchaser's behalf but at the Seller's expense,
to defend such action, suit or proceeding with counsel selected
by the Seller and shall have sole discretion as to whether to
litigate, appeal or enter into an exclusively monetary
settlement; and provided further that (i) the Purchaser's
failure to provide any notice pursuant to this Section 10.3
shall not affect the indemnification of any party by the Seller

hereunder, and (ii) the Seller's sole and exclusive remedy in
the event of any such failure to give notice by the Purchaser
shall be a separate action against the Purchaser for damages
actually incurred by the Seller as a direct result of the
Purchaser's failure to provide such notice.

Section 10.4. Seller to Remain Obligated. Anything herein
to the contrary notwithstanding: (i) Seller shall remain
responsible and liable under the Contracts to the extent set
forth in such Contracts or otherwise to perform all of its
duties and obligations thereunder to the same extent as if the
Sold Receivables applicable to such Contracts had not been sold
to Purchaser hereunder; (ii) the exercise by Purchaser of any
of its rights hereunder shall not release Seller from any of
its duties or obligations under such Contracts; and (iii)
Purchaser shall not have any obligation or liability under such
Contracts by reason of the purchase of the applicable Sold
Receivables hereunder, nor shall Purchaser be obligated to
perform any of the obligations or duties of Seller thereunder.

ARTICLE 11

Termination

Section 11.1. Termination. Absent termination of this
Agreement pursuant to Article 12, this Agreement shall continue
in full force and effect until the earlier of the date (i)
which is ninety (90) days after written notice from any Party
to the other Party of its election to terminate this Agreement,
or (ii) on which all obligations of Seller to Purchaser and
Purchaser to Seller, have been satisfied in full (the
"Termination Date"). Subject to the provisions of Article 12,
(i) no termination of this Agreement shall affect any monetary
obligations hereunder of any Party arising prior to the
effective date of such termination, (ii) no termination of this
Agreement shall affect the obligation of Seller to make any
payments to Purchaser required hereunder, including but not
limited to payments of Credit Adjustments, (iii) no termination
of this Agreement shall affect any obligations which,
specifically by their terms, survive termination hereof,
including but not limited to, Seller's indemnification
obligations hereunder, and (iv) payments of any and all amounts
from Obligors with respect to Sold Receivables (regardless of
the existence of any other obligation or indebtedness of such
Obligors then owed to the Seller or any other person or entity)
to the Seller shall continue to be treated as Collections and
shall be applied to repayment of Sold Receivables as set forth
herein. Notwithstanding any such termination, Seller agrees
that from time to time thereafter it will promptly execute and
deliver all further instruments and documents, and take all
further actions, that may be necessary or that Purchaser may
reasonably request, in order to perfect, protect or more fully
evidence Purchaser's right, title and interest in and to the
Sold Receivables owned by Purchaser hereunder; to enable
Purchaser to exercise or enforce any such rights; to facilitate
maximum Collections; and/or otherwise to effectuate the intent
of the Parties hereto with respect to the Sold Receivables and
Collections.

ARTICLE 12

Events of Default

Section 12.1. Events of Default. Any of the following
events will constitute an Event of Default by Seller under this
Agreement:

(a) Except for the breach described in Section 12.1(c)
below, Seller fails to perform any of its obligations contained
herein or in any other related agreements between Seller and
Purchaser, and such breach is not cured within thirty (30) days
of Seller's receipt of written notice of such breach from
Purchaser;

(b) any representation, statement, report, or
certificate made or delivered by Seller to Purchaser is not
accurate in all material respects when made (or when deemed
made);

(c) Seller fails to pay any of its monetary obligations
payable to Purchaser hereunder or under any other agreements
related to this Agreement within five (5) days of when due and
payable;

(d) any event or condition shall occur which results in
the acceleration of the maturity of any debt of Seller or any
subsidiary of Seller to a third party in excess of $50,000,000
or enables (or, with the giving of

notice or lapse of time or both, would enable) the holder of
such debt or any Person acting on such holder's behalf to
accelerate the maturity thereof;

(e) final judgments or orders for the payment of money
in excess of $50,000,000 in the aggregate (excluding amounts
with respect to which a financially sound and reputable insurer
has admitted liability) shall be rendered against the Seller or
any subsidiary of Seller and such judgments or orders shall
continue unsatisfied or unstayed for a period of thirty (30)
consecutive days;

(f) Seller shall cease existence as a corporation,
other than as permitted under Section 7.5 hereof;

(g) Seller or any subsidiary of Seller shall commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action to
authorize any of the foregoing; provided, however, that no
event that would otherwise constitute an Event of Default under
this Section 12.1(g) shall be an Event of Default if the total
assets of all entities with respect to which such event has
occurred which would otherwise have constituted an Event of
Default under Sections 12.1 , (g), or (h) do not exceed
$50,000,000 in the aggregate; or

(h) an involuntary case or other proceeding shall be
commenced against Seller or any subsidiary of Seller seeking
liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order
for relief shall be entered against Seller or any subsidiary of
Seller under the federal bankruptcy laws as now or hereafter in
effect; provided, however, that no event that would otherwise
constitute an Event of Default under this Section 12.1(h) shall
be an Event of Default if the total assets of all entities with
respect to which such event has occurred which would otherwise
have constituted an Event of Default under Sections 12.1 (g) or
(h) do not exceed $50,000,000 in the aggregate.

Section 12.2. Remedies. If any Event of Default is not
cured within the period specified above, (with respect to
Sections 12.1 (g) or (h) Purchaser may act immediately upon the
occurrence of any such Event of Default), Purchaser may, at any
time of its election, without prior notice or demand to Seller,
do any one or more of the following: (i) cease making
Purchases hereunder; (ii) declare the Facility Termination Date
to have occurred; (iii) apply a default charge to Seller's
outstanding monetary obligations then due and payable to
Purchaser hereunder equal to the lesser of four percent (4%)
per annum in excess of the Prime Rate, or the highest lawful
contract rate of interest permitted by applicable law;
provided, however, that such default charge shall accrue only
during the continuance of an Event of Default or until payment
of such monetary obligation and only be applicable to (A)
Collections which Seller has failed to pay to Purchaser in
accordance with the terms hereof after the applicable First
Collection Settlement Date, and (B) Credit Adjustments, any
delinquent Receivables payments described in Section 3.3.B(i)
hereof, and any other obligations payable by Seller to
Purchaser hereunder or under any other related agreements,
which Seller has failed to pay to Purchaser when due (other
than any indemnification obligations), or (iv) exercise any or
all rights under applicable law. All Purchaser's rights and
remedies are cumulative. The Purchaser's failure to exercise
any of its rights or remedies hereunder will not waive any of
its rights or remedies as to any past, current or future Event
of Default.

ARTICLE 13

Miscellaneous

Section 13.1. Costs and Expenses. Seller shall pay on
demand all costs and expenses incurred by Purchaser in
connection with enforcement of this Agreement and the other
documents to be delivered hereunder, including accountants' and
attorneys' fees and expenses. The obligations of Seller under
this Section 13.1 shall survive the termination of this
Agreement.

Section 13.2. Addresses. All Notices provided for
hereunder shall be in writing (including facsimile
transmissions or telegraphic or telex communications) and
mailed (return receipt requested), telecopied, telegraphed,
telexed or delivered, as appropriate, to each party at the
address set forth as follows or at such other address as the
party affected may designate in a written notice to the other
parties hereto complying as to delivery with the terms of this
Article 13. All such Notices and fund transfers shall be
effective when received.

If Notice to Purchaser:

Deutsche Financial Services (UK) Limited
1 Station View
Guildford, Surrey
England, GU1 4JY
Attention: Senior Vice-President
Facsimile No. 011-44-1-483-500340

With a copy to:

Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.: (314) 523-3190

If Notice to Seller:

Applied Materials, Inc.
3050 Bowers Avenue, M/S 2036
Santa Clara, CA 95054
Attention: Diane Gale, Assistant Treasurer
Facsimile No.: (408) 986-7825

With a copy to:

Applied Materials, Inc.
3050 Bowers Avenue, M/S 2062
Santa Clara, CA 95054
Attention: Barry Quan, Managing Director, Legal Affairs
Facsimile No.: (408) 986-2836

All funds transfers shall be made as follows:

If funds transfer to Purchaser:

Bank: Deutsche Bank London
Swift # : DEUTGB2LXXX:
Account No.: 0154344-001
Reference: Deutsche Financial Services

If funds transfer to Seller:

Bank: Mellon Bank, Pittsburgh, PA.
ABA Routing No.: 043000261
Account No.: 020 8830
Reference: Applied Materials Inc.

Section 13.3. Further Cooperation. Seller agrees that from
time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all
further action, that may be necessary or that Purchaser may
reasonably request, in order to perfect, protect or more fully
evidence Purchaser's right, title and interest in and to the
Sold Receivables owned by Purchaser hereunder or to enable
Purchaser to exercise or enforce any such rights. Purchaser
will promptly execute and deliver any release or termination
statement required under the UCC when this Agreement shall have
terminated and all Sold Receivables shall have either been
collected in full or otherwise discharged in a manner
reasonably satisfactory to Purchaser.

Section 13.4. Severability. In case any provision in or
obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or
of such provision or obligation in any other jurisdiction,
shall, to the extent permitted by law, not in any way be
affected or impaired thereby.

Section 13.5. Amendments and Waivers. No amendment or
waiver of any provision of this Agreement, nor consent to any
departure by Seller or Purchaser therefrom, shall in any event
be effective unless the same shall be in writing and signed by
Seller and Purchaser, and then such waiver or consent shall be
effective only in the specified instance and for the specific
purpose for which given.

Section 13.6. Cumulative Rights. All rights and remedies
of the parties hereto under this Agreement shall, except as
otherwise specifically provided herein, be cumulative and
nonexclusive of any rights and remedies which they may have
under any other agreement or instrument, by operation of law,
or otherwise.

Section 13.7. Effectiveness. This Agreement shall become
effective when it shall have been executed and delivered by all
parties hereto and thereafter shall be binding upon and inure
to the benefit of Seller and Purchaser and their respective
successors and assigns, except that neither party shall have
the right to assign its rights hereunder or any interest herein
without the prior written consent of the other party, which
consent may in the discretion of such other party be withheld;
provided, however, that Purchaser may participate any of its
interest in this Agreement and the Sold Receivables to a third
party, with the consent of Seller if no Event of Default exists
and no consent of Seller but with notice to Seller if an Event
of Default exists.

Section 13.8. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Agreement.

Section 13.9. Confidentiality. The Purchaser and the Seller
each shall hold all non-public information obtained pursuant to
this Agreement and the transactions contemplated hereby or
effected in connection herewith confidential. Purchaser may
make disclosure reasonably required by any bona fide transferee
or prospective transferee in connection with the contemplated
transfer of any Sold Receivable or participation in this
Agreement by the Purchaser so long as such Person signs a
confidentiality agreement. Either Party may disclose
confidential information as required by law or as requested by
any governmental agency or representative thereof or pursuant
to legal process; provided that, unless specifically prohibited
by applicable law or court order, each party hereto shall
notify the other parties hereto of any request by any
governmental agency or representative thereof (other than any
such request in connection with an examination of the financial
condition of the Purchaser by such governmental agency) for
disclosure of any such non-public information prior to
disclosure of such information to permit the party affected to
contest such disclosure, if

possible; provided further that in no event shall the Purchaser
be obligated or required to return any materials furnished by
the Seller.

Section 13.10. No Affiliation. Purchaser and Seller each
hereby represents and warrants that neither Purchaser nor
Seller is under common control or ownership with the other.
Neither Seller nor Purchaser shall have any right or authority
to bind the other or create any obligation or responsibility,
express or implied, on behalf of the other, or in the other's
name, except as may be herein expressly permitted. Nothing
stated in this Agreement shall be construed as constituting
Seller and Purchaser as partners or joint venturers, or as
creating the relationship of employer and employee, master and
servant, franchisor and franchisee, or principal and, except
for Seller being Collection Agent, agent between Seller and
Purchaser.

Section 13.11. List of Schedules and Exhibits. The
following Schedules and Exhibits are attached to this Agreement
and are incorporated herein by this reference:

Schedule A - Seller's Chief Executive Offices
Schedule B - Acceptable Obligors
Schedule C - Form of Receivable Verification Letter
Exhibit I - Forms of Opinions of Counsel
Exhibit II - Form of Receivables Purchase
Settlement Statement
Exhibit III - Seller's Payment Terms
Exhibit IV - Seller's Collection Procedures
Exhibit V - Form of Monthly Status Report

Section 13.12. Limitation on Damages. Except as may be
expressly provided for in this Agreement or any other agreement
between them, neither Purchaser nor Seller shall be liable to
the other for exemplary, consequential or punitive damages.

Section 13.13. Jurisdiction; Jury Trial Waiver, Etc. ANY
LEGAL PROCEEDING WITH RESPECT TO ANY DISPUTE OR OTHER MATTER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
DOCUMENTS INSTRUMENTS OR AGREEMENTS RELATED HERETO WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION LOCATED IN SANTA
CLARA COUNTY, CALIFORNIA, BY A JUDGE WITHOUT A JURY. SELLER AND
PURCHASER WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH
PROCEEDING. SELLER AND PURCHASER FURTHER WAIVE ANY RIGHT TO
CLAIM ANY EXEMPLARY OR PUNITIVE DAMAGES IN ANY SUCH PROCEEDING.

Section 14. Governing Law. Purchaser and Seller acknowledge
and agree that this and all other agreements between Purchaser
and Seller have been substantially negotiated, and will be
substantially performed, in the State of California.
Accordingly, Purchaser and Seller agree that this Agreement and
all matters relating hereto shall be governed by and construed
in accordance with the laws of the State of California.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement by their officers thereunto duly
authorized as of the date first above written.

THIS AGREEMENT CONTAINS JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS.

APPLIED MATERIALS, INC.

By: /s/ Nancy H. Handel
Title: Vice President Global
Finance and Treasurer

By: /s/ Joseph R. Bronson
Title: Senior Vice President,
Chief Financial Officer and
Chief Administrative Officer

DEUTSCHE FINANCIAL SERVICES
(UK) LIMITED

By: /s/ Richard C. Goldman
Title: Director

<PAGE>

SCHEDULE A

CHIEF EXECUTIVE OFFICES

Applied Materials, Inc.
3050 Bowers Avenue,
Santa Clara, CA 95054

<PAGE>

SCHEDULE B

ACCEPTABLE OBLIGORS

The following Obligors shall be deemed acceptable, subject
in all events to the terms of the Agreement and subject further
to the maximum Outstanding Balance limitation set forth
opposite such Obligor's name, which additionally are subject,
in all events to the A/R Limit:

OBLIGOR MAXIMUM
OUTSTANDING
BALANCE LIMITATION

Advanced Micro Devices-Saxony $10,213,579.15

Compagnie IBM France $3,872,538.16

Intel Electronics Ltd. $1,822,071.56

Micron Technology Italia S.R.L. $5,146,919.68

Philips Bedrijven $1,000,000.00

Siemens AG $849,150.00

STMicroelectronics $1,852,668.00

<PAGE>

SCHEDULE C

FORM OF RECEIVABLE VERIFICATION LETTER

SCHEDULE C

Applied Materials, Inc.
1 Station View
Guildford, Surrey
England GU1 4JY

For Comparison Purposes Only

This is not a request for remittance
________________

Gentlemen,

We are conducting an audit of our Invoice Processing
System. Please advise whether the following unpaid charges
against your account as of _______ are in agreement with your
records.

The items indicated may or may not include all of the current
charges. Verification of only those listed is requested.

In either case, please sign below in the space provided and
return this form directly to Applied Materials Inc. at the
address listed above in the postage prepaid envelope enclosed
for your convenience. Please do not make any payments to this
address.

- ---------------------------------------------------------------
- ---------------------------------------------------------------
Invoice Number Invoice Date P.O. Number Amount Due

- ---------------------------------------------------------------
- ---------------------------------------------------------------
- --

Total:

Remarks:

- ---------------------------------------------------------------
- ---------------------------------------------------------------

THE ABOVE LISTED INVOICES, NUMBERS, DATES, AND AMOUNTS

Do agree with our records
Do not agree with our records

Authorized Signature

If you have any questions, please call Dan Clayton at (408) 563-7315.

<PAGE>

EXHIBIT I

FORMS OF OPINIONS OF COUNSEL

January 28, 1999

Deutsche Financial Services (UK) Limited
1 Station View
Guilford, Surrey, England, GU1 4JY

Ladies and Gentlemen:
We have acted as counsel to Applied Materials, Inc., a Delaware
corporation (the "Company") in connection with that certain
Receivable Purchase Agreement (the "Agreement") dated as of
January 26, 1999 between the Company and you.

In this regard, we have examined executed originals or copies
of the Agreement, a copy of which have been delivered to you,
including the letter from the Company to you (the
"Assignment") dated January 28, 1999 titled Receivables
Purchase Settlement Statement (Including Assignment of
Receivables) delivered in connection therewith, together with
such other exhibits and schedules delivered in connection with
the Agreement.

Based upon such examination and having regard for legal
considerations which we deem relevant, we are of the opinion
that each of the Agreement and the Assignment are the legal,
valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.

With your permission we have assumed the following
(a) authenticity of original documents and the genuineness of
all signatures; (b) the conformity to the originals of all
documents submitted to us as copies; (c) the truth, accuracy,
and completeness of the information, representations and
warranties contained in the records, documents, instruments and
certificates we have reviewed; (d) that the documents referred
to herein were duly authorized, executed and delivered on
behalf of the respective parties thereto and, other than with
respect to the Company, are legal, valid, and binding
obligations of such parties; (e) the compliance by you with any
applicable requirements to file returns and pay taxes under the
California Franchise Tax Law; (f) the compliance by you with
any state or federal laws or regulations applicable to you in
connection with the transactions described in the Agreement and
(g) the absence of any evidence extrinsic to the provisions of
the written agreements between the parties that the parties
intended a meeting contrary to that expressed by those
provisions.

We express no opinion as to matters of law in jurisdictions
other that the State of California and the United States.

Our opinion that any document is legal, valid, binding, or
enforceable in accordance with its terms is qualified as to:
(a) limitations imposed by bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance,
moratorium, or other similar laws relating to or affecting
the enforcement of creditors' rights generally;
(b) general principles of equity, including without
limitation concepts of mutuality, reasonableness, good
faith and fair dealing, and the possible unavailability of
specific performance or injunctive relief, regardless of
whether such enforceability is considered in a proceeding
in equity or at law;
(c) rights to indemnification and contribution which
may be limited by applicable law and equitable principles;
and
(d) the unenforceability under certain circumstances
of provisions expressly or by implication waiving
broadly or vaguely stated rights (including,
without limitation, waivers of any objection to
venue and forum non conveniens and the right to a
jury trial), the benefits of statutory
constitutional provisions, unknown future rights,
and defenses to obligations or rights granted by
law, where such waivers are against public policy
or prohibited by law.

We note that you are receiving of even date herewith the
opinion of Barry Quan, Managing Director, Legal Affairs of the
Company, as to certain matters relating to the Company. We
have made no independent examination of such matters.

This opinion is solely for the benefit of Deutsche Financial
Services (UK) Limited in connection with the transaction
covered by the first paragraph of this letter and may not be
relied upon, used, circulated, quoted or referred to by, nor
may copies hereof be delivered to, any other person without our
prior written approval. We disclaim any obligation to update
this opinion letter for events occurring or coming to our
attention after the date hereof.

Very truly yours,

ORRICK, HERRINGTON & SUTCLIFFE
LLP

<PAGE>

EXHIBIT II

FORM OF RECEIVABLES PURCHASE SETTLEMENT STATEMENT

RECEIVABLES PURCHASE SETTLEMENT STATEMENT
(Including Assignment of Receivables)

Deutsche Financial Services (UK) Limited
1 Station View
Guildford, Surrey
England GU1 4JY
Attention: Senior Vice President

Re: Assignment of Receivables

Pursuant to Section 2.1.C of the Receivables Purchase
Agreement (the "Agreement") dated as of January 26, 1999 by and
between Applied Materials, Inc. ("Seller"), as Seller, and
Deutsche Financial Services (UK) Limited ("Purchaser"), as
Purchaser, Seller hereby sells, transfers and assigns to
Purchaser, without recourse, except as provided in the
Agreement, Seller's right, title and interest in and to all of
the Receivables described on the Attachment 1 hereto, and all
collateral, if any, securing such Receivables. Such
Receivables satisfy the requirements of the Agreement for
Purchase by Purchaser, including without limitation Section 7.3
thereof. Seller represents that all such Receivables are free
and clear of all security interests, liens, charges,
encumbrances and rights of others other than the respective
Obligor's interest in the Products and/or Services relating
thereto, and other than as otherwise expressly permitted in the
Agreement. Terms utilized herein which are not otherwise
defined shall bear the meanings set forth in the Agreement.

Seller further certifies that (i) Attachment 1 hereto
is accurate and complete on and as of this date and each
Receivable and Obligor reflected thereon or covered thereby
complies in all respects with Section 7.3 of the Agreement;
(ii) Seller is in compliance in all material respects with all
terms and covenants set forth in the Agreement on and as of
this date, (iii) Seller's representations and warranties set
forth in the Agreement are true, correct and complete in all
material respects on and as of this date to the same extent as
though made on and as of this date; provided, however, no
representation or warranty is made as to any Receivable other
than the Receivables described on Attachment 1; (iv) no event
has occurred and is continuing or will result from the
consummation of the Purchase contemplated hereby that would
constitute an Event of Default, or but for the passage of time
or the giving of notice or both would constitute an Event of
Default under the Agreement; and (v) Seller has performed in
all material respects all agreements and has satisfied all
conditions which the Agreement provides shall be performed by
it on or before this date.

APPLIED MATERIALS, INC.

By:
___________________________
Title:
__________________________
Date:
__________________________

Deutsche Financial Services (UK) Limited, as Purchaser under
the Agreement, hereby accepts the Assignment of Receivables set
forth above.

DEUTSCHE FINANCIAL SERVICES
(UK) LIMITED

By:
___________________________
Title:
__________________________
Date:
__________________________

<PAGE>

Exhibit III

Seller's Payment Terms

Payment Terms

Standard payment terms for Systems shipments for the Applied
Materials Europe (AME) region are "90% due in 30 days from
receipt of equipment not to exceed 45 days from shipment, and
10% not to exceed 75 days from shipment, if no fault of Applied
Materials". Exceptions to the standard payment terms are
often made to accommodate high volume purchase agreements,
customer-satisfaction issues, and competitive issues.

The exceptions normally include a smaller percentage due in 30
days (i.e. 80% due in 30 days, 20% not to exceed 75 days....),
or longer pay periods attached to the first-tier invoice (90%
due in 60 days, ......), or longer pay periods attached to the
second-tier invoice (......, 20% not to exceed 90 days, if no
fault of Applied Materials).

The first-tier invoice is always due based on invoice date
(which approximates the ship date), and is not subject to
technical acceptance or any other measure. The second-tier
invoice is payable subject to technical acceptance (according
to the specifications on the Purchase Order) by the customer.

<PAGE>

Exhibit IV

Seller's Collection Procedures

Applied Materials, Inc.
Accounts Receivable Collections Procedure

The standard systems collections procedure for the first-tier
invoice (which implies that there is no technical acceptance
requirement) is as follows:
a) No later than 5 days prior to the payment due date, the
Applied Materials Inc. (AMAT) collection representative
contacts the Obligor's accounts payable department for
payment status on the invoice.
b) If the Obligor's accounts payable department requires a copy
of the invoice, the AMAT collection representative will
deliver this to the customer on the same day via fax, or
overnight if original copy is required.
c) If there is a pricing or proof of delivery issue, the
collection representative will follow-up with the product
business group and the invoicing group to verify prices
listing vs. purchase order information and obtain a copy of
the airway bill or proof of delivery.
d) Issues that delay or prohibit payment by the Obligor are
immediately escalated to the Obligor's purchasing department
and to the AMAT account team, so that resolution is obtained
as soon as possible.
e) If an Obligor is not paying or slow-paying an invoice(s) for
an undetermined reason, the issue is immediately escalated
to the account team and the global credit & collections
manager. The non-payment issue is escalated within the
Obligor's organization at the purchasing, accounts payable,
and corporate finance levels.
f) Non-payment of a first-tier invoice beyond 30 days from due
date, with no known set payment date or an unacceptable
payment date, results in a "demand" letter that outlines
the total amount due and the expected payment date. Failure
by the Obligor to settle the terms of the "demand" letter
results in a credit hold. The credit hold represents no
shipments or limited shipments, and may impact all systems,
spares, service agreement, labor, etc. services and product
shipments.
g) At the point that a "demand" letter is sent to a customer,
the issue is also escalated internally within AMAT to the
Treasurer, Global Operations Finance Director, Regional
President, and Regional Finance Director levels.
h) In some cases, longer short-term (1-2 months) payment
schedules are agreed to accommodate cash-flow issues.
i) Only as a last resort, collections suits and repossession of
product activities occur.

<PAGE>

Exhibit V

Form of Monthly Status Report

(Seller to Supply)

Receivables Assigned to Deutsche Financial Services (UK) Limited
Under A Receivables Purchase Agreement, Dated As Of Jan. 26, 1999.

Initial Funding Date: 01/28/99
First Collection Settlement Date: 04/13/99
Report Date: 02/27/99

Receivables Status Report

<TABLE>
<CAPTION>
Date of Inelig- Date Balance
Invoice to DFS Invoice ible Collected Date Wired to Out-
Obligor Invoice # Date Due Date Sale Amount($) Amount Amount Collected DFS Aging standing Comments
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

</TABLE>

Sub-Total By Customer:

Grand Total:

<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED JANUARY 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> OCT-26-1998
<PERIOD-END> JAN-31-1999
<CASH> 562,401
<SECURITIES> 1,361,912
<RECEIVABLES> 671,319 <F1>
<ALLOWANCES> 0
<INVENTORY> 552,779
<CURRENT-ASSETS> 3,597,539
<PP&E> 1,997,659
<DEPRECIATION> 770,958
<TOTAL-ASSETS> 4,960,737
<CURRENT-LIABILITIES> 1,042,959
<BONDS> 616,902
0
0
<COMMON> 3,730
<OTHER-SE> 3,216,385
<TOTAL-LIABILITY-AND-EQUITY> 4,960,737
<SALES> 742,477
<TOTAL-REVENUES> 742,477
<CGS> 421,374
<TOTAL-COSTS> 421,374
<OTHER-EXPENSES> 141,207 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,470
<INCOME-PRETAX> 76,645
<INCOME-TAX> 23,760
<INCOME-CONTINUING> 52,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,885
<EPS-PRIMARY> 0.14 <F3>
<EPS-DILUTED> 0.14
<FN>
<F1>ITEM IS SHOWN NET OF ALLOWANCE, CONSISTENT WITH BALANCE SHEET PRESENTATION.
<F2>ITEM CONSISTS OF RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES.
<F3>ITEM CONSISTS OF BASIC EARNINGS PER SHARE.
</FN>

</TABLE>