Exhibit 10.42
APPLIED MATERIALS, INC.
EMPLOYEE STOCK INCENTIVE PLAN
(as amended and restated on September 13, 2006)
SECTION 1
BACKGROUND AND PURPOSE
     1.1 Background. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, SARs, Restricted Stock, Performance Units, and
Performance Shares.
     1.2 Purpose 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 encourage stock ownership by
Participants, thereby aligning their interests with those of the Company’s
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 “1934 Act” means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
     2.2 “Affiliate” means any corporation or any other entity (including, but
not limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.
     2.3 “Affiliated SAR” means an SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised.
     2.4 “Annual Revenue” means the Company’s or a business unit’s net sales for
the Fiscal Year, determined in accordance with generally accepted accounting
principles; provided, however, that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be excluded or included
from the calculation of Annual Revenue with respect to one or more Participants.
     2.5 “Award” means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, or Performance Shares.
     2.6 “Award Agreement” means the written agreement setting forth the terms
and provisions applicable to each Award granted under the Plan.

 

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     2.7 “Board” or “Board of Directors” means the Board of Directors of the
Company.
     2.8 “Code” means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section, and
any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
     2.9 “Committee” means the committee appointed by the Board (pursuant to
Section 3.1) to administer the Plan.
     2.10 “Company” means Applied Materials, Inc. , a Delaware corporation, or
any successor thereto. With respect to the definitions of the Performance Goals,
the Committee may determine that “Company” means Applied Materials, Inc. and its
consolidated subsidiaries.
     2.11 “Consultant” means any consultant, independent contractor, or other
person who provides significant services to the Company or its Affiliates, but
who is neither an Employee nor a Director.
     2.12 “Controllable Profits” means as to any Fiscal Year, a business unit’s
Annual Revenue minus (a) cost of sales, (b) research, development, and
engineering expense, (c) marketing and sales expense, (d) general and
administrative expense, (e) extended receivables expense, and (f) shipping
requirement deviation expense.
     2.13 “Customer Satisfaction MBOs” means as to any Participant, the
objective and measurable individual goals set by a “management by objectives”
process and approved by the Committee, which goals relate to the satisfaction of
external or internal customer requirements.
     2.14 “Director” means any individual who is a member of the Board of
Directors of the Company.
     2.15 “Disability” means a permanent and total disability within the meaning
of Section 22(e)(3) of the Code, provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
     2.16 “Earnings Per Share” means as to any Fiscal Year, the Company’s Net
Income or a business unit’s Pro Forma Net Income, divided by a weighted average
number of common shares outstanding and dilutive common equivalent shares deemed
outstanding.
     2.17 “Employee” means any employee of the Company or of an Affiliate,
whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
     2.18 “Exercise Price” means the price at which a Share may be purchased by
a Participant pursuant to the exercise of an Option.

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     2.19 “Fair Market Value” means the last quoted per share selling price for
Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day before and the nearest day after the relevant date, as determined by the
Committee. Notwithstanding the preceding, for federal, state, and local income
tax reporting purposes, fair market value shall be determined by the Committee
(or its delegate) in accordance with uniform and nondiscriminatory standards
adopted by it from time to time.
     2.20 “Fiscal Year” means the fiscal year of the Company.
     2.21 “Freestanding SAR” means a SAR that is granted independently of any
Option.
     2.22 “Grant Date” means, with respect to an Award, the date that the Award
was granted.
     2.23 “Incentive Stock Option” means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the requirements
of Section 422 of the Code.
     2.24 “Individual MBOs” means as to a Participant, the objective and
measurable goals set by a “management by objectives” process and approved by the
Committee (in its discretion).
     2.25 “Net Income” means as to any Fiscal Year, the income after taxes of
the Company for the Fiscal Year determined in accordance with generally accepted
accounting principles, provided that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be included or excluded
from the calculation of Net Income with respect to one or more Participants.
     2.26 “New Orders” means as to any Fiscal Year, the firm orders for a
system, product, part, or service that are being recorded for the first time as
defined in the Company’s Order Recognition Policy.
     2.27 “Nonemployee Director” means a Director who is an employee of neither
the Company nor of any Affiliate.
     2.28 “Nonqualified Stock Option” means an option to purchase Shares which
is not intended to be an Incentive Stock Option.
     2.29 “Option” means an Incentive Stock Option or a Nonqualified Stock
Option.
     2.30 “Participant” means an Employee, Consultant, or Nonemployee Director
who has 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 Award may provide for a targeted level or levels of achievement
using one or more of the following measures: (a) Annual Revenue,
(b) Controllable Profits, (c) Customer Satisfaction MBOs, (d) Earnings Per
Share, (e) Individual MBOs, (f) Net Income, (g) New Orders, (h) Pro Forma Net
Income, (i) Return on Designated Assets, and (j) Return on Sales. The
Performance Goals may differ from Participant to Participant and from Award to
Award. Any criteria used may be (i) measured in absolute terms, (ii) compared to
another company or companies, (iii) measured against the performance of the
Company

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as a whole or a segment of the Company and/or (iv) measured on a pre-tax or
post-tax basis (if applicable).
     2.32 “Performance Share” means an Award granted to a Participant pursuant
to Section 8.
     2.33 “Performance Unit” means an Award granted to a Participant pursuant to
Section 8.
     2.34 “Period of Restriction” means the period during which the transfer of
Shares of Restricted Stock are subject to restrictions and therefore, the Shares
are subject to a substantial risk of forfeiture. As provided in Section 7, such
restrictions may be based on the passage of time, the achievement of target
levels of performance, or the occurrence of other events as determined by the
Committee, in its discretion. Notwithstanding any contrary provision of the
Plan, a Period of Restriction shall expire at a rate no faster than one-third
(1/3) of the Shares covered by an Award each year unless determined otherwise by
the Committee at its discretion solely by reason of death, Disability,
Retirement or major capital change.
     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 “Pro Forma Net Income” means as to any business unit for any Fiscal
Year, the Controllable Profits of such business unit, minus allocations of
designated corporate expenses.
     2.37 “Reload Option” means an Option that automatically is granted if a
Participant pays the exercise price of an Option by tendering Shares.
     2.38 “Restricted Stock” means an Award granted to a Participant pursuant to
Section 7.
     2.39 “Retirement” means, in the case of an Employee or a Nonemployee
Director: (a) a Termination of Service occurring on or after age sixty-five
(65), or (b) a Termination of Service occurring on or after age sixty (60) with
at least ten (10) Years of Service. Notwithstanding the preceding, in the case
of any Option granted to any Employee prior to December 10, 1998, “Retirement”
means a Termination of Service by reason of the Employee’s retirement at or
after his or her normal retirement date under the Applied Materials, Inc.
Employee Savings and Retirement Plan, or any successor plan. With respect to a
Consultant, no Termination of Service shall be deemed to be on account of
“Retirement.”
     2.40 “Return on Designated Assets” means as to any Fiscal Year, the Pro
Forma Net Income of a business unit, divided by the average of beginning and
ending business unit designated assets, or Net Income of the Company, divided by
the average of beginning and ending designated corporate assets.
     2.41 “Return on Sales” means as to any Fiscal Year, the percentage equal to
the Company’s Net Income or the business unit’s Pro Forma Net Income, divided by
the Company’s or the business unit’s Annual Revenue.
     2.42 “Rule 16b-3” means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.

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     2.43 “Section 16 Person” means a person who, with respect to the Shares, is
subject to Section 16 of the 1934 Act.
     2.44 “Shares” means the shares of common stock of the Company.
     2.45 “Stock Appreciation Right” or “SAR” means an Award, granted alone or
in connection with a related Option, that pursuant to Section 7 is designated as
an SAR.
     2.46 “Subsidiary” means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
     2.47 “Tandem SAR” means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
     2.48 “Termination of Service” means (a) in the case of an Employee, a
cessation of the employee-employer relationship between the Employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, Retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; (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, Retirement or
non-reelection to the Board.
     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 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. With respect to a Nonemployee Director, “Years of Service” means
the number of years of continuous service on the Board of Directors.
SECTION 3
ADMINISTRATION
     3.1 The Committee. The Plan shall be administered by the Committee. The
Committee shall consist of not less than two (2) Directors who shall be
appointed from time to time by, and shall serve at the pleasure of, the Board of
Directors. The Committee shall be comprised solely of Directors who both are (a)
“non-employee directors” under Rule 16b-3, and (b) “outside directors” under
Section 162(m) of the Code.

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     3.2 Authority of the Committee. It shall be the duty of the Committee to
administer the Plan in accordance with the Plan’s provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees and Consultants shall be granted Awards,
(b) prescribe the terms and conditions of the Awards, (c) interpret the Plan and
the Awards, (d) adopt such procedures and subplans as are necessary or
appropriate to permit participation in the Plan by Employees, Consultants and
Directors who are foreign nationals or employed outside of the United States,
(e) adopt rules for the administration, interpretation and application of the
Plan as are consistent therewith, and (f) interpret, amend or revoke any such
rules. Except as provided in Section 4.3, the Committee may not reprice
outstanding Options or institute a program whereby outstanding Awards are
surrendered or cancelled in exchange for Awards of the same type (which may have
a lower exercise price or purchase price), of a different type and/or cash
without first obtaining stockholder approval.
     3.3 Delegation by the Committee. The Committee, in its sole discretion and
on such terms and conditions as it may provide, may delegate all or any part of
its authority and powers under the Plan to one or more Directors or officers of
the Company; provided, however, that the Committee may not delegate its
authority and powers (a) with respect to Section 16 Persons, or (b) in any way
which would jeopardize the Plan’s qualification under Section 162(m) of the Code
or Rule 16b-3.
     3.4 Decisions Binding. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
     4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
total number of Shares available for grant under the Plan shall not exceed
367,200,000. Shares granted under the Plan may be either authorized but unissued
Shares or treasury Shares. The total number of Shares that may be granted
pursuant to awards of Restricted Stock, Performance Shares and Performance Units
may not exceed 20,000,000 Shares.
     4.2 Lapsed Awards. If an Award is settled in cash, or is cancelled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available to be the subject of
an Award.
     4.3 Adjustments in Awards and Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limits of Sections 5.1, 6.1, 7.1, 8.1 and 9.1, in such manner as the
Committee (in its sole discretion) shall determine to be appropriate to prevent
the dilution or diminution of such Awards. Notwithstanding the preceding, the
number of Shares subject to any Award always shall be a whole number.

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SECTION 5
STOCK OPTIONS
     5.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Consultants at any time and from time to
time as determined by the Committee in its sole discretion. The Committee, in
its sole discretion, shall determine the number of Shares subject to each
Option, provided that during any Fiscal Year, no Participant shall be granted
Options covering more than 1,400,000 Shares. The Committee may grant Incentive
Stock Options, Nonqualified Stock Options, or a combination thereof. The
Committee may not grant Reload Options.
     5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of the
Option, and such other terms and conditions as the Committee, in its discretion,
shall determine. The Award Agreement shall also specify whether the Option is
intended to be an Incentive Stock Option or a Nonqualified Stock Option.
     5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
          5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock
Option, the Exercise Price shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date.
          5.3.2 Incentive Stock Options. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date; provided, however, that if
on the Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to Section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Exercise Price shall be not
less than one hundred and ten percent (110%) of the Fair Market Value of a Share
on the Grant Date.
          5.3.3 Substitute Options. Notwithstanding the provisions of
Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate
consummates a transaction described in Section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons who
become Employees or Consultants on account of such transaction may be granted
Options in substitution for options granted by their former employer. If such
substitute Options are granted, the Committee, in its sole discretion and
consistent with Section 424(a) of the Code, may determine that such substitute
Options shall have an exercise price less than one hundred percent (100%) of the
Fair Market Value of the Shares on the Grant Date.
     5.4 Expiration of Options.
          5.4.1 Expiration Dates. Each Option shall terminate no later than the
first to occur of the following events:
               (a) The date for termination of the Option set forth in the
written Award Agreement; or

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               (b) The expiration of seven (7) years from the Grant Date; or
               (c) The expiration of one (1) year from the date of the
Participant’s Termination of Service for a reason other than the Participant’s
death, Disability or Retirement; or
               (d) The expiration of three (3) years from the date of the
Participant’s Termination of Service by reason of Disability; or
               (e) The expiration of three (3) years from the date of the
Participant’s Retirement (except as provided in Section 5.8.2 regarding
Incentive Stock Options).
          5.4.2 Death 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.
          5.4.3 Committee Discretion. Subject to the limits of Sections 5.4.1
and 5.4.2, the Committee, in its sole discretion, (a) shall provide in each
Award Agreement when each Option expires and becomes unexercisable, and (b) may,
after an Option is granted, extend the maximum term of the Option (subject to
Section 5.8.4 regarding Incentive Stock Options).
     5.5 Exercisability of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.
     5.6 Payment. Options shall be exercised by the Participant’s delivery of a
written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
          Upon the exercise of any Option, the Exercise Price shall be payable
to the Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.
          As soon as practicable after receipt of a written notification of
exercise and full payment for the Shares purchased, the Company shall deliver to
the Participant (or the Participant’s designated broker), Share certificates
(which may be in book entry form) representing such Shares.
     5.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, but not limited to, restrictions related to
applicable federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.

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     5.8 Certain Additional Provisions for Incentive Stock Options.
          5.8.1 Exercisability. The aggregate Fair Market Value (determined on
the Grant Date(s)) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by any Employee during any calendar year
(under all plans of the Company and its Subsidiaries) shall not exceed $100,000.
          5.8.2 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant’s Termination of
Service for any reason other than Disability or death, unless (a) the
Participant dies during such three-month period, and (b) the Award Agreement or
the Committee permits later exercise. No Incentive Stock Option may be exercised
more than one (1) year after the Participant’s Termination of Service on account
of Disability, unless (a) the Participant dies during such one-year period, and
(b) the Award Agreement or the Committee permit later exercise.
          5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be
granted only to persons who are employees of the Company or a Subsidiary on the
Grant Date.
          5.8.4 Expiration. No Incentive Stock Option may be exercised after the
expiration of seven (7) years from the Grant Date; provided, however, that if
the Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee pursuant to Section 424(d) of the Code,
owns stock possessing more than 10% of the total combined voting power of all
classes of the stock of the Company or any of its Subsidiaries, the Option may
not be exercised after the expiration of five (5) years from the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
     6.1 Grant of SARs. Subject to the terms and conditions of the Plan, an SAR
may be granted to Employees and Consultants at any time and from time to time as
shall be determined by the Committee, in its sole discretion. The Committee may
grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination
thereof.
          6.1.1 Number of Shares. The Committee shall have complete discretion
to determine the number of SARs granted to any Participant, provided that during
any Fiscal Year, no Participant shall be granted SARs covering more than 700,000
Shares.
          6.1.2 Exercise Price and Other Terms. The Committee, subject to the
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan. However, the exercise price of a
Freestanding SAR shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date. The exercise price of Tandem or
Affiliated SARs shall equal the Exercise Price of the related Option.
     6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an

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Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the
Tandem SAR shall be exercisable only when the Fair Market Value of the Shares
subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
     6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be
exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
     6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable
on such terms and conditions as the Committee, in its sole discretion, shall
determine.
     6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
     6.6 Expiration of SARs. An SAR granted under the Plan shall expire upon the
date determined by the Committee, in its sole discretion, and set forth in the
Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also
shall apply to SARs.
     6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
          (a) The difference between the Fair Market Value of a Share on the
date of exercise over the exercise price; times
          (b) The number of Shares with respect to which the SAR is exercised.
          At the discretion of the Committee, the payment upon SAR exercise may
be in cash, in Shares of equivalent value, or in some combination thereof.
SECTION 7
RESTRICTED STOCK
     7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the Committee,
in its sole discretion, shall determine. The Committee, in its sole discretion,
shall determine the number of Shares to be granted to each Participant, provided
that during any Fiscal Year, no Participant shall receive more than 350,000
Shares of Restricted Stock.
     7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the
Committee, in its sole discretion, shall determine. Unless the

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Committee determines otherwise, Shares of Restricted Stock shall be held by the
Company as escrow agent until the restrictions on such Shares have lapsed.
     7.3 Transferability. Except as provided in this Section 7, Shares of
Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period of Restriction.
     7.4 Other Restrictions. The Committee, in its sole discretion, may impose
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate, in accordance with this Section 7.4.
          7.4.1 General Restrictions. The Committee may set restrictions based
upon the achievement of specific performance objectives (Company-wide,
divisional, or individual), applicable federal or state securities laws, or any
other basis determined by the Committee in its discretion.
          7.4.2 Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Restricted Stock as “performance-based compensation” under
Section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance
Goals shall be set by the Committee on or before the latest date permissible to
enable the Restricted Stock to qualify as “performance-based compensation” under
Section 162(m) of the Code. In granting Restricted Stock which is intended to
qualify under 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 under Section 162(m) of the Code
(e.g., in determining the Performance Goals).
     7.4.3 Legend on Certificates. The Committee, in its discretion, may legend
the certificates representing Restricted Stock to give appropriate notice of
such restrictions. For example, the Committee may determine that some or all
certificates representing Shares of Restricted Stock shall bear the following
legend:
     “The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is subject
to certain restrictions on transfer as set forth in the Applied Materials, Inc.
Employee Stock Incentive Plan, and in a Restricted Stock Agreement. A copy of
the Plan and such Restricted Stock Agreement may be obtained from the Secretary
of Applied Materials, Inc.”
     7.5 Removal of Restrictions. Except as otherwise provided in this
Section 7, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall be released from escrow as soon as practicable after
the last day of the Period of Restriction. Subject to the minimum Period of
Restriction specified in Section 2.35, the Committee, in its discretion, may
accelerate the time at which any restrictions shall lapse or be removed. After
the restrictions have lapsed, the Participant shall be entitled to have any
legend or legends under Section 7.4.3 removed from his or her Share certificate,
and the Shares shall be freely transferable by the Participant.

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     7.6 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares, unless the Committee determines otherwise.
     7.7 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock shall be entitled to receive all
dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
     7.8 Return of Restricted Stock to Company. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
     8.1 Grant of Performance Units/Shares. Performance Units and Performance
Shares may be granted to Employees and Consultants at any time and from time to
time, as shall be determined by the Committee, in its sole discretion. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Participant provided
that during any Fiscal Year, (a) no Participant shall receive Performance Units
having an initial value greater than $3,000,000, and (b) no Participant shall
receive more than 350,000 Performance Shares.
     8.2 Value of Performance Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee on or before the Grant Date.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the Grant Date.
     8.3 Performance Objectives and Other Terms. The Committee shall set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units/Shares
that will be paid out to the Participants. The time period during which the
performance objectives must be met shall be called the “Performance Period.”
Each Award of Performance Units/Shares shall be evidenced by an Award Agreement
that shall specify the Performance Period, and such other terms and conditions
as the Committee, in its sole discretion, shall determine.
          8.3.1 General Performance Objectives. The Committee may set
performance objectives based upon the achievement of Company-wide, divisional,
and/or individual goals (including, but not limited to, continued employment),
applicable federal or state securities laws, or any other basis determined by
the Committee in its discretion.
          8.3.2 Section 162(m) Performance Objectives. For purposes of
qualifying grants of Performance Units/Shares as “performance-based
compensation” under Section 162(m) of the Code, the Committee, in its
discretion, may determine that the performance objectives applicable to
Performance Units/Shares shall be based on the achievement of Performance Goals.
The

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Performance Goals shall be set by the Committee on or before the latest date
permissible to enable the Performance Units/Shares to qualify as
“performance-based compensation” under Section 162(m) of the Code. In granting
Performance Units/Shares which are intended to qualify under 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/Shares under Section 162(m) of the Code (e.g., in determining
the Performance Goals).
     8.4 Earning of Performance Units/Shares. After the applicable Performance
Period has ended, the holder of Performance Units/Shares shall be entitled to
receive a payout of the number of Performance Units/Shares earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance objectives have been achieved.
After the grant of a Performance Unit/Share, the Committee, in its sole
discretion, may reduce or waive any performance objectives for such Performance
Unit/Share.
     8.5 Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units/Shares shall be made as soon as practicable after the
expiration of the applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Shares in the form of cash, in
Shares (which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance
Period) or in a combination thereof.
     8.6 Cancellation of Performance Units/Shares. On the date set forth in the
Award Agreement, all unearned or unvested Performance Units/Shares shall be
forfeited to the Company, and again shall be available for grant under the Plan.
SECTION 9
NONEMPLOYEE DIRECTOR OPTIONS
     The provisions of this Section 9 are applicable only to Options granted to
Nonemployee Directors. The provisions of Section 5 are applicable to Options
granted to Employees and Consultants (and to the extent provided in
Section 9.2.8, to Options granted to Nonemployee Directors).
     9.1 Granting of Options.
          9.1.1 Initial Grants. Each Nonemployee Director who first becomes a
Nonemployee Director on or after the effective date of this Plan, automatically
shall receive, as of the date that the individual first is appointed or elected
as a Nonemployee Director, an Option to purchase 45,000 Shares.
          9.1.2 Ongoing Grants. Each Nonemployee Director who both (a) is a
Nonemployee Director on the last business day of a Fiscal Year, and (b) has
served as a Nonemployee Director for the entire Fiscal Year which includes such
last business day, automatically shall receive, as of the first business day of
the following Fiscal Year only, an Option to purchase 25,000 Shares.

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     9.2 Terms of Options.
          9.2.1 Option Agreement. Each Option granted pursuant to this Section 9
shall be evidenced by a written Award Agreement between the Participant and the
Company.
          9.2.2 Exercise Price. The Exercise Price for the Shares subject to
each Option granted pursuant to this Section 9 shall be 100% of the Fair Market
Value of such Shares on the Grant Date.
          9.2.3 Exercisability. Each Option granted pursuant to this Section 9
shall become exercisable as to twenty-five percent (25%) of the Shares on each
of the first four annual anniversaries of the Grant Date. Notwithstanding the
preceding, once a Participant ceases to be a Director, his or her Options which
are not then exercisable shall never become exercisable and shall be immediately
forfeited, except to the limited extent provided in the Sections 9.2.4 and
9.2.6.
          9.2.4 Retirement of Participant. In the event that a Participant is
age sixty (60) or over and has completed at least ten (10) Years of Service and
then incurs a Termination of Service due to Retirement, the right to exercise
all or a portion of any Shares subject to his or her Options that remain
unexercisable immediately prior to such Retirement shall accrue on the date of
Retirement in accordance with the following rules. If the Participant has less
than fifteen (15) Years of Service as of the date of his or her Retirement,
fifty percent (50% )of the Shares that otherwise would have vested during the
twelve (12) months immediately following the Retirement (had the Participant
remained a Nonemployee Director throughout such 12 month period) shall vest on
the Retirement date. If the Participant has at least fifteen (15) (but less than
twenty (20)) Years of Service as of the date of the Retirement, one hundred
percent (100%) of the Shares that otherwise would have vested during the twelve
(12) months immediately following the Retirement (had the Participant remained a
Nonemployee Director throughout such 12 month period) shall vest on the
Retirement date. If the Participant has at least twenty (20) (but less than
twenty-five (25)) Years of Service as of the date of the Retirement, (a) one
hundred percent (100%) of the Shares that otherwise would have vested during the
twelve (12) months immediately following the Retirement (had the Participant
remained a Nonemployee Director throughout such 12 month period) shall vest on
the Retirement date, and (b) fifty percent (50%) of the Shares that otherwise
would have vested during the second twelve (12) months following the Retirement
(had the Participant remained a Nonemployee Director throughout such 12 month
period) shall vest on the Retirement date. If the Participant has at least
twenty-five (25) Years of Service as of the date of the Retirement, one hundred
percent (100%) of the Shares that otherwise would have vested during the
twenty-four (24) months immediately following the Retirement (had the
Participant remained a Nonemployee Director throughout such 24 month period)
shall vest on the Retirement date.
          9.2.5 Expiration of Options. Each Option granted pursuant to this
Section 9 shall terminate upon the first to occur of the following events:
               (a) The expiration of five (5) years or (in the case of any
Option granted after October 10, 2000) seven (7) years from the Grant Date; or
               (b) The expiration of seven (7) months from the date of the
Participant’s Termination of Service for any reason other than the Participant’s
death, Disability or Retirement; or

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               (c) The expiration of one (1) year from the date of the
Participant’s Termination of Service by reason of Disability or Retirement.
          9.2.6 Death of Participant. Notwithstanding the provisions of
Section 9.2.5, if a Participant dies prior to the expiration of his or her
Options in accordance with Section 9.2.5, then (a) one hundred percent (100%) of
the Shares covered by his or her Options shall immediately become one hundred
percent (100%) exercisable, and (b) his or her Options shall terminate one (1)
year after the date of his or her death.
          9.2.7 Not Incentive Stock Options. Options granted pursuant to this
Section 9 shall not be designated as Incentive Stock Options.
          9.2.8 Other Terms. All provisions of the Plan not inconsistent with
this Section 9 shall apply to Options granted to Nonemployee Directors.
SECTION 10
MISCELLANEOUS
     10.1 Deferrals. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant under an Award. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
     10.2 No Effect on Employment or Service. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant’s employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
     10.3 Participation. No Employee or Consultant shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
     10.4 Indemnification. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company’s approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s
Certificate of Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.

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     10.5 Successors. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
     10.6 Beneficiary Designations. If permitted by the Committee, a Participant
under the Plan may name a beneficiary or beneficiaries to whom any vested but
unpaid Award shall be paid in the event of the Participant’s death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant’s death shall be paid to the Participant’s estate and, subject to
the terms of the Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant’s estate.
     10.7 Limited 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 10.6. All rights with respect to an Award granted to
a Participant shall be available during his or her lifetime only to the
Participant. Notwithstanding the foregoing, the Participant may, in a manner
specified by the Committee, (a) transfer a Nonqualified Stock Option to a
Participant’s spouse, former spouse or dependent pursuant to a court-approved
domestic relations order which relates to the provision of child support,
alimony payments or marital property rights, and (b) transfer a Nonqualified
Stock Option by bona fide gift and not for any consideration, to (i) a member or
members of the Participant’s immediate family, (ii) a trust established for the
exclusive benefit of the Participant and/or member(s) of the Participant’s
immediate family, (iii) a partnership, limited liability company of other entity
whose only partners or members are the Participant and/or member(s) of the
Participant’s immediate family, or (iv) a foundation in which the Participant
an/or member(s) of the Participant’s immediate family control the management of
the foundation’s assets.
     10.8 No Rights as Stockholder. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the
rights or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
     11.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend, suspend or terminate the Plan, or any part thereof, at
any time and for any reason. The amendment, suspension, or termination of the
Plan shall not, without the consent of the Participant, alter or impair any
rights or obligations under any Award theretofore granted to such Participant.
No Award may be granted during any period of suspension or after termination of
the Plan.
     11.2 Duration of the Plan. The amended and restated Plan shall be effective
as of September 13, 2006 and subject to Section 11.1 (regarding the Board’s
right to amend or terminate the Plan),

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shall remain in effect thereafter. However, without further stockholder
approval, no Incentive Stock Option may be granted under the Plan after
December 28, 2013.
SECTION 12
TAX WITHHOLDING
     12.1 Withholding Requirements. Prior to the delivery of any Shares or cash
pursuant to an Award (or exercise thereof), the Company shall have the power and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
(including the Participant’s FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
     12.2 Withholding Arrangements. The Committee, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a
Participant to satisfy such tax withholding obligation, in whole or in part by
(a) electing to have the Company withhold otherwise deliverable Shares, or
(b) delivering to the Company already-owned Shares having a Fair Market Value
equal to the amount required to be withheld. The amount of the withholding
requirement shall be deemed to include any amount which the Committee agrees may
be withheld at the time the election is made, not to exceed the amount
determined by using the maximum federal, state or local marginal income tax
rates applicable to the Participant with respect to the Award on the date that
the amount of tax to be withheld is to be determined. The Fair Market Value of
the Shares to be withheld or delivered shall be determined as of the date that
the taxes are required to be withheld.
SECTION 13
LEGAL CONSTRUCTION
     13.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
     13.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
     13.3 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
     13.4 Securities Law Compliance. With respect to Section 16 Persons,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Award
Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
     13.5 Governing Law. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the State of California.
     13.6 Captions. Captions are provided herein for convenience only, and shall
not serve as a basis for interpretation or construction of the Plan.

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