Applied Materials Inc PRE 14A, filed Jan 14, 2020
Applied Materials Inc (AMAT)
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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 Proxy Statement |
| ☐ | 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)
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2020 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
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January , 2020
Dear Fellow Shareholders:
On behalf of the Board of Directors, we are pleased to invite you to attend Applied Materials’ 2020 Annual Meeting of Shareholders, which will be held on Thursday, March 12, 2020, at 11:00 a.m. Pacific Time at our corporate offices at 3050 Bowers Avenue, Building 1, Santa Clara, California 95054.
We encourage you to read this Proxy Statement because 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 our 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 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 a robust 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 Investor 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 a 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 full Board. In response to the shareholder feedback and after careful consideration, the Board is submitting for shareholder approval an amendment and restatement of our Certificate of Incorporation to allow shareholder action by written consent.
Thank you for your continued investment in and support of Applied Materials.
Sincerely,
|
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 |
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NOTICE OF
2020 ANNUAL MEETING OF SHAREHOLDERS
Thursday, March 12, 2020
at 11:00 a.m. Pacific Time
The 2020 Annual Meeting of Shareholders of Applied Materials, Inc. will be held on Thursday, March 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
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1. To elect ten directors to serve for a one-year term and until their successors have been duly elected and qualified.
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2. To approve, on an advisory basis, the compensation of our named executive officers for fiscal year 2019.
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3. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2020.
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4. To approve an amendment and restatement of our Certificate of Incorporation to allow shareholders to act by written consent.
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5. To transact any other business that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.
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Your vote is 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 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 by e-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
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| Christina Y. Lai Corporate Secretary |
Santa Clara, California
January , 2020
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on March 12, 2020: The Proxy Statement and Annual Report to Shareholders are available at www.proxyvote.com.
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Cautionary Note Regarding Forward-Looking Statements
This 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 Form 10-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.
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2020 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 , 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 12, 2020, 11:00 a.m. Pacific Time | |
| Location: | Applied Materials, Inc., 3050 Bowers Avenue, Building 1, Santa Clara, California 95054 | |
| Record Date: | January 16, 2020 | |
| 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 6 | ✓ FOR each Nominee | ||||||
| Judy Bruner |
Stephen R. Forrest |
Yvonne McGill |
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| Xun (Eric) Chen |
Thomas J. Iannotti |
Scott A. McGregor |
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| Aart J. de Geus Gary E. Dickerson |
Alexander A. Karsner Adrianna C. Ma |
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| Proposal 2 – Executive Compensation | Page 20 | ✓ FOR | ||||||
| Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year 2019 |
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| Proposal 3 – Ratification of Registered Accounting Firm | Page 48 | ✓ FOR | ||||||
| Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2020 |
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| 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 |
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Applied Materials, Inc. i
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| Name and Occupation |
Age |
Director Since |
Independent |
Committees | ||||
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Judy Bruner |
61 |
2016 |
✓ |
Governance (Chair) | ||||
| Executive Vice President, Administration and Chief
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Audit
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Xun (Eric) Chen |
50 |
2015 |
✓ |
Compensation | ||||
| Partner, SB Investment Advisers (US), Inc.
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Strategy
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Aart J. de Geus |
65 |
2007 |
✓ |
Strategy (Chair) | ||||
| Chairman of the Board of Directors, Co-Chief Executive
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Investment
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Gary E. Dickerson |
62 |
2013 |
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| President and Chief Executive Officer, Applied Materials, Inc. |
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Stephen R. Forrest |
69 |
2008 |
✓ |
Audit | ||||
| Professor of Electrical Engineering & Computer Science,
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Strategy Investment
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Thomas J. Iannotti |
63 |
2005 |
✓ |
Compensation (Chair) | ||||
| Senior Vice President and General Manager, Enterprise
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Alexander A. Karsner |
52 |
2008 |
✓ |
Compensation | ||||
| Senior Strategist, X
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Governance
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Adrianna C. Ma |
46 |
2015 |
✓ |
Investment (Chair) | ||||
| Managing Partner, Haleakala Holdings LLC |
Audit Governance
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Yvonne McGill |
52 |
2019 |
✓ |
Audit | ||||
| Chief Financial Officer, Senior Vice President, Infrastructure Solutions Group and Global Financial Planning and Analysis, Dell Technologies
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Scott A. McGregor |
63 |
2018 |
✓ |
Audit | ||||
| President and Chief Executive Officer, Broadcom Corporation (retired)
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Strategy
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ii 2020 Proxy Statement
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2020 PROXY STATEMENT SUMMARY
Board Practices 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. Our Board composition reflects strong Board practices that support regular refreshment based on board needs and proactive succession planning.
| Director Nominee Expertise | Key Attributes | |
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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
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Board Composition to Support Company Strategy |
| 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.
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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.
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Annual Board Evaluations |
| The Board conducts an annual self-assessment of Board, Board Committees and individual directors to evaluate effectiveness.
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Board Refreshment |
| 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.
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Director Succession Planning |
| The Corporate Governance and Nominating Committee reviews the short- and long-term strategies and interests of Applied to determine what current and future skills and experience are required of the Board in exercising its oversight function.
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Applied Materials, Inc. iii
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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
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✓ Annual Election of Directors
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✓ Shareholder Proxy Access
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✓ Independent Chairman of the Board
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✓ No Poison Pill
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✓ Highly Independent Board (9 of 10 Director nominees) and Committees
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✓ No Supermajority Vote Requirements
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✓ Annual Board, Committee and Individual Evaluations
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✓ Majority Voting for Directors
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✓ Robust Board Succession Planning
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✓ Regular Executive Sessions of Independent Directors
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✓ Active Shareholder Engagement Practices
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✓ Stock Ownership Guidelines for Directors and Executives
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✓ Shareholder Right to Call a Special Meeting
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✓ Clawback Policy for Annual and Long-Term Incentive Plans
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Shareholder Engagement
We believe that strong corporate governance should include regular engagement with our shareholders to enable us to understand and respond to shareholder concerns. We have a robust shareholder outreach program led by a cross-functional team that includes members of our Investor 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, we solicit feedback on our executive compensation program, corporate governance practices, and sustainability and inclusion and diversity initiatives, as well as any matters voted on at our prior annual meeting. After the filing of our proxy statement, we engage again with our shareholders about important topics to be addressed at our annual meeting. Following our annual meeting, we review the results of the meeting and investor feedback, as well as evaluate emerging trends in corporate governance and other areas. We share feedback we receive from our shareholders with the Human Resources and Compensation Committee, Corporate Governance and Nominating Committee, and the full Board. Shareholder input is then factored into the Board’s decision-making. See “Shareholder Engagement” on page 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.
iv 2020 Proxy Statement
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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.
2019 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 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 $14.6 billion; |
| ● | Operating profit of $3.4 billion, resulting in GAAP EPS of $2.86, and non-GAAP adjusted EPS of $3.04 (see Appendix A for a reconciliation of non-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
Non-GAAP adjusted operating margin and non-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix A for non-GAAP reconciliations.
Applied Materials, Inc. v
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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 prioritize our operating expenses towards R&D to solve major technology challenges for our customers and drive our long-term growth strategy. |
| ● | 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 growing number of applications within the IoT, communications, automotive, power and sensor markets. |
| ● | 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 (which generate subscription-style revenue) has increased by approximately 30% since 2017. |
| ● | We expanded our R&D capabilities by opening the Materials Engineering Technology Accelerator (META Center), a state-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 for non-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
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2020 PROXY STATEMENT SUMMARY
Stock Price Performance
In 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 logic spending, and continued reduction in memory inventory levels. Over the past five years, Applied has outperformed the S&P 500 Index, as shown below. In addition, Applied outperformed peers by over 40% in fiscal 2019.
FY2015 – FY2019 Total Shareholder Return vs. Key Peers
Applied Materials, Inc. vii
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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 |
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Structure |
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Highlights | ||||||||||||||||||||||
| Base Salary (see page 29) |
∎ |
Fixed cash compensation for expected day-to-day responsibilities
|
∎ |
Fiscal 2019 salaries for each named executive officer (“NEO”) increased from 2018 levels to reflect increases in competitive pay positioning levels |
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| ∎ | Reviewed annually and adjusted when appropriate, based on scope of responsibility, performance, time in role, experience, and competitive market for executive talent
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| Annual Incentive Bonuses (see page 29) |
∎
∎
∎
∎
∎ |
Variable compensation paid in cash
Based on performance against pre-established financial, operational, strategic and individual performance measures
Financial and non-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 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 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) |
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| Long-Term Incentives (see page 35)
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∎
∎
∎
∎ |
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 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 | ||||||||||||||||||||||
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2020 PROXY STATEMENT SUMMARY
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
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| CEO |
All Other NEOs | |
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84% Long-Term Incentives 92% Variable Compensation 76% Long-Term Incentives 87% Variable Compensation
1 Represents total direct compensation for FY2019
Summary of 2019 Total Direct Compensation
The following table summarizes elements of annual total direct compensation for our NEOs for fiscal 2019, consisting of (1) base salary, (2) annual incentive bonus and (3) long-term incentive awards (the grant date fair value of stock awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation, such as certain other amounts required by the SEC to be reported in the Summary Compensation Table (see page 41 of this Proxy Statement).
| Name and Principal Position | Salary ($) |
Annual ($) |
Annual ($) |
Total ($) |
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| Gary E. Dickerson |
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1,024,808 |
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1,133,000 |
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11,696,506 |
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13,854,314 |
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| President and Chief Executive Officer |
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| Daniel J. Durn |
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620,673 |
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580,078 |
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3,931,029 |
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5,131,780 |
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| Senior Vice President, Chief Financial Officer |
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| Ali Salehpour |
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620,673 |
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411,750 |
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3,931,029 |
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4,963,452 |
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| Senior Vice President, Services, Display and Flexible Technology |
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| Prabu G. Raja |
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564,058 |
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430,948 |
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2,892,132 |
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3,887,138 |
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| Senior Vice President, Semiconductor Products Group |
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| Steve G. Ghanayem |
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564,058 |
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497,543 |
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2,892,132 |
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3,953,733 |
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| Senior Vice President, New Markets and Alliances Group |
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Pay and Performance
The HRCC approves aggressive performance goals for the CEO, 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 has remained essentially flat over the same period.
| (1) | Total direct compensation consists of annual base salary, annual incentive bonus and long-term incentive award (grant date fair value of annual equity awards). Total direct compensation shown above excludes other amounts required by the SEC to be reported in the Summary Compensation Table. |
| (2) | TSR line illustrates the total shareholder return on our common stock during the period from October 23, 2015 through October 25, 2019 (the last business day of fiscal 2019), assuming $100 was invested on October 23, 2015 and assuming reinvestment of dividends. |
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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 more in-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:
Applied Materials, Inc. xi
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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 | |
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PROPOSAL 1—ELECTION OF DIRECTORS
PROXY STATEMENT
PROPOSAL 1—ELECTION OF DIRECTORS
| ✓ |
THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE FOLLOWING DIRECTOR NOMINEES
| |
|
Judy Bruner
Executive Vice President, Administration and Chief Financial Officer, SanDisk Corporation (retired) |
Independent Director
Director since 2016
Age 61
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 served as Executive Vice President, Administration and Chief Financial Officer of SanDisk | ||||||
| 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 Rapid7, Inc., Seagate Technology plc and Varian Medical Systems, Inc. Ms. Bruner previously served as a member of the board of directors of Brocade Communications Systems, Inc., from 2009 until its acquisition in November 2017. | ||||||
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Xun (Eric) Chen
Partner, SB Investments Advisers (US), Inc. |
Independent Director
Director since 2015
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), Inc. (“SBIA”), an investment adviser | ||||||
| focused on investments in the technology sector, since March 2018. Prior to joining SBIA, Dr. Chen was the Chief Executive Officer and Co-Founder of BaseBit Technologies, Inc., a technology company in Silicon Valley. He served as CEO of BaseBit Technologies since it was founded in October 2015, except from March 2016 until December 2017, when BaseBit was a portfolio company of Team Curis Group, a group of integrated biotechnology and data technology companies and laboratories, during which time Dr. Chen served as CEO of Team Curis Group. From 2008 to 2015, Dr. Chen served as a managing director of Silver Lake, a leading private investment firm focused on technology-enabled and related growth industries. Prior to Silver Lake, Dr. Chen was a senior vice president and served on the executive committee of ASML Holding N.V. He joined ASML following its 2007 acquisition of Brion Technologies, Inc., a company he co-founded in 2002 and served as Chief Executive Officer. Prior to Brion Technologies, Dr. Chen was a senior vice president at J.P. Morgan. He served as a member of the boards of directors of Qihoo 360 Technology Co. Ltd. from 2014 to July 2016 and of Varian Semiconductor Equipment Associates, Inc. (“Varian”) from 2004 until its acquisition by Applied in 2011. Dr. Chen also currently serves as a member of the board of directors of Che Hao Duo Group.
| ||||||
|
Aart J. de Geus
Chairman and Co-Chief Executive Officer, Synopsys, Inc. |
Independent Director
Director since 2007
Age 65
Board Committees:
● Strategy (Chair) ● 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 from start-up through various stages of growth
● Mergers and acquisitions
● Cybersecurity
● Risk management and controls
● Public company board experience | ||||
|
Aart J. de Geus is a co-founder of Synopsys, Inc., a provider of electronic design automation software and | ||||||
| related services for semiconductor design companies, and currently serves as its Chairman of the Board of Directors and Co-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 power, renewable energy, aviation, healthcare and finance company, where he was the Manager of the Advanced Computer-Aided Engineering Group. | ||||||
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PROPOSAL 1—ELECTION OF DIRECTORS
|
Gary E. Dickerson
President and Chief Executive Officer, Applied Materials, Inc. |
Director since 2013
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 has been Chief Executive Officer and a member of the Board of Directors of Applied | ||||||
| since Mr. Dickerson was named President of Applied in June 2012, after joining Applied following its acquisition in November 2011 of Varian Semiconductor Equipment Associates, Inc., a supplier of semiconductor manufacturing equipment. Mr. Dickerson had served as Chief Executive Officer and a director of Varian since 2004. Prior to joining Varian in 2004, Mr. Dickerson served 18 years with KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related industries, where he held a variety of operations and product development roles, including President and Chief Operating Officer. Mr. Dickerson started his semiconductor career in manufacturing and engineering management at General Motors’ Delco Electronics Division and then AT&T, Inc. | ||||||
|
Stephen R. Forrest
Professor of Electrical Engineering & Computer Science, Physics, and Materials Science & Engineering, University of Michigan |
Independent Director
Director since 2008
Age 69
Board Committees: ● Audit ● Strategy ● Investment
Key Qualifications and Expertise:
● Semiconductor, displays and alternative energy technologies
● Research and development portfolio management
● Government policy
● Strategy, innovation, technology licensing and product commercialization
● Establishing partnerships to develop businesses in new markets focused on alternative energy and other technologies | ||||
|
Stephen R. Forrest holds faculty appointments as | ||||||
| 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, Dr. Forrest also served as Vice President for Research at the University of Michigan. From 1992 to 2005, Dr. Forrest served in a number of positions at Princeton University, including Chair of the Electrical Engineering Department, Director of the Center for Photonics and Optoelectronic Materials, and director of the National Center for Integrated Photonic Technology. Prior to Princeton, Dr. Forrest was a faculty member of the Electrical Engineering and Materials Science Departments at the University of Southern California. Dr. Forrest has participated in the founding of five companies commercializing fiber optic components, displays, lighting and solar cells. | ||||||
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|
Thomas J. Iannotti
Senior Vice President and General Manager, Enterprise Services, Hewlett-Packard Company (retired) |
Chairman of the Board
Independent Director
Director since 2005
Age 63
Board Committees:
● Human Resources and Compensation (Chair)
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 served as Senior Vice President | ||||||
| and General Manager, Enterprise Services, for Hewlett-Packard Company, a technology solutions provider to consumers, businesses and institutions globally, from February 2009 until his retirement in October 2011. From 2002 to January 2009, Mr. Iannotti held various executive positions at Hewlett-Packard, including Senior Vice President and Managing Director, Enterprise Business Group, Americas. From 1978 to 2002, Mr. Iannotti worked at Digital Equipment Corporation, a vendor of computer systems and software, and at Compaq Computer Corporation, a supplier of personal computing systems, after its acquisition of Digital Equipment Corporation. Mr. Iannotti currently serves as lead director of the board of directors of Atento S.A. | ||||||
|
Alexander A. Karsner
Senior Strategist, X |
Independent Director
Director since 2008
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
● Strategy and innovation
● Public company board experience | ||
|
Alexander A. Karsner is Senior Strategist at X, the innovation lab of Alphabet Inc. Mr. Karsner is also Executive Chairman of Elemental Labs, which pursues | ||||
| market transformation through nature-based solutions. Mr. Karsner most recently served as Managing Partner of Emerson Collective, an investment platform funding non-profit, philanthropic and for-profit portfolios advancing education, immigration, the environment and other social innovation initiatives, from January 2016 to July 2019. Prior to this, Mr. Karsner has been Founder and CEO of Manifest Energy Inc., an energy technology development and investment firm, since July 2009, and has served as its Executive Chairman since January 2013. From March 2006 to August 2008, he served as Assistant Secretary for Energy Efficiency and Renewable Energy at the U.S. Department of Energy, and exercised a diplomatic role as a principal in the UN Framework Convention on Climate Change. From August 2002 to March 2006, Mr. Karsner was Founder and Managing Director of Enercorp, a private company involved in international project development, management and financing of energy infrastructure. Mr. Karsner has also worked with Tondu Energy Systems of Texas, Wartsila Power Development of Finland and other multi-national energy firms and developers. He is a Precourt Energy Scholar at Stanford University’s School of Civil and Environmental Engineering, and serves on Advisory Boards of MIT Medialab, and the Polsky Center for Entrepreneurship at the University of Chicago’s Booth School of Business. Mr. Karsner served as a member of the board of directors of Codexis, Inc. from 2009 to 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 2020 Proxy Statement
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PROPOSAL 1—ELECTION OF DIRECTORS
|
Adrianna C. Ma
Managing Partner, Haleakala Holdings LLC |
Independent Director
Director since 2015
Age 46
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 has served as Managing Partner of Haleakala Holdings LLC, her personal investment firm, since July 2019. From May 2015 to June 2019, | ||||
| she was a Managing Partner at the Fremont Group, a private investment company where she was responsible for a portfolio of funds, including its investment strategy, asset allocation, manager selection and risk management. From 2005 to April 2015, Ms. Ma served as a Managing Director at General Atlantic LLC, a global growth equity firm, where she invested in and served on the boards of directors of technology-enabled growth companies around the world. Prior to joining General Atlantic, Ms. Ma worked at Morgan Stanley & Co. Incorporated as an investment banker in the Mergers, Acquisitions and Restructuring Department. Ms. Ma previously served as a member of the board of directors of Jagged Peak Energy Inc. from 2019 to 2020 and C&J Energy Services, Inc. from 2013 to 2015. | ||||
|
|
Yvonne McGill
Chief Financial Officer, Senior Vice President, Infrastructure Solutions Group and Global Financial Planning and Analysis Dell Technologies, Inc. |
Independent Director
Director since 2019
Age 52
Board Committees:
● Audit
Key Qualifications and Expertise:
● Executive leadership and management experience
● Accounting principles, financial controls, financial reporting rules and regulations, and audit procedures
● Global business, industry and operational experience in the technology sector | ||||
|
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. | ||||||
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|
|
Scott A. McGregor
President and Chief Executive Officer, Broadcom Corporation (retired) |
Independent Director
Director since 2018
Age 63
Board Committees:
● Audit ● 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 operational experience
● Strategy, innovation, management development and understanding of global challenges and opportunities
● Cybersecurity
● Public company board leadership | ||||
|
Scott A. McGregor served as President and Chief | ||||||
| Executive Officer and as a member of the board of directors of Broadcom Corporation, a world leader in wireless connectivity, broadband, automotive and networking infrastructure, from 2005 until the company was acquired by Avago Technologies Limited in February 2016. Mr. McGregor joined Broadcom from Philips Semiconductors (now NXP Semiconductors), where he was President and Chief Executive Officer. He previously served in a range of senior management positions at Santa Cruz Operation Inc., Digital Equipment Corporation (now part of HP), Xerox PARC and Microsoft, where he was the architect and development team leader for Windows 1.0. Mr. McGregor currently serves as a member of the board of directors of Equifax Inc., and Luminar Technologies. He previously served as a member of the boards of directors of Ingram Micro Inc., TSMC, and Xactly Corporation. | ||||||
Chairman Emeritus
6 2020 Proxy Statement
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BOARD AND CORPORATE GOVERNANCE PRACTICES
BOARD AND CORPORATE GOVERNANCE PRACTICES
Board Composition and Nominee Considerations
|
|
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
Applied Materials, Inc. 7
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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 |
|
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10 2020 Proxy Statement
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BOARD AND CORPORATE GOVERNANCE PRACTICES
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 Board 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 in some cases through delegation of certain types of risks to the oversight of the appropriate Board Committee. The full Board oversees risks and opportunities associated with ESG 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 Applied, its shareholders and other 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 its committees from time to time on risk-related issues.
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12 2020 Proxy Statement
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BOARD AND CORPORATE GOVERNANCE PRACTICES
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 statement and annual report content based on feedback, and responded to shareholder concerns JUNE - AUGUST Action by Written Consent Focused Engagement Conducted extensive written consent engagement outreach. We reached out to holders of 57% 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 holders of 62% 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 | |||
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BOARD AND CORPORATE GOVERNANCE PRACTICES
Audit Committee
| Members:
Dennis D. Powell, Chair* Judy Bruner* Stephen R. Forrest Adrianna C. Ma* Yvonne McGill*+ Scott A. McGregor* |
Primary responsibilities:
● Oversee financial statements, internal control over financial reporting and auditing, accounting and financial reporting processes ● Oversee the qualifications, independence, performance and engagement of our independent registered public accounting firm ● Oversee disclosure controls and procedures, and internal audit function ● Review and pre-approve audit and permissible non-audit services and fees ● Oversee tax, legal, regulatory and ethical compliance ● Review and approve related-person transactions ● Oversee financial-related risks, enterprise risk management program and cybersecurity ● Oversee matters related to Environmental Health and Safety |
Meetings in Fiscal 2019: 11 | ||
| * Audit Committee Financial Expert + Appointed to Committee in July 2019 |
Human Resources and Compensation Committee
| Members:
Thomas J. Iannotti, Chair Xun (Eric) Chen Alexander A. Karsner |
Primary responsibilities:
● Oversee human resources programs, compensation and employee benefits programs, policies and plans ● Review and advise on management succession planning and executive organizational development ● Determine compensation policies for executive officers and employees ● Review the performance and determine the compensation of executive officers ● Approve and oversee equity-related incentive plans and executive bonus plans ● Review compensation policies and practices as they relate to risk management practices ● Approve the compensation program for Board members ● Oversee human capital management, including the Company’s culture and diversity and inclusion programs and initiatives |
Meetings in Fiscal 2019: 5 |
Corporate Governance and Nominating Committee
| Members:
Judy Bruner, Chair Alexander A. Karsner Adrianna C. Ma Dennis D. Powell |
Primary responsibilities:
● Oversee the composition, structure and evaluation of the Board and its committees ● Identify and recommend qualified candidates for election to the Board ● Establish procedures for director candidate nomination and evaluation ● Oversee corporate governance policies and practices, including Corporate Governance Guidelines ● Review and approve director service on the board of directors of other companies and oversee director education ● Review shareholder proposals and recommend to the Board actions to be taken in response to each proposal ● Review conflict of interest matters for the Board |
Meetings in Fiscal 2019: 4 |
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DIRECTOR COMPENSATION
Director Compensation for Fiscal 2019
| Name | Fees Earned or Paid in Cash ($) |
Stock Awards ($)(1)(2) |
All Other Compensation ($)(3) |
Total ($) |
||||||||||||
| Judy Bruner |
117,500 | 220,119 | 6,500 | 344,119 | ||||||||||||
| Xun (Eric) Chen |
92,500 | 220,119 | — | 312,619 | ||||||||||||
| Aart J. de Geus |
104,500 | 220,119 | — | 324,619 | ||||||||||||
| Stephen R. Forrest |
117,000 | 220,119 | 750 | 337,869 | ||||||||||||
| Thomas J. Iannotti |
252,500 | 220,119 | 4,000 | 476,619 | ||||||||||||
| Alexander A. Karsner |
92,500 | 220,119 | — | 312,619 | ||||||||||||
| Adrianna C. Ma |
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 |
140,000 | 220,119 | — | 360,119 | ||||||||||||
| (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 2019 (consisting of 5,988 restricted stock units granted to each director on March 7, 2019 and 2,831 restricted stock units granted to Ms. McGill on July 22, 2019 upon her initial appointment to the Board), as determined pursuant to FASB Accounting Standards Codification 718 (“ASC 718”). The assumptions used to calculate the value of stock awards are set forth in Note 12 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2019 filed with the SEC on December 13, 2019. |
| (2) | Each director other than Ms. McGill had 5,988 restricted stock units outstanding at the end of fiscal 2019 and Ms. McGill had 2,831 restricted stock units outstanding at the end of fiscal 2019. In addition, certain directors had restricted stock units that had vested in previous years and for which settlement was deferred until the date of his or her termination of service from the Board, as follows: Dr. Chen, 14,286 units; Ms. Ma, 20,416 units; and Mr. Powell, 58,870 units. |
| (3) | Amount shown represents The Applied Materials Foundation’s and/or the Company’s matching contribution of the director’s donations/contributions to eligible non-profit organizations. |
| (4) | Ms. McGill was appointed to the Board in July 2019. |
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The following table shows the number of shares of our common stock beneficially owned as of December 31, 2019 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, 2019.
| Shares Beneficially Owned | ||||||||
| Name | Number | Percent(1) | ||||||
| The Vanguard Group
|
75,042,977 | (2) | 8.20 | % | ||||
| BlackRock, Inc.
|
66,433,313 | (3) | 7.26 | % | ||||
| State Street
Corporation |
47,947,194 | (4) | 5.24 | % | ||||
| (1) | Percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by 915,455,190 shares of common stock outstanding as of December 31, 2019. |
| (2) | The amended Schedule 13G filed with the SEC by The Vanguard Group (“Vanguard”) on February 11, 2019 indicates that as of December 31, 2018, Vanguard had sole dispositive power over 73,625,049 shares, shared dispositive power over 1,417,928 shares, sole voting power over 1,213,882 shares, and shared voting power over 227,790 shares. |
| (3) | The amended Schedule 13G filed with the SEC by BlackRock, Inc. (“BlackRock”) on February 4, 2019 indicates that as of December 31, 2018, BlackRock had sole dispositive power over 66,433,313 shares and sole voting power over 55,582,185 shares. |
| (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. |
18 2020 Proxy Statement
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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, 2019 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, 2019.
| Shares Beneficially Owned | ||||||||
| Name | Number(1) | Percent(2) | ||||||
| Directors, not including the CEO: |
|
|
|
|
|
| ||
| Judy Bruner |
14,566 | * | ||||||
| Xun (Eric) Chen |
24,578 | (3) | * | |||||
| Aart J. de Geus |
141,467 | * | ||||||
| Stephen R. Forrest |
66,967 | * | ||||||
| Thomas J. Iannotti |
59,970 | * | ||||||
| Alexander A. Karsner |
20,027 | * | ||||||
| Adrianna C. Ma |
23,199 | (4) | * | |||||
| Yvonne McGill |
163 | * | ||||||
| Scott A. McGregor |
4,261 | * | ||||||
| Dennis D. Powell |
64,259 | (5) | * | |||||
| Named Executive Officers: |
|
|
|
|
|
| ||
| Gary E. Dickerson |
1,564,568 | * | ||||||
| Daniel J. Durn |
109,696 | (6) | * | |||||
| Ali Salehpour |
322,689 | * | ||||||
| Prabu G. Raja |
241,635 | * | ||||||
| Steve G. Ghanayem |
283,882 | * | ||||||
| Current Directors and Executive Officers, as a Group (19 persons) |
3,749,538 | (7) | * | |||||
| * | 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 915,455,190 shares of common stock outstanding as of December 31, 2019, plus the number of shares of common stock that such person or group had the right to acquire within 60 days after December 31, 2019. |
| (3) | Includes 14,467 restricted stock units that have vested and which, pursuant to Dr. Chen’s election to defer, will be converted to shares of Applied common stock and paid to him on the date of his termination of service from the Applied Board. |
| (4) | Includes 20,681 restricted stock units that have vested and which, pursuant to Ms. Ma’s election to defer, will be converted to shares of Applied common stock and paid to her on the date of her termination of service from the Applied Board. |
| (5) | Includes 59,670 restricted stock units that have vested and which, pursuant to Mr. Powell’s election to defer, will be converted to shares of Applied common stock and paid to him on the date of his termination of service from the Applied Board. |
| (6) | Includes 18,630 restricted stock units that are scheduled to vest within 60 days after December 31, 2019. |
| (7) | Includes (a) 32,375 restricted stock units that are scheduled to vest within 60 days after December 31, 2019 and (b) 94,818 restricted stock units that have vested and which, pursuant to each director’s election to defer, will be converted to shares of Applied common stock and paid to the director on the date of the director’s termination of service from the Applied Board. |
Applied Materials, Inc. 19
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PROPOSAL 2—APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
| ✓ | THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS FOR FISCAL YEAR 2019, AS DISCLOSED IN THIS PROXY STATEMENT
| |
20 2020 Proxy Statement
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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 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 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 $14.6 billion; |
| ● | Operating profit of $3.4 billion, resulting in GAAP EPS of $2.86, and non-GAAP adjusted EPS of $3.04 (see Appendix A for a reconciliation of non-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
Non-GAAP adjusted operating margin and non-GAAP adjusted EPS are performance targets under our bonus and long-term incentive plans. See Appendix A for non-GAAP reconciliations.
Applied Materials, Inc. 21
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Key financial highlights for our reporting segments in fiscal 2019 include the following:
| ● | Semiconductor Systems segment: we delivered annual revenue of $9.0 billion in an environment that included a significant correction in memory spending. |
| ● | Applied Global Services segment: we grew revenue to a record $3.9 billion and continued to increase the number of installed base tools covered by long-term service agreements by approximately 30% since 2017. |
| ● | For the calendar year 2019, we expect to outperform both the WFE market and our process equipment peers. |
| ● | Display and Adjacent Markets segment: we delivered revenue of $1.7 billion and maintained profitability during an industry down cycle. |
Strategic and Operational Highlights
Applied’s strategy is to deliver highly differentiated materials engineering products and services that enable major technology inflections and drive our customers’ 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 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 prioritize our operating expenses towards R&D to solve major technology challenges for our customers and drive our long-term growth strategy. |
| ● | 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 growing number of applications within the IoT, communications, automotive, power and sensor markets. |
| ● | 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 (which generate subscription-style revenue) has increased by approximately 30% since 2017. |
| ● | We expanded our R&D capabilities by opening the Materials Engineering Technology Accelerator (META Center), a state-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 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 for non-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.
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COMPENSATION DISCUSSION AND ANALYSIS
Stock Price Performance
In 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 logic spending, and continued reduction in memory inventory levels. Over the past five years, Applied has outperformed the S&P 500 Index, as shown below. In addition, Applied outperformed peers by over 40% in fiscal 2019.
FY2015 – FY2019 Total Shareholder Return vs. Key Peers
Applied Materials, Inc. 23
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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 expected day-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 against pre-established financial, operational, strategic and individual performance measures
Financial and non-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 the competitive pay positioning level for annual incentive targets for CFOs
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 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 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 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
| ||||||||||||||||||||||
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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 2019 Total Direct Compensation
The following table summarizes elements of annual total direct compensation for our NEOs for fiscal 2019, consisting of (1) base salary, (2) annual incentive bonus and (3) long-term incentive awards (the grant date fair value of stock awards). This table excludes amounts not considered by the HRCC to be annual total direct compensation, such as certain other amounts required by the SEC to be reported in the Summary Compensation Table (see page 41 of this Proxy Statement).
| 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 | ||||||||||||
Applied Materials, Inc. 25
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Pay and Performance
The HRCC approves aggressive performance goals for the CEO, 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 has remained essentially flat over the same period.
| (1) | Total direct compensation consists of annual base salary, annual incentive bonus and long-term incentive award (grant date fair value of annual equity awards). Total direct compensation shown above excludes other amounts required by the SEC to be reported in the Summary Compensation Table. |
| (2) | TSR line illustrates the total shareholder return on our common stock during the period from October 23, 2015 through October 25, 2019 (the last business day of fiscal 2019), assuming $100 was invested on October 23, 2015 and assuming reinvestment of dividends. |
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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 to pre-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 other employees from engaging in hedging or other speculative trading, and prohibits directors and NEOs from pledging their shares.
| |||||
|
|
| |||||||
|
✓ |
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 senior officers and directors are subject to stock ownership guidelines to align their interests with shareholders’ interests.
|
Ò |
No Dividends on Unvested Equity Awards – We do not pay dividends or dividend equivalents on unvested equity awards.
| |||||
|
|
| |||||||
|
✓ |
Double-Trigger Change-in-Control Provisions – Equity awards for all NEOs require a “double-trigger” of both a change-in-control and termination of employment for vesting acceleration benefits to apply.
|
Ò |
No Executive Pensions – We do not offer any executive pension plans.
| |||||
|
|
| |||||||
|
✓ |
Annual Say-On-Pay Vote – We seek annual shareholder feedback on our executive compensation program.
|
Ò |
No Tax Gross-Ups – We do not pay tax gross-ups, except in connection with business-related relocation or expatriate assignments.
| |||||
Applied Materials, Inc. 27
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Assessing Performance and Payout. The determination of fiscal 2019 performance and annual incentive bonuses for our NEOs consisted of three 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 NEOs.
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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 | ||
| Customers and Field | 12.5% | Promotes focus on customer service by improving growth and efficiency at key accounts and applications | ||
| People and Organization | 7.5% | Drives focus on greater employee engagement to promote hiring, retention and development of key talent | ||
Applied Materials, Inc. 31
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The following table details fiscal 2019 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 for non-GAAP reconciliations). 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. 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 | ||||||||||||||||||||
32 2020 Proxy Statement
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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
|
| |||||||||||||||||||||
Applied Materials, Inc. 33
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The following table shows the highlights of each NEO’s performance in fiscal 2019 that the HRCC considered in determining their respective IPFs.
| NEO |
Fiscal 2019 Individual Performance Highlights | |||
| Gary E. Dickerson |
● |
Delivered annual revenue of $14.6 billion and non-GAAP adjusted EPS of $3.04 | ||
|
● |
Positioned Applied for future growth, to win at key industry inflections and to execute well in a range of market conditions | |||
| Daniel J. Durn |
● |
Delivered annual revenue of $14.6 billion and non-GAAP adjusted EPS of $3.04 | ||
|
● |
Successfully managed external investor relationships and communications | |||
|
● |
Drove major improvements in efficiency and effectiveness across the Finance organization | |||
| Ali Salehpour |
● |
Delivered record Applied Global Services revenues of $3.9 billion | ||
|
● |
Increased the number of installed base tools covered by long-term service agreement by approximately 30% since 2017 | |||
|
● |
Delivered revenues in Display of $1.7 billion in a down market | |||
| Prabu G. Raja |
● |
Delivered Semiconductor Systems revenues of $9.0 billion | ||
|
● |
Announced acquisition of Kokusai Electric (scheduled to close in 2020) | |||
|
● |
Continued to develop pipeline of new products to address future technology inflections to fuel growth | |||
| Steve G. Ghanayem |
● |
Continued to drive new industry engagements through New Markets and Alliances group | ||
| ● |
Opened leading edge Materials Engineering Technology Accelerator research and development center in the State of New York | |||
Actual Bonus Payouts. The diagram below shows the results for each of the three key steps in determining the NEOs’ fiscal 2019 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 2019 Annual Incentive Calculation
| Performance Measures |
Fiscal 2019 Achievement | |||||||
|
Initial Performance Goal |
∎ Fiscal 2019 non-GAAP adjusted EPS of $2.90 |
✓ Achieved non-GAAP adjusted EPS of $3.04
| ||||||
Corporate Scorecard |
∎ Strong performance on core objectives: – Financial and Market Performance and Execution – Products and Growth – Customers and Field – People and Organization
|
✓ NEO scorecard results achieved in a range from 0.49 to 0.65 based on individual weightings
| ||||||
|
Individual Performance Modifier |
∎ NEO performance against personal objectives and individual contribution to business performance
|
✓ IPF achieved at 1.0 for all NEOs except Mr. Durn at 1.25
| ||||||
| ||||||||
|
Average NEO bonus,
as
| ||||||||
34 2020 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS
The following table shows for each NEO: (1) the maximum amount payable under the Bonus Plan, (2) the target bonus amount expressed as a percentage of base salary, (3) the target bonus expressed as a dollar amount and (4) the actual fiscal 2019 bonus amount approved by the HRCC and paid to the NEO.
| NEO | (1) Maximum Bonus Payable ($) |
(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 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 shows the actual annual bonus awards to our CEO and our non-GAAP adjusted EPS 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)
Non-GAAP adjusted EPS is a performance target under our bonus plan. See Appendix A for non-GAAP reconciliations.
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36 2020 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS
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COMPENSATION DISCUSSION AND ANALYSIS
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EXECUTIVE COMPENSATION
Summary Compensation Table for Fiscal 2019, 2018 and 2017
The following table shows compensation information for fiscal 2019, 2018 and 2017 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
|
(4)
|
|
14,072,395 14,064,540 15,322,705
|
| |||||||
|
Daniel J. Durn(5)
|
|
2019 2018 2017
|
|
|
620,673 600,000 138,462
|
|
|
— 250,000 500,000
|
|
|
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 —
|
(9)
|
|
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 —
|
(10)
|
|
3,967,353 5,781,628 —
|
| |||||||
| (1) | Amount shown for Mr. Durn (a) for fiscal 2018 is a special bonus of $250,000, awarded to Mr. Durn in lieu of a fiscal 2017 bonus as his employment occurred after the eligibility date for a 2017 bonus award under the Senior Executive Bonus Plan, which bonus was paid six months following Mr. Durn’s start date and (b) for fiscal 2017 is a new-hire bonus of $500,000, had been subject to repayment by Mr. Durn if he resigned or his employment was terminated by Applied for cause within two years of his hire. |
| (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 12 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2019 filed with the SEC on December 13, 2019. |
| (3) | Amounts consist of bonuses earned under the Senior Executive Bonus Plan for services rendered in the respective fiscal years. |
| (4) | Amount includes (a) Applied’s matching contribution of $12,600 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Mr. Dickerson of $1,020 in term life insurance premiums, (c) Applied’s matching contribution of $2,500 pursuant to a program under the Applied Materials, Inc. Political Action Committee to an eligible non-profit organization and (d) a payment of $500 under Applied’s Patent Incentive Award Program. 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 a proposed business combination with Tokyo Electron. Tax equalization ensures that the tax costs incurred by Mr. Dickerson on the international assignment are equivalent to what the tax costs would have been had he remained in the U.S. The tax equalization amounts were not paid to Mr. Dickerson but were paid directly to the appropriate tax authorities. See “Relocation Program” on page 39 for more information regarding Mr. Dickerson’s international assignment. |
| (5) | Mr. Durn was appointed CFO effective August 24, 2017. |
| (6) | Amount consists of (a) Applied’s matching contribution of $12,600 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Durn of $1,020 in term life insurance premiums. |
| (7) | Amount consists of (a) Applied’s matching contribution of $8,335 under the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Mr. Salehpour of $1,020 in term life insurance premiums, (c) Applied’s matching contribution of $2,500 pursuant to a program under the Applied Materials, Inc. Political Action Committee to an eligible non-profit organization and (d) a payment of $875 under Applied’s Patent Incentive Award Program. |
| (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 the tax-qualified 401(k) Plan, (b) Applied’s payment on behalf of Dr. Raja of $1,020 in term life insurance premiums, (c) a payment of $375 under Applied’s Patent Incentive Award Program and (d) Applied’s matching contribution of $2,500 pursuant to a program under the Applied Materials, Inc. Political Action Committee to an eligible non-profit organization. |
| (10) | Amount consists of (a) Applied’s matching contribution of $12,600 under the tax-qualified 401(k) Plan and (b) Applied’s payment on behalf of Mr. Ghanayem of $1,020 in term life insurance premiums. |
Applied Materials, Inc. 41
Table of Contents
Grants of Plan-Based Awards for Fiscal 2019
The following table shows all plan-based awards granted to the NEOs during fiscal 2019.
|
Estimated Possible Payouts
|
Estimated Future Payouts
|
All Other (#)
|
All Other
|
Exercise
|
Grant ($)(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. Durn
|
|
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 2019 under the Senior Executive Bonus Plan. These amounts were based on the individual NEO’s fiscal 2019 base salary and position. The maximum amount shown is three times the target amount for the NEO, except the amount for Mr. Dickerson, which is the maximum amount payable per participant in any performance period under the Senior Executive Bonus Plan. Actual bonuses received by the NEOs for fiscal 2019 under the Senior Executive Bonus Plan are reported in the Summary Compensation Table under the column titled “Non-Equity Incentive Plan Compensation.” |
| (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 12 of the Notes to Consolidated Financial Statements included in Applied’s Annual Report on Form 10-K for fiscal 2019 filed with the SEC on December 13, 2019. |
42 2020 Proxy Statement
Table of Contents
EXECUTIVE COMPENSATION
Outstanding Equity Awards at Fiscal 2019 Year-End
The following table shows all outstanding equity awards held by the NEOs at the end of fiscal 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 |
|
1,000,000 — — — — — |
(3)
|
|
— — — — — — |
|
|
— — — — — — |
|
|
15.06 — — — — — |
|
|
9/1/2020 — — — — — |
|
|
— 178,478 31,147 37,355 85,364 — |
(4) (5) (6) (7)
|
|
— 9,944,794 1,735,511 2,081,421 4,756,482 — |
|
|
— — — — — 280,316 168,096 256,090 |
(8) (9) (10) |
|
— — — — — 15,619,208 9,366,309 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 |
|
— — — — — — |
|
|
— — — — — — |
|
|
— — — — — — |
|
|
— — — — — — |
|
|
— — — — — — |
|
|
49,578 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)
|
|
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 |
| |||||||||
| 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, performance shares and PSUs, all of which will be converted into Applied common stock on a one-to-one basis upon vesting. All future vesting of shares is subject to the NEO’s continued employment with Applied through each applicable vest date. See “Long-Term Incentives” on page 35 for more information regarding these awards. |
| (2) | Market value was determined by multiplying the number of such shares by the closing price of Applied common stock of $55.72 on October 25, 2019, the last trading day of fiscal 2019, as reported on the Nasdaq Global Select Market. |
| (3) | Mr. Dickerson exercised this stock option in full on November 19, 2019. |
| (4) | Performance shares were granted on December 7, 2015. These shares vested on December 19, 2019. |
| (5) | Restricted stock units were granted on December 1, 2016. These shares vested on December 19, 2019. |
| (6) | Restricted stock units were granted on December 14, 2017. Of these, 18,677 shares vested on December 19, 2019 and 18,678 shares are scheduled to vest on December 19, 2020. |
| (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 2020 and 2021. |
| (8) | PSUs were granted on December 1, 2016. These shares vested on December 19, 2019. On December 5, 2019, an additional 155,576 shares became eligible to vest due to achievement of performance goals related to the grant. These additional shares also vested on December 19, 2019. |
Applied Materials, Inc. 43
Table of Contents
| (9) | PSUs were granted on December 14, 2017. The shares are scheduled to vest on December 19, 2020, depending on the achievement of specified performance goals. The number of shares shown is the target amount, and the actual number of shares that may vest ranges from 0% to 200% of the target amount, depending on the achievement of specified performance goals. |
| (10) | PSUs were granted on December 6, 2018. The shares are scheduled to vest on December 19, 2021, depending on the achievement of specified performance goals. The number of shares shown is the target amount, and the actual number of shares that may vest ranges from 0% to 200% of the target amount, depending on the achievement of specified performance goals. |
| (11) | Restricted stock units were granted on September 6, 2017. Of these, 11,178 shares vested on December 19, 2019 and 18,630 shares are scheduled to vest on February 1, 2020. |
| (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 2020 and 2021. |
| (15) | PSUs were granted on September 6, 2017. These shares vested on December 19, 2019. On December 5, 2019, an additional 18,612 shares became eligible to vest due to achievement of performance goals related to the grant. These additional shares also vested on December 19, 2019. |
| (16) | Restricted stock units were granted on December 14, 2017. Of these, 11,954 shares vested on December 19, 2019 and 11,954 shares are scheduled to vest on December 19, 2020. |
| (17) | PSUs were granted on December 1, 2016. These shares vested on December 19, 2019. On December 5, 2019, an additional 36,878 shares became eligible to vest due to achievement of performance goals related to the grant. These additional shares also vested on December 19, 2019. |
| (18) | Restricted stock units were granted on November 6, 2017. Of these, 8,877 shares vested on December 19, 2019, 8,876 shares are scheduled to vest on December 19, 2020 and 8,877 shares are scheduled to vest on December 19, 2021. |
| (19) | Restricted stock units were granted on December 14, 2017. Of these, 9,339 shares vested on December 19, 2019 and 9,339 shares are scheduled to vest on December 19, 2020. |
| (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, 2020 and 14,228 shares are scheduled to vest on December 19, 2021. |
| (21) | PSUs were granted on December 1, 2016. These shares vested on December 19, 2019. On December 5, 2019, an additional 28,811 shares became eligible to vest due to achievement of performance goals related to the grant. These additional shares also vested on December 19, 2019. |
Option Exercises and Stock Vested for Fiscal 2019
The following table shows all stock awards that vested and the value realized upon vesting for each NEO during fiscal 2019.
| 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 ($)(2) |
||||||||||||
| Gary E. Dickerson |
— | — | 367,532 | 11,588,284 | ||||||||||||
| Daniel J. Durn |
— | — | 39,553 | 1,392,047 | ||||||||||||
| Ali Salehpour |
— | — | 122,354 | 3,857,822 | ||||||||||||
| Prabu G. Raja |
— | — | 89,560 | 2,823,827 | ||||||||||||
| Steve G. Ghanayem |
— | — | 89,560 | 2,823,827 | ||||||||||||
| (1) | Of the amounts shown in this column, Applied withheld the following number of shares to cover tax withholding obligations: 182,227 shares for Mr. Dickerson; 20,916 shares for Mr. Durn; 60,666 shares for Mr. Salehpour; 43,930 shares for Dr. Raja; and 44,406 shares for Mr. Ghanayem. |
| (2) | Value realized equals the fair market value of Applied common stock on the vesting date, multiplied by the number of shares that vested. |
Non-Qualified Deferred Compensation
44 2020 Proxy Statement
Table of Contents
EXECUTIVE COMPENSATION
Non-Qualified Deferred Compensation for Fiscal 2019
| Name |
Executive ($) |
Registrant ($) |
Aggregate Earnings in Last Fiscal Year ($)(1) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at Last Fiscal Year End ($) |
|||||||||||||||
| Gary E. Dickerson |
— | — | — | — | — | |||||||||||||||
| Daniel J. Durn |
— | — | — | — | — | |||||||||||||||
| Ali Salehpour |
809,949 | — | 497,826 | — | 4,340,268 | |||||||||||||||
| 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 2019. |
Applied Materials, Inc. 45
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Table of Contents
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PROPOSAL 4—APPROVAL OF AN AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO ALLOW SHAREHOLDERS TO ACT BY WRITTEN CONSENT
Applied Materials, Inc. 51
Table of Contents
| ✓ | THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF AN AMENDMENT AND RESTATEMENT OF OUR CERTIFICATE OF INCORPORATION TO ALLOW SHAREHOLDERS TO ACT BY WRITTEN CONSENT
| |
52 2020 Proxy Statement
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2020 ANNUAL MEETING
QUESTIONS AND ANSWERS ABOUT THE PROXY
STATEMENT AND OUR 2020 ANNUAL MEETING
| 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 Annual Meeting and the Board’s voting recommendations: |
| Proposal | Board Recommendation | |||
|
1. Election of ten directors
|
✓
|
FOR each Nominee
| ||
|
2. Approval, on an advisory basis, of the compensation of our named executive officers for fiscal year 2019
|
✓
|
FOR
| ||
|
3. Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2020
|
✓
|
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 Annual Meeting other than those set forth in this Proxy Statement and in the notice accompanying this Proxy Statement.
Applied Materials, Inc. 53
Table of Contents
54 2020 Proxy Statement
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2020 ANNUAL MEETING
Applied Materials, Inc. 55
Table of Contents
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 Broker Non-Votes | |||
|
1. Election of ten directors
|
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 2019
|
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 2020
|
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
|
56 2020 Proxy Statement
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND OUR 2020 ANNUAL MEETING
Applied Materials, Inc. 57
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UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTED FINANCIAL MEASURES
| 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. |
| 3 | These items are incremental charges attributable to acquisitions, consisting of amortization of purchased intangible assets. |
| 4 | 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 one-time transition tax and a decrease in U.S. deferred tax assets as a result of the recent U.S. tax legislation. |
| 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 | |||
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|
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| Non-GAAP Adjusted Gross Profit |
$ | 6,423 | ||
|
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|
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. |
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| Fiscal Year |
||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
| (In millions, except percentages) | ||||||||||||||||||||
| Non-GAAP Adjusted Operating Income |
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| |||||
| 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 | ||||||||||||||
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| Non-GAAP adjusted operating income |
$ | 3,427 | $ | 4,693 | $ | 4,118 | $ | 2,347 | $ | 1,896 | ||||||||||
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|
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 included adjustments associated with the cost reductions in the solar business. |
| 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 of Non-GAAP Adjusted Financial Measures
Management uses 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 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.
The non-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 other discrete adjustments. Additionally, fiscal 2019 and 2018 non-GAAP results exclude estimated discrete income tax expense items associated with recent U.S. tax legislation. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables presented above. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-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.
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PROPOSED AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
APPLIED MATERIALS, INC.
(as amended
to March 10, 2009)
Applied Materials, Inc., a corporation organized and 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 Corporation Trust 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
is The Corporation
TrustService Company.
THIRD: Reserved
THIRD: The name and mailing
address of the incorporator of the corporation is: Donald A.
Slichter
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 “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 stock, 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 applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to 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 expressly authorized to adopt, amend and repeal from time to time any or all of 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.
SEVENTH: 1. Action by Written Consent. Subject to the rights of the holders of any 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 specific circumstances, all actions required or permitted to be taken by the stockholders of the corporation entitled to vote at an annual
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or special meeting of stockholders of the corporation may be effected without a meeting by the written consent of such stockholders pursuant to Section 228 of the General corporation Law of the State of Delaware; provided that no such action may be effected except in accordance with the provisions 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 Board 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 Requisite 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 paragraph 3 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 been 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 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 proposed to be taken by written consent is delivered to this corporation in the manner 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 prior 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 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 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 interest 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 corporation 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 and supplement 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 shares of common stock of the corporation (or of beneficial ownership of such shares by the beneficial owner on whose behalf the request was made) after the date of such request shall be deemed a revocation of the request with respect to such shares, and each such Record Stockholder and the applicable beneficial owner shall certify to the secretary of the corporation on the day prior to the record date set for the action by written consent as to
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APPENDIX B
whether any such disposition has occurred. If the unrevoked requests represent in the aggregate less than the Requisite Percentage, the Board of Directors, in its discretion, may cancel the action by written consent.
4. Actions Which May Be Taken by Written Consent. Stockholders are not entitled to act by written consent if in the good faith determination of the Board of Directors (a) the request for a record date for such action does not comply with this Article SEVENTH or the bylaws of the corporation, (b) the action relates to an item of business that is not a proper subject for stockholder action under applicable law, (c) the request for a record date for such action is received by the secretary of corporation during the period commencing ninety (90) days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the final adjournment of the next annual meeting of stockholders, (d) an identical or substantially similar item of business, as determined in good faith by the Board of Directors of the 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.
5. Manner of Consent Solicitation. Stockholders may take action by written consent only if consents are solicited by the stockholder or group of 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 matter and in accordance with applicable law.
6. 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 as 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 earliest 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 Delaware until 60 days after the corporation 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 State of Delaware or its principal executive offices. Delivery must be made by hand or by certified or registered mail, return receipt requested. In the event of the delivery to this corporation of Consents, the secretary of this corporation, or such other officer of this corporation as the Board 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 sufficiency of all Consents and any related revocations and of the 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 such 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 certified 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 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, or relates to an action that may not be effected by written consent pursuant to, this Article SEVENTH, or the Record Stockholder or Record Stockholders seeking to take such action do
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not otherwise comply with this Article SEVENTH, then the Board of Directors shall not be required to fix a record date and any such purported action by written consent shall be null and void to the fullest extent permitted by applicable law. No action by written 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 the Inspectors, as applicable, certify to this corporation that the Consents delivered to this corporation in accordance with paragraph 7 of this 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 imply 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 foregoing 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 (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) for 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 held 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 person 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 in paragraph 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (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 indemnification conferred in this Article shall be a contract right.
2. If a claim under paragraph 1 of this Article is not paid in full 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 corporation to recover the unpaid amount of the claim and, if successful 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 the Amended 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 corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power 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 this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on
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APPENDIX B
stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in this Amended and Restated Certificate of Incorporation, including this Article ELEVENTH, may not be amended or repealed in any respect unless such amendment or repeal is approved by the affirmative vote of not less than a majority of the total voting power of all outstanding shares of stock in this corporation entitled to vote thereon.
THE UNDERSIGNED, being the
incorporator hereinbefore named, for the purpose of forming a corporation to do business both within and without the State of Delaware, and in pursuance of the Delaware Corporation Law, does hereby make and file this Certificate.
/s/ Donald A.
Slichter
Donald. A. Slichter
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation of Applied Materials, Inc. has been executed by its duly authorized officer this [ ] day of [ ], 20[ ].
| Applied Materials, Inc. | ||
| By: | ||
| Name: | ||
| Title | ||
Applied Materials, Inc. B-5
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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 2nd driveway between Buildings 1 and 2 Proceed between Buildings 1 and 2 to the covered parking lot The entrance to Building 1 is located to the left of the 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 entrance to Building 1 is located to the left of the
parking lot
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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 2020 Proxy Statement and then follow these easy steps: VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on March 11, 2020. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by Applied Materials, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically over the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in the future. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on March 11, 2020. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to APPLIED MATERIALS, INC., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. 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 AND DATED. DETACH AND RETURN THIS PORTION ONLY APPLIED MATERIALS, INC. The Board of Directors recommends you vote FOR all of the nominees listed below and FOR proposals 2, 3 and 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 and restatement of Applied Materials’ Certificate of Incorporation to allow shareholders to act by written consent. NOTE: The proposals to be voted on 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
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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)