2020 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant☒ Filed by a Party other than the Registrant☐
Check the appropriate box:
Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☐ | Definitive |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material Pursuant to §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):
| ☒ | No fee required. |
| ☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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: |
2020 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
|
|
January 26, 2017, 2020
Dear Fellow Shareholders:
WeOn behalf of the Board of Directors, we are pleased to invite you to attend Applied Materials’ 20172020 Annual Meeting of Shareholders, which will be held on Thursday, March 9, 2017,12, 2020, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.
The attached Notice of 2017 Annual Meeting of Shareholders andWe encourage you to read this Proxy Statement describebecause it contains important information for voting your shares and sets forth how the Board oversaw your investment over the past year. This year’s Proxy Statement reflects our continued focus on our business strategy, an engaged and effective Board, sound corporate governance and executive compensation practices, our sustainability and corporate social responsibility strategy and our regular dialogue with and responsiveness to be conducted atour shareholders.
Financial Performance and Business Strategy
In fiscal 2019, Applied Materials delivered solid results in a challenging market environment that was shaped by down cycles in both semiconductor and display equipment spending. Our broad portfolio of products and technologies has helped make Applied a more resilient company that can perform well in a variety of conditions. We are carefully managing our spending while increasing our R&D investments in new capabilities and products that put us in a great position for the Annual Meeting. future.
We maintain a positive long-term view of our markets as major new growth drivers emerge in the form of the Internet of Things (IoT), big data and artificial intelligence (AI). As the industry transitions to this new era of computing, there is a tremendous need for innovation in semiconductors and displays, and we believe this creates exciting opportunities for Applied. We remain focused on working closely with our customers to accelerate their roadmaps and bring technology breakthroughs to market.
Shareholder Engagement
We are committed to effective corporate governance that is informed by our shareholders, promotes the long-term interests of our shareholders, and strengthens the Board’s and management’s accountability.
We have also made available a copyrobust shareholder outreach program that focuses on governance, compensation, environmental and sustainability issues of interest to our shareholders. The outreach is a recurring, year-round effort, led by a cross-functional team that includes members of our 2016 Annual ReportInvestor Relations, Global Rewards, Diversity and Inclusion, Environmental Health and Safety and Legal functions, with participation of independent directors where appropriate. Shareholder feedback directly informs the Board’s decision-making on Form10-Ka variety of matters.
In response to the high level of shareholder support at last year’s annual meeting for a proposal for shareholder action by written consent, management and directors engaged in an extensive shareholder outreach to hear directly from our shareholders on their views on the topic. Feedback received was shared and discussed with the Proxy Statement.
Your votefull Board. In response to the shareholder feedback and after careful consideration, the Board is very importantsubmitting for shareholder approval an amendment and restatement of our Certificate of Incorporation to us, and voting your proxy will ensure your representation at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, we urge you to vote as soon as possible and submit your proxy via the Internet, or if you requested to receive printed proxy materials,allow shareholder action by telephone or by signing, dating and returning your proxy card.written consent.
Thank you for your attention to these important matterscontinued investment in and for your continued support of Applied Materials.
Sincerely,
Gary E. Dickerson
President and Chief Executive Officer
Thomas J. Iannotti Chairman of the Board |
Gary E. Dickerson President and Chief Executive Officer |
3050 Bowers Avenue Santa Clara, California 95054 Phone:(408) 727-5555 | Mailing Address: Applied Materials, Inc. 3050 Bowers Avenue P.O. Box 58039 Santa Clara, California 95052-8039 |
NOTICE OF
20172020 ANNUAL MEETING OF SHAREHOLDERS
Thursday, March 9, 201712, 2020
at 11:00 a.m. Pacific Time
The 20172020 Annual Meeting of Shareholders of Applied Materials, Inc. will be held on Thursday, March 9, 2017,12, 2020, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.
Items of Business
1. | To elect |
2. | To approve, on an advisory basis, the compensation of our named executive officers for fiscal year |
|
| To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year |
4. To approve an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent. | |
5. To transact any other business that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting. |
Your vote is important.important to us. You may vote via the Internet or by telephone, or if you requested to receive printed proxy materials, by signing, dating and returning your proxy card. If you are voting via the Internet or by telephone, your vote must be received by 11:59 p.m. Eastern Time on Wednesday, March 8, 2017.11, 2020. For specific voting instructions, please refer to the information provided in the following Proxy Statement, together with your proxy card or the voting instructions you receive bye-mail or that are provided via the Internet.
If you received a Notice of Internet Availability of Proxy Materials on how to access the proxy materials via the Internet, a proxy card was not sent to you, and you may vote only via the Internet, unless you have requested a paper copy of the proxy materials, in which case, you may also vote by telephone or by signing, dating and returning your proxy card. Shares cannot be voted by marking, writing on and returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for requesting a paper copy of the proxy materials are set forth on the Notice of Internet Availability.
By Order of the Board of Directors |
  |
Corporate Secretary |
Santa Clara, California
January 26, 2017, 2020
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on March 9, 2017:12, 2020: The Proxy Statement and Annual Report to Shareholders are available atwww.proxyvote.com.
| Page | ||||
| i | ||||
| i | ||||
| i | ||||
| ii | ||||
| xi | ||||
| Proposal 1—Election of Directors | 1 | |||
| 1 | ||||
| Board and Corporate Governance Practices | ||||
| ||||
| 7 | ||||
| 8 | ||||
| 9 | ||||
| 9 | ||||
| 10 | ||||
| 10 | ||||
| 10 | ||||
| 11 | ||||
| 12 | ||||
| 12 | ||||
| 13 | ||||
| 14 | ||||
| 14 | ||||
| 14 | ||||
| Director Compensation | ||||
| Stock Ownership Information | ||||
| Proposal 2—Approval, on an Advisory Basis, of the Compensation of Our Named Executive Officers | ||||
| Compensation Discussion and Analysis | �� | |||
| 38 | ||||
Reconciliation ofnon-GAAP adjusted financial measures used in the Compensation Discussion and Analysis section and elsewhere in this Proxy Statement, other than as part of disclosure of target levels, can be found in Appendix A.
2017This Proxy Statement contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks, market share, technology transitions, our business, strategies and financial performance, our development of new products, technologies and capabilities, and other statements that are not historical fact, and actual results could differ materially. Risk factors that could cause actual results to differ are set forth in the “Risk Factors” section of, and elsewhere in, our 2019 Annual Report on Form10-K and other filings with the Securities and Exchange Commission. All forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof, and Applied Materials undertakes no obligation to update any such statements.
2020 PROXY STATEMENT SUMMARY
20172020 PROXY STATEMENT SUMMARY
Your proxy is being solicited on behalf of the Board of Directors of Applied Materials, Inc. We are making this Proxy Statement available to shareholders beginning on January 26, 2017., 2020. This summary highlights information contained elsewhere in this Proxy Statement. We encourage you to read the entire Proxy Statement for more information prior to voting.
Annual Meeting of Shareholders
| Date and Time: | March | |
| Location: | Applied Materials, Inc., 3050 Bowers Avenue, Building 1, Santa Clara, California 95054 | |
| Record Date: | January | |
| Voting: | Shareholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the proposals to be voted on. | |
| Attendance: | Shareholders and their duly appointed proxies may attend the meeting. | |
Proposals and Board Recommendations
| For More Information | Board Recommendation | |||||||||
| Proposal 1 – Election of Directors | Pages 1 to | ✓FOR each Nominee | ||||||||
Judy Bruner |
|
| ||||||||
Xun (Eric) Chen |
|
| ||||||||
Aart J. de Geus |
|
Adrianna C. Ma | ||||||||
| Proposal 2 – Executive Compensation | Page | ✓ FOR | ||||||||
Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year | ||||||||||
| Proposal 3 – | ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| Page | ✓FOR | |||||||||
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year | ||||||||||
| Proposal 4 – Amend and Restate our Certificate of Incorporation to Allow Shareholders to Act by Written Consent | Pages 50 to 52 | ✓FOR | ||||||||
Approval of an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent | ||||||||||
Applied Materials, Inc. i
| Name and Occupation | Age | Director Since | Independent | Committees | Age | Director Since | Independent | Committees | ||||||||
| Judy Bruner | 58 | 2016 | ✓ | Audit |
61 |
2016 |
✓ |
Governance (Chair) | ||||||||
Executive Vice President, Administration and Chief Financial Officer, SanDisk Corporation (retired) | Audit
| |||||||||||||||
| Xun (Eric) Chen | 47 | 2015 | ✓ | Compensation |
50 |
2015 |
✓ |
Compensation | ||||||||
Chief Executive Officer, Team Curis Group | Strategy | |||||||||||||||
Partner, SB Investment Advisers (US), Inc.
| Strategy
| |||||||||||||||
| Aart J. de Geus | 62 | 2007 | ✓ | Strategy (Chair) |
65 |
2007 |
✓ |
Strategy (Chair) | ||||||||
Chairman of the Board of Directors,Co-Chief Executive Officer, Synopsys, Inc. | Investment | Investment
| ||||||||||||||
| Gary E. Dickerson | 59 | 2013 |
62 |
2013 | ||||||||||||
President and Chief Executive Officer, Applied Materials, Inc. | ||||||||||||||||
| Stephen R. Forrest | 66 | 2008 | ✓ | Strategy |
69 |
2008 |
✓ |
Audit | ||||||||
Professor of Electrical Engineering & Computer Science, Physics, and Materials Science & Engineering, University of Michigan | Investment | Strategy Investment
| ||||||||||||||
| Thomas J. Iannotti | 60 | 2005 | ✓ | Compensation (Chair) |
63 |
2005 |
✓ |
Compensation (Chair) | ||||||||
Senior Vice President and General Manager, Enterprise Services, Hewlett-Packard Company (retired) | Governance | |||||||||||||||
| Alexander A. Karsner | 49 | 2008 | ✓ | Compensation |
52 |
2008 |
✓ |
Compensation | ||||||||
Managing Partner, Emerson Collective | Governance Strategy | |||||||||||||||
Senior Strategist, X
| Governance
| |||||||||||||||
| Adrianna C. Ma | 43 | 2015 | ✓ | Audit |
46 |
2015 |
✓ |
Investment (Chair) | ||||||||
Managing Partner, Fremont Group | ||||||||||||||||
| Dennis D. Powell | 69 | 2007 | ��� | Audit (Chair) | ||||||||||||
Executive Vice President, Chief Financial Officer, Cisco Systems, Inc. (retired) | Governance Investment | |||||||||||||||
Managing Partner, Haleakala Holdings LLC | Audit Governance
| |||||||||||||||
Yvonne McGill |
52 |
2019 |
✓ |
Audit | ||||||||||||
Chief Financial Officer, Senior Vice President, Infrastructure Solutions Group and Global Financial Planning and Analysis, Dell Technologies
| ||||||||||||||||
Scott A. McGregor |
63 |
2018 |
✓ |
Audit | ||||||||||||
President and Chief Executive Officer, Broadcom Corporation (retired)
| Strategy
| |||||||||||||||
ii 2020 Proxy Statement
2020 PROXY STATEMENT SUMMARY
Board HighlightsPractices and Composition
Ensuring the Board is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders is a top priority of the Board and the Corporate Governance and Nominating Committee. The Board believes that new ideas and perspectives are critical to a forward-looking and strategic Board, as is the valuable experience and deep understanding of Applied’s business and industries that longer-serving directors bring. We continually review our Board’s composition with a focus on refreshing necessary skill sets as our businesses and industries evolve.
In line with the Board’s refreshment and succession planning practices, including consideration of recent and anticipated retirements, the Board appointed three new directors in the last 15 months and initiated the transition of the Chairman role.
New Board Members.The appointments of Judy Bruner in 2016, and Eric Chen and Adrianna C. Ma in 2015, have brought valuable background and diversity to the perspectives of the Board. Ms. Bruner is a well-respected chief financial officer with deep experience in the global high-tech industry. Dr. Chen is an accomplished chief executive officer with technological expertise and extensive experience in technology-enabled and related growth industries around the world. Ms. Ma has a broad financial perspective and a strong technical background, as well as experience in global growth investing, capital markets and mergers and acquisitions.
Chairman Succession.Willem P. Roelandts, the current Chairman of our Board, and Susan M. James are retiring from the Board, and their service on our Board will end upon the election of directors at the Annual Meeting. Our Board has appointed Thomas J. Iannotti to serve as the Chairman of thecomposition reflects strong Board subject topractices that support regular refreshment based on board needs and upon hisre-election to the Board at our Annual Meeting.proactive succession planning.
ii 2017 Proxy Statement
2017 PROXY STATEMENT SUMMARY
| Director Nominee Expertise | Key Attributes | |
|
Semiconductor Industry & Technology Financial and Accounting Global Business Strategy and Innovation Operations and Infrastructure Government Policy M&A and Organizational Growth Risk Management Public Company Board Experience Executive Leadership Independence 9 of 10 director nominees are independent Diversity 40% of director nominees are ethnically and/or gender diverse 30% are female 20% are ethnically diverse Tenure 2 directors added to Board over last 2 years > 10 years tenure 4-10 years tenure 0-4 years tenure 4 directors 3 directors 3 directors |
Board Practices Support Thoughtful Board Composition
|
The Board and the Corporate Governance and Nominating Committee regularly evaluate the size and composition of the Board to ensure appropriate alignment with the Company’s evolving business and strategic needs. |
Policy on Board Diversity |
The Board is committed to having a Board that reflects diverse perspectives, including those based on gender, ethnicity, skills, experience at policy-making levels in areas that are relevant to the Company’s global activities, and functional, geographic or cultural background. The Board has adopted a Policy on Diversity as part of its Corporate Governance Guidelines, which highlights its commitment to actively seek out women and ethnically diverse director candidates. |
Annual Board Evaluations |
The Board conducts an annual self-assessment of Board, Board Committees and individual directors to evaluate effectiveness. |
Board |
The Board believes the fresh perspectives brought by new directors are critical to a forward-looking and strategic Board when appropriately balanced by the deep understanding of Applied’s business provided by longer-serving directors. |
Director |
|
Applied Materials, Inc. iii
We are committed to effective corporate governance that is informed by our shareholders, promotes the long-term interests of our shareholders, and strengthens Board and management accountability.
Governance Highlights
✓ Annual Election of Directors | ✓ Shareholder Proxy Access | |
✓ Independent Chairman of the Board | ✓ No Poison Pill | |
✓ Highly Independent Board (9 of 10 Director nominees) and Committees | ✓ No Supermajority Vote Requirements | |
✓ Annual Board, Committee and Individual Evaluations | ✓ Majority Voting for Directors | |
✓ Robust Board Succession Planning | ✓ Regular Executive Sessions of Independent Directors | |
✓ Active Shareholder Engagement Practices | ✓ Stock Ownership Guidelines for Directors and Executives | |
✓ Shareholder Right to Call a Special Meeting | ||
|
| |
|
| |
|
| |
|
| |
|
| |
| ✓ Clawback Policy |
Shareholder Engagement
We place a high priority onbelieve that strong corporate governance should include regular engagement with our shareholders to enable us to understand and seekrespond to maintain an ongoing dialogue withshareholder concerns. We have a robust shareholder outreach program led by a cross-functional team that includes members of our investors. DuringInvestor Relations, Global Rewards, Diversity and Inclusion, Environmental Health and Safety and Legal functions. Independent members of our Board are also involved, as appropriate. In the fall, of 2016, we conducted an extensive shareholder outreach as part of a broad review ofsolicit feedback on our executive compensation program, corporate governance practices, and in response to shareholder feedbacksustainability and inclusion and diversity initiatives, as well as any matters voted on at our prior annual meeting. After the timefiling of our 2016 Annual Meeting. We engagedproxy statement, we engage again with a significant cross-sectionour shareholders about important topics to be addressed at our annual meeting. Following our annual meeting, we review the results of our shareholder base, including large institutional investors, pension funds,the meeting and investor feedback, as well as evaluate emerging trends in corporate governance and other investors outside ofareas. We share feedback we receive from our top 25 holders. We contacted the holders of approximately 43% of our outstanding shares, and engaged in active discussionsshareholders with shareholders representing 25% of our shares outstanding. To establish a direct line of communication to the Human Resources and Compensation Committee, (“HRCC”),Corporate Governance and Nominating Committee, and the Chair offull Board. Shareholder input is then factored into the HRCC participated in several of these discussions. In response to shareholder feedback, the HRCC made several changes to the compensation and incentive structures that enhance alignment with Applied’s strategic priorities and directly reflect the input provided by shareholders, as discussed further underBoard’s decision-making. See “Shareholder Engagement and Incentive Program Changes” on page 18.13 for more information.
In response to the high level of shareholder support at last year’s annual meeting for the proposal on shareholder action by written consent, this year, we also engaged in extensive shareholder outreach to hear directly from our shareholders on their views on shareholder action by written consent, as well as our existing special meeting process. Some of our independent directors participated in the outreach with several of our shareholders. Feedback received from the shareholders was shared and discussed with the Board. See “Shareholder Engagement” on page 13 for more information.
Applied Materials, Inc. iviii 2020 Proxy Statement
2020 PROXY STATEMENT SUMMARY
Company Overview
Applied Materials is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future.
We develop, design, produce and service semiconductor and display equipment for manufacturers that sell into highly competitive and rapidly changing end markets. Our competitive positioning is driven by our ability to identify major technology inflections early, and to develop highly differentiated materials engineering solutions for our customers to enable those technology inflections. Through our broad portfolio of products and technologies, innovation leadership and focused investments in research and development, we are enabling our customers’ success and creating significant value for our shareholders.
20162019 Performance Highlights
In fiscal 2016, we achieved record performance, growing orders, revenue and earnings per share toOver the highest levels in Applied’s history, made significant progress towardspast several years, our long-term strategic and financial goals, and delivered strong cash returns to our shareholders. Our revenue for fiscal 2016 grew to a record $10.8 billion, an increasebroad portfolio of 12% year-over-year, and we achieved record new orders of $12.4 billion, an increase of 23% year-over-year. We also achieved record GAAP earnings per share (“EPS”) of $1.54, up 38% over fiscal 2015, and recordnon-GAAP adjusted EPS of $1.75, growing 47% over fiscal 2015 (see Appendix A for a reconciliation ofnon-GAAP adjusted measures). Our strong financials allowed us to return $2.34 billion to shareholders through dividends and share repurchases.
Key highlights of our continued strong financial performance are shown below.
|
|
|
|
|
|
(1) See Appendix A fornon-GAAP reconciliations.
iv 2017 Proxy Statement
2017 PROXY STATEMENT SUMMARY
Strategic and Operational Highlights
In fiscal 2016, we continued to drive profitable growth by targeting major technology inflections and introducing new, differentiated, enabling products and services to help our customers address their most critical technological challenges.has made Applied a more resilient company that can perform well in a variety of conditions. In 2019, we delivered solid performance against very aggressive targets in a challenging market environment that was affected by down cycles in both memory and display equipment spending. Key highlights include:
| ● | Revenue of |
| ● | Operating profit of |
| ● | Delivered operating cash flow of |
| ● | Returned $3.2 billion to shareholders through dividends and |
Highlights of five-year performance achievements across key financial measures
Non-GAAP adjusted operating margin andnon-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix A fornon-GAAP reconciliations.
Applied Materials, Inc. v
Strategic and Operational Highlights
We believe the electronics industry is in a period of transition as major new growth drivers emerge in the form of the Internet of Things (IoT), big data and artificial intelligence (AI). In fiscal 2019, we continued to focus on initiatives that will help accelerate our customers’ roadmaps and put Applied in the best position for the future. Key highlights include:
| ● | We continued to |
| ● | In addition to advancements in our traditional unit process equipment, we introduced new Integrated Materials Solutions – a new category of products that combine multiple process steps in a single system to help customers create new types of semiconductor structures and devices. |
| ● | We strengthened our capabilities to address the |
| ● | We grew our installed base of semiconductor and display equipment by approximately 2,000 systems to now total nearly 43,000. Also, the number of tools we have under long-term service agreements |
| ● | We expanded our R&D capabilities by opening the Materials Engineering Technology Accelerator (META Center), astate-of-the-art facility aimed at speeding customer prototyping of new materials, process technologies and devices. The META Center extends Applied’s ability to collaborate with customers to pioneer new ways of improving chip performance, power and cost. |
The Human Resources and Compensation Committee (“HRCC”) approved an aggressive set of scorecard targets for the executive officers for fiscal 2019, including financial targets above any levels that Applied had achieved in the past, as well as equally challenging operational targets. Although the aggressive targets resulted in below-target bonus payments, the Company expects to see market share growth for calendar year 2019 and also made significant progress on long-term growth initiatives.
During fiscal 2019, Applied delivered solid financial and operational performance in a challenging environment and made meaningful progress towards our long-term strategic goals that are focused on enabling strong longer-term revenue and EPS growth; however, the results were below aggressively set targets. Accordingly, bonus payouts to our executive officers were below target bonus amounts. As part of our multi-year incentive program, for the period of 2017 to 2019, the HRCC approved aggressive goals fornon-GAAP adjusted operating margin and wafer fabrication equipment (“WFE”) market share. The results for this three-year performance period were above target, resulting in above target level performance share unit awards for our executive officers.
vi 2020 Proxy Statement
2020 PROXY STATEMENT SUMMARY
Stock Price Performance
Our strong strategicIn fiscal 2019, our stock price performance reflected steady market optimism, particularly in the second half of the year, as the semiconductor market environment showed early signs of strength in foundry and financial performancelogic spending, and continued reduction in fiscal 2016 also resulted in meaningful value creation for our shareholders. As illustrated below,memory inventory levels. Over the past five years, Applied significantlyhas outperformed both our peer group and the S&P 500 Information Technology Index.Index, as shown below. In addition, Applied was the second highest performing stock on the NASDAQ 100 and the fifth highest performing stockoutperformed peers by over 40% in the S&P 500 during calendar year 2016.fiscal 2019.
FY 2012FY2015 – FY 2016FY2019 Total Shareholder Return vs. Key Peers
Applied Materials, Inc. vvii
Primary Compensation Elements and Executive Compensation Highlights for Fiscal 2019
The primary elements of our compensation program consist of base salary, annual incentive bonuses and long-term incentive awards. Other elements of compensation include a 401(k) savings plan, deferred compensation benefits and other benefits programs that are generally available to all employees. Primary elements and highlights of our fiscal 2019 compensation program were as follows:
| Element of Pay | Structure | Highlights | ||||||||||||||||||||||||
Base Salary (see page 29) | ∎ | Fixed cash compensation for expectedday-to-day responsibilities | ∎ | Fiscal 2019 salaries for each named executive officer (“NEO”) increased from 2018 levels to reflect increases in competitive pay positioning levels | ||||||||||||||||||||||
| ∎ | Reviewed annually and adjusted when appropriate, based on scope of responsibility, performance, time in role, experience, and competitive market for executive talent | |||||||||||||||||||||||||
Annual Incentive Bonuses (see page 29) | ∎ ∎ ∎ ∎ ∎ | Variable compensation paid in cash Based on performance againstpre-established financial, operational, strategic and individual performance measures Financial andnon-financial metrics provide a comprehensive assessment of executive performance Performance metrics evaluated annually for alignment with strategy and market trends NEO annual incentives determined through three-step performance measurement process:
Funding Allocation 1 Initial Funding Threshold Non-GAAP Adjusted EPS 2 Corporate Scorecard Business and Strategic Goals 3 Individual Performance Modifier Individual NEO Performance | ∎ ∎ ∎ ∎ | Fiscal 2019 target bonuses as a percentage of base salary were the same as fiscal 2018 levels for all the NEOs, except for Mr. Durn, whose target was increased to reflect competitive pay positioning level for annual incentive targets for CFOs The initial funding thresholdnon-GAAP adjusted EPS goal for fiscal 2019 was $2.90. The Company achieved an actual result of $3.04 As the initial funding threshold was achieved, the annual bonuses were based on the performance of the Company’s objective and quantifiable business and strategic goals in the corporate scorecard for each NEO Based on achievement compared to goals, fiscal 2019 actual annual bonuses ranged from 0.49x to 0.69x target for our NEOs — Achievement against the corporate scorecard ranged from 0.49x to 0.65x target (see corporate scorecard information on pages 32 and 33) — Based on an assessment of individual performance results and the impact against both quantitative and strategic objectives, each NEO, except for Mr. Durn, received an IPF of 1.0x. Mr. Durn received an IPF of 1.25x in recognition of his above and beyond performance in successfully managing external investor relationships and his vision and execution in driving major improvements in efficiency and effectiveness across the Finance organization (see individual performance highlights on page 34) | ||||||||||||||||||||||
Long-Term Incentives (see page 35) | ∎ ∎ ∎ ∎ | Performance share units (“PSUs”) to establish rigorous long-term performance alignment Restricted stock units (“RSUs”) to provide link to shareholder value creation and retention value PSUs vest based on achievement of3-yearnon-GAAP adjusted operating margin and3-year Total Shareholder Return (“TSR”) measured against the S&P 500 PSUs vests at end of3-year performance period, based on achievement of performance goals; RSUs vest ratably over 3 years | ∎ ∎ ∎ | The target vehicle mix of the equity awards consists of 75% PSUs and 25% RSUs for the CEO and 50% PSUs and 50% RSUs for the other NEOs Non-GAAP adjusted operating margin is a key measure of our Company’s long-term success For fiscal 2019, the WFE market share metric applicable for fiscal 2018 PSUs was replaced with relative TSR, which better reflects our growing Display and Services businesses, in addition to our semiconductor segment, and incentivizes management to outperform the market through each business environment | ||||||||||||||||||||||
viii 2020 Proxy Statement
2020 PROXY STATEMENT SUMMARY
Pay for PerformanceMix
In fiscal 2016, we continued2019, a significant portion of our payexecutive compensation consisted of variable compensation and long-term incentives. As illustrated below, 92% of CEO compensation for performance philosophy through a strong emphasis onat-riskfiscal 2019 comprised variable compensation tied to the achievementelements, and 84% of performance objectives and the creation of shareholder value.CEO overall compensation was delivered in equity with multi-year vesting.
FY2019 Compensation Mix1 | ||
CEO | All Other | |
| ||
|
| |
|
| |
84% Long-Term Incentives 92% Variable Compensation 76% Long-Term Incentives 87% Variable Compensation
1 Represents total direct compensation for FY2019
Summary of Fiscal 20162019 Total Direct Compensation
Fiscal 2016The following table summarizes elements of annual total direct compensation for our named executive officers (“NEOs”),NEOs for fiscal 2019, consisting of (1) base salary, (2) annual incentive bonus and annual(3) long-term incentive awardawards (the grant date fair value of stock awards), is summarized in the below table.. This table excludes amounts not considered by the HRCC to be annual total direct compensation, that aresuch as certain other amounts required by the Securities and Exchange Commission (“SEC”)SEC to be reported in the Summary Compensation Table (see page 3841 of this Proxy Statement).
| Name and Principal Position | Salary ($) | Annual Incentive Bonus ($) | Annual Long-Term Incentive Award ($) | Total ($) | ||||||||||||
Gary E. Dickerson | 1,019,231 | 2,449,440 | 11,111,985 | 14,580,656 | ||||||||||||
President and Chief Executive Officer | ||||||||||||||||
Robert J. Halliday | 637,019 | 1,033,358 | 4,321,318 | 5,991,695 | ||||||||||||
Senior Vice President, Chief Financial Officer | ||||||||||||||||
Ali Salehpour | 560,577 | 882,651 | 3,086,656 | 4,529,884 | ||||||||||||
Senior Vice President, General Manager, New Markets and Service Group | ||||||||||||||||
Omkaram Nalamasu | 468,846 | 622,659 | 2,160,671 | 3,252,176 | ||||||||||||
Senior Vice President and Chief Technology Officer | ||||||||||||||||
Thomas F. Larkins | 489,231 | 640,494 | 1,975,455 | 3,105,180 | ||||||||||||
Senior Vice President, General Counsel and Corporate Secretary | ||||||||||||||||
vi 2017 Proxy Statement
2017 PROXY STATEMENT SUMMARY
Key Fiscal 2016 Executive Compensation Highlights
Compensation Program Changes
As a result of a broad review of our compensation program and in response to feedback from our shareholders, the HRCC made several changes to the compensation and incentive structures that both enhanced alignment with Applied’s strategic priorities and directly reflected the input provided by shareholders. These changes applied to bonus determinations for fiscal 2016 and the equity grants approved for fiscal 2017, both of which occurred in early fiscal 2017.
Summary of key changes:
| Name and Principal Position | Salary ($) | Annual ($) | Annual ($) | Total ($) | ||||||||||||
Gary E. Dickerson |
| 1,024,808 |
|
| 1,133,000 |
|
| 11,696,506 |
|
| 13,854,314 |
| ||||
President and Chief Executive Officer | ||||||||||||||||
Daniel J. Durn |
| 620,673 |
|
| 580,078 |
|
| 3,931,029 |
|
| 5,131,780 |
| ||||
Senior Vice President, Chief Financial Officer | ||||||||||||||||
Ali Salehpour |
| 620,673 |
|
| 411,750 |
|
| 3,931,029 |
|
| 4,963,452 |
| ||||
Senior Vice President, Services, Display and Flexible Technology | ||||||||||||||||
Prabu G. Raja |
| 564,058 |
|
| 430,948 |
|
| 2,892,132 |
|
| 3,887,138 |
| ||||
Senior Vice President, Semiconductor Products Group | ||||||||||||||||
Steve G. Ghanayem |
| 564,058 |
|
| 497,543 |
|
| 2,892,132 |
|
| 3,953,733 |
| ||||
Senior Vice President, New Markets and Alliances Group | ||||||||||||||||
Applied Materials, Inc. viiix
Pay and |
The HRCC believes that these program changes enhance the alignment between our incentive program and our strategic priorities, and reflect the input of our shareholders. More detailed discussion of the shareholder feedback we received and the changes made is under “Shareholder Engagement and Incentive Program Changes” on page 18.
Continued Alignment of Pay with Performance
The following chart demonstratesHRCC approves aggressive performance goals for the alignment between total shareholder return (“TSR”) andCEO, as well as for the entire executive leadership team. As a result, despite outstanding TSR growth from fiscal 2015 through 2019, our CEO’s total direct compensation of our CEO forhas remained essentially flat over the last five fiscal years.same period.
| (1) | Total direct compensation consists of annual base salary, |
| (2) | TSR line illustrates the total shareholder return on our common stock during the period from October |
x 2020 Proxy Statement
2020 PROXY STATEMENT SUMMARY
Sustainability and Corporate Social Responsibility
Our Approach
Applied is committed to growing our business in a sustainable and socially responsible manner. We are focusing our resources and capabilities on addressing the sweeping technological challenges in the era of Artificial Intelligence and big data, and working with our customers to build a safer, more equitable and sustainable future. At the heart of Applied’s values is a commitment to operate with responsibility and integrity while making a positive contribution to our industry and the world around us. To drive change and innovation, we are making investments to research and development, our operations, our supply chain and to our interactions with our local communities.
Sustainability and Corporate Social Responsibility Governance
Our Board and management oversee sustainability matters to foster accountability. We have established executive leadership of a company-wide strategy on environmental, social and governance (ESG) matters and reporting and focused on integrating sustainability into our operations and company culture through initiatives aligned to company strategy that address a broad set of stakeholders, including customers, employees, suppliers, governments and our local communities.
Our Environmental, Health and Safety (“EHS”) organization is dedicated to maintaining a safe and healthful working environment, demonstrating environmental leadership, and meeting or exceeding regulatory compliance. The Head of EHS reports directly to the Board of Directors on a quarterly basis and provides a morein-depth environmental and sustainability update to the Audit Committee on an annual basis. We have a team fully dedicated to supporting our work in designing a culture of inclusion, and our HRCC oversees our corporate culture and human capital management programs, including our diversity and inclusion practices and initiatives. The HRCC approved ESG objectives for our annual bonus program to incentivize our leadership to improve employee safety, engagement and learning and development, to promote a culture of inclusion and to accelerate the representation of women and underrepresented minorities in our workforce. Further details and data on our sustainability and corporate social responsibility practices and accomplishments can be found in our annually published Corporate Social Responsibility Report.
We believe that investing in our people, in our communities, and in operating our business sustainably will drive long-term value for Applied and its shareholders. These three pillars, as described below, provide the framework by which we manage our key initiatives:
Sustainability
| ● | Conducting business in environmentally conscious, socially responsible and ethical manner while protecting the health and safety of our workers and community |
| ● | Guiding principles include designing efficient and sustainable products, pollution prevention, worker protection and ethical business practices |
People
| ● | Building a culture of inclusion with a focus on leadership, eliminating systemic barriers and fostering engagement |
| ● | Promoting ongoing career development for employees to encourage innovation and engagement |
Community
| ● | Investing financial and human resources in communities where we work and live |
| ● | Investing in education, arts and culture, civic engagement, and the environment |
| ● | Encouraging employee involvement through charitable donations and volunteer programs |
Applied Materials, Inc. xi
Key Initiatives
| Diversity and Inclusion | Supply Chain | |
We believe diverse and inclusive teams create a richer culture, enhance performance, and attract the best talent. ●Transparency. Publish diversity and inclusion information to highlight initiatives and accomplishments and provide key diversity data to our stakeholders ●Commitment.Continue to build a culture of inclusion to accelerate progress towards meeting Company goals of increasing women’s representation globally and underrepresented minorities in our U.S. workforce. Promote the next generation of diverse technology leaders by supporting STEM education programs ●Engagement.Integrate emphasis on diversity and inclusion in new hire orientation and employee development programs and measure inclusion in our annual employee survey | Sustainable supply chains are core to our success, and we actively seek to manage and promote global best practices. ●Industry Coalition. Member of Responsible Business Alliance (formerly EICC) and have adopted its Code of Conduct, to promote safe working conditions in supply chains and environmentally-responsible, sustainable and ethical business operations ●Commitment to High Standards. Require all companies in our global supply chain to implement Responsible Business Alliance Code of Conduct and Applied’s Standards of Business Conduct | |
| Environment | Ethics | |
We seek to operate and develop products in a way that minimizes environmental impact. ●GHG Emissions. Committed to reducing GHG emissions in our own operations and in our industries through energy-efficient product design and customer solutions ●Water and Waste Reduction. Our Austin, TX water reclamation project has recycled 5.7 million gallons of water. Our continued focus on recycling increased our 2018 waste diversion rate to 81%. Packaging materials now account for roughly 70% of our total recyclables ●Renewable Energy. Our onsite green-power generation initiatives in 2018 produced 3.4 Gigawatt hours (the equivalent of powering 2.3 million homes per year). In 2018, 31% of our energy consumption came from renewable sources | We maintain highest ethical standards in interactions with employees, customers, suppliers, competitors and public. ●Human Rights. Our Standards of Business Conduct include several important provisions on human rights, including prohibitions on the use of child labor or forced, bonded or indentured labor in our operations ●Conflict Minerals. Committed to responsible sourcing of materials for our products. Do not directly purchase conflict minerals or have any direct relationship with mines or smelters that process these minerals. Are involved in the Conflict-Free Sourcing Initiative (CFSI) ●Training and Business Ethics Helplines. Conduct numerous global training reinforcement programs and offer 24/7 Business Ethics Helplines | |
viiixii 20172020 Proxy Statement
PROPOSAL 1—ELECTION OF DIRECTORS
PROXY STATEMENT
PROPOSAL 1—ELECTION OF DIRECTORS
Applied’s Board of Directors is elected each year at the Annual Meeting of Shareholders. Applied currently has eleven11 directors. Dennis D. Powell is retiring from the Board, and his service on our Board will end upon completion of his current term in March 2020. The Board has authorized a reduction in the size of the Board from 11 to ten directors, effective upon the election of directors at the Annual Meeting. Upon the recommendation of the Corporate Governance and Nominating Committee, the Board has nominated the nineten individuals listed below for election at the Annual Meeting, each of whom currently serves as a director of Applied. These nominees bring a wide variety of relevant skills, professional experience and backgrounds, as well as diverse viewpoints and perspectives to represent the long-term interests of shareholders, and to fulfill the leadership and oversight responsibilities of the Board.
If any nominee listed below becomes unable to stand for election at the Annual Meeting, the persons named as proxies may vote for any person designated by the Board to replace the nominee. Alternatively, the proxies may vote for the remaining nominees and leave a vacancy that the Board may fill later, or the Board may reduce the authorized number of directors. As of the date of this Proxy Statement, the Board is not aware of any nominee who is unable or will decline to serve as a director.
Willem P. Roelandts, the current Chairman of our Board, and Susan M. James are retiring from the Board, and their service on our Board will end upon the election of directors at the Annual Meeting. The Board has authorized a reduction in the size of the Board from eleven to nine directors, effective upon the election of directors at the Annual Meeting, and has appointed Thomas J. Iannotti, an independent director, to serve as the Chairman of the Board, subject to and upon hisre-election to the Board at the Annual Meeting. Each director elected at the Annual Meeting will serve until Applied’s 20182021 Annual Meeting of Shareholders and until he or she is succeeded by another qualified director who has been elected, or, if earlier, until his or her death, resignation or removal.
✓ | THE BOARD RECOMMENDS THAT YOU VOTEFOR EACH OF THE FOLLOWING DIRECTOR NOMINEES
| |
  | Judy Bruner
Executive Vice President, Administration and Chief Financial Officer, SanDisk Corporation (retired) | Independent Director
Board Committees: ● Corporate Governance and Nominating (Chair) ● Audit Other Current Public Boards: ● Rapid7, Inc. ● Seagate Technology plc ● Varian Medical Systems, Inc.
Key Qualifications and Expertise:
● Executive leadership and management experience
● Semiconductor industry leadership ●Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures
● Global business, industry, finance, information technology and operational experience
● Risk management and controls
● Strategy and innovation ●Public company board experience | ||||
Judy Bruner | ||||||
| Corporation, a supplier of flash storage products, from June 2004 until its acquisition by Western Digital in May 2016. Previously, she was Senior Vice President and Chief Financial Officer of Palm, Inc., a provider of handheld computing and communications solutions, from September 1999 until June 2004. Prior to Palm, Inc., Ms. Bruner held financial management positions at 3Com Corporation, Ridge Computers and Hewlett-Packard Company. She currently serves as a member of the boards of directors of | ||||||
Applied Materials, Inc. 1
  | Xun (Eric) Chen
SB Investments Advisers (US), Inc. | Independent Director
Age 50 Board Committees: ● Human Resources and Compensation ● Strategy
Key Qualifications and Expertise:
● Executive leadership and management experience
● Semiconductor industry leadership
● Global business, industry and operational experience in the technology and information sector
● Mergers and acquisitions, capital markets
● Strategy and innovation ●Public company board experience | ||||
Eric Chen is a Managing Partner of SB Investment Advisers (US), | ||||||
focused on investments in the technology sector, since March 2018. Prior to joining SBIA, Dr. Chen was | ||||||
| Dr. Chen also currently serves as a member of the board of directors of Che Hao Duo Group. | ||||||
  | Aart J. de Geus
Chairman andCo-Chief Executive Officer, Synopsys, Inc. | Independent Director
Age 65 Board Committees: ● Strategy ●Investment Other Current Public Boards: ● Synopsys, Inc.
Key Qualifications and Expertise:
● Executive leadership and global management experience
● Semiconductor industry leadership
● Innovation, management development and understanding of global challenges and opportunities
● Navigating a company fromstart-up through various stages of growth
● Mergers and acquisitions
● Cybersecurity ● Risk management and controls ●Public company board | ||||
Aart J. de Geus | ||||||
related services for semiconductor design companies, and currently serves as its Chairman of the Board of Directors andCo-Chief Executive Officer. Since 1986, Dr. de Geus has held various positions at Synopsys, including President, Senior Vice President of Engineering and Senior Vice President of Marketing, and has served as a member of its board of directors. From 1982 to 1986, Dr. de Geus was employed by the General Electric Company, a global | ||||||
2 20172020 Proxy Statement
PROPOSAL 1—ELECTION OF DIRECTORS
  | Gary E. Dickerson
President and Chief Executive Officer, Applied Materials, Inc. |
Age 62
Key Qualifications and Expertise:
● Executive leadership and management experience
● Semiconductor industry leadership
● Global business, industry and operational experience
● Extensive engineering and technological leadership
● Understanding of complex industry and global challenges
● Expertise in driving strategy, innovation and product development | ||||
Gary E. Dickerson | ||||||
| Officer and a member of the Board of Directors of Applied | ||||||
| since Mr. Dickerson was named President of Applied in | ||||||
  | Stephen R. Forrest
Professor of Electrical Engineering & Computer Science, Physics, and Materials Science & Engineering, University of Michigan | Independent Director
Age 69 Board Committees: ● Audit ● Strategy ●Investment
Key Qualifications and Expertise:
● Semiconductor,
● Research and development portfolio management
● Government policy
●
● Establishing partnerships to develop businesses in new markets focused on alternative energy and other technologies | ||||
Stephen R. Forrest | ||||||
| Professor of Electrical Engineering and Computer Science, as Professor of Physics, and as Professor of Materials Science and Engineering at the University of Michigan, and leads the University’s Optoelectronics Components and Materials Group. Dr. Forrest also has been the lead editor of Physical Review Applied, a scientific journal covering engineering, physics and technologies, since June 2017. From January 2006 to December 2013, | ||||||
Applied Materials, Inc. 3
  | Thomas J. Iannotti
Senior Vice President and General Manager, Enterprise Services, Hewlett-Packard Company (retired) | Chairman of the Board Independent Director
Board Committees: ● Human Resources and Other Current Public Boards: ● Atento S.A.
Key Qualifications and Expertise:
● Service management for technology companies on a global, regional and country level
● Senior leadership and management experience
● Global business, industry and operational experience
● International strategic and business development
● Public company board experience | ||||
Thomas J. Iannotti | ||||||
| and General Manager, Enterprise Services, for | ||||||
| ||||||
  | Alexander A. Karsner
| Independent Director
Age 52 Board Committees: ● Human Resources and Compensation ● Corporate Governance and Nominating
Key Qualifications and Expertise:
● Expertise in public policy and government relations
● Domestic and international trade, development and investment markets
● Cybersecurity ● Environment and sustainability, including renewable energy policy, technologies and commercialization ●Entrepreneurial leadership
●
● Public company board experience | ||
Alexander A. Karsner | ||||
| market transformation through nature-based solutions. Mr. Karsner most recently served as Managing Partner of Emerson Collective, an investment platform fundingnon-profit, philanthropic andfor-profit portfolios | ||||
| advancing education, immigration, the environment and other social | 2014, as well as Argonne National Laboratory, and was previously an Associate of the Harvard Kennedy School. He presently is on the board of Conservation International and director emeritus of the National Marine Sanctuaries Foundation. He is a Life Member of the Council of Foreign Relations and the Trilateral Commission, Distinguished Fellow of the Council on Competitiveness and a Henry Crown Fellow of the Aspen Institute. | |||
4 20172020 Proxy Statement
PROPOSAL 1—ELECTION OF DIRECTORS
  | Adrianna C. Ma
Managing Partner, | Independent Director
Board Committees: ● Investment (Chair) ● Audit ● Corporate Governance and Nominating
Key Qualifications and Expertise:
● Broad experience with technology companies
● Expertise in global growth investment
● Financial and accounting expertise
● Mergers and acquisitions, capital markets
● Board experience with technology-enabled growth companies | ||
Adrianna C. Ma | ||||
| she was a Managing Partner at the Fremont Group, a private investment company | ||||
|
Dell Technologies, Inc. | Independent Director
Age 52 Board Committees: ● Audit
Key Qualifications and Expertise:
●
● Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures
● | ||||
Yvonne McGill has been Chief Financial Officer and | ||||||
| Senior Vice President, Infrastructure Solutions Group since March 2018 and Senior Vice President, Global Financial Planning and Analysis since August 2015 at Dell Technologies, Inc., a leading global end-to-end technology provider, with a comprehensive portfolio of IT hardware, software and service solutions spanning both traditional infrastructure and emerging, multi-cloud technologies. Ms. McGill served in various other finance leadership roles since joining Dell in 1997. Prior to Dell, Ms. McGill worked at ManTech International Corporation and Price Waterhouse. She is a Certified Public Accountant (inactive). Ms. McGill also currently serves on the Susan G. Komen Greater and Central Texas Foundation Board. | ||||||
Applied Materials, Inc. 5
| Scott A. McGregor President and Chief Executive Officer, Broadcom Corporation (retired) | Independent Director Director since 2018 Age 63 Board Committees:
● ● Strategy Other Current Public Boards: ● Equifax Inc. (since October 2017) Key Qualifications and Expertise: ● Executive leadership and management experience ● Semiconductor industry leadership ● Global business, industry and ● Strategy, innovation, management development and understanding of global challenges and opportunities ● Cybersecurity
● Public company board | ||||
| ||||||
James C. Morgan has servedbecame Chairman Emeritus in March 2009, following his retirement as our director and Chairman Emeritus since March 2009.of the Board. Mr. Morgan spent more than 31 years as a director and employee of Applied, including over 20 years as Chairman of the Board.
Mr. Morgan first joined Applied in
1976 and served as Chief Executive Officer from 1977 to 2003. As Chairman Emeritus, Mr. Morgan does not haveattend any Board or Committee meetings, has no voting rights and does not receive anyreceives no retainer or meeting fees.
Applied Materials, Inc. 65 2020 Proxy Statement
BOARD AND CORPORATE GOVERNANCE PRACTICES
BOARD AND CORPORATE GOVERNANCE PRACTICES
Corporate Governance PracticesBoard Composition and Nominee Considerations
Our director nominees have a wide variety of relevant skills, professional experience and backgrounds, and collectively bring to our Board diverse viewpoints and perspectives that
strengthen its ability to represent the long-term interests of shareholders. The chart below illustrates broad categories of skills and expertise that our director nominees offer that we believe contribute to the effective leadership and exercise of oversight responsibilities by the Board.
 |
|
Semiconductor Industry & Technology Financial and Accounting Global Business Strategy and Innovation Operations and Infrastructure Government Policy M&A and Organizational Growth Risk Management Public Company Board Experience Executive Leadership Independence 9 of 10 director nominees are independent Diversity 40% of director nominees are ethnically and/or gender diverse 30% are female 20% are ethnically diverse Tenure 2 directors added to Board over last 2 years 10 years tenure 4 directors 4-10 years tenure 3 directors 0-4 years tenure 3 directors
Diversity. Our Board values having a Board that reflects diverse perspectives, including those based on gender, ethnicity, skills, experience at policy-making levels in areas that are relevant to the Company’s global activities, and functional, geographic or cultural backgrounds. In 2019 the Board adopted a Policy on Board Diversity within our Corporate Governance Guidelines, which reflects the Board’s commitment to actively seek out women and ethnically diverse director candidates and to consider the factors above, among others, in the context of the current composition of the Board and needs of the Company when identifying and evaluating director candidates.
The 10 director nominees for election at our 2020 Annual Meeting bring to our Board a variety of different backgrounds, skills, professional and industry experience and other attributes and perspectives that contribute to the overall diversity of our Board.
Independence. The Governance Committee expects eachnon-employee director to be free of relationships, interests or affiliations that could give rise to conflicts of interest or interfere with the director’s exercise of independent judgment. Applied’s Corporate Governance Guidelines require that a majority of our directors must be independent, and that our
Audit, Human Resources and Compensation, and Governance Committees must consist solely of independent directors.
Director independence is determined under Nasdaq listing standards and SEC rules. The Board has affirmatively determined that all members of the Board who served during 2019 and all director nominees, other than Mr. Dickerson, our Chief Executive Officer, are independent under applicable Nasdaq listing standards and SEC rules.
Tenure. The Board believes that new ideas and perspectives are critical to a forward-looking and strategic Board, as are the valuable experiences and deep understanding of Applied’s business and industries that longer-serving directors offer. Our Governance Guidelines do not impose a term limit on Board service; our directors are not typically nominated forre-election after they reach the age of 70. Feedback from the annual Board evaluations and individual discussions between eachnon-employee director and our Chairman is an important determinant of Board tenure. Our ongoing Board refreshment has added two new directors to the Board over the last two years and has resulted in a balanced range of tenures which ensures both continuity and fresh perspectives among our director nominees.
Applied Materials, Inc. 7
Our nominees have an average tenure of 7 years, which is lower than the average tenure of other S&P 500 companies, and three of our nominees have been members of the Board for four years or less.
Regular refreshment resulting in average director tenure of 7 years |
|
Board Composition and Refreshment
Identification of New Director Candidates. Identifying and recommending individuals for nomination and election to our Board is a principal responsibility of our Governance Committee, which performs this function through an ongoing, year-round process.
The Governance Committee regularly considers the size and composition of the Board and assesses whether the composition appropriately aligns with the Company’s evolving business and strategic needs. The focus is on ensuring that the Board is composed of directors who possess a wide variety of relevant skills, professional experience and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders.
In its consideration of potential director candidates, the Governance Committee reviews the short- and long-term strategies and interests of the Company to determine what current and future skills and experiences are required of the Board in exercising its oversight function. Specific search criteria evolve over time to reflect the Company’s dynamic business and strategic needs and the changing composition of the Board, and may include such factors as:
| ● | Operating experience or thought leadership in key markets, industries, technologies or business models that are aligned with the Company’s strategic growth plans; |
| ● | Business or cultural background in regions where the Company does significant business; |
| ● | Senior executive leadership and management experience; and |
| ● | Subject matter expertise in such areas as corporate finance and financial reporting, governance, compensation, risk management and marketing. |
In accordance with the Policy on Board Diversity, the Governance Committee actively seeks out women and ethnically diverse director candidates.
The Governance Committee also considers succession planning in light of anticipated retirements, and for Board and Committee Chair roles, to maintain relevant expertise and depth of experience.
In addition, all director candidates are also expected to possess or demonstrate:
| ● | Sound judgment, analytical and inquisitive perspective, and practical wisdom; |
| ● | Strategic mindset and engaged and collaborative approach; |
| ● | Independence, personal and professional ethics, integrity and values; and |
| ● | Commitment to representing the long-term interests of Applied’s shareholders. |
The Governance Committee may retain a search firm to assist in identifying and evaluating new candidates for director nominees and may also consider referrals from directors, shareholders or other sources. Ms. McGill, who joined our Board in July 2019, was identified and vetted as a potential candidate by a third-party search firm for consideration by the Governance Committee. The Governance Committee evaluates and interviews potential Board candidates and makes appointment recommendations to the full Board. All members of the Board may interview candidates.
Recent Board Refreshment. As a result of the foregoing process, the Board has added two new directors over the last two years, each of whom have brought valuable and diverse backgrounds and perspectives to the overall composition of the Board. The most recent appointment was Ms. McGill in July 2019. Ms. McGill is a segment chief financial officer for Dell Technologies, Inc. who brings to our Board executive leadership and management experience, as well as global business, industry and operational experience in the technology sector. Her financial and accounting background provides key experience and expertise to the Board, as Mr. Dennis Powell, Chair of the Audit Committee, prepares to retire upon completion of his current term in March 2020.
8 2020 Proxy Statement
BOARD AND CORPORATE GOVERNANCE PRACTICES
Regular Review of Board Composition
Drives Refreshment
1 Assess Develop a search profile of relevant skills, background and experience sought in new directors 2 Identify Information provided to third-party search firms Potential candidates identified by independent directors, shareholders, independent search firm, our people 3 Evaluate Governance Committee screens candidates for qualifications, skills, diversity, independence and potential conflicts Candidates meet with directors 4 Recommend Governance Committee recommends selected candidates to the Board Results Two new directors over the last two years
Re-nomination of Directors for Election at Annual Meeting. In considering whether to recommendre-nomination of a director for election at our Annual Meeting, the Governance Committee considers factors such as:
| ● | The extent to which the director’s skills, qualifications and experience continue to contribute to the success of our Board, taking into account current core competencies of the Board, the mix of skills and experience desired; |
| ● | Feedback from the annual Board evaluations and individual discussions between eachnon-employee director and our Chairman; |
| ● | Attendance and participation at, and preparation for, Board and Committee meetings; |
| ● | Shareholder feedback, including the support received by director nominees elected at our 2019 Annual Meeting; |
| ● | Outside board and other affiliations, including any actual or perceived conflicts of interest; and |
| ● | Considerations under the Board’s Policy on Board Diversity and the extent to which the director continues to contribute to the diversity of our Board. |
Based on the Governance Committee’s recommendation, the Board selects director nominees and recommends them for election by Applied’s shareholders.
Shareholder Recommendations or Nominations. The evaluation procedures described above apply to all candidates for director nomination, including candidates submitted by shareholders. Shareholders wishing to recommend a candidate for consideration by the Governance Committee should submit the candidate’s name, biographical data and a description of his or her qualifications in light of the criteria listed above to Christina Y. Lai, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1268, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com.
Shareholders wishing to nominate a director should follow the specific procedures set forth in our Bylaws.
Corporate Governance Guidelines
Applied’s Corporate Governance Guidelines establish the governance framework within which the Board conducts its business and fulfills its responsibilities. These guidelines and other important governance materials are available on our website at:http://www.appliedmaterials.com/company/
investor-relations/governance-documents.
The Board regularly reviews our Corporate Governance Guidelines in light of legal and regulatory requirements, evolving best practices and other developments.
Director Independence
Director independence is determined under Nasdaq listing standards and SEC rules. The Board has affirmatively determined that each member of In December 2019, the Board other than Mr. Dickerson,formalized its focus on diversity by adopting a Policy on Board Diversity within our Chief Executive Officer, is an independent directorCorporate Governance Guidelines as described above on page 7 under applicable Nasdaq listing standards and SEC rules.“Diversity.”
Applied Materials, Inc. 9
Our corporate governance framework provides the Board flexibility to determine the appropriate leadership structure for the Company, and there is no fixed policy on whether the roles of Chairman and CEO should be separated or combined. In making this determination, the Board considers many factors, including the needs of the business, the Board’s assessment of its leadership needs from time to time and the best interests of shareholders. If the role of Chairman is filled by a director who does not qualify as an independent director, the Board will designate a Lead Independent Director.
The Board believes that it is currently appropriate to separate the roles of Chairman and CEO. The CEO is responsible for setting our strategic direction and theday-to-day leadership of our business, while the Chairman, along with the rest of our independent directors, ensures that the Board’s time and attention are focused on effective oversight of the matters most critical to Applied.
Mr. Roelandts has served as our independent Chairman since June 2015. He has reached the recommended retirement age under our Corporate Governance Guidelines and is retiring from the Board. In line with our succession practices, with Mr. Roelandts’ retirement, the Board evaluated the Board leadership structure and determined to maintain the separate roles of Chairman and CEO, and elected Mr. Iannotti, an independent director, to servecurrently serves as the Chairman of the Board, subject toBoard. Mr. Iannotti has significant experience and upon hisre-election toknowledge of Applied, working with two CEOs and different management teams at Applied, and the Board at our Annual Meeting. The Board believes that Mr. Iannotti’shis deep knowledge of the companyCompany and the
industry, as well as his strong leadership and governance experience, will enable him to functionlead the Board effectively and independentlyindependently.
Director Onboarding and Education
When new directors join the Board, they participate in a comprehensive onboarding program to learn about our industry, business, strategies and policies. Themulti-day onboarding program includes meetings with senior executives to discuss our businesses, strategy, operations and our corporate functions such as Chairmanfinance, technology, information systems and legal, and a tour of the Maydan Technology Center, ourstate-of-the-art R&D facilities. New directors also meet with the executives and staff supporting the Committees on which they sit, as well as the Committees’ external consultants and advisors. Each new director is also partnered with an experienced fellow director “mentor” to facilitate the integration of the new director to the Board.
For continued education regarding our business and industry, we provide presentations by internal and external experts during Board meetings on topics such as technology inflections, industry trends, changes in the geopolitical and macroeconomic landscape, and the ESG landscape, with particular focus on the implications and impact to the
Company. Our Board and Committees also regularly review developments in corporate governance to continue enhancing the Board’s effectiveness. We encourage directors to participate in external continuing director education programs and provide reimbursement for expenses associated with this participation. Throughout the year, Board members also attend Company events, including Analyst Day, our Engineering and Technology (ET) Conference, and Diversity Day. In addition, in 2019, the Board held Board and Committee meetings at our offices in Taiwan, where directors attended the grand opening of our new Display Equipment Manufacturing Center and R&D Laboratory, participated in a local employeeall-hands meeting and met with our regional executives. These interactions, along with meetings with leaders below the CEO Executive Staff level throughout the year, give directors additional visibility to provide oversight of the Company’s culture, strategies and operations.
Board Refreshment and Succession PlanningCommittee Evaluations
Our Board recognizes that a thorough, constructive evaluation process enhances our Board’s effectiveness and is an essential element of good corporate governance. Each year, the Governance Committee, in consultation with our independent Board Chairman, reviews and determines the design, scope, content and execution of the evaluation process, including whether to engage a third party to facilitate the evaluation.
The evaluation process consists of assessments of the Board, led by the Corporate Governance and Nominating Committee (the “Governance Committee”), regularly evaluates the size and compositioneach standing committee of the Board, and assesses whetherindividual directors. Written questionnaires solicit feedback on a range of issues, including Board and Committee structure and composition; meeting process and dynamics; execution of key responsibilities; interaction with management; and information and resources.
Following completion of the composition appropriately alignswritten questionnaires, aggregated results, including all written comments, together with data analyzing results compared to the prior year, are provided to the Chairman, who meets with each director individually to discuss additional input on these topics and to provide individual feedback. Committee chairs lead a discussion of evaluation results for their respective Committees, and a summary of Board and Committee evaluation results is discussed with the Company’s evolving businessfull Board, including suggestions for updating policies and strategic needs. The focus is on ensuring thatpractices per evaluation results. Director suggestions for improvements to the Board is composed of directors who possess a wide variety of relevant skills, professional experienceevaluation questionnaires and backgrounds, bring diverse viewpoints and perspectives, and effectively representprocess are considered for incorporation for the long-term interests of shareholders. While the Company does not have a formal policy on Board diversity, the Board places great value on diversity of background, skills and viewpoints, gender and ethnicity, as well as succession-planning considerations, in the recruitment and nomination of new directors. The Board believes that new ideas and perspectives are critical to a forward-looking and strategic Board, as is the valuable experience and deep understanding of Applied’s business and industries that longer-serving directors bring. Accordingly, the Board takes into account both the benefits of continuity, as well as the interests in fresh perspectives and diversity, that board refreshment and succession planning can offer.
In its consideration of potential director candidates, the Governance Committee reviews the short- and long-term strategies and interests of the Company to determine what current and future skills and experience are required of the Board in exercising its oversight function. The Governance Committee assesses the independence, character and acumen of the director candidates and endeavors to establish on the Board a mix of background and experience in a number of broad areas of core competency, including: business judgment; management; accounting and finance; knowledge of the industries (including the technologies and markets) in which we operate; manufacturing and service; leadership; strategic vision; international markets and global challenges; marketing; crisis/risk management; research and development; government policy; and other areas relevant to our business. Specific search criteria evolve over time to reflect the Company’s dynamic business and strategic needs and the changing composition of the Board. The Governance Committee conducts targeted efforts to identify and recruit individuals with the qualifications identified through this process. Additional criteria include a candidate’s personal and professional ethics, integrity and values; willingness tofollowing year.
10 2020 Proxy Statement
BOARD AND CORPORATE GOVERNANCE PRACTICES
6 2017 Proxy Statement
CORPORATE GOVERNANCE
devote sufficient time to prepare for and attend meetings and participate effectively on the Board; and commitment to representing the long-term interests of Applied’s shareholders.
The Governance Committee may retain a search firm to assist in identifying and evaluating new candidates for director nominees. The Governance Committee evaluates and interviews potential Board candidates and makes appointment recommendations to the full Board. All members of the Board may interview candidates.
As a result of the foregoing process, and in light of the termination of the business combination with Tokyo Electron, the Board added three new directors in the last 15 months. Each of these directors brings unique and valuable background and perspectives to the overall composition of the Board. The appointments of Ms. Bruner in 2016, and Dr. Chen and Ms. Ma in 2015, have brought valuable expertise and diversity to the perspectives of the Board. Ms. Bruner was identified and vetted as a potential candidate by a third-party search firm for consideration by the Governance Committee. She is a well-respected chief financial officer with deep experience in the global high-tech industry. Dr. Chen is an accomplished chief executive officer with technological expertise and extensive experience in technology-enabled and related growth industries around the world. Ms. Ma has a broad financial perspective and a strong technical background, as well as experience in global growth investing, capital markets and mergers and acquisitions.
2019 Board Evaluation Process
Questionnaire Evaluation questionnaire provides director feedback on an unattributed basis One-on-One Discussions Candid, one-on-one discussions between the Chairman and each director to solicit additional feedback and provide individual feedback Board Report Board and Committee evaluation results provided to the full Board Closed Session Closed session discussion of Board and Committee evaluations led by our Chairman and independent Committee chairs Policies and practices are updated as appropriate per evaluation results and discussions
Board’s Role in Risk Oversight
One of the Board’s most important functions is overseeing risk management for the Company. Applied’s risk oversight framework illustrated below shows the close interaction between the full Board, individual committees and senior management.
The Governance Committee oversees an annual self-assessmentBoard The Board has the ultimate responsibility for, and is actively engaged in, oversight of the Companys risk management, in some cases directly by the full Board, and eachin some cases through delegation of its principal committeescertain types of risks to evaluate their effectiveness. In 2016, the self-assessment also included feedback on the performanceoversight of the individual directors.appropriate Board Committee. The self-assessment beginsfull Board oversees risks and opportunities associated with completion by eachESG matters. COMMITTEES Audit Oversees the enterprise risk management program, as well as risks related to financial, regulatory, compliance, cybersecurity and environmental, health and safety matters, and regularly reviews with management, the head of internal audit and the independent accountants the steps taken to monitor and mitigate risk exposures Governance Oversees the management of risks related to corporate governance matters, including director independence, Board composition and succession, shareholder communications, and overall Board effectiveness HR & Compensation Oversees risks associated with Applieds compensation policies, plans and practices, organizational talent and culture, management succession, and human capital management, including the corporate culture, and diversity and inclusion programs and initiatives Management Applieds management has day-to-day responsibility for: Identifying risks and assessing them in relation to Company strategies and objectives; Implementing suitable risk mitigation plans, processes and controls; and Appropriately managing risks in a manner that serves the best interests of a questionnaireApplied, its shareholders and open-ended questions relatingother stakeholders. Management regularly reports to the Board on its risk assessments and risk mitigation strategies for the major risks of our business. Senior management and other employees also report to the Board and each committeeits committees from time to time on risk-related issues.
Applied has implemented an enterprise risk management (“ERM”) program, overseen by the Audit Committee, which provides an enterprise-wide perspective on Applied’s risks. The risks identified are reported to the director sits. Following completionBoard, with a focus on the most significant risks facing the Company, including strategic,
operational, financial, and legal and compliance risks. Oversight responsibility for a particular risk may fall within an area of responsibility and expertise of one of the questionnaire,Board Committees. Management reviews the Chairman conductsone-on-one discussionsERM program activities regularly with each director,the Audit Committee, presents an analysis of risk mitigation
Applied Materials, Inc. 11
strategies to the Board or the respective Committee with oversight responsibility for the risk, and provides annual risk mitigation updates to the full Board.
Risk Assessment of Compensation Programs. We have assessed our compensation policies, plans and practices, and determined that they do not create risks that are reasonably likely to have a material adverse effect on Applied. To make this determination, our management reviewed our compensation policies, plans and practices, and assessed the following aspects: design, payment methodology, potential payment volatility, relationship to our financial results, length of performance period, risk-mitigating features, performance measures and goals, oversight and controls, and plan features and values compared to market practices. Management reviewed its analysis with the Human Resources and Compensation Committee, which includes input onagreed with this determination. Applied also has in place various controls to mitigate risks relating to compensation policies, plans and practices, such as executive stock ownership guidelines and a clawback policy that enables the performancerecovery of certain incentive compensation payments in certain circumstances.
Management Succession Planning
The Board has delegated to the individual directors,Human Resources and Compensation Committee (“HRCC”) primary responsibility for overseeing management succession planning and executive organizational development, as well as human capital management programs. Management updates the HRCC on programs and developments every quarter and reports to the committees and thefull Board in general.at least annually.
The areas addressedHRCC reviews and advises on management’s succession and development programs for the CEO and other senior executives, with an eye toward ensuring development of the talent needed to lead Applied today and in the evaluations includefuture and readiness of succession candidates who can assume top management positions without undue interruption. Board or committee structuremembers have opportunities throughout the year to engage with members of senior management and composition,other high-potential leaders in a variety of formal and informal settings, including Board meetings and processes, executionevents, preparatory meetings, analyst meetings and internal and external business and technology conferences.
The HRCC and Board also regularly discuss matters related to organizational health and discuss individual executive transitions as the need arises over the course of key responsibilities, interaction withthe year. The Board’s goal is to have a long-term and continuing process for effective senior leadership development and succession and to ensure that there are ready choices available when the time is right. The HRCC also receives quarterly reports from the Group Vice President of Human Resources, covering a range of topics relating to corporate culture and human capital management, including the
Company’s diversity and resources. The Chairman provides feedback regardinginclusion practices and initiatives and its sexual harassment policies.
In addition to direct engagement through our recurring shareholder engagement program discussed below, Applied has instituted a number of mechanisms that allow shareholders to advance their points of view, including:
Right to Call a Special Meeting. Our Bylaws permit shareholders holding at least 20% of our outstanding shares of common stock to call a special meeting.
Proxy Access. Our Bylaws permit proxy access. Any shareholder (or group of up to 20 shareholders) owning 3% or more of Applied’s common stock continuously for at least three years may nominate up to two individuals or 20% of our Board, whichever is greater, as director performance to the individual directors, and a summary of resultscandidates for the Board and each committee evaluation is presentedelection to the Board, and require us to include such nominees in our annual meeting proxy statement if the applicable committee, which also discusses any recommended action items.
Director Nominations
The Governance Committee considers candidates for directorshareholders and nominees and strives for a mix of skills and diverse perspectives. In evaluating director candidates and considering incumbent directors for nomination tosatisfy the Board, the Committee considers each nominee’s independence, financial literacy, personal and professional accomplishments and experience in light of the needs of the Company, following the process outlined above. For incumbent directors, the factors also include attendance, past performance on the Board and contributions to the Board and their respective committees. Based on the Governance Committee’s recommendation, the Board selects director nominees and recommends them for election by Applied’s shareholders.
The Governance Committee will also consider potential director candidates recommended by shareholders. The same evaluation procedures apply to all candidates for director nomination, including candidates submitted by shareholders.
Shareholders wishing to recommend a candidate for consideration by the Governance Committee should submit the candidate’s name, biographical data and a description of his or her qualifications in light of the criteria listed above to Thomas F. Larkins, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1241, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com. Shareholders wishing to nominate a director should follow the specific procedures set forthrequirements contained in our Bylaws.
Majority VotingVoting.
Under our Bylaws, in any uncontested election of directors (an election in which the number of nominees does not exceed the number of directors to be elected), any nominee who receives a greater number of votes cast “for” his or her election than votes cast “against” his or her election will be elected.
Our Bylaws provide that in the event an incumbent director receives more “against” than “for” votes, he or she shall tender his or her resignation after certification of the shareholder vote. Our Governance Committee, composed entirely of independent directors, will consider the offer of resignation, taking into consideration all factors it deems relevant, and recommend to the Board the action to be taken. The Board must take action on the recommendation within 90 days following certification of the shareholder vote. No director who tenders an offer of resignation may participate in the vote on the Governance Committee’s recommendation or the Board’s determination of whether to accept the
Applied Materials, Inc. 7
resignation offer. Applied will publicly disclose the Board’s decision, including, if applicable, the reasons for rejecting an offer to resign.
Right to Act by Written Consent. Currently our Certificate of Incorporation prohibits shareholder action by written consent. However, after consideration of the results of last year’s shareholder proposal on shareholder action by written consent and the shareholder feedback we received, we are submitting to shareholders for approval an amendment and restatement of our Certificate of Incorporation to allow shareholder action by written consent. See “Proposal 4—Approval of an Amendment and Restatement of our Certificate of Incorporation to Allow Shareholders to Act by Written Consent” on page 50 for additional information.
12 2020 Proxy AccessStatement
BOARD AND CORPORATE GOVERNANCE PRACTICES
We believe that strong corporate governance should include regular engagement with our shareholders to enable us to understand and respond to shareholder concerns.
Investor Relations.Our Bylaws permitsenior management team, including our CEO, CFO and members of our Investor Relations team, maintain regular contact with a broad base of investors, including through quarterly earnings calls, individual meetings and other channels for communication, to understand their concerns. In 2019, senior management participated in over
286 meetings with investors, including more than 121 meetings with the CFO and more than 24 with our CEO.
Shareholder Outreach Program. In addition, we have a robust shareholder outreach program, which is a recurring, year-round effort, led by a cross-functional team that includes members of our Investor Relations, Global Rewards, Culture of Inclusion, Environmental, Health & Safety and Legal functions, with participation of our independent directors, where appropriate. This engagement enables us to build meaningful relationships and trust over time with our shareholders.
MARCH - MAY Annual Meeting Based on the results of our 2019 annual meeting, the Board and management developed a plan to solicit feedback on written consent DECEMBER - FEBRUARY Board Deliberations Based on Feedback Continued to meet with shareholders, enhanced proxy access. Anystatement and annual report content based on feedback, and responded to shareholder (or groupconcerns JUNE - AUGUST Action by Written Consent Focused Engagement Conducted extensive written consent engagement outreach. We reached out to holders of up57% of outstanding shares and engaged with 46% specifically on written consent SEPTEMBER - NOVEMBER General Off-Season Engagement Conducted general off-season engagement outreach. We reached out to 20 shareholders) owning 3% or moreholders of Applied’s common stock continuously for at least three62% of outstanding shares and engaged with 20% of holders on governance, compensation, and sustainability
Key Themes Discussed with Shareholders in 2019 | ||||
| Corporate Governance | ● | Governance structure, including current shareholder rights, and desirability of action by written consent | ||
| ● | Input regarding potential adoption of action by written consent, market practice provisions in our corporate charter and bylaws and industry trends | |||
Board Refreshment and Composition | ● | Applied’s commitment to Board diversity, including gender, race/ethnicity and age | ||
| ● | Thoughtful Board processes for refreshment, succession planning and director orientation and education | |||
| Risk Oversight | ● | Framework for the Board’s oversight of risk, particularly around human capital management, culture and sustainability | ||
| Executive Compensation | ● | Compensation program, metrics, and link between pay and performance | ||
| Sustainability | ● | Shareholders’ particular ESG focus areas and Applied’s strategy, initiatives and Board oversight related to ESG matters | ||
| ● | Alignment of sustainability initiatives with corporate strategy; Applied’s commitment to diversity and inclusion | |||
We engage with a significant cross-section of our shareholder base, including large institutional investors, pension funds, and other investors. Topics of discussion include key business, Board, governance, executive compensation, environmental, sustainability and diversity and inclusion matters, as well as other subjects of interest to our shareholders. Based on feedback from shareholders, we
have over the last few years may nominate upadopted proxy access and a special meeting right and implemented changes to two individuals orour executive compensation programs. During the fall of 2019, we contacted the holders of approximately 62% of our outstanding shares, and engaged in active discussions on these topics with investors who requested meetings, representing approximately 20% of our shares outstanding.
Applied Materials, Inc. 13
Responsiveness to2019 Shareholder Action by Written Consent Proposal. In response to the high level of shareholder support at the 2019 Annual Meeting for the proposal on shareholder action by written consent, and at the direction of our Governance Committee, we reached out to shareholders for their views on shareholder action by written consent, as well as our existing special meeting process. We contacted the holders of approximately 57% of our outstanding shares. Our independent Chairman of the Board whicheverand our independent Chair of the Governance Committee participated in the discussions with several of our shareholders. Feedback received from the shareholders was shared and discussed with the Board.
After careful consideration of the results of the 2019 shareholder action by written consent proposal and the shareholder feedback, as well as a comprehensive review of market practices and provisions adopted by other companies with respect to a shareholder right to act by written consent, the Board is greater,submitting for shareholder approval an amendment and restatement of our Certificate of Incorporation to allow shareholder action by written consent, as further described in “Proposal 4—Approval of an Amendment and Restatement of our Certificate of Incorporation to Allow Shareholders to Act by Written Consent” on page 50.
Disclosure of Diversity Data.In September 2018, we disclosed key diversity data for the first time, including the gender and ethnic composition of our workforce, as well as new goals for increasing our global diversity and ensuring we have an inclusive work environment, which include increasing women and underrepresented minorities in our workforce. The disclosures not only reflect the importance of this issue to Applied, but also the input that we received from our shareholders. Shareholder feedback to the information was universally positive, with the view that it demonstrated our commitment to diversity and inclusion, transparency in disclosing data and accountability in working towards our goals.
In 2019, we provided an update of the diversity data published the previous year, as well as additional information regarding our engineering women employees in the U.S. and globally, to communicate the progress we are making towards our goals of increasing representation of women globally and underrepresented minorities in our U.S. workforce.
Any shareholder wishing to communicate with any of our directors regarding Applied may write to the director, candidates for electionc/o Christina Y. Lai, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1268, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com. The Corporate Secretary reviews correspondence directed to the Board and, require us to include such nominees in our annual meeting proxy statement ifat the shareholders and nominees satisfyCorporate Secretary’s discretion, forwards items that she deems appropriate for the requirements contained in our Bylaws.
Shareholder’s Right to Call a Special Meeting
Our Bylaws permit shareholders holding at least 20% of our outstanding shares of common stock to call a special meeting.
Board’s Role in Risk Oversight
Applied’s management hasday-to-day responsibility for identifying risks and assessing them in relation to Company strategies and objectives; implementing suitable risk mitigation plans, processes and controls; and appropriately managing risks in a manner that serves the best interests of Applied, its shareholders and other stakeholders.
Our Board is responsible for overseeing major risks facing the Company and reviewing management plans for their mitigation. Generally, committeesconsideration. The independent directors of the Board oversee risks associated with their respective areas of responsibilityreview and expertise. For example,approve the shareholder communication process periodically in carrying out its oversight of risks relatedorder to financial matters, our Audit Committee oversees, reviews and discusses with management, the head of internal audit and the independent accountants, Applied’s major risk exposures and the steps management has taken to monitor and mitigate those exposures. Our Human Resources and Compensation Committee oversees risks associated with Applied’s compensation policies, plans and practices. Our Governance Committee oversees the management of risks related to corporate governance matters, including director independence and board composition.
Applied has implementedenable an enterprise risk management (“ERM”) program for the purpose of providing an enterprise-wide perspective on Applied’s risks,effective method by which shareholders can communicate with the objective of identifying and mitigating key risks. Our Audit Committee is responsible for overseeing this program, including the identification of major risks facing Applied. These identified risks are then reported to the Board, which in turn delegates oversight responsibility for them to the respective Board
committees in whose area of responsibility and expertise the risks fall. Management reviews the ERM program activities regularly with the Audit Committee and the Board. Senior management and other employees also report to the Board and its committees from time to time on risk-related issues.
Risk Assessment of Compensation Programs
We have assessed our compensation policies, plans and practices, and determined that they do not create risks that are reasonably likely to have a material adverse effect on Applied. To make this determination, our management reviewed our compensation policies, plans and practices, and assessed their: design, payment methodology, potential payment volatility, relationship to our financial results, length of performance period, risk-mitigating features, performance measures and goals, oversight and controls, and plan features and values compared to market practices. Management reviewed its analysis with the HRCC, which agreed with this determination. Applied also has in place various controls to mitigate risks relating to compensation policies, plans and practices, such as executive stock ownership guidelines and a clawback policy that enables the recovery of certain incentive compensation payments in certain circumstances.
The Board has adopted stock ownership guidelines to align the interests of our directors and NEOsexecutive officers with those of our shareholders. The guidelines provide thatnon-employee directors should each own Applied stock with a value of at least $325,000.five times the annual base retainer fornon-employee directors. Applied’s Chief Executive Officer should own Applied stock with a value of at least fivesix times his annual base salary. Each NEO other thanSection 16 officer on the ChiefCEO Executive OfficerStaff should own Applied stock with a value of at least three times his or her annual base salary. These stock ownership levels should be achieved no later than five years following a director’s or officer’s initial election or appointment. At the endAs of fiscal 2016,December 31, 2019, all of our directors and NEOs whose five-year ownership deadline had passed had metexecutive officers were in compliance with the stock ownership guidelines.
Applied’s Standards of Business Conduct embody our commitment to ethical and legal business practices. The Board expects Applied’s directors, officers and all other members of its workforce to act ethically at all times and to acknowledge their commitment to Applied’s Standards of Business Conduct. The Standards of Business Conduct are available on our website at:http://www.appliedmaterials.com/company/investor-relations/governance-documentsgovernance-documents..
8 2017 Proxy Statement
CORPORATE GOVERNANCE
Shareholder Communications
Any shareholder wishing to communicate with any of our directors regarding Applied may write to the director, c/o Thomas F. Larkins, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1241, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com. The Corporate Secretary
reviews correspondence directed to the Board and, at the Corporate Secretary’s discretion, forwards items that he deems appropriate for the Board’s consideration. The independent directors of the Board review and approve the shareholder communication process periodically in order to enable an effective method by which shareholders can communicate with the Board.
The Board met sixfive times in fiscal 2016.2019. Each director attended over 75% of all Board and applicable committee meetings held during fiscal 2016.2019. Directors are strongly encouraged to attend the Annual Meeting of Shareholders, and all of the directors serving on our Board at the time attended our 20162019 Annual Meeting of Shareholders.
The Board has three principal committees performing the functions required by applicable SEC rules and Nasdaq listing standards to be performed by independent directors: the Audit Committee, the Human Resources and Compensation Committee, and the Corporate Governance and Nominating Committee.
Each of these committees meets regularly and
14 2020 Proxy Statement
BOARD AND CORPORATE GOVERNANCE PRACTICES
has a written charter approved by the Board that is reviewed annually by the respective committee and by the Board. The Board also has a Strategy Committee and an Investment Committee, whose roles and responsibilities are described in Applied’s Corporate Governance Guidelines
In addition, at each regularly scheduledregularly-scheduled Board meeting, the Chair of each committee reports on any significant matters addressed by the committee since the last Board meeting. Each director who serves on the Audit Committee, Human Resources and Compensation Committee, or Corporate
Governance and Nominating Committee is an independent director under applicable Nasdaq listing standards and SEC rules.
Copies of the current charters for the Audit, Human Resources and Compensation, and Corporate Governance and Nominating Committees can be found on our website at:http://www.appliedmaterials.com/company/investor-relations/governance-documents.
The Board also has aroles and responsibilities of the Strategy Committee and anthe Investment Committee whose roles and responsibilities are described in Applied’s Corporate Governance Guidelines.
Applied Materials, Inc. 9
Audit Committee
Dennis D. Powell, Judy Bruner* Stephen R. Forrest Adrianna C. Ma*
| Primary responsibilities:
● ● ● ● ● ● ● ● Oversee matters related to Environmental Health and Safety | Meetings in Fiscal | ||
* + Appointed to Committee in July |
Human Resources and Compensation Committee
Members:
Thomas J. Iannotti, Chair Xun (Eric) Chen Alexander A. Karsner | Primary responsibilities:
● ● ● ● ● ● ● ● Oversee human capital management, including the Company’s culture and diversity and inclusion programs and initiatives | Meetings in Fiscal |
Corporate Governance and Nominating Committee
Members:
Alexander A. Karsner Adrianna C. Ma Dennis D. Powell | Primary responsibilities:
● ● ● ● ● ● Review shareholder proposals and recommend to the Board actions to be taken in response to each proposal ● | Meetings in Fiscal |
10Applied Materials, Inc. 2017 Proxy Statement15
DIRECTOR COMPENSATION
Compensation ofProgram for Directors
We compensate ournon-employee directors for their service on the Board with a combination of cash and equity awards. Directors who are employees of Applied do not receive any compensation for their service as directors.
Retainer and Meeting Fees
Directors whoEachnon-employee director receives an annual cash retainer for his or her service on the Board, as well as additional cash retainers if he or she serves as the Chairman of the Board, on a committee or as the chair of a committee. Annual retainers are employees of Applied do not receive any compensation for theirpaid quarterly and are prorated based on the director’s service as directors.during the fiscal year. The following table sets forth cash retainers and meeting fees paid tocompensation fornon-employee directors in effect during fiscal 2016.2019.
| Fiscal 2016 | ||||
Annual Retainer | $ | 65,000 | ||
Additional Retainers for Chairman and Committee Chairs: | ||||
Chairman of the Board | $ | 150,000 | ||
Audit Committee Chair | $ | 20,000 | ||
Human Resources and Compensation Committee Chair | $ | 15,000 | ||
Corporate Governance and Nominating Committee Chair | $ | 10,000 | ||
Strategy Committee Chair | $ | 10,000 | ||
Fee per Board Meeting Attended | $ | 0 | ||
Fee per Committee Meeting Attended | $ | 2,000 | ||
Annual Base Retainer (prorated and paid quarterly) | $ | 70,000 | ||
| Additional Annual Retainers for Committee Service (prorated and paid quarterly): |
|
|
| |
Audit Committee | $ | 25,000 | ||
Human Resources and Compensation Committee | $ | 12,500 | ||
Corporate Governance and Nominating Committee | $ | 10,000 | ||
Strategy Committee | $ | 10,000 | ||
Additional Annual Retainers for Chairman and Committee Chairs (prorated and paid quarterly): |
|
|
| |
Chairman of the Board | $ | 150,000 | ||
Audit Committee Chair | $ | 25,000 | ||
Human Resources and Compensation Committee Chair | $ | 20,000 | ||
Corporate Governance and Nominating Committee Chair | $ | 12,500 | ||
Strategy Committee Chair | $ | 12,500 | ||
RetainersIn addition,non-employee directors receive $2,000 per meeting for service on the BoardInvestment Committee or asotherad-hoc committee of which they are a Chairmember, or $3,000 per meeting if they arepro-rated where service is for less than the chair of such a full year.committee.Non-employee directors are reimbursed for travel and other reasonableout-of-pocket expenses related to attendance at Board and committee meetings, business events on behalf of Applied, and seminars and programs on subjects related to their Board responsibilities.
Equity Compensation
Initial Grant. Upon initial appointment or election to the Board, anon-employee director receives a grant of restricted stock units with respect to a number of shares of Applied common stock with a fair market value on the date of grant equal to $200,000$225,000 (rounded down to the nearest whole share),pro-rated based on the period starting on the day of initial appointment or election and ending on the day of the next scheduled annual meeting of shareholders.
Annual Grant. Eachnon-employee director elected at an annual meeting receives on that date anon-discretionary grant of restricted stock units with respect to a number of shares of Applied common stock with a fair market value on the date of grant equal to $200,000$225,000 (rounded down to the nearest whole share). Anon-employee director who is initially appointed or elected to the Board on the day of an annual meeting of shareholders receives only an annual grant. Each of ournon-employee directorsre-elected at the 20162019 Annual Meeting received a grant of 10,2195,988 restricted stock units on that date.
Vesting.Grants made to ournon-employee directors vest in full on the earlier of March 1 of the year following the date of grant or the next annual meeting, provided thenon-employee director remains on the Board through the scheduled vesting date. Vesting of these grants will be accelerated in full upon anon-employee director’s earlier termination of service on the Board due to disability or death, or upon a change of control of Applied if the director ceases to be anon-employee director (and does not become a member of the board of directors of any successor corporation or its parent).Non-employee directors may elect in advance to defer receipt of vested shares until their termination of service on the Board.
Limit on Awards.In keeping with corporate governance best practices, we are asking shareholders to approve in Proposal 4 an annual limit onUnder our amended and restated Employee Stock Incentive Plan, grants of equity awards to any individualnon-employee director may not to exceed a fair market value totaling more than $400,000 in any fiscal year, under our amended and restated Employee Stock Incentive Plan.year.
Charitable Matching Contributions
Non-employee directors are eligible to participate in The Applied Materials Foundation Matching Gift Program, under which the Foundation annually will match up to $2,000$3,000 of anon-employee director’s donations to eligiblenon-profit civic, arts, environmental and educational organizations.organizations, as well as match an unlimited amount of donations to our annual food drive. In addition,
16 2020 Proxy Statement
DIRECTOR COMPENSATION
non-employee directors are eligible to participate in a matching program under the Applied Materials, Inc. Political Action Committee, under which the Company annually will match up to $2,500 of anon-employee director’s contributions for the benefit of eligiblenon-profit organizations
and kindergarten to 12th grade public andnon-profit private schools in the U.S.Non-employee directors are subject to the same maximum matching amountamounts and other terms as those for Applied’s employees.
Applied Materials, Inc. 11
Director Compensation for Fiscal 20162019
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2)(3) | All Other Compensation ($)(4) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | All Other Compensation ($)(3) | Total ($) | ||||||||||||||||||||||||
Judy Bruner(1) | 24,036 | 124,327 | 2,000 | 150,363 | ||||||||||||||||||||||||||||
Judy Bruner | 117,500 | 220,119 | 6,500 | 344,119 | ||||||||||||||||||||||||||||
Xun (Eric) Chen | 77,508 | 265,135 | — | 342,643 | 92,500 | 220,119 | — | 312,619 | ||||||||||||||||||||||||
Aart J. de Geus | 81,000 | 196,103 | — | 277,103 | 104,500 | 220,119 | — | 324,619 | ||||||||||||||||||||||||
Stephen R. Forrest | 71,000 | 196,103 | — | 267,103 | 117,000 | 220,119 | 750 | 337,869 | ||||||||||||||||||||||||
Thomas J. Iannotti | 118,000 | 196,103 | 500 | 314,603 | 252,500 | 220,119 | 4,000 | 476,619 | ||||||||||||||||||||||||
Susan M. James | 125,000 | 196,103 | 2,000 | 323,103 | ||||||||||||||||||||||||||||
Alexander A. Karsner | 101,000 | 196,103 | — | 297,103 | 92,500 | 220,119 | — | 312,619 | ||||||||||||||||||||||||
Adrianna C. Ma | 74,378 | 241,578 | 2,000 | 317,956 | 123,000 | 220,119 | 2,000 | 345,119 | ||||||||||||||||||||||||
Yvonne McGill(4) | 25,577 | 142,201 | — | 167,778 | ||||||||||||||||||||||||||||
Scott A. McGregor | 105,000 | 220,119 | 6,000 | 331,119 | ||||||||||||||||||||||||||||
Dennis D. Powell | 137,000 | 196,103 | — | 333,103 | 140,000 | 220,119 | — | 360,119 | ||||||||||||||||||||||||
Willem P. Roelandts | 217,000 | 196,103 | — | 413,103 | ||||||||||||||||||||||||||||
Robert H. Swan(5) | 81,679 | 196,103 | 2,000 | 279,782 | ||||||||||||||||||||||||||||
| (1) |
Amounts shown do not reflect compensation actually received by the directors. Instead, these amounts represent the grant date fair value of stock awards granted in fiscal |
Each |
Amount shown represents The Applied Materials Foundation’s and/or the Company’s matching contribution of the director’s |
Ms. McGill was appointed to the Board in |
12Applied Materials, Inc. 2017 Proxy Statement17
STOCK OWNERSHIP INFORMATION
The following table shows the number of shares of our common stock beneficially owned as of December 31, 20162019 by each person known by Applied to own 5% or more of our common stock. In general, “beneficial ownership” refers to shares that an entity or individual had the power to vote or the power to dispose of, and shares that such entity or individual had the right to acquire within 60 days after December 31, 2016.2019.
The Vanguard Group BlackRock, Inc. State Street Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by |
| (2) |
The amended Schedule 13G filed with the SEC by The Vanguard Group (“Vanguard”) on February |
The amended Schedule 13G filed with the SEC by BlackRock, Inc. (“BlackRock”) on |
| (4) | The amended Schedule 13G filed with the SEC by State Street Corporation (“State Street”) on February 13, 2019 indicates that as of December 31, 2018, State Street had shared dispositive power over 44,618,743 shares and shared voting power over 43,477,113 shares. |
Applied Materials, Inc. 1813 2020 Proxy Statement
STOCK OWNERSHIP INFORMATION
Directors and Executive Officers
The following table shows the number of shares of our common stock beneficially owned as of December 31, 20162019 by: (1) each director and director nominee, (2) each NEO and (3) the current directors and executive officers as a group. In general, “beneficial ownership” refers to shares that a director or executive officer had the power to vote or the power to dispose of, and shares that such individual had the right to acquire within 60 days after December 31, 2016.2019.
| Shares Beneficially Owned | ||||||||||||||
| Name | Number(1) | Percent(2) | ||||||||||||
Directors, not including the CEO: | ||||||||||||||
Judy Bruner | * | |||||||||||||
Xun (Eric) Chen | 24,578 | (3) | * | |||||||||||
| * | |||||||||||||
Stephen R. Forrest | 66,967 | * | ||||||||||||
Thomas J. Iannotti | 59,970 | * | ||||||||||||
Alexander A. Karsner | 20,027 | * | ||||||||||||
Adrianna C. Ma | 23,199 | (4) | * | |||||||||||
| * | |||||||||||||
| * | |||||||||||||
| ||||||||||||||
Dennis D. Powell | ||||||||||||||
| (5) | * | ||||||||||||
| ||||||||||||||
Gary E. Dickerson | 1,564,568 | * | ||||||||||||
| ||||||||||||||
Daniel J. Durn | ||||||||||||||
| (6) | * | ||||||||||||
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
| * | |||||||||||||
| * | |||||||||||||
| * | |||||||||||||
Current Directors and Executive Officers, as a Group | * | |||||||||||||
| * | 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 of their shares of common stock. |
| (2) | Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of |
| (3) | Includes 14,467 restricted stock units that |
| (4) | Includes |
Includes |
| (6) | Includes 18,630 restricted stock units that are scheduled to vest within 60 days after December 31, |
| (7) | Includes (a) |
14Applied Materials, Inc. 2017 Proxy Statement19
PROPOSAL 2—APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
PROPOSAL 2—APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
Pursuant to Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”), we are asking shareholders to approve, on anon-binding, advisory basis, the compensation of our NEOs, as described in this Proxy Statement. We seek this approval each year, and ouryear. Our annual“say-on-pay” proposals have been supported by our shareholders each year since we began providing this vote in 2011.2011, and received the support of 96% of votes cast in 2019.
Our Board of Directors believes that our compensation policies and practices promote a performance-based culture and align our executives’ interests with those of our shareholders through a strong emphasis onat-risk compensation tied to the achievement of performance objectives and the creation of shareholder value. Our executive compensation program is also designed to attract and retain highly-talented executives who are critical to the successful implementation of Applied’s strategic plan.
Pay Aligned withand Performance. There is strong alignmentWe align compensation with our business objectives, performance and shareholder interests. See pages 26 and 35 for charts illustrating the connection between key financial and Company performance metrics and company performance metrics used to determine and inform ourthe compensation decisions (Applied’s adjusted EPS and TSR) and the annual total direct compensation (base salary, annual incentive bonus and annual long-term incentive awards) paid to our CEO during the last five fiscal years. See pages 23 and 32 for charts illustrating this alignment.
Over 90%Significant Portion of CEO Pay Tied to PerformanceConsists of Variable Compensation and Long-Term Incentives. Performance-based incentive compensation (cash and long-term incentive awards) represented 93%In fiscal 2019, 92% of our CEO’s annual total direct compensation (base salary, annual incentive bonuscomprised variable compensation elements, and annual long-term incentive award)84% of his overall
compensation was delivered in fiscal 2016, and 87% of total direct compensation for our other NEOs.equity with multi-year vesting. Performance objectives include financial and market objectives relating to adjusted operating profit margin, operating profitadjusted gross margin, WFE market share and earnings per share,relative TSR, as well as strategic and operational objectives, as described on page 29.
Shareholder Outreachpages 32 and Changes to Compensation Program.During the fall of 2016, we conducted an extensive shareholder outreach as part of a broad review of our execu-
tive compensation program, and in response to shareholder feedback at the time of our 2016 Annual Meeting. We engaged with a significant cross-section of our shareholder base, including large institutional investors, pension funds, and other investors outside of our Top 25 holders. We contacted the holders of approximately 43% of our outstanding shares, and engaged in active discussions with shareholders representing 25% of our shares outstanding. In response to feedback received from our shareholders, we made several changes to the compensation and incentive structures that enhance alignment with Applied’s strategic priorities and directly reflect the input provided by shareholders. See page 18 for more information about our engagement and changes made to our compensation program.33.
Please see the“Compensation Discussion and Analysis” section for further discussion of our executive compensation program and the fiscal 20162019 compensation of our NEOs.
We are asking our shareholders to approve the compensation of our NEOs as described in this Proxy Statement by voting in favor of the following resolution:
“RESOLVED, that the shareholders approve, on anon-binding, advisory basis, the compensation paid to the Company’s named executive officers as disclosed in the Company’s Proxy Statement for the 20172020 Annual Meeting of Shareholders pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis section, the Summary Compensation Table, other compensation tables, narrative discussion and related disclosure.”
Even though thissay-on-pay vote is advisory and therefore will not be binding on the Company, the HRCC and the Board value the opinions of our shareholders, and will consider the results of the vote when making future compensation decisions for our NEOs.
| ✓ | THE BOARD RECOMMENDS THAT YOU VOTEFOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR FISCAL YEAR
| |
Applied Materials, Inc. 2015 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION DISCUSSION AND ANALYSIS
Our Business and Strategy
Applied Materials is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future.
We develop, design, produce and service semiconductor and display equipment for manufacturers that sell into highly competitive and rapidly changing end markets. Our competitive positioning is driven by our ability to identify major technology inflections early, and to develop highly differentiated materials engineering solutions for our customers. customers to enable those technology inflections. Through our broad portfolio of products and technologies, innovation leadership and focused investments in research and development, we are enabling our customers’ success and creating significant value for our shareholders.
Our Performance Highlights
Over the past several years, our broad portfolio of products and services has made Applied a more resilient company that can perform well in a variety of conditions. In 2019, we have taken steps to position Applied to benefit from multi-year industry inflections, drive growth,delivered solid performance against very aggressive targets in a challenging market environment that was affected by down cycles in both memory and generate greater value for shareholders.display equipment spending. Key highlights include:
| ● | Revenue of $14.6 billion; |
| ● | Operating profit of $3.4 billion, resulting in GAAP EPS of $2.86, andnon-GAAP adjusted EPS of $3.04 (see Appendix A for a reconciliation ofnon-GAAP adjusted measures); |
| ● | Delivered operating cash flow of $3.2 billion, equal to 22% of revenue; and |
| ● | Returned $3.2 billion to shareholders through dividends and share repurchases. |
Highlights of five-year performance achievements across key financial measures
Key Performance HighlightsNon-GAAP
In fiscal 2016, we achieved record performance, growing orders, revenue adjusted operating margin and earnings per share to the highest levels in Applied’s history, made significant progress towards our long-term strategic and financial goals, and delivered strong cash returns to our shareholders. Our revenue for fiscal 2016 grew to a record $10.8 billion, an increase of 12% year-over-year, and we achieved record new orders of $12.4 billion, an increase of 23% year-over-year. We also achieved record GAAP EPS of $1.54, up 38% over fiscal 2015, and recordnon-GAAP adjusted EPS of $1.75, growing 47% over fiscal 2015 (see Appendix A for a reconciliation ofnon-GAAP adjusted measures).
Key highlights ofare performance targets under our continued strong financial performance are shown below.
|
|
|
|
|
|
(1)bonus and long-term incentive plans. See Appendix A fornon-GAAP reconciliations.
16Applied Materials, Inc. 2017 Proxy Statement21
COMPENSATION DISCUSSION AND ANALYSIS
Other keyKey financial highlights for our reporting segments in fiscal 2016 included2019 include the following:
| ● | Semiconductor Systems segment: we delivered annual revenue of $9.0 billion in |
| ● | Applied Global Services segment: we grew revenue to a record |
| ● | For the calendar year 2019, we expect to outperform both the WFE market and our |
| ● | Display and Adjacent Markets segment: we delivered revenue of $1.7 billion |
Strategic and Operational Highlights
Building on our broad and deep material engineering capabilities and the strength of our leadership businesses, Applied’s strategy is to deliver highly differentiated materials engineering products and services that enable major technology inflections in order to growand drive our overall share of the WFE market, grow our display and flexible technologies business, grow our services business, and expand into new and adjacent markets.
Our Key Strategic Prioritiescustomers’ success.
See inflections early Identify customers High Value Problems Develop Differentiated Valuable Sustainable products Ensure customer success + Generate residual value
We believe the electronics industry is in a period of transition as major new growth drivers emerge in the form of the Internet of Things (IoT), big data and artificial intelligence (AI). In fiscal 2016,2019, we continued to drive profitable growth by targeting major technology inflectionsfocus on initiatives that will help accelerate our customers’ roadmaps and introducing new, differentiated, enabling products and services to help our customers address their most critical technological challenges.put Applied in the best position for the future. Key highlights include:
| ● | We continued to prioritize our |
| ● | In |
| ● | We |
| ● | We grew our installed base of semiconductor and |
| ● | We expanded our R&D capabilities by opening the |
The HRCC approved an aggressive set of scorecard targets for the executive officers for fiscal 2019, including financial targets above any levels that Applied had achieved in the past, as well as equally challenging operational targets. Although the aggressive targets resulted in below-target bonus payments, the Company expects to see market share growth for calendar year 2019 and also made significant progress on long-term growth initiatives.
During fiscal 2019, Applied delivered solid financial and operational performance in a challenging environment and made meaningful progress towards our long-term strategic goals that are focused on enabling strong longer-term revenue and EPS growth; however, the results were below aggressively set targets. Accordingly, bonus payouts to our executive officers were below target bonus amounts. As part of our multi-year incentive program, for the period of 2017 to 2019, the HRCC approved aggressive goals fornon-GAAP adjusted operating margin and WFE market share. The results for this three-year performance period were above target, resulting in above target level performance share unit awards for our executive officers.
Applied Materials, Inc. 2217 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Stock Price Performance
Our strong strategicIn fiscal 2019, our stock price performance reflected steady market optimism, particularly in the second half of the year, as the semiconductor market environment showed early signs of strength in foundry and financial performancelogic spending, and continued reduction in fiscal 2016 also resulted in meaningful value creation for our shareholders. As illustrated below,memory inventory levels. Over the past five years, Applied significantlyhas outperformed both our peer group and the S&P 500 Information Technology Index.Index, as shown below. In addition, Applied was the second highest performing stock on the NASDAQ 100, and the fifth highest performing stockoutperformed peers by over 40% in the S&P 500, during calendar year 2016.fiscal 2019.
FY 2012FY2015 – FY 2016FY2019 Total Shareholder Return vs. Key Peers
Shareholder Engagement and Incentive Program Changes
During the fall of 2016, our Board and management conducted an extensive shareholder outreach as part of a broad review of our executive compensation program, and in response to shareholder feedback at the time of our 2016 Annual Meeting. We engaged with a significant cross-section of our shareholder base, including large institutional investors, pension funds, and other investors outside of our top 25 holders. We contacted the holders of approximately 43% of our outstanding shares, and engaged in active discussions with shareholders representing 25% of our shares outstanding. To establish a direct line of communication with the Human Resources and Compensation Committee, the Chair of the HRCC participated in several of these discussions. During these conversations, shareholders were invited to provide direct feedback on the current compensation programs as well as on potential changes the HRCC was considering at the time.
As a result of this compensation program review and shareholder outreach, the HRCC made several changes to the compensation and incentive structures that both enhanced alignment with Applied’s strategic priorities and directly reflected the input provided by shareholders. These changes applied to bonus determinations for fiscal 2016 and the equity grants approved for fiscal 2017, both of which occurred in early fiscal 2017.
18 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
A summary of key shareholder feedback themes and how the HRCC responded is below.
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
|
| |||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
|
| |||||||||
|
| |||||||||
|
| |||||||||
|
| |||||||||
The HRCC believes that the incentive program changes are highly responsive to the feedback received from shareholders and strengthen the alignment with our strategic priorities. Transitioning to two forms of equity in the long-term incentive program establishes a more direct balance between rigorous, performance-based incentives and retention-based incentives, both of which the HRCC believes are critical incentive components. This structure is also consistent with current trends in executive compensation design. Additionally, the new PSU performance measures(non-GAAP adjusted operating margin and WFE market share) consider both our absolute and relative performance and align with our stated strategic priorities to ensure our management team’s long-term incentives match our long-term goals.
Applied Materials, Inc. 1923
Fiscal 2016 Compensation & HRCC Decisions
The design of our fiscal 2016 compensation program was determined at the beginning of fiscal 2016, prior to our shareholder engagement in the fall of 2016. As a result, certain fiscal 2016 compensation elements do not reflect the changes made by the HRCC in response to the feedback provided by shareholders during the engagement, as described above under “Shareholder Engagement and Incentive Program Changes,” and all of which will be reflected in fiscal 2017.
Pay Mix
In fiscal 2016, we continued our pay for performance philosophy by aligning a significant portion of executive compensation with demonstrated performance. As illustrated below, 93% of CEO compensation for fiscal 2016 was performance-based and 76% of his overall compensation was delivered in equity with multi-year vesting.
| ||
|
| |
|
| |
Primary Compensation Elements and Executive Compensation Highlights for Fiscal 20162019
The primary elements of our compensation program consist of base salary, annual incentive bonuses and annual long-term incentive awards. Other elements of compensation include a 401(k) savings plan, deferred compensation benefits and other benefits programs that are generally available to all employees.
20 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Primary elements and highlights of our fiscal 20162019 compensation program were as follows:
| Element of Pay | ||||||||||||||||||||||||||||
Base Salary (see page
| ∎ | Fixed cash compensation for expectedday-to-day responsibilities
| ∎ | Fiscal 2019 salaries for each named executive officer (“NEO”) increased from 2018 levels to reflect increases in competitive pay positioning levels | ||||||||||||||||||||||||
| ∎ | Reviewed annually and adjusted when appropriate, based on scope of responsibility, performance, time in role, experience, and competitive market for executive talent
| |||||||||||||||||||||||||||
Annual Incentive Bonuses (see page | ∎ ∎ ∎ ∎ ∎ | Variable compensation paid in cash
|
|
| ||||||||||||||||||||||||
| Based on performance againstpre-established financial, operational, strategic and individual performance measures
| |||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
| Financial andnon-financial metrics provide a comprehensive assessment of executive performance
|
|
| |||||||||||||||||||||||||
| Performance metrics evaluated annually for alignment with strategy and market trends
NEO annual incentives determined through three-step performance measurement process:
Funding Allocation 1 Initial Funding Threshold Non-GAAP Adjusted EPS 2 Corporate Scorecard Business and Strategic Goals 3 Individual Performance Modifier Individual NEO Performance |  |
∎ ∎ ∎ |
The initial funding threshold non-GAAP adjusted EPS goal for fiscal 2019 was $2.90. The Company achieved an actual result of $3.04 As the initial funding threshold was achieved, the annual bonuses were based on the performance of the Company’s objective and Based on achievement compared to goals, fiscal 2019 actual annual bonuses ranged from 0.49x to 0.69x target for our NEOs — Achievement against the corporate scorecard ranged from 0.49x to 0.65x target (see corporate scorecard information on pages 32 and 33) — Based on an assessment of individual performance results and the impact against both quantitative and strategic objectives, each NEO, except for Mr. Durn, received an IPF of 1.0x. Mr. Durn received an IPF of 1.25x in recognition of his above and beyond performance in successfully managing external investor relationships and his vision and execution in driving major improvements in efficiency and effectiveness across the Finance organization (see individual performance highlights on page 34)
| ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Long-Term Incentives (see page
| ∎ ∎ ∎ ∎ |
Performance share units (“PSUs”) to establish rigorous long-term performance alignment
Restricted stock units (“RSUs”) to provide link to shareholder value creation and retention value PSUs vest based on achievement of 3-year non-GAAP adjusted operating margin and 3-year Total Shareholder Return (“TSR”) measured against the S&P 500 PSUs vests at end of 3-year performance period, based on achievement of performance goals; RSUs vest ratably over 3 years | ∎ |
| ||||||||||||||||||||||||
∎ ∎ |
The target vehicle mix of the equity awards consists of 75% PSUs and
|
|
For fiscal 2019, the WFE market share metric applicable for fiscal 2018 PSUs was replaced with relative TSR, which better reflects our growing Display and Services businesses, in addition to
| |||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
In response to feedback from our shareholders, the HRCC made changes to certain elements of the annual incentive bonus and the long-term incentive programs for fiscal 2017, as described above under “Shareholder Engagement and Incentive Program Changes.”
Applied Materials, Inc. 2421 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Pay Mix
In fiscal 2019, a significant portion of our executive compensation consisted of variable compensation and long-term incentives. As illustrated below, 92% of CEO compensation for fiscal 2019 comprised variable compensation elements, and 84% of CEO overall compensation was delivered in equity with multi-year vesting.
FY2019 Compensation Mix1 | ||
CEO | All Other NEOs | |
|
| |
1 Represents total direct compensation for FY2019
Summary of 20162019 Total Direct Compensation
The following table summarizes elements of annual total direct compensation for our NEOs for fiscal 2016,2019, consisting of (1) base salary, (2) annual incentive bonus and (3) annual long-term incentive awardawards (the grant date fair value of stock awards, not amounts actually received)awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation, that aresuch as certain other amounts required by the SEC to be reported in the Summary Compensation Table (see page 3841 of this Proxy Statement).
| Name and Principal Position | Salary ($) | Annual ($) | Annual ($) | Total ($) | ||||||||||||
Gary E. Dickerson | 1,019,231 | 2,449,440 | 11,111,985 | 14,580,656 | ||||||||||||
Robert J. Halliday | 637,019 | 1,033,358 | 4,321,318 | 5,991,695 | ||||||||||||
Ali Salehpour | 560,577 | 882,651 | 3,086,656 | 4,529,884 | ||||||||||||
Omkaram Nalamasu | 468,846 | 622,659 | 2,160,671 | 3,252,176 | ||||||||||||
Thomas F. Larkins | 489,231 | 640,494 | 1,975,455 | 3,105,180 | ||||||||||||
| Name and Principal Position | Salary ($) | Annual ($) | Annual ($) | Total ($) | ||||||||||||
Gary E. Dickerson | 1,024,808 | 1,133,000 | 11,696,506 | 13,854,314 | ||||||||||||
Daniel J. Durn | 620,673 | 580,078 | 3,931,029 | 5,131,780 | ||||||||||||
Ali Salehpour | 620,673 | 411,750 | 3,931,029 | 4,963,452 | ||||||||||||
Prabu G. Raja | 564,058 | 430,948 | 2,892,132 | 3,887,138 | ||||||||||||
Steve G. Ghanayem | 564,058 | 497,543 | 2,892,132 | 3,953,733 | ||||||||||||
Key Fiscal 2016 Executive Compensation HighlightsApplied Materials, Inc. 25
Pay and Performance
Key compensation decisionsThe HRCC approves aggressive performance goals for fiscal 2016 included:
No Base Salary Increases. NEO base salaries were unchanged year-over-year from 2015.
Paid Bonuses Below Calculated Funding Multiplier.the CEO, as well as for the entire executive leadership team. As a result, ofdespite outstanding TSR growth from fiscal 2015 through 2019, our strongnon-GAAP adjusted EPS performance in fiscal 2016,CEO’s total direct compensation has remained essentially flat over the bonus pool funding multiplier was 1.5x of target. Based on actual performance against rigorous fiscal 2016 corporate scorecard goals, the HRCC paid bonuses to NEOs below the funding multiplier, at an average of 1.2x. See “Annual Incentive Bonus Opportunities” on page 26 for additional information. The HRCC also made modifications to how the bonus program is administered for fiscal 2016 and going forward:same period.
Decisions Related to Terminated Business Combination. In September 2013, we announced our agreement with Tokyo Electron Limited to effect a strategic combination of our respective businesses (the “Business Combination”). In April 2015, we and Tokyo Electron terminated the Business Combination due to regulatory concerns. The HRCC made decisions in 2013 and 2014 to ensure our executive team would be able to both focus on our business despite the complexities of the merger and to make a U.S.-Japanese merger successful. These decisions resulted in reportable compensation in fiscal 2015 and 2016.
In 2015, the HRCC delayed the payment of the retention bonuses until six months following the closing or termination of the Business Combination to extend the retention element of these awards. The bonuses were paid at the beginning of fiscal 2016, six months following the termination of the Business Combination, and our management team has delivered record financial and operational performance in 2016. These bonus amounts are reported in the Summary Compensation Table for fiscal 2016.
22 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
In accordance with our relocation program, which is consistent with current practices among global companies, Mr. Dickerson received the relocation benefits that would be provided to any employee under the program. Although Mr. Dickerson relocated to Japan for part of 2014 and 2015, certain relocation benefits, including foreign and other tax payments, for 2015 and 2016 are included in the Summary Compensation Table for fiscal 2016 due to the timing of final determination of tax liabilities and associated tax filings. The tax payments were not paid to Mr. Dickerson but were paid directly to the appropriate tax authorities. The payments covered incremental taxes as part of tax equalization intended to put Mr. Dickerson, who relocated at the Board’s request, in the same position, from atax-liability perspective, that he would have been in if he had remained in the U.S. While these amounts are attributed to Mr. Dickerson in the Summary Compensation Table, they did not provide any additional compensation to him. See “Relocation Program” on page 35 for additional information.
Continued Alignment of Pay with Performance
The following chart demonstrates the alignment between TSR and the total direct compensation of our CEO for the last five fiscal years.
| (1) | Total direct compensation consists of annual base salary, |
| (2) | TSR line illustrates the total shareholder return on our common stock during the period from October |
Applied Materials, Inc. 2623 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Other Key Compensation Practices
We are committed to executive compensation practices that drive performance, mitigate risk and align the interests of our leadership team with the interests of our shareholders. Below is a summary of best practices that we have implemented and practices that we avoid because we believe they are not in the best interests of Applied or our shareholders.
| WHAT WE DO | WHAT WE DO NOT DO | |||||||
✓ | Pay for Performance– Significant majority of NEO target compensation is performance-based and tied topre-established performance goals aligned with our short- and long-term objectives. | Ò | No Guaranteed Bonuses– Our annual bonus plans are performance-based and do not include any minimum payment levels. | |||||
|
| |||||||
✓ | Mitigation of Risk– Use of varied performance measures in incentive programs mitigates risk that executives will be motivated to pursue results with respect to any one performance measure to the detriment of Applied as a whole. | Ò | No Hedging or Pledging– Our insider trading policy prohibits all directors, NEOs and | |||||
|
| |||||||
✓ | Compensation Recoupment Policy– Both our annual cash bonus plan and our stock incentive plan contain “clawback” provisions providing for reimbursement of incentive compensation from NEOs in certain circumstances. | Ò | No Perquisites– We do not provide material perquisites or other personal benefits to our NEOs or directors, except in connection with business-related relocation. | |||||
|
| |||||||
✓ | Stock Ownership Guidelines– All | Ò | No Dividends on | |||||
|
| |||||||
✓ | Double-TriggerChange-in-Control Provisions– Equity awards for all NEOs require a “double-trigger” of both achange-in-control and termination of employment for vesting acceleration benefits to apply. | Ò | No Executive Pensions– We do not offer any executive pension | |||||
|
| |||||||
✓ | AnnualSay-On-Pay Vote– We seek annual shareholder feedback on our executive compensation program. | �� Ò | No TaxGross-Ups– We do not pay taxgross-ups, except in connection with business-related relocation or expatriate assignments. | |||||
24Applied Materials, Inc. 2017 Proxy Statement27
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Governance and Decision-Making Framework
Overview of Compensation Program Philosophy and Governance Framework
Our executive compensation program has three principal objectives:
| To attract, reward and retain highly-talented executive officers and other key employees; |
| To motivate these individuals to achieve short-term and long-term goals that enhance shareholder value; and |
| To support our core values and culture. |
We seek to achieve these objectives byby:
| ● |
| ● |
| ∎ |
| ∎ |
| ∎ |
The HRCC uses these principles to determine base salaries, annual incentive bonuses and long-term incentive awards. The HRCC also considers Applied’s business objectives, external factors such as geopolitical and economic environment, competitive practices and trends, and corporate considerations, including the affordability of the compensation program.
The HRCC further considers the results of the annual advisory“say-on-pay” vote and shareholder feedback. At our Annual Meeting in 2019, our“say-on-pay” proposal received a substantial majority (96%) of votes cast. In consideration of this vote and feedback from our shareholders gathered through our outreach efforts, the HRCC made changes to certain elements of the annual incentive bonus and the long-term incentive programs, as described above under “Shareholder Engagement and Incentive Program Changes.”approved an
executive compensation program structure for fiscal 2019 that is unchanged from the fiscal 2018 program.
Fiscal 20162019 Peer Group Companies
The HRCC regularly evaluatesreviews compensation paid by our peer group, which consists of a broad range of high-technology companies whose businesses are similar to ours and with which we typically compete for executive talent, as a reference point for evaluating our compensation program.
For the composition of the fiscal 20162019 peer group, we considered companies that met the following criteria: (1) technology companies with manufacturing operations, (2) companies whose revenues or market capitalization were approximatelyone-third to five times that of Applied, (3) U.S. based publicly-traded companies with global operations that disclose executive compensation pursuant to SEC rules, (4) companies that compete with us for key talent, and (5) companies that devote significant resources to research and development as a percentage of revenue.revenue or have approximatelyone-half to two times market capitalization to revenue multiple as that of Applied. Based on this assessment, the HRCC determined not to continue including four companies forremove Juniper Networks, Inc., which was part of the fiscal 20162018 peer group, forfrom the following reasons: Agilent Technologies, Inc. shifted its business to focus on life sciences; Harris Corp. had relatively low research and development spending andnon-U.S. sales; and First Solar, Inc. and SunPower Corp. werefiscal 2019 peer group as it no longer appropriate peers duemet most of the screening criteria listed above, including revenue and multiple of market capitalization to the reductions in Applied’s solar business.revenue. The HRCC added two companiesAnalog Devices, Inc. to the fiscal 20162019 peer group for the following reasons: Nvidia Corp., a semiconductor company thatas it met the other screening criteria; and Avago Technologies (renamed Broadcom Ltd.), a technology company that met the quantitative screening criteria such asfor multiple of market capitalization to revenue and market capitalization, and had announced its planned acquisition of Broadcom Corp.,it has a company included in our fiscal 2016 peer group.stronger business fit with Applied relative to Juniper Networks. Each of the other companies in the peer group listed below met most, if not all, of the five screening criteria listed above;and continued to be included in the peer group; in addition, several of the companies were among our principal U.S. competitors or top U.S. customers.
Applied Materials, Inc. 25
Data gathered on the peer group include base salary, bonus, targeted cash compensation, long-term incentive awards and total direct compensation. The HRCC uses this survey datainformation as a reference point rather than to target a specific percentile for our NEOs. The peer group data is gathered from the
sources described in “Role of Compensation Consultant” and “Role of Executive Officers and Management in Compensation Decisions” below. The tables below set forth our
28 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Our fiscal 20162019 peer group and related information.information are set forth below.
| Fiscal | ||
| Advanced Micro Devices, Inc. | Micron Technology, Inc. | |
| Motorola Solutions, Inc. | ||
| NetApp, Inc. | |
| Cisco Systems, Inc. | NVIDIA Corp. | |
| Corning Inc. | QUALCOMM, Inc. | |
| Intel Corp. | Seagate Technology | |
| Texas Instruments, | ||
| Lam Research Corp. | Western Digital Corp. | |
Applied Materials Positioning Relative to Peers
Applied Materials Positioning Relative to Peers Revenue 100th percentile Market Capitalization 100th percentile 50th percentile Percentile Rank
Components of Total Direct Compensation
Determining Annual Total Direct Compensation
At the beginning of fiscal 2016,2019, the HRCC evaluated each NEO’s annual total direct compensation – consisting of annual base salary, annual incentive bonus and annual long-term incentive award. As part of this annual evaluation, the HRCC considers the NEO’s scope of responsibility, performance, skill set, prior experience and achievements, advancement potential, impact on results and expected future contributions to our business, as well asbusiness. The HRCC also considers the compensation levellevels of an executive officer relative to other Applied officers, the need to attract and retain talent, and business conditions. The HRCC also considersconditions, and compensation levels at our peer companies for comparable positions; however, no individual element of compensation is targeted to a peer percentile range. The HRCC uses peer group data as a tool to assess how our executives’ compensation compares to the market rather than as a means to establish specific target compensation levels. Actual pay results vary based on the overall performance of the Company and individual NEO performance, as the largest portion of NEO compensation is performance-based.
Base Salaries
Base salaries and bonus opportunities are designed to attract, motivate, reward and retain executive talent, as well as to align pay with performance. At the beginning of each fiscal year, the HRCC determines each NEO’s targeted total cash compensation (salary and target bonus).
Base salaries are an annual fixed level of cash compensation. For fiscal 2016, the HRCC made no changes to NEO base salaries from fiscal 2015. The HRCC determinedapproved an increase for each NEO’s salary to ensure that continuing base salary amounts from fiscal 2015 met the goalit continues to reflect competitive pay positioning levels of sufficiently recognizing executives for their time and service, was sufficiently competitivesimilar roles, as well as to provide adequate retention value and allowedvalue. Applied continues to continue its focus onthe weighting of cash compensation more heavily toward performance-based incentives.
Annual Incentive Bonus Opportunities
Bonus Plan Overview. In fiscal 2016,2019, all of our NEOs participated in the Senior Executive Bonus Plan (the “Bonus Plan”). The Bonus Plan is a shareholder-approved bonus program designed to motivate and reward achievement of Applied’s business goals aligned with delivering shareholder value and to attract and retain highly-talented individuals. The annual incentive bonus opportunity for each NEO under the Bonus Plan is directly linked to Applied’s achievement of financial and market performance, operational performance and strategic objectives, in addition to individual performance. Company and individual goals are designed to incentivize management to drive strong operating performance, invest in innovation to drive future growth and create shareholder value. Our Bonus Plan is performance-based and does not include any minimum payment levels. Bonuses under this plan are intended to qualify as “performance-based” compensation under Section 162(m).
26 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Determining Target Bonus Amounts. Target bonus amounts for each of the NEOs are expressed as a percentage of base salary. The HRCC setapproves the annual target bonus amount for each NEO, taking into consideration Mr. Dickerson’s recommendations regarding the annual target bonus amounts for each of the NEOs other than himself. In early fiscal 2016,2019, Mr. Dickerson recommended that, for each NEO, other than Mr. Durn, the target
bonus amounts remain unchanged from fiscal 2015. In making his recommendations,2018. Mr. Dickerson relied onrecommended, and the HRCC approved, increasing Mr. Durn’s target bonus from 110% to 135% of his salary to reflect an increase in the competitive pay positioning level for annual incentive targets for CFOs. The HRCC considered a varietynumber of factors, including publicly-availablepublicly available data and market survey data, as described above, as well as hisan assessment of overall economic and business conditions. The HRCC considered these same factorsconditions in deciding not to increase Mr. Dickerson’s target bonus.
Applied Materials, Inc. 29
Assessing Performance and Payout. The determination of fiscal 20162019 performance and annual incentive bonuses for our NEOs consisted of fourthree key steps, as illustrated in the diagram below and the following discussion.
NEO Bonus Determination Initial Funding Threshold Threshold performance requirement that must be achieved for maximum bonuses to become available Initial funding threshold for fiscal 2019 was non-GAAP adjusted EPS of $2.90 Corporate Scorecard Assessment of performance against pre-defined financial, operational and strategic corporate goals For fiscal 2019, for our CEO and CFO, 50% based on financial and market performance and execution goals; 50% based on objective and measurable operational and strategic goals Individual Performance Factor Assessment of individual NEO performance against personal objectives and contributions to the business
The HRCC believes that this multi-step performance framework appropriately emphasizes financial performance, while also providing a mechanism to assess achievement of key business imperatives by individual NEOsNEOs.
Initial Performance Goal.Funding Threshold. The Bonus Plan includes an initial performance hurdle to establish 162(m) tax deductibility. For fiscal 2016,2019, the HRCC chosenon-GAAP adjusted operating profitEPS as the 162(m)initial funding threshold. EPS, an indicator of overall Company financial performance, goal. is a measure of profits generated on a per share basis that are available either to reinvest in the business or distribute to shareholders, and has a strong link to share price valuation.
If Applied does not achieve positivea thresholdnon-GAAP adjusted operating profitEPS of $2.90 for the fiscal year, no bonus is payable. If positive adjusted operating profitthis threshold is achieved, the maximum bonus that becomes payable for each NEO is the lowest of: (a) $5 million, (b) 3x a corporate bonus pool funding modifier, multiplied by the target bonus, and (c) 3x the target bonus, as a percentage of base salary, and (c) 0.4% of adjusted operating profit for each NEO other than Mr. Dickerson, for whom this maximum is 0.8% of adjusted operating profit.salary.
In fiscal 2016,2019, Applied’snon-GAAP adjusted operating profitEPS was $2.3 billion,$3.04, resulting in achievement of the initial performance goalfunding threshold under the Bonus Plan. Adjusted operating profit is anon-GAAP measure that excludes certain items from operating profit determined in accordance with GAAP, such as acquisition, integration and deal costs, restructuring, inventory and asset impairment charges, and other adjustments (see Appendix A for a reconciliation ofnon-GAAP adjusted operating income).Non-GAAP adjusted operating profit does not exclude stock-based compensation expenses.
Funding. The HRCC reviewed Applied’snon-GAAP adjusted EPS performance, a measure of overall company financial
performance, to determine the funding level of the Bonus Plan. At the beginning of the year, the HRCC determined a target adjusted EPS performance range and the corresponding funding multiplier range. For fiscal 2016, thenon-GAAP adjusted EPS range of $1.00 to $2.00 corresponded to a funding multiplier range of 0.5x to 2.0x. The 1.0x multiplier required anon-GAAP adjusted EPS of $1.50, which was 26% higher than our actualnon-GAAP adjusted EPS for fiscal 2015. At the end of the year, the HRCC confirmed the adjusted EPS performance and associated funding multiplier. In fiscal 2016, the HRCC eliminated the ability to apply upward discretion to the adjusted EPS funding multiplier. For fiscal 2016, Applied achievednon-GAAP adjusted EPS of $1.75, which resulted in a funding multiplier of 1.5x.
Adjusted EPS is anon-GAAP measure that excludes certain items from EPS determined in accordance with GAAP such as acquisition and deal costs, restructuring, inventory and asset impairment charges, the reinstatement of federal R&D tax credit, the resolution of audits of prior years’ income tax filings and other tax items, and other adjustments (see Appendix A for a reconciliation ofnon-GAAP adjusted EPS).
Non-GAAP adjusted EPS does not exclude stock-basedshare-based compensation expenses.
Applied Materials, Inc. 27
Balanced Corporate Scorecard. If the Bonus Planinitial performance goal is funded,achieved, the HRCC then uses the corporate scorecard to evaluate achievement ofpre-defined corporate objectives and goals for each NEO.NEO and as a primary mechanism to exercise negative discretion from the maximum bonus amount. The scorecard is designed to measure financial andnon-financial objectives that are considered by the HRCC to be key drivers of the Company’s near-term financial and operational success that will create shareholder value over the longer-term. The fiscal 20162019 scorecard measured corporate performance in fivefour broad categories:
(1) Financial and Market Performance and Execution, (2) Products and Growth, (3) Execution, (4) Customers and Field and Service and (5)(4) People and Organization. These categories align with and support the Company’s strategy of strengthening our materials engineering capabilities to enable major technology inflections for our customers and positioning Applied for sustainable growth to support long-term value creation for its shareholders.
30 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Scorecard Category | Weighting and CFO
| Link to Company Strategy and Performance
| ||
| Financial and Market Performance and Execution | 50% | Financial, market share and TSR goals align with a focus on delivering sustainable performance that increases shareholder value Incentivizes increased efficiency in operational process, product development success and quality and safety performance | ||
| Products and Growth | 30% | Reinforces strategy of developing new and differentiated products and services and positioning Applied and its products for future revenue and market share growth | ||
| Promotes focus on | ||||
| People and Organization | 7.5% | Drives focus on greater employee engagement to promote hiring, retention and development of key talent | ||
NEO Objectives and Weightings. Each NEO was assigned individualized weightings for all measures other than the Financial and Market Performance measures (which were weighted at 50% for all NEOs), to reflect the relative impact and contributions of that NEO and his business or organizational unit to Applied’s overall performance with respect to a particular measure. The corporate scorecard objectives and weightings were the same for Mr. Dickerson and Mr. Halliday. All other NEOs shared theseDurn. The objectives butand weightings for each had different weightings asNEO are set forth in the table below.
Goal Setting and Measurement. At the beginning of the fiscal year, the HRCC reviewed objectives, goals and weightings initially proposed by management, and provided input and made
adjustments, and approvedto the final corporate scorecard and individual weightings for each NEO. Scorecard objectives are intended to be very challenging to incentivize our NEOs to achieve performance
levels that are higher than our externally communicated financial targets. Consequently, delivering results below the 100% target level can still represent very meaningful progress towards our long-term strategic goals. Progress towards achieving the corporate scorecard objectives was evaluated and tracked quarterly during the fiscal year. Scores were awarded for each metric under the scorecard based on the degree to which thepre-determined goals for that metric were achieved. Performance hurdles were set to measure achievement at 0, 0.5, 1.0, 1.5 and 2.0 levels, with a score of 1.0 indicating performance that met very high expectations and scores over 1.0 indicating extraordinary achievement. At the end of the fiscal year, scores were calculated based on actual performance against objectives and were presented to the HRCC to review, adjust and approve.
28Applied Materials, Inc. 2017 Proxy Statement31
COMPENSATION DISCUSSION AND ANALYSIS
The following table details fiscal 20162019 corporate scorecard objectives, their relative weightings for each NEO, the achievements based on performance against rigorous objectives and the resulting scores, as approved by the HRCC (see Appendix A fornon-GAAP reconciliations).
| Weightings | Achievements
| Score
| ||||||||||||||||||||
| Objectives | Dickerson and Halliday | Salehpour | Nalamasu | Larkins | ||||||||||||||||||
Financial and Market Performance | 50.0% | 50.0% | 50.0% | 50.0% | ||||||||||||||||||
● Grow wafer fabrication equipment (measured by Gartner) and Display market share | ● Achieved >1% of wafer fabrication equipment market share gain in calendar 2016 (estimate based on Gartner data) and significant share gains in Display equipment served available market | 1.5 | ||||||||||||||||||||
● Achieve gross margin targets (gross margin reported externally) | ● Achieved >43%non-GAAP adjusted gross margin | 1.0 | ||||||||||||||||||||
● Achieve adjusted EPS goal (EPS reported externally) | ● Achieved $1.75non-GAAP adjusted EPS | 1.0 | ||||||||||||||||||||
● Achieve TSR target relative to peers | ● Achieved highest TSR performance in semiconductor equipment peer group | 2.0 | ||||||||||||||||||||
Products and Growth | 15.0% | 22.5% | 27.0% | 20.0% | ||||||||||||||||||
● Win development tool of record and production tool of record positions at key Semiconductor Systems and Display customers | ● Exceeded target number of development tool of record and production tool of record positions | 1.5 | ||||||||||||||||||||
● Grow number of tools under service contracts | ● Increased net tools under service agreements in line with annual target | 1.0 | ||||||||||||||||||||
● Develop technology pipeline to deliver targeted incremental fiscal 2018 revenue | ● Developed pipeline to deliver risk-adjusted 2018 revenues in line with published financial model | 1.0 | ||||||||||||||||||||
Execution | 15.0% | 12.5% | 13.0% | 12.5% | ||||||||||||||||||
● Reduceorder-to-cash cycle time from fiscal 2015 baseline | ● Metorder-to-cash cycle time improvement target for year | 1.0 | ||||||||||||||||||||
● Increase product development success rates, measured by number of R&D programs resulting in successful products | ● Implemented peer review board to evaluate products compared to original return on investment and success metrics, with majority of R&D programs achieving their goals and successfully passing review process | 1.0 | ||||||||||||||||||||
● Improve operational, quality and safety performance | ● Successfully drove improvements in on time delivery, materials cost and safety | 1.2 | (1) | |||||||||||||||||||
Customer, Field and Service | 10.0% | 7.5% | 0.0% | 7.5% | ||||||||||||||||||
● Achieve 5 growth and efficiency metrics at 8 key accounts | ● Achieved targeted growth and efficiency metrics | 1.0 | ||||||||||||||||||||
● Improve customer loyalty score by 2 points relative to competitors, measured by Walker Survey, a third-party survey with results benchmarked against competitor companies | ● Improved absolute customer loyalty scores, but did not increase gap relative to competitors | 0.0 | ||||||||||||||||||||
People and Organization | 10.0% | 7.5% | 10.0% | 10.0% | ||||||||||||||||||
● Achieve targeted organizational health index score compared against 2014 score, measured by survey administered by McKinsey | ● Increased organizational health index score over 2014 result by 2 points | 1.5 | ||||||||||||||||||||
● Implement employee development and training strategies | ● Developed integrated training curriculum and trained over 90% of the targeted population or nearly 6,300 employees | 2.0 | ||||||||||||||||||||
Goals tied to objective and quantifiable metrics |
| |||||||||||||||||||||
(1) Reflects weighted average The HRCC approved an aggressive set of scorecard targets for the scores of multiple underlying goals.executive officers for fiscal 2019, including financial targets above any levels that Applied had achieved in the past, as well as equally challenging operational targets. During fiscal 2019, Applied delivered solid financial and operational performance in a challenging environment and made meaningful progress towards our long-term strategic goals that are focused on enabling strong longer-term revenue and EPS growth; however, the results were below aggressively set targets. Accordingly, bonus payouts to our executive officers were below target bonus amounts.
| Weightings | Achievements | Score | ||||||||||||||||||||
| Objectives | Dickerson and Durn | Salehpour | Raja | Ghanayem | ||||||||||||||||||
| Financial and Market Performance and Execution | 50.0% | 47.5% | 50.0% | 40.0% | ||||||||||||||||||
● Grow wafer fabrication equipment (measured by Gartner) market share | ● Expecting growth in wafer fabrication equipment market share but below the aggressive targeted share increase in calendar 2019 | 0.5 | ||||||||||||||||||||
● Achieve adjusted gross margin targets (gross margin reported externally) | ● Delivered 44.0%non-GAAP adjusted gross margin, but below the aggressive targets set for the year | 0.0 | ||||||||||||||||||||
● Achieve adjusted operating margin goal (operating margin reported externally) | ● Achieved 23.5%non-GAAP adjusted operating margin, narrowly missing the aggressive targets set for the year | 0.5 | ||||||||||||||||||||
● Achieve TSR target relative to peers | ● Achieved targeted TSR performance relative to semiconductor equipment peer group | 1.0 | ||||||||||||||||||||
●Improve operational, quality and safety performance | ● Successfully drove improvements in delivery times, materials costs, quality and safety | 1.0 | ||||||||||||||||||||
Products and Growth | 30.0% | 37.5% | 25.0% | 42.5% | ||||||||||||||||||
● Demonstrate progress towards ability to deliver targeted fiscal 2023 revenue for semiconductor businesses | ● Met aggressive milestones towards delivering 2023 revenue target for semiconductor businesses | 1.0 | ||||||||||||||||||||
● Demonstrate progress towards ability to deliver targeted fiscal 2023 revenue for Display business | ● Made significant progress towards delivering 2023 revenue target for Display business but some results were below the aggressive goals set for the year | 0.5 | ||||||||||||||||||||
● Grow Service revenue per target | ● Delivered record Service revenue but fell short of the aggressive service revenue growth target for the year | 0.0 | ||||||||||||||||||||
● Develop growth pipeline to deliver targeted fiscal 2021 revenue and create opportunities in core and new businesses | ● Developed strong pipeline of opportunities to drive significant future growth but fell slightly short of aggressive targets | 0.5 | ||||||||||||||||||||
Customers and Field | 12.5% | 7.5% | 17.5% | 10.0% | ||||||||||||||||||
● Achieve growth and efficiency metrics at key accounts | ● Achieved aggressive field management goals at the majority of, but not all, key accounts | 0.5 | ||||||||||||||||||||
●Win development tool of record and production tool of record positions at key customers; grow target applications for systems and service | ● Delivered many development tool of record and production tool of record positions, which set us up well for the future, but below the aggressive targets set for the year. Achieved many significant milestones for application growth for systems and service, but below the aggressive targeted goals for the year | 0.5 | ||||||||||||||||||||
●Validate Preferred Strategic Partner customer engagements worth targeted fiscal 2023 revenue that create value for customers and meaningfully expand systems and service business | ● The Preferred Strategic Partner goal is set as a multiple year objective to go far beyond our existing customer relationships. In 2019, we achieved many milestones for Preferred Strategic Partner engagements, however, fell short of some aggressive targets set for the year | 0.5 | ||||||||||||||||||||
Applied Materials, Inc. 3229 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
| Weightings | Achievements | Score | ||||||||||||||||||||
| Objectives | Dickerson and Durn | Salehpour | Raja | Ghanayem | ||||||||||||||||||
People and Organization | 7.5% | 7.5% | 7.5% | 7.5% | ||||||||||||||||||
● Improve overall health score and employee engagement score relative to 2018 organizational health index survey results | ● Despite both a challenging business climate and robust talent market, in 2019, we achieved the same overall health score and employee engagement score as the previous year | 0.5 | ||||||||||||||||||||
● Accelerate diversity and inclusion initiative by increasing targeted representation of women and underrepresented minorities, improving culture of inclusion and setting goals, plans and scoring matrices for certain business and functional organizations | ● Formed fully-dedicated team to support work in designing a culture of inclusion, which is a catalyst to accelerate progress toward increasing diversity in the workforce. Established Culture of Inclusion Framework and inclusion strategy to include innovative approaches with intentional focus on leadership, eliminating systematic barriers and fostering engagement | 0.5 | ||||||||||||||||||||
● Implement next phase of organizational development strategy | ● Drove organizational development by ensuring that 89% of regular full-time employees had development objectives in Workday by end of Q2 and employees participating in training PATHWAY completed 89% of all assigned training by end of fiscal 2019 | 1.5 | ||||||||||||||||||||
Goals tied to objective and quantifiable metrics aligned with Company strategy
|
| |||||||||||||||||||||
Individual Performance Factor. The HRCC also considered the individual performance of each NEO as indicated by that NEO’s individual performance factor (“IPF”). The IPF applied only if the Bonus Plan was fundedinitial funding threshold and at least some of the corporate scorecard objectives were achieved. The IPF modified the initial bonus amount as determined based on achievement against the corporate scorecard objectives. The IPF modifier range had beenranges from 0 to 2.0 in previous years. In fiscal 2016, the HRCC reduced the maximum IPF from 2.0 to 1.5.
The HRCC determined the IPFs for all NEOs. Mr. Dickerson’s IPF was basedIn determining the IPFs, the HRCC took into consideration: (i) financial performance, which came in near threshold performance on EPS, (ii) results of the HRCC’syear-end assessment of his leadershipcorporate scorecard and the Company’s overallassociated goals, (iii) performance during the year. second half of the fiscal year, which was considered to be very strong given the reduction in WFE market size seen in the first two quarters of the year, and (iv) TSR performance, which increased materially from the end of fiscal 2018 through to the end of fiscal 2019.
The HRCC determined the IPF for each NEO, other NEOthan Mr. Dickerson, by taking into consideration Mr. Dickerson’s recommendation, which included his assessment of the achievement of strategic, financial, operational and organizational performance goals specific to the business or organizational unit for which the NEO was responsible, as well as the NEO’s leadership skills and current and expected contributions to the business.
For fiscal 2016,2019, in light of the significant efforts by each NEO in leading his respective organization, and in Mr. Dickerson’s case, Applied, and in recognition of the significant teamwork required of the leadership team to deliver solid financial results despite challenging market conditions, the HRCC determined that Mr. Dickerson’s individual performance aligned with the majority of his leadership team at 1.0, and assigned each NEO an IPF of 1.0.1.0, with the exception of Mr. Durn, who was assigned an IPF of 1.25, as recommended by Mr. Dickerson. Mr. Durn’s IPF was in recognition of his above and beyond performance in successfully managing external investor relationships and communications and his vision and execution in driving major improvements in efficiency and effectiveness across the Finance organization.
Applied Materials, Inc. 33
The following table shows the highlights of each NEO’s performance in fiscal 20162019 that the HRCC considered in determining their respective IPFs.
| NEO |
Fiscal | |||
Gary E. Dickerson | ● | Delivered | ||
| ||||
|
| |||
● | ||||
Daniel J. Durn | ● | Delivered annual revenue of $14.6 billion and | ||
● | ||||
|
| |||
| ||||
● | Drove | |||
Ali Salehpour | ● | Delivered record Applied Global Services revenues of | ||
● | ||||
|
| |||
● | ||||
| ● | |||
● | ||||
● | ||||
Steve G. Ghanayem | ● | Continued to drive new industry engagements through New Markets and | ||
● | Opened leading edge Materials Engineering Technology Accelerator research and | |||
30 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Actual Bonus Payouts. The NEOs’ performance against corporate scorecard goals and IPF ratings resulted in an average bonus payout of 1.2x, which was below the bonus pool funding multiplier of 1.5x. The diagram below shows the results for each of the fourthree key steps in determining the NEOs’ fiscal 20162019 annual incentive bonuses. Despite achieving solid financial performance and many of our fiscal 2019 corporate scorecard objectives, there were certain important scorecard areas where we did not reach the targets set at the beginning of the year, which reduced bonus payouts for our NEOs by, on average, 41% from target bonus amounts.
Fiscal 20162019 Annual Incentive Calculation
Performance Measures | Fiscal | |||||||
Initial Performance Goal | ∎ adjusted EPS of $2.90 | ✓Achievednon-GAAP adjusted EPS of $3.04
| ||||||
 | 
Corporate Scorecard |
| ||||||
 | ∎ Strong performance on core objectives: – Financial and Market Performance and Execution – Products and Growth –
– People and Organization
| ✓ NEO
| ||||||
Individual Performance Modifier | ∎
| ✓ IPFachieved at
| ||||||
  | ||||||||
Average NEO bonus, as
| ||||||||
34 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The following table shows for each NEO: (1) the maximum amount payable under the Bonus Plan, (2) the target bonus amountsamount expressed as a percentage of base salary, (3) the target bonus expressed as a dollar amount and (4) the actual fiscal 20162019 bonus amount approved by the HRCC and paid to the NEO and (5) the actual bonus as a percentage of the bonus target.NEO.
| NEO | (1) Maximum Bonus Payable ($) | (2) Target Salary (%) | (3) Target Bonus ($) | (4) Actual Bonus ($) | (5) Percentage of Target Bonus Awarded (%) | |||||||||||
Dickerson | $ | 5,000,000 | 200% | $ | 2,000,000 | $ | 2,449,440 | 122% | ||||||||
Halliday | $ | 2,531,250 | 135% | $ | 843,750 | $ | 1,033,358 | 122% | ||||||||
Salehpour | $ | 2,227,500 | 135% | $ | 742,500 | $ | 882,651 | 119% | ||||||||
Nalamasu | $ | 1,518,000 | 110% | $ | 506,000 | $ | 622,659 | 123% | ||||||||
Larkins | $ | 1,584,000 | 110% | $ | 528,000 | $ | 640,494 | 121% | ||||||||
Applied Materials, Inc. 31
| NEO | (1) Maximum Bonus Payable ($) | (2) Target Salary (%) | (3) Target Bonus ($) | (4) Actual Bonus ($) | ||||||||
Gary E. Dickerson | $5,000,000 | 200% | $ | 2,060,000 |
| $ | 1,133,000 |
| ||||
Daniel J. Durn | $2,531,250 | 135% | $ | 843,750 |
| $ | 580,078 |
| ||||
Ali Salehpour | $2,531,250 | 135% | $ | 843,750 |
| $ | 411,750 |
| ||||
Prabu G. Raja | $2,296,350 | 135% | $ | 765,450 |
| $ | 430,948 |
| ||||
Steve G. Ghanayem | $2,296,350 | 135% | $ | 765,450 |
| $ | 497,543 |
| ||||
Pay and Performance Alignment.Driven by Operating Performance. Our process for determining annual bonus awards has resulted in strong pay and performance alignment. Despite achieving solid financial performance and many of the fiscal 2019 corporate scorecard objectives that position Applied for strong longer-term growth, there were certain important scorecard areas where we did not reach the aggressive targets set at the beginning of the year, which resulted in a lower bonus payout for our CEO than for fiscal 2018. The chart below illustrates the rigor of our scorecard and alignment betweenshows the actual annual bonus awards forto our CEO and ournon-GAAP adjusted EPS achievements.achievements over the last five fiscal years.
CEO Actual Annual Bonus vs. Earnings Per Share
Actual Annual Bonus Non-GAAP Adjusted Earnings Per Share Non-GAAP Adjusted Earnings Per Share Actual Annual Bonus ($ millions)
(1)Non-GAAP adjusted EPS is a performance target under our bonus plan. See Appendix A fornon-GAAP reconciliations.
Changes for fiscal 2017. In 2016, the HRCC approved changes to the annual bonus program to align with business objectives and address concerns raised by our investor community. Changes to the program that were effective in fiscal 2016 will also be applied to the fiscal 2017 annual bonus structure. These changes included:
See “Shareholder Engagement andIncentive Program Changes” on page 18 for additional information. Beginning in fiscal 2017, the operating profit hurdle has been eliminated from the plan design to avoid metric overlap with our long-term incentive program, and has been replaced with an adjusted EPS hurdle.
Long-Term Incentives
Overview. Applied’s long-term incentive compensation program is intended to help (1) achieve our business objectives, (2) attract, motivate and retain key talent, and (3) align our executives’ interests with shareholders’ interests to maximize long-term shareholder value.
Timing of Awards. The HRCC grants equity and other long-term incentive awards to NEOs under our shareholder-approvedshareholder-
approved Employee Stock Incentive Plan (the “Stock Plan”). The HRCC has not granted, nor does it intend to grant, equity
awards in anticipation of the release of material, nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement. Similarly, Applied has not timed, nor does it intend to time, the release of material, nonpublic information based on equity award grant dates.
Applied Materials, Inc. 35
Payout of Fiscal 2017 Performance Share Unit Awards
The performance share units (“PSUs”) granted to our NEOs in fiscal 2017 were scheduled to vest three years from the grant date based on achievement of averagenon-GAAP adjusted operating margin for fiscal 2017 through fiscal 2019 and average WFE market share for calendar years 2016 through 2018, with equal weighting given to each metric. In setting targets for the PSUs, the HRCC considered a number of factors, including the Company’s past performance, analyst expectations, current and expected macro-economic forces, the spectrum of potential outcomes, and competitor positioning. The number of PSUs that may vest was based on the achievement of threshold (minimum required for a payout), target or maximum levels of each metric and may range from 50% to 200% of the target number of shares. The threshold, target and maximum levels and actual achievement for each metric, as well as overall payout for the fiscal 2017 PSUs, are shown below.
Three-Year Average | ||||||||||||||||||||
Metric | Threshold | Target | Maximum | Result | Payout | |||||||||||||||
Operating Margin(1) |
| 19.3% |
|
| 21.3% |
|
| 25.1% |
|
| 26.8% |
|
| 200.0% |
| |||||
WFE Share |
| 18.4% |
|
| 20.4% |
|
| 25.5% |
|
| 20.9% |
|
| 111.0% |
| |||||
Total |
| 155.5% |
| |||||||||||||||||
| (1) | See Appendix A for a reconciliation ofnon-GAAP adjusted operating margin. |
The payout of the fiscal 2017 PSUs for each NEO is shown below.
| NEO | | Target Number of PSUs | | Number of PSUs Earned | ||||
Dickerson |
| 280,316 |
|
| 435,892 |
| ||
Durn |
| 33,535 | (1) |
| 52,147 |
| ||
Salehpour |
| 66,466 |
|
| 103,324 |
| ||
Raja |
| 51,911 |
|
| 80,722 |
| ||
Ghanayem |
| 51,911 |
|
| 80,722 |
|
| (1) | Mr. Durn’s PSU award waspro-rated based on his hire date of August 2017. |
Fiscal 2016 Performance-Based2019 Equity Awards
In December 2015,The HRCC believes that a meaningful portion of NEOs’ target compensation should be in the HRCC grantedform of long-term incentives. These awards are intended to reward performance shares for fiscal 2016 that requireover a multi-year period, align the achievementinterests of executives with those of shareholders, instill an adjusted operating profit margin goalownership culture, enhance the personal stake of executive officers in the growth and success of the Company, and provide an incentive tiedfor continued service at the Company.
Given the strong support received from our shareholders on our incentive programs last year, we continued our approach to the achievement of a relative TSR goal. The grant of thesemake performance-based equity awards is intendeda substantial portion of the overall value of equity awards granted to align our executives’ interests closely with those of our shareholders and motivate our NEOs to create
The long-term shareholder value.incentive awards for NEOs consist of two forms of equity vehicles: PSUs and restricted stock units (“RSUs”). The target vehicle mix of the awards for the fiscal 2019 grant remains unchanged from the previous year’s grants and consists of 75% PSUs and 25% RSUs for the CEO and 50% PSUs and 50% RSUs for the other NEOs.
| CEO LTI Vehicle Mix | All Other NEO LTI Vehicle Mix | |
|
|
For fiscal 2016,2019, in December 2018, the HRCC granted targetthe number of performance sharesPSUs and RSUs listed in the followingbelow table to our NEOs.
| NEO |
| Target Value of Awards(1) ($) |
| | Equivalent Number of Shares(2) | | | Target Value of Awards(1) ($) |
| | Equivalent Target Number of PSUs(2) | | Equivalent Number of RSUs(2) | |||||||
Dickerson | $ | 9,000,000 | 475,939 | $ | 11,845,000 |
|
| 256,090 |
|
| 85,364 |
| ||||||||
Halliday | $ | 3,500,000 | 185,087 | |||||||||||||||||
Durn | $ | 4,025,000 |
|
| 58,014 |
|
| 58,014 |
| |||||||||||
Salehpour | $ | 2,500,000 | 132,205 | $ | 4,025,000 |
|
| 58,014 |
|
| 58,014 |
| ||||||||
Nalamasu | $ | 1,750,000 | 92,544 | |||||||||||||||||
Larkins | $ | 1,600,000 | 84,611 | |||||||||||||||||
Raja | $ | 2,961,250 |
|
| 42,682 |
|
| 42,682 |
| |||||||||||
Ghanayem | $ | 2,961,250 |
|
| 42,682 |
|
| 42,682 |
| |||||||||||
| (1) |
|
32 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
| of the Summary Compensation Table represent grant date fair value determined pursuant to Accounting Standards Codification 718. |
| (2) | Number of shares calculated by dividing |
Size of Performance-Based Equity Awards. In determining the size of the awards, the HRCC considered each NEO’s award as a component of his total direct compensation. The HRCC maintainedTarget fiscal 2019 long-term equity awards were determined in light of each NEO’s scope of responsibility, performance, impact on results and expected future contributions to our business, compensation levels relative to other Applied officers, the size ofneed to attract and retain talent, and business conditions. In addition, the fiscal 2016 awards at essentially the same2019 target value level as the fiscal 2015 awards. The HRCC determined that the fiscal 2016 target grantaward sizes provided sufficient performance-based equity incentives to
36 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
align compensation with the long-term interests of our shareholders, were in line with market norms for the NEOs’ respective roles and were sufficient to provide retention incentive for them.
Performance Share Units. The long-term incentive program is designed to align performance metrics with our strategic goals over a three-year performance period. Based on discussions with our shareholders, the ongoing examination of the effectiveness of the program across the entire enterprise, and considering simplicity and consistency, for the fiscal 2019 grant, the HRCC approved changing one of the two metrics of the PSU portion of the long-term incentive program. The first metric, three-year average operating margin, remains unchanged from previous year’s grants. The second performance metric, beginning with the fiscal 2019 grant, is relative TSR performance measured against the S&P 500 Index over the three-year performance period. Given the continued evolution of the Company’s business, including the increase in the portions of the business outside of WFE, the HRCC approved eliminating the WFE metric in the PSUs in favor of relative TSR, which applies across the entire enterprise. The HRCC has maintained these two metrics in the long-term incentive program design for fiscal 2020.
Adjusted Operating Profit Margin Goal. To drive strongerThe fiscal 2019 PSUs, granted in December 2018, will vest three years from the grant date based on achievement of operating profit margin, the HRCC increased theaveragenon-GAAP adjusted operating profit margin goal from 16%for fiscal 2019 through fiscal 2021 and TSR relative to 18%the S&P 500 over the performance period of November 2019 through October 2021, with equal weighting given to each metric.
FY19 Long-Term Incentive Plan Metrics 50% Relative TSR-3-year Average Captures the full scale of our business and greater incentivizes management to outperform the market through each business environment. 50% Non-GAAP Adjusted Operating Profit Margin-3-year Average Reflects an important measure of profitability, value creation, and the ability of management to improve operational efficiency over time. It is also a key metric for the fiscal 2016 awards. our shareholders.
The fiscal 2016 awards are subject tonumber of PSUs that may vest is based on the achievement of threshold (minimum required for anon-GAAP adjusted operating profit margin payout), target or maximum levels of at least 18% in any one of fiscal years 2016 through 2019. If this performance goal is met, then 100%each metric and may range from 50% to 200% of the target performancenumber of shares, will be eligible to vest ratably over four years. The HRCC determined that this goal was appropriate in light of the variable nature of the industries in which the Company operates.
In fiscal 2016, Applied achieved anon-GAAP adjusted operating profit margin of 21.7%. As a result, 100% of the target performance shares granted in fiscal 2016 became eligible for time-based ratable vesting over four years.
Adjusted Operating Profit Margin Targets and Actual Results
Adjusted operating profit margin is anon-GAAP measure that excludes certain items from operating profit margin determined in accordance with GAAP, such as acquisition, integration and deal costs, restructuring, inventory and asset impairment charges, and other adjustments (see Appendix A for a reconciliation ofnon-GAAP adjusted operating margin).Non-GAAP adjusted operating profit margin does not exclude stock-based compensation expenses.
Relative TSR Incentive. In order to focus the NEOs even more intently on creating long-term shareholder value, the fiscal 2016 performance shares include an additional incentive tied to targeted levels of relative TSR, measured
against a peer group comprising companies in the S&P 500 Information Technology Index. The TSR incentive requires, as a threshold, that Applied satisfy the adjusted operating profit margin goal. In this way, NEOs will be rewarded for achieving strong operating results, as well as for creating meaningful additional shareholder value.
If the adjusted operating profit margin goal is achieved and Applied’s relative TSR over the two fiscal years ending on the last day of fiscal 2017 is at least the 60th percentile of the S&P 500 Information Technology Index, then additional shares above the target amount will become eligible for time-based vesting, as set forth below.
| Achievement Level | Percentage of Shares That May Vest | |||
Threshold | 50% | |||
Target | 100% | |||
Maximum | 200% |
Depending onA TSR payout factor will be determined by calculating the level of achievement of both the operating profit margin andCompany’s TSR goals, the total number of shares that may become eligible to vest under the time-based schedule ranges from 0% to 150% of the target number. In order for the maximum number of shares to become eligible to vest, adjusted operating profit margin must be greater than 18% and TSR must be at the 75thpercentile or higherrank within the S&P 500, Information Technology Index overwith threshold, target and maximum levels based on Applied’s TSR ranking of above the first two years.25th, 50th and 75th percentile, respectively, of the S&P 500. The TSR calculation uses a60-day average stock price at the beginning and end of the performance period for measurement purposes. This approach minimizes the impact of a single beginning and ending point stock price for each performance cycle.
If the threshold level is not achieved, then no shares will vest. If achievement falls between threshold, target or maximum levels, the portion of the award that may vest will be determined based on straight-line interpolation.
In addition,setting goals for the NEO must remain an employee of Applied through December 19, 2019 in order for all amounts to vest. The four-year vesting schedule is intended to retainPSUs, the HRCC considered Applied’s historical results and reward our NEOs for achieving operational and financial goals, while also promoting a long-term focus on sustainedrelative performance and total shareholder return. We believeestablished goals that are aligned with Applied’s financial and strategic objectives and will require significant effort to achieve the performance goal and the four-year vesting schedule demonstrate Applied’s commitmentmaximum level.
The HRCC also approved retirement provisions applicable to pay for performance and further our goal to retain our NEOs.
Changes for 2017. In 2016, the HRCC approved a wholesale redesign of the long-term incentive program to align with current business strategy and to respond to feedback received from shareholders.Beginning in fiscal 2017, the long-term incentive awards, beginning with fiscal 2019 awards. The provisions, which became effective in January 2020, provide for NEOs consista partial payout of two forms of equity:
Applied Materials, Inc. 33
The target mixPSU awards based on actual performance at the conclusion of the three-year performance period and partial accelerated vesting of RSU awards consistsin the event of 75% PSUsa qualifying retirement based on age and 25% RSUsyears of service. The provisions establish a consistent retirement policy for the executive team reporting to the CEO and 50% PSUsare designed to maintain engagement and 50% RSUsfocus, as well as provide retention incentive, for the other NEOs. our executive officers as some approach potential retirement decisions.
Restricted Stock Units.The HRCC believes that this new long-term incentive structure establishes a closer direct linkRSU awards are scheduled to long-term Company performance through the PSUs and will also provide a crucial retention value through the RSUs, which will vest ratably over three years. Target fiscal 2017 long-term equity awards were determined in light of each NEO’s scope
of responsibility, performance, impact on resultsyears, providing a link to shareholder value creation and expected future contributions to our business, compensation levels relative to other Applied officers, the wholesale changes made to the long-term incentive program and establishment of three-year performance goals, the need to attract and retain talent, and business conditions. See “Shareholder Engagement and Incentive Program Changes” on page 18 for additional information.maintaining retention value.
Role and Authority of the Human Resources and Compensation Committee
The HRCC has a written charter approved by the Board that specifies the HRCC’s duties and responsibilities, which is available on our website at:http://www.appliedmaterials.com/company/investor-relations/governance-documentsfiles/hrcc_charter.pdf. In accordance with its charter, the HRCC oversees our programs that foster executive and employee development and retention, with emphasis on leadership development, management capabilities, succession plans and succession plans.human capital management. The HRCC also determines executive and director compensation, and oversees significant employee benefits programs, policies and plans.
Each member of the HRCC has been determined to be independent under Nasdaq SEC and Internal Revenue CodeSEC rules. The HRCC may delegate any of its responsibilities to subcommittees. See “Board Meetings and Committees” on page 14 for more information about the HRCC.
Applied Materials, Inc. 37
Role of Compensation Consultant
The HRCC has the authority to engage independent advisors to assist it in carrying out its responsibilities. For fiscal 2016,2019, the HRCC engaged Semler Brossy Consulting Group (“Semler Brossy”) as its independent executive compensation consultant. Semler Brossy, who reports directly to the HRCC and not to management, is independent from Applied, has not provided any services to Applied other than to the HRCC and
receives compensation from Applied only for services provided to the HRCC. The HRCC assessed the independence of Semler Brossy pursuant to SEC rules and concluded that the work of Semler Brossy for the HRCC has not raised any conflict of interest.
Semler Brossy reviews and advises on all principal aspects of the executive compensation program. Its main responsibilities are as follows:
| ● |
| ● |
| ● |
| ● |
| ● |
| ● |
The HRCC typically asks Semler Brossy to attend the HRCC’s meetings, including executive sessions at which management is not present. Semler Brossy communicates regularly with the HRCC Chair outside of committee meetings and also meets with management to gather information and review proposals.
34 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Role of Executive Officers and Management in Compensation Decisions
ForIn fiscal 2016,2019, the HRCC invited Mr. Dickerson (as CEO) and other executives, including the heads of Global Human Resources and Global Rewards, to attend its meetings. The HRCC also regularly held executive sessions without management present. The CEO, together with the HRCC, assesses the performance of our NEOs and other executive officers. The CEO presents to the HRCC his evaluation of each executive officer’s performance over the past year and makes recommendations to the HRCC regarding base salaries, bonus targets and actual payments, performance
goals and weightings, and long-term incentive awards for executive officers. The HRCC considers these recommendations in making its final determinations, in addition to considering input from Semler Brossy. The HRCC discusses the CEO’s proposed compensation and makes final decisions regarding the CEO’s compensation when he is not present.
In formulating its compensation recommendations for fiscal 2016, management considered data primarily from a survey conducted by Radford Survey + Consulting, as well as publicly-available information about the peer group provided by Semler Brossy.
Additional Compensation Programs and Policies
Non-QualifiedDeferred Compensation Plan
Our deferred compensation plan, the 2016 Deferred Compensation Plan (the “DCP Plan”“DCP”) allows our NEOs and other eligible employees to voluntarily defer on apre-tax basis a portion of their eligible earnings. We do not provide matching or other employer contributions to our executive officers under this plan. Deferrals made prior to October 2015 under the DCP Plan are credited with deemed interest and are subject to the distribution rules in place prior to the plan amendment in October 2015. Beginning in fiscal 2016, participants are permitted to notionally invest new deferrals in certain investment options newly available under the plan. Additionally, for new deferrals, the DCP Plan provides new distribution rules forin-service distributions and upon a qualifying separation from service, disability and change in control. See “Nonqualified Deferred Compensation” below for more information about the DCP Plan.DCP.
Retirement Benefits under the 401(k) Plan and Generally Available Benefits Programs
During fiscal 2016, substantially2019, all full-time and part-time (working 20 or more hours a week) U.S. employees, including the NEOs, were eligible to participate in Applied’s 401(k) plan, atax-qualified retirement plan. Eligible Applied 401(k) plan participants receive matching contributions from Applied. Other than the 401(k) plan, we do not provide defined benefit pension plans or defined contribution retirement plans to the NEOs or other employees, except as required in certain countries outside the U.S. for legal or competitive reasons. Applied offers a number of other benefits programs to a broad base of eligible employees, including atax-qualified employee stock purchase plan, medical, dental and vision insurance, long-term and short-term disability plans, life and accidental death and dismemberment plans, health and dependent care flexible spending accounts, business travel insurance, wellness programs, educational assistance, employee assistance program and certain other country-specific benefits.
38 2020 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Applied annually benchmarks its overall benefits programs, against our peers, including the 401(k) plan.plan, against those of our peers. Applied’s overall broad-based benefits programs isare at approximately the market median, which the HRCC believes allows us to remain competitive in attracting and retaining talent.
The benefits provided under the programs discussed above are not considered by the HRCC in determining an individual NEO’s total compensation.
Relocation Program
Applied maintains a relocation program available to all eligible employees that is consistent with current practices among global companies. The program is available to all employees. Applied provides competitive relocation benefits to ensure it can fill positions critical to its business needs and provide career development opportunities for high-potential employees. Benefits for employees on international assignment include reimbursement on anafter-tax basis for housing and transportation allowances and living and travel expense reimbursements, as well asreimbursements. Benefits also include tax equalization that is intended to put employees who relocate in service to Applied in the same position, from atax-liability perspective, that they would be in if they were still located in the United States.U.S.
In 2014, at the Board requested thatBoard’s request, Mr. Dickerson relocate full-timerelocated with his family to Japan to continue leading critical efforts toward the then-anticipated completion of the Business Combinationa proposed business combination with Tokyo Electron.Electron Limited.
Board Rationale for Relocation. Recognizing the complexity of a U.S.-Japanese merger, including both geographic and cultural differences, the Board felt strongly that to effect a smooth business combination and increase the likelihood of achieving forecasted business benefits of the merger, it was critical to have senior leadership presence from Applied on the ground in Japan to work closely with Tokyo Electron during the regulatory review period.period and to effect a smooth business combination and increase the likelihood of achieving forecasted business benefits of the merger. The Board considered and determined that the anticipated cost savings that would be generated from the merger would significantly outweigh
Applied Materials, Inc. 35
the expenses to relocate our senior management to Japan. At the Board’s request, Mr. Dickerson agreed to relocate, along withand his family to Japan in August 2014.Japan.
Relocation Benefits. In accordance with our relocation program that is available to all employees on global assignment, the HRCC approved relocation benefits for Mr. Dickerson, which are reported in the Summary Compensation Table. The relocation benefits were provided to Mr. Dickerson under the relocation program that is available to all employees on global assignment. These benefits included housing, transportation and moving expenses, a cost of living adjustment, education expense reimbursements, relocation allowance, amounts for taxes incurred in connection with the relocation, as well as tax equalization for the incrementaltax-liability resulting from his relocation to Japan in service of Applied.
Tax equalization ensures that the tax costs incurred by Mr. Dickerson on the international assignment be equivalent to what the tax costs would have been had he remained in the U.S. Tax payments were not paid to Mr. Dickerson but
were paid directly to the appropriate tax authorities. While the amounts of the relocation benefits are attributed to Mr. Dickerson in the Summary Compensation Table, they did not provide any additional compensation to him and are not part of his ongoing pay.
Disclosure and Payment Timing. Although Mr. Dickerson relocated to Japan for part of 2014 and 2015, the timing and disclosure of relocation payments extend beyond this period. Mr. Dickerson is subject to income taxes in Japan on income earned for the period of time of his international assignment, including continuing Japanese tax liabilities related to his equity awards. Japan assesses income tax on compensation earned while an individual is resident in Japan. Performance shares are deemed earned over the period during which they vest and stock options are deemed earned from grant to exercise. Mr. Dickerson has outstanding equity awards that he earned during the period of his international assignment in Japan. When these equity awards vest, which vesting is scheduled through fiscal 2019, Applied, in connection with providing tax equalization benefits to Mr. Dickerson under the relocation program, will beis responsible for incremental taxes on the awards.
Employment and Retention Agreements
Employment Agreement. In August 2013, Applied entered into an employment agreement with Mr. Dickerson in connection with his appointment as Presidentthe vesting of performance shares and CEO. This agreement was not amended in fiscal 2016. See “Employment and Retention Agreements” on page 42 for additional information.
Amended Retention Agreements. In connection with the Business Combination, the HRCC approved retention agreements for our NEOs in September 2013. In December 2014, the HRCC amended these retention agreements tostock option award upon its exercise.
delay the payment date of the retention bonus for each NEO (other than Mr. Dickerson, whose agreement did not provide for a retention bonus) from March 31, 2015 to the earlier of (1) the date six months after the closing or termination of the Business Combination and (2) December 11, 2015, subject to the NEO’s continued employment through the applicable date. The HRCC approved this delay in light of the critical need to retain the executives through the period following closing or termination of the Business Combination.
Stock Ownership Guidelines
We have stock ownership guidelines to help align the interests of our NEOsSection 16 officers on the CEO Executive Staff with those of our shareholders. The guidelines provide that NEOsofficers should meet the following ownership levels in Applied stock within five years from his or her appointment:common stock:
Position | Ownership Level | |||
CEO | 6x base salary | |||
Other | 3x base salary | |||
At the endAs of fiscal 2016, all of the NEOs whose five-year ownership deadline had passed had metDecember 31, 2019, each officer was in compliance with the stock ownership guidelines.
Hedging and Pledging Prohibitions
Applied has an insider trading policy that, among other things, prohibits all of our NEOsemployees (including officers) and directors from engaging in hedging or other speculative transactions relating to Applied shares,shares. Prohibited transactions include short sales, derivative securities (such as put and call options, or other similar instruments) and other hedging transactions (such as equity swaps, prepaid variable forwards, or similar instruments), or any transactions that have or are designed to pledge theirhave the effect of hedging or offsetting any decrease in the market value of Applied shares.securities. In addition, Section 16 officers and directors are prohibited from holding Applied securities in a margin account or otherwise pledging Applied securities as collateral for a loan.
Applied Materials, Inc. 39
Clawback Policy
We have a “clawback” policy that allows the Board to require reimbursement of incentive compensation from an executive officer in the event intentional misconduct by the officer is determined to be the primary cause of a material negative restatement of Applied’s financial results. The compensation that may be recovered is theafter-tax portion of any bonus paid to, and any performance-based equity awards earned by, the NEO within the 12 months after filing of the financial statements, if the compensation would not have been paid to the NEO had Applied’s financial results been reported properly. The policy applies to financial statements filed in a rolling three-year, look-back period. This clawback policy is in addition to any policies or recovery rights that are required under applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act.
Tax Deductibility
Section 162(m) places aof the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017, restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million limitto each NEO, effective for tax years beginning after 2017, subject to a transition rule for certain written binding contracts which were in effect on November 2, 2017, and which were not modified in any material respect on or after such date. In the amount ofpast, Section 162(m)’s deductibility limitation was subject to an exception for compensation that qualified as ‘performance-based’. Our compensation programs were designed to permit Applied may deduct in any one yearto qualify for compensation paidthe performance-based exception, although the Company reserved the right to the CEO and the three other most highly-compensated executive officers (excluding the CFO). However,pay compensation that qualifiesdid not qualify as “performance-
36 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
based” under Section 162(m) may be excluded from the $1 million limit. Our Stock Plan and Bonus Plan are intended to permit (but not require) the HRCC to award compensation that is “performance-based” and thus fullytax-deductible by Applied.‘performance-based’. While the HRCC considerswill continue to consider the deductibility of
compensation as a factor in making compensation decisions, the HRCCit retains the flexibility to provide compensation that is consistent with the Company’s goals for its executive compensation program, even if such compensation iswould not be fullytax-deductible.
COMPENSATION COMMITTEE REPORT
The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Applied specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
The Human Resources and Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal 2016.2019. Based on the review and discussions, the Human Resources and Compensation
Committee recommended to the Board that the Compensation Discussion and Analysis be included in Applied’s Proxy Statement for its 20172020 Annual Meeting of Shareholders.
This report is submitted by the Human Resources and Compensation Committee.
Thomas J. Iannotti (Chair)
Xun (Eric) Chen
Alexander A. Karsner
Applied Materials, Inc. 4037 2020 Proxy Statement
EXECUTIVE COMPENSATION
Summary Compensation Table for Fiscal 2016, 20152019, 2018 and 20142017
The following table shows compensation information for fiscal 2016, 20152019, 2018 and 20142017 for our NEOs.
Name and Principal Position | Year | Salary | Bonus | Stock | Non-Equity | All Other | Total ($) | |||||||||||||||||||||||||||
Gary E. Dickerson |
|
| 2019 2018 2017 |
|
|
| 1,024,808 1,000,000 1,000,000 |
|
| — — — |
|
|
| 11,696,506 11,261,311 10,844,501 |
|
|
| 1,133,000 1,430,000 2,640,000 |
|
|
| 218,081 373,229 838,204 |
|
|
| 14,072,395 14,064,540 15,322,705 |
| |||||||
Daniel J. |
|
| 2019 2018 2017 |
|
|
| 620,673 600,000 138,462 |
|
| —
500,000
|
|
|
| 3,931,029 5,329,659 5,421,909 |
|
|
| 580,078 471,900 — |
|
|
| 13,620 23,252 411,239 | (6)
|
|
| 5,145,400 6,674,811 6,471,610 |
| |||||||
Ali Salehpour |
|
| 2019 2018 2017 |
|
|
| 620,673 600,000 591,346 |
|
| — — — |
|
|
| 3,931,029 3,610,485 3,868,486 |
|
|
| 411,750 588,060 1,060,290 |
|
|
| 12,730 15,824 12,058 | (7)
|
|
| 4,976,182 4,814,369 5,532,180 |
| |||||||
Prabu G. Raja(8) |
|
| 2019 2018 2017 |
|
|
| 564,058 549,039 — |
|
| — — — |
|
|
2,892,132 4,784,842 — |
|
|
| 430,948 522,720 — |
|
|
| 16,464 13,923 — |
|
|
| 3,903,602 5,870,524 — |
| ||||||||
Steve G. Ghanayem(8) |
|
| 2019 2018 2017 |
|
|
| 564,058 549,039 — |
|
| — — — |
|
|
2,892,132 4,784,842 — |
|
|
| 497,543 432,878 — |
|
|
| 13,620 14,869 — |
|
|
| 3,967,353 5,781,628 — |
| ||||||||
| (1) |
|
| (2) |
|
| Amounts shown do not reflect compensation actually received by the executive officer. Instead, the amounts reported represent the aggregate grant date fair value of target stock awards granted in the respective fiscal years, as determined pursuant to ASC 718 (but excluding the effect of estimated forfeitures for performance-based awards). For fiscal 2019, the grant date fair value of maximum number of stock awards that may be earned by each NEO is as follows: Mr. Dickerson: $20,564,903; Mr. Durn: $5,940,053; Mr. Salehpour: $5,940,053; Dr. Raja: $4,370,210; and Mr. Ghanayem: $4,370,210. See “Fiscal 2019 Equity Awards” on page 36 for more information regarding the stock awards. The assumptions used to calculate the value of awards are set forth in Note |
Amounts consist of |
Amount includes (a) Applied’s matching contribution of |
| Amount also includes $116,887 paid by Applied on behalf of Mr. Dickerson for tax consultation, $8,833 for taxes incurred and $75,741 of tax equalization payments for Japanese tax liabilities and taxes incurred as a result of these payments made under Applied’s relocation program in connection with Mr. Dickerson’s international assignment in Japan in contemplation of the closing of |
| Relocation Expenses ($)(a) | Tax ($)(b) | Tax Equalization ($)(c) | ||||||||||
84,136 | 3,352,117 | 1,649,753 | ||||||||||
| (5) | Mr. Durn was appointed CFO effective August 24, 2017. |
| (6) | Amount consists of (a) Applied’s matching contribution of |
Amount consists of (a) Applied’s matching contribution of |
| (8) | Dr. Raja and Mr. Ghanayem were each designated an executive officer effective November 2017. |
| (9) | Amount consists of (a) Applied’s matching contribution of $12,569 under thetax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Dr. |
Amount consists of (a) Applied’s matching contribution of |
38Applied Materials, Inc. 2017 Proxy Statement41
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards for Fiscal 20162019
The following table shows all plan-based awards granted to the NEOs during fiscal 2016.2019.
Estimated Possible Payouts | Estimated Future Payouts | All Other (#) | All Other | Exercise | Grant ($)(2) | |||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold | Target ($) | Maximum | Threshold | Target (#) | ||||||||||||||||||||||||||||||||||||||||||
|
|
| Maximum
| |||||||||||||||||||||||||||||||||||||||||||||
| Gary E. Dickerson
|
| 12/6/2018 12/6/2018 —
|
|
| —
0 |
|
| — — 2,060,000 |
|
| — — 5,000,000 |
|
| 128,045 — — |
|
| 256,090 — — |
|
| 512,180 — — |
|
| — 85,364 — |
|
| — — — | | — — — | 8,868,397 2,828,109 — |
| |||||||||||||||||
Daniel J. |
|
|
| 12/6/2018 12/6/2018 —
|
|
| —
0 |
|
| —
843,750 |
|
| — — 2,531,250 |
|
| 29,007 — — |
|
| 58,014 — — |
|
| 116,028 — — |
|
| — 58,014 — |
|
| — — — |
|
| — — — | | 2,009,025 1,922,004 — |
| ||||||||||||||
Ali Salehpour |
|
|
| 12/6/2018 12/6/2018 —
|
|
| —
0 |
|
| —
843,750 |
|
| — — 2,531,250 |
|
| 29,007 — — |
|
| 58,014 — — |
|
| 116,028 — — |
|
| — 58,014 — |
|
| — — — |
|
| — — — | | 2,009,025 1,922,004 — |
| ||||||||||||||
| Prabu G. Raja |
|
|
| 12/6/2018 12/6/2018 —
|
|
| —
0 |
|
| —
765,450 |
|
| — — 2,296,350 |
|
| 21,341 — — |
|
| 42,682 — — |
|
| 85,364 — — |
|
| — 42,682 — |
|
| — — — |
|
| — — — | | 1,478,078 1,414,055 — |
| |||||||||||||
| Steve G. Ghanayem |
|
|
| 12/6/2018 12/6/2018 —
|
|
| —
0 |
|
| —
765,450 |
|
| — — 2,296,350 |
|
| 21,341 — — |
|
| 42,682 — — |
|
| 85,364 — — |
|
| — 42,682 — |
|
| — — — |
|
| — — — | | 1,478,078 1,414,055 — |
| |||||||||||||
| (1) | Amounts shown were estimated possible payouts for fiscal |
| (2) | Amounts shown do not reflect compensation actually received by the NEOs. Instead, the amounts represent the aggregate grant date fair value of the awards as determined pursuant to ASC 718 (but excluding the effect of estimated forfeitures for performance-based awards). The assumptions used to calculate the awards’ value are set forth in Note |
Applied Materials, Inc. 4239 2020 Proxy Statement
EXECUTIVE COMPENSATION
Outstanding Equity Awards at Fiscal 20162019Year-End
The following table shows all outstanding equity awards held by the NEOs at the end of fiscal 2016.2019.
| Option Awards | Stock Awards(1) | |||||||||||||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | |||||||||||||||||||||||||||||||||||||
Gary E. Dickerson | | — —
| — — — | (3)
|
|
| |
|
| — —
|
|
| ||||||||||||||||||||||||||||||||||
| — — — — |
| | — — — — — — |
| | 15.06 — — — — — |
| 9/1/2020 — — — — — |
| — 178,478 31,147 37,355 85,364 — | (4) (5) (6) (7)
|
4,756,482 — | — — — — 280,316 168,096 256,090 | (8) (9) (10) | |
|
| — — — — | —
| ||||||||||||||||||||||||||
| 14,269,335 |
| ||||||||||||||||||||||||||||||||||||||||||||
Daniel J. Durn | — — — — — — |
| | — — — — — — |
| | — — — — — — |
|
|
| | — — —
|
|
| ||||||||||||||||||||||||||||||||
| — — — |
| | — — — — — — |
| | 29,808 19,490 72,908 58,014 — — | (11) (12) (13) (14) | | 1,660,902 1,085,983 4,062,434 3,232,540 — — |
| — — — — 33,535 29,235 58,014 | (15) (9) (10) | — — — — 1,868,570 1,628,974 3,232,540 | ||||||||||||||||||||||||||||||||
Ali Salehpour | — — — — — — |
|
|
|
| |
|
| — — — |
| ||||||||||||||||||||||||||||||||||||
| — — |
| | — — — — — — |
| | — — — — — — |
|
| — — — — — | 22,149 23,908 58,014 — — | (4) (5) (16) (14) | 2,762,486 1,234,142 1,332,154 3,232,540 — — | — — — — 66,446 35,861 58,014 | (17) (9) (10) | — — — — 3,702,371 1,998,175 3,232,540 | ||||||||||||||||||||||||||||||
Prabu G. Raja | — — — — — — | — — — — — — | — — — — — — | — — — — — — | — — — — — — | 34,704 17,304 26,630 18,678 42,682 — | (4) (5) (18) (19) (20)
| | 964,179 1,483,824 1,040,738 2,378,241 — | | | — —
— — 51,911 28,016 42,682 |
(9) (10) | | — — — — — 2,892,481 1,561,052 2,378,241 |
| ||||||||||||||||||||||||||||||
Steve G. Ghanayem | — — — — — — | — — — — — — | — — — — — — | — — — — — — | — — — — — — | 34,704 17,304 26,630 18,678 42,682 — | (4) (5) (18) (19) (20) | 1,933,707 964,179 1,483,824 1,040,738 2,378,241 — | — — — — — 51,911 28,016 42,682 | (21) (9) (10) | — — — — — 2,892,481 1,561,052 2,378,241 | |||||||||||||||||||||||||||||||||||
| (1) | Stock awards consist of restricted stock units, |
| (2) | Market value was determined by multiplying the number of such shares by the closing price of Applied common stock of |
| (3) | Mr. Dickerson exercised this stock option |
| (4) | Performance shares were granted on December |
| (5) | Restricted stock units were granted on December |
| (6) | Restricted stock units were granted on December 14, 2017. Of these, 18,677 shares vested on December 19, 2019 and |
| (7) | Restricted stock units were granted on December 6, 2018. Of these, 28,454 shares vested on December 19, 2019 and 28,455 shares are scheduled to vest on December 19 of each of |
| (8) | PSUs were granted on December 1, 2016. These shares vested on December 19, 2019. On December |
Applied Materials, Inc. 43
| (9) | PSUs were granted on December 14, 2017. The shares are scheduled to vest on December 19, |
| (10) | PSUs were granted on December 6, 2018. The shares are scheduled to vest on December 19, |
Restricted stock units were granted on |
| (12) | Restricted stock units were granted on December 14, 2017. Of these, 9,745 shares vested on December 19, 2019 and 9,745 shares are scheduled to vest on December 19, 2020. |
| (13) | Restricted stock units were granted on October 19, 2018. Of these, 24,302 shares vested on November 1, 2019 and 24,303 shares are scheduled to vest on November 1 of each of 2020 and 2021. |
| (14) | Restricted stock units were granted on December 6, 2018. Of these, 19,338 shares vested on December 19, 2019 and 19,338 shares are scheduled to vest on December 19 of each of |
PSUs were granted on |
| (16) | Restricted stock units were granted on December 14, 2017. Of these, |
PSUs were granted on December |
| (18) | Restricted stock units were granted on November 6, 2017. Of these, |
Restricted stock units were granted on December |
| (20) | Restricted stock units were granted on December 6, 2018. Of these, 14,227 shares vested on December 19, 2019, 14,227 shares are scheduled to vest on December 19, |
40 2017 Proxy Statement
EXECUTIVE COMPENSATION
| (21) | PSUs were granted on December 1, 2016. These shares vested on December 19, 2019. On December |
Option Exercises and Stock Vested for Fiscal 20162019
The following table shows all stock awards that vested and the value realized upon vesting for each NEO during fiscal 2016.2019.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($)(2) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($)(2) | ||||||||||||||||||||||||
Gary E. Dickerson | — | — | 417,821 | 8,575,810 | — | — | 367,532 | 11,588,284 | ||||||||||||||||||||||||
Robert J. Halliday | — | — | 123,597 | 2,189,206 | ||||||||||||||||||||||||||||
Daniel J. Durn | — | — | 39,553 | 1,392,047 | ||||||||||||||||||||||||||||
Ali Salehpour | — | — | 187,533 | 3,829,287 | — | — | 122,354 | 3,857,822 | ||||||||||||||||||||||||
Omkaram Nalamasu | — | — | 155,548 | 2,960,169 | ||||||||||||||||||||||||||||
Thomas F. Larkins | — | — | 180,548 | 3,338,044 | ||||||||||||||||||||||||||||
Prabu G. Raja | — | — | 89,560 | 2,823,827 | ||||||||||||||||||||||||||||
Steve G. Ghanayem | — | — | 89,560 | 2,823,827 | ||||||||||||||||||||||||||||
| (1) | Of the amounts shown in this column, Applied withheld the following number of shares to cover tax withholding obligations: |
| (2) | Value realized equals the fair market value of Applied common stock on the vesting date, multiplied by the number of shares that vested. |
Non-Qualified Deferred Compensation
Applied’s 2016 Deferred Compensation Plan (the “DCP Plan”“DCP”), restated effective October 12, 2015 (the “Restatement Date”) and formerly known as the 2005 Executive Deferred Compensation Plan, is anon-qualified deferred compensation plan that allows eligible employees, including executive officers, to voluntarily defer receipt of all or a portion of their: (1) eligiblesign-on bonus payments, if any, (2) up to 40% of their base salaries, (3) eligible sales incentive and annual
bonus payments, if any, and (4) eligible severance payments, if any.
Deferrals made prior to the Restatement Date are retained as separate “rollover” accounts under the DCP Plan.DCP. These deferrals continue to be credited with deemed interest in the sum of (a) theyield-to-maturity of five-year U.S. Treasury notes, plus (b) 1.50%. The deemed interest rate under the DCP Plan for fiscal 20162019 was 3.04%3.61% from October 26, 201529, 2018 to December 31, 2015
44 2020 Proxy Statement
EXECUTIVE COMPENSATION
2018 and 3.09%4.32% from January 1, 20162019 to October 30, 2016.27, 2019. Deferred amounts in the rollover accounts, plus deemed interest thereon, are generally payable on the same date selected by the participants or specified prior to
the Restatement Date under the terms of the DCP Plan.DCP. Beginning in fiscal 2016, new deferrals under the DCP Plan are credited with deemed investment returns, gains or losses based upon investment crediting options newly available under the DCP Plan.DCP. Applied does not make any matching or other employer contributions to the plan.plan for our executive officers.
Under the DCP, Plan, a change in control (as defined prior to the Restatement Date), would trigger the distribution of all deferred balances in the rollover accounts. For new account balances after the Restatement Date, the DCP Plan provides new distribution rules forin-service distribution options and upon a qualifying separation from service, disability and change in control, including the option to change the time and form of payment within three (3) months following a change in control, as such term is defined in the DCP Plan.DCP. Distributions are payable from the general assets of Applied or from the assets of a grantor trust (known as a rabbi trust) established by Applied.
Applied Materials, Inc. 41
Non-Qualified Deferred Compensation for Fiscal 20162019
| Name | Executive ($) | Registrant ($) | Aggregate Earnings in Last Fiscal Year ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($) | Executive ($) | Registrant ($) | Aggregate Earnings in Last Fiscal Year ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($) | ||||||||||||||||||||||||||||||
Gary E. Dickerson | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Robert J. Halliday | 211,538 | — | 8,259 | — | 219,797 | |||||||||||||||||||||||||||||||||||
Daniel J. Durn | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Ali Salehpour | 251,308 | — | 15,914 | — | 523,159 | 809,949 | — | 497,826 | — | 4,340,268 | ||||||||||||||||||||||||||||||
Omkaram Nalamasu | — | — | 49,445 | 137,234 | 1,607,889 | |||||||||||||||||||||||||||||||||||
Thomas F. Larkins | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Prabu G. Raja | 668,561 | — | 326,131 | — | 4,484,794 | |||||||||||||||||||||||||||||||||||
Steve G. Ghanayem | 413,601 | — | 208,214 | — | 1,327,053 | |||||||||||||||||||||||||||||||||||
| (1) | There were no above-market or preferential earnings for fiscal |
Employment and Retention AgreementsAgreement
Employment Agreement
Applied does not have employment agreements with any of its NEOs, other than an agreement with Mr. Dickerson. The agreement with Mr. Dickerson was entered into in connection with his appointment as President and CEO.
Mr. Dickerson’s employment agreement, dated August 14, 2013, provides that if Applied terminates his employment other than for cause and other than due to death or disability, he would be entitled to receive a lump sum payment equal to 275% of his base salary, provided that he executes an agreement containing a release of claims andnon-solicitation andnon-disparagement provisions in favor of Applied.
For purposes of Mr. Dickerson’s agreement, “cause” generally means the willful failure to perform his duties after written notice and an opportunity to cure; the willful commission of a wrongful act that caused, or was reasonably likely to cause, substantial damage to Applied, or an act of fraud in the performance of his duties; conviction for the commission of a felony in connection with the performance of his duties; or the order of a federal or state regulatory authority requiring the termination of his employment.
Retention Agreements
In connection with the Business Combination, Applied entered into retention agreements in October 2013 with its NEOs. The retention agreements were amended in December 2014. The amended retention agreements provided for a retention bonus for each NEO (except Mr. Dickerson, who was not entitled to a retention bonus) equal to a percentage of the NEO’s base salary as follows: 352.5% for Mr. Halliday; 315% for each of Mr. Salehpour and Mr. Larkins; and 300% for Dr. Nalamasu. The payment date of the retention bonus was the earlier of (1) the date that was six months after the closing or termination of the Business Combination or (2) December 11, 2015. Applied paid the retention bonus to the eligible NEOs on October 26, 2015, six months after the termination of the Business Combination. The retention agreements are described further under “Compensation Discussion and Analysis—Delayed Payment of Retention Bonuses” on page 22.
42Applied Materials, Inc. 2017 Proxy Statement45
EXECUTIVE COMPENSATION
Potential Payments Upon Termination or Change of Control
Applied does not currently have change of control agreements or arrangements with any of its NEOs.
Potential Payments Upon Termination. Under Mr. Dickerson’s employment agreement described above, he would have been entitled to receive $2,750,000$2,832,500 (275% of his annual base salary at the end of fiscal 2016)2019) had Applied terminated his employment without cause on October 28, 2016,25, 2019, the last business day of fiscal 2016.2019. No other NEO was entitled to receive severance payment under an employment agreement in effect on October 28, 2016.25, 2019.
Vesting Acceleration under the Employee Stock Incentive Plan. Our Stock Plan provides that the vesting of equity awards granted under the plan to employees, including the NEOs, will be accelerated in full upon a change of control of Applied if the successor corporation (or its parent or subsidiary) does not assume or provide a substitute for the outstanding awards. Separately, certain equity awards will be accelerated in full if the award holder is terminated without cause or resigns employment with Applied for good reason, in each case, within 12 months following a change of control of Applied. This double-trigger accelerated vesting does not apply if the applicable award agreement specifically states
that it will not apply or if the participant’s employment is terminated due to his or her death or disability, resignation without good reason or termination for cause.
The following table shows the amounts attributable to the accelerated vesting of equity awards under the Stock Plan following a change of control in which the awards are not assumed or substituted for, or within 12 months following a change of control in which the NEO is terminated without cause or resigns for good reason, in each case assuming the change of control and termination or resignation occurred on October 28, 2016,25, 2019, the last business day of fiscal 2016.2019.
| Named Executive Officer | Value of Vesting Acceleration ($)(1) | |||
Gary E. Dickerson | ||||
| ||||
Ali Salehpour | ||||
| ||||
| ||||
| (1) | Amount based on the |
Equity Compensation Plan InformationCEO Pay Ratio
In accordance with SEC rules, we are providing the ratio of the annual total compensation of our CEO, to the median of the annual total compensation of our employees (other than the CEO). The following table summarizes informationfiscal 2019 annual total compensation of our CEO, Mr. Dickerson, was $14,072,395, the fiscal 2019 annual total compensation of our median compensated employee (other than the CEO) was $104,500, and the ratio of these amounts was 135 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with respectSEC rules based on our human resources system of record and the methodology described below. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to equity awardsadopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
As permitted under Applied’s equitythe SEC rules, we are using the same median employee identified for purposes of our 2018 CEO pay ratio, as we believe the changes to our employee population and compensation planshave not significantly impacted our ratio. For purposes of identifying our median compensated employee last year, we used our global employee population as of October 30, 2016:
| Plan Category | (a) Number of Securities | (b) Weighted Average Exercise Price of Outstanding | (c) Number of Securities Compensation Plans | |||||||||
| (In millions, except prices) | ||||||||||||
Equity compensation plans approved by security holders | 26 | $ | 15.06 | 124 | (3) | |||||||
Equity compensation plans not approved by security holders | — | (4) | $ | 6.82 | 7 | (5) | ||||||
Total | 26 | $ | 14.87 | 131 | ||||||||
Applied Materials, Inc. 43
Applied has28, 2018, the following equitylast day of fiscal 2018, identified based on our human resources system of record. We used total direct compensation plans that have not been approved by shareholders:
Stock Purchase Planas our consistently applied compensation measure for Offshore Employees.The Stock Purchase Plan for Offshore Employees (the “Offshore ESPP”) was adopted effectivesuch population. In this context, total direct compensation means the sum of the applicable base salary determined as of October 16, 199528, 2018, the annual incentive earned for service in fiscal 2018, and the approved value of the annual equity awards granted during fiscal 2018, not includingoff-cycle grants in the case of new hires, promotions or similar circumstances. Given its global population, the Company used the average foreign currency exchange rates during the fiscal year for salary and the rates in effect at the end of fiscal 2018 for the benefit of employees of Applied’s participating affiliates. The Offshore ESPP providesannual incentive. After identifying our median compensated employee, we then calculated the annual total compensation for the grant of options to purchase shares of Applied common stock through payroll deductions pursuant to one or more offerings. The administrator of the Offshore ESPP (the Board of Directors of Applied or a committee appointed by the Board) determines the terms and conditions of all options prior to the start of an offering, including the purchase price of shares, the number of shares covered by the option and when the option may be exercised. All options granted as part of an offering must be granted onour median compensated employee using the same date. Asmethodology used for our CEO as set forth in the Summary Compensation Table of October 30, 2016, a total of 36 million
shares have been authorized for issuance under the Offshore ESPP, and 7 million shares remain available for issuance.
Applied Materials Profit Sharing Scheme. The Applied Materials Profit Sharing Scheme was adopted effective July 3, 1996 to enable employees of Applied Materials Ireland Limited and its participating subsidiaries to purchase Applied common stock at 100% of fair market value on the purchase date. Under this plan, eligible employees may elect to forego a certain portion of their base salary and certain bonuses they have earned and that otherwise would be payable in cash to purchase shares of Applied common stock at full fair market value. Since the eligible employees pay full fair market value for the shares, there is no reserved amount of shares under this plan and, accordingly, the table above does not include any set number of shares available for future issuance under the plan.Proxy Statement.
46 2020 Proxy Statement
EXECUTIVE COMPENSATION
Certain Relationships and Related Transactions
Applied’s Audit Committee is responsible for review, approval, or ratification of “related person transactions” involving Applied or its subsidiaries and related persons. Under SEC rules, a related person is a director, officer, nominee for director, or 5% shareholder of a company since the beginning of the previous fiscal year, and theirhis or her immediate family members. Applied has adopted written policies and procedures that apply to any transaction or series of transactions in which (1) Applied or a subsidiary is a participant, (2) the amount involved exceeds $120,000 and (3) a related person has a direct or indirect material interest.
In accordance with these policies and procedures, the Audit Committee determines whether the related person has a material interest in a transaction and may, in its discretion, approve, ratify or take other action with respect to the transaction. The Audit Committee reviews all material facts related to the transaction and takes into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the related person’s interest in the transaction, and the purpose and the potential benefits to Applied of the transaction.
In addition, the Audit Committee has delegated authority to the Chair of the Audit Committee to review and approve transactions in accordance with specified criteria, if advance review by the Audit Committee is not feasible. Any
transactions approved by the Chair must be reported to the Audit Committee at its next regularly-scheduled meeting.
The Audit Committee has adopted standingpre-approvals for limited transactions with related persons.Pre-approved transactions are as follows:
| ● |
| ● |
| ● |
| ● |
| ● |
44 2017 Proxy Statement
PROPOSAL 3—ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION
PROPOSAL 3—ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to Section 14A of the Exchange Act, we are asking our shareholders to provide their input with regard to the frequency of future shareholder advisory votes on our executive compensation programs, such as the proposal contained in Proposal 2 of this Proxy Statement. In particular, we are asking whether the advisory vote on executive compensation should occur every year, every two years or every three years. Currently, the advisory vote on executive compensation occurs every year.
Our Board has determined that an annual advisory vote on executive compensation is the most appropriate alternative for Applied. The Board’s determination was influenced by the fact that the compensation of our named executive officers is evaluated, adjusted and approved on an annual basis. As part of the annual review process, the Board believes that shareholder sentiment should be a factor that is taken into consideration by the Board and the Human Resources and Compensation Committee in making decisions with respect to executive compensation. By providing an advisory vote on executive compensation on an annual basis, our shareholders will be able to provide us with direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year. While we understand that shareholders may have differing views as to what is the best approach for Applied, a number of our shareholders have expressed their preference that an advisory vote on executive compensation be held on an annual basis. Accordingly, our Board recommends that the advisory vote on executive compensation be held every year.
You may cast your vote by choosing the option of one year, two years, three years, or abstain from voting in response to the resolution set forth below:
“RESOLVED, that the option of every year, two years, or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold an advisory vote by shareholders to approve the compensation of the named executive officers, as disclosed in the Compensation Discussion and Analysis section, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure in our annual shareholder meeting proxy statement.”
The option of one year, two years or three years that receives the highest number of votes cast will be the frequency of the vote on the compensation of our named executive officers that has been approved by shareholders on an advisory basis. Even though your vote is advisory and therefore will not be binding on the Company, the Board and the Human Resources and Compensation Committee value the opinions of our shareholders and will consider our shareholders’ vote. Nonetheless, the Board may decide that it is in the best interests of our shareholders and Applied to hold an advisory vote on executive compensation more or less frequently than the option selected by our shareholders.
Applied Materials, Inc. 45
PROPOSAL 4—EMPLOYEE STOCK INCENTIVE PLAN 162(m) APPROVAL AND LIMIT ONNON-EMPLOYEE DIRECTOR AWARDS
Our amended and restated Employee Stock Incentive Plan (the “Stock Plan”) provides for grants of equity and other incentive awards to our employees, directors and consultants. We are asking shareholders to approve the following under the Stock Plan:
We are not asking shareholders to approve an increase in the number of shares authorized for issuance under the Stock Plan.
Section 162(m) Approval
The Stock Plan is intended to allow Applied to take a full federal income tax deduction for the compensation paid to our executive officers in connection with certain awards granted under the Stock Plan. Under Section 162(m), Applied’s ability to deduct annual compensation paid to our CEO or our three other most highly-compensated named executive officers (other than our CEO and CFO) is limited to $1,000,000 per individual. However, this deduction limit does not apply to compensation that qualifies as “performance-based compensation” under Section 162(m). For awards granted under the Stock Plan to qualify as “performance-based compensation,” we must obtain, at least every five years, shareholder approval of the material terms of the performance goals that will apply to such compensation. The Stock Plan was last approved by shareholders at our 2012 Annual Meeting of Shareholders. Shareholder approval of this proposal is intended to satisfy the shareholder approval requirements of Section 162(m). If shareholders do not approve this proposal, we expect to continue granting performance-based awards, but we may not receive a federal income tax deduction for some or all of the compensation paid.
Material Terms of 162(m) Performance Goals for Shareholder Approval. Shareholder approval of the material terms of the performance goals is a condition for certain awards made under the Stock Plan to qualify astax-deductible performance-based compensation under Section 162(m). For purposes of Section 162(m), the material terms of the
performance goals include: (1) the participants eligible to receive compensation under the Stock Plan, (2) a description of the business criteria on which the performance goals are based and (3) the maximum amount of compensation that can be paid to a participant if the performance goals are achieved. These terms, described below, have not changed in any material manner since shareholders last approved the Stock Plan in 2012.
Awards may be granted under the Stock Plan to those employees, consultants, and directors who are selected as eligible participants by the Committee in its discretion. As of January 17, 2017, 10non-employee directors, approximately 16,000 of our employees and approximately 200 of our consultants were eligible to participate in the Stock Plan.
Under the Stock Plan, the performance goals applicable to compensation that is intended to qualify as “performance-based compensation” shall provide for a targeted level or levels of achievement using one or a combination of the following measures: (1) cash flow, (2) customer satisfaction, (3) earnings per share, (4) margin, (5) market share, (6) operating profit, (7) product development and quality, (8) profit, (9) return on capital, (10) return on equity, (11) revenue, and/or (12) total shareholder return. Each such financial measure shall, except as provided below, be based on U.S. Generally Accepted Accounting Principles (“GAAP”) and, with respect to eachnon-financial measure,pre-established objective criteria (“Performance Goals”).
Any Performance Goal used under the Stock Plan may be measured: (1) in absolute terms, (2) in combination with one or more performance goal(s), (3) in relative terms (including, but not limited to, comparison of Applied’s results for other periods of time, and/or against another company, companies or an index or indices), (4) on aper-share orper-capita basis, (5) against the performance of Applied as a whole or a specific business unit(s), business segment(s) or product(s) of Applied, and/or (6) on apre-tax orafter-tax basis (“Measurement Methods”). Pursuant to the terms of the Stock Plan, the Human Resources and Compensation Committee of our Board of Directors may determine whether any element(s) or item(s) (for example, the effect of mergers or acquisitions) will be included in or excluded from the calculation of any performance goal with respect to any participant (whether or not such determinations result in any performance goal being measured on a basis other than GAAP). The HRCC may choose a performance period that is a fiscal year (or period of four consecutive fiscal quarters) or a shorter or longer period, depending on applicable circumstances.
46 2017 Proxy Statement
PROPOSAL 4— EMPLOYEE STOCK INCENTIVE PLAN 162(m) APPROVAL AND LIMIT ON NON-EMPLOYEE DIRECTOR AWARDS
In addition, as required by Section 162(m), the Stock Plan provides for limits on awards that may be granted during any fiscal year to any individual as follows:
The market value of a share of our common stock was $33.30 on January 17, 2017.
Nothing in this proposal precludes the HRCC from making any payment or granting awards that do not qualify for tax deductibility under Section 162(m), nor is there any guarantee that awards intended to qualify as “performance-based compensation” under Section 162(m) will so qualify or ultimately be deductible by us.
Non-Employee Director Award Limit
In keeping with corporate governance best practices, we are also asking shareholders to approve the establishment of an annual award limit of $400,000 on awards to any individualnon-employee director. Under the Stock Plan, during any fiscal year, eachnon-employee director may be granted awards covering up to an aggregate maximum number of shares equal to $400,000 divided by the fair market value of a share of Applied common stock on the grant date of the applicable award.
Summary of the Stock Plan
The following is a summary of the principal features of the amended and restated Stock Plan, which, except for those features described above, do not require shareholder approval. However, this summary is not a complete description of all of the provisions of the amended and restated Stock Plan, and is qualified in its entirety by reference to the terms of the amended and restated Stock Plan, which has been filed with the SEC as Appendix B to this Proxy Statement, and a copy of which is available upon request to the Corporate Secretary, Applied Materials, Inc.,
3225 Oakmead Village Drive, M/S 1241, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com.
Background and Purpose. The amended and restated Stock Plan permits the grant of the following types of incentive awards: (1) stock options, (2) stock appreciation rights, (3) restricted stock, (4) performance units, (5) performance shares, and (6) restricted stock units (each, an “Award”). The Stock Plan is intended to attract, motivate, and retain (a) employees of Applied and its subsidiaries, (b) consultants who provide significant services to Applied and its subsidiaries, and (c) directors of Applied who are employees of neither Applied nor any subsidiary. The Stock Plan also is designed to encourage stock ownership by employees, directors, and consultants, thereby aligning their interests with those of Applied’s shareholders, and to permit the payment of compensation that qualifies as “performance-based compensation” under Section 162(m).
Administration. The Stock Plan is administered by the HRCC, which is appointed by the Board. The Stock Plan requires that the HRCC be comprised of at least two directors who qualify as“non-employee directors” under Rule16b-3 of the Securities Exchange Act of 1934, and as “outside directors” under Section 162(m), so that Applied may be entitled to a federal tax deduction for certain compensation paid under the plan.
Subject to the terms of the Stock Plan, the HRCC has the sole discretion to select the employees, consultants, and directors who will receive Awards, determine the terms and conditions of Awards, and interpret the provisions of the plan and outstanding Awards. The HRCC may delegate any part of its authority and powers under the plan to one or more directors and/or officers of Applied; provided, however, that the HRCC may not delegate its authority and powers with respect to Awards (a) intended to qualify as “performance-based compensation” under Section 162(m) if the delegation would cause the Awards to fail to so qualify or (b) granted to our executive officers and members of the Board.
Shares Available for Issuance. As of January 17, 2017, the total number of shares of our common stock available for issuance under the Stock Plan was 94,431,095. Grants of full value awards (specifically, awards of restricted stock units, restricted stock, performance shares and performance units) count against the number of shares available for issuance as two (2) shares for every one (1) share covered by a full value award. Awards of stock options or stock appreciation rights count against the number of shares available for issuance as one (1) share for every one (1) share covered by such stock options or stock appreciation rights.
If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to full value awards, is
Applied Materials, Inc. 47
forfeited to or repurchased by the Company, the unpurchased (or forfeited or repurchased, as applicable) shares that were subject to the Award will become available for future grant or sale under the Stock Plan in the same proportion as the Award reduced the share reserve when the Award was granted. Upon exercise of a stock appreciation right settled in shares, the gross number of shares covered by the portion of the Award that is exercised will cease to be available under the Stock Plan. Shares that actually have been issued under the Stock Plan under any Award will not be returned to or become available for future distribution under the plan; provided, however, that if unvested shares of any full value awards are repurchased by the Company or are forfeited, then those shares will become available for future grant under the plan. Shares used to pay the exercise or purchase price of an Award or to satisfy the tax withholding obligations related to an Award will not become available for future grant or sale under the plan. To the extent an Award is paid out in cash rather than shares, such cash payments will not reduce the number of shares available for issuance under the plan. Shares issued pursuant to Awards transferred under any exchange program to reprice options or stock appreciation rights will not become available for grant under the Stock Plan.
In the event of a payment of any extraordinary dividend, reorganization, or other change in capital structure, the HRCC will, in such manner as it determines is equitable, adjust the number and class of shares available for issuance under the Stock Plan, the outstanding Awards, and theper-person limits on Awards, as appropriate to reflect the stock dividend or other change.
No Repricing. The amended and restated Stock Plan prohibits the repricing of Awards and the exchanging of Awards for cash or for another Award, unless we obtain shareholder approval.
Eligibility. The HRCC selects the employees, consultants, and directors who will be granted Awards under the Stock Plan. The actual number of individuals who will receive Awards cannot be determined in advance because the HRCC has the discretion to select the participants. As of January 17, 2017, 10non-employee directors, approximately 16,000 of our employees and approximately 200 of our consultants were eligible to participate in the Stock Plan.
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. Under the Stock Plan, the HRCC may grant nonqualified stock options and/or incentive stock options (which entitle employees, but not Applied, to more favorable tax treatment). The HRCC will determine the number of shares of Applied common stock covered by each option, but during any fiscal year no participant may be granted options (and/or stock appreciation rights) covering more than 4,500,000 shares. Notwithstanding the foregoing, during the fiscal year in which the participant first becomes an employee
of Applied or its affiliate, he or she may be granted options (and/or stock appreciation rights) covering up to an additional 4,500,000 shares.
The exercise price of the shares subject to each option is set by the HRCC but cannot be less than 100% of the fair market value of the shares covered by the option on the date of grant. An exception may be made for any options that the HRCC grants in substitution for options held by employees of companies that Applied acquires, in which case the exercise price may preserve the economic value of the employee’s cancelled option from his or her former employer. In addition, the exercise price of an incentive stock option must be at least 110% of fair market value if, on the grant date, the participant owns stock constituting more than 10% of the total combined voting power of all classes of stock of Applied or any of its subsidiaries. The aggregate fair market value of the shares, as determined on the grant date, covered by incentive stock options that first become exercisable by any participant during any calendar year also may not exceed $100,000. The exercise price of each option must be paid in full in cash or cash equivalent at the time of exercise. The HRCC also may permit payment through the tender of shares that are already owned by the participant, or by any other means that the HRCC determines to be consistent with the purpose of the Stock Plan.
Options become exercisable at the times and on the terms established by the HRCC. The HRCC also establishes the time at which options expire, but the expiration may not be later than seven years after the grant date, except that upon the death of a participant, the HRCC may, in its discretion, provide that such participant’s unexpired options may remain exercisable for three years after the date of death. In addition, a participant who owns stock constituting more than 10% of the total combined voting power of all classes of stock of Applied or any of its subsidiaries may not be granted an option that is exercisable for more than five years after the option’s grant date.
Without further shareholder approval, no incentive stock options may be granted under the Stock Plan after January 19, 2022.
Stock Appreciation Rights. Stock appreciation rights (“SARs”) are Awards that grant the participant the right to receive an amount equal to (1) the number of SARs exercised, multiplied by (2) the amount by which Applied’s stock price exceeds the exercise price. Applied may pay the appreciation amount in cash, in shares or in a combination of both, as determined by the HRCC. The exercise price is set by the HRCC but cannot be less than 100% of the fair market value of the covered shares on the grant date. A SAR may be exercised only if it has vested based on the vesting schedule established by the HRCC. SARs expire under the same rules that apply to options, meaning that the expiration may not be later than seven years after the grant date, except that upon the death of a participant, the HRCC may, in its discretion, provide that
48 2017 Proxy Statement
PROPOSAL 4— EMPLOYEE STOCK INCENTIVE PLAN 162(m) APPROVAL AND LIMIT ON NON-EMPLOYEE DIRECTOR AWARDS
such participant’s unexpired SARs may remain exercisable for three years after the date of death. SARs also are subject to the sameper-person limits as for stock options (4,500,000 covered shares for SARs and/or options in any fiscal year plus an additional 4,500,000 shares for SARs and/or options in the fiscal year in which the participant first becomes an employee of Applied or its affiliate).
Restricted Stock. Awards of restricted stock are shares of Applied common stock that vest in accordance with the terms and conditions established by the HRCC. The HRCC determines the number of shares of restricted stock granted to any participant, but during any fiscal year of Applied, no participant may be granted more than: (a) 1,500,000 shares of restricted stock (and/or performance shares and/or restricted stock units) and (b) an additional 1,500,000 shares of restricted stock (and/or performance shares and/or restricted stock units) in the fiscal year in which a participant first becomes an employee of Applied or its affiliate.
In determining whether an Award of restricted stock should be made, and/or the vesting schedule for any such Award, the HRCC may impose whatever conditions to vesting it determines to be appropriate. However, if the HRCC desires that the Award qualify as “performance-based compensation” under Section 162(m), at least one vesting condition will be based on a specified list of performance goals (see “Material Terms of 162(m) Performance Goals for Shareholder Approval” above for more information).
A holder of restricted stock will have full voting rights, unless determined otherwise by the HRCC. A holder of restricted stock also generally may be entitled to receive all dividends and other distributions paid with respect to shares, as determined by the HRCC. For example, dividends and distributions may be made subject to the same vesting criteria and transferability restrictions as the shares upon which the dividend or distribution was paid.
Performance Units and Performance Shares. Performance units and performance shares are Awards that result in a payment to a participant, in the form of cash, shares of our common stock of equal value, or a combination thereof, as determined by the HRCC, only if performance goals and/or other vesting criteria established by the HRCC are achieved or the Awards otherwise vest. The applicable performance goals, which may consist solely of continued employment, will be determined by the HRCC, and may be applied based on company-wide, business unit or individual goals, applicable federal or securities laws, or any other basis determined by the HRCC in its discretion. However, if the HRCC desires that the Award qualify as “performance-based compensation” under Section 162(m), at least one vesting condition will be based on a specified list of performance goals (see “Material Terms of 162(m) Performance Goals for Shareholder Approval” above for more information).
During any fiscal year of Applied, no participant may receive performance units having an initial value greater than $15,000,000. The HRCC establishes the initial value of each performance unit on the date of grant. Additionally, grants of performance shares are subject to the sameper-person limits as restricted stock and restricted stock units (1,500,000 shares in any fiscal year, plus an additional 1,500,000 shares in the fiscal year in which the participant first becomes an employee of Applied or its affiliate).
Restricted Stock Units. Restricted stock units represent a right to receive shares of our common stock at a future date determined in accordance with the participant’s award agreement, although they also may be paid in the form of cash, or a combination of cash and shares, as determined by the HRCC. No monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the Award, the consideration for which is furnished in the form of the participant’s service to Applied. In determining whether an Award of restricted stock units should be made, and/or the vesting schedule for any such Award, the HRCC may impose whatever conditions to vesting it has determined to be appropriate.
The initial value of each restricted stock unit on the date of grant will be equal to the fair market value of a share of Applied common stock on such date. Grants of restricted stock units are subject to the sameper-person limits as restricted stock and performance shares (1,500,000 shares in any fiscal year, plus an additional 1,500,000 shares in the fiscal year in which the participant first becomes an employee of Applied or its affiliate).
Non-Employee Director Awards. Eachnon-employee director receives automatic,non-discretionary Awards of restricted stock units under the Stock Plan. On the date of each Annual Meeting of Shareholders, each individual who isre-elected to serve as anon-employee director of Applied automatically is granted an Award of restricted stock units (an “Annual Grant”). The number of restricted stock units granted will equal $200,000, divided by the fair market value of a share of Applied common stock on the grant date. Eachnon-employee director of Applied who is first appointed or elected to the Board on or after the Annual Meeting automatically receives, as of the date of such appointment or election, an Award of a number of restricted stock units equal to $200,000, divided by the fair market value of a share of Applied common stock on the grant date,pro-rated to reflect the time remaining until the next Annual Meeting of Shareholders (an “Initial Grant”). Each Initial Grant and Annual Grant will vest in full on the earlier of: March 1 of the year following the year of grant, or the date immediately before the date of the next annual meeting, generally only if thenon-employee director remains on the Board through the scheduled vesting date. The Awards may vest sooner if the director terminates service as anon-employee director in connection with a change of control of Applied, or due to his or her death or disability, as
Applied Materials, Inc. 49
defined in the Stock Plan. The HRCC may change the terms of futurenon-employee director grants, including the number of restricted stock units subject to Initial and Annual Grants, and also may also grant Awards tonon-employee directors outside of the automatic,non-discretionary Award program. However, as described above, eachnon-employee director may not receive Awards totaling more than $400,000 in value in any fiscal year, calculated based on the value of the fair market value of Applied common stock covered by each Award on the applicable grant date.
Performance Goals. The HRCC, in its discretion, may grant Awards subject to performance goals. If the HRCC desires that an Award qualify as “performance-based compensation” under Section 162(m), then at the HRCC’s discretion, a targeted level or levels of achievement of one or more of the performance goals may apply. The amended and restated Stock Plan provides for the Performance Goals described above.
Any Performance Goal used under the Stock Plan may be measured using the Measurement Methods described above. Pursuant to the terms of the Stock Plan, the HRCC may determine whether any element(s) or item(s) will be included in or excluded from the calculation of any Performance Goal with respect to any participants. The HRCC may choose a performance period that is a fiscal year (or period of four consecutive fiscal quarters) or a shorter or longer period, depending on applicable circumstances.
By granting awards that vest upon achievement of Performance Goals, the HRCC may be able to preserve Applied’s deduction for certain compensation under Section 162(m). The Performance Goals listed above, as well as theper-person limits on shares covered by Awards, permit the HRCC to grant Awards that qualify as “performance-based compensation” for purposes of satisfying the conditions of Section 162(m), thereby permitting Applied to receive a federal income tax deduction in connection with such Awards.
Minimum Vesting Period. The Stock Plan contains minimum vesting periods for Awards of restricted stock, performance shares, restricted stock units and performance units. If the vesting period is based solely on continued employment or service, the total vesting period must be at least three years (for example, but not by way of limitation, the shares could be scheduled to vest as toone-third of the shares on each of the first three anniversaries of the grant date of the Award). If the vesting period requires the achievement of performance goals, the total vesting period must be at least one year. If so determined by the HRCC, these minimum vesting periods do not apply if the participant terminates employment or service due to death, disability, retirement or if there is a major capital change affecting Applied. The minimum vesting periods also do not apply to the automatic,non-discretionary Awards granted tonon-employee directors as described above nor, if determined by the HRCC, to Awards of options or stock
appreciation rights, and/or Awards other than options and stock appreciation rights covering, in the aggregate, no more than five percent of the shares reserved for issuance under the Stock Plan.
Limited Transferability of Awards. Awards granted under the Stock Plan generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution. Notwithstanding the foregoing, the HRCC may permit an individual to transfer an Award to an individual or entity other than Applied for certain limited purposes. Any transfer will be made in accordance with procedures established by the HRCC.
Double-Trigger upon Change of Control. Upon a change of control of Applied, participants (including our executive officers) holding Awards will be entitled to a payment with respect to each outstanding Award then held, whether or not such Award was vested at the time of such change of control, if the successor corporation (or its parent or subsidiary) does not assume or substitute for the outstanding Awards. Also, if a participant (including our executive officers) is terminated without cause or resigns employment with Applied for good reason (as such terms are defined in the Stock Plan), in each case, within the12-month period following a change of control of Applied, such participant will similarly be entitled to a payment with respect to each outstanding Award then held that was granted before a change of control of Applied. Anon-employee director will also be entitled to a similar payment with respect to each outstanding Award then held if he or she ceases to serve as anon-employee director as of the date of a change of control of Applied (and he or she does not become a member of the board of directors of the successor corporation or its parent). The treatment described in the prior two sentences will not apply if the applicable award agreement specifically states that it will not apply or if the participant’s employment or service on the Board is terminated due to his or her death or disability.
Amendment and Termination of the Stock Plan. The Board generally may amend or terminate the Stock Plan at any time and for any reason. However, no amendment, suspension, or termination may impair the rights of any participant without his or her consent.
Summary of U.S. Federal Income Tax Consequences. The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and Applied of Awards granted under the Stock Plan. Tax consequences for any particular individual may be different.
Nonqualified Stock Options. No taxable income is reportable when a nonqualified stock option with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal
50 2017 Proxy Statement
PROPOSAL 4— EMPLOYEE STOCK INCENTIVE PLAN 162(m) APPROVAL AND LIMIT ON NON-EMPLOYEE DIRECTOR AWARDS
to the excess of the fair market value on the exercise date of the shares purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by an employee of Applied is subject to tax withholding by Applied. Any additional gain or loss recognized upon any later disposition of the shares would 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 nonqualified stock options. If the participant exercises the option and then later sells or otherwise disposes of 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 participant exercises the option and then later sells or otherwise disposes of the shares before the end of thetwo- orone-year holding periods described above, 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.
Stock Appreciation Rights. No taxable income is reportable when a stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares. A participant generally will not have taxable income at the time an Award of restricted stock, restricted stock units, performance shares or performance units are granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the Award becomes either (1) freely transferable, or (2) no longer subject to substantial risk of forfeiture. However, the recipient of a restricted stock Award may elect to recognize income at the time he or she receives
the Award in an amount equal to the fair market value of the shares underlying the Award, less any cash paid for the shares, on the date the Award is granted.
Tax Effect for Applied. Applied generally will be entitled to a tax deduction in connection with an Award under the Stock Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonqualified stock option). As described above, Section 162(m) applies to the deductibility of compensation paid to our CEO and to our three other most highly compensated named executive officers (other than our CEO and our CFO). The Stock Plan has been designed to permit the HRCC to grant Awards that qualify as “performance-based compensation” for purposes of satisfying the conditions of Section 162(m), thereby permitting us to continue to take a federal income tax deduction for such Awards.
Section 409A. Section 409A of the Internal Revenue Code (“Section 409A”) provides certain requirements fornon-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the Stock Plan with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
Participation in the Stock Plan. The grant of Awards (if any) that any individual may receive under the Stock Plan is in the discretion of the HRCC and therefore cannot be determined in advance. Our executive officers andnon-employee directors have an interest in this proposal because they are eligible to receive discretionary Awards under the Stock Plan. Ournon-employee directors also receive automatic,non-discretionary Awards under the Stock Plan.
Applied Materials, Inc. 51
PROPOSAL 5—SENIOR EXECUTIVE BONUS PLAN 162(m) APPROVAL
Our amended and restated Senior Executive Bonus Plan (the “Bonus Plan”) provides for incentive compensation for our senior officers based on Applied’s achievement of strategic, operational and financial objectives and officers’ individual performance. The Bonus Plan has not been changed in any material manner since shareholders last approved it at our 2012 Annual Meeting of Shareholders.We are not asking shareholders to approve any amendments to the Bonus Plan. Instead, we are asking shareholders only to approve the material terms of the performance goals under the Bonus Plan so that we may continue to take a federal income tax deduction under Internal Revenue Code Section 162(m) (“Section 162(m)”) for qualified performance-based compensation.
Section 162(m) Approval
The Bonus Plan is intended to allow Applied to take a full federal income tax deduction for the compensation paid to our executive officers in connection with certain awards granted under the Bonus Plan. Under Section 162(m), Applied’s ability to deduct annual compensation paid to our CEO or our three other most highly compensated named executive officers (other than our CEO and CFO) is limited to $1,000,000 per individual. However, this deduction limit does not apply to compensation that qualifies as “performance-based compensation” under Section 162(m). For awards granted under the Bonus Plan to qualify as “performance-based compensation,” we must obtain, at least every five years, shareholder approval of the material terms of the performance goals that will apply to such compensation. The Bonus Plan was last approved by the shareholders at our 2012 Annual Meeting of Shareholders. Shareholder approval of this proposal is intended to satisfy the shareholder approval requirements of Section 162(m). If shareholders do not approve this proposal, we expect to continue providing performance-based bonuses, but we may not receive a federal income tax deduction for some or all of such compensation paid.
Material Terms of 162(m) Performance Goals for Shareholder Approval. Shareholder approval of the material terms of the performance goals is a condition for certain awards made under the Bonus Plan to qualify astax-deductible performance-based compensation under Section 162(m). For purposes of Section 162(m), the material terms of the performance goals include: (1) the participants eligible to receive compensation under the Bonus Plan, (2) a description of the business criteria on which the performance goals are based and (3) the maximum amount of compensation that can be paid to a participant if the performance goals are achieved.
These terms, described below, have not changed in any material manner since shareholders last approved the Bonus Plan in 2012.
The HRCC selects the officers of Applied and/or its affiliates who will be eligible to receive awards under the Bonus Plan. Awards may be granted under the Bonus Plan to those officers of Applied and/or its affiliates who are selected as eligible participants by the HRCC in its discretion. We currently expect that approximately seven to eleven executives will participate in the Bonus Plan at any given time.
Under the Bonus Plan, the performance goals applicable to compensation that is intended to qualify as “performance-based compensation” must provide for a targeted level or levels of achievement using one or a combination of the following measures: (1) cash flow, (2) customer satisfaction, (3) earnings per share, (4) margin, (5) market share, (6) operating profit, (7) product development and quality, (8) profit, (9) return on capital, (10) return on equity, (11) revenue, and/or (12) total shareholder return. Each financial measure shall, except as provided below, be based on U.S. GAAP and, with respect to eachnon-financial measure,pre-established objective criteria (“Performance Goals”).
The HRCC, as the Bonus Plan’s administrator, may choose to measure Performance Goals: (1) in absolute terms, (2) in combination with one or more performance goal(s), (3) in relative terms (including, but not limited to, comparison of Applied’s results for other periods of time, and/or against another company, companies or an index or indices), (4) on aper-share orper-capita basis, (5) against the performance of Applied as a whole or a specific business unit(s), business segment(s) or product(s) of Applied, and/or (6) on apre-tax orafter-tax basis (“Measurement Methods”). Performance Goals may differ from participant to participant, from performance period to performance period, and from award to award. Pursuant to the terms of the Bonus Plan, the HRCC may determine whether any element(s) or item(s) (for example, the effect of mergers or acquisitions) will be included in or excluded from the calculation of any performance goal with respect to any participant (whether or not such determinations result in any performance goal being measured on a basis other than GAAP).
Each performance period may last from one fiscal year (or a period of four consecutive fiscal quarters) to three fiscal years (or a period of 12 consecutive fiscal quarters) (“Performance Period”). We currently do not intend to use multi-year performance periods under the Bonus Plan, or, with respect to any person at the time that they first become eligible to be a participant in the Bonus Plan, a period of shorter than a
52 2017 Proxy Statement
PROPOSAL 5—SENIOR EXECUTIVE BONUS PLAN 162(m) APPROVAL
fiscal year. No individual may participate in more than four Performance Periods at any one time.
In addition, as required by Section 162(m), the Bonus Plan limits awards to a maximum of $5,000,000 per person for any fiscal year.
Nothing in this proposal precludes the HRCC from making any payment or granting awards that do not qualify for tax deductibility under Section 162(m), nor is there any guarantee that awards intended to qualify as “performance-based compensation” under Section 162(m) will so qualify or ultimately be deductible by us.
Summary of the Bonus Plan
The following paragraphs provide a summary of the principal features of the amended and restated Bonus Plan, which, except for those features described above, do not require shareholder approval. This summary is qualified in its entirety by reference to the terms of the amended and restated Bonus Plan, which has been filed with the SEC as Appendix C to this Proxy Statement, and a copy of which is available upon request to the Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1241, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com.
Purpose. The purpose of the Bonus Plan is to increase shareholder value by motivating key executives to achieve Applied’s strategic and financial goals and to perform to the best of their abilities. The Bonus Plan accomplishes this by paying awards to our key executives only after they achieve specified performance goals.
Eligibility. The HRCC selects the officers of Applied and its affiliates who will be eligible to receive awards under the 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 HRCC has discretion to select the participants. We currently expect that approximately seven to eleven executives will participate in the Bonus Plan at any given time.
Target Awards and Performance Goals. Under the Bonus Plan, the HRCC assigns each participant a target award and performance goal(s) for a performance period set by the HRCC. The specified performance goal(s) must be achieved before an award will be paid to the participant. The participant’s target award typically will be expressed as a dollar amount or as a percentage of his or her base salary earned during the applicable performance period. The performance goals set by the HRCC may require targeted level or levels of achievement using one or more Performance Goals. The HRCC also determines the Measurement Methods and Performance Periods.
Actual Awards. After the Performance Period ends, the HRCC certifies in writing the extent to which thepre-established Performance Goals 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 Bonus Plan limits actual awards to a maximum of $5,000,000 per person for any fiscal year.
The HRCC has discretion to reduce or eliminate (but not to increase) the actual award of any participant. If a participant terminates employment with Applied or its affiliate before the end of a performance period for a reason other than death, retirement or disability (as defined in the Bonus Plan), he or she will not be entitled to any bonus for that period. Pursuant to Applied’s “clawback” policy, the Board also has the discretion to require a participant who was an officer for purposes of Section 16 of the Exchange Act, during the applicable performance period to forfeit, return or reimburse to Applied all or any portion of an award paid under the Bonus Plan in the event that the participant’s wrongdoing is determined to be the primary cause of a material negative restatement of Applied’s financial results and as required by applicable law, regulation or listing rules.
Actual awards generally are paid in cash no later than two and a half months after the Performance Period ends. However, the HRCC reserves the right instead to pay some or all of any award in shares of Applied common stock having a fair market value equal to the cash amount foregone or to pay later than the expiration of such two and a half month period. Any such shares would be issued under our shareholder-approved Stock Plan and will vest over a period of not more than four years, as determined by the HRCC, subject to acceleration for termination of employment due to death, retirement or disability or in connection with a qualifying change of control. The HRCC also may choose to pay bonuses to Bonus Plan participants outside of the Bonus Plan for the accomplishment of other strategic or individual goals.
Administration. The HRCC administers the Bonus Plan. Members of the HRCC must qualify as outside directors under Section 162(m). Subject to the terms of the Bonus Plan, the HRCC has sole discretion to:
Applied Materials, Inc. 53
Performance-Based Compensation. The bonuses granted under the Bonus Plan are generally designed to qualify as “performance-based” compensation under Section 162(m). The Bonus Plan allows us to pay incentive compensation that is performance-based and therefore fullytax-deductible on our federal income tax return, subject to future changes in tax laws and other compensation arrangements.
Amendment and Termination of the Bonus Plan. The Board generally may amend or terminate the Bonus Plan at any
time and for any reason, provided that any amendment that would have a material adverse impact on outstanding awards must be approved by the affected participants.
Future Awards. Awards under the Bonus Plan are determined based on actual future performance. As a result, future actual awards cannot now be determined. As our executive officers are eligible to receive awards under the Bonus Plan, they have an interest in this proposal.
54 2017 Proxy Statement
PROPOSAL 6—RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL 6—3—RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We are asking shareholders to ratify the appointment of KPMG LLP (“KPMG”) as Applied’s independent registered public accounting firm for fiscal 2017,2020, which began on October 31, 201628, 2019 and will end on October 29, 2017.25, 2020. The Committee and the Board believe that the retention of KPMG to serve as our independent registered public accounting firm is in the best interests of the Company and its shareholders. Although ratification is not legally required, Applied is submitting the appointment of KPMG to our shareholders for ratification as a matter of good corporate governance. In the event that this appointment is not ratified, the Audit Committee of the Board will reconsider the appointment. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the fiscal year if it determines that such a change would be in the best interest of the Company and its shareholders.
The Audit Committee appointsis directly responsible for the appointment, compensation, retention, oversight, evaluation and, when appropriate, replacement of the independent registered public accounting firm annually. Before appointingthat serves as the Company’s independent accountants. KPMG has served as
our independent registered public accounting firm for fiscal 2017,since 2004. In selecting the Auditindependent auditor, the Committee considered the firm’s qual-
ificationsannually considers many factors, including its qualifications and performance during fiscal 20162019 and 2015. In addition,2018, its independence and tenure as the Audit Committee reviewedCompany’s auditor; KPMG’s capability andpre-approved expertise in handling the breadth and complexity of the Company’s global operations, including the expertise and capability of the lead audit partner; historical and recent performance, including the extent and quality of KPMG’s communications with the Committee; Public Company Accounting Oversight Board inspection reports, and the appropriateness of KPMG’s fees for audit and permissiblenon-audit services performed by KPMGservices. Further, in fiscal 2016 and 2015, as well asconjunction with ensuring the fees paid to KPMG for such services. In its reviewrotation ofnon-audit service fees KPMG’s lead engagement partner, the Committee and its appointmentChair are directly involved with the selection of KPMG as Applied’s independent registered public accounting firm, the Audit Committee considered whether the provision of such services was compatible with maintaining KPMG’s independence.lead engagement partner.
Representatives of KPMG will be present at the Annual Meeting. They will be given an opportunity to make a statement if they wish and will be available to respond to appropriate questions.
The following table shows fees paid by Applied for professional services rendered by KPMG for fiscal 20162019 and 2015,2018, which ended on October 30, 201627, 2019 and October 25, 2015,28, 2018, respectively. All of the fees shown in the table were approved by the Audit Committee in accordance with itspre-approval process.
| Fee Category | Fiscal 2016 | Fiscal 2015 | Fiscal 2019
| Fiscal 2018
| ||||||||||||
| (In thousands) |
(In thousands)
| |||||||||||||||
Audit Fees | $ | 5,507 | $ | 7,221 |
| $6,530
|
|
| $7,776
|
| ||||||
Audit-Related Fees | 608 | 1,116 |
|
57
|
|
|
342
|
| ||||||||
Tax Fees: | ||||||||||||||||
Tax Compliance and Review | 549 | 337 |
|
585
|
|
|
644
|
| ||||||||
Tax Planning and Advice | — | 61 |
|
187
|
|
|
236
|
| ||||||||
All Other Fees | 55 | — |
|
—
|
|
|
50
|
| ||||||||
Total Fees | $ | 6,719 | $ | 8,735 |
|
$7,359
|
|
|
$9,048
|
| ||||||
Audit Fees consisted of fees for (a) professional services rendered for the annual audit of Applied’s consolidated financial statements, (b) review of the interim consolidated financial statements included in quarterly reports and (c) services that are typically provided by an independent registered public accounting firm in connection with statutory and regulatory filings or engagements. Audit fees for fiscal 2015 include fees for services provided in connection with a $1.8 billion public offering of senior unsecured notes.
Audit-Related Fees consisted ofincluded fees for assurance and related services that were reasonably related to the performance of the audit or review of Applied’s consolidated financial statements and are not reported under “Audit Fees.” Audit-related fees for fiscal 2016 and fiscal 2015 includealso included fees incurred for services in connection with compliance with government-funded grant requirements, audits of financial statements of certain employee benefit plans and accounting consultations related to proposed new accounting standards. Audit-related fees for fiscal 2015 include fees related to accounting consultations and services provided in connection with the terminated business combination with Tokyo Electron Limited.
Tax Fees consisted of fees for professional services for tax compliance and review, and tax planning and advice. Tax compliance and review services consisted of federal, state and international tax compliance, assistance with tax audits and appeals, and assistance with customs and duties audits. Tax planning and advice services consisted of consultations related to tax compliance matters and certain international operations.
All Other Fees for fiscal 20162018 consisted of fees for services in connection with a contract compliance audit.
The Audit Committee has concluded that the provision of thenon-audit services described above was compatible with
maintaining the independence of KPMG.
| ✓ | THE BOARD RECOMMENDS THAT YOU VOTEFOR THE RATIFICATION OF THE APPOINTMENT OF KPMG AS APPLIED’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL
| |
Applied Materials, Inc. 4855 2020 Proxy Statement
PROPOSAL 3—RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Policy on Audit Committee’sPre-Approval of Audit and PermissibleNon-Audit Services of Independent Registered Public Accounting Firm
The Audit Committee reviews and, as appropriate,pre-approves all audit and permissiblenon-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services and tax services, as well as specifically designatednon-audit services which, in the opinion of the Audit Committee, will not impair the independence of the independent registered public accounting firm.Pre-approval generally is provided for up to one year, and anypre-approval is detailed as to the particular service or category of services and gen-
erallyand generally is subject to a specific budget. The independent registered public accounting firm and Applied’s management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with thispre-approval, including the fees for the services performed to date. In addition, the Audit Committee also maypre-approve particular services on acase-by-case basis, as necessary or appropriate.
The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Applied specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.
Composition. The Audit Committee of the Board is composed of the directors named below. Each member of the Audit Committee meets the independence and financial experience requirements under applicable SEC rules and Nasdaq listing standards. In addition, the Board has determined that each member of the Audit CommitteeJudy Bruner, Adrianna C. Ma, Yvonne McGill, Scott A. McGregor and Dennis D. Powell is an “audit committee financial expert” as defined by SEC rules.
Responsibilities. The Audit Committee operates under a written charter that has been adopted by the Board. The charter is reviewed annually for changes, as appropriate. The Audit Committee is responsible for general oversight of Applied’s auditing, accounting and financial reporting processes, system of internal control over financial reporting, and tax, legal, regulatory and ethical compliance. Applied’s management is responsible for: (a) maintaining Applied’s books of account and preparing periodic financial statements based thereon; and (b) maintaining the system of internal control over financial reporting. The independent registered public accounting firm is responsible for auditing Applied’s annual consolidated financial statements.
Review with Management and Independent Registered Public Accounting Firm. The Audit Committee hereby reports as follows:
| 1. | The Audit Committee has reviewed and discussed with management and the independent registered public accounting firm, KPMG LLP, together and separately, Applied’s audited consolidated financial statements contained in Applied’s Annual Report on Form10-K for fiscal year |
| 2. | The Audit Committee has discussed with KPMG matters required to be discussed by applicable standards of the Public Company Accounting Oversight Board. |
| 3. | The Audit Committee has received from KPMG the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence. |
Based on the review and discussions referred to in paragraphs1-3 above, the Audit Committee recommended to the Board, and the Board has approved, that the audited consolidated financial statements be included in Applied’s Annual Report on Form10-K for fiscal year 20162019 for filing with the SEC.
The Audit Committee appointed KPMG as Applied’s independent registered public accounting firm for fiscal year 20172020 and recommends to shareholders that they ratify the appointment of KPMG as Applied’s independent registered public accounting firm for fiscal year 2017.2020.
This report is submitted by the Audit Committee.
Dennis D. Powell (Chair)
Judy Bruner
Susan M. JamesStephen R. Forrest
Adrianna C. Ma
Yvonne McGill
Scott A. McGregor
56Applied Materials, Inc. 49
PROPOSAL 4—APPROVAL OF AN AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO ALLOW SHAREHOLDERS TO ACT BY WRITTEN CONSENT
We are asking shareholders to approve an amendment and restatement of our Amended Certificate of Incorporation (the “Certificate”) to allow shareholder action by written consent (the “Proposed Amendment”).
Currently, Article SEVENTH of our Certificate prohibits shareholder action by written consent. We received a shareholder proposal for last year’s annual meeting requesting that the Board take the necessary steps to allow shareholders to act by written consent (the “2019 Proposal”). The 2019 Proposal did not pass because it failed to gain the support of a majority of the shares present at the meeting and entitled to vote: it won the support of 49.8% of the shares present at the meeting and entitled to vote, representing approximately 35.3% of our outstanding shares.
Last year, based on shareholder input and concerns about potential for abuse and shareholder disenfranchisement associated with action by written consent, the Board opposed the 2019 Proposal. However, after careful consideration of the voting results of the 2019 Proposal and recent shareholder feedback, as well as a comprehensive review of market practice and procedural safeguards adopted by other companies with respect to a shareholder right to act by written consent, the Board has declared advisable, and is submitting to shareholders for their approval, the Proposed Amendment, which would allow shareholder action by written consent. Our Board has taken a thoughtful approach to action by written consent and believes it is in the best interests of the Company and shareholders to adopt action by written consent with procedural safeguards. The Proposed Amendment addresses shareholder and Board concerns regarding written consent through specific procedural safeguards, described below, that are designed to ensure accountability and a democratic process for all shareholders.
Our Board is committed to strong corporate governance and responsiveness to Applied’s shareholders, and believes in maintaining policies and practices that serve the best interests of all shareholders. Shareholder input has been and continues to be an important consideration in our Board’s dialogue around our corporate governance policies and practices. We have a strong history of taking proactive steps in response to our shareholders’ feedback to endeavor to establishbest-in-class governance and compensation structures.
Given the high level of support for the 2019 Proposal and at the direction of our Governance Committee, we engaged in extensive shareholder outreach to hear directly from our shareholders on their views on shareholder action by written consent, as well as our existing special meeting process. We contacted the holders of approximately 57% of our outstanding shares. Of those we contacted, 20 shareholders spoke with us, representing approximately 46% of our outstanding shares and consisting of a roughly equal number of shareholders who voted for and against the 2019 Proposal. Our independent Chairman of the Board and our independent Chair of the Governance Committee participated in several of these calls. Our Board has used this feedback to inform boardroom discussions in determining what action to take in response to the high support level for and shareholder input regarding action by written consent.
Many of the shareholders with whom we engaged expressed the view that the right to act by written consent was unnecessary in light of our existing corporate governance policies and shareholder rights, including the right to call special meetings. Nevertheless, they encouraged us to be responsive to the voting results of the 2019 Proposal.
A majority of these shareholders (16 of the 20 shareholders we spoke with, representing holders of approximately 40% of our outstanding shares) were supportive of the Board’s adoption of a shareholder right to act by written consent. Most also expressed concerns that the written consent process could be subject to abuse absent adequate procedural safeguards, and expected that we would adopt such safeguards or were otherwise supportive of us doing so. Among those 16 shareholders, three, while supporting the Company’s adoption of action by written consent, expressed a preference for reducing the ownership threshold for the shareholder right to call special meetings in lieu of adopting shareholder action by written consent. However, there was no consensus among our shareholders regarding the appropriate ownership threshold and some shareholders noted concern about setting the threshold too low. The other four shareholders we spoke with, representing holders of approximately 6% of our outstanding shares, did not express a preference for either approach.
Regarding the procedural safeguards, the universal view among the 16 shareholders that supported the Board’s adoption of action by written consent was that we should adopt provisions that are consistent with market practice to
50 20172020 Proxy Statement
PROPOSAL 4—APPROVAL OF AN AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO ALLOW SHAREHOLDERS TO ACT BY WRITTEN CONSENT
prevent abuse and that aligning those provisions with our special meeting right (including the requisite ownership threshold) was an appropriate approach.
Board’s Decision and Rationale
The Board believes that Applied’s existing special meeting right provides Applied’s shareholders with a meaningful ability to propose actions for shareholder consideration between annual meetings. However, given the strong support for the 2019 Proposal and the shareholder feedback we received, the Board recognizes that the right of shareholders to act by written consent at an appropriate threshold may provide an effective balance between ensuring the Board’s accountability to shareholders and enabling the Board and management to operate in an effective manner, and may provide a complementary mechanism for shareholders to raise matters between annual meetings. To ensure that the written consent process provides our shareholders with a similarly equitable and transparent manner to raise matters for consideration by shareholders and to address many of our shareholders’ concerns that the written consent process could be subject to abuse absent adequate procedural safeguards, the Proposed Amendment includes the following safeguards:
| ● | To ensure that shareholders who have limited support for their proposed action do not cause Applied to incur unnecessary expense and disruption by a written consent solicitation, the Proposed Amendment requires that shareholders seeking to act by written consent must own at least 20% of our outstanding shares of common stock to request that the Board set a record date to determine the shareholders entitled to act by written consent. Similar to the requirement for shareholders to request a special meeting, these shares must be “Owned” by those shareholders, as that term is defined in Applied’s bylaws. |
This 20% threshold is the ownership threshold required for shareholders to call a special meeting. The Board believes that the same threshold is appropriate for shareholder action by written consent, so that a limited group of shareholders cannot use written consent to push forward an action that would lack sufficient shareholder support to merit calling a special meeting. The Board believes the 20% threshold strikes a suitable balance between enhancing the ability of shareholders to initiate shareholder action and limiting the risk of subjecting shareholders to numerous written consent solicitations (or special meeting requests) that may only be relevant to particular constituencies.
| ● | To protect against shareholder disenfranchisement, shareholders seeking to act by written consent must solicit written consent from all shareholders entitled to vote on the matter to enable all shareholders to consider and act on a proposal. This protection eliminates the possibility that a small group of shareholders could act without a democratic process for determining the merits of any |
proposed action and without input from all our shareholders. |
| ● | To ensure transparency, shareholders requesting action by written consent must provide Applied with the same information that would be required to propose that action at an annual or special shareholder meeting or nominate a candidate for director. |
| ● | To provide the Board with a reasonable timeframe to properly evaluate and respond to a shareholder request to set record date for written consent, the Proposed Amendment requires that the Board must adopt a resolution fixing a record date by the later of (i) 20 days after delivery of the request and (ii) five days after delivery by the shareholder(s) of any additional information required by Applied to determine the validity of the request or to determine whether the proposed action to which the request relates may be effected by written consent. The record date must be no more than ten days after the date on which the Board resolution fixing the record date is adopted. If the Board fails to set a record date by the required date for a request that is valid, properly delivered and relating to an action that may be effected by written consent, the record date will be the first date on which a signed written consent relating to the proposed action is delivered to Applied. |
| ● | To ensure that shareholders have sufficient time to consider the proposal and any statements in opposition, as well as to provide the Board the opportunity to present its views regarding the proposed action, no executed consents may be delivered until 60 days after the delivery of a valid request to set a record date. Consents signed by a sufficient number of shareholders to take action by written consents must be delivered to Applied no later than 120 days after the applicable record date. |
| ● | To ensure that the written consent is in compliance with applicable laws and is not duplicative, the Proposed Amendment provides that the written consent process would not be available in a limited number of circumstances, including (i) for matters that are not a proper subject for shareholder action, (ii) if the request to set a record date is received by Applied during the period commencing 90 days prior to the first anniversary of the date of the most recent annual meeting and ending on the date of the final adjournment of the next annual meeting, (iii) if an identical or substantially similar item was presented at a shareholder meeting held within 90 days before Applied received the request for a record date, (iv) if an identical or substantially similar item is included in our notice for a shareholder meeting that was called, but not yet held, or that is called to be held within 90 days after Applied received the request for a record date and (v) if the record date request was made in a manner that involved a violation of Regulation 14A under the Exchange Act or other applicable law. The nomination, elections and removal of directors are deemed substantially similar items |
Applied Materials, Inc. 51
to all actions involving the nomination, election or removal of directors, changing the size of the Board and filling of vacancies or newly created directorships resulting from any increase in the number of authorized directorships. |
This summary is qualified in its entirety by reference to the complete text of the proposed amended and restated Certificate of Incorporation, which is attached asAppendix B to this Proxy Statement.
Adoption of this proposal requires the affirmative vote of a majority of the outstanding shares of our common stock.
If approved by shareholders, Applied will promptly file with the Delaware Secretary of State an amended and restated
Certificate of Incorporation, the form of which is attached asAppendix B to this Proxy Statement, incorporating the Proposed Amendment. The amended and restated Certificate of Incorporation will become effective on the date the filing is accepted by the Delaware Secretary of State. If the Proposed Amendment is not approved by the requisite vote, the Proposed Amendment will not be implemented and the current prohibition on shareholder action by written consent will remain.
If the Proposed Amendment is approved by shareholders, the Board has approved conforming changes to Applied’s bylaws, which would become effective upon the filing of the amended and restated Certificate of Incorporation with the Delaware Secretary of State.
| ✓ | THE BOARD RECOMMENDS THAT YOU VOTEFOR THE APPROVAL OF AN AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO ALLOW SHAREHOLDERS TO ACT BY WRITTEN CONSENT | |
52 2020 Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 20172020 ANNUAL MEETING
QUESTIONS AND ANSWERS ABOUT THE PROXY
STATEMENT AND OUR 20172020 ANNUAL MEETING
| Q: | Why am I receiving these materials? |
| A: | The Board of Directors of Applied Materials is providing these materials to you in connection with its solicitation of proxies for use at Applied’s |
These proxy materials are being provided on or about January 26, 2017, 2020 to all shareholders of record of Applied as of January 12, 2017.16, 2020.
| Q: | What information is contained in these materials? |
| A: | This Proxy Statement contains important information regarding the |
If you requested to receive printed proxy materials, these materials also include an accompanying proxy card. If you received more than one proxy card, this generally means your shares are registered differently or are in more than one account. Please provide voting instructions for each proxy card or, if you vote via the Internet or by telephone, vote once for each proxy card you receive to ensure that all of your shares are voted.
| Q: | What proposals will be voted on at the Annual Meeting? What are the Board’s recommendations? |
| A: | The following table describes the proposals to be voted on at the |
| Proposal | Board Recommendation | |||||
1. Election of | ✓ | FOR each Nominee | ||||
2. Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year | ✓ | |||||
| FOR | |||||
| ||||||
| ||||||
| ✓ | FOR | ||||
4. Approval of an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent | ✓ | FOR | ||||
At the time this Proxy Statement was mailed, we were not aware of any other matters to be presented at the 2017 Annual Meeting other than those set forth in this Proxy Statement and in the notice accompanying this Proxy Statement.
| Q: | What is the record date? How many shares are entitled to vote? |
| A: | Shareholders who owned Applied common stock at the close of business on January |
A complete list of these shareholders will be available at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054 during regular business hours for the 10 days prior to the Annual Meeting. This list also will be available during the Annual Meeting at the meeting location. A shareholder may examine the list for any legally valid purpose related to the Annual Meeting. |
A complete list of these shareholders will be available at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054 during regular business hours for the ten days prior to the Annual Meeting. This list also will be available during the Annual Meeting at the meeting location. A shareholder may examine the list for any legally valid purpose related to the Annual Meeting.
Applied Materials, Inc. 57
| Q: | What is the difference between holding shares as a shareholder of record and as a beneficial owner? |
| A: | Most Applied shareholders hold their shares as beneficial owners (through a broker, bank, or other nominee) rather than as a shareholder of record (directly in their own name). |
Shareholders of Record. If your shares are registered directly in your name with Applied’s transfer agent, Computershare, you are considered the shareholder of record with respect to those shares, and these proxy materials are being sent directly to you. As a shareholder of record, you have the right to grant your voting proxy directly to Applied or to vote in person at the Annual Meeting. If you requested printed proxy materials, we have enclosed an accompanying proxy card for you to |
Applied Materials, Inc. If your shares are registered directly in your name with Applied’s transfer agent, Computershare, you are considered the shareholder of record with respect to those shares, and these proxy materials are being sent directly to you. As a shareholder of record, you have the right to grant your voting proxy directly to Applied or to vote in person at the Annual Meeting. If you requested printed proxy materials, we have enclosed an accompanying proxy card for you to use. You may also submit voting instructions via the Internet or by telephone by following the instructions on the accompanying proxy card, as described below under “How can I vote my shares?”53
| use. You may also submit voting instructions via the Internet or by telephone by following the instructions on the accompanying proxy card, as described below under “How can I vote my shares?” |
Beneficial Owners.If your shares are held in a brokerage account or by a broker, bank, or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker, bank, or other nominee, which is considered the shareholder of record with respect to those shares. As a beneficial owner, you have the right to direct your broker, bank, or other nominee on how to vote the shares in your account. However, because you are not the shareholder of record, you may not vote these shares in person at the Annual Meeting, unless you request and provide at the Annual Meeting a valid proxy from your broker, bank, or other nominee. Your broker, bank, or other nominee has included a voting instruction form for you to use to direct them how to vote your shares. Please instruct your broker, bank, or other nominee how to vote your shares using the voting instruction form you received from them.
| Q: |
|
| A: | Applied shareholders on the record date or their legal proxy holders may attend the Annual Meeting. To be admitted to the Annual Meeting, you will need a form of photo identification and valid proof of ownership of Applied common stock or a valid legal proxy. If you have a legal proxy from a shareholder of record, you must bring a form of photo identification and the legal proxy to the Annual Meeting. If you have a legal proxy from a street name shareholder, you must bring a form of photo identification, a legal proxy from the record holder (i.e., the bank, broker or other holder of record) to the street name shareholder that is assignable, and the legal proxy from the street name shareholder to you. Each shareholder may appoint only one proxy holder to attend on such shareholder’s behalf. |
The use of cameras, recording equipment and other electronic devices (including cell phones, tablets, laptops, etc.) is not permitted at the Annual Meeting.
| Q: |
|
| A: | You may vote over the Internet, by telephone, by mail, or in person at the Annual Meeting. Votes submitted by telephone or over the Internet must be received by 11:59 p.m., Eastern Time, on Wednesday, March |
Voting over the Internet. To vote over the Internet, please follow either the instructions included on your proxy card or the voting instructions you receive bye-mail or that |
| are being provided via the Internet. If you vote over the Internet, you do not need to complete and mail a proxy card. |
Voting by Telephone. If you have requested printed proxy materials, such materials will include instructions for how to vote by telephone. Please follow either the instructions included on your proxy card or voting instruction form. If you vote by telephone, you do not need to complete and mail a proxy card.
Voting by Mail. If you have requested printed proxy materials, you may vote by mail by signing the proxy card and returning it in the prepaid and addressed envelope enclosed with the proxy materials. By signing and returning the proxy card, you are authorizing the individuals named on the proxy card to vote your shares at the Annual Meeting in the manner you indicate. We encourage you to sign and return the proxy card even if you plan to attend the Annual Meeting so that your shares will be voted if you are unable to attend the Annual Meeting. If you receive 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. Your printed proxy materials may also indicate methods whereby you may vote by telephone or over the Internet instead of signing, dating a returning the proxy card by mail.
Voting in Person at the Meeting. If you attend the Annual Meeting and plan to vote in person, we will provide you with a ballot at the Annual Meeting. If you are a shareholder of record, you have the right to vote in person at the Annual Meeting. If you are the beneficial owner of shares held in street name and you wish to vote in person at the Annual Meeting, you will need to bring to the Annual Meeting a legal proxy from your broker or other nominee authorizing you to vote those shares.
Applied Employee Plan Participants. If you are a participant in Applied’s Employee Savings and Retirement Plan 401(k) Plan, your proxy represents all shares you own through the 401(k) Plan, assuming that your shares are registered in the same name. Your proxy will serve as voting instructions for the trustee of the 401(k) Plan. If you own shares through the 401(k) Plan
58 2017 Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2017 ANNUAL MEETING
and you do not vote, the 401(k) Plan trustee will vote those shares in the same proportion as other 401(k) Plan participants vote their 401(k) Plan shares. We encourage you to provide instructions to the trustee regarding the voting of your shares. Instructions provided over the Internet or by telephone must be received by 11:59 p.m. Eastern Time on March 6, 2017. Please note that Applied Employee Plan Participants may not vote their shares in person at the Annual Meeting.
If you own shares purchased through Applied’s Employees’ Stock Purchase Plan or Applied’s Stock Purchase Plan for Offshore Employees that are still held by the plans’ recordkeeper and you do not vote these shares, the shares may be voted in accordance with standard brokerage industry practices only on routine matters.
| Q: |
|
| A: | If you are a shareholder of record, you may change your vote or revoke your proxy at any time before the Annual Meeting. To change your vote or revoke your proxy, you must: |
| ● |
54 2020 Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2020 ANNUAL MEETING
| ● |
| ● |
Only the latest validly-executed proxy that you submit will be counted.
| Q: | What is the quorum requirement for the Annual Meeting? |
| A: | A majority of the outstanding shares entitled to vote as of the record date must be present at the Annual Meeting to constitute a quorum and in order to conduct business at the Annual Meeting. Your shares are counted as present if you vote in person at the Annual Meeting, over the Internet, by telephone, or by submitting a properly executed proxy card by mail. |
Abstentions and brokernon-votes are counted as present for the purpose of determining a quorum.
| Q: |
|
| A: | You may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to each of the director nominees. If you elect to abstain from voting on the election of directors, the |
| abstention will not have any effect on the election of directors. In tabulating the voting results for the election of directors, only “FOR” and “AGAINST” votes are counted. |
You may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to:
| ● |
| ● |
| ● | The approval of an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent. |
If you elect to abstain from voting on any of these fourthree proposals, the abstention will have the same effect as an “AGAINST” vote with respect to such proposals.
You may vote for every ONE year, for every TWO years, for every THREE years, or “ABSTAIN” with respect to the approval, on an advisory basis, of the frequency of holding an advisory vote on executive compensation. If you vote to “ABSTAIN” on the proposal regarding the frequency of an advisory vote on executive compensation, the abstention will not have an effect on the outcome of the vote.
If you are a shareholder of record and you sign and return your proxy card without giving specific voting instructions, your shares will be voted on the proposals as recommended by our Board and in accordance with the discretion of the persons named on the proxy card with respect to any other matters that may properly come before the Annual Meeting.
If your shares are held in street name and you do not instruct your broker on a timely basis on how to vote your shares, your brokerage firm, in its discretion, may either leave your shares unvoted or vote your shares on routine matters. Only the ratification of KPMG LLP as our independent registered public accounting firm is a routine matter. Without your voting instructions, your brokerage firm cannot vote your shares on any other proposal. These unvoted shares, called “brokernon-votes,” refer to shares held by brokers who have not received voting instructions from their clients and who do not have discretionary authority to vote onnon-routine matters.
Applied Materials, Inc. 59
Brokernon-votes are not considered entitled to vote and will not affect the outcome of the vote onnon-routine
proposals. Brokernon-votes will not have an effect on the election of any director nominee.nominee or the approval, on an advisory basis, of the compensation of our named executive officers. Brokernon-votes will have the same effect as a vote against the proposal to amend and restate our Certificate of Incorporation.
Applied Materials, Inc. 55
Q: What is the vote requirement to approve each proposal?
| A: | The following table describes the proposals to be considered at the Annual Meeting, the vote required to elect directors and to adopt each of the other proposals, and the manner in which votes will be counted: |
| Proposal | Vote Required | Effect of Abstentions | Effect of BrokerNon-Votes | |||
1. Election of | Majority of votes cast | No effect | No effect | |||
2. Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year | Majority of shares present and entitled to vote thereon | Same as vote against | No effect | |||
3. Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year | Majority of shares present and entitled to vote thereon | Same as vote against | Brokers have discretion to vote | |||
4. Approval of an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent | Majority of all outstanding shares | Same as vote against | Same as vote against |
| Q: | Who will count the votes? Where can I find the voting results of the Annual Meeting? |
| A: | Votes will be tabulated by an independent inspector of elections appointed for the Annual Meeting. Preliminary voting results will be announced at the Annual Meeting. Final voting results will be reported in a Current Report on Form8-K, which will be filed with the SEC following the Annual Meeting. |
| Q: | Who will bear the cost of soliciting votes for the Annual Meeting? |
| A: | Applied will bear the entire cost of proxy solicitation, including the preparation, assembly, printing, mailing and distribution of the proxy materials. We have hired Innisfree M&A Incorporated to assist in the distribution |
| and solicitation of proxies. Solicitations may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In addition to the estimated proxy solicitation cost of $20,000, plus reasonableout-of-pocket expenses for this service, we will reimburse brokerage firms and other custodians for their reasonableout-of-pocket expenses for forwarding the proxy materials to shareholders. |
| Q: | Why did I receive a |
| A: | In accordance with SEC rules, we are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing printed copies of those materials to |
60 2017 Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2017 ANNUAL MEETING
| each shareholder. On January |
This process is designed to expedite shareholders’ receipt of proxy materials, lower the cost of the Annual Meeting and help conserve natural resources. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability. If you have previously elected to receive our proxy materials electronically, you will continue to receive these materials viae-mail unless you elect otherwise.
56 2020 Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2020 ANNUAL MEETING
| Q: | I share an address with another shareholder and we received only one paper copy of the proxy materials. How can I obtain an additional copy of the proxy materials? |
| A: | Under a practice approved by the SEC called “householding,” shareholders who have the same |
| address and last name and who do not participate in electronic delivery of proxy materials will receive only one mailed copy of our proxy materials, unless one or more of these shareholders notifies us that he or she |
| wishes to receive individual copies. Shareholders who participate in householding will continue to receive separate proxy cards. |
If you share an address with another shareholder and received only one set of proxy materials and would like to request a separate paper copy of these materials, please: (1) go to www.proxyvote.com and follow the instructions provided; (2) send ane-mail message to investor_relations@amat.com with “Request for Proxy Materials” in the subject line and provide your name, address and the control number indicated on your proxy card or Notice of Internet Availability; or (3) call our Investor Relations department at(408) 748-5227.
Applied Materials, Inc. 6157
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Applied’s directors and executive officers, and holders of more than 10% of Applied common stock to file with the SEC reports about their ownership of common stock and other equity securities of Applied. Such directors, officers and 10% shareholders are required by SEC rules to furnish Applied with copies of all Section 16(a) forms they file.
SEC rules require us to identify in this Proxy Statement anyone who filed a required report late during the most recent fiscal year. Based on our review of forms we received and written representations from certain of the reporting persons, we believe that during fiscal 2016, all Section 16(a) filing requirements were satisfied on a timely basis.
Shareholder Proposals or Nominations for 20182021 Annual Meeting
If a shareholder would like us to consider including a proposal in the proxy statement for our 2018 annual meeting2021 Annual Meeting pursuant toRule 14a-8 of the Exchange Act, the proposal must be received by our Corporate Secretary at our principal executive offices on or before September 28, 2017., 2020.
AFor a shareholder’s notice of nomination of one or more director candidates to be included in our proxy statement and ballot pursuant to the proxy access right included in Section 2.15 of our Bylaws, it must be received by our Corporate Secretary at our principal executive offices no earlier than August 29, 2017,, 2020, and no later than the close of business on September 28, 2017., 2020. The notice must contain the information required by our Bylaws, and the shareholder(s) and nominee(s) must comply with the information and other requirements in our Bylaws relating to the inclusion of shareholder nominees in our proxy materials.
If a shareholder seeks to propose other business or nominate a director, but does not seek to include a proposal or director nominee in our proxy statement for our 2018 annual meeting,2021 Annual Meeting, notice must be received by our Corporate Secretary at our principal executive offices no earlier than November 24, 2017,27, 2020, and no later than the close of business on December 24, 2017.27, 2020.
Our Bylaws contain specific requirements regarding a shareholder’s ability to nominate a director or to submit a proposal for consideration at an upcoming meeting. If you would like a copy of our Bylaws, please contact our Corporate Secretary by mail addressed to Thomas F. Larkins,Christina Y. Lai, Corporate Secretary, Applied Materials, Inc., 3225 Oakmead Village Drive, M/S 1241,1268, P.O. Box 58039, Santa Clara, CA 95052, or bye-mail at corporatesecretary@amat.com.
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 and the information should be considered as part of the particular filing. As provided under SEC rules, the “Audit Committee Report” and the “Human Resources and Compensation Committee Report” contained in this Proxy Statement are not incorporated by reference into any of our other filings with the SEC, except to the extent we specifically incorporate either report by reference into a filing. In addition, this Proxy Statement includes several website addresses. These website addresses are intended to provide inactive, textual references only. The information on these websites is not part of this Proxy Statement.
YOU MAY OBTAIN A COPY OF APPLIED’S ANNUAL REPORT ON FORM10-K FOR THE FISCAL YEAR ENDED OCTOBER 30, 201627, 2019 ON OUR WEBSITE ATwww.appliedmaterials.com OR WITHOUT CHARGE BY SENDING A WRITTEN REQUEST TO APPLIED MATERIALS, INC., 3050 BOWERS AVENUE, P.O. BOX 58039, M/S 1261, SANTA CLARA, CALIFORNIA 95052-8039, ATTN: INVESTOR RELATIONS.
By Order of the Board of Directors
Santa Clara, California
January 26, 2017, 2020
6258 20172020 Proxy Statement
UNAUDITED RECONCILIATION OFNON-GAAP ADJUSTED FINANCIAL MEASURES
| Fiscal Year | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Non-GAAP Adjusted Earnings Per Diluted Share | ||||||||||||||||||||
Reported earnings per diluted share—GAAP basis1 | $ | 1.54 | $ | 1.12 | $ | 0.87 | $ | 0.21 | $ | 0.09 | ||||||||||
Impairment of goodwill and intangible assets | — | — | — | 0.21 | 0.33 | |||||||||||||||
Certain items associated with acquisitions2 | 0.16 | 0.14 | 0.13 | 0.14 | 0.19 | |||||||||||||||
Acquisition integration costs | — | — | 0.02 | 0.02 | 0.05 | |||||||||||||||
Gain on derivatives associated with terminated business combination, net | — | (0.05 | ) | (0.02 | ) | — | — | |||||||||||||
Certain items associated with terminated business combination3 | — | 0.03 | 0.05 | 0.01 | — | |||||||||||||||
Inventory charges (reversals) related to restructuring and asset impairments4,5,6,7,8 | — | 0.03 | — | 0.03 | 0.10 | |||||||||||||||
Impairment of strategic investments, net | — | — | — | — | 0.01 | |||||||||||||||
Other significant gains, losses or charges, net9,10 | 0.01 | 0.01 | — | — | — | |||||||||||||||
Reinstatement of federal R&D tax credit and resolution of prior years’ income tax filings and other tax items1 | 0.04 | (0.09 | ) | 0.02 | (0.03 | ) | (0.02 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Non-GAAP adjusted earnings per diluted share | $ | 1.75 | $ | 1.19 | $ | 1.07 | $ | 0.59 | $ | 0.75 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average number of diluted shares (in millions) | 1,116 | 1,226 | 1,231 | 1,219 | 1,277 | |||||||||||||||
Fiscal Year | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||||||
Non-GAAP Adjusted Earnings Per Diluted Share | ||||||||||||||||||||
Reported earnings per diluted share—GAAP basis1,2 | $ | 2.86 | $ | 2.96 | $ | 3.25 | $ | 1.54 | $ | 1.12 | ||||||||||
Certain items associated with acquisitions3 | 0.05 | 0.18 | 0.16 | 0.16 | 0.14 | |||||||||||||||
Acquisition integration and deal costs | 0.02 | — | — | — | — | |||||||||||||||
Impairment (gain on sale) of strategic investments, net | — | (0.02 | ) | — | — | — | ||||||||||||||
Loss (gain) on strategic investments, net | (0.03 | ) | — | — | — | — | ||||||||||||||
Certain items associated with terminated business combination4 | — | — | — | — | 0.03 | |||||||||||||||
Gain on derivatives associated with terminated business combination, net | — | — | — | — | (0.05 | ) | ||||||||||||||
Inventory charges (reversals) related to restructuring and asset impairments5 | — | — | — | — | 0.03 | |||||||||||||||
Other gains, losses or charges, net | — | — | (0.01 | ) | 0.01 | 0.01 | ||||||||||||||
Income tax effect of changes in applicable U.S. tax laws6 | (0.03 | ) | 1.08 | — | — | — | ||||||||||||||
Income tax effects related to amortization of intra-entity intangible asset transfers | 0.07 | — | — | — | — | |||||||||||||||
| Resolution of prior years’ income tax filings, reinstatement of federal R&D tax credit and other tax items2 | 0.10 | (0.02 | ) | (0.07 | ) | 0.04 | (0.09 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Non-GAAP adjusted earnings per diluted share | $ | 3.04 | $ | 4.18 | $ | 3.33 | $ | 1.75 | $ | 1.19 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average number of diluted shares | 945 | 1,026 | 1,084 | 1,116 | 1,226 | |||||||||||||||
| 1 | Amounts for fiscal 2017 included the recognition of the previously unrecognized foreign tax credits. |
| 2 | Amounts for fiscal 2015 included an adjustment to decrease the provision for income taxes by $28 million with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.02. The adjustment was excluded in Applied’s non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010. |
These items are incremental charges attributable to acquisitions, consisting of |
These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs. |
| 5 | Results for fiscal 2015 primarily included $35 million of inventory charges, $17 million of restructuring charges and asset impairments related to cost reductions in the solar business, and a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans. |
| 6 | Charges to income tax provision related to |
| a |
| Fiscal Year | ||||
| 2016 | ||||
| (In millions, except percentages) | ||||
Non-GAAP Adjusted Gross Profit | ||||
Reported gross profit—GAAP basis | $ | 4,511 | ||
Certain items associated with acquisitions1 | 167 | |||
Inventory reversals related to restructuring2 | (2 | ) | ||
|
| |||
Non-GAAP Adjusted Gross Profit | $ | 4,676 | ||
|
| |||
Non-GAAP Adjusted Gross Margin (% of net sales) | 43.2 | % | ||
| Fiscal Year | ||
| 2019 | ||
| (In millions, except percentages) |
Non-GAAP Adjusted Gross Profit | ||||
Reported gross profit—GAAP basis | $ | 6,386 | ||
Certain items associated with acquisitions1 | 37 | |||
|
| |||
Non-GAAP Adjusted Gross Profit | $ | 6,423 | ||
|
| |||
Non-GAAP Adjusted Gross Margin (% of net sales) | 44.0 | % | ||
| 1 | These items are incremental charges attributable to acquisitions, consisting of amortization of purchased intangible assets. |
Applied Materials, Inc. A-1
| Fiscal Year | ||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | |||||||||||||
| (In millions, except percentages) | ||||||||||||||||
Non-GAAP Adjusted Operating Income | ||||||||||||||||
Reported operating income—GAAP basis | $ | 2,152 | $ | 1,693 | $ | 1,520 | $ | 432 | ||||||||
Certain items associated with acquisitions1 | 188 | 185 | 183 | 201 | ||||||||||||
Acquisition integration costs | 2 | 2 | 34 | 38 | ||||||||||||
Loss (gain) on derivatives associated with terminated business combination, net | — | (89 | ) | (30 | ) | 7 | ||||||||||
Certain items associated with terminated business combination2 | — | 50 | 73 | 17 | ||||||||||||
Inventory charges (reversals) related to restructuring and asset impairments3,4,5,6 | (3 | ) | 49 | 5 | 63 | |||||||||||
Impairment of goodwill and intangible assets | — | — | — | 278 | ||||||||||||
Other significant gains, losses or charges, net7,8 | 8 | 6 | (4 | ) | (4 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Non-GAAP adjusted operating income | $ | 2,347 | $ | 1,896 | $ | 1,781 | $ | 1,032 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Non-GAAP adjusted operating margin | 21.7 | % | 19.6 | % | 19.6 | % | 13.7 | % | ||||||||
Fiscal Year | ||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (In millions, except percentages) | ||||||||||||||||||||
Non-GAAP Adjusted Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reported operating income—GAAP basis | $ | 3,350 | $ | 4,491 | $ | 3,936 | $ | 2,152 | $ | 1,693 | ||||||||||
Certain items associated with acquisitions1 | 55 | 197 | 191 | 188 | 185 | |||||||||||||||
Acquisition integration and deal costs | 22 | 5 | 3 | 2 | 2 | |||||||||||||||
Certain items associated with terminated business combination2 | — | — | — | — | 50 | |||||||||||||||
Gain on derivatives associated with terminated business combination, net | — | — | — | — | (89 | ) | ||||||||||||||
Inventory charges (reversals) related to restructuring and asset impairments3,4 | — | — | — | (3 | ) | 49 | ||||||||||||||
Other gains, losses or charges, net | — | — | (12 | ) | 8 | 6 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Non-GAAP adjusted operating income | $ | 3,427 | $ | 4,693 | $ | 4,118 | $ | 2,347 | $ | 1,896 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Non-GAAP adjusted operating margin | 23.5 | % | 28.1 | % | 28.0 | % | 21.7 | % | 19.6 | % | ||||||||||
| 1 | These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets. |
| 2 | These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs. |
| 3 | Results for fiscal 2016 |
| 4 | Results for fiscal 2015 primarily included $35 million of inventory charges, $17 million of restructuring charges and asset impairments related to cost reductions in the solar business, and a $2 million favorable adjustment of restructuring reserves related to prior restructuring plans. |
Use ofNon-GAAP Adjusted Financial Measures
Applied provides investors with certain Management usesnon-GAAP adjusted financial measures whichto evaluate the Company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of its performance and investors’ ability to review the Company’s business from the same perspective as the Company’s management and facilitate comparisons of this period’s results with prior periods on a consistent basis by excluding items that management does not believe are indicative of Applied’s ongoing operating performance.
Thenon-GAAP adjusted financial measures presented above are adjusted to exclude the impact of certain costs, expenses, gains and losses, including certain items related to mergers and acquisitions; restructuring charges and any associated adjustments; impairments of assets, or investments; gain or loss on sale of strategic investments; certain income tax items and certain other discrete adjustments. Additionally, fiscal 2019 and 2018non-GAAP results exclude estimated discrete income tax expense items associated with recent U.S. tax legislation. Reconciliations of thesenon-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this Appendix.
Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of our performance and investors’ ability to review the company’s business from the same perspective as the company’s management, and facilitate comparisons of this period’s results with prior periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance.presented above. There are limitations in usingnon-GAAP financial measures because thenon-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different fromnon-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.
Applied adopted the authoritative guidance related to revenue recognition in the first quarter of fiscal 2019 using the full retrospective method. Applied also adopted authoritative guidance related to retirement benefits in the first quarter of fiscal 2019 using the retrospective method. The adoption of these guidance required restating fiscal years 2018 and 2017 results as presented above.
A-2 20172020 Proxy Statement
PROPOSED AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
APPLIED MATERIALS, INC.
EMPLOYEE STOCK INCENTIVE PLAN(as amended to March 10, 2009)
(March 9, 2017 AmendmentApplied Materials, Inc., a corporation organized and Restatement)existing under the laws of the State of Delaware, hereby certifies as follows:
| (1) | The original certificate of incorporation was filed with the Secretary of State of the State of Delaware on March 18, 1987. |
| (2) | This Amended and Restated Certificate of Incorporation was duly adopted by the board of directors of the corporation and by the stockholders of the Corporation in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”). |
| (3) | Pursuant to Sections 242 and 245 of the DGCL, the text of the Certificate of Incorporation of Applied Materials, Inc. is hereby amended and restated in its entirety to read as follows: |
FIRST: The name of the corporation is Applied Materials, Inc.
SECOND: The address of the corporation’s registered office in the State of Delaware is CorporationTrust Center, 1209 Orange StreetService Company, 251 Little Falls Drive, in the City of Wilmington,Delaware, County of New Castle, 19808-1674. The name of its registered agent at that address isThe CorporationTrustService Company.
SECTION 1THIRD: Reserved
BACKGROUND AND PURPOSETHIRD: The name and mailing address of the incorporator of the corporation is: Donald A.
1.1BackgroundSlichter
Orrick, Herrington & Sutcliffe 55
Almaden Boulevard
San Jose, California 95113
FOURTH: The nature of the business or purposes to be conducted or promoted by the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FIFTH: 1. The corporation is authorized to issue two classes of shares to be designated, respectively, “Preferred Stock” and Effective Date“Common Stock.” The number of shares of Preferred Stock authorized to be issued is One Million (1,000,000) and the number of shares of Common Stock authorized to be issued is Two Billion Five Hundred Million (2,500,000,000). The Plan permitsstock, whether Preferred Stock or Common Stock, shall have a par value of $.01 per share.
2. The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized, by filing a certificate pursuant to the grantapplicable law of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Units, Performance Shares,the State of Delaware, to establish from time to time the number of shares to be included in each such series, and Restricted Stock Units. The Planto fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to the fixing or alteration of the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of Preferred Stock; and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is effective asexpressly authorized to adopt, amend and repeal from time to time any or all of March 9, 2017 (the “the bylaws of the corporation, including bylaw amendments increasing or reducing the authorized number of directors.
SEVENTH: No action shall be taken by the stockholders except at an annual or special meeting of stockholders. No action shall be taken by stockholders by written consent.
Effective Date”), subjectSEVENTH: 1. Action by Written Consent. Subject to approval by an affirmative votethe rights of the holders of a majorityany series of Preferred Stock or any other series or class of stock as set forth in this Amended and Restated Certificate of Incorporation to elect directors under specificcircumstances, all actions required or permitted to be taken by the stockholders of the Shares that are present in person or by proxy andcorporation entitled to vote at the 2017 Annual Meeting of Stockholders of the Company.
1.2Purpose of the Plan. The Plan is intended to attract, motivate, and retain (a) employees of the Company and its Affiliates, (b) consultants who provide significant services to the Company and its Affiliates, and (c) directors of the Company who are employees of neither the Company nor any Affiliate. The Plan also is designed to: (1) encourage stock ownership by Participants, thereby aligning their interests with those of the Company’s stockholders, and (2) permit the payment of compensation that qualifies as “performance-based compensation” under Section 162(m) of the Code.
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 “1933 Act” means the Securities Act of 1933, as amended. Reference to a specific section of the 1933 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 “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.
2.3 “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.
2.4 “Annual Meeting” means the Company’s annual meeting of stockholders.
2.5 “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Company’s common stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
2.6 “Award” means, individually or collectively, a grant under the Plan of Incentive Stock Options, Nonqualified Stock Options, SARs, Restricted Stock Awards, Restricted Stock Units, Performance Units or Performance Shares.
2.7 “Award Agreement” means the written agreement (which may be in electronic form) setting forth the terms and conditions applicable to each Award granted under the Plan.
2.8 “Board” or “Board of Directors” means the Board of Directors of the Company.
2.9 “Cause” means the occurrence of any of the following: (a) an act of personal dishonesty taken by the Participant in connection with his or her responsibilities as an employee and intended to result in his or her substantial personal enrichment; (b) the Participant being convicted of, or pleading no contest or guilty to, (x) a misdemeanor that the Company reasonably believes has had or will have a material detrimental effect on the Company; or (y) any felony; (c) a willful act by the Participant that constitutes gross misconduct; (d) the Participant’s willful and continued failure to perform the reasonable duties and responsibilities of his or her position after there has been delivered to the Participant a written demand for performance from theannual
Applied Materials, Inc. B-1
Companyor special meeting of stockholders of the corporation may be effected without a meeting by the written consent of suchstockholders pursuant to Section 228 of the General corporation Law of the State of Delaware; provided that describesno such action maybe effected except in accordance with the basisprovisions of this Article SEVENTH, the bylaws of the corporation and applicable law.
2. Request for Record Date. The record date for determining such stockholders entitled to consent to corporate action in writing without a meeting shall be as fixed by the Company’s beliefBoard of Directors or as otherwise established under this Article SEVENTH. Any stockholder of the corporation seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written request addressed to the secretary of this corporation and delivered by certified mail to the corporation’s principal executive offices and signed by one or more stockholders of record (“Record Stockholders”) of at least twenty percent (20%) of the outstanding shares of Common Stock of the corporation (the “Requisite Percentage”) (which shares are determined to be “Owned” by such Record Stockholders in accordance with Section 2.3 of the bylaws of the corporation, as may be amended from time to time) at the time such request is delivered that shall not revoke such request and that shall continue to be Record Stockholders of not less than the ParticipantRequisite Percentage through the date of delivery of consents at the time such request is delivered to request that a record date be fixed for such purpose. The written request must contain the information set forth in paragraph3 of this Article SEVENTH. Following delivery of the request, the Board of Directors shall, by the later of (i) twenty (20) days after delivery of a valid request to set a record date and (ii) five (5) days after delivery of any information required by the corporation to determine the validity of the request for a record date or to determine whether the action to which the request relates may be effected by written consent under paragraph 4 of this Article SEVENTH, determine the validity of the request and whether the request relates to an action that may be taken by written consent and, if appropriate, adopt a resolution fixing the record date for such purpose. The record date for such purpose shall be no more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors and shall not precede the date such resolution is adopted. If a request has not substantially performed hisbeen determined to be valid, to have been duly delivered to the secretary of the corporation and to relate to an action that may be effected by written consent pursuant to this Article SEVENTH or her duties and/if no such determination shall have been made by the date required by this Article SEVENTH, and in either event no record date has been fixed by the Board of Directors, the record date shall be the first date on which a signed written consent relating to the action taken or responsibilities andproposed to be taken by written consent is delivered to this corporation in the Participant has not correctedmanner described in paragraph 7 of this Article SEVENTH; provided that, if prior action by the Board of Directors is required under the provisions of Delaware law, the record date shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such failure within 30 daysprior action.
3. Request Requirements. Any request required by paragraph 2 of this Article SEVENTH (a) must include documentary evidence of Ownership of the Requisite Percentage as of the date of such written demand;request to the secretary of the corporation; provided, however, that if the Record Stockholders making the request are not the beneficial owners of the shares representing the Requisite Percentage, then to be valid, the request must also include documentary evidence (or, if not simultaneously provided with the request, such documentary evidence must be delivered to the secretary of the corporation within ten (10) days after the date on which the request is delivered to the secretary of the corporation) that the beneficial owners on whose behalf the request is made beneficially Own the Requisite Percentage as of the date on which such request is delivered to the secretary of the corporation, (b) must contain an agreement to solicit consents in accordance with this Article SEVENTH, (c) must provide a statement of the specific purpose or (e)purposes of the proposal to be taken by written consent of stockholders, the matters proposed to be acted on the written consent of the stockholders and the reasons for conducting such business through a written consent of stockholders and any material violationinterest in such business of each proposing Record Stockholder, and (d) must contain (i) such information and representations required by Section 2.5 of this corporation’s bylaws as though such requesting Record Stockholders are intending to nominate a candidate for director or propose other business to be brought before an annual meeting of stockholders, as applicable, and (ii) the text of the proposed action to be taken (including the text of any resolutions proposed to be adopted by written consent of stockholders and the language of any proposed amendment to the bylaws of this corporation). The corporation may require the Record Stockholders submitting such request to furnish such other information as may be requested by the Participantcorporation to determine whether the request relates to an action that may be effected by written consent under paragraph 4 of this Article SEVENTH. In connection with an action or actions proposed to be taken by written consent in accordance with this Article SEVENTH, the Record Stockholders seeking such action or actions shall further update andsupplement the information previously provided to the corporation in connection therewith, if necessary, as required by Section 2.5 of the corporation’s bylaws. Any Record Stockholder delivering a request required by paragraph 2 of this Article SEVENTH may revoke his, her or its request at any time by written revocation delivered by certified mail to the secretary of the corporation at the corporation’s principal executive offices. Any disposition by a Record Stockholder delivering a request required by paragraph 2 of this Article SEVENTH of any written, material Company employment policy or standardshares of conduct.
2.10 “Change of Control” means the occurrence of any of the following events:
(a) A change in the ownership of the Company that occurs on the date that any one person, or more than one person acting as a group (as defined under U.S. Department of Treasury Regulation (“Treasury Regulation”) § 1.409A-3(i)(5)(v)(B)) (“Person”), acquires ownership of thecommon stock of the Company that, together withcorporation (or of beneficial ownership of such shares by the stock held bybeneficial owner on whose behalf the request was made) after the date of such Person, constitutes more than fifty percent (50%)request shall be deemed a revocation of the total voting powerrequest with respect to such shares, and each such Record Stockholder and the applicable beneficial ownershall certify to the secretary of the stock ofcorporation on the Company. For purposes of this subsection (a),day prior to the acquisition of additional stockrecord date set for the action by any one Person, who is consideredwritten consent as to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered an additional Change of Control; or
(b) A change
B-2 2020 Proxy Statement
APPENDIX B
whether any such disposition has occurred. If the unrevoked requests represent in the effective controlaggregate less than the Requisite Percentage, the Board of Directors, in its discretion, may cancel the Company that occurs onaction by written consent.
4. Actions Which May Be Taken by Written Consent. Stockholders are not entitled to act by written consent if in the date that a majority of membersgood faith determination of the Board is replaced during any twelve (12) month period by directors whose appointmentof Directors (a) the request for a record date for such action does not comply with this Article SEVENTH or electionthe bylaws of the corporation, (b) the action relates to an item of business that is not endorseda proper subject for stockholder action under applicable law, (c) the request for a record date for such action is received by a majoritythe secretary of corporation during the members of the Boardperiod commencing ninety (90) days prior to the first anniversary of the date of the appointment or election; for purposes of this subsection (b), once any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered an additional Change of Control; or
(c) A change in the ownership of a “substantial portion of the Company’s assets”, as defined herein. For this purpose, a “substantial portion of the Company’s assets” shall mean assets of the Company having a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such change in ownership. For purposes of this subsection (c), a change in ownership of a substantial portion of the Company’s assets occurs on the date that any Person acquires (or has acquired during the twelve (12) month periodpreceding annual meeting and ending on the date of the most recent acquisition by such person or persons) assets from the Company that constitute a “substantial portionfinal adjournment of the Company’s assets.” For purposesnext annual meeting of this subsection (c), the following will not constitute a changestockholders, (d) an identical or substantially similar item of business, as determined in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlledgood faith by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (c). For purposes of this subsection (c), gross fair market value means the value of the assets determined without regard to any liabilities associated with such assets.
For purposes of this Section 2.10, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change of Control unless the transaction qualifies as a change of control event within the meaning of Section 409A.
Further and for the avoidance of doubt, a transaction will not constitute a Change of Control if its primary purpose is to: (1) change the state of the Company’s incorporation, or (2) create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
2.11 “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.
2.12 “Committee” means the committee appointed by the Board (pursuant to Section 3.1) to administer the Plan.
2.13 “Company” means Applied Materials, Inc., a Delaware corporation, or any successor thereto.
2.14 “Consultant” means any consultant, independent contractor, or other person who provides significant services to the Company or its Affiliates, but who is not an Employee or a Director.
2.15 “Determination Date” means the latest possible date that will not jeopardize the qualification of an Award granted under the Plan as “performance-based compensation” under Section 162(m) of the Code.
B-2 2017 Proxy Statement
APPENDIX B
2.16 “Director” means any individual who is a member of the Board of Directors of the Company.corporation in its sole and absolute discretion, which determination shall be conclusive and binding on the corporation and its stockholders (a “Similar Item”), was presented at a meeting of stockholders held not more than ninety (90) days before the request for a record date for such action is received by the secretary of the corporation, (e) a Similar Item is included in the corporation’s notice of meeting as an item of business to be brought before an annual or special stockholders meeting that has been called but not yet held or that is called to be held within ninety (90) days after the request for a record date for such action is received by the secretary of the corporation, or (f) the request for a record date for such action was made in a manner that involved a violation of Regulation 14A under the Securities Exchange Act of 1934, as amended, or other applicable law. For purposes of this paragraph 4 of Article SEVENTH, the nomination, election or removal of directors shall be deemed to be a Similar Item with respect to all actions involving the nomination, election or removal of directors, changing the size of the board of directors and filling of vacancies and/or newly created directorships resulting from any increase in the authorized number of directors.
2.17 “Disability” means a permanent and total disability within5. Manner of Consent Solicitation. Stockholders may take action by written consent only if consents are solicited by the meaningstockholder or group of Section 22(e)(3)stockholders seeking to take action by written consent of stockholders from all Record Stockholders of capital stock of this corporation entitled to vote on the Code. In the case of Awards other than Incentive Stock Options, the Committee, in its discretion, may determine that a different definition of Disability shall applymatter and in accordance with standards adopted by the Committee from time to time.applicable law.
2.18 “Employee6. Date of Consent. Every written consent purporting to take or authorize the taking of corporate action (each such written consent is referred to in this paragraph and in paragraph 7” means any employeeas a “Consent”) must bear the date of signature of each Record Stockholder who signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within 60 days of the Companyearliest dated Consent delivered in the manner required by paragraph 7 of this Article SEVENTH and not later than 120 days after the record date, consents signed by a sufficient number of Record Stockholders to take such action are so delivered to this corporation.
7. Delivery of Consents. No Consents may be dated or delivered to this corporation or its registered office in the State of an Affiliate, whether such employee is so employed atDelaware until 60 days after the timecorporation has received a valid request to set a record date. Consents must be delivered to this corporation by delivery to its registered office in the Plan is adoptedState of Delaware or becomes so employed subsequent toits principal executive offices. Delivery must be made by hand or by certified or registered mail, return receipt requested. In the adoptionevent of the Plan. Neither service as a Director nor paymentdelivery to this corporation of a director’s fee byConsents, the Company will constitute “employment” by the Company.
2.19 “Exchange Program” means a program under which outstanding Awards are amended to provide for a lower Exercise Price or surrendered or cancelled in exchange for (a) Awards with a lower Exercise Price, (b) a different typesecretary of Award, (c) cash, or (d) a combination of (a), (b) and/or (c). Notwithstanding the preceding, the term Exchange Program does not include any (i) action described in Sections 4.3 or 4.5, nor (ii) transfer or other disposition permitted under Sections 13.7 and 13.8. The implementation of any Exchange Program is subject to stockholder approval as required under Section 3.2.
2.20 “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option or SAR.
2.21 “Fair Market Value” means the closing per share selling price for Shares on the relevant date, or if there were no sales on such date, the average of the closing sale prices on the immediately following and preceding trading dates, in either case as reported by the NASDAQ Global Select Market/National Marketthis corporation, or such other source selected inofficer of this corporation as the discretionBoard of Directors may designate, shall provide for the safe-keeping of such Consents and any related revocations and shall promptly conduct such ministerial review of the Committee (or its delegate). Notwithstandingsufficiency of all Consents and any related revocations and of the preceding, for federal, state,validity of the action to be taken by written consent as the secretary of this corporation, or such other officer of this corporation as the Board of Directors may designate, as the case may be, deems necessary or appropriate, including, without limitation, whether the Record Stockholders of a number of shares having the requisite voting power to authorize or take the action specified in Consents have given consent; provided, however, that if the action to which the Consents relate is the election or removal of one or more members of the Board of Directors, the secretary of this corporation, or such other officer of this corporation as the Board of Directors may designate, as the case may be, shall promptly designate two persons, who shall not be members of the Board of Directors, to serve as inspectors (“Inspectors”) with respect to such Consent, and local income tax reporting purposes, fair market valuesuch Inspectors shall discharge the functions of the secretary of this corporation, or such other officer of this corporation as the Board of Directors may designate, as the case may be, under this Article SEVENTH. If after such investigation the secretary of this corporation, such other officer of this corporation as the Board of Directors may designate or the Inspectors, as the case may be, shall determine that the action purported to have been taken is duly authorized by the Consents, that fact shall be determinedcertified on the records of this corporation kept for the purpose of recording the proceedings of meetings of stockholders and the Consents shall be filed in such records. In conducting the investigation required by this section, the Committee (or its delegate)secretary of this corporation, such other officer of this corporation as the Board of Directors may designate or the Inspectors, as the case may be, may, at the expense of this corporation, retain special legal counsel and any other necessary or appropriate professional advisors as such person or persons may deem necessary or appropriate and, to the fullest extent permitted by law, shall be fully protected in relying in good faith upon the opinion of such counsel or advisors.
8. Effectiveness of Consent. If the Board of Directors shall determine that any request to fix a record date or to take stockholder action by written consent was not properly made in accordance with, uniform and nondiscriminatory standards adopted by it from time to time.
2.22 “Fiscal Quarter” means a fiscal quarter within a Fiscal Year of the Company.
2.23 “Fiscal Year” means the fiscal year of the Company.
2.24 “Good Reason” means without the Participant’s written consent: (a) a material reduction in the Participant’s level of base salary, unless such reduction is no greater (in terms of percentage) than base salary reductions imposed on all or substantially all of the Company’s employees; or (b) a material relocation of the Participant’s principal place of employment by at least 50 miles. In order for a termination to be for “Good Reason,” the Participant must (x) provide notice to the Company of the Good Reason condition within 90 days of the initial existence of the condition, (y) give the Company at least 30 days to remedy such condition, and (z) actually terminate the Participant’s employment within six months following the initial existence of the condition.
2.25 “Grant Date” means, with respectrelates to an Award, the date on which the Committee makes the determination granting such Award, or such later date as is determined by the Committee at the time it approves the grant. With respect to an Award granted under the automatic grant provisions of Section 12, “Grant Date” means the applicable date of grant specified in Section 12. The Grant Date of an Award shallaction that may not be earlier thaneffected by writtenconsent pursuant to, this Article SEVENTH, or the date the Award is approved by the Committee.
2.26 “Incentive Stock Option” means an OptionRecord Stockholder or Record Stockholders seeking to purchase Shares that by its terms qualifies as and is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
2.27 “Nonemployee Directortake such action do” means a Director who is not an employee of the Company or any Affiliate.
2.28 “Nonqualified Stock Option” means an option to purchase Shares that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
2.29 “Option” means an Incentive Stock Option or a Nonqualified Stock Option.
2.30 “Participant” means the holder of an outstanding Award.
2.31 “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
Applied Materials, Inc. B-3
Awardnot otherwise comply with this Article SEVENTH, then the Board of Directors shall provide fornot be required to fix a targeted levelrecord date and any such purported action by written consent shallbe null and void to the fullest extent permitted by applicable law. No action bywritten consent without a meeting shall be effective until such date as the secretary of this corporation, such other officer of this corporation as the Board of Directors may designate, or levelsthe Inspectors, as applicable, certify to this corporation that the Consents delivered to this corporation in accordance with paragraph 7 of achievement using onethis Article SEVENTH, represent at least the minimum number of votes that would be necessary to take the corporate action at a meeting at which all shares entitled to vote thereon were present and voted, in accordance with Delaware law and this Amended and Restated Certificate of Incorporation.
9. Challenge to Validity of Consent. Nothing contained in this Article SEVENTH shall in any way be construed to suggest or moreimply that the Board of Directors of this corporation or any stockholder shall not be entitled to contest the validity of any Consent or related revocations, whether before or after such certification by the secretary of this corporation, such other officer of this corporation as the Board of Directors may designate or the Inspectors, as the case may be, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
10. Board-solicited Stockholder Action by Written Consent. Notwithstanding anything to the contrary set forth above, (x) none of the following measures: (a) cash flow, (b) customer satisfaction, (c) earnings per share, (d) margin, (e) market share, (f) operating profit, (g) product developmentforegoing provisions of this Article SEVENTH shall apply to any solicitation of stockholder action by written consent by or at the direction of the Board of Directors and quality, (h) profit,(y) the Board of Directors shall be entitled to solicit stockholder action by written consent in accordance with applicable law.
EIGHTH: Elections of directors need not be by written ballot unless the bylaws of the corporation shall so provide.
NINTH: A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) return on capital, (j) return on equity, (k) revenuefor any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
TENTH: 1. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent, of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and (l) total shareholder return. Eachheld harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such financial measureperson in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided below, be based on U.S. GAAP principles and, with respect to each non-financial measure, pre-established objective criteria. Any Performance Goal used may be measured (1) in absolute terms, (2) in combination with another Performance Goal or Goals (for example, but not by way of limitation, as a ratio or matrix), (3) in relative terms (including, but not limited to, as compared to results for other periods of time, and/or against another company, companies or an index or indices), (4) on a per-share or per-capita basis, (5) againstparagraph 2 hereof, the performance of the Company as a whole or a specific business unit(s), business segment(s) or product(s) of the Company, and/or (6) on a pre-tax or after-tax basis. Prior to the Determination Date, the Committee, in its discretion, will determine whethercorporation shall indemnify any significant element(s) or item(s) will be included in or excluded from the calculation of any Performance Goal with respect to any Participants (for example, but not by way of limitation, the effect of mergers and acquisitions). As determined in the discretion of the Committee prior to the Determination Date, achievement of Performance Goals for a particular Award may be calculated in accordance with the Company’s financial statements, prepared in accordance with generally accepted accounting principles, or as adjusted for certain costs, expenses, gains and losses to provide non-GAAP measures of operating results.
2.32 “Performance Period” means any Fiscal Year (or period of four (4) consecutive Fiscal Quarters) or such other period longer than a Fiscal Year or, with respect to any person at the time that they first become eligible to be a Participant in the Plan, a period of shorter than a Fiscal Year, as determined by the Committee in its sole discretion.
2.33 “Performance Share” means an Award granted to a Participant pursuant to Section 9.
2.34 “Performance Unit” means an Award granted to a Participant pursuant to Section 8.
2.35 “Plan” means the Applied Materials, Inc. Employee Stock Incentive Plan, as set forth in this instrument and as hereafter amended from time to time. The Plan formerly was named the Applied Materials, Inc. 1995 Equity Incentive Plan.
2.36 “Restricted Stock” means restricted Shares granted pursuant to a Restricted Stock Award.
2.37 “Restricted Stock Award” means an Award granted to a Participant pursuant to Section 7.
2.38 “Restricted Stock Unit” means an Award granted to a Participant pursuant to Section 10.
2.39 “Retirement” means, in the case of an Employee, a Termination of Service after: (a) obtaining at least sixty (60) years of age and whose age plus Years of Service with the Company is not less than seventy (70), or (b) obtaining at least sixty-five (65) years of age. With respect to a Consultant, no Termination of Service shall be deemed to be on account of “Retirement.”
2.40 “Rule 16b-3” means Rule 16b-3 promulgated under the 1934 Act, and any future regulation amending, supplementing or superseding such regulation.
2.41 “Section 16(b)” means Section 16(b) of the 1934 Act.
2.42 “Section 16 Person” means an individual who, with respect to Shares, is subject to Section 16 of the 1934 Act and the rules and regulations promulgated thereunder.
2.43 “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended and the regulations and guidance thereunder, as they may be amended or modified from time to time.
2.44 “Shares” means the shares of common stock of the Company.
2.45 “Stock Appreciation Right” or “SAR” means an Award, granted alone orseeking indemnification in connection with a related Option, that pursuantproceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to Section 6indemnification conferred in this Article shall be a contract right.
2. If a claim under paragraph 1 of this Article is designated as an SAR.
2.46 “Subsidiary” means any corporationnot paid in an unbroken chain of corporations beginning with the Company asfull by the corporation within 30 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the topcorporation to recover the unpaid amount of the chain, but onlyclaim and, if eachsuccessful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed.
3. The right to indemnification conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of theAmended and Restated Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
4. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporations belowcorporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Company (other thancorporation would have the lastpower to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.
ELEVENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in thisAmended and Restated Certificate of Incorporation, in the unbroken chain) then owns stock possessing fifty percent (50%)manner now or more of the total combined voting power ofhereafter prescribed by statute, and all classes of stock in one of the other corporations in such chain, or if Section 424(f) of the Code is modified after the Effective Date, a “subsidiary corporation” as defined in Section 424(f) of the Code.rights conferred on
B-4 20172020 Proxy Statement
APPENDIX B
2.47 “stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in thisTax Obligations” means taxAmended and social insurance liability obligations and requirements in connection with the Awards,Restated Certificate of Incorporation, including without limitation, (a) all federal, state, and local taxes (including the Participant’s Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or the employing Affiliate, (b) the Participant’s and, to the extent required by the Company (or Affiliate), the Company’s (or Affiliate’s) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of an Award or sale of Shares, and (c) any other Company (or Affiliate) taxes the responsibility for which the Participant has, or has agreed to bear, with respect to such Award (or exercise thereof or issuance of Shares thereunder).
2.48 “Termination of Service” means (a) in the case of an Employee, a cessation of the employee-employer relationship between the Employee and the Company or an Affiliate for any reason, including, butthis Article ELEVENTH, may 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; (b) in the case of a Consultant, a cessation of the service relationship between the 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; and (c) in the case of a Nonemployee Director, a cessation of the Director’s service on the Board for any reason, including, but not by way of limitation, a termination by resignation, death, Disability or non-reelection to the Board. The Committee, in its discretion, may specify in an Award Agreement whether or not a Termination of Service will be deemed to occur when a Participant changes capacities (for example, when an Employee ceases to be such but immediately thereafter becomes a Consultant).
2.49 “Years of Service” means, in the case of an Employee, 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 twelve (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. Withrepealed in any respect to a Nonemployee Director, “Years of Service” means the number of years of continuous service on the Board of Directors.
SECTION 3
ADMINISTRATION
3.1The Committee. The Plan shall be administeredunless such amendment or repeal is approved by the Committee. The Committee shall consistaffirmative vote of not less than two (2) Directors who shall be appointed from time to time by, and shall serve at the pleasurea majority of the Boardtotal voting power of Directors. The Committee shall be comprised solelyall outstanding shares of Directors who are (a) “outside directors” under Section 162(m), and (b) “non-employee directors” under Rule 16b-3. Until and unless determined otherwise by the Board, the Committee shall be the Human Resources & Compensation Committee of the Board.stock in this corporation entitled to vote thereon.
3.2Authority ofTHE UNDERSIGNED, being 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, Consultants and Directors shall be granted Awards, (b) prescribe the terms and conditions of the Awards, (c) interpret the Plan and the Awards, (d) adopt such procedures and subplans as are necessary or appropriateincorporator hereinbefore named, for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatment under applicable foreign laws, (e) adopt rules forforming a corporation to do business both within and without the administration, interpretationState of Delaware, and applicationin pursuance of the Plan as are consistent therewith,Delaware Corporation Law, does hereby make and (f) interpret, amend or revoke any such rules. Notwithstanding the preceding, the Committee shall not implement an Exchange Program without the approval of the holders of a majority of the Shares that are present in person or by proxy and entitled to vote at any Annual or Special Meeting of Stockholders of the Company.file this Certificate.
3.3Minimum Vesting Periods. Notwithstanding any contrary provision of the Plan (but subject to the following sentence), the vesting period for an Award shall expire in full no earlier than (a) the third (3rd) annual anniversary of the grant date if the vesting period expires solely as the result of continued employment or service, and (b) the first (1st) annual anniversary of the grant date if expiration of the vesting period is conditioned on achievement of performance objectives and does not expire solely as the result of continued employment or service. The preceding minimum vesting periods shall not apply with respect to Awards to Nonemployee Directors under Section 12, or to an Award if determined by the Committee (in its discretion): (a) due to death, Disability, Retirement, or major capital change, (b) with respect to Options and SARs, or (d) with respect to Awards other than Options and SARs covering, in the aggregate, no more than five percent (5%) of the shares reserved for issuance under the Plan./s/ Donald A. Slichter
3.4Donald. A. Slichter
DelegationIN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation of Applied Materials, Inc. has been executed by the Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or any partduly authorized officer this [ ] day of its authority and powers under the Plan to one or more Directors or officers of the Company,[ ], 20[ ].
| Applied Materials, Inc. | ||
| By: | ||
| �� | Name: | |
| Title | ||
Applied Materials, Inc. B-5
except that the Committee may not delegate all or any part of its authority under the Plan with respect to Awards granted to any individual who is subject to Section 16(b). Notwithstanding the foregoing, with respect to Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee may not delegate its authority and powers with respect to such Awards if such delegation would cause the Awards to fail to so qualify. To the extent of any delegation by the Committee, references to the Committee in this Plan and any Award Agreement shall be deemed also to include reference to the applicable delegate(s).
3.5Decisions Binding. All interpretations, 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
4.1Number of Shares. Subject to adjustment as provided in Section 4.3, the total number of Shares available issuance under the Plan shall not exceed the sum of (a) 125,000,000, plus (b) the 367,200,000 that were reserved for issuance prior to March 6, 2012. Shares granted under the Plan may be either authorized but unissued Shares or treasury Shares.
4.2Lapsed Awards. If an Award expires without having been exercised in full, or, with respect to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited to or repurchased by the Company, the unpurchased Shares (or for Awards other than Options and Stock Appreciation Rights, the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). Upon exercise of a Stock Appreciation Right settled in Shares, the gross number of Shares covered by the portion of the Award so exercised will cease to be available under the Plan. Shares that have been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if unvested Shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares used to pay the exercise or purchase price of an Award and/or to satisfy the tax withholding obligations related to an Award will not become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not reduce the number of Shares available for issuance under the Plan. Notwithstanding anything in the Plan or any Award Agreement to the contrary, Shares covered by Awards that are surrendered or cancelled under any Exchange Program will not again be available for grant under the Plan. Notwithstanding the foregoing provisions of this Section 4.2, subject to adjustment provided in Section 4.3, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 4.1, plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan under this Section 4.2.
4.3Adjustments in Awards and Authorized Shares. In the event that there occurs any extraordinary dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares such that an adjustment is determined by the Committee (in its sole discretion) to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust the number and class of Shares which may be delivered under the Plan, the number and class of Shares which may be added annually to the Shares reserved under the Plan, the number, class, and price of Shares subject to outstanding Awards or any other affected terms of outstanding Awards, and the numerical limits of Sections 5.1, 6.1, 7.1, 8.1, 9.1, and 10.1. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.
4.4Full Value Awards. Grants of Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units under the Plan shall count against the numerical limits in Section 4.1 of the Plan as two Shares for every one Share subject thereto. If Shares acquired pursuant to Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units granted on or after March 6, 2012 are forfeited to the Company and otherwise would return to the Plan pursuant to Section 4.2 of the Plan, two times the number of Shares so forfeited shall become available for issuance. For purposes of clarification, if Shares acquired pursuant to any Awards granted prior to March 6, 2012 are forfeited to the Company and otherwise would return to the Plan pursuant to Section 4.2 of the Plan, one times the number of Shares so forfeited shall become available for issuance.
B-6 2017 Proxy Statement
APPENDIX B
4.5Change of Control. In
DIRECTIONS TO APPLIED MATERIALS BOWERS CAMPUS3050 Bowers Avenue, Building 1, Santa Clara, California 95054 DIRECTIONS FROM HIGHWAY 101 Exit onto Bowers Avenue / Great America Parkway Proceed to Bowers Avenue Cross Scott Boulevard Applied Materials Bowers Campus is on your right Turn RIGHT into the event of a Change of Control, each outstanding Award will be assumed or an equivalent option or right be substituted by2nd driveway between Buildings 1 and 2 Proceed between Buildings 1 and 2 to the successor corporation or a parent or Subsidiarycovered parking lot The entrance to Building 1 is located to the left of the successor corporation.parking lot DIRECTIONS FROM INTERSTATE 280 Exit onto Lawrence Expressway / Stevens Creek BoulevardProceed to Lawrence Expressway North. Continue for approximately 4 milesTurn RIGHT onto Arques Avenue Proceed on Arques Avenue, which becomes Scott Boulevard Turn RIGHT onto Bowers Aveune Applied Materials Bowers Campus is on your right Turn RIGHT into the 2nd driveway between Buildings 1 and 2Proceed between Buildings 1 and 2 to the covered parking lot The Committee will not be requiredentrance to treat all Awards similarly inBuilding 1 is located to the transaction.
4.5.1Non-Assumption of Awards. If, in connection with a Change of Control, the successor corporation (or a parent or Subsidiaryleft of the successor corporation) does not agree to assume or substitute outstanding Awards that were granted on or after March 6, 2012, then, with respect to such Awards and no later than immediately prior to the Change of Control: (a) each such Award that is an Option or Stock Appreciation Rights will terminate upon the Change of Control provided that either (1) before the Change of Control, the Committee notifies the Participant in writing or electronically that the Option or SAR will be exercisable for a period of time determined by the Committee in its sole discretion, or (2) promptly after the Change of Control, the Participant receives a cash payment equal to the Fair Market Value (calculated at the time of the Change of Control) of the Shares covered by the Option or SAR, minus the Exercise Price of the Shares covered by the Option or SAR and (b) with respect to all other such Awards that are not Options or SARs, the Company will have the right to terminate such Award upon the Change in Control, in which case the Participant holding each such Award will have the right to receive promptly after the Change of Control a cash payment equal to the Fair Market Value (calculated at the time of the Change of Control) of the Shares covered by the Award, provided that all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels, and such payment must be made in compliance with Section 409A of the Code and all other terms and conditions of the Award must be met.parking lot
4.5.2Assumption. For the purposes of this Section 4.5, an Award will be considered assumed if, following the Change of Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change of Control, the consideration (whether stock, cash, or other securities or property) received in the Change of Control by holders of Shares held on the effective date of the transaction (and if holders were offered a choice of consideration, either the type of consideration chosen by the greatest number of holders of outstanding Shares or, at the Committee’s discretion, a mix of consideration based on the consideration paid to the holders in the Change of Control transaction); provided, however, that if such consideration received in the Change of Control is not solely common stock of the successor corporation or its parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or SAR or upon the payout of any other Award, for each Share subject to such Award, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Shares in the Change of Control. Notwithstanding anything in this Section 4.5 to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent in a manner that could reasonably be expected to have a material impact on the Participant; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change of Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
SECTION 5
STOCK OPTIONS
5.1Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Employees, Directors 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 (and/or SARs) covering more than a total of 4,500,000 Shares. Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted Options (and/or SARs) to purchase up to a total of an additional 4,500,000 Shares. The Committee may grant Incentive Stock Options, Nonqualified Stock Options, or a combination thereof.
5.2Award 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 covered by the Option, any conditions to exercise 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.
5.3Exercise 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.
Applied Materials, Inc. B-7
5.3.1Nonqualified Stock Options. The Exercise Price of each Nonqualified Stock option shall be determined by the Committee in its discretion but shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2Incentive 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.
5.3.3Substitute Options. Notwithstanding the other provisions of this Section 5.3, in the event that the Company or a Subsidiary 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, Nonemployee Directors 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.
5.4Expiration of Options.
5.4.1Expiration 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 Award Agreement; or
(b) The expiration of seven (7) years from the Grant Date.
5.4.2Death of Participant. Notwithstanding Section 5.4.1, if a Participant 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. With respect to extensions that were not included in the original terms of the Option but were provided by the Committee after the Grant Date, if at the time of any such extension, the Exercise Price of the Option is less than the Fair Market Value of a Share, the extension shall, unless otherwise determined by the Committee, be limited to the earlier of (a) the maximum term of the Option as set by its original terms, or (b) ten (10) years from the Grant Date.
5.4.3Committee Discretion. Subject to the seven (7) and ten (10)-year 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). With respect to the Committee’s authority in Section 5.4.3(b), if, at the time of any such extension, the Exercise Price of the Option is less than the Fair Market Value of a Share, the extension shall, unless otherwise determined by the Committee, be limited to the earlier of (1) the maximum term of the Option as set by its originals terms, or (2) ten (10) years from the Grant Date. Unless otherwise determined by the Committee, any extension of the term of an Option pursuant to this Section 5.4.3 shall comply with Section 409A to the extent applicable.
5.5Exercisability 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. An Option may not be exercised for a fraction of a Share. After an Option is granted, the Committee, in its sole discretion, may accelerate the exercisability of the Option.
5.6Payment. In order to exercise an Option, the Participant shall give notice in the form specified by the Company and follow such procedures as the Company (or its designee) may specify from time to time. Exercise of an Option also requires that the Participant make arrangements satisfactory to the Company for full payment of the Exercise Price for the Shares. All exercise notices shall be given in the form and manner specified by the Company from time to time.
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 notification of exercise satisfactory to the Company 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
B-8 2017 Proxy Statement
APPENDIX B
such Shares. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 4.3 of the Plan.
5.7Restrictions 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.
5.8Certain Additional Provisions for Incentive Stock Options.
5.8.1Exercisability. 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.
5.8.2Termination 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/or (b) the Award Agreement or the Committee permits later exercise (in which case the Option instead may be deemed to be a Nonqualified Stock Option). No Incentive Stock Option may be exercised more than one (1) year after the Participant’s Termination of Service on account of Disability, unless (a) the Participant dies during such one-year period, and/or (b) the Award Agreement or the Committee permit later exercise (in which case the option instead may be deemed to be a Nonqualified Stock Option).
5.8.3Employees Only. Incentive Stock Options may be granted only to persons who are employees of the Company or a Subsidiary on the Grant Date.
5.8.4Expiration. 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.
5.8.5Leave of Absence. For purposes of Incentive Stock Options, no leave of absence may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave, any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonqualified Stock Option.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to Employees, Directors and Consultants at any time and from time to time as shall be determined by the Committee, in its sole discretion.
6.1.1Number 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 (and/or Options) covering more than a total of 4,500,000 Shares. Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted SARs (and/or Options) covering up to a total of an additional 4,500,000 Shares.
6.1.2Exercise 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. The Exercise Price of each SAR shall be determined by the Committee in its discretion but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date. Notwithstanding the foregoing, SARs may be granted with a per Share Exercise Price of less than one hundred percent (100%) of the Fair Market Value per Share on the Grant Date pursuant to the rules of Section 5.3.3, which also shall apply to SARs.
Applied Materials, Inc. B-9
6.2SAR 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.
6.3Expiration of SARs. An SAR granted under the Plan shall expire upon the date determined by the Committee, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also shall apply to SARs.
6.4Payment 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.
No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued under the SAR, except as provided in Section 4.3 of the Plan.
SECTION 7
RESTRICTED STOCK AWARDS
7.1Grant of Restricted Stock Awards. 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, Directors and Consultants 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 a total of 1,500,000 Shares of Restricted Stock (and/or Performance Shares or Restricted Stock Units). Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted up to a total of an additional 1,500,000 Shares of Restricted Stock (and/or Performance Shares or Restricted Stock Units).
7.2Restricted Stock Award Agreement. Each Restricted Stock Award shall be evidenced by an Award Agreement that shall specify any vesting conditions, the number of Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless the Committee (or its designee(s)) determine otherwise, Shares of Restricted Stock shall be held by the Company as escrow agent until the restrictions on such Shares have lapsed.
7.3Transferability. Except as provided in this Section 7 or Section 13.8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable vesting period.
7.4Other 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.
7.4.1General Restrictions. The Committee may set restrictions based upon the Participant’s continued employment or service with the Company and its Affiliates, the achievement of specific performance objectives (Company-wide, departmental, or individual), applicable federal or state securities laws, or any other basis determined by the Committee in its discretion (for example, but not by way of limitation, continuous service as an Employee, Director or Consultant).
7.4.2Section 162(m) Performance Restrictions. For purposes of qualifying Restricted Stock Awards 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 Determination Date. In granting Restricted Stock Awards which are intended to qualify under Section 162(m) of the Code, 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 Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
7.4.3Legend on Certificates. The Committee, in its discretion, may require that a legend be placed on the certificates representing Restricted Stock to give appropriate notice of the applicable restrictions.
7.5Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock Award shall be released from escrow as soon as practicable after the last day of the vesting period. The
B-10 2017 Proxy Statement
APPENDIX B
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(s) under Section 7.4.3 removed from his or her Share certificate(s), and the Shares shall be freely transferable by the Participant. The Committee (in its discretion) may establish procedures regarding the release of Shares from escrow and the removal of legends, as necessary or appropriate to minimize administrative burdens on the Company
7.6Voting Rights. During the vesting period, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Committee determines otherwise.
7.7Dividends and Other Distributions. During the vesting period, 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. Any such dividends or distribution shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid, unless otherwise provided in the Award Agreement.
7.8Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed shall be forfeited to the Company and, except as otherwise determined by the Committee and subject to Section 4.2, again shall become available for grant under the Plan.
SECTION 8
PERFORMANCE UNITS
8.1Grant of Performance Units. Performance Units may be granted to Employees, Directors 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 granted to each Participant provided that during any Fiscal Year, no Participant shall receive Performance Units having an initial value greater than $15,000,000.
8.2Value of Performance Units. Each Performance Unit shall have an initial value that is established by the Committee on or before the Grant Date.
8.3Performance Objectives and Other Terms. The Committee, in its discretion, shall set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Performance Units that will be paid out to the Participants. Each Award of Performance Units shall be evidenced by an Award Agreement that shall specify any applicable Performance Period, and such other terms and conditions as the Committee, in its sole discretion, shall determine.
8.3.1General Performance Objectives or Vesting Criteria. The Committee may set performance objectives or vesting criteria based upon the achievement of Company-wide, departmental, or individual goals, applicable federal or state securities laws, or any other basis determined by the Committee in its discretion (for example, but not by way of limitation, continuous service as an Employee, Director or Consultant).
8.3.2Section 162(m) Performance Objectives. For purposes of qualifying grants of Performance Units 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 shall be based on the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the Determination Date. In granting Performance Units that are intended to qualify under Section 162(m) of the Code, 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 under Section 162(m) of the Code (e.g., in determining the Performance Goals).
8.4Earning of Performance Units. After the applicable Performance Period has ended, the holder of Performance Units shall be entitled to receive a payout of the number of Performance Units 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, the Committee, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit and may accelerate the time at which any restrictions will lapse or be removed.
8.5Form and Timing of Payment of Performance Units. Payment of earned Performance Units shall be made as soon as practicable after the expiration of the applicable Performance Period (subject to any deferral permitted under Section 13.1), or as otherwise provided in the applicable Award Agreement or as required by Applicable Laws. The Committee, in its sole discretion,
Applied Materials, Inc. B-11
may pay earned Performance Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units at the close of the applicable Performance Period) or in a combination thereof.
8.6Cancellation of Performance Units. On the date set forth in the Award Agreement, all unearned or unvested Performance Units shall be forfeited to the Company, and, except as otherwise determined by the Committee and subject to Section 4.2, again shall be available for grant under the Plan.
SECTION 9
PERFORMANCE SHARES
9.1Grant of Performance Shares. Performance Shares may be granted to Employees, Directors 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 Shares granted to each Participant, provided that during any Fiscal Year, no Participant shall be granted more than a total of 1,500,000 Performance Shares (and/or Shares of Restricted Stock or Restricted Stock Units). Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted up to a total of an additional 1,500,000 Performance Shares (and/or Shares of Restricted Stock or Restricted Stock Units).
9.2Value of Performance Shares. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date.
9.3Performance Share Agreement. Each Award of Performance Shares shall be evidenced by an Award Agreement that shall specify any vesting conditions, the number of Performance Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine.
9.4Performance Objectives and Other Terms. The Committee, in its discretion, shall set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Performance Shares that will be paid out to the Participants. Each Award of Performance 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.
9.4.1General Performance Objectives or Vesting Criteria. The Committee may set performance objectives or vesting criteria based upon the achievement of Company-wide, departmental, or individual goals, applicable federal or state securities laws, or any other basis determined by the Committee in its discretion (for example, but not by way of limitation, continuous service as an Employee, Director or Consultant).
9.4.2Section 162(m) Performance Objectives. For purposes of qualifying grants of Performance Shares as “performance-based compensation” under Section 162(m) of the Code, the Committee, in its discretion, may determine that any performance objectives applicable to Performance Shares shall be based on the achievement of Performance Goals. In that case, the Performance Goals shall be set by the Committee on or before the Determination Date. In granting Performance Shares that are intended to qualify under Section 162(m) of the Code, the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Performance Shares under Section 162(m) of the Code (e.g., in determining the Performance Goals).
9.5Earning of Performance Shares. After the applicable Performance Period has ended, the holder of Performance Shares shall be entitled to receive a payout of the number of Performance 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 Share, the Committee, in its sole discretion, may reduce or waive any performance objectives for such Performance Share and may accelerate the time at which any restrictions will lapse or be removed.
9.6Form and Timing of Payment of Performance Shares. Payment of vested Performance Shares shall be made as soon as practicable after the expiration of the applicable Performance Period (subject to any deferral permitted under Section 13.1), or as otherwise provided in the applicable Award Agreement or as required by Applicable Laws. The Committee, in its sole discretion, may pay earned Performance Shares in the form of cash, in Shares or in a combination thereof.
9.7Cancellation of Performance Shares. On the date set forth in the Award Agreement, all unvested Performance Shares shall be forfeited to the Company, and except as otherwise determined by the Committee and subject to Section 4.2, again shall be available for grant under the Plan.
B-12 2017 Proxy Statement
APPENDIX B
SECTION 10
RESTRICTED STOCK UNITS
10.1Grant of Restricted Stock Units. Restricted Stock Units may be granted to Employees, Directors 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 Restricted Stock Units granted to each Participant, provided that during any Fiscal Year, no Participant shall be granted more than a total of 1,500,000 Restricted Stock Units (and/or Shares of Restricted Stock or Performance Shares). Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted up to a total of an additional 1,500,000 Restricted Stock Units (and/or Shares of Restricted Stock or Performance Shares).
10.2Value of Restricted Stock Units. Each Restricted Stock Unit shall have an initial value equal to the Fair Market Value of a Share on the Grant Date.
10.3Restricted Stock Unit Agreement. Each Award of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify any vesting conditions, the number of Restricted Stock Units granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine.
10.4Vesting and Other Terms. The Committee, in its discretion, shall set performance objectives or other vesting criteria which, depending on the extent to which they are met, will determine the number or value of Restricted Stock Units that will be paid out to the Participants. Each Award of Restricted Stock Units 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.
10.4.1General Performance Objectives or Vesting Criteria. The Committee may set performance objectives or vesting criteria based upon the achievement of Company-wide, departmental, or individual goals, applicable federal or state securities laws, or any other basis determined by the Committee in its discretion (for example, but not by way of limitation, continuous service as an Employee, Director or Consultant).
10.4.2Section 162(m) Performance Objectives. For purposes of qualifying grants of Restricted Stock Units as “performance-based compensation” under Section 162(m) of the Code, the Committee, in its discretion, may determine that any performance objectives applicable to Restricted Stock Units shall be based on the achievement of Performance Goals. In that case, the Performance Goals shall be set by the Committee on or before the Determination Date. In granting Restricted Stock Units that are intended to qualify under Section 162(m) of the Code, 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 Units under Section 162(m) of the Code (e.g., in determining the Performance Goals).
10.5Earning of Restricted Stock Units. After the applicable vesting period has ended, the holder of Restricted Stock Units shall be entitled to receive a payout of the number of Restricted Stock Units earned by the Participant over the vesting period. After the grant of a Restricted Stock Unit, the Committee, in its sole discretion, may reduce or waive any vesting condition that must be met to receive a payout for such Restricted Stock Unit and may accelerate the time at which any restrictions will lapse or be removed.
10.6Form and Timing of Payment of Restricted Stock Units. Payment of vested Restricted Stock Units shall be made as soon as practicable after the date(s) set forth in the Award Agreement (subject to any deferral permitted under Section 13.1) or as otherwise provided in the applicable Award Agreement or as required by Applicable Laws. The Committee, in its sole discretion, may pay Restricted Stock Units in the form of cash, in Shares or in a combination thereof.
10.7Cancellation of Restricted Stock Units. On the date set forth in the Award Agreement, all unearned Restricted Stock Units shall be forfeited to the Company, and except as otherwise determined by the Committee and subject to Section 4.2, again shall be available for grant under the Plan.
SECTION 11
PERFORMANCE-BASED COMPENSATION UNDER CODE SECTION 162(m)
11.1General. If the Committee, in its discretion, decides to grant an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the provisions of this Section 11 will control over any contrary provision in the Plan. The Committee, in its discretion, also may grant Awards that are not intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
Applied Materials, Inc. B-13
11.2Performance Goals. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units and other incentives under the Plan may, in the discretion of the Committee, be made subject to the achievement of one or more Performance Goals.
11.3Procedures. To the extent necessary to comply with the “performance-based compensation” provisions of Section 162(m) of the Code, with respect to any Award granted subject to Performance Goals and intended to qualify as “performance-based compensation” under such section, on or before the Determination Date (i.e., within the first twenty-five percent (25%) of the Performance Period, but in no event more than ninety (90) days following the commencement of any Performance Period or such other time as may be required or permitted by Section 162(m) of the Code), the Committee will, in writing, (i) designate one or more Participants to whom an Award will be made, (ii) determine the Performance Period, (iii) establish the Performance Goals and amounts that may be earned for the Performance Period, and (iv) determine any other terms and conditions applicable to the Award(s).
11.4Additional Limitations. Notwithstanding any other provision of the Plan, any Award that is granted to a Participant and is intended to constitute qualified “performance-based compensation” under Section 162(m) of the Code will be subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or any regulations and ruling issued thereunder that are requirements for qualification as “performance-based compensation” under Section 162(m) of the Code, and the Plan will be deemed amended to the extent necessary to conform to such requirements.
11.5Determination of Amounts Earned. Following the completion of each Performance Period, the Committee will certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. A Participant will be eligible to receive payment pursuant to an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code for a Performance Period only if the Performance Goals for such period are achieved. In determining the amounts earned by a Participant pursuant to an Award intended to qualified as “performance-based compensation” under Section 162(m) of the Code, the Committee will have the right to (a) reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period, (b) determine what actual Award, if any, will be paid in the event of a termination of employment as the result of a Participant’s death or disability or upon a Change of Control or in the event of a termination of employment following a Change of Control prior to the end of the Performance Period, and (c) determine what actual Award, if any, will be paid in the event of a termination of employment other than as the result of a Participant’s death or Disability prior to a Change of Control and prior to the end of the Performance Period to the extent an actual Award would have otherwise been achieved had the Participant remained employed through the end of the Performance Period.
SECTION 12
NONEMPLOYEE DIRECTOR AWARDS
12.1General. During any Fiscal Year, each Nonemployee Director may be granted Awards covering an aggregate maximum number of Shares equal to $400,000 divided by the Fair Market Value of a Share on the Grant Date of the applicable Award. As determined in the discretion of the Committee, Nonemployee Directors will be eligible to be granted all types of Awards under this Plan, including discretionary Awards not covered under this Section 12. All grants of Restricted Stock Units to Nonemployee Directors pursuant to this Section 12 will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions:
12.2Awards.
12.2.1Initial Awards. Each Nonemployee Director who first becomes a Nonemployee Director automatically shall receive, as of the date that the individual first is appointed or elected as a Nonemployee Director, an Award of Restricted Stock Units (the “Initial Award”). The number of Restricted Stock Units subject to the Initial Award will be equal to (a) the value obtained by multiplying (x) $200,000 times (y) a fraction, the numerator of which is the actual number of days between the date of the Nonemployee Director’s appointment or election and the scheduled date of the next following Annual Meeting, and the denominator of which is 365, which such resulting value divided by (b) the Fair Market Value of a Share on the Grant Date, rounded down to the nearest whole Share. The Nonemployee Director shall not receive an Initial Award if he or she is first appointed or elected as a Nonemployee Director on the date of an Annual Meeting and instead shall receive an Ongoing Award pursuant to Section 12.2.2 on that date.
12.2.2Ongoing Awards. On the date of each Annual Meeting, but after any stockholder votes taken on such date, each Nonemployee Director who is appointed or elected as a Nonemployee Director on the date of the Annual Meeting automatically
B-14 2017 Proxy Statement
APPENDIX B
shall receive, as of such date, an Award of the number of Restricted Stock Units equal to $200,000 divided by the Fair Market Value of a Share on the Grant Date, rounded down to the nearest whole Share (the “Ongoing Award”). Notwithstanding the foregoing, each Nonemployee Director who is required to tender a resignation following such Annual Meeting in accordance with the Company’s majority voting policy for election of directors shall not receive an Ongoing Award, unless the Board determines not to accept his or her resignation in accordance with the Company’s policy, in which case such Nonemployee Director automatically shall receive the Ongoing Award on the date the Board makes a determination not to accept such resignation.
12.3Terms of Initial Award and Ongoing Awards.
12.3.1Award Agreement. Each Award of Restricted Stock Units granted pursuant to this Section 12 shall be evidenced by a written Award Agreement (which may be in electronic form) between the Participant and the Company.
12.3.2Value of Restricted Stock Units. Each Restricted Stock Unit shall have an initial value equal to the Fair Market Value of a Share on the Grant Date.
12.3.3Vesting and Other Terms. Subject to the other provisions of Section 12.3, each Initial Award and Ongoing Award shall be earned and paid out as to one hundred percent (100%) of the Shares subject to the Initial Award or Ongoing Award, as applicable, on the next following March 1 (or, if earlier, on the date immediately before the date of the Annual Meeting of Stockholders that next follows the Grant Date). Notwithstanding the preceding, once a Participant ceases to be a Director, his or her Restricted Stock Units which are not then earned shall never be earned or paid out and shall be immediately forfeited, except to the extent provided in Section 12.3.4 and Section 12.3.5.
12.3.4Disability of Participant. If a Participant has a Termination of Service due to Disability prior to the vesting of Restricted Stock Units, then one hundred percent (100%) of the Restricted Stock Units shall immediately become vested and payable, subject to the terms and conditions of any deferral pursuant to Section 12.3.7.
12.3.5Death of Participant. If a Participant dies while serving as a Director prior to the vesting of his or her Restricted Stock Units, then one hundred percent (100%) of the Restricted Stock Units shall immediately become vested and payable, subject to the terms and conditions of any deferral pursuant to Section 12.3.7.
12.3.6Earning of Restricted Stock Units. After the applicable vesting period has ended, the holder of Restricted Stock Units shall be entitled to receive a payout of the number of Restricted Stock Units earned by the Participant over the vesting period, to be determined as a function of the extent to which the corresponding vesting provisions have been achieved.
12.3.7Form and Timing of Payment of Restricted Stock Units. Payment of earned Restricted Stock Units shall be made as soon as practicable after the expiration of the applicable vesting period. The Committee, in its sole discretion, may pay earned Restricted Stock Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Restricted Stock Units at the close of the applicable vesting period) or in a combination thereof. Notwithstanding the foregoing, the Committee may, in its sole discretion, provide a Nonemployee Director with the opportunity to defer the receipt of earned Restricted Stock Units that would otherwise be delivered to such Nonemployee Director under this Section 12. Any such deferral shall be subject to such rules, conditions and procedures as shall be determined by the Committee in its sole discretion, which rules, conditions and procedures shall comply with the requirements of Section 409A, unless otherwise specifically determined by the Committee.
12.3.8Cancellation of Restricted Stock Units. On the date set forth in the Award Agreement, all unearned or unvested Restricted Stock Units shall be forfeited to the Company, and except as otherwise determined by the Committee and subject to Section 4.2, again shall be available for grant under the Plan.
12.3.9Other Terms. All provisions of the Plan not inconsistent with this Section 12 shall apply to Restricted Stock Units granted to Nonemployee Directors, including but not limited to the provisions of Section 10.
12.4Amendments. The Committee, in its sole discretion, at any time may change the number of Restricted Stock Units to be granted (after the date of the amendment) as the Initial Award and Ongoing Awards.
12.5Elections by Nonemployee Directors. Pursuant to such procedures as the Committee (in its discretion) may adopt from time to time, each Nonemployee Director may elect to forego receipt of all or a portion of the annual retainer, committee fees
Applied Materials, Inc. B-15
and meeting fees otherwise due to the Nonemployee Director in exchange for Shares or Awards granted under the Plan. The number of Shares (or covered by Awards) received by any Nonemployee Director shall equal the amount of foregone compensation divided by the Fair Market Value of a Share (or of the Award) on the date that the compensation otherwise would have been paid to the Nonemployee Director, rounded down to the nearest whole number of Shares. The procedures adopted by the Committee for elections under this Section 12.5 shall be designed to ensure that any such election by a Nonemployee Director will not disqualify him or her as a “non-employee director” under Rule 16b-3. Unless otherwise expressly determined by the Committee, the elections permitted under this Section 12.5 shall comply with Section 409A.
SECTION 13
ADDITIONAL PROVISIONS
13.1Deferrals. 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 and, unless otherwise expressly determined by the Committee, shall comply with the requirements of Section 409A.
13.2Compliance with Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A, except as otherwise determined in the sole discretion of the Committee. The Plan and each Award Agreement under the Plan is intended to meet the requirements of Section 409A and will be construed and interpreted in accordance with such intent, including with respect to any ambiguities or ambiguous terms, except as otherwise determined in the sole discretion of the Committee. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A. Each payment or benefit under this Plan and under each Award Agreement is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
13.3No Effect on Employment or Service. Nothing in the Plan or any Award 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.
13.4Participation. No Employee, Director 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.
13.5Indemnification. 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.
13.6Successors. 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.
13.7Beneficiary 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.
B-16 2017 Proxy Statement
APPENDIX B
13.8Limited Transferability 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 13.7. 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, a Participant may, if the Committee (in its discretion) so permits, transfer an Award to an individual or entity other than the Company for estate planning or charitable purposes. Any such transfer shall be made as a gift (i.e., without consideration) and in accordance with such procedures as the Committee may specify from time to time.
13.9No 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 (which may be in book entry form) shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (or beneficiary).
13.10Vesting of Awards following Change of Control. If, within 12 months after a Change of Control, a Participant’s employment is terminated by the Company without Cause, or the Participant voluntarily terminates his or her employment with Good Reason, the Participant shall have the right to receive a payment with respect to each outstanding Award held by such Participant at the time of such employment termination that was both granted prior to the Change of Control and on or after March 6, 2012, whether or not such Award was vested at the time of such Change in Control, calculated in the manner described in Section 4.5.1 based on the values and other facts as of the date of such employment termination. If a Participant who is a Nonemployee Director ceases to be such as of the date of a Change of Control (and does not become a member of the board of directors of the successor corporation, or a parent of the successor corporation), each outstanding Award then held by the Participant that was granted on or after March 6, 2012 shall be treated as described in Section 4.5.1, as if the Award was not assumed or substituted for in the Change of Control. This Section 13.10 shall not apply to an Award if: (a) the applicable Award Agreement specifically provides that the provisions of this Section 13.10 shall not apply to the Award, or (b) the Participant’s employment or service on the Board is terminated due to the Participant’s death or Disability.
SECTION 14
AMENDMENT, TERMINATION, AND DURATION
14.1Amendment, Suspension, or Termination. The Board, in its sole discretion, may amend, suspend or terminate the Plan, or any part thereof, at any time and for any reason. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with applicable laws. In addition, an amendment will be subject to stockholder approval if the Committee or the Board, in their sole discretion, deems such amendment to be a material amendment, except with respect to such an amendment that will impact Awards covering, in the aggregate, no more than five percent (5%) of the shares reserved for issuance under the Plan. The following amendments shall be deemed material amendments for purposes of the preceding sentence: (a) material increases to the benefits accrued to Participants under the Plan; (b) increases to the number of securities that may be issued under the Plan; (c) material modifications to the requirements for participation in the Plan, and (d) the addition of a new provision allowing the Committee to lapse or waive restrictions at its discretion. 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. Termination of the Plan will not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
14.2Duration of the Plan. The Plan shall be effective as of the Effective Date, and subject to Section 14.1 (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 January 19, 2022.
SECTION 15
TAX WITHHOLDING
15.1Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), or at such earlier time as the Tax Obligations are due, 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 all Tax Obligations.
15.2Withholding Arrangements. The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may designate the method or methods by which a Participant may satisfy such Tax Obligations. As determined by the Committee in its discretion from time to time, these methods may include one or more of the following: (a) paying cash,
Applied Materials, Inc. B-17
(b) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the amount required to be withheld, (c) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum amount required to be withheld or remitted, provided the delivery of such Shares will not result in any adverse accounting consequences as the Committee determines in its sole discretion, (d) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Committee may determine in its sole discretion (whether through a broker or otherwise) equal to the Tax Obligations required to be withheld, (e) retaining from salary or other amounts payable to the Participant cash having a sufficient value to satisfy the Tax Obligations, or (f) any other means which the Committee, in its sole discretion, determines to both comply with Applicable Laws, and to be consistent with the purposes of the Plan. The amount of Tax Obligations will be deemed to include any amount that 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 or the Company, as applicable, with respect to the Award on the date that the amount of tax or social insurance liability to be withheld or remitted 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 Tax Obligations are required to be withheld.
SECTION 16
LEGAL CONSTRUCTION
16.1Gender 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.
16.2Severability. 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.
16.3Requirements of Law. Shares shall not be issued pursuant to the exercise or vesting of an Award unless the exercise or vesting of such Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
16.4Securities Law Compliance. With respect to Section 16 Persons, transactions under this Plan are intended to qualify for the exemption provided by 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 or appropriate by the Committee.
16.5Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
16.6Inability to Obtain Authority. The Company will not be required to issue any Shares, cash or other property under the Plan unless all the following conditions are satisfied: (a) the admission of the Shares or other property to listing on all stock exchanges on which such class of stock or property then is listed; (b) the completion of any registration or other qualification or rule compliance of the Shares under any U.S. state or federal law or under the rulings or regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental regulatory body, as counsel to the Company, in its absolute discretion, deems necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. federal, state or other governmental agency, which counsel to the Company, in its absolute discretion, determines to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Grant Date, vesting and/or exercise as the Company may establish from time to time for reasons of administrative convenience. If the Committee determines, in its absolute discretion, that one or more of the preceding conditions will not be satisfied, the Company automatically will be relieved of any liability with respect to the failure to issue the Shares, cash or other property as to which such requisite authority will not have been obtained.
16.7Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of California (with the exception of its conflict of laws provisions).
16.8Captions. Captions are provided herein for convenience only, and shall not serve as a basis for interpretation or construction of the Plan.
B-18 2017 Proxy Statement
APPENDIX C
APPLIED MATERIALS, INC.
SENIOR EXECUTIVE BONUS PLAN
(March 9, 2017 Restatement)
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1Purpose. Applied Materials, Inc. having established the Applied Materials, Inc. Senior Executive Bonus Plan (the “Plan”) effective as of September 23, 1994, and having subsequently amended and restated the Plan, hereby amends and restates the Plan effective as of March 9, 2017. The Plan is intended to increase stockholder 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 and to individual Participant performance. The Plan is intended to permit the payment of bonuses that qualify as performance-based compensation under Code Section 162(m).
1.2Effective Date. The Plan is effective as of March 9, 2017 (the “Effective Date”), 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 2017 Annual Meeting of Stockholders.
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 Performance Period, the actual amount (if any) payable to a Participant for the Performance Period. Each Actual Award is determined by the Payout Formula for the Performance Period, subject to the Committee’s authority under Section 3.5 to reduce the award otherwise determined by the Payout Formula.
2.2 “Affiliate” means any corporation or other entity (including, but not limited to, partnerships and joint ventures) controlled by the Company.
2.3 “Base Salary” means as to any Performance Period, 100% of the Participant’s annualized salary rate on the last day of the Performance Period. 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 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.
2.6 “Committee” means the committee appointed by the Board (pursuant to Section 5.1) to administer the Plan. The Committee shall consist of no fewer than two (2) members of the Board.
2.7 “Company” means Applied Materials, Inc., a Delaware corporation.
2.8 “Determination Date” means the latest possible date that will not jeopardize a Target Award or Actual Award’s qualification as performance-based compensation under Section 162(m) of the Code.
2.9 “Disability” means a permanent and total disability within the meaning of Section 22(e)(3) of the Code, unless the Committee, in its discretion, may determine that a different definition of Disability shall apply in accordance with standards adopted by the Committee from time to time.
2.10 “Fiscal Quarter” means a fiscal quarter within a Fiscal Year of the Company.
Applied Materials, Inc. C-1
2.11 “Fiscal Year” means the fiscal year of the Company.
2.12 “Intentional Misconduct” means a Participant’s deliberate engagement in any one or more of the following: (a) fraud, misappropriation, embezzlement or any other act or acts of similar gravity resulting or intended to result directly or indirectly in substantial personal enrichment to the Participant at the expense of the Company; (b) a material violation of a federal, state or local law or regulation applicable to the Company’s business that has a significant negative effect on the Company’s financial results; or (c) a material breach of the Participant’s fiduciary duty owed to the Company that has a significant negative effect on the Company’s financial results; provided, however, that a Participant’s exercise of judgment or actions (or abstention from action), and/or decision-making will not constitute Intentional Misconduct if such judgment, action (or abstention from action) and/or decision is, in the good faith determination of the Board, reasonable based on the facts and circumstances known to the Participant at the time of such judgment, action (or abstention from action) and/or decision; and such judgment, action (or abstention from action) and/or decision is in an area or situation in which (i) discretion must be exercised by the Participant or (ii) differing views or opinions may apply.
2. 13 “Maximum Award” means as to any Participant for any Fiscal Year, $5 million. The Maximum Award is the maximum amount which may be paid under the Plan to a Participant for any Fiscal Year.
2.14 “Participant” means as to any Performance Period, an officer of the Company or of an Affiliate who has been selected by the Committee for participation in the Plan for that Performance Period.
2.15 “Payout Formula” means as to any Performance Period, 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.
2.16 “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 Performance Period. 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) cash flow, (b) customer satisfaction, (c) earnings per share, (d) margin, (e) market share, (f) operating profit, (g) product development and quality, (h) profit, (i) return on capital, (j) return on equity, (k) revenue, and (l) total shareholder return. Each such financial measure shall, except as provided below, be based on U.S. GAAP principles and, with respect to each non-financial measure, pre-established objective criteria. Any Performance Goal used may be measured (1) in absolute terms, (2) in combination with another Performance Goal or Goals (for example, but not by way of limitation, as a ratio or matrix), (3) in relative terms (including, but not limited to, as compared to results for other periods of time, and/or against another company, companies or an index or indices), (4) on a per-share or per-capita basis, (5) against the performance of the Company as a whole or a specific business unit(s), business segment(s) or product(s) of the Company, and/or (6) on a pre-tax or after-tax basis. Prior to the Determination Date, the Committee, in its discretion, will determine whether any significant element(s) or item(s) will be included in or excluded from the calculation of any Performance Goal with respect to any Participants (for example, but not by way of limitation, the effect of mergers and acquisitions). As determined in the discretion of the Committee prior to the Determination Date, achievement of Performance Goals for a particular Award may be calculated in accordance with the Company’s financial statements, prepared in accordance with generally accepted accounting principles, or as adjusted for certain costs, expenses, gains and losses to provide non-GAAP measures of operating results.
2.17 “Performance Period” means any Fiscal Year (or period of four (4) consecutive Fiscal Quarters) or such other period longer than a Fiscal Year but not longer than three Fiscal Years (or period of twelve (12) consecutive Fiscal Quarters) or, with respect to any person at the time that they first become eligible to be a Participant in the Plan, a period of shorter than a Fiscal Year, as determined by the Committee in its sole discretion. With respect to any Participant, there shall exist no more than four (4) Performance Periods at any one time.
2.18 “Retirement” means, with respect to any Participant, a termination of his or her employment with the Company and all of its Affiliates after: (a) obtaining at least sixty (60) years of age and whose age plus Years of Service with the Company is not less than seventy (70), or (b) obtaining at least sixty-five (65) years of age.
2.19 “Section 16 Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
2.20 “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance thereunder, as they may be amended or modified from time to time.
C-2 2017 Proxy Statement
APPENDIX C
2.21 “Target Award” means the target award payable under the Plan to a Participant for the Performance Period, expressed as a percentage of his or her Base Salary, a dollar amount, or a result of a formula or formulas, as determined by the Committee in accordance with Section 3.3.
2.22 “Years of Service” means the number of months (or a fraction thereof) from a Participant’s latest hire date with the Company or its Affiliate to the date in question, divided by twelve (12). The Participant’s latest hire date will 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, revised or superseded from time to time.
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1Selection 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 Performance Period. The Committee, in its sole discretion, also may designate as Participants one or more individuals (by name or position) who are expected to become officers during a Performance Period. Participation in the Plan is in the sole discretion of the Committee, and on a Performance Period by Performance Period basis. Accordingly, an officer who is a Participant for a given Performance Period in no way is guaranteed or assured of being selected for participation in any subsequent Performance Period or Periods.
3.2Determination 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 Performance Period. Such Performance Goals shall be set forth in writing.
3.3Determination 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.
3.4Determination of Payout Formula. On or prior to the Determination Date, the Committee, in its sole discretion, shall establish a Payout Formula 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 Performance Period 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.
3.5Determination of Actual Awards. After the end of each Performance Period, the Committee shall certify in writing (for example, in its meeting minutes) the extent to which the Performance Goals applicable to each Participant for the Performance Period were achieved or exceeded, as determined by the Committee. The Actual Award for each Participant shall be determined by applying the Payout Formula to the level of actual performance that 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 otherwise would be payable under the Payout Formula, (b) if a Participant terminates employment with the Company prior to the end of a Performance Period 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 Performance Period, and (c) the Board, in its sole discretion, may require a Participant to forfeit, return or reimburse the Company all or a portion of his or her Actual Award in accordance with Section 4.5 below.
SECTION 4
PAYMENT OF AWARDS
4.1Right 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 after the end of the Performance Period during which the Actual Award was earned but no later than the fifteen (15th) day of the third (3rd) month after the end of the Fiscal Year in which such Performance Period ended.
Applied Materials, Inc. C-3
4.3Form 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 Employee Stock 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 Global Select Market/National Market for the day in question. Any restricted stock so awarded shall vest over the period determined by the Committee, which shall in no event be a period of more than four years, subject to acceleration for termination of employment due to death, Disability, or Retirement.
4.4Payment 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 completed Performance Period, the Actual Award shall be paid to his or her estate.
4.5Clawback in Connection with a Material Negative Financial Restatement. Pursuant to the Company’s clawback policy, the Board, in its sole discretion, may require a Participant to forfeit, return or reimburse the Company all or a portion of his or her Actual Award, if (a) the Participant is or was a Section 16 Officer during the applicable Performance Period, and (b) the Participant deliberately engaged in Intentional Misconduct that was determined by the Board, in its sole discretion, to be the primary cause of a material negative restatement of a Company financial statement that was filed with the U.S. Securities and Exchange Commission and such financial statement, as originally filed, is one of the Company’s three (3) most recently filed annual financial statements. The portion of the Actual Award, if any, that a Participant may be required to forfeit, return or reimburse will be determined by the Board, in its sole discretion, but will be no more than the after-tax portion of the Actual Award that was (1) in excess of the Actual Award he or she would have received had the Company’s financial results been calculated under the restated financial statements, and (2) paid within the period beginning on the date the Committee determines the Actual Award (in accordance with Section 3.5 of the Plan) and ending on the date that is twelve (12) months after the original filing of the financial statement that subsequently was restated. In addition, each Actual Award shall be subject to clawback as required by law, regulation or the rules of any exchange on which the Company’s stock is listed for trading, in each case as in effect from time to time.
SECTION 5
ADMINISTRATION
5.1Committee is the Administrator. The Plan shall be administered by the Committee. The Committee shall consist of not less than two (2) members of the Board. The members of the Committee shall be appointed from time to time by, and serve at the pleasure of, the Board. Each member of the Committee shall qualify as an “outside director” under Section 162(m) of the Code. If it is later determined that one or more members of the Committee do not so qualify, actions taken by the Committee prior to such determination shall be valid despite such failure to qualify. Any member of the Committee may resign at any time by notice in writing mailed or delivered to the Secretary of the Company. As of the Effective Date of the Plan, the Plan shall be administered by the Human Resources and Compensation Committee of the Board.
5.2Committee Authority. 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 officers shall be granted awards, (b) prescribe the terms and conditions of awards, (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 officers 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.
5.3Decisions Binding. All interpretations, 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.
5.4Delegation by the Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or officers of the Company; provided, however, that the Committee may not delegate its authority and/or powers with respect to awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code.
5.5Tax Withholding. The Company shall withhold all applicable taxes from any payment, including any federal, Federal Insurance Contributions Act (FICA), state, and local taxes.
C-4 2017 Proxy Statement
APPENDIX C
SECTION 6
GENERAL PROVISIONS
6.1No Effect on Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company or an Affiliate, as applicable, 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 employment. Employment with the Company and its Affiliates 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 or after a Performance Period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect which such treatment might have upon him or her as a Participant.
6.2Section 409A. It is intended that all bonuses payable under this Plan will be exempt from the requirements of Section 409A pursuant to the “short-term deferral” exemption or, in the alternative, will comply with the requirements of Section 409A so that none of the payments and benefits to be provided under this Plan will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein shall be interpreted to so comply or be exempt. Each payment and benefit payable under this Plan is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. The Company may, in good faith and without the consent of any Participant, make any amendments to this Plan and take such reasonable actions which it deems necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition under Section 409A prior to actual payment to the Participant.
6.3Participation. No individual 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.
6.4Indemnification. 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, 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.
6.5Successors. All obligations of the Company and any Affiliate under the Plan, with respect to awards granted hereunder, shall be binding on any successor to the Company and/or such Affiliate, 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 or such Affiliate.
6.6Nonassignability. A Participant shall have no right to assign or transfer any interest under this Plan.
6.7Nontransferability 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. All rights with respect to an award granted to a Participant shall be available during his or her lifetime only to the Participant.
6.8Deferrals. The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash that would otherwise be delivered to a Participant under the Plan. Any such deferral elections shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion and, unless otherwise expressly determined by the Committee, shall comply with the requirements of Section 409A.
6.9Governing Law. The Plan and all award agreements shall be construed in accordance with and governed by the laws of the State of California, excluding its conflicts of laws provisions.
Applied Materials, Inc. C-5
SECTION 7
AMENDMENT AND TERMINATION
7.1Amendment 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; and provided further that the Board may not amend the Plan such that it would have a material adverse impact on outstanding Target Awards without the consent of the affected Participants.
C-6 2017 Proxy Statement
3225 OAKMEAD VILLAGE DRIVE
P.O. BOX 58039, M/S 1241
SANTA CLARA, CA 95054
YOU CAN VOTE OVER THE INTERNET OR BY TELEPHONE
QUICK• · EASY• · CONVENIENT
AVAILABLE 24 HOURS A DAY• · 7 DAYS A WEEK
APPLIED MATERIALS, INC. encourages you to take advantage of convenient ways to vote. If voting by proxy, you may vote over the Internet, by telephone or by mail. Your Internet or telephone vote authorizes the named proxies to vote in the same manner as if you marked, signed, and returned your proxy card. To vote over the Internet, by telephone or by mail, please read the 20172020 Proxy Statement and then follow these easy steps:
VOTE BY INTERNET -www.proxyvote.com
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
VOTE BY PHONE - 1-800-690-6903
VOTE BY MAIL
| ||||||
|
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E88857-Z76235 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED.
SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY APPLIED MATERIALS, INC.
The Board of Directors recommends you voteFOR all of the nominees listed below and FOR proposals 2, 4, 53 and 6,4: 1. Election of Directors For Against Abstain Nominees: 1a. Judy Bruner 1b. Xun (Eric) Chen 1c. Aart J. de Geus 1d. Gary E. Dickerson 1e. Stephen R. Forrest 1f. Thomas J. Iannotti 1g. Alexander A. Karsner 1h. Adrianna C. Ma 1i. Yvonne McGill 1j. Scott A. McGregor Please indicate if you plan to attend this meeting. Yes No For Against Abstain 2. Approval, on an advisory basis, of the compensation of Applied Materials’ named executive officers for fiscal year 2019. 3. Ratification of the appointment of KPMG LLP as Applied Materials’ independent registered public accounting firm for fiscal year 2020. 4. Approval of an amendment andFOR 1 Year restatement of Applied Materials’ Certificate of Incorporation to allow shareholders to act by written consent. NOTE: The proposals to be voted on proposal 3:
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
may also include such other business as may properly come before the meeting or any adjournment or postponement thereof. Please sign exactly as your name appears herein. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
|
| |||||||||
|
| |||||||
|
| |||||||
|
| |||||||
| ||||||||
| ||||||||
| ||||||||
|
| |||||||||
V.1.1
Important notice regarding the availability of proxy materials for the Annual Meeting of Shareholders to be held on March 12, 2020: The Proxy Statement and Annual Report to Shareholders are available at www.proxyvote.com. E88858-Z76235 APPLIED MATERIALS, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS ON MARCH 12, 2020 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Gary E. Dickerson, Daniel J. Durn and Christina Y. Lai, or any of them, each with full power of substitution, as proxies of the undersigned, to attend the Annual Meeting of Shareholders of Applied Materials, Inc. to be held on Thursday, March 12, 2020 at 11:00 a.m. Pacific Time at Applied Materials, Inc.’s corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054, and at 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, in their discretion, upon such other business that may properly come before such meeting and any adjournment or postponement thereof. THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, WILL BE VOTED FOR EACH OF THE TEN NOMINEES FOR ELECTION AS DIRECTORS (PROPOSAL 1), FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR FISCAL YEAR 2019 (PROPOSAL 2), FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2020 (PROPOSAL 3) AND FOR THE APPROVAL OF AN AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO ALLOW SHAREHOLDERS TO ACT BY WRITTEN CONSENT (PROPOSAL 4). Dear Shareholder: On the reverse side of this card are instructions on how to vote over the Internet or by telephone for the election of directors (Proposal 1), for the approval, on an advisory basis, of the compensation of our named executive officers for fiscal year 2019 (Proposal 2), for the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2020 (Proposal 3) and for the approval of an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent (Proposal 4). Please consider voting over the Internet or by telephone. Your vote is recorded as if you mailed in your proxy card. We believe voting this way is convenient. Thank you for your attention to these matters. Applied Materials, Inc. PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID ENVELOPE. If you vote over the Internet or by telephone, you do not need to return the proxy card. THANK YOU FOR VOTING! (Continued and to be signed on the reverse side)
| ||||||||||
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
E16799-P85435-Z69198
| ||||||||||||||
| ||||||||||||||
| ||||||||||||||
V.1.1
