<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Applied Materials, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2)
of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.........................................................................
2) Aggregate number of securities to which transaction applies:
.........................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
.........................................................................
4) Proposed maximum aggregate value of transaction:
.........................................................................
5) Total fee paid:
..........................................................................
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:________________________________________________
(2) Form, Schedule or Registration Statement No.:__________________________
(3) Filing Party:__________________________________________________________
(4) Date Filed:____________________________________________________________
<PAGE>
[LETTERHEAD/LOGO]
February 18, 2000
Dear Applied Materials Stockholder:
I am pleased to invite you to attend the Applied Materials' 2000 Annual
Meeting of Stockholders which will be held at The Tech Museum of Innovation,
201 South Market Street, San Jose, California on Tuesday, March 21, 2000 at
2:00 p.m. At the meeting, stockholders will be asked to elect ten directors
and to vote on proposals to amend the Company's Certificate of Incorporation
to increase the number of shares of common stock authorized to be issued from
1,100,000,000 to 2,500,000,000; to approve an increase of 19,100,000 shares in
the number of shares authorized for issuance under Applied's 1995 Equity
Incentive Plan (which I refer to as the "1995 Plan"); and to approve the
amended and restated Senior Executive Bonus Plan, as is required by the tax
laws in order for the compensation under the plan to be tax-deductible.
The Company's Certificate of Incorporation currently authorizes the issuance
of up to 1,100,000,000 shares of common stock, having a par value of $.01 per
share. We are asking you to approve an amendment to the Certificate of
Incorporation to increase the number of shares of common stock authorized by
1,400,000,000. Our Board believes it is desirable to increase the authorized
shares of common stock of Applied in order to reserve a sufficient number of
shares to meet all known requirements, and to provide flexibility in the
future for general corporate purposes such as stock dividends or splits,
acquisitions, and issuances under stock option and other employee incentive
programs.
We are asking you to approve an amendment to the Company's 1995 Plan because
we strongly believe that stock option grants are essential to permit your
Company to compete for top employees. Stock option grants at Applied have
always been an important incentive for employees. In order to attract, retain
and motivate people whose skills and performance are critical to the Company's
success, we have used stock options to good advantage. As the Company grows,
additional people will be needed, and stock options will be needed to attract
and motivate these employees. For example, the nearly 12% growth in the
Company's number of employees from October 27, 1996 to October 31, 1999
(Applied's fiscal years), combined with the extension of stock option grants
to a broader employee base, require that we reserve an increasing number of
options for our employees. It is our practice at Applied to grant options with
an exercise price at least equal to the fair market value of the underlying
shares on the date of grant and for a term not longer than seven years. We
have never granted restricted stock nor do we currently expect to do so at any
time in the future.
The need to reapprove our performance-based bonus plan, the Senior Executive
Bonus Plan, arises because of federal tax laws. These laws require stockholder
approval at least once every five years in order that incentive compensation
under the plan remain tax-deductible to the Company. Applied has always placed
great emphasis on performance-based compensation, because we believe it
stimulates and encourages our employees and rewards them appropriately for
their outstanding achievements.
I urge you to carefully read our proxy statement. We hope you like its new
"plain English" format.
I urge you to vote FOR the director nominees, FOR the proposal to authorize
additional shares under the Company's Certificate of Incorporation, FOR the
proposal to authorize additional shares for the 1995 Plan and FOR the amended
and restated Senior Executive Bonus Plan.
I hope to see you at the meeting scheduled for March 21, 2000.
Sincerely,
James C. Morgan
<PAGE>
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
The 2000 Annual Meeting of Stockholders of Applied Materials, Inc. will be
held on Tuesday, March 21, 2000 at 2:00 p.m. at The Tech Museum of Innovation,
201 South Market Street, San Jose, California, to conduct the following items
of business:
1. To elect ten directors to serve for a one-year term and until their
successors have been elected.
2. To approve an amendment to the Certificate of Incorporation to
increase the number of shares of common stock authorized for issuance
from 1,100,000,000 to 2,500,000,000 shares.
3. To approve the amended and restated 1995 Equity Incentive Plan.
4. To approve the amended and restated Senior Executive Bonus Plan.
5. To transact other business as may properly come before the meeting or
any postponement or adjournment of the meeting.
Stockholders who owned shares of our stock at the close of business on
Friday, January 28, 2000 are entitled to attend and vote at the meeting. A
complete list of these stockholders will be available during normal business
hours for ten days prior to the meeting at 10 Almaden Boulevard, Suite 530,
San Jose, California, 95113. A stockholder may examine the list for any
legally valid purpose related to the meeting.
Whether or not you plan to attend the Annual Meeting, please complete, date,
sign and return the enclosed proxy card as promptly as possible in the
accompanying reply envelope. You may also be able to submit your proxy over
the Internet or by telephone. For specific instructions, please refer to the
information provided with this proxy statement.
By Order of the Board of Directors,
Donald A. Slichter
Secretary
Santa Clara, California
February 18, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information......................................................... 1
Voting Procedures........................................................... 1
Methods of Voting........................................................... 1
Revoking Your Proxy......................................................... 2
Quorum Requirement.......................................................... 2
Votes Required for Each Proposal............................................ 2
Abstentions and Broker Non-Votes............................................ 3
Voting Confidentiality...................................................... 3
Voting Results.............................................................. 3
Multiple Copies of Proxy Materials.......................................... 3
Proxy Solicitation Costs.................................................... 3
Proposals................................................................... 4
Item 1--Election of Directors............................................... 4
Item 2--Amendment to the Certificate of Incorporation....................... 4
Item 3--Approval of the Amended and Restated 1995 Equity Incentive Plan..... 4
Item 4--Approval of the Amended and Restated Senior Executive Bonus Plan.... 4
Other Matters............................................................... 5
Item 1--Election of Directors............................................... 6
Nominees.................................................................... 6
Directors/Nominees.......................................................... 6
Board and Committee Meetings................................................ 8
Compensation of Directors................................................... 9
Principal Stockholders...................................................... 10
Executive Compensation and Related Information.............................. 11
Executive Compensation...................................................... 11
Option Grants............................................................... 12
Options Exercised........................................................... 13
Compensation Committee Report............................................... 13
Compensation Committee Interlocks and Insider Participation................. 15
Certain Relationships and Related Transactions.............................. 15
Stock Performance Graph..................................................... 16
Item 2--Amendment to the Certificate of Incorporation....................... 16
Item 3--Amended and Restated 1995 Equity Incentive Plan..................... 17
Item 4--Amended and Restated Senior Executive Bonus Plan.................... 22
Other Information........................................................... 24
Section 16(a) Beneficial Ownership Reporting Compliance..................... 24
Relationship with Independent Public Accountants............................ 24
No Incorporation by Reference............................................... 24
Stockholder Proposals--2001 Annual Meeting.................................. 24
</TABLE>
<PAGE>
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Applied Materials, Inc., a Delaware corporation, with its principal executive
offices at 3050 Bowers Avenue, Santa Clara, California, 95054, for use at
Applied Materials' 2000 Annual Meeting of Stockholders to be held at 2:00 p.m.
on Tuesday, March 21, 2000.
This proxy statement contains important information regarding Applied
Materials' 2000 Annual Meeting of Stockholders, the proposals on which you are
being asked to vote, information you may find useful in determining how to
vote, and voting procedures.
A number of abbreviations are used in this proxy statement. We refer to
Applied Materials, Inc. as "Applied." The term "proxy materials" includes this
proxy statement, as well as the enclosed proxy card and 1999 Annual Report.
References to "fiscal 1999" mean Applied's 1999 fiscal year which began on
October 26, 1998 and ended on October 31, 1999. Applied's 2000 Annual Meeting
of Stockholders is simply referred to as "the meeting."
The Board of Directors of Applied is sending this proxy statement on or
about February 18, 2000 to all stockholders of Applied as of the record date,
January 28, 2000. Stockholders who owned Applied's common stock at the close
of business on January 28, 2000 are entitled to attend and vote at the
meeting. On the record date, there were 386,486,616 shares of Applied's common
stock outstanding.
Voting Procedures
As a stockholder of Applied, you have a right to vote on certain business
matters affecting Applied. The proposals that will be presented at the meeting
and upon which you are being asked to vote are discussed in the following
section entitled "Proposals." Each share of Applied's common stock you own
entitles you to one vote. The enclosed proxy card indicates the number of
shares you own. You may vote by mail, by telephone, over the Internet, or in
person at the meeting.
Methods of Voting
Voting by Mail. By signing and returning the proxy card in the enclosed
prepaid and addressed envelope, you are enabling the individuals named on the
proxy card (known as "proxies") to vote your shares at the meeting in the
manner you indicate. We encourage you to sign and return the proxy card even
if you plan to attend the meeting. In this way, your shares will be voted even
if you are unable to attend the meeting.
Your shares will be voted in accordance with the instructions you indicate
on the proxy card. If you return the proxy card but do not indicate your
voting instructions, your shares will be voted as follows:
. FOR the ten named nominees for directors;
. FOR approval of the amendment to the Certificate of Incorporation;
. FOR approval of the amended and restated 1995 Equity Incentive Plan; and
. FOR approval of the amended and restated Senior Executive Bonus Plan.
If you received more than one proxy card, it is an indication that your
shares are held in multiple accounts. Please sign and return all proxy cards
to ensure that all of your shares are voted. We encourage you to consolidate
all accounts under the same name and address in order to receive better
stockholder service. You may consolidate multiple accounts by contacting our
transfer agent, Harris Trust and Savings Bank, at Customer Service,
1-312-360-5186.
Voting by Telephone. You may be able to vote by telephone. If so,
instructions are included with this proxy statement. If you vote by telephone,
you do not need to complete and mail your proxy card.
<PAGE>
Voting on the Internet. You may be able to vote on the Internet. If so,
instructions are included with this proxy statement. If you vote on the
Internet, you do not need to complete and mail your proxy card.
Voting in Person at the Meeting. If you plan to attend the meeting and vote
in person, we will provide you with a ballot at the meeting. If your shares
are registered directly in your name, you are considered the stockholder of
record and you have the right to vote in person at the meeting.
If your shares are held in the name of your broker or other nominee, you are
considered the beneficial owner of shares held in street name. If you wish to
vote at the meeting, you will need to bring with you to the meeting a legal
proxy from your broker or other nominee authorizing you to vote such shares.
Applied Plan Participants. If you are a participant in Applied's Employee
Savings and Retirement Plan (a "401(k)" plan) or Applied's Employees' Stock
Purchase Plan, you will receive one proxy card for all shares you own through
these plans, assuming your shares are registered in the same name. This proxy
card will serve as a voting instruction card for the custodians or trustees of
these plans.
If you own shares through the Employee Savings and Retirement Plan and you
do not vote, the plan trustees will vote your shares in the same proportion as
shares for which instructions were received from other stockholders under the
plan. If you own shares through the Employees' Stock Purchase Plan and do not
vote, your shares will be voted in accordance with normal brokerage industry
practices. Some of these industry practices are described in this proxy
statement under the section "Abstentions and Broker Non-Votes."
Revoking Your Proxy
You may revoke your proxy at any time before it is voted at the meeting. In
order to do this, you may either:
. sign and return another proxy at a later date;
. provide written notice of the revocation to Applied's Secretary; or
. attend the meeting and vote in person.
Quorum Requirement
A quorum, which is a majority of the outstanding shares as of the record
date, January 28, 2000, must be present in order to hold the meeting and to
conduct business. Shares are counted as being present at the meeting if you
appear in person at the meeting or if you vote your shares on the Internet, by
telephone, or by submitting a properly executed proxy card.
Votes Required for Each Proposal
The vote required and method of calculation for the proposals to be
considered at the meeting are as follows:
Item 1--Election of Directors. The ten nominees receiving the highest number
of votes, in person or by proxy, will be elected as directors.
Item 2--Amendment to the Certificate of Incorporation. Approval of the
amendment to the Certificate of Incorporation requires the affirmative vote of
a majority of shares outstanding.
Item 3--Amended and restated 1995 Equity Incentive Plan. Approval of the
amended and restated 1995 Equity Incentive Plan requires the affirmative vote
of a majority of the shares present at the meeting, in person or by proxy.
Item 4--Amended and restated Senior Executive Bonus Plan. Approval of the
amended and restated Senior Executive Bonus Plan requires the affirmative vote
of a majority of the shares present at the meeting, in person or by proxy.
2
<PAGE>
You may vote either "for" or "withhold" your vote for each nominee for
election as a director. You may vote "for," "against" or "abstain" from the
proposals to approve (a) the amendment to the Certificate of Incorporation,
(b) the amended and restated 1995 Equity Incentive Plan, and (c) the amended
and restated Senior Executive Bonus Plan.
Abstentions and Broker Non-Votes
If you return a proxy card that indicates an abstention from voting in all
matters, the shares represented will be counted as present for the purpose of
determining a quorum, but they will not be voted on any matter at the meeting.
Consequently, if you abstain from voting on the proposal to approve (a) the
amendment to the Certificate of Incorporation, (b) the amended and restated
1995 Equity Incentive Plan, or (c) the amended and restated Senior Executive
Bonus Plan, your abstention has the same effect as a vote against the
proposal.
Under New York Stock Exchange rules, brokerage firms have authority to vote
customers' non-voted shares (known as "broker non-votes") on certain routine
matters. All four of our proposals should be treated as routine matters under
New York Stock Exchange rules. Consequently, if you do not give a proxy to
vote your shares, your brokerage firm may either leave your shares unvoted or
vote your shares on routine matters. To the extent your brokerage firm votes
shares on your behalf on any of the proposals, your shares will be counted as
present for the purpose of determining a quorum.
Voting Confidentiality
Proxies, ballots and voting tabulations are handled on a confidential basis
to protect your voting privacy. Information will not be disclosed except as
required by law.
Voting Results
Final voting results will be announced at the meeting and will be published
in Applied's Form 10-Q for the second fiscal quarter of 2000. We file this
quarterly report with the Securities and Exchange Commission. After the report
is filed, you may obtain a copy by:
. visiting our website at www.appliedmaterials.com;
. contacting our Investor Relations department toll-free at 1-800-882-
0373; or
. visiting the SEC's website at www.sec.gov.
Multiple Copies of Proxy Materials
If you received more than one copy of our proxy materials and wish to reduce
the number of packages you receive and save us the cost of producing and
mailing these materials, please select the designated box on the proxy card(s)
to eliminate future mailings or follow the instructions provided when you vote
over the Internet or by telephone. At least one account at your address must
continue to receive proxy materials unless you elect to view future annual
reports and proxy statements over the Internet. Mailing of our future
correspondence to you will not be affected by your election to discontinue
duplicate or future mailings of the proxy materials.
Proxy Solicitation Costs
Applied will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the proxy materials. We have
hired Innisfree M&A Incorporated to assist in the distribution and
solicitation of proxies. In addition to the estimated cost of $20,000 plus
reasonable out-of-pocket expenses for this service, we will reimburse
brokerage firms and other custodians for their reasonable out-of-pocket
expenses for forwarding the proxy materials to you. Our transfer agent, Harris
Trust and Savings Bank, will tabulate the proxies and act as inspector of the
election.
3
<PAGE>
PROPOSALS
The Board of Directors has included four proposals on the agenda for the
meeting.
Item 1--Election of Directors
The first proposal is the election of ten directors. Nominees for directors
are James C. Morgan, Dan Maydan, Michael H. Armacost, Deborah A. Coleman,
Herbert M. Dwight, Jr., Philip V. Gerdine, Tsuyoshi Kawanishi, Paul R. Low,
Steven L. Miller, and Stan Shih. With the exception of Stan Shih, each nominee
is currently a director of Applied.
Additional information about the election of directors and a brief biography
of each nominee begins on page 6.
The Board recommends a vote for each of these nominees.
Item 2--Approval of the amendment to the Certificate of Incorporation
The second proposal is to approve the amendment to the Certificate of
Incorporation to increase the number of shares of common stock authorized for
issuance.
Our Certificate of Incorporation currently authorizes the issuance of up to
1,100,000,000 shares of common stock, having a par value of $.01 per share. We
are asking our stockholders to approve an amendment to the Certificate of
Incorporation to increase the number of shares of common stock authorized for
issuance from 1,100,000,000 to 2,500,000,000.
Our Board believes it is desirable to increase the authorized shares of
common stock of Applied to reserve a sufficient number of shares to meet all
known requirements, and to provide flexibility in the future for general
corporate purposes such as stock dividends or splits, acquisitions, and
issuances under stock option and other employee incentive programs.
Additional information about the amendment to the Certificate of
Incorporation begins on page 16.
The Board recommends a vote to approve the amendment to the Certificate of
Incorporation.
Item 3--Approval of the amended and restated 1995 Equity Incentive Plan
The third proposal is to approve the amended and restated 1995 Equity
Incentive Plan to increase the number of shares authorized for issuance by
19,100,000 shares.
Employees are our most important resource. The contributions of our
employees are critical to our success. Stock option grants play a vital role
in attracting, retaining and motivating people. Our continued growth, combined
with the extension of stock option grants to a broader employee base, requires
the use of additional shares.
Additional information about the amended and restated 1995 Equity Incentive
Plan begins on page 17.
The Board recommends a vote to approve the amended and restated 1995 Equity
Incentive Plan.
Item 4--Approval of the amended and restated Senior Executive Bonus Plan
The fourth proposal is to approve the amended and restated Senior Executive
Bonus Plan.
4
<PAGE>
The Senior Executive Bonus Plan was approved by our stockholders at the 1995
Annual Meeting of Stockholders. We are required to periodically resubmit the
plan for stockholder approval so that the plan may continue to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code. This qualification provides us with a federal income tax deduction for
this compensation.
More information about the amended and restated Senior Executive Bonus Plan
begins on page 22.
The Board recommends a vote to approve the amended and restated Senior
Executive Bonus Plan.
Other Matters
Other than the election of directors and proposals to approve the amendment
to the Certificate of Incorporation, the amended and restated 1995 Equity
Incentive Plan, and the amended and restated Senior Executive Bonus Plan, our
Board of Directors does not intend to bring any other matters to be voted on
at the meeting. Our Board is not currently aware of any other matters that
will be presented by others for action at the meeting. However, if other
matters are properly presented at the meeting and you have signed and returned
your proxy card, or voted on the Internet or by telephone, the proxies will
have discretion to vote your shares on such matters to the extent authorized
under the Securities Exchange Act of 1934.
5
<PAGE>
ITEM 1--ELECTION OF DIRECTORS
Nominees
The Board of Directors of Applied is elected each year at the Annual Meeting
of Stockholders. Ten directors will be elected at this year's meeting. Each
director will serve until the 2001 Annual Meeting of Stockholders and until he
or she is succeeded by another qualified director who has been elected, or
until his or her death, resignation or removal. With the exception of Stan
Shih, each nominee who appears in the following table is currently a director
of Applied.
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<C> <C> <S> <C>
James C. Morgan......... 61 Chairman and Chief Executive Officer 1977
of Applied Materials, Inc.
Dan Maydan.............. 64 President of Applied Materials, Inc. 1992
Michael H. Armacost..... 62 President of The Brookings 1993
Institution
Deborah A. Coleman...... 47 Chair of Merix Corporation 1997
Herbert M. Dwight, Jr... 69 Retired Chief Executive Officer of 1981
Optical Coating Laboratory, Inc.
Philip V. Gerdine....... 60 Retired Executive Director (Overseas 1976
Acquisitions) of Siemens AG
Tsuyoshi Kawanishi...... 70 Retired Senior Advisor to Toshiba 1994
Corporation
Paul R. Low............. 66 Chief Executive Officer of P.R.L. 1992
Associates
Steven L. Miller........ 54 Chairman, President and Chief 1999
Executive Officer of Shell Oil
Company
Stan Shih............... 55 Chairman and Chief Executive Officer N/A
of Acer Inc.
</TABLE>
There is no family relationship between any of the nominees or between any
of the nominees and any of Applied's executive officers. Applied's executive
officers serve at the discretion of the Board of Directors. Detailed
information about Applied's directors and nominees is provided below.
Directors/Nominees
James C. Morgan has been Chairman of Applied Materials, Inc. since 1987 and
Chief Executive Officer of Applied Materials, Inc. since February 1977. Mr.
Morgan is a director of Cisco Systems, Inc.
Dan Maydan has been President of Applied Materials, Inc. since December 1993
and served as Chairman of Applied Komatsu Technology, Inc. from December 1991
to October 1998. From 1990 to December 1993, he was Executive Vice President
of Applied Materials, Inc. Dr. Maydan is a director of Electronics for
Imaging, Inc. and Drexler Technology Corporation.
Michael H. Armacost has been President of The Brookings Institution, a non-
partisan public policy research organization, since October 1995. In May 1998
he joined IBM's Asia-Pacific Board, which is an advisory council to IBM's
Asia-Pacific operations. From September 1993 through September 1995, he was a
Distinguished Senior Fellow and Visiting Professor at the Asia-Pacific
Research Center, Stanford University. From 1989 to 1993, he was the U.S.
Ambassador to Japan. Mr. Armacost is a director of TRW, Inc., AFLAC
Incorporated and Cargill, Incorporated.
Deborah A. Coleman has been Chair of Merix Corporation, a manufacturer of
interconnect solutions for use in electronic equipment, since March 1994 and
served as Chief Executive Officer of Merix Corporation from March 1994 to
September 1999. Ms. Coleman has been a partner of SmartForest Ventures, LLC, a
venture capital firm, since October 1999. From November 1992 through March
1994, she was the Vice President of Materials Operations at Tektronix, Inc.
Ms. Coleman is a director of Merix Corporation and Synopsys, Inc.
6
<PAGE>
Herbert M. Dwight, Jr. served as Chief Executive Officer of Optical Coating
Laboratory, Inc., a manufacturer of optical thin films and components, from
1991 until his retirement in 1998. Mr. Dwight is a director of Applied
Magnetics Corporation, Optical Coating Laboratory, Inc. and Advanced Fibre
Communications, Inc.
Philip V. Gerdine served as Executive Director (Overseas Acquisitions) of
Siemens AG, Munich, Germany, a manufacturer of electrical and electronic
products, from 1990 until his retirement in 1998. Dr. Gerdine is a director of
Solectron Corporation.
Tsuyoshi Kawanishi served as Senior Advisor to Toshiba Corporation, a
manufacturer of electrical and electronic products, from June 1994 to February
1999. Mr. Kawanishi has been Chairman of the Management Board of the Institute
of Microelectronics since June 1996. From June 1990 to June 1994, he was
Senior Executive Vice President and a member of the Board of Directors of
Toshiba Corporation. From November 1995 to July 1999, Mr. Kawanishi was a
director of Chartered Semiconductor Manufacturing Ltd. and from October 1997
to October 1999, he was a director of Advanpack Solutions Pte., Ltd. Mr.
Kawanishi is a director of Asyst Technologies, Inc.
Paul R. Low has been Chief Executive Officer of P.R.L. Associates, a
consulting firm, since July 1992. Dr. Low is a director of Solectron
Corporation and Veeco Instruments Inc.
Steven L. Miller has been Chairman, President and Chief Executive Officer of
Shell Oil Company, an oil and natural gas producer, natural gas marketer and
petrochemical manufacturer, since July 1999. From 1996 to 1999, Mr. Miller was
the managing director of the Royal Dutch/Shell Group of Companies. Mr. Miller
is a director for the American Petroleum Institute, a member of the National
Petroleum Council, and serves on the board of advisors for Rice University's
James A. Baker III Institute for Public Policy.
Stan Shih has been Chairman and Chief Executive Officer of Acer Inc.,
Taipei, Taiwan, a manufacturer of personal computers, since 1981. Mr. Shih has
been an advisor to the Republic of China's Presidential Office and a member of
the Republic of China's Space Program Steering Committee since 1996. Mr. Shih
is a director of Acer Sertek, TSMC-Acer and Acer Computer (Singapore) Pte.,
Ltd.
Alfred J. Stein, 67, has served as a director of Applied Materials, Inc.
since 1981. Mr. Stein served as Chairman and Chief Executive Officer of VLSI
Technology, Inc., a manufacturer of semiconductor devices, from March 1982
until June 1999. Mr. Stein is a director of Tandy Corporation. Mr. Stein's
term as director will end on March 21, 2000, and he is not standing for
election to the Board at the meeting.
7
<PAGE>
Board and Committee Meetings
The Board of Directors met seven times during fiscal 1999. Each director,
except Mr. Tsuyoshi Kawanishi, attended at least 75% of all Board and
applicable committee meetings during fiscal 1999. The table below describes
the committees of the Board. The Board does not have a nominating committee or
a committee that serves a similar function.
During fiscal 1999, the Board approved the establishment of the Stockholder
Rights Plan Review Committee. The new committee is chaired by Deborah A.
Coleman and its members include Herbert M. Dwight, Jr. and Philip V. Gerdine.
<TABLE>
<CAPTION>
Number of
Meetings
Committees of the Board of Held in
Directors(1) Functions of the Committees 1999
-------------------------- --------------------------- ---------
<C> <S> <C>
AUDIT AND FINANCE COMMITTEE
---------------------------
Members(2): . make recommendations to the Board regarding the 4
appointment of independent auditors
Michael H. Armacost . review with Applied's financial management the plans
Deborah A. Coleman for, and results of, the independent audit engagement
Philip V. Gerdine* . review Applied's system of internal accounting
controls
Alternate Members: . monitor Applied's internal audit program to assure that
areas of potential risk are adequately covered
Paul R. Low . review legal and regulatory matters that may have a
Alfred J. Stein material effect on Applied's financial statements
*Chairman
COMPENSATION COMMITTEE
----------------------
Members: . determine compensation policies applicable to Applied's 4
executive officers
Herbert M. Dwight, Jr.* . determine the compensation of the Chief Executive
Paul R. Low Officer
Alfred J. Stein . administer the 1995 Equity Incentive Plan
. administer the Senior Executive Bonus Plan
Alternate Members: . administer other stock and compensation plans
Michael H. Armacost
Deborah A. Coleman
*Chairman
</TABLE>
- --------
(1) By resolution of the Board of Directors on September 10, 1999, the name of
the Audit Committee was changed to the Audit and Finance Committee and the
name of the Stock Option and Compensation Committee was changed to the
Compensation Committee. The name changes were effective as of June 23,
1999.
(2) During fiscal 1999, Mr. Tsuyoshi Kawanishi was a member of the Audit and
Finance Committee from October 26, 1998 to June 22, 1999.
8
<PAGE>
Compensation of Directors
Directors who are officers of Applied do not receive any additional
compensation for their services as a director. During fiscal 1999, non-
employee directors of Applied received the following compensation:
. a quarterly retainer of $3,750;
. a fee of $2,000 for each Board meeting attended;
. a fee of $500 for each committee meeting attended if the committee met
on a day other than the day the Board met; and
. reasonable expenses of attending Board and committee meetings.
Mr. Kawanishi received an additional $1,200 for each Board meeting attended.
Directors who are not residents of California are reimbursed for the costs of
preparing California tax returns. Mr. Kawanishi is also reimbursed for the
costs of preparing a U.S. federal tax return.
Non-employee directors participate in one compensation plan, the 1995 Equity
Incentive Plan. Effective with fiscal 2000, non-employee directors receive the
following non-qualified stock options:
. 24,000 shares on the date he or she is first elected or appointed to the
Board; and
. 10,000 shares on the last business day of each fiscal year during which
he or she has served on the Board.
The annual option grant of 10,000 shares will be made only if the non-
employee director was a member of the Board for the entire fiscal year and was
not an employee of Applied or any affiliate for any part of the fiscal year
then ending.
The exercise price for all non-employee director options is 100% of the fair
market value of the shares on the grant date.
An annual option grant to non-employee directors of 6,000 shares of common
stock was made on October 29, 1999 at an exercise price of $89.81 per share. An
initial option grant of 24,000 shares of common stock was made to Mr. Miller on
December 7, 1999, in conjunction with his appointment to the Board, at an
exercise price of $111.25 per share. All non-employee director options become
exercisable over a four-year period, beginning on the date of grant, assuming
continued service on the Board. Exercisability for some or all options may be
accelerated if the director dies or retires. The options generally expire no
later than five years after the date of grant (up to six years in the event of
the director's death).
9
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates how much common stock is beneficially owned as
of October 31, 1999 by (a) each of the directors, (b) each of the named
executive officers, and (c) the directors and executive officers as a group.
In general, "beneficial ownership" refers to shares that a director or
executive officer has the power to vote, or the power to transfer, and stock
options that are exercisable currently or become exercisable within 60 days.
No person or entity was known by Applied to own 5% or more of Applied's common
stock as of October 31, 1999.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned
---------------------
Name Number(1) Percent
---- --------- -------
<S> <C> <C>
Non-Employee Directors:
Michael H. Armacost................................... 91,800(2) *
Deborah A. Coleman.................................... 24,500(3) *
Herbert M. Dwight, Jr................................. 100,500(4) *
Philip V. Gerdine..................................... 49,500(5) *
Tsuyoshi Kawanishi.................................... 13,500(6) *
Paul R. Low........................................... 25,500(7) *
Steven L. Miller...................................... 0(8) *
Alfred J. Stein....................................... 59,500(9) *
Named Executive Officers:
James C. Morgan....................................... 1,529,879(10) *
Dan Maydan............................................ 635,893(11) *
Joseph R. Bronson..................................... 53,159(12) *
Sasson Somekh......................................... 815,707(13) *
David N.K. Wang....................................... 659,096(14) *
Directors and Executive Officers as a Group(13
persons)............................................. 4,058,534 1.06%
</TABLE>
- --------
*Less than 1%
(1) Except as subject to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to
all shares of common stock.
(2) Includes options to purchase 25,500 shares that were exercisable within
60 days of October 31, 1999.
(3) Includes options to purchase 24,500 shares that were exercisable within
60 days of October 31, 1999.
(4) Includes options to purchase 25,500 shares that were exercisable within
60 days of October 31, 1999.
(5) Includes options to purchase 25,500 shares that were exercisable within
60 days of October 31, 1999.
(6) Includes options to purchase 13,500 shares that were exercisable within
60 days of October 31, 1999.
(7) Includes options to purchase 25,500 shares that were exercisable within
60 days of October 31, 1999.
(8) Options to purchase 24,000 shares, none of which were exercisable within
60 days of October 31, 1999 were granted to Mr. Miller on December 7,
1999.
(9) Includes options to purchase 10,500 shares that were exercisable within
60 days of October 31, 1999.
(10) Includes 180,000 shares held in a family foundation and options to
purchase 428,000 shares that were exercisable within 60 days of October
31, 1999.
(11) Includes 309,141 shares held in a family trust, 18,456 shares held in a
charitable trust, and 267,138 shares held in family partnerships.
(12) Includes 15,000 shares held in a family trust, 896 shares held as
custodian for Mr. Bronson's children and nephew, and options to purchase
26,000 shares that were exercisable within 60 days of October 31, 1999.
(13) Includes options to purchase 182,000 shares that were exercisable within
60 days of October 31, 1999.
(14) Includes options to purchase 182,000 shares that were exercisable within
60 days of October 31, 1999.
10
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table shows compensation information during each of Applied's
last three fiscal years for our Chief Executive Officer and the next four most
highly compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------- -----------------------------
Awards Payouts
Other --------------------- -------
Annual Securities
Compen- Restricted Underlying LTIP All Other
Name and Principal Fiscal Salary Bonus sation Stock Options Payouts Compensation (1)
Position Year ($) ($) ($) Awards ($) (#) ($) ($)
------------------ ------ ------- --------- ------- ---------- ---------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James C. Morgan......... 1999 778,542 1,268,000 0 0 280,000 0 7,200
Chairman and Chief 1998 747,914 264,190 0 0 80,000 0 7,200
Executive Officer 1997 671,539 602,640 0 0 160,000 0 6,750
Dan Maydan.............. 1999 613,085 1,029,770 0 0 240,000 0 66,458(2)
President 1998 571,323 201,812 0 0 70,000 0 107,656(3)
1997 508,094 460,350 0 0 140,000 0 6,750
Joseph R. Bronson....... 1999 407,692 596,706 0 0 180,000 0 11,708(4)
Senior Vice President, 1998 363,077 135,900 0 0 40,000 0 4,077
Office of the 1997 271,154 486,000 0 0 44,000 0 3,779
President,
Chief Financial Officer
and Chief
Administrative Officer
Sasson Somekh........... 1999 413,012 596,706 0 0 180,000 0 7,200
Senior Vice President, 1998 394,732 139,433 0 0 40,000 0 4,051
Office of the President 1997 348,077 318,060 0 0 80,000 0 3,742
David N. K. Wang........ 1999 413,012 596,706 0 0 180,000 0 7,200
Senior Vice President, 1998 394,732 139,433 0 0 40,000 0 4,051
Office of the President 1997 348,077 318,060 0 0 80,000 0 3,742
</TABLE>
- -------
(1) Unless otherwise indicated, the amounts in this column consist of matching
contributions made by Applied under the Employee Savings and Retirement
Plan, a "401(k)" plan providing for broad-based employee participation.
(2) This amount consists of Applied's matching contribution of $7,200 under
the Employee Savings and Retirement Plan and a payment of $59,258 from
Applied for the sale of shares in connection with the termination of the
Applied Komatsu Technology Inc. Executive Incentive Stock Purchase Plan,
further described in this proxy statement under the section "Certain
Relationships and Related Transactions."
(3) This amount consists of Applied's matching contribution of $7,200 under
the Employee Savings and Retirement Plan, a payment of $99,856 related to
a bonus payment connected with Applied Komatsu Technology, Inc. and a
payment of $600 as part of Applied's Patent Incentive Award Program.
(4) This amount consists of Applied's matching contribution of $7,200 under
the Employee Savings and Retirement Plan and a payment of $4,508 in
connection with moving expenses from Austin, Texas to Santa Clara,
California.
11
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Option Grants
The following table shows all options to acquire shares of Applied's stock
granted to the named executive officers during the fiscal year ended October
31, 1999.
Stock Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1)
------------------------
Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term(2)
Options Employees Price Expiration ----------------------------
Name Granted (#) in Fiscal Year ($/Share) Date 5% 10%
---- ----------- -------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
James C. Morgan......... 120,000 0.93% 62.00 04/15/06 3,028,827 7,058,455
160,000 1.24% 78.75 09/10/06 5,129,465 11,953,835
Dan Maydan.............. 100,000 0.77% 62.00 04/15/06 2,524,023 5,882,046
140,000 1.08% 78.75 09/10/06 4,488,282 10,459,606
Joseph R. Bronson....... 80,000 0.62% 62.00 04/15/06 2,019,218 4,705,637
100,000 0.77% 78.75 09/10/06 3,205,916 7,471,147
Sasson Somekh........... 80,000 0.62% 62.00 04/15/06 2,019,218 4,705,637
100,000 0.77% 78.75 09/10/06 3,205,916 7,471,147
David N.K. Wang......... 80,000 0.62% 62.00 04/15/06 2,019,218 4,705,637
100,000 0.77% 78.75 09/10/06 3,205,916 7,471,147
</TABLE>
- --------
(1) The options in this table were granted on April 15, 1999 and September 10,
1999 and have an exercise price per share equal to the fair market value
of Applied's common stock on the grant date. Assuming continued employment
with Applied, options granted on April 15, 1999 become exercisable on July
15, 2002, and options granted on September 10, 1999 become exercisable on
July 15, 2003. The options may become exercisable sooner if the officer
dies or retires. Applied has not granted any stock appreciation rights.
(2) As required by Securities and Exchange Commission rules, these columns
show gains that may exist for the respective options, assuming that the
market price for Applied's common stock appreciates from the date of grant
over a period of 10 years at the annual rates of 5% and 10%, respectively.
If the price of Applied's common stock does not increase above the
exercise price at the time of exercise, the value realizable from these
options will be zero.
12
<PAGE>
Options Exercised
The following table shows all stock options exercised by the named
executive officers during the fiscal year ended October 31, 1999 and the
number and value of options they held as of the end of fiscal 1999:
Aggregated Stock Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-
Shares Options at Fiscal Year- the-Money Options at
Acquired Value End (#) Fiscal Year-End ($)(2)
on Exercise Realized(1) ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Morgan......... 288,000 16,092,000 428,000 520,000 32,825,750 21,512,500
Dan Maydan.............. 310,000 18,084,375 0 450,000 0 18,684,375
Joseph R. Bronson....... 75,000 4,502,063 26,000 264,000 1,885,000 9,072,250
Sasson Somekh........... 224,000 13,546,375 182,000 300,000 13,874,875 11,533,750
David N.K. Wang......... 224,000 13,384,625 182,000 300,000 13,874,875 11,533,750
</TABLE>
- --------
(1) The value realized equals the difference between the option exercise price
and the fair market value of Applied's stock on the date of exercise,
multiplied by the number of shares for which the option was exercised.
(2) The value of unexercised in-the-money options equals the difference
between the option exercise price and the closing price of Applied's stock
on October 29, 1999 (the last day of trading for the fiscal year ended
October 31, 1999), times the number of shares underlying the options. The
closing price of Applied's stock on October 29, 1999, as reported on the
Nasdaq National Market, was $89.81 per share.
Compensation Committee Report
In the section below, we describe our executive compensation policies and
practices. We also identify the procedures we use to determine the
compensation of Applied's Chief Executive Officer and the next four most
highly compensated executive officers.
Compensation Philosophy. In developing Applied's executive compensation
policies, our Compensation Committee has relied on two principal objectives:
(1) attracting, rewarding and retaining officers who possess outstanding
talent, and (2) motivating our officers to achieve short-term and long-term
corporate goals that enhance stockholder value. Accordingly, our committee has
adopted the following overriding policies:
. pay compensation that is competitive with the practices of other leading
high technology companies;
. set challenging performance goals for our officers and various business
units and provide compensation based upon achievement of these goals;
and
. align the interests of our officers with those of our stockholders by
providing a significant portion of compensation in the form of stock
options.
Total Annual Compensation. We determine each officer's target total annual
compensation (salary and bonus) after reviewing similar compensation
information from approximately 20 companies in the high technology industry.
These companies compete with Applied for executive talent and/or have revenues
comparable to Applied's revenues. Applied's goal is to target base pay near
the median level and total cash compensation above the median level of the
surveyed companies if performance goals we specify are achieved.
Senior Executive Bonus Plan. When setting bonuses for our named executive
officers, our committee developed and approved specific performance targets.
Fiscal 1999 bonuses for Mr. Morgan, Dr. Maydan, Mr. Bronson, Dr. Somekh, and
Dr. Wang were paid pursuant to our Senior Executive Bonus Plan. Bonuses are
paid under the bonus plan only if the performance goals that we set at the
beginning of the fiscal year are achieved. Accordingly, the actual bonuses
paid will vary depending on actual performance.
13
<PAGE>
We set performance goals that are linked to (1) annual revenue, (2)
controllable profits, (3) earnings per share, (4) net income, (5) new orders,
(6) pro forma net income, (7) asset management, (8) customer satisfaction, (9)
individual management by objective (MBO) goals, or (10) return on sales. For
fiscal 1999, our committee chose two equally weighted performance goals: (1)
growth in Applied's annual revenue, and (2) achievement of certain levels of
return on sales; that is, Applied's net profit as a percentage of Applied's
annual sales.
Bonuses. Additionally, our committee sets target bonuses for each officer
(other than named executive officers) based on his or her potential impact on
Applied's operating and financial results. Target bonuses for business unit
executives generally equal 65-85% of annual salary. Target bonuses for staff
executives generally equal 50-65% of annual salary. The actual bonus that is
paid to each officer depends on the achievement of business unit objectives
and financial performance goals. The business unit objectives we set include
both financial and operating goals including, for example, increasing
profitability, customer satisfaction and market share.
Each year, we adjust the performance goals in light of general business
conditions and our corporate strategies for the year. For fiscal 1999, our
committee directed Applied management to set performance targets for each
officer using our compensation philosophy.
Stock Options. Our committee strongly believes that stock options motivate
our officers to maximize stockholder value and to remain employed with Applied
despite a very competitive labor market. All Applied stock options have a per
share exercise price equal to the fair market value of Applied's stock on the
grant date.
The number of options our committee grants to each officer and each option's
vesting schedule are determined based on a variety of factors, including (1)
the executive's position at Applied, (2) his or her individual performance,
(3) the number of options the executive already holds, and (4) other factors,
including an estimate of the potential value of the options and independent
stock compensation survey data. In fiscal 1999, our committee relied upon
these factors to approve stock option grants for the named executive officers
and other senior officers, and for any other individual grants of more than
25,000 shares (which number our committee changed to 30,000 shares at its
September 10, 1999 meeting). All other grants were approved by our Chief
Executive Officer, Mr. Morgan, after consulting with Human Resources, and
using guidelines approved by our committee.
Compensation of Chief Executive Officer. During fiscal 1999, Mr. Morgan
received a salary of $778,542. In setting Mr. Morgan's target bonus under the
bonus plan, our committee relied on the strong belief that Mr. Morgan, as
Chief Executive Officer, significantly and directly influences Applied's
overall performance. Accordingly, we set Mr. Morgan's target bonus for fiscal
1999 at 85% of his annual salary. Mr. Morgan's actual bonus was adjusted
according to a formula our committee developed at the time we set the
performance goals. This formula takes into account (1) growth in Applied's
annual revenue, and (2) achievement of certain levels of return on sales, that
is, Applied's net profit as a percentage of Applied's annual sales. In fiscal
1999, Applied's performance significantly exceeded the goals we set. Based on
this performance, Mr. Morgan received a bonus of $1,268,000, which equaled
approximately 163% of his fiscal 1999 salary.
Tax Deductibility of Executive Compensation. Under Section 162(m) of the
Internal Revenue Code, Applied generally receives a federal income tax
deduction for compensation paid to any of its named executive officers only if
the compensation is less than $1 million during any fiscal year or is
"performance-based" under Section 162(m). Both Applied's 1995 Equity Incentive
Plan and the Senior Executive Bonus Plan permit our committee to pay
compensation that is "performance-based" and thus fully tax-deductible by
Applied. Our committee currently intends to continue seeking a tax deduction
for all of Applied's executive compensation, to the extent we determine that
it is in the best interests of Applied.
This report is submitted by the Compensation Committee.
Herbert M. Dwight, Jr.
Paul R. Low
Alfred J. Stein
14
<PAGE>
Compensation Committee Interlocks and Insider Participation
During the fiscal year, none of Applied's executive officers served on the
board of directors of any entities whose directors or officers serve on
Applied's Compensation Committee. No current or past executive officers of
Applied serve on our Compensation Committee.
Certain Relationships and Related Transactions
Loans to Management. Dan Maydan served as Chairman of Applied Komatsu
Technology, Inc. ("AKT"), a joint venture corporation 50% owned by Applied and
50% owned by Komatsu Ltd., a Japanese corporation, from December 1991 to
October 1998. Pursuant to the AKT Executive Incentive Stock Purchase Plan, and
consistent with the practices as to other AKT executives, in fiscal 1994,
Applied and Komatsu Ltd. each lent Dr. Maydan $185,000 to purchase shares of
non-voting convertible preferred stock of AKT. The terms of the loan between
Dr. Maydan and Applied called for interest at the rate of 7.16% to be paid on
an annual basis, with a balloon principal payment to be paid January 31, 2004.
The loan was secured by the shares purchased.
During fiscal 1999, the AKT Executive Incentive Stock Purchase Plan was
terminated and Applied acquired a 100% interest in AKT. Accordingly, Dr.
Maydan, similar to other AKT executives, sold his 106 shares in AKT to Applied
and Komatsu Ltd. at the fair market value of $4,900 per share. The largest
principal amount of Dr. Maydan's loan outstanding from each of Applied and
Komatsu Ltd. during the fiscal year was $200,442. Applied and Komatsu Ltd.
each offset the outstanding loan amount of $200,442 from the share aggregate
value of $259,700 and each paid Dr. Maydan $59,258. At the close of fiscal
1999, we did not have any outstanding loans to any of our directors or
executive officers.
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total return
for Applied's stock, the Standard & Poor's 500 Composite Index and the
Hambrecht & Quist Semiconductor Index (a published industry index), each of
which assumes an initial value of $100 and reinvestment of dividends. The
Hambrecht & Quist Index contains 40 companies in the semiconductor,
semiconductor intellectual property and semiconductor equipment industries.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG APPLIED MATERIALS, INC.,
THE HAMBRECHT & QUIST SEMICONDUCTOR INDEX
AND THE S&P 500 INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
10/30/94 10/29/95 10/27/96 10/26/97 10/25/98 10/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Applied Materials, Inc... 100 188 103 256 261 691
Hambrecht & Quist
Semiconductor Index..... 100 173 143 226 186 491
Standard & Poor's 500
Index................... 100 125 154 210 242 312
</TABLE>
ITEM 2--AMENDMENT TO THE CERTIFICATE OF INCORPORATION
This section provides a summary of the proposal to approve the amendment to
our Certificate of Incorporation.
In December 1999, our Board of Directors approved a proposal to amend
Applied's Certificate of Incorporation in order to increase the number of
shares of common stock that Applied is authorized to issue from 1,100,000,000
shares to 2,500,000,000 shares.
The affirmative vote of a majority of shares outstanding is required to
approve the proposed amendment.
The amendment will not affect the authorized number of shares of preferred
stock (par value $.01 per share). The authorized number of shares of preferred
stock is 1,000,000.
16
<PAGE>
Purposes and Effects of Increasing the Number of Authorized Shares of Common
Stock. The increase in authorized shares is necessary to enable Applied to
reserve a sufficient number to meet all known requirements and to provide
flexibility in the future for general corporate purposes such as stock
dividends or splits, acquisitions, and issuances under stock option and other
employee incentive programs. At present, Applied has no plans, agreements or
understandings concerning the issuance or use of additional shares of common
stock, other than (a) pursuant to our various employee benefit plans (for
example, previously granted stock options) and (b) an agreement signed on
January 12, 2000 to acquire Etec Systems, Inc. in connection with which
transaction, if completed, Applied expects to issue approximately 14 million
shares of its common stock.
The proposed amendment would increase the number of shares of common stock
which Applied is authorized to issue from 1,100,000,000 to 2,500,000,000. The
additional 1,400,000,000 shares would be a part of the existing class of
common stock and, if and when issued, would have the same rights and
privileges as the shares of common stock currently issued and outstanding. The
holders of common stock of Applied are not entitled to preemptive rights,
which means that current stockholders do not have a prior right to purchase
any new issue of common stock in order to maintain their proportionate
ownership interest. The holders of common stock of Applied are not entitled to
cumulative voting.
As of January 28, 2000, Applied had 386,486,616 shares of common stock
issued and outstanding, and 713,513,384 shares of common stock authorized but
unissued, of which 224,516 shares were held in the treasury of Applied.
Any future issuance of additional authorized shares of common stock may,
among other effects, have a dilution effect on earnings per share of common
stock and on the equity and voting rights of stockholders at the time the
additional authorized shares are issued.
The Board unanimously recommends a vote to approve the amendment to the
Certificate of Incorporation.
ITEM 3--AMENDED AND RESTATED 1995 EQUITY INCENTIVE PLAN
This section provides a summary of the terms of the 1995 Equity Incentive
Plan and the proposal to approve the amended and restated plan.
We are asking our stockholders to approve the amended and restated 1995
Equity Incentive Plan so that we can continue to use the plan to achieve
Applied's goals and also continue to receive a federal income tax deduction
for compensation paid under the plan. Our Board of Directors approved the
amended and restated plan subject to approval from our stockholders at the
meeting. Approval of the amended and restated plan requires the affirmative
vote of a majority of shares that are present in person or by proxy at the
meeting. If stockholders approve the amended and restated plan, it will
replace the current version of the plan. Our named executive officers and non-
employee directors have an interest in this proposal.
The 1995 Equity Incentive Plan is unchanged (except in insignificant ways)
since our stockholders last approved the plan at the 1998 Annual Meeting of
Stockholders. The only change that we are proposing is to make an additional
19,100,000 of our shares available to be issued under the plan.
We believe strongly that approval of the amended and restated plan is
essential to our continued success. Our employees are our most valuable asset.
Stock options are vital to our ability to attract and retain outstanding and
highly skilled individuals in the extremely competitive labor markets in which
we must compete. Options also are crucial to our ability to motivate employees
to achieve the Company's goals.
Purpose. The 1995 Equity Incentive Plan is intended to promote the long-term
success of Applied and increase stockholder value by attracting, motivating
and retaining excellent employees, non-employee directors, and consultants who
provide significant services to us. The plan also is intended to align the
interests of plan participants with the interests of our stockholders by
encouraging participants to own more of our stock.
17
<PAGE>
Eligibility. The Compensation Committee selects the employees and
consultants who will be granted awards under the 1995 Equity Incentive Plan.
The actual number of individuals who will receive an award cannot be
determined in advance because the committee has discretion to select the
participants. Our non-employee directors are not eligible to receive
discretionary grants under the plan. Instead, they are automatically granted a
predetermined number of non-qualified stock options each year that they serve
on our Board.
Types of Awards. The Compensation Committee is allowed to grant five types
of awards under the 1995 Equity Incentive Plan: (1) stock options, (2) stock
appreciation rights, (3) restricted stock awards, (4) performance share
awards, and (5) performance unit awards. To date, the committee has granted
only stock options under the plan. The committee currently intends to continue
granting only stock options. However, we believe that we need to preserve our
flexibility to grant other types of equity compensation awards in order to
compete successfully for talented employees.
Stock options. A stock option is the right to acquire shares of our common
stock at a fixed exercise price for a fixed period of time (usually seven
years). Under the 1995 Equity Incentive Plan, the Compensation Committee may
grant nonqualified stock options and/or incentive stock options (which entitle
employees, but not Applied, to more favorable tax treatment). To date the
committee has granted only nonqualified stock options and currently expects to
continue this policy.
The exercise price of each stock option is set by the Compensation Committee
but cannot be less than 100% of the fair market value (on the date of grant)
of the stock covered by the option. An exception is made for options that
Applied grants in substitution for options held by employees of companies that
Applied acquires (in which case the exercise price preserves the economic
value of the employee's cancelled stock option from his or her former
employer).
An option cannot be exercised until it becomes vested. The Compensation
Committee establishes the vesting schedule at the time the option is granted.
Vesting usually requires continued employment by the participant for a period
of years. Stock options expire after a maximum of 10 years (potentially 13
years if the participant dies). The committee's current practice is to grant
options that expire no later than seven years after grant.
The exercise price of each option must be paid in full at the time of
exercise. Payment may be made in cash or if the Compensation Committee
permits, in shares of Applied's common stock that are already owned by the
participant, or by any other means that provides legal consideration for the
shares and is consistent with the plan's purpose.
Stock appreciation rights. Stock appreciation rights ("SARs") are awards
that give the participant the right to receive an amount equal to (1) the
number of shares exercised, times (2) the amount by which Applied's stock
price exceeds the exercise price. The exercise price cannot be less than 100%
of the stock's fair market value on the date of grant. An SAR may be exercised
only if it becomes vested based on the vesting schedule established by the
Compensation Committee. SARs expire under the same rules that apply to
options. No SARs have been granted under the plan and the committee currently
expects that it will not grant SARs in the future.
Restricted stock awards. Restricted stock awards are shares that vest based
on a schedule established by the Compensation Committee. However, shares of
restricted stock will not vest until at least three years after the date of
grant absent unusual circumstances specified in the plan. The committee has
not granted any restricted stock and currently does not expect to grant any in
the future.
Performance share and performance unit awards. Performance shares and
performance units will result in a payment to the participant in cash or
shares if the performance goals established by the Compensation Committee are
achieved or the awards otherwise vest. No performance shares or performance
units have been granted under the plan and the committee currently expects not
to grant any in the future.
18
<PAGE>
Non-Employee Director Stock Options. Under the 1995 Equity Incentive Plan,
our non-employee directors receive annual, automatic, non-discretionary grants
of stock options. Non-employee directors are not eligible for any other awards
under the plan.
Each new non-employee director receives a stock option for 24,000 shares on
the date he or she first becomes a director. Thereafter, each non-employee
director also automatically receives an option for 10,000 shares on the last
business day of each full fiscal year that he or she remains on our Board.
All non-employee director options become vested (that is, exercisable) in
four annual installments beginning one year after grant, assuming the director
remains a member of the Board for the entire four-year period. If the director
leaves the Board before the end of the four-year vesting period for a reason
other than death or a qualifying retirement, the unvested shares will be
forfeited, except as follows. For options granted after September 10, 1999, if
the director dies, the option will become fully vested, and if the director
retires, some or all of the shares will become fully vested, depending upon
the director's length of service to Applied.
Options granted to non-employee directors generally expire no later than
five years after grant. However, an option may terminate even sooner if a
director leaves the Board before the option's normal expiration date. If the
director leaves for a reason other than death, total disability or retirement,
he or she has seven months following the date of termination to exercise, and
if the director leaves due to retirement or total disability, he or she has
one year to exercise. However, the option may not be exercised later than the
original expiration date. In the event of death, an option may be exercised
for up to one year from the date of death, without regard to the original
expiration date of the option.
Administration, Amendment and Termination. The Compensation Committee
administers the 1995 Equity Incentive Plan. Members of the committee must
qualify as non-employee directors under Rule 16b-3 of the Securities Exchange
Act of 1934, and as outside directors under Section 162(m) of the Internal
Revenue Code (so that Applied can receive a federal tax deduction for certain
compensation paid under the plan).
Subject to the terms of the plan, the committee has sole discretion to:
. select the employees and consultants who will receive awards;
. determine the terms and conditions of awards (for example, the exercise
price and vesting schedule); and
. interpret the provisions of the plan.
The Compensation Committee has delegated authority to Applied's Chairman to
grant options to non-officer employees (but not more than 30,000 options in
any year to any one person).
The Board may amend or terminate the plan at any time and for any reason.
However, future amendments will be submitted for stockholder approval if
necessary or appropriate to continue the plan's compliance with Section 162(m)
of the Internal Revenue Code.
A total of 55,200,000 shares were previously reserved for issuance under the
plan. As of January 28, 2000, XXXXXX shares were subject to options currently
outstanding under the plan and XXXXXX shares remain available for new options
or other awards.
If an award expires or is cancelled without having been fully exercised or
vested, the unvested or cancelled shares generally will be returned to the
available pool of shares. Also, if Applied experiences a stock dividend,
reorganization or other change in its capital structure, the Compensation
Committee has discretion to adjust the number of shares available under the
plan, the formula for granting non-employee director options, the outstanding
options and other awards, and the per person limits on grants, as appropriate
to reflect the stock dividend or other change.
19
<PAGE>
Limited Transferability of Awards. Awards granted under the 1995 Equity
Incentive Plan may not be sold, transferred, pledged, or assigned other than
by will or under applicable laws of descent and distribution. In the future,
Applied may permit limited transfers for the benefit of immediate family
members to help with estate planning concerns.
Options Granted to Certain Individuals and Groups. The number of options or
other awards (if any) that an individual may receive under the 1995 Equity
Incentive Plan is in the discretion of the Compensation Committee and
therefore cannot be determined in advance. The following table sets forth the
total number of shares of Applied's common stock subject to options granted
under the plan to the listed persons and groups during fiscal 1999 and the
average per share exercise price of the options.
Options Granted to Certain Individuals and Groups in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Average Per Share
Name of Individual or Group Options Granted Exercise Price(1)
--------------------------- --------------- -----------------
<S> <C> <C>
James C. Morgan.............................. 280,000 $71.57
Dan Maydan................................... 240,000 $71.77
Joseph R. Bronson............................ 180,000 $71.31
Sasson Somekh................................ 180,000 $71.31
David N.K. Wang.............................. 180,000 $71.31
All executive officers, as a group........... 1,060,000 $71.48
All directors who are not executive officers,
as a group(2)............................... 42,000 $89.81
All employees who are not executive officers,
as a group.................................. 11,868,898 $66.95
</TABLE>
- --------
(1) All options were granted with a per share exercise price equal to 100% of
the fair market value on the date of grant. On January 28, 2000, shares of
Applied's common stock closed at $129.75 on the Nasdaq National Market.
(2) Pursuant to the 1995 Equity Incentive Plan's automatic, non-discretionary
formula, each non-employee director received an option for 6,000 shares on
October 29, 1999. An initial option grant of 24,000 shares of common stock
was made to Mr. Miller on December 7, 1999, in conjunction with his
appointment to the Board.
Federal Tax Aspects
The following is a summary of the general federal income tax consequences to
U.S. taxpayers and Applied of awards granted under the 1995 Equity Incentive
Plan. Tax consequences for any particular individual may be different.
Non-Qualified Stock Options and Stock Appreciation Rights. No taxable income
is reportable when a non-qualified stock option or a stock appreciation right
is granted. Upon exercise, the recipient will have ordinary income equal to
the fair market value of the shares on the exercise date minus the exercise
price. Any additional gain or loss upon the disposition of the stock will be
capital gain or loss.
Incentive Stock Options. No taxable income is reportable when an incentive
stock option is granted or exercised (except for purposes of the alternative
minimum tax, in which case taxation is the same as for non-qualified stock
options). If the recipient exercises the option and then sells the shares more
than two years after the grant date and more than one year after the exercise
date, the difference between the sale price and the exercise price will be
taxed as capital gain or loss. If the recipient exercises the option and sells
the shares before the end of the two or one-year holding periods, he or she
generally will have ordinary income at the time of the sale equal to the fair
market value of the shares on the exercise date (or the sale price, if less)
minus the exercise price of the option.
20
<PAGE>
Restricted Stock, Performance Units and Performance Shares. A recipient of
restricted stock, performance units or performance shares will not have
taxable income upon grant unless he or she elects to be taxed at that time.
Instead, he or she will have ordinary income at the time of vesting equal to
the fair market value on the vesting date of the shares (or cash) received
minus any amount paid for the shares.
Tax Effect for Applied. Applied generally will receive a tax deduction for
any ordinary income recognized by a participant from an award under the 1995
Equity Incentive Plan (for example, the exercise of a non-qualified stock
option). Special rules limit the deductibility of compensation paid to our
Chief Executive Officer and to each of our four most highly compensated
executive officers. Under Section 162(m) of the Internal Revenue Code, the
annual compensation paid to each of these executives may not be deductible to
the extent that it exceeds $1 million. However, we are able to preserve the
deductibility of compensation over $1 million if the conditions of Section
162(m) are met. These conditions include stockholder approval of the plan,
setting limits on the number of awards that any individual may receive and for
awards other than options, establishing performance criteria that must be met
before the award actually will vest or be paid. The plan has been designed to
permit the Compensation Committee to grant awards that qualify as performance-
based for purposes of satisfying the conditions of Section 162(m). For
example, the plan limits of the number of shares that may be granted to any
one participant in any one year as follows:
. 350,000 shares under options;
. 350,000 shares under stock appreciation rights;
. 175,000 restricted shares; and
. 175,000 performance share awards or performance units with an initial
value not greater than $3 million.
In addition, in setting the vesting schedule of an award, the Compensation
Committee may provide that the award will vest only upon the achievement of
objectives for one or more of:
. annual revenue,
. controllable profits,
. earnings per share,
. net income,
. new orders,
. pro forma net income,
. asset management,
. customer satisfaction,
. individual management by objective (MBO) goals, or
. return on sales.
Each of these performance measures is defined in the plan. These are the
same performance measures that the Compensation Committee may use under our
Senior Executive Bonus Plan, which is discussed in more detail beginning on
page 22.
Summary. We believe strongly that approval of the amended and restated plan
is essential to our continued success. Stock option grants constitute an
important incentive for key employees of Applied and help us to attract,
retain and motivate people whose skills and performance are critical to our
success. Our employees are our most valuable asset. We strongly believe that
an increase in the number of shares authorized for issuance under the plan is
essential for us to compete for talent in the very difficult labor market in
which we operate.
The Board unanimously recommends a vote to approve the amended and restated
1995 Equity Incentive Plan.
21
<PAGE>
ITEM 4--AMENDED AND RESTATED SENIOR EXECUTIVE BONUS PLAN
This section provides a summary of the terms of the Senior Executive Bonus
Plan and the proposal to approve the amended and restated plan.
We are asking stockholders to approve the amended and restated Senior
Executive Bonus Plan so that Applied can continue to receive a federal income
tax deduction for compensation paid under the plan. The Senior Executive Bonus
Plan is unchanged (except in insignificant ways) since our stockholders last
approved the plan at the 1995 Annual Meeting of Stockholders. Our Board of
Directors approved the plan subject to approval from our stockholders at the
meeting. Approval of the plan requires the vote of the majority of the Applied
shares that are present in person or by proxy at the meeting. Our named
executive officers have an interest in this proposal.
Purpose. The purpose of the Senior Executive Bonus Plan is to motivate key
executives to achieve Applied's strategic and financial goals and to perform
to the best of their abilities. The plan accomplishes this by paying awards
only after the achievement of the specified goals.
The plan also is designed to qualify as "performance-based" compensation
under Section 162(m) of the Internal Revenue Code. Under Section 162(m),
Applied may not receive a federal income tax deduction for compensation paid
to Applied's Chief Executive Officer or any of the four other most highly
compensated executive officers to the extent that any of these persons
receives more than $1 million in any one year. However, if Applied pays
compensation that is "performance-based" under Section 162(m), Applied still
can receive a federal income deduction for the compensation even if it is more
than $1 million during a single year. The plan allows Applied to pay incentive
compensation that is performance-based and therefore fully tax-deductible on
Applied's federal income tax return.
Eligibility. The Compensation Committee selects the officers of Applied (and
of our affiliates) who will be eligible to receive awards under the Senior
Executive Bonus Plan. The actual number of officers who will be eligible to
receive an award during any particular year cannot be determined in advance
because the committee has discretion to select the participants. We currently
expect that approximately five to eight officers will participate in the plan
each year.
Target Awards and Performance Goals. Each fiscal year, the Compensation
Committee assigns each participant a target award and performance goal or
goals that must be achieved before an award actually will be paid to the
participant. The participant's target award is expressed as a percentage of
his or her base salary at the end of the fiscal year. The performance goals
require the achievement of objectives for one or more of:
. annual revenue,
. controllable profits,
. earnings per share,
. net income,
. new orders,
. pro forma net income,
. asset management,
. customer satisfaction,
. individual management by objective (MBO) goals, or
. return on sales.
Awards for our 2000 fiscal year are based on two equally weighted
performance goals: (1) growth in Applied's annual revenue, and (2) achievement
of certain levels of return on sales (that is, net profit as a percentage of
annual sales).
22
<PAGE>
Actual Awards. After the fiscal year ends, the Compensation Committee
certifies in writing the extent to which the pre-established performance goals
actually were achieved or exceeded. The actual award that is payable to a
participant is determined using a formula that increases or decreases the
participant's target award based on the level of actual performance attained.
However, the Senior Executive Bonus Plan limits actual awards to a maximum of
$3 million per person in any fiscal year, even if the formula otherwise
indicates a larger award. In addition, the Compensation Committee has
discretion to reduce (but not increase) the award determined by the formula.
If a participant terminates employment before the end of the fiscal year in
which the bonus is to be earned, the participant will not receive an award for
that year (even if the performance goals actually are achieved). The only
exception is that if termination of employment is due to retirement,
disability or death, the Compensation Committee has discretion to pay out part
or all of the award.
Actual awards generally are paid in cash within two and one-half months
after the fiscal year ends. However, the Compensation Committee instead may
convert the cash payment into an equivalent amount of Applied shares that will
be paid to the participant only if he or she remains employed for an
additional period of time up to four years.
Administration, Amendment and Termination. The Compensation Committee
administers the Senior Executive Bonus Plan. Members of the committee must
qualify as outside directors under Section 162(m). Subject to the terms of the
plan, the committee has sole discretion to:
. select the officers who will receive awards;
. determine the target award for each participant;
. determine the performance goals that must be achieved before any actual
awards are paid;
. determine a formula to increase or decrease an award to reflect actual
performance versus the predetermined performance goals; and
. interpret the provisions of the plan.
The Board may amend or terminate the plan at any time and for any reason. An
amendment also will be submitted for stockholder approval if necessary to
maintain the plan's compliance with Section 162(m).
Awards Granted to Certain Officers. Awards under the Senior Executive Bonus
Plan are determined based on actual performance, so future actual awards (if
any) cannot now be determined. The following table sets forth the target
awards that would be payable to the persons and groups shown below if the
performance goals established by the Compensation Committee for our 2000
fiscal year are exactly 100% achieved. There is no assurance that the pre-
established performance goals will be achieved and therefore there is no
assurance that the target awards shown below (or any awards at all) will
actually be paid.
<TABLE>
<CAPTION>
Fiscal
2000
Target
Name of Individual or Group Awards($)
--------------------------- ---------
<S> <C>
James C. Morgan............................................... 890,000
Dan Maydan.................................................... 750,000
Joseph R. Bronson............................................. 500,000
Sasson Somekh................................................. 500,000
David N.K. Wang............................................... 500,000
All executive officers, as a group............................ 3,140,000
All directors who are not executive officers, as a group...... 0(1)
All employees who are not executive officers, as a group...... 0(1)
</TABLE>
- --------
(1) Applied's non-employee directors and employees who are not officers are
not eligible to participate in the Senior Executive Bonus Plan.
The Board unanimously recommends a vote to approve the amended and restated
Senior Executive Bonus Plan.
23
<PAGE>
OTHER INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Applied's
directors and executive officers, and holders of more than 10% of Applied's
common stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of Applied. Such officers, directors and 10%
stockholders are required by SEC regulation to furnish Applied with copies of
all Section 16(a) forms they file.
SEC regulations require us to identify anyone who filed a required report
late during the most recent fiscal year. Based on our review of forms we
received, or written representations from reporting persons stating that they
were not required to file these forms, we believe that, during the fiscal
year, all Section 16(a) filing requirements were satisfied on a timely basis.
Relationship with Independent Public Accountants
The firm of independent accountants recommended by the Audit and Finance
Committee and selected by the Board of Directors for fiscal 2000 is
PricewaterhouseCoopers LLP. The Board of Directors expects that
representatives of PricewaterhouseCoopers LLP will be present at the meeting,
will be given an opportunity to make a statement at such meeting if they
desire to do so and will be available to respond to appropriate questions.
No Incorporation By Reference
In Applied's filings with the SEC, information is sometimes "incorporated by
reference." This means that we are referring you to information that has
previously been filed with the SEC, so the information should be considered as
part of the filing you are reading. Based on SEC regulations, the performance
graph on page 16 of this proxy statement and the "Compensation Committee
Report" on page 11 specifically are not incorporated by reference into any
other filings with the SEC.
This proxy statement is sent to you as part of the proxy materials for the
2000 Annual Meeting of Stockholders. You may not consider this proxy statement
as material for soliciting the purchase or sale of Applied's stock.
Stockholder Proposals--2001 Annual Meeting
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules and Applied's
Bylaws. If you would like us to consider including a proposal in our proxy
statement next year, you must deliver it to our offices on or before October
20, 2000. If you intend to submit a proposal at the 2001 Annual Meeting of
Stockholders but do not intend to include the proposal in our proxy statement
for this meeting, you must provide appropriate notice to us on or before
January 4, 2001. Our Bylaws contain specific requirements regarding a
stockholder's ability to nominate a director or to submit a proposal for
consideration at an upcoming meeting. If you would like a copy of the
requirements contained in our Bylaws, please contact:
Donald A. Slichter
Corporate Secretary
Applied Materials, Inc.
2881 Scott Boulevard, M/S 2068
Santa Clara, California 95050
24
<PAGE>
APPENDIX A
APPLIED MATERIALS, INC.
1995 EQUITY INCENTIVE PLAN
(As proposed to be amended)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1--BACKGROUND, PURPOSE AND DURATION............................... A-1
1.1 Background and Effective Date.................................... A-1
1.2 Purpose of the Plan.............................................. A-1
SECTION 2--DEFINITIONS.................................................... A-1
2.1 "1934 Act"....................................................... A-1
2.2 "Affiliate"...................................................... A-1
2.3 "Affiliated SAR"................................................. A-1
2.4 "Annual Revenue"................................................. A-1
2.5 "Award".......................................................... A-1
2.6 "Award Agreement"................................................ A-1
2.7 "Board" or "Board of Directors".................................. A-1
2.8 "Code"........................................................... A-2
2.9 "Committee"...................................................... A-2
2.10 "Company" means Applied Materials, Inc........................... A-2
2.11 "Consultant"..................................................... A-2
2.12 "Controllable Profits"........................................... A-2
2.13 "Customer Satisfaction MBOs"..................................... A-2
2.14 "Director"....................................................... A-2
2.15 "Disability"..................................................... A-2
2.16 "Earnings Per Share"............................................. A-2
2.17 "Employee"....................................................... A-2
2.18 "ERISA".......................................................... A-2
2.19 "Exercise Price"................................................. A-2
2.20 "Fair Market Value".............................................. A-2
2.21 "Fiscal Year".................................................... A-2
2.22 "Freestanding SAR"............................................... A-3
2.23 "Grant Date"..................................................... A-3
2.24 "Incentive Stock Option"......................................... A-3
2.25 "Individual MBOs"................................................ A-3
2.26 "Net Income"..................................................... A-3
2.27 "New Orders"..................................................... A-3
2.28 "Nonemployee Director"........................................... A-3
2.29 "Nonqualified Stock Option"...................................... A-3
2.30 "Option"......................................................... A-3
2.31 "Participant".................................................... A-3
2.32 "Performance Goals".............................................. A-3
2.33 "Performance Share".............................................. A-3
2.34 "Performance Unit"............................................... A-3
2.35 "Period of Restriction".......................................... A-3
2.36 "Plan"........................................................... A-3
2.37 "Pro Forma Net Income"........................................... A-4
2.38 "Restricted Stock"............................................... A-4
2.39 "Retirement"..................................................... A-4
2.40 "Return on Designated Assets".................................... A-4
2.41 "Return on Sales"................................................ A-4
2.42 "Rule 16b-3"..................................................... A-4
2.43 "Section 16 Person".............................................. A-4
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
2.44 "Shares"......................................................... A-4
2.45 "Stock Appreciation Right" or "SAR".............................. A-4
2.46 "Subsidiary"..................................................... A-4
2.47 "Tandem SAR"..................................................... A-4
2.48 "Termination of Service"......................................... A-4
SECTION 3--ADMINISTRATION................................................. A-5
3.1 The Committee.................................................... A-5
3.2 Authority of the Committee....................................... A-5
3.3 Delegation by the Committee...................................... A-5
3.4 Nonemployee Director Options..................................... A-5
3.5 Decisions Binding................................................ A-5
SECTION 4--SHARES SUBJECT TO THE PLAN..................................... A-5
4.1 Number of Shares................................................. A-5
4.2 Lapsed Awards.................................................... A-5
4.3 Adjustments in Awards and Authorized Shares...................... A-5
SECTION 5--STOCK OPTIONS.................................................. A-6
5.1 Grant of Options................................................. A-6
5.2 Award Agreement.................................................. A-6
5.3 Exercise Price................................................... A-6
5.4 Expiration of Options............................................ A-6
5.5 Exercisability of Options........................................ A-7
5.6 Payment.......................................................... A-7
5.7 Restrictions on Share Transferability............................ A-7
5.8 Certain Additional Provisions for Incentive Stock Options........ A-7
SECTION 6--STOCK APPRECIATION RIGHTS...................................... A-8
6.1 Grant of SARs.................................................... A-8
6.2 Exercise of Tandem SARs.......................................... A-8
6.3 Exercise of Affiliated SARs...................................... A-8
6.4 Exercise of Freestanding SARs.................................... A-8
6.5 SAR Agreement.................................................... A-8
6.6 Expiration of SARs............................................... A-8
6.7 Payment of SAR Amount............................................ A-9
SECTION 7--RESTRICTED STOCK............................................... A-9
7.1 Grant of Restricted Stock........................................ A-9
7.2 Restricted Stock Agreement....................................... A-9
7.3 Transferability.................................................. A-9
7.4 Other Restrictions............................................... A-9
7.5 Removal of Restrictions.......................................... A-10
7.6 Voting Rights.................................................... A-10
7.7 Dividends and Other Distributions................................ A-10
7.8 Return of Restricted Stock to Company............................ A-10
SECTION 8--PERFORMANCE UNITS AND PERFORMANCE SHARES....................... A-10
8.1 Grant of Performance Units/Shares................................ A-10
8.2 Value of Performance Units/Shares................................ A-10
8.3 Performance Objectives and Other Terms........................... A-10
8.4 Earning of Performance Units/Shares.............................. A-11
8.5 Form and Timing of Payment of Performance Units/Shares........... A-11
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
8.6 Cancellation of Performance Units/Shares......................... A-11
SECTION 9--NONEMPLOYEE DIRECTOR OPTIONS................................... A-11
9.1 Granting of Options.............................................. A-11
9.2 Terms of Options................................................. A-11
SECTION 10--MISCELLANEOUS................................................. A-13
10.1 Deferrals........................................................ A-13
10.2 No Effect on Employment or Service............................... A-13
10.3 Participation.................................................... A-13
10.4 Indemnification.................................................. A-13
10.5 Successors....................................................... A-13
10.6 Beneficiary Designations......................................... A-13
10.7 Nontransferability of Awards..................................... A-13
10.8 No Rights as Stockholder......................................... A-14
SECTION 11--AMENDMENT, TERMINATION, AND DURATION.......................... A-14
11.1 Amendment, Suspension, or Termination............................ A-14
11.2 Duration of the Plan............................................. A-14
SECTION 12--TAX WITHHOLDING............................................... A-14
12.1 Withholding Requirements......................................... A-14
12.2 Withholding Arrangements......................................... A-14
SECTION 13--LEGAL CONSTRUCTION............................................ A-15
13.1 Gender and Number................................................ A-15
13.2 Severability..................................................... A-15
13.3 Requirements of Law.............................................. A-15
13.4 Securities Law Compliance........................................ A-15
13.5 Governing Law.................................................... A-15
13.6 Captions......................................................... A-15
</TABLE>
A-iii
<PAGE>
APPLIED MATERIALS, INC.
1995 EQUITY INCENTIVE PLAN
APPLIED MATERIALS, INC., hereby adopts the Applied Materials, Inc. 1995
Equity Incentive Plan, effective as of December 7, 1994, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 Background and Effective Date. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, and Performance Shares. The Plan is effective as of
December 7, 1994, subject to ratification by an affirmative vote of the
holders of a majority of the Shares which are present in person or by proxy
and entitled to vote at the 1995 Annual Meeting of Stockholders. Awards may be
granted prior to the receipt of such vote, but such grants shall be null and
void if such vote is not in fact received.
1.2 Purpose of the Plan. The Plan is intended to attract, motivate, and
retain (1) employees of the Company and its Affiliates, (2) consultants who
provide significant services to the Company and its Affiliates, and (3)
directors of the Company who are employees of neither the Company nor any
Affiliate. The Plan also is designed to encourage stock ownership by
Participants, thereby aligning their interests with those of the Company's
shareholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under
such section, and any comparable provision of any future legislation or
regulation amending, supplementing or superseding such section or regulation.
2.2 "Affiliate" means any corporation or any other entity (including, but
not limited to, partnerships and joint ventures) controlling, controlled by,
or under common control with the Company.
2.3 "Affiliated SAR" means an SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised.
2.4 "Annual Revenue" means the Company's or a business unit's net sales for
the Fiscal Year, determined in accordance with generally accepted accounting
principles; provided, however, that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be excluded or included
from the calculation of Annual Revenue with respect to one or more
Participants.
2.5 "Award" means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, or Performance Shares.
2.6 "Award Agreement" means the written agreement setting forth the terms
and provisions applicable to each Award granted under the Plan.
2.7 "Board" or "Board of Directors" means the Board of Directors of the
Company.
A-1
<PAGE>
2.8 "Code" means the Internal Revenue Code of 1986, as amended. Reference to
a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
2.9 "Committee" means the committee appointed by the Board (pursuant to
Section 3.1) to administer the Plan.
2.10 "Company" means Applied Materials, Inc. , a Delaware corporation, or
any successor thereto. With respect to the definitions of the Performance
Goals, the Committee may determine that "Company" means Applied Materials,
Inc. and its consolidated subsidiaries.
2.11 "Consultant" means any consultant, independent contractor, or other
person who provides significant services to the Company or its Affiliates, but
who is neither an Employee nor a Director.
2.12 "Controllable Profits" means as to any Fiscal Year, a business unit's
Annual Revenue minus (a) cost of sales, (b) research, development, and
engineering expense, (c) marketing and sales expense, (d) general and
administrative expense, (e) extended receivables expense, and (f) shipping
requirement deviation expense.
2.13 "Customer Satisfaction MBOs" means as to any Participant, the objective
and measurable individual goals set by a "management by objectives" process
and approved by the Committee, which goals relate to the satisfaction of
external or internal customer requirements.
2.14 "Director" means any individual who is a member of the Board of
Directors of the Company.
2.15 "Disability" means a permanent and total disability within the meaning
of Code section 22(e)(3), provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether
a permanent and total disability exists in accordance with uniform and non-
discriminatory standards adopted by the Committee from time to time.
2.16 "Earnings Per Share" means as to any Fiscal Year, the Company's Net
Income or a business unit's Pro Forma Net Income, divided by a weighted
average number of common shares outstanding and dilutive common equivalent
shares deemed outstanding.
2.17 "Employee" means any employee of the Company or of an Affiliate,
whether such employee is so employed at the time the Plan is adopted or
becomes so employed subsequent to the adoption of the Plan.
2.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. Reference to a specific section of ERISA or regulation thereunder
shall include such section or regulation, any valid regulation promulgated
under such section, and any comparable provision of any future legislation or
regulation amending, supplementing or superseding such section or regulation.
2.19 "Exercise Price" means the price at which a Share may be purchased by a
Participant pursuant to the exercise of an Option.
2.20 "Fair Market Value" means the last quoted per share selling price for
Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day before and the nearest day after the relevant date, as determined by the
Committee. Notwithstanding the preceding, for federal, state, and local income
tax reporting purposes, fair market value shall be determined by the Committee
(or its delegate) in accordance with uniform and nondiscriminatory standards
adopted by it from time to time.
2.21 "Fiscal Year" means the fiscal year of the Company.
A-2
<PAGE>
2.22 "Freestanding SAR" means a SAR that is granted independently of any
Option.
2.23 "Grant Date" means, with respect to an Award, the date that the Award
was granted.
2.24 "Incentive Stock Option" means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the
requirements of section 422 of the Code.
2.25 "Individual MBOs" means as to a Participant, the objective and
measurable goals set by a "management by objectives" process and approved by
the Committee (in its discretion).
2.26 "Net Income" means as to any Fiscal Year, the income after taxes of the
Company for the Fiscal Year determined in accordance with generally accepted
accounting principles, provided that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be included or excluded
from the calculation of Net Income with respect to one or more Participants.
2.27 "New Orders" means as to any Fiscal Year, the firm orders for a system,
product, part, or service that are being recorded for the first time as
defined in the Company's Order Recognition Policy.
2.28 "Nonemployee Director" means a Director who is an employee of neither
the Company nor of any Affiliate.
2.29 "Nonqualified Stock Option" means an option to purchase Shares which is
not intended to be an Incentive Stock Option.
2.30 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.31 "Participant" means an Employee, Consultant, or Nonemployee Director
who has an outstanding Award.
2.32 "Performance Goals" means the goal(s) (or combined goal(s)) determined
by the Committee (in its discretion) to be applicable to a Participant with
respect to an Award. As determined by the Committee, the Performance Goals
applicable to an Award may provide for a targeted level or levels of
achievement using one or more of the following measures: (a) Annual Revenue,
(b) Controllable Profits, (c) Customer Satisfaction MBOs, (d) Earnings Per
Share, (e) Individual MBOs, (f) Net Income, (g) New Orders, (h) Pro Forma Net
Income, (i) Return on Designated Assets, and (j) Return on Sales. The
Performance Goals may differ from Participant to Participant and from Award to
Award.
2.33 "Performance Share" means an Award granted to a Participant pursuant to
Section 8.
2.34 "Performance Unit" means an Award granted to a Participant pursuant to
Section 8.
2.35 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock are subject to restrictions and therefore, the
Shares are subject to a substantial risk of forfeiture. As provided in Section
7, such restrictions may be based on the passage of time, the achievement of
target levels of performance, or the occurrence of other events as determined
by the Committee, in its discretion. Notwithstanding any contrary provision of
the Plan, each Period of Restriction shall have a duration of not less than
three years from the Grant Date unless otherwise approved by the holders of a
majority of the Shares which are present in person or by proxy and entitled to
vote at any Annual or Special Meeting of Stockholders, or unless approved by
the Committee at its discretion solely by reason of death, Disability,
Retirement or major capital change.
2.36 "Plan" means the Applied Materials, Inc. 1995 Equity Incentive Plan, as
set forth in this instrument and as hereafter amended from time to time.
A-3
<PAGE>
2.37 "Pro Forma Net Income" means as to any business unit for any Fiscal
Year, the Controllable Profits of such business unit, minus allocations of
designated corporate expenses.
2.38 "Restricted Stock" means an Award granted to a Participant pursuant to
Section 7.
2.39 "Retirement" means, in the case of an Employee, a Termination of
Service by an Employee who at the time of the Termination has both (a)
attained at least age 60, and (b) completed at least 10 Years of Service. For
this purpose, "Years of Service" means the number of full months from the
Employee's latest hire date with the Company or an Affiliate to the date in
question, divided by 12. The Employee's latest hire date shall be determined
after giving effect to the non-401(k) Plan principles of North American Human
Resources Policy No. 2-06, Re-Employment of Former Employees/Bridging of
Service, as such Policy may be amended or superseded from time to time.
Notwithstanding the preceding, in the case of any Option granted to any
Employee prior to December 10, 1998, "Retirement" means a Termination of
Service by reason of the Employee's retirement at or after his or her normal
retirement date under the Applied Materials, Inc. Employee Savings and
Retirement Plan, or any successor plan. With respect to a Consultant, no
Termination of Service shall be deemed to be on account of "Retirement." With
respect to a Nonemployee Director, "Retirement" means termination of service
on the Board at or after age 65.
2.40 "Return on Designated Assets" means as to any Fiscal Year, the Pro
Forma Net Income of a business unit, divided by the average of beginning and
ending business unit designated assets, or Net Income of the Company, divided
by the average of beginning and ending designated corporate assets.
2.41 "Return on Sales" means as to any Fiscal Year, the percentage equal to
the Company's Net Income or the business unit's Pro Forma Net Income, divided
by the Company's or the business unit's Annual Revenue.
2.42 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.
2.43 "Section 16 Person" means a person who, with respect to the Shares, is
subject to section 16 of the 1934 Act.
2.44 "Shares" means the shares of common stock of the Company.
2.45 "Stock Appreciation Right" or "SAR" means an Award, granted alone or in
connection with a related Option, that pursuant to Section 7 is designated as
an SAR.
2.46 "Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
2.47 "Tandem SAR" means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to
purchase an equal number of Shares under the related Option (and when a Share
is purchased under the Option, the SAR shall be canceled to the same extent).
2.48 "Termination of Service" means (a) in the case of an Employee, a
cessation of the employee-employer relationship between an employee and the
Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability,
Retirement, or the disaffiliation of an Affiliate, but excluding any such
termination where there is a simultaneous reemployment by the Company or an
Affiliate; and (b) in the case of a Consultant, a cessation of the service
relationship between a Consultant and the Company or an Affiliate for any
reason, including, but not by way of limitation, a termination by resignation,
discharge, death, Disability, or the disaffiliation of an Affiliate, but
excluding any such termination where there is a simultaneous re-engagement of
the consultant by the Company or an Affiliate.
A-4
<PAGE>
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee. The
Committee shall consist of not less than two (2) Directors. The members of the
Committee shall be appointed from time to time by, and shall serve at the
pleasure of, the Board of Directors. The Committee shall be comprised solely
of Directors who both are (a) "disinterested persons" under Rule 16b-3, and
(b) "outside directors" under section 162(m) of the Code.
3.2 Authority of the Committee. It shall be the duty of the Committee to
administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer
the Plan and to control its operation, including, but not limited to, the
power to (a) determine which Employees and Consultants shall be granted
Awards, (b) prescribe the terms and conditions of the Awards (other than the
Options granted to Nonemployee Directors pursuant to Section 9), (c) interpret
the Plan and the Awards, (d) adopt such procedures and subplans as are
necessary or appropriate to permit participation in the Plan by Employees,
Consultants and Directors who are foreign nationals or employed outside of the
United States, (e) adopt rules for the administration, interpretation and
application of the Plan as are consistent therewith, and (f) interpret, amend
or revoke any such rules.
3.3 Delegation by the Committee. The Committee, in its sole discretion and
on such terms and conditions as it may provide, may delegate all or any part
of its authority and powers under the Plan to one or more directors or
officers of the Company; provided, however, that the Committee may not
delegate its authority and powers (a) with respect to Section 16 Persons, or
(b) in any way which would jeopardize the Plan's qualification under section
162(m) of the Code or Rule 16b-3.
3.4 Nonemployee Director Options. Notwithstanding any contrary provision of
this Section 3, the Board shall administer Section 9 of the Plan, and the
Committee shall exercise no discretion with respect to Section 9. In the
Board's administration of Section 9 and the Options granted to Nonemployee
Directors, the Board shall have all of the authority and discretion otherwise
granted to the Committee with respect to the administration of the Plan.
3.5 Decisions Binding. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
total number of Shares available for grant under the Plan shall not exceed
74,200,000. Shares granted under the Plan may be either authorized but
unissued Shares or treasury Shares.
4.2 Lapsed Awards. If an Award is settled in cash, or is cancelled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem
SAR), any Shares subject to such Award again shall be available to be the
subject of an Award.
4.3 Adjustments in Awards and Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, the Committee shall adjust the
number and class of Shares which may be delivered under the Plan, the number,
class, and price of Shares subject to
A-5
<PAGE>
outstanding Awards, and the numerical limits of Sections 5.1, 6.1, 7.1, and
8.1, in such manner as the Committee (in its sole discretion) shall determine
to be appropriate to prevent the dilution or diminution of such Awards. In the
case of Options granted to Nonemployee Directors pursuant to Section 9, the
foregoing adjustments shall be made by the Board, and any such adjustments
also shall apply to the future grants provided by Section 9. Notwithstanding
the preceding, the number of Shares subject to any Award always shall be a
whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Consultants at any time and from time
to time as determined by the Committee in its sole discretion. The Committee,
in its sole discretion, shall determine the number of Shares subject to each
Option, provided that during any Fiscal Year, no Participant shall be granted
Options covering more than 350,000 Shares. The Committee may grant Incentive
Stock Options, Nonqualified Stock Options, or a combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of
the Option, and such other terms and conditions as the Committee, in its
discretion, shall determine. The Award Agreement shall also specify whether
the Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its
sole discretion.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock
Option, the Exercise Price shall be not less than one hundred percent (100%)
of the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock Option,
the Exercise Price shall be not less than one hundred percent (100%) of the
Fair Market Value of a Share on the Grant Date; provided, however, that if on
the Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Exercise Price shall be
not less than one hundred and ten percent (110%) of the Fair Market Value of a
Share on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1
and 5.3.2, in the event that the Company or an Affiliate consummates a
transaction described in section 424(a) of the Code (e.g., the acquisition of
property or stock from an unrelated corporation), persons who become Employees
or Consultants on account of such transaction may be granted Options in
substitution for options granted by their former employer. If such substitute
Options are granted, the Committee, in its sole discretion and consistent with
section 424(a) of the Code, may determine that such substitute Options shall
have an exercise price less than one hundred percent (100%) of the Fair Market
Value of the Shares on the Grant Date.
5.4 Expiration of Options
5.4.1 Expiration Dates. Each Option shall terminate no later than the first
to occur of the following events:
(a) The date for termination of the Option set forth in the written Award
Agreement; or
(b) The expiration of ten (10) years from the Grant Date; or
(c) The expiration of one (1) year from the date of the Optionee's
Termination of Service for a reason other than the Optionee's death,
Disability or Retirement; or
A-6
<PAGE>
(d) The expiration of three (3) years from the date of the Optionee's
Termination of Service by reason of Disability; or
(e) The expiration of three (3) years from the date of the Optionee's
Retirement (except as provided in Section 5.8.2 regarding Incentive Stock
Options).
5.4.2 Death of Optionee. Notwithstanding Section 5.4.1, if an Optionee dies
prior to the expiration of his or her options, the Committee, in its
discretion, may provide that his or her options shall be exercisable for up to
three (3) years after the date of death.
5.4.3 Committee Discretion. Subject to the limits of Sections 5.4.1 and
5.4.2, the Committee, in its sole discretion, (a) shall provide in each Award
Agreement when each Option expires and becomes unexercisable, and (b) may,
after an Option is granted, extend the maximum term of the Option (subject to
Section 5.8.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option. However, in no event may any Option granted to a
Section 16 Person be exercisable until at least six (6) months following the
Grant Date (or such shorter period as may be permissible while maintaining
compliance with Rule 16b-3).
5.6 Payment. Options shall be exercised by the Participant's delivery of a
written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to the
Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the total Exercise Price, or (b) by any other means which the Committee, in
its sole discretion, determines to both provide legal consideration for the
Shares, and to be consistent with the purposes of the Plan.
As soon as practicable after receipt of a written notification of exercise
and full payment for the Shares purchased, the Company shall deliver to the
Participant (or the Participant's designated broker), Share certificates
(which may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as
it may deem advisable, including, but not limited to, restrictions related to
applicable federal securities laws, the requirements of any national
securities exchange or system upon which Shares are then listed or traded, or
any blue sky or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options
5.8.1 Exercisability. The aggregate Fair Market Value (determined on the
Grant Date(s)) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year (under
all plans of the Company and its Subsidiaries) shall not exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option may be exercised
more than three (3) months after the Participant's Termination of Service for
any reason other than Disability or death, unless (a) the Participant dies
during such three-month period, and (b) the Award Agreement or the Committee
permits later exercise. No Incentive Stock Option may be exercised more than
one (1) year after the Participant's termination of employment on account of
Disability, unless (a) the Participant dies during such one-year period, and
(b) the Award Agreement or the Committee permit later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be granted
only to persons who are employees of the Company or a Subsidiary on the Grant
Date.
A-7
<PAGE>
5.8.4 Expiration. No Incentive Stock Option may be exercised after the
expiration of ten (10) years from the Grant Date; provided, however, that if
the Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee pursuant to section 424(d) of the
Code, owns stock possessing more than 10% of the total combined voting power
of all classes of the stock of the Company or any of its Subsidiaries, the
Option may not be exercised after the expiration of five (5) years from the
Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of the Plan, an SAR
may be granted to Employees and Consultants at any time and from time to time
as shall be determined by the Committee, in its sole discretion. The Committee
may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination
thereof.
6.1.1 Number of Shares. The Committee shall have complete discretion to
determine the number of SARs granted to any Participant, provided that during
any Fiscal Year, no Participant shall be granted SARs covering more than
350,000 Shares.
6.1.2 Exercise Price and Other Terms. The Committee, subject to the
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan. However, the exercise price of
a Freestanding SAR shall be not less than one hundred percent (100%) of the
Fair Market Value of a Share on the Grant Date. The exercise price of Tandem
or Affiliated SARs shall equal the Exercise Price of the related Option. In no
event shall an SAR granted to a Section 16 Person become exercisable until at
least six (6) months after the Grant Date (or such shorter period as may be
permissible while maintaining compliance with Rule 16b-3).
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of
the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the
payout with respect to the Tandem SAR shall be for no more than one hundred
percent (100%) of the difference between the Exercise Price of the underlying
Incentive Stock Option and the Fair Market Value of the Shares subject to the
underlying Incentive Stock Option at the time the Tandem SAR is exercised; and
(c) the Tandem SAR shall be exercisable only when the Fair Market Value of the
Shares subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be
exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares
subject to the related Option.
6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on
such terms and conditions as the Committee, in its sole discretion, shall
determine. However, no SAR granted to a Section 16 Person shall be exercisable
until at least six (6) months after the Grant Date (or such shorter period as
may be permissible while maintaining compliance with Rule 16b-3).
6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
6.6 Expiration of SARs. An SAR granted under the Plan shall expire upon the
date determined by the Committee, in its sole discretion, and set forth in the
Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also
shall apply to SARs.
A-8
<PAGE>
6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date
of exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the
Committee, in its sole discretion, shall determine. The Committee, in its sole
discretion, shall determine the number of Shares to be granted to each
Participant, provided that during any Fiscal Year, no Participant shall
receive more than 175,000 Shares of Restricted Stock.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the
Committee, in its sole discretion, shall determine. Unless the Committee
determines otherwise, Shares of Restricted Stock shall be held by the Company
as escrow agent until the restrictions on such Shares have lapsed.
7.3 Transferability. Except as provided in this Section 7, Shares of
Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period of
Restriction. However, in no event may the restrictions on Restricted Stock
granted to a Section 16 Person lapse prior to six (6) months following the
Grant Date (or such shorter period as may be permissible while maintaining
compliance with Rule 16b-3).
7.4 Other Restrictions. The Committee, in its sole discretion, may impose
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate, in accordance with this Section 7.4.
7.4.1 General Restrictions. The Committee may set restrictions based upon
the achievement of specific performance objectives (Company-wide, divisional,
or individual), applicable federal or state securities laws, or any other
basis determined by the Committee in its discretion.
7.4.2 Section 162(m) Performance Restrictions. For purposes of qualifying
grants of Restricted Stock as "performance-based compensation" under section
162(m) of the Code, the Committee, in its discretion, may set restrictions
based upon the achievement of Performance Goals. The Performance Goals shall
be set by the Committee on or before the latest date permissible to enable the
Restricted Stock to qualify as "performance-based compensation" under section
162(m) of the Code. In granting Restricted Stock which is intended to qualify
under Code section 162(m), the Committee shall follow any procedures
determined by it from time to time to be necessary or appropriate to ensure
qualification of the Restricted Stock under Code section 162(m) (e.g., in
determining the Performance Goals).
7.4.3 Legend on Certificates. The Committee, in its discretion, may legend
the certificates representing Restricted Stock to give appropriate notice of
such restrictions. For example, the Committee may determine that some or all
certificates representing Shares of Restricted Stock shall bear the following
legend:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the Applied
A-9
<PAGE>
Materials, Inc. 1995 Equity Incentive Plan, and in a Restricted Stock
Agreement. A copy of the Plan and such Restricted Stock Agreement may be
obtained from the Secretary of Applied Materials, Inc."
7.5 Removal of Restrictions. Except as otherwise provided in this Section 7,
Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall be released from escrow as soon as practicable after the last
day of the Period of Restriction. Subject to the minimum Period of Restriction
specified in Section 2.35, the Committee, in its discretion, may accelerate
the time at which any restrictions shall lapse or be removed. After the
restrictions have lapsed, the Participant shall be entitled to have any legend
or legends under Section 7.4.3 removed from his or her Share certificate, and
the Shares shall be freely transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares, unless the Committee determines otherwise.
7.7 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be entitled to receive
all dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
With respect to Restricted Stock granted to a Section 16 Person, any
dividend or distribution that constitutes a "derivative security" or an
"equity security" under section 16 of the 1934 Act shall be subject to a
Period of Restriction equal to the longer of: (a) the remaining Period of
Restriction on the Shares of Restricted Stock with respect to which the
dividend or distribution is paid; or (b) six (6) months.
7.8 Return of Restricted Stock to Company. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under
the Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units and Performance
Shares may be granted to Employees and Consultants at any time and from time
to time, as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Participant provided
that during any Fiscal Year, (a) no Participant shall receive Performance
Units having an initial value greater than $3,000,000, and (b) no Participant
shall receive more than 175,000 Performance Shares.
8.2 Value of Performance Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee on or before the Grant
Date. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the Grant Date.
8.3 Performance Objectives and Other Terms. The Committee shall set
performance objectives in its discretion which, depending on the extent to
which they are met, will determine the number or value of Performance
Units/Shares that will be paid out to the Participants. The time period during
which the performance objectives must be met shall be called the "Performance
Period." Performance Periods of Awards granted to Section 16 Persons shall, in
all cases, exceed six (6) months in length (or such shorter period as may be
permissible while maintaining compliance with Rule 16b-3). Each Award of
Performance Units/Shares shall be evidenced by an Award Agreement that shall
specify the Performance Period, and such other terms and conditions as the
Committee, in its sole discretion, shall determine.
A -10
<PAGE>
8.3.1 General Performance Objectives. The Committee may set performance
objectives based upon the achievement of Company-wide, divisional, or
individual goals, applicable federal or state securities laws, or any other
basis determined by the Committee in its discretion.
8.3.2 Section 162(m) Performance Objectives. For purposes of qualifying
grants of Performance Units/Shares as "performance-based compensation" under
section 162(m) of the Code, the Committee, in its discretion, may determine
that the performance objectives applicable to Performance Units/Shares shall be
based on the achievement of Performance Goals. The Performance Goals shall be
set by the Committee on or before the latest date permissible to enable the
Performance Units/Shares to qualify as "performance-based compensation" under
section 162(m) of the Code. In granting Performance Units/Shares which are
intended to qualify under Code section 162(m), the Committee shall follow any
procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Performance Units/Shares under Code section 162(m)
(e.g., in determining the Performance Goals).
8.4 Earning of Performance Units/Shares. After the applicable Performance
Period has ended, the holder of Performance Units/Shares shall be entitled to
receive a payout of the number of Performance Units/Shares earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance objectives have been achieved.
After the grant of a Performance Unit/Share, the Committee, in its sole
discretion, may reduce or waive any performance objectives for such Performance
Unit/Share; provided, however, that Performance Periods of Awards granted to
Section 16 Persons shall not be less than six (6) months (or such shorter
period as may be permissible while maintaining compliance with Rule 16b-3).
8.5 Form and Timing of Payment of Performance Units/Shares. Payment of earned
Performance Units/Shares shall be made as soon as practicable after the
expiration of the applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Shares in the form of cash, in
Shares (which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance
Period) or in a combination thereof.
8.6 Cancellation of Performance Units/Shares. On the date set forth in the
Award Agreement, all unearned or unvested Performance Units/Shares shall be
forfeited to the Company, and again shall be available for grant under the
Plan.
SECTION 9
NONEMPLOYEE DIRECTOR OPTIONS
The provisions of this Section 9 are applicable only to Options granted to
Nonemployee Directors. The provisions of Section 5 are applicable to Options
granted to Employees and Consultants (and to the extent provided in Section
9.2.8, to Nonemployee Director Options).
9.1 Granting of Options
9.1.1 Initial Grants. Each Nonemployee Director who first becomes a
Nonemployee Director on or after the effective date of this Plan, automatically
shall receive, as of the date that the individual first is appointed or elected
as a Nonemployee Director, an Option to purchase 24,000 Shares.
9.1.2 Ongoing Grants. Each Nonemployee Director who both (a) is a
Nonemployee Director on the last business day of a Fiscal Year, and (b) has
served as a Nonemployee Director for the entire Fiscal Year which includes such
last business day, automatically shall receive, as of such last business day
only, an Option to purchase 10,000 Shares.
9.2 Terms of Options
A-11
<PAGE>
9.2.1 Option Agreement. Each Option granted pursuant to this Section 9 shall
be evidenced by a written stock option agreement which shall be executed by the
Optionee and the Company.
9.2.2 Exercise Price. The Exercise Price for the Shares subject to each
Option granted pursuant to this Section 9 shall be 100% of the Fair Market
Value of such Shares on the Grant Date.
9.2.3 Exercisability. Each Option granted pursuant to Section 9.1.1 shall
become exercisable as to 7,200 Shares on the first anniversary of the Grant
Date, as to an additional 6,600 Shares on the second anniversary of the Grant
Date, as to an additional 6,000 Shares on the third anniversary of the Grant
Date, and as to the remaining 4,200 Shares on the fourth anniversary of the
Grant Date. Each Option granted pursuant to Section 9.1.2 shall become
exercisable as to 2,500 Shares on the first anniversary of the Grant Date, and
as to an additional 2,500 Shares on each succeeding anniversary until 100% of
the Shares subject to such Option have become exercisable. Notwithstanding the
preceding, once an Optionee ceases to be a Director, his or her Options which
are not then exercisable shall never become exercisable and shall be
immediately forfeited, except to the limited extent provided in the Sections
9.2.4 and 9.2.6.
9.2.4 Retirement of Director. In the event that the Optionee completes at
least 10 years of continuous service on the Board and then incurs a Termination
of Service due to Retirement, the right to exercise all or a portion of any
shares subject to his or her Options that remain unexercisable immediately
prior to such Retirement shall accrue on the date on of Retirement in
accordance with the following rules. If the Optionee has less than 15 years of
service as of the date of his or her Retirement, 50% of the shares that
otherwise would have vested during the 12 months immediately following the
Retirement (had the Optionee remained a Nonemployee Director throughout such 12
month period) shall accrue on the Retirement date. If the Optionee has at least
15 (but less than 20) years of service as of the date of the Retirement, 100%
of the shares that otherwise would have vested during the 12 months immediately
following the Retirement (had the Optionee remained a Nonemployee Director
throughout such 12 month period) shall accrue on the Retirement date. If the
Optionee has at least 20 (but less than 25) years of service as of the date of
the Retirement, (a) 100% of the shares that otherwise would have vested during
the 12 months immediately following the Retirement (had the Optionee remained a
Nonemployee Director throughout such 12 month period) shall accrue on the
Retirement date, and (b) 50% of the shares that otherwise would have vested
during the second 12 months following the Retirement (had the Optionee remained
a Nonemployee Director throughout such 12 month period) shall accrue on the
Retirement date. If the Optionee has at least 25 years of service as of the
date of the Retirement, 100% of the shares that otherwise would have vested
during the 24 months immediately following the Retirement (had the Optionee
remained a Nonemployee Director throughout such 24 month period) shall accrue
on the Retirement date.
9.2.5 Expiration of Options. Each Option shall terminate upon the first to
occur of the following events:
(a) The expiration of five (5) years from the Grant Date; or
(b) The expiration of seven (7) months from the date of the Optionee's
termination of service as a Director for any reason other than the
Optionee's death, Disability or Retirement; or
(c) The expiration of one (1) year from the date of the Optionee's
termination of service by reason of Disability or Retirement.
9.2.6 Death of Director. Notwithstanding Section 9.2.5, if a Director dies
prior to the expiration of his or her options in accordance with Section 9.2.5,
then (a) 100% of the shares covered by his or her Options shall immediately
become 100% exercisable, and (b) his or her Options shall terminate one (1)
year after the date of his or her death.
9.2.7 Not Incentive Stock Options. Options granted pursuant to this Section
9 shall not be designated as Incentive Stock Options.
A-12
<PAGE>
9.2.8 Other Terms. All provisions of the Plan not inconsistent with this
Section 9 shall apply to Options granted to Nonemployee Directors; provided,
however, that Section 5.2 (relating to the Committee's discretion to set the
terms and conditions of Options) shall be inapplicable with respect to
Nonemployee Directors.
SECTION 10
MISCELLANEOUS
10.1 Deferrals. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant under an Award. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
10.2 No Effect on Employment or Service. Nothing in the Plan shall interfere
with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
10.3 Participation. No Employee or Consultant shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
10.4 Indemnification. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim,
action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, by contract, as a matter of
law, or otherwise, or under any power that the Company may have to indemnify
them or hold them harmless.
10.5 Successors. All obligations of the Company under the Plan, with respect
to Awards granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business or assets of the Company.
10.6 Beneficiary Designations. If permitted by the Committee, a Participant
under the Plan may name a beneficiary or beneficiaries to whom any vested but
unpaid Award shall be paid in the event of the Participant's death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In
the absence of any such designation, any vested benefits remaining unpaid at
the Participant's death shall be paid to the Participant's estate and, subject
to the terms of the Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant's estate.
10.7 Nontransferability of Awards. No Award granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited
extent provided in Section 10.6. All rights with respect to an Award granted to
a Participant shall be available during his or her lifetime only to the
Participant. Notwithstanding the foregoing, the Participant may,
A-13
<PAGE>
in a manner specified by the Committee, (1) transfer a Nonqualified Stock
Option to a Participant's spouse, former spouse or dependent pursuant to a
court-approved domestic relations order which relates to the provision of child
support, alimony payments or marital property rights, and (2) transfer a
Nonqualified Stock Option by bona fide gift and not for any consideration, to
(a) a member or members of the Participant's immediate family, (b) a trust
established for the exclusive benefit of the Participant and/or member(s) of
the Participant's immediate family, (c) a partnership, limited liability
company of other entity whose only partners or members are the Participant
and/or member(s) of the Participant's immediate family, or (d) a foundation in
which the Participant an/or member(s) of the Participant's immediate family
control the management of the foundation's assets.
10.8 No Rights as Stockholder. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of
the rights or privileges of a stockholder of the Company with respect to any
Shares issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
11.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. However, if and to the extent required to maintain the
Plan's qualification under Rule 16b-3, any such amendment shall be subject to
stockholder approval. In addition, as required by Rule 16b-3, the provisions of
Section 9 regarding the formula for determining the amount, exercise price, and
timing of Nonemployee Director Options shall in no event be amended more than
once every six (6) months, other than to comport with changes in the Code or
ERISA. (ERISA is inapplicable to the Plan.) The amendment, suspension, or
termination of the Plan shall not, without the consent of the Participant,
alter or impair any rights or obligations under any Award theretofore granted
to such Participant. No Award may be granted during any period of suspension or
after termination of the Plan.
11.2 Duration of the Plan. The Plan shall commence on the date specified
herein, and subject to Section 11.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter. However, without
further stockholder approval, no Incentive Stock Option may be granted under
the Plan after December 6, 2004.
SECTION 12
TAX WITHHOLDING
12.1 Withholding Requirements. Prior to the delivery of any Shares or cash
pursuant to an Award (or exercise thereof), the Company shall have the power
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
12.2 Withholding Arrangements. The Committee, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a
Participant to satisfy such tax withholding obligation, in whole or in part by
(a) electing to have the Company withhold otherwise deliverable Shares, or (b)
delivering to the Company already-owned shares having a Fair Market Value equal
to the amount required to be withheld. The amount of the withholding
requirement shall be deemed to include any amount which the Committee agrees
may be withheld at the time the election is made, not to exceed the amount
determined by using the maximum federal, state or local marginal income tax
rates applicable to the Participant with respect to the Award on the date that
the amount of tax to be withheld is to be determined. The Fair Market Value of
the Shares to be withheld or delivered shall be determined as of the date that
the taxes are required to be withheld.
A-14
<PAGE>
SECTION 13
LEGAL CONSTRUCTION
13.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
13.3 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
13.4 Securities Law Compliance. With respect to Section 16 Persons,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Award
Agreement or action by the Committee fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
Committee.
13.5 Governing Law. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the State of California.
13.6 Captions. Captions are provided herein for convenience only, and shall
not serve as a basis for interpretation or construction of the Plan.
A-15
<PAGE>
EXECUTION
IN WITNESS WHEREOF, Applied Materials, Inc., by its duly authorized officer,
has executed this working copy of the Plan on the date indicated below.
APPLIED MATERIALS, INC.
Dated: , 1999 By:
Title: Secretary
A-16
<PAGE>
APPENDIX B
APPLIED MATERIALS, INC.
SENIOR EXECUTIVE BONUS PLAN
(November 18, 1999 Restatement)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1--ESTABLISHMENT AND PURPOSE..................................... B-1
1.1 Purpose............................................................ B-1
1.2 Effective Date..................................................... B-1
SECTION 2--DEFINITIONS................................................... B-1
2.1 "Actual Award"..................................................... B-1
2.2 "Annual Revenue"................................................... B-1
2.3 "Base Salary"...................................................... B-1
2.4 "Board"............................................................ B-1
2.5 "Code"............................................................. B-1
2.6 "Committee"........................................................ B-1
2.7 "Company".......................................................... B-2
2.8 "Controllable Profits"............................................. B-2
2.9 "Customer Satisfaction MBOs"....................................... B-2
2.10 "Determination Date"............................................... B-2
2.11 "Disability"....................................................... B-2
2.12 "Earnings Per Share"............................................... B-2
2.13 "Individual MBOs".................................................. B-2
2.14 "Maximum Award".................................................... B-2
2.15 "Net Income"....................................................... B-2
2.16 "New Orders"....................................................... B-2
2.17 "Participant"...................................................... B-2
2.18 "Payout Formula"................................................... B-2
2.19 "Performance Goals"................................................ B-2
2.20 "Plan Year"........................................................ B-2
2.21 "Pro Forma Net Income"............................................. B-2
2.22 "Retirement"....................................................... B-3
2.23 "Return on Designated Assets"...................................... B-3
2.24 "Return on Sales".................................................. B-3
2.25 "Target Award"..................................................... B-3
SECTION 3--SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS......... B-3
3.1 Selection of Participants.......................................... B-3
3.2 Determination of Performance Goals................................. B-3
3.3 Determination of Target Awards .................................... B-3
3.4 Determination of Payout Formula or Formulae........................ B-3
3.5 Determination of Actual Awards..................................... B-3
SECTION 4--PAYMENT OF AWARDS............................................. B-4
4.1 Right to Receive Payment........................................... B-4
4.2 Timing of Payment.................................................. B-4
4.3 Form of Payment.................................................... B-4
4.4 Payment in the Event of Death...................................... B-4
SECTION 5--ADMINISTRATION................................................ B-4
5.1 Committee is the Administrator..................................... B-4
5.2 Committee Authority................................................ B-4
5.3 Tax Withholding.................................................... B-4
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 6--GENERAL PROVISIONS............................................. B-4
6.1 Nonassignability..................................................... B-4
6.2 No Effect on Employment.............................................. B-4
6.3 No Individual Liability.............................................. B-5
6.4 Severability; Governing Law.......................................... B-5
6.5 Affiliates of the Company............................................ B-5
SECTION 7--AMENDMENT AND TERMINATION...................................... B-5
7.1 Amendment and Termination............................................ B-5
SECTION 8--EXECUTION...................................................... B-5
</TABLE>
B-ii
<PAGE>
APPLIED MATERIALS, INC.
SENIOR EXECUTIVE BONUS PLAN
(November 18, 1999 Restatement)
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1 Purpose. Applied Materials, Inc. having established the Applied
Materials, Inc. Senior Executive Bonus Plan (the "Plan") effective as of
September 23, 1994, hereby amends and restates the Plan, effective as of
November 18, 1999, as follows. The Plan is intended to increase shareholder
value and the success of the Company by motivating key executives (a) to
perform to the best of their abilities, and (b) to achieve the Company's
objectives. The Plan's goals are to be achieved by providing such executives
with incentive awards based on the achievement of goals relating to the
performance of the Company and its individual business units. The plan is
intended to qualify as performance-based compensation under Code Section
162(m).
1.2 Effective Date. The Plan is effective as of November 18, 1999. The Plan
is subject to the approval of a majority of the shares of the Company's common
stock that are present in person or by proxy and entitled to vote at the 2000
Annual Meeting of Stockholders. As long as the Plan remains in effect, it
shall be resubmitted to shareholders as necessary to enable the Plan to
continue to qualify as performance-based compensation under Code Section
162(m).
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "Actual Award" means as to any Plan Year, the actual (if any) payable to
a Participant for the Plan Year. Each Actual Award is determined by the Payout
Formula for the Plan Year, subject to the Committee's authority under Section
3.5 to reduce the award otherwise determined by the Payout Formula.
2.2 "Annual Revenue" means the Company's or business unit's net sales for
the Plan Year, determined in accordance with generally accepted accounting
principles; provided, however, that prior to each Determination Date, the
Committee shall determine whether any significant item(s) shall be excluded or
included from the calculation of Annual Revenue with respect to one or more
Participants
2.3 "Base Salary" means as to any Plan Year, 100% of the Participant's
annualized salary rate on the last day of the Plan Year. Such Base Salary
shall be before both (a) deductions for taxes or benefits, and (b) deferrals
of compensation pursuant to Company-sponsored plans.
2.4 "Board" means the Company's Board of Directors.
2.5 "Code" means the Internal Revenue Code of 1986, as amended. Reference to
a specific Section of the Code shall include such Section, any valid
regulation promulgated thereunder, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such Section
or regulation.
2.6 "Committee" means the committee appointed by the Board to administer the
Plan. The Committee shall consist of no fewer than two members of the Board.
The members of the Committee shall be appointed by, and serve at the pleasure
of, the Board. Each member of the Committee shall qualify as an "outside
director" under Code Section 162(m).
B-1
<PAGE>
2.7 "Company" means Applied Materials, Inc. , a Delaware corporation.
2.8 "Controllable Profits" means as to any Plan Year, a business unit's
Annual Revenue minus (a) cost of sales, (b) research, development, and
engineering expense, (c) marketing and sales expense, (d) general and
administrative expense, (e) extended receivables expense, and (f) shipping
requirement deviation expense.
2.9 "Customer Satisfaction MBOs" means as to any Participant for any Plan
Year, the objective and measurable individual goals set by a "management by
objectives" process and approved by the Committee, which goals relate to the
satisfaction of external or internal customer requirements.
2.10 "Determination Date" means as to any Plan Year, (a) the first day of
the Plan Year, or (b) if later, the latest date possible which will not
jeopardize the Plan's qualification as performance-based compensation under
Code Section 162(m).
2.11 "Disability" means a permanent and total disability determined in
accordance with uniform and nondiscriminatory standards adopted by the
Committee from time to time.
2.12 "Earnings Per Share" means as to any Plan Year, the Company's Net
Income or a business unit's Pro Forma Net Income, divided by a weighted
average number of common shares outstanding and dilutive common equivalent
shares deemed outstanding.
2.13 "Individual MBOs" means as to a Participant for any Plan Year, the
objective and measurable goals set by a "management by objectives" process and
approved by the Committee (in its discretion).
2.14 "Maximum Award" means as to any Participant for any Plan Year, $3
million. The Maximum Award is the maximum amount which may be paid to a
participant for any Plan Year.
2.15 "Net Income" means as to any Plan Year, the income after taxes of the
Company and its consolidated subsidiaries for the Plan Year determined in
accordance with generally accepted accounting principles, provided that prior
to the Determination Date, the Committee shall determine whether any
significant item(s) shall be included or excluded from the calculation of Net
Income with respect to one or more Participants.
2.16 "New Orders" means as to any Plan Year, the firm orders for a system,
product, part, or service that are being recorded for the first time as
defined in the Company's Order Recognition Policy.
2.17 "Participant" means as to any Plan Year, an officer of the Company who
has been selected by the Committee for participation in the Plan for that Plan
Year.
2.18 "Payout Formula" means as to any Plan Year, the formula or payout
matrix established by the Committee pursuant to Section 3.4 in order to
determine the Actual Awards (if any) to be paid to Participants. The formula
or matrix may differ from Participant to Participant.
2.19 "Performance Goals" means the goal(s) (or combined goal(s)) determined
by the Committee (in its discretion) to be applicable to a Participant for a
Plan Year. As determined by the Committee, the Performance Goals applicable to
each Participant shall provide for a targeted level or levels of achievement
using one or more of the following measures: (a) Annual Revenue, (b)
Controllable Profits, (c) Customer Satisfaction MBOs, (d) Earnings Per Share,
(e) Individual MBOs, (f) Net Income, (g) New Orders, (h) Pro Forma Net Income,
(i) Return on Designated Assets, and (j) Return on Sales. The Performance
Goals may differ from Participant to Participant.
2.20 "Plan Year" means the 1995 fiscal year of the Company and each
succeeding fiscal year of the Company.
2.21 "Pro Forma Net Income" means as to any business unit for any Plan Year,
the Controllable Profits of such business unit, minus allocations of corporate
taxes, interest, and other expenses.
B-2
<PAGE>
2.22 "Retirement" means, with respect to any Participant, a termination of
his or her employment with the Company and all affiliates pursuant to any
mandatory executive retirement program adopted by the Company.
2.23 "Return on Designated Assets" means as to any Plan Year, the Pro Forma
Net Income of a business unit, divided by the average of beginning and ending
business unit designated assets, or Net Income of the Company, divided by the
average of beginning and ending designated corporate assets.
2.24 "Return on Sales" means as to any Plan Year, the percentage equal to
the Company's Net Income or the business unit's Pro Forma Net Income, divided
by the Company's or the business unit's Annual Revenue.
2.25 "Target Award" means the target award payable under the Plan to a
Participant for the Plan Year, expressed as a percentage of his or her Base
Salary, as determined by the Committee in accordance with Section 3.3.
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 Selection of Participants. On or prior to the Determination Date, the
Committee, in its sole discretion, shall select the officers of the Company
who shall be Participants for the Plan Year. In selecting Participants, the
Committee shall choose officers who are likely to have a significant impact on
the performance of the Company. Participation in the Plan is in the sole
discretion of the Committee, and on a Plan Year by Plan Year basis.
Accordingly, an officer who is a Participant for a given Plan Year in no way
is guaranteed or assured of being selected for participation in any subsequent
Plan Year or Years.
3.2 Determination of Performance Goals. On or prior to the Determination
Date, the Committee, in its sole discretion, shall establish the Performance
Goals for each Participant for the Plan Year. Such Performance Goals shall be
set forth in writing.
3.3 Determination of Target Awards. On or prior to the Determination Date,
the Committee, in its sole discretion, shall establish a Target Award for each
Participant. Each Participant's Target Award shall be determined by the
Committee in its sole discretion, and each Target Award shall be set forth in
writing.
3.4 Determination of Payout Formula or Formulae. On or prior to the
Determination Date, the Committee, in its sole discretion, shall establish a
Payout Formula or Formulae for purposes of determining the Actual Award (if
any) payable to each Participant. Each Payout Formula shall (a) be in writing,
(b) be based on a comparison of actual performance to the Performance Goals,
(c) provide for the payment of a Participant's Target Award if the Performance
Goals for the Plan Year are achieved, and (d) provide for an Actual Award
greater than or less than the Participant's Target Award, depending upon the
extent to which actual performance exceeds or falls below the Performance
Goals. Notwithstanding the preceding, no Participant's Actual Award under the
Plan may exceed his or her Maximum Award.
3.5 Determination of Actual Awards. After the end of each Plan Year, the
Committee shall certify in writing the extent to which the Performance Goals
applicable to each Participant for the Plan Year were achieved or exceeded.
The Actual Award for each Participant shall be determined by applying the
Payout Formula to the level of actual performance which has been certified by
the Committee. Notwithstanding any contrary provision of the Plan, (a) the
Committee, in its sole discretion, may eliminate or reduce the Actual Award
payable to any Participant below that which otherwise would be payable under
the Payout Formula, and (b) if a Participant terminates employment with the
Company prior to the end of a Plan Year for a reason other than Retirement,
Disability or death, he or she shall not be entitled to the payment of an
Actual Award for the Plan Year.
B-3
<PAGE>
SECTION 4
PAYMENT OF AWARDS
4.1 Right to Receive Payment. Each Actual Award that may become payable
under the Plan shall be paid solely from the general assets of the Company.
Nothing in this Plan shall be construed to create a trust or to establish or
evidence any Participant's claim of any right other than as an unsecured
general creditor with respect to any payment to which he or she may be
entitled.
4.2 Timing of Payment. Payment of each Actual Award shall be made within two
and one-half calendar months after the end of the Plan Year during which the
Award was earned.
4.3 Form of Payment. Each Actual Award normally shall be paid in cash (or
its equivalent) in a single lump sum. However, the Committee, in its sole
discretion, may declare any Actual Award, in whole or in part, payable in
restricted stock granted under the Company's 1995 Equity Incentive Plan. The
number of shares granted shall be determined by dividing the cash amount
foregone by the fair market value of a share on the date that the cash payment
otherwise would have been made. For this purpose, "fair market value" shall
mean the closing price on the NASDAQ/National Market for the day in question.
Any restricted stock so awarded shall vest over a period of not more than four
years, subject to acceleration for termination of employment due to death,
Disability, or Retirement.
4.4 Payment in the Event of Death. If a Participant dies prior to the
payment of an Actual Award earned by him or her prior to death for a prior
Plan Year, the Award shall be paid to his or her estate.
SECTION 5
ADMINISTRATION
5.1 Committee is the Administrator. The Plan shall be administered by the
Committee.
5.2 Committee Authority. The Committee shall have all discretion and
authority necessary or appropriate to administer the Plan and to interpret the
provisions of the Plan, consistent with qualification of the Plan as
performance-based compensation under Code Section 162(m). Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive, and binding upon all persons, and shall be given the maximum
deference permitted by law.
5.3 Tax Withholding. The Company shall withhold all applicable taxes from
any payment, including any federal, FICA, state, and local taxes.
SECTION 6
GENERAL PROVISIONS
6.1 Nonassignability. A Participant shall have no right to assign or
transfer any interest under this Plan.
6.2 No Effect on Employment. The establishment and subsequent operation of
the Plan, including eligibility as a Participant, shall not be construed as
conferring any legal or other rights upon any Participant for the continuation
of his or her employment for any Plan Year or any other period. Employment
with the Company is on an at-will basis only. The Company expressly reserves
the right, which may be exercised at any time and without regard to when
during a Plan Year such exercise occurs, to terminate any individual's
employment with or without cause, and to treat him or her without regard to
the effect which such treatment might have upon him or her as a Participant.
B-4
<PAGE>
6.3 No Individual Liability. No member of the Committee or the Board, or any
officer of the Company, shall be liable for any determination, decision or
action made in good faith with respect to the Plan or any award under the
Plan.
6.4 Severability; Governing Law. If any provision of the Plan is found to be
invalid or unenforceable, such provision shall not affect the other provisions
of the Plan, and the Plan shall be construed in all respects as if such
invalid provision had been omitted. The provisions of the Plan shall be
governed by and construed in accordance with the laws of the State of
California, with the exception of California's conflict of laws provisions.
6.5 Affiliates of the Company. Requirements referring to employment with the
Company or payment of awards may, in the Committee's discretion, be performed
through the Company or any affiliate of the Company.
SECTION 7
AMENDMENT AND TERMINATION
7.1 Amendment and Termination. The Board may amend or terminate the Plan at
any time and for any reason; provided, however, that if and to the extent
required to ensure the Plan's qualification under Code Section 162(m), any
such amendment shall be subject to stockholder approval.
SECTION 8
EXECUTION
IN WITNESS WHEREOF, Applied Materials, Inc., by its duly authorized officer,
has executed the Plan on the date indicated below.
APPLIED MATERIALS, INC.
Dated: , 1999 By __________________________________
Title:
B-5
<PAGE>
-- --
PRELIMINARY PRELIMINARY
PROXY PROXY
APPLIED MATERIALS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON MARCH 21, 2000.
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James C. Morgan and Donald A. Slichter, or
either of them, each with full power of substitution, as proxies of the
undersigned, to attend the Annual Meeting of Stockholders of Applied Materials,
Inc. to be held on Tuesday, March 21, 2000, at 2:00 p.m., and any adjournment
or postponement thereof, and to vote the number of shares the undersigned would
be entitled to vote if personally present on the items set forth on the reverse
side and upon such other business as may properly come before such meeting and
any adjournment or postponement thereof:
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE>
-- --
APPLIED MATERIALS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. 0
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE LISTED PROPOSALS.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS For All
M. Armacost, D. Coleman, H. Dwight, P. Gerdine, T. Kawanishi, P. Low, For Withheld Except
D. Maydan, S. Miller, J. Morgan, S. Shih O O O
INSTRUCTION: To withhold authority to vote for any individual Nominee, write
that Nominee's name in the space provided below.
____________________________________________________________________________
____________________________________________________________________________
2. TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE For Against Abstain
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 1,100,000,000 O O O
TO 2,500,000,000
3. TO APPROVE THE AMENDED AND RESTATED 1995 EQUITY INCENTIVE PLAN. For Against Abstain
O O O
4. TO APPROVE THE AMENDED AND RESTATED SENIOR EXECUTIVE BONUS PLAN For Against Abstain
O O O
</TABLE>
This proxy will be voted as specified, or if no choice is specified, will be
voted for the ten nominees for election and for Proposals 2, 3, and 4. (Please
sign exactly as your name appears. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a partner-
ship, please sign in partnership name by authorized person.)
_______________________________________________________________________________
_______________________________________________________________________________
Signature(s) Date
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
