UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark one)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended April 27, 2003
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from           to

Commission file number 0-6920

Applied Materials, Inc.

Delaware (State or other jurisdiction of incorporation or organization)		94-1655526 (I.R.S. Employer Identification No.)
3050 Bowers Avenue, Santa Clara, California (Address of principal executive offices)		95054-3299 (Zip Code)

Registrant’s telephone number, including area code

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes þ     No o

      Number of shares outstanding of the issuer’s common stock as of April 27, 2003: 1,657,391,045

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PART I.

Item 1.     Financial Statements

APPLIED MATERIALS, INC.

Consolidated Condensed Statements of Operations

			Three Months Ended								Six Months Ended
			April 28,				April 27,				April 28,				April 27,
			2002				2003				2002				2007
			(In thousands, except per share amounts)
Net sales			$	1,156,472			$	1,107,177			$	2,156,932			$	2,161,386
Cost of products sold				693,732				734,403				1,308,740				1,398,230
Gross margin				462,740				372,774				848,192				763,156
Operating expenses:
	Research, development and engineering			256,879				232,438				503,678				475,643
	Marketing and selling			90,084				83,568				173,888				175,785
	General and administrative			76,415				78,198				146,458				150,999
	Restructuring, asset impairments and other charges			—				92,731				85,479				192,069
Income/(loss) from operations				39,362				(114,161	)			(61,311	)			(231,340	)
Interest expense				11,097				12,217				23,088				23,559
Interest income				45,537				38,256				93,669				73,628
Income/(loss) before income taxes				73,802				(88,122	)			9,270				(181,271	)
Provision/(benefit) for income taxes				21,772				(25,996	)			2,735				(53,475	)
Net income/(loss)			$	52,030			$	(62,126	)		$	6,535			$	(127,796	)
Earnings/(loss) per share:
	Basic		$	0.03			$	(0.04	)		$	—			$	(0.08	)
	Diluted		$	0.03			$	(0.04	)		$	—			$	(0.08	)
Weighted average number of shares:
	Basic			1,643,317				1,655,927				1,639,871				1,652,981
	Diluted			1,719,777				1,655,927				1,708,669				1,652,981

See accompanying notes to consolidated condensed financial statements.

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APPLIED MATERIALS, INC.

Consolidated Condensed Balance Sheets*

			October 27,				April 27,
			2002				2003
			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	1,284,791			$	1,427,621
	Short-term investments			3,644,735				3,792,123
	Accounts receivable, net			1,046,016				742,063
	Inventories			1,273,816				1,114,726
	Deferred income taxes			565,936				578,153
	Other current assets			257,499				204,402
Total current assets				8,072,793				7,859,088
Property, plant and equipment, net				1,764,937				1,661,988
Other assets				387,035				402,819
Total assets			$	10,224,765			$	9,923,895
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Notes payable		$	40,323			$	–
	Current portion of long-term debt			9,453				9,821
	Accounts payable and accrued expenses			1,348,156				1,256,126
	Income taxes payable			103,524				10,967
Total current liabilities				1,501,456				1,276,914
Long-term debt				573,853				570,153
Deferred income taxes and other liabilities				129,807				138,906
Total liabilities				2,205,116				1,985,973
Stockholders’ equity:
	Common stock			16,480				16,574
	Additional paid-in capital			2,022,546				2,041,467
	Retained earnings			5,962,014				5,834,218
	Accumulated other comprehensive income			18,609				45,663
Total stockholders’ equity				8,019,649				7,937,922
Total liabilities and stockholders’ equity			$	10,224,765			$	9,923,895

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*	Amounts as of April 27, 2003 are unaudited. Amounts as of October 27, 2002 are from the October 27, 2002 audited financial statements.

See accompanying notes to consolidated condensed financial statements.

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APPLIED MATERIALS, INC.

Consolidated Condensed Statements of Cash Flows

					Six Months Ended
					April 28,				April 27,
					2002				2003
					(In thousands)
Cash flows from operating activities:
	Net income/(loss)				$	6,535			$	(127,796	)
	Adjustments required to reconcile income/(loss) from continuing operations to cash provided by operating activities:
		Depreciation and amortization				188,700				201,751
		Deferred income taxes				7,613				2,243
		Non-cash portion of restructuring, asset impairments and other charges				27,605				30,844
		Acquired in-process research and development expense				8,000				—
		Changes in assets and liabilities, net of amounts acquired:
			Accounts receivable, net			(206,017	)			314,608
			Inventories			222,869				166,355
			Other current assets			(27,934	)			55,212
			Other assets			698				(25,086	)
			Accounts payable and accrued expenses			(185,530	)			(127,187	)
			Income taxes payable			81,112				(93,468	)
			Other liabilities			(2,142	)			3,387
Cash provided by continuing operations						121,509				400,863
Cash flows from investing activities:
	Capital expenditures, net of retirements					(199,412	)			(101,118	)
	Cash paid for acquisitions, net of cash acquired					(107,462	)			—
	Proceeds from sales and maturities of short-term investments					951,805				1,055,077
	Purchases of short-term investments					(1,242,068	)			(1,185,809	)
Cash used for investing						(597,137	)			(231,850	)
Cash flows from financing activities:
	Short-term debt activity, net					45,431				(41,949	)
	Long-term debt activity, net					18,644				(4,196	)
	Common stock transactions, net					103,090				19,015
Cash provided by/(used for) financing						167,165				(27,130	)
Effect of exchange rate changes on cash						(5,386	)			947
Increase/(decrease) in cash and cash equivalents						(313,849	)			142,830
Cash and cash equivalents — beginning of period						1,356,304				1,284,791
Cash and cash equivalents — end of period					$	1,042,455			$	1,427,621

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Cash payments for interest (in thousands) were $20,046 for the six months ended April 28, 2002 and $19,980 for the six months ended April 27, 2003. Net cash activities for income taxes (in thousands) were $90,296 of refunds for the six months ended April 28, 2002 and $45,343 of payments for the six months ended April 27, 2003.

See accompanying notes to consolidated condensed financial statements.

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APPLIED MATERIALS, INC.

1) Basis of Presentation and Stock-Based Compensation

	Basis of Presentation

      In the opinion of management, the unaudited interim consolidated condensed financial statements of Applied Materials, Inc. (Applied) included herein have been prepared on a basis consistent with the October 27, 2002 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Applied’s Form 10-K for the fiscal year ended October 27, 2002. Applied’s results of operations for the three and six months ended April 27, 2003 are not necessarily indicative of future operating results.

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

      Certain prior year amounts have been reclassified to conform to the fiscal 2003 financial statement presentation.

      During the second fiscal quarter of 2003, Applied reviewed the functional currencies of certain subsidiaries in Europe and Japan and determined that the United States dollar was more appropriate as the functional currency due to changes in facts, circumstances, scope of operations and business practices. The change in functional currencies did not have a material effect on Applied’s results of operations and financial position during the second fiscal quarter of 2003.

	Stock-Based Compensation

      During the second fiscal quarter of 2003, Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation — Transition and Disclosure — An Amendment of FASB Statement No. 123” became effective for Applied.

      Applied measures compensation expense for its stock-based employee compensation plans using the intrinsic value method. As the exercise price of all options granted under these plans was equal to the fair market price of the underlying common stock on the grant date, no stock-based employee compensation cost is recognized in the consolidated condensed statements of operations.

      In accordance with SFAS 148 and Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), Applied’s option expense is computed using the Black-Scholes option pricing model. This model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. Applied’s employee stock options have characteristics significantly different from those of traded options; therefore, in the opinion of management, the Black-Scholes option pricing model required by SFAS 148 and SFAS 123, does not necessarily provide a reliable measure of the fair value of Applied’s options.

      To comply with SFAS 148, Applied is presenting the following table to illustrate the effect on the net income/ (loss) and earnings/ (loss) per share if it had applied the fair value recognition provisions of SFAS 123, as amended, to options granted under the stock-based employee compensation plans. For purposes

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

of this pro forma disclosure, the estimated value of the options is amortized ratably to expense over the options’ vesting periods.

			Three Months Ended								Six Months Ended
			April 28,				April 27,				April 28,				April 27,
			2002				2003				2002				2003
			(In thousands, except per share amounts)
Reported net income/(loss)			$	52,030			$	(62,126	)		$	6,535			$	(127,796	)
Stock compensation expense, net of tax				(74,046	)			(100,343	)			(158,837	)			(194,314	)
Pro forma net loss			$	(22,016	)		$	(162,469	)		$	(152,302	)		$	(322,110	)
Basic income/(loss) per share:
	Reported		$	0.03			$	(0.04	)		$	—			$	(0.08	)
	Pro forma		$	(0.01	)		$	(0.10	)		$	(0.09	)		$	(0.19	)
Diluted income/(loss) per share:
	Reported		$	0.03			$	(0.04	)		$	—			$	(0.08	)
	Pro forma		$	(0.01	)		$	(0.10	)		$	(0.09	)		$	(0.19	)

      Based on the Black-Scholes option pricing model, the weighted average estimated fair value of employee stock option grants was $10.87 and $5.97 for the three months ended April 28, 2002 and April 27, 2003, respectively, and was $10.87 and $6.27 for the six months ended April 28, 2002 and April 27, 2003, respectively. The weighted average estimated fair value of purchase rights granted under employee stock purchase plans (ESPP) was $6.29 and $4.11 for the three months ended April 28, 2002 and April 27, 2003, respectively, and was $6.29 and $4.90 for the six months ended April 28, 2002 and April 27, 2003, respectively. In calculating the pro forma compensation, the fair value of each stock option grant and stock purchase right is estimated on the date of grant using the Black-Scholes option pricing model and the following assumptions:

		Three Months Ended								Six Months Ended
		April 28,				April 27,				April 28,				April 27,
		2002				2003				2002				2003
Stock Options:
Dividend yield			None				None				None				None
Expected volatility			69	%			69	%			69	%			69	%
Risk-free interest rate			3.58	%			2.01	%			3.58	%			2.09	%
Expected life (in years)			3.6				3.6				3.6				3.6
ESPP:
Dividend yield			None				None				None				None
Expected volatility			69	%			69	%			69	%			69	%
Risk-free interest rate			2.42	%			1.19	%			2.42	%			1.44	%
Expected life (in years)			0.5				0.5				0.5				0.5

2) Earnings/ Loss Per Share

      Basic earnings/loss per share has been determined using the weighted average number of common shares outstanding during the period. Diluted earnings per share has been determined using the weighted average number of common shares and equivalents (representing the dilutive effect of stock options) outstanding during the period. Applied’s net income/loss has not been adjusted for any period presented for purposes of computing basic or diluted earnings/loss per share.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      For purposes of computing diluted earnings/loss per share, weighted average common share equivalents do not include stock options with an exercise price that exceeded the average fair market value of Applied’s common stock for the period. For the three and six months ended April 28, 2002, options to purchase approximately 15,012,000 and 21,715,000 shares of common stock at an average exercise price of $34.89 and $31.45 were excluded from the computation. For the three and six months ended April 27, 2003, options to purchase approximately 173,908,000 and 172,698,000 shares of common stock at an average exercise price of $20.11 and $20.15 were excluded from the computation.

3) Accounts Receivable, Net

      Applied has agreements with various financial institutions to sell accounts receivable from selected customers. Applied sold accounts receivable under these agreements of $103 million and $172 million for the three months ended April 28, 2002 and April 27, 2003, respectively, and sold $302 million and $294 million for the six months ended April 28, 2002 and April 27, 2003, respectively. Discounting fees were approximately $1 million and $1.5 million for the three months ended April 28, 2002 and April 27, 2003, respectively, and were approximately $2 million for each of the six months ended April 28, 2002 and April 27, 2003. Discounting fees were recorded as interest expense. At April 27, 2003, $94 million of sold receivables remained outstanding under these agreements. A portion of these sold receivables is subject to certain recourse provisions. Applied has not experienced any losses under these recourse provisions.

4) Inventories

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

		October 27,				April 27,
		2002				2003
Customer service spares		$	644,352			$	547,322
Raw materials			191,956				158,116
Work-in-process			195,409				169,601
Finished goods			242,099				239,687
		$	1,273,816			$	1,114,726

5) Other Assets

      Components of other assets were as follows (in thousands):

		October 27,				April 27,
		2002				2003
Purchased technology, net		$	112,920			$	99,286
Goodwill, net			202,290				223,521
Other long-term assets			71,825				80,012
		$	387,035			$	402,819

      Purchased technology and other intangible assets are amortized over their estimated useful lives of five to 10 years using the straight-line method.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

      Components of intangible assets were as follows (in thousands):

			October 27, 2002								April 27, 2003
			Gross Carrying				Accumulated				Gross Carrying				Accumulated
			Amount				Amortization				Amount				Amortization
Amortized intangible assets:
	Purchased technology		$	312,529			$	199,609			$	321,129			$	221,843
	Other intangible assets			23,600				7,390				23,600				9,170
			$	336,129			$	206,999			$	344,729			$	231,013
Unamortized intangible assets:
	Goodwill		$	248,160			$	45,870			$	269,391			$	45,870

      Aggregate amortization expense was $26 million and $24 million for the six month periods ended April 28, 2002 and April 27, 2003, respectively. As of April 27, 2003, future estimated amortization expense is expected to be: $24 million for the remainder of fiscal 2003, $48 million for fiscal 2004, $19 million for fiscal 2005, $13 million for fiscal 2006, $5 million for fiscal 2007 and $4 million thereafter. In connection with the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” as of the beginning of fiscal 2002, goodwill is no longer amortized but reviewed periodically for impairment.

      During fiscal 2001, Applied established a venture capital fund, Applied Materials Ventures I, L.P. (Ventures I), to invest in privately-held, early-stage companies engaged in developing communications components, systems and sub-systems. Ventures I’s investment objectives were subsequently expanded to include systems, devices and processing technology based on nanotechnology for specific applications and products. Ventures I is a limited partnership with Applied as the sole limited partner and an independent party as the general partner. Applied has committed to fund $50 million in capital contributions, but has reserved the option to discontinue capital contributions at $25 million. Applied’s capital contributions to Ventures I totaled approximately $9 million at October 27, 2002 and $11 million at April 27, 2003. As provided for in the partnership agreement, the general partner has control over investment decisions and operations of Ventures I. Accordingly, Applied accounts for its investment using the equity method. Capital contributions, net of the pro rata share of Ventures I’s results of operations, have been included in other assets and totaled $6 million at October 27, 2002 and $7 million at April 27, 2003. Applied does not expect its investment in Ventures I to have a material effect on its financial condition or results of operation.

      In January 2003, the Financial Accounting Standard Board (FASB) issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” FIN 46 provides guidance on the identification, classification and accounting of variable interest entities. If certain criteria are met, Applied may be required to consolidate Ventures I during the fourth fiscal quarter of 2003. Applied is in the process of assessing the effect of FIN 46, and does not expect the adoption of FIN 46, which will be effective for interim or annual reporting periods beginning after June 15, 2003, to have a material impact on its financial condition or results of operations.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

6) Accounts Payable, Accrued Expenses and Guarantees

      Components of accounts payable and accrued expenses were as follows (in thousands):

		October 27,				April 27,
		2002				2003
Accounts payable		$	269,275			$	202,586
Compensation and benefits			255,231				152,477
Installation and warranty			214,004				176,725
Deferred revenue			117,827				214,718
Other			491,819				509,620
		$	1,348,156			$	1,256,126

      Applied adopted FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Indebtedness of Others” during the first fiscal quarter of 2003. FIN 45 requires disclosures concerning Applied’s obligations under certain guarantees.

      Pursuant to FIN 45, Applied is required to disclose product warranty reserves activity. Applied products are generally sold with a 12-month warranty period following installation. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical experience by product, configuration and geographic region.

      Changes in the warranty reserves during the second fiscal quarter of 2003 were as follows (in thousands):

Balance, October 27, 2002		$	168,175
Provisions for warranty			29,224
Consumption of reserves			(39,717	)
Balance, January 26, 2003			157,682
Provisions for warranty			26,247
Consumption of reserves			(40,605	)
Balance, April 27, 2003		$	143,324

      During the ordinary course of business, Applied also provides standby letters of credit or other guarantee instruments to certain parties as required. As of April 27, 2003, the maximum potential amount of future payments that Applied could be required to make under these guarantee agreements is approximately $45 million. Applied has not recorded any liability in connection with these guarantee arrangements beyond that required to appropriately account for the underlying transaction being guaranteed. Applied does not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under these guarantee arrangements.

      Additionally, Applied guarantees payments for certain wholly-owned subsidiary short-term borrowings, term loans and overdraft facilities totaling $173 million. Under these arrangements, in the event a subsidiary does not make the required payments, Applied could be required to fulfill these obligations. The total amount outstanding as of April 27, 2003 under these arrangements was $17 million and was recorded on Applied’s consolidated condensed balance sheet. Applied also guarantees payments for certain wholly-owned subsidiary lease obligations, which could require Applied to pay approximately $3 million per quarter in the event the subsidiary does not make the required payments. These leases will expire between 2004 and 2014. As of April 27, 2003, Applied has not recorded any liability related to guarantees of wholly-owned subsidiary

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

obligations. Applied does not expect, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under wholly-owned subsidiary guarantees.

      In connection with certain business combinations and purchased technology acquisitions, Applied was subject to contingent consideration arrangements at April 27, 2003. These arrangements are based upon sales volume or other events taking place subsequent to the acquisition. Depending upon the circumstances of each agreement, the payment of the contingency will result in an increase to goodwill or a charge to operating expenses. Amounts paid under these arrangements have not had, and are not expected to have, a material effect on Applied’s financial condition or results of operations.

7) Restructuring, Asset Impairments and Other Charges

      During the second fiscal quarter of 2003, Applied initiated the 2003 Realignment Plan (the Plan) to realign its infrastructure with current business conditions, resulting in restructuring, asset impairments, and other charges of $93 million, or $0.04 per share. As a result of the Plan, Applied will reduce its global workforce by approximately 2,000 positions or 14 percent. The majority of the affected employees are based in Santa Clara, California and Austin, Texas and represent multiple company activities and functions. The restructuring, asset impairments and other charges of $93 million during the second fiscal quarter of 2003 included $29 million of non-cash items, primarily for fixed asset write-offs. The majority of the cash outlays are anticipated to occur during fiscal 2003.

      During the first fiscal quarter of 2003, Applied recorded a pre-tax restructuring charge of $99 million, or $0.04 per share, for employee-related costs and consolidation of facilities. As a result of this action, Applied reduced its global workforce by approximately 1,750 positions or 11 percent. The majority of the affected employees were based in Santa Clara, California and Austin, Texas and represented multiple company activities and functions. The restructuring charge of $99 million included no non-cash items. The majority of the cash outlays have been incurred or are anticipated to occur in fiscal 2003.

      Restructuring and other items for the first fiscal quarter of 2002 totaled $85 million, or $0.04 per share. During the first fiscal quarter of 2002, Applied recorded $8 million for in-process research and development expense in connection with its acquisitions of Schlumberger’s electron-beam wafer inspection business and Global Knowledge Services, Inc. (GKS). For further details regarding these acquisitions, see Note 10. Also during the first fiscal quarter of 2002, Applied recorded a pre-tax restructuring charge of $77 million for employee-related costs, consolidation of facilities and other costs, and reduced its global workforce by approximately 1,100 positions, or six percent. The majority of the affected employees were based in Santa Clara, California and Austin, Texas, and represented multiple company activities and functions. The restructuring charge of $77 million consisted of $49 million of cash outlays and $28 million of non-cash charges, primarily for fixed asset write-offs.

      At April 27, 2003, the restructuring reserve consisted of $8 million related to a restructuring implemented in the fourth fiscal quarter of 2001, $10 million related to the restructuring implemented in the first fiscal quarter of 2002, $18 million related to the restructuring implemented in the first fiscal quarter of 2003 and $52 million related to the restructuring implemented in the second fiscal quarter of 2003. Prior years’

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

restructuring reserves were mainly for lease commitments. Restructuring activity for the second fiscal quarter of 2003 was as follows (in thousands):

		Severance
		and Benefits				Facilities				Other				Total
Balance, October 27, 2002		$	1,993			$	32,015			$	3,300			$	37,308
Provision			80,133				19,205				—				99,338
Cash outlays			(37,868	)			(7,667	)			(800	)			(46,335	)
Balance, January 26, 2003			44,258				43,553				2,500				90,311
Provision			62,300				1,500				28,900				92,700
Cash outlays			(54,385	)			(9,102	)			(1,173	)			(64,660	)
Non-cash charges			—				(1,944	)			(28,900	)			(30,844	)
Balance, April 27, 2003		$	52,173			$	34,007			$	1,327			$	87,507

8) Derivative Financial Instruments

      In accordance with Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” all of Applied’s derivative financial instruments, consisting of forward exchange contracts and currency option contracts such as Japanese yen, euro and British pounds are recorded at their fair value on the balance sheet, either in other current assets or accounts payable and accrued expenses. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, must be recognized currently in earnings. The effective portion of the gain or loss is reported as a component of accumulated other comprehensive income in stockholders’ equity, and is reclassified into earnings when the hedged transaction affects earnings. All amounts included in accumulated other comprehensive income at April 27, 2003 will be reclassified to earnings within 12 months. Changes in the fair value of currency option contracts due to changes in time value are excluded from the assessment of effectiveness, and are recognized in cost of products sold. The change in option time value was not material for the three and six months ended April 28, 2002 or April 27, 2003. If the transaction being hedged fails to occur, or if a portion of any derivative is ineffective, Applied immediately recognizes the gain or loss on the associated financial instrument in general and administrative expenses. The amounts recognized due to the anticipated transactions failing to occur were not material for the three and six months ended April 28, 2002 and April 27, 2003.

      Derivative-related activity in accumulated other comprehensive income for the six months ended April 27, 2003 decreased by $4 million, which was comprised of a $2 million net increase in fair value of derivatives, offset by $6 million of net gains reclassified from accumulated other comprehensive income to earnings.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

9) Stockholders’ Equity

	Comprehensive Income/(Loss)

      Components of comprehensive income/(loss), on an after-tax basis where applicable, were as follows (in thousands):

		Three Months Ended								Six Months Ended
		April 28,				April 27,				April 28,				April 27,
		2002				2003				2002				2003
Net income/(loss)		$	52,030			$	(62,126	)		$	6,535			$	(127,796	)
Change in unrealized gain/(loss) on investments			(7,695	)			(1,725	)			(22,723	)			18,429
Change in unrealized gain/(loss) on derivative instruments designated and qualifying as cash flow hedges			(10,057	)			(3,477	)			(3,038	)			(3,996	)
Foreign currency translation adjustments			(123	)			(1,915	)			(15,465	)			12,621
Comprehensive income/(loss)		$	34,155			$	(69,243	)		$	(34,691	)		$	(100,742	)

      Components of accumulated other comprehensive income, on an after-tax basis where applicable, were as follows (in thousands):

		October 27,				April 27,
		2002				2003
Unrealized gain on investments		$	41,257			$	59,686
Unrealized gain on derivative instruments designated and qualifying as cash flow hedges			5,987				1,991
Cumulative translation adjustments			(28,635	)			(16,014	)
Accumulated other comprehensive income		$	18,609			$	45,663

	Stock Repurchase Program

      Since March 1996, Applied has systematically repurchased shares of its common stock in the open market to partially fund its stock-based employee benefit plans. Upon the expiration of the previous authorization on March 22, 2001, the Board of Directors extended the stock repurchase program and authorized the repurchase of up to $2 billion of Applied’s common stock in the open market over the succeeding three years. Under this authorization, Applied will continue a systematic stock repurchase program and may also make additional stock repurchases from time to time, depending on market conditions, stock price and other factors.

      During the six months ended April 28, 2002, Applied repurchased 776,000 shares of its common stock at an average price of $25.22 for a cash outlay of $20 million. During the six months ended April 27, 2003, Applied repurchased 7,068,000 shares of its common stock at an average price of $14.14, for a total cash outlay of $100 million.

10) Business Combinations

      On November 20, 2001, Applied acquired the assets of Schlumberger’s electron-beam wafer inspection business for $66 million in cash. In connection with this acquisition, Applied recorded acquired in-process research and development expense of $6 million and goodwill of $81 million, net of adjustments to the initial purchase price allocation, partially offset by net liabilities acquired of $21 million. The amount of acquired in-

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

process research and development expense was determined by identifying research projects for which technological feasibility had not been established and for which no alternative future use existed. The value of the projects identified as in-process was determined by calculating the total development costs incurred, estimating the portion of development costs related to the aspect of the project that Applied expected to utilize, and then calculating the current value of these historical development costs using a Consumer Price Index adjustment.

      On December 3, 2001, Applied acquired GKS, a provider of advanced data mining services to improve semiconductor manufacturing yield and efficiency, for $16 million in cash. In connection with this acquisition, Applied recorded acquired in-process research and development expense of $2 million, goodwill of $6 million, purchased technology of $4 million and other items of $4 million. The amount of acquired in-process research and development expense was determined by identifying research projects for which technological feasibility had not been established and for which no alternative future use existed. The value of the projects identified as in-process was determined by estimating the future cash flows from the projects once commercially feasible, discounting the net cash flows back to their present value at a rate commensurate with the level of risk and maturity of the projects, and then applying a percentage-of-completion to the calculated value.

      On April 8, 2002, Applied acquired Electron Vision Corporation, a designer, manufacturer and seller of e-beam stabilization and curing tools for the semiconductor, thin film head and micro-fabrication industries, for $26 million in cash. In connection with this acquisition, Applied recorded goodwill of $13 million, net of adjustments to the initial purchase price allocation, and purchased technology of $16 million, partially offset by other items of $3 million, primarily for deferred tax liabilities.

      On April 18, 2003, Applied acquired Boxer Cross, Inc., a producer of a new class of in-line monitoring systems that provide customers with critical electrical measurement data for controlling semiconductor processes, for $14 million in cash. In connection with this acquisition, Applied recorded goodwill of $18 million, net of adjustments to the initial purchase price allocation, and purchased technology of $3 million, partially offset by other items of $7 million, primarily for deferred tax assets and other liabilities. The in-process research and development expense was immaterial.

      For all of the purchase business combinations discussed above, the results of operations prior to the acquisition dates were not material in relation to those of Applied for any of the periods presented herein. Goodwill is not amortized but is reviewed periodically for impairment, and purchased technology is amortized over its useful life of five to 10 years. These acquisitions have not had, and are not expected to have, a material effect on Applied’s financial condition or results of operations.

11) Notes Payable

      Applied has credit facilities for unsecured borrowings in Japanese yen up to approximately $160 million. The credit facilities are primarily with Japanese banks at rates indexed to their prime reference rate. No amounts were outstanding under these credit facilities at April 27, 2003.

12) New Accounting Pronouncements

      In April 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 145 (SFAS 145), “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS 145 eliminates SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt,” which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item. Under SFAS 145, such gains and losses should be classified as extraordinary only if they meet the criteria of APB Opinion No. 30. In addition, SFAS 145 amends SFAS 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Applied does not expect the adoption of SFAS 145, which will become effective at varying dates from May 2002 to Applied’s fiscal 2003, to have a material effect on its financial condition or results of operations.

      In November 2002, The Emerging Issues Task Force reached a consensus on Issue No. 00-21 (EITF 00-21), “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 provides guidance on accounting for arrangements that involve the delivery of performance of multiple products, services and/or rights to use assets. Applied is in the process of assessing the effect of EITF 00-21 and does not expect the adoption of EITF 00-21, which will apply to revenue arrangements beginning in Applied’s fourth fiscal quarter of 2003, to have a material effect on its financial condition or results of operations.

      In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” FIN 46 provides guidance on: 1) the identification of entities for which control is achieved through means other than through voting rights, known as “variable interest entities” (VIEs); and 2) which business enterprise is the primary beneficiary and when it should consolidate the VIE. This new model for consolidation applies to entities: 1) where the equity investors (if any) do not have a controlling financial interest; or 2) whose equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Certain disclosures are effective immediately. Applied is in the process of assessing the effect of FIN 46, but does not expect its implementation to have a material effect on its financial condition or results of operations.

      In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends SFAS 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. Applied is in the process of assessing the effect of SFAS 149 and does not expect the adoption of it, which will be effective for contracts entered into or modified after June 30, 2003, to have a material effect on its financial condition or results of operations.

      In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards on the classification and measurement of financial instruments with characteristics of both liabilities and equity. SFAS 150 will become effective for financial instruments entered into or modified after May 31, 2003. Applied is in the process of assessing the effect of SFAS 150 and does not expect the implementation of the pronouncement to have a material effect on its financial condition or results of operations.

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

      Certain information contained in this Quarterly Report on Form 10-Q is forward-looking in nature. All statements in this Quarterly Report on Form 10-Q, including those made by management of Applied Materials, Inc. and its subsidiaries (Applied), other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding Applied’s future financial results, operating results, business strategies, projected costs, products, competitive positions and plans and objectives of management for future operations. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the following section entitled “Trends, Risks and Uncertainties.” Other risks and uncertainties are disclosed in Applied’s prior SEC filings, including its Annual Report on Form 10-K for the fiscal year ended October 27, 2002. These and many other factors could affect Applied’s future financial and operating results, and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Applied or on its behalf. Applied assumes no obligation to update the information in this Quarterly Report on Form 10-Q.

Results of Operations

      Applied is a supplier of semiconductor manufacturing equipment and services to the global semiconductor industry. Business activity in the semiconductor and semiconductor manufacturing equipment industries has been cyclical; for this and other reasons, Applied’s results of operations for the three and six months ended April 27, 2003 may not necessarily be indicative of future operating results.

      The continued and prolonged industry downturn, which Applied believes is the most severe decline in the history of the semiconductor industry, has resulted in a significant decrease in demand for manufacturing equipment. Inventory buildups in telecommunication products, slower than expected personal computer sales and slow global economic growth have caused semiconductor companies to re-evaluate their capital spending and reschedule or cancel existing orders. These factors resulted in sequential declines in orders that began in the first fiscal quarter of 2001 and continued through the fourth fiscal quarter of 2001. Flat orders in the first fiscal quarter of 2002 were followed by a slight improvement in orders in the second and third fiscal quarters of 2002 as customers reacted to an increase in demand for logic integrated circuits. When the anticipated business did not meet customer expectations, these customers reduced or deferred capital equipment spending. At the same time, these customers were faced with weak market conditions, geopolitical uncertainties, financing difficulties and other challenges. These factors resulted in further sequential declines in orders from the third fiscal quarter of 2002 through the second fiscal quarter of 2003.

      Applied received new orders of $971 million for the second fiscal quarter of 2003 compared to $1.0 billion for the first fiscal quarter of 2003 and $1.7 billion for the second fiscal quarter of 2002, reflecting the continued and prolonged downturn in the semiconductor industry.

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      New orders by region for the two past consecutive quarters were as follows (dollars in millions):

			Three Months Ended
			January 26, 2003								April 27, 2003
			($)				(%)				($)				(%)
Japan				217				21				274				28
Europe				180				18				245				25
North America*				273				27				222				23
Korea				78				8				114				12
Taiwan				139				14				66				7
Asia-Pacific**				129				12				50				5
	Total			1,016				100				971				100

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	*	Primarily the United States.

**	Includes China.

      Applied’s backlog for the most recent three fiscal quarters was as follows: $2.8 billion at April 27, 2003, compared to $3.1 billion at January 26, 2003 and $3.2 billion at October 27, 2002. Backlog consists only of orders for which written authorizations have been accepted, shipment dates within 12 months have been assigned and revenue has not been recognized. Due to possible customer changes in delivery schedules and cancellations of orders, Applied’s backlog at any particular date is not necessarily indicative of actual sales for any future periods.

      During fiscal 2002, net sales remained relatively flat for the first and second fiscal quarters, followed by a modest increase in the third fiscal quarter. In the fourth fiscal quarter of 2002, net sales declined slightly from the third fiscal quarter of 2002 and declined further during the first fiscal quarter of 2003. Net sales for the second fiscal quarter of 2003 increased five percent from the preceding quarter of 2003 but decreased four percent from the second fiscal quarter of 2002. Net sales for the six months ended April 27, 2003 remained flat with the six months ended April 28, 2002. The overall sales level remained relatively low, reflecting the continued uncertainties associated with the prolonged downturn and the macro-economic climate discussed previously. Net sales by region for the second fiscal quarters of 2002 and 2003 were as follows (dollars in millions):

			Three Months Ended																Six Months Ended
			April 28, 2002								April 27, 2003								April 28, 2002								April 27, 2003
			($)				(%)				($)				(%)				($)				(%)				($)				(%)
North America*				353				31				285				26				690				32				648				30
Korea				122				11				210				19				211				10				380				18
Japan				132				11				182				16				337				16				370				17
Europe				144				12				161				15				311				14				305				14
Asia-Pacific**				108				9				167				15				200				9				258				12
Taiwan				297				26				102				9				408				19				200				9
	Total			1,156				100				1,107				100				2,157				100				2,161				100

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	*	Primarily the United States.

**	Includes China.

      As indicated in the above table, revenue from all the other regions remained relatively consistent with the prior year’s level, except for Korea, Japan and Taiwan. Revenue from Korea increased significantly from the prior year due to customers’ fab upgrades and purchases of new 300mm tools. Revenue in Japan increased from the prior year due to an increase in customers’ investments for new technology implementation. The

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      In response to the industry downturn, Applied announced a 2003 Realignment Plan (the Plan) on March 17, 2003 in order to align its infrastructure with business conditions. Applied expects to incur pretax charges of up to $425 million over four quarters starting from the second fiscal quarter of 2003. The Plan has two elements: first, restructuring actions (including consolidation of facilities and a reduction in workforce); and second, refocused product development and cost reduction programs. Both parts of the Plan will result in charges to income across multiple categories, as incurred, such as cost of products sold and operating expenses. During the second fiscal quarter of 2003, Applied began implementing the Plan and incurred pretax charges totaling approximately $152 million. Activities to date consisted principally of employee-related actions, facilities consolidation, refocused product development and cost reduction programs. These charges were incurred across the following categories: restructuring, asset impairments and other charges of $93 million; costs of products sold of $49 million; and research, development and engineering expense of $10 million.

      Gross margin was 33.7 percent for the second fiscal quarter of 2003, compared to 37.0 percent for the first fiscal quarter of 2003 and 40.0 percent for the second fiscal quarter of 2002. Gross margin was 35.3 percent for the six months ended April 27, 2003 compared to 39.3 percent for the six months ended April 28, 2002. The decrease in gross margin during the first six months of fiscal 2003 was mainly due to charges incurred from the refocused product development and cost reduction programs associated with the Plan.

      Operating expenses included expenses related to research, development and engineering (RD&E), marketing and selling (M&S), general and administrative (G&A), and restructuring, asset impairments and other. Expenses related to RD&E, M&S and G&A were $394 million for the second fiscal quarter of 2003, compared to $408 million for the first fiscal quarter of 2003 and $423 million for the second fiscal quarter of 2002. These expenses were $802 million for the six months ended April 27, 2003, versus $824 million for the comparable period of fiscal 2002. The reduction in these expenses was attributable to ongoing cost control measures and reduction of discretionary spending.

      Operating expenses also included restructuring, asset impairments and other charges, which for the second fiscal quarter of 2003 totaled $93 million. There were no such charges during the second fiscal quarter of fiscal 2002. Restructuring, asset impairments and other charges were $192 million and $85 million for the six months ended April 27, 2003 and April 28, 2002, respectively. These charges consisted of employee related costs and consolidation of facilities to better realign Applied’s infrastructure with business conditions. For further details, see Note 7 of Notes to Consolidated Condensed Financial Statements.

      Net interest income was $34 million and $26 million for the three months ended April 28, 2002 and April 27, 2003, respectively, and was $71 million and $50 million for the six months ended April 28, 2002 and April 27, 2003, respectively. Lower net interest income in 2003 was principally attributable to lower average interest rates.

Financial Condition, Liquidity and Capital Resources

      During the second fiscal quarter of 2003, Applied increased its cash, cash equivalents and short-term investments by $290 million from October 27, 2002 to $5.22 billion at April 27, 2003. Applied generally has generated cash from operating activities, primarily from net income/loss, as adjusted to exclude the effect of non-cash charges, and working capital management. Applied has not undertaken any significant external financing activities for several years.

      Applied generated cash from operating activities of $401 million for the six months ended April 27, 2003. The primary sources of cash were from an effect of non-cash charges, such as depreciation and amortization expenses, reductions in accounts receivable and inventories, which were offset by a decrease in payables and the net loss for the six months ended April 27, 2003. Applied utilized programs to sell accounts receivable of $294 million for the six months ended April 27, 2003. These receivable sales had the effect of increasing cash and reducing accounts receivable and days sales outstanding. Applied has not experienced any losses under

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      Applied used $232 million of cash for investing activities during the six months ended April 27, 2003. Capital expenditures, net of retirements, were $101 million. The majority of capital expenditures consisted of the purchase of facilities in Hillsboro, Oregon for $52 million that was previously held under a synthetic lease. The remainder of the capital spending consisted of expenditures for application laboratories, equipment and related facilities. Investing activities also included purchases and sales of short-term investments, which used $131 million of cash.

      Applied used $27 million of cash for financing activities for the six months ended April 27, 2003, consisting of repayments of debt and repurchases of stock, offset by issuances of common stock under employee stock plans.

      To date, Applied has not declared or paid cash dividends to its stockholders due to a number of factors, including the volatile nature of the semiconductor industry and Applied’s intention to reinvest in its business.

      Although cash requirements will fluctuate based on the timing and extent of many factors, Applied’s management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy Applied’s liquidity requirements for the next 12 months. For further details regarding Applied’s operating, investing and financing activities see the Consolidated Condensed Statements of Cash Flows.

Critical Accounting Policies

      The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Please see the discussion of critical accounting policies in Applied’s Annual Report on Form 10-K for the fiscal year ended October 27, 2002.

Trends, Risks and Uncertainties

	The industry that Applied serves is highly volatile and unpredictable.

      As a supplier to the semiconductor industry, Applied is subject to the business cycles that characterize the industry — the timing, length and volatility of these cycles are difficult to predict. The semiconductor industry has historically been cyclical because of sudden changes in demand for semiconductors and manufacturing capacity, including capacity utilizing the latest technology. The rate of changes in demand, including end demand, is accelerating, and the effect of these changes on Applied is occurring sooner, exacerbating the volatility of these cycles. These changes have affected the timing and amounts of customers’ capital equipment purchases and investments in new technology, and continue to affect Applied’s net sales, gross margin and results of operations. In addition to affecting Applied’s customers and suppliers, these business cycles also challenge key management, engineering and other employees of Applied.

      During periods of declining demand for semiconductor manufacturing equipment, customers typically reduce purchases, delay delivery of products and/or cancel orders. During downturns, Applied must be able to timely align its cost structure with prevailing market conditions, to successfully manage its assets, and to effectively motivate and retain key employees. Historically, Applied has reduced its workforce, consolidated facilities and reallocated resources during downturns.

      The semiconductor equipment industry is currently experiencing a continued and prolonged downturn, which management believes is the most severe decline in history. In response to this downturn, Applied initiated the Plan announced on March 17, 2003 in order to better align its infrastructure with business conditions. If Applied is unable to implement the Plan according to the timetable and to the extent

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      During periods of rapid growth, Applied must be able to acquire and/or develop sufficient manufacturing capacity and inventory to meet customer demand, and to attract, hire, assimilate and retain a sufficient number of qualified people. If Applied is unable to achieve its objectives in a timely manner during changes in business conditions, there could be a material adverse effect on its business, financial condition and results of operations.

	Applied is exposed to the risks of operating a global business.

      For the first half of fiscal 2003, approximately 70 percent of Applied’s revenues resulted from sales outside the United States, with an increasing percentage of sales to customers in Asia. Certain manufacturing facilities and suppliers of Applied are also located outside the United States. Managing Applied’s global operations presents challenges, including periodic regional economic downturns, trade balance issues, varying business conditions and demands, political instability, variations in enforcement of intellectual property and contract rights in different jurisdictions, differences in the ability to develop relationships with suppliers and other local businesses, changes in U.S. and international laws and regulations including U.S. export restrictions, fluctuations in interest and currency exchange rates, the ability to provide sufficient levels of technical support in different locations, cultural differences, shipping delays and terrorist acts or acts of war, among other risks. Many of these challenges are present in China, which represents a large potential market for semiconductor equipment and is where Applied anticipates significant opportunity for growth. Global uncertainties with respect to: 1) economic growth rates in various countries, including countries affected by Severe Acute Respiratory Syndrome (SARS); 2) sustainability of demand for electronics products; 3) capital spending by semiconductor manufacturers; 4) price weakness for certain semiconductor devices; and 5) political instability, terrorism, acts of war, or epidemics in regions where Applied has operations or sales, including Asia and Israel, may also affect Applied’s business, financial condition and results of operations.

	Applied operates in a highly competitive industry characterized by increasingly rapid technological changes.

      While operating in a highly competitive environment, Applied’s future success is heavily dependent upon effective development, commercialization and customer acceptance of its new products over those of its competitors. Specifically, these risks may include, but are not limited to, Applied’s ability to timely and cost effectively: 1) develop new products, services and technologies, including those utilizing new materials, such as copper and low-k materials; 2) develop improvements to existing products, services and technologies; 3) develop new markets in the semiconductor industry for Applied’s products and services; 4) introduce new products and services to the marketplace; 5) achieve market acceptance and accurately forecast product demand; 6) qualify new or improved products for volume manufacturing with its customers; 7) commence and adjust production to meet customer demands; and 8) price products and services appropriately. The development, introduction and support of an increasingly broad set of new or improved products and technologies, including those enabling the transition to smaller device feature sizes, new materials and 300mm wafers, grow increasingly complex and expensive over time. Such new or improved products may involve higher costs and reduced efficiencies compared to Applied’s more established products and could adversely affect Applied’s gross margins. If Applied does not develop and introduce new or improved products, services and technologies in a timely and cost-effective manner in response to changing market conditions or customer requirements, its competitive position, financial condition and results of operations could be materially and adversely affected.

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	Applied is exposed to risks as a result of ongoing changes in the semiconductor industry.

      The semiconductor industry is characterized by ongoing changes. More complex technology requirements, the changing information technology cost structure, the increasing significance of consumer electronics as a driver for chip demand and the related focus on lower prices, and the growing type and variety of chips and applications, have created challenges for Applied. These factors, along with the increasing segmentation of applications in the semiconductor industry and resulting greater differentiation of interests among semiconductor manufacturers, as well as an increasing percentage of business from customers in Asia, are increasing the need for customer partnering, collective research and development efforts and process integration support, and are driving the importance of spares and services as an expanding portion of semiconductor equipment suppliers’ business. If Applied does not successfully manage the risks resulting from these changes, its business, financial condition and results of operation could be materially and adversely affected.

	Applied is exposed to risks associated with a highly concentrated customer base.

      Applied’s customer base is highly concentrated. Orders from a relatively limited number of semiconductor manufacturers have accounted for, and likely will continue to account for, a substantial portion of Applied’s net sales, which may lead customers to demand pricing and other terms less favorable to Applied. In addition, sales to any single customer may vary significantly from quarter to quarter. If current customers delay, cancel or do not place orders, Applied may not be able to replace these orders with new orders. As Applied’s products are configured to customer specifications, changing, rescheduling or canceling orders may result in significant and often non-recoverable costs. The resulting fluctuations in the amount of and terms of orders could have a material adverse effect on Applied’s business, financial condition and results of operations.

	Manufacturing interruptions or delays could affect Applied’s ability to meet customer demand.

      Applied’s business depends on its ability to manufacture products that meet the rapidly changing demands of its customers. Applied’s ability to manufacture depends in part on the timely delivery of parts, components, and subassemblies (collectively parts) from suppliers. Some key parts may be obtained only from a single supplier or a limited group of suppliers. In addition, Applied outsources certain manufacturing activities. Significant interruptions of manufacturing operations as a result of the failure or inability of suppliers to timely deliver quality parts, outsourcing difficulties, natural disasters (such as earthquakes or tornadoes), or other causes (such as information technology or infrastructure failures, regional economic downturns, political instability, terrorism, acts of war, or epidemics) could result in delayed product deliveries or manufacturing inefficiencies. Any or all of these factors could materially and adversely affect Applied’s business, financial condition and results of operations.

	The ability to attract, retain, and motivate key employees is vital to Applied’s success.

      Applied’s success depends in large part on its ability to attract, retain and motivate key employees, including those in managerial, technical, marketing and support roles. Achieving this objective may be difficult due to global economic uncertainty, the current industry downturn, workforce reductions and changes in management. If Applied does not successfully attract, retain or motivate key employees, the Company’s operating results and ability to capitalize on its opportunities may be adversely affected.

	Applied is exposed to various risks related to the regulatory environment.

      Applied is subject to various risks related to: 1) new, different, inconsistent or even conflicting laws, rules and regulations that may be enacted by legislative bodies and/or regulatory agencies in the regions in which Applied operates and with which Applied must comply; and 2) disagreements or disputes between national or regional regulatory agencies related to international trade.

      For example, the World Trade Organization (WTO) has determined that the U.S. Foreign Sales Corporation (FSC) and Extraterritorial Income (ETI) exclusion constitute prohibited export subsidies warranting the possible imposition of trade sanctions on certain goods, including semiconductor manufacturing equipment. Applied has benefited from FSC and ETI tax provisions. The elimination of these tax benefits or

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      During fiscal 2002, Applied filed an application with the SEC for an exemptive order confirming that it is not subject to the Investment Company Act of 1940 (the Act), which requires companies primarily engaged in the business of investing in securities to comply with additional rules and regulations. Largely due to the industry downturn, Applied’s ratios of investments to total assets and of interest income to net income have increased, resulting in the risk that Applied could be deemed to be covered by the Act. If the SEC does not grant the exemption, Applied may have to take other actions that could adversely affect its results of operations in order not to be subject to the Act.

	Applied is subject to risks of non-compliance with environmental and safety regulations.

      Applied is subject to environmental and safety regulations in connection with its business operations, including but not limited to regulations related to the development, manufacturing and use of its products. Failure or inability to comply with existing or future environmental and safety regulations could result in significant remediation liabilities, the imposition of fines and/or the suspension or termination of development, manufacturing or use of certain of its products, each of which could have a material adverse effect on Applied’s business, financial condition and results of operations.

	Applied is exposed to risks associated with acquisitions.

      Applied has made, and may in the future make, acquisitions of, or significant investments in, businesses with complementary products, services and/or technologies. Acquisitions involve numerous risks, including but not limited to: 1) diversion of management’s attention from other operational matters; 2) the inability to realize expected synergies resulting from the acquisition; 3) failure to commercialize purchased technology; and 4) impairment of acquired intangible assets as a result of technological advancements or worse-than-expected performance of the acquired company. Mergers and acquisitions are inherently subject to multiple significant risks, and the inability to effectively manage these risks could materially and adversely affect Applied’s business, financial condition and results of operations.

	Applied is exposed to various risks related to legal proceedings or claims.

      Applied currently is, and in the future may be, involved in legal proceedings or claims regarding patent infringement, intellectual property rights, antitrust, environmental regulations, securities, contracts, employment and other matters (see Part II below). In addition, from time to time, Applied receives notification from customers who believe that Applied owes them indemnification or other obligations related to infringement claims made against the customers by third parties. These legal proceedings and claims, whether with or without merit, are time-consuming and expensive to prosecute or defend and divert management’s attention and resources. There can be no assurance regarding the outcome of current or future legal proceedings or claims. In addition, Applied’s intellectual property rights may not provide significant competitive advantages if they are circumvented, invalidated or obsoleted by the rapid pace of technological change. Furthermore, the laws of other countries permit the protection of Applied’s proprietary rights to varying extents, compared to U.S. laws. Applied’s success is dependent in part upon the protection of its intellectual property rights. Infringement of Applied’s rights by a third party could result in uncompensated lost market and revenue opportunities for Applied. If Applied is not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on commercially reasonable terms, and/or successfully prosecute or defend its position, Applied’s business, financial condition and results of operations could be materially and adversely affected.

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

      Applied purchases forward exchange and currency option contracts to hedge certain existing and anticipated foreign currency denominated transactions expected to occur during the next year. Gains and losses on these contracts are generally recognized in income when the related transactions being hedged are recognized. Because the effect of movements in currency exchange rates on forward exchange and currency

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      Applied has performed an analysis to assess the potential financial effect of reasonably possible near-term changes in interest and foreign currency exchange rates. Based upon Applied’s analysis, the effect of such rate changes is not expected to be material to Applied’s financial condition, results of operations or cash flows.

Item 4.	Controls and Procedures

      Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, Applied’s principal executive officer and principal financial officer have concluded that Applied’s disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by Applied in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

      There were no significant changes in Applied’s internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation and up to the filing date of this Quarterly Report on Form 10-Q. Since there were no significant deficiencies or material weaknesses identified, no corrective actions were required.

      It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

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PART II.

Item 1.     Legal Proceedings

Novellus

      On June 13, 1997, after Varian Associates, Inc. (Varian) failed to respond to requests by Applied to discuss certain patent issues, Applied filed a lawsuit against Varian captioned Applied Materials, Inc. v. Varian Associates, Inc. (case no. C-97-20523-RMW) in the United States District Court for the Northern District of California, alleging infringement of several of Applied’s patents concerning PVD technology. On July 7, 1997, Applied amended that action to allege infringement of those same Applied PVD patents against Novellus Systems, Inc. (Novellus) and to add Novellus as a defendant, as a result of Novellus’ acquisition of Varian’s thin film systems PVD business. On June 23, 1997, Novellus filed a separate lawsuit against Applied captioned Novellus Systems, Inc. v. Applied Materials, Inc. (case no. C-97-20551-EAI) in the United States District Court for the Northern District of California, alleging infringement by Applied of several PVD technology patents that were formerly owned by Varian. Novellus seeks damages for past infringement, a permanent injunction, treble damages for willful infringement, pre-judgment interest and attorneys’ fees. In September 2000, Applied and Varian settled their disputes, and on October 3, 2000, Applied’s claims against Varian and Varian’s claims and counterclaims against Applied were dismissed with prejudice with respect to the Inova system as it was made and sold as of May 7, 1997. The litigation with Novellus continues. Discovery has closed in the actions. The trial date of May 27, 2003 has been rescheduled to January 20, 2004. Applied believes it has meritorious claims and defenses and intends to pursue them vigorously.

Axcelis Technologies

      On January 8, 2001, Axcelis Technologies, Inc. (Axcelis), formerly a subsidiary of Eaton Corporation, filed a lawsuit in the United States District Court for the District of Massachusetts, captioned Axcelis Technologies, Inc. v. Applied Materials, Inc. (case no. 01-10029 DPW). The lawsuit alleges that Applied infringes a patent concerning ion implantation owned by Axcelis. The complaint also alleges various Massachusetts state and common law tortious interference and unfair competition claims. Axcelis seeks a preliminary and permanent injunction, damages, costs and attorneys’ fees. On April 12, 2001, Applied answered the complaint by denying all allegations and counterclaimed for declaratory judgment of invalidity and non-infringement, and violations of various unfair and deceptive trade practices laws. Applied seeks damages, a permanent injunction, costs and attorneys’ fees. Fact and expert discovery have closed. On December 10, 2002, the Court issued a ruling interpreting the claims of the patent. Summary judgment motions have been filed and argued and are pending before the Court. The previously set trial date of May 27, 2003 has been rescheduled. Trial on infringement issues only is now scheduled to begin on June 16, 2003. Applied believes it has meritorious defenses and counterclaims to the action and intends to pursue them vigorously.

Linear Technology

      On March 2, 2001, Linear Technology Corp. (LTC) filed a third party complaint against Applied in the United States District Court for the Eastern District of Texas, captioned Texas Instruments, Inc. v. Linear Technology Corp. v. Applied Materials, Inc. (case no. 2-01-CV4 (DF)). The complaint against Applied alleged that Applied is obligated to indemnify LTC and defend LTC for certain claims in the underlying patent infringement lawsuit brought by Texas Instruments, Inc. (TI) against LTC. The complaint also alleged claims for breach of contract, breach of warranty, and various unfair business practices. In the complaint, LTC alleged that, before LTC purchased certain equipment from Applied, Applied failed to disclose to LTC that TI previously had won a jury verdict against Hyundai Electronics Industries Co., Ltd. (Hyundai) for patent infringement based on Hyundai’s use of certain semiconductor equipment including some Applied tools. LTC’s Texas lawsuit against Applied sought indemnification and damages from Applied and an order requiring Applied to defend LTC in the underlying lawsuit with TI. On January 15, 2002, the Court granted TI’s motion to sever Applied and the other third party defendants from the action and dismissed LTC’s action

22

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Semitool

      On June 11, 2001, Semitool, Inc. (Semitool) filed a lawsuit against Applied in the United States District Court for the Northern District of California, captioned Semitool, Inc. v. Applied Materials, Inc. (case no. CV-01-2277 CRB). The lawsuit alleged that Applied infringed a patent concerning seed repair and electroplating owned by Semitool. Semitool sought a preliminary and permanent injunction, damages, costs and attorneys’ fees. On July 12, 2001, before Applied had answered the complaint, Semitool voluntarily dismissed its action against Applied in the Northern District of California. On the same day, Semitool filed a substantially identical action against Applied in the United States District Court for the District of Oregon captioned Semitool, Inc. v. Applied Materials, Inc. (case no. CV’01-1066 AS). On July 13, 2001, Applied filed a declaratory judgment action against Semitool in the Northern District of California captioned Applied Materials, Inc. v. Semitool, Inc. (case no. CV-01-2673 BZ). In that action, Applied seeks a declaration that Applied has not infringed the Semitool patent and that Semitool’s patent is invalid and unenforceable. Applied also seeks costs and attorneys’ fees. The California Court has ordered Applied’s action against Semitool transferred to the District of Oregon. The actions are proceeding together in Oregon. Semitool has also asserted similar claims against certain other semiconductor equipment manufacturers. The Oregon Court has issued an order interpreting the patent claims and has rescheduled the trial date from June 30, 2003 to February 3, 2004. Applied believes it has meritorious claims and defenses and intends to pursue them vigorously.

David Scharf

      On July 31, 2001, David Scharf, an individual, filed a lawsuit against Applied in the United States District Court for the Central District of California, captioned David Scharf v. Applied Materials, Inc. (case no. 01-06580 AHM). The lawsuit alleges that Applied has infringed, has induced others to infringe and has contributed to others’ infringement of a patent concerning color synthesizing scanning electron microscope technology. Mr. Scharf seeks a preliminary and permanent injunction, damages and costs. Applied has answered the complaint and counterclaimed for declaratory judgment of non-infringement and invalidity. On May 10, 2002, Mr. Scharf filed a request for re-examination of his own patent. On June 26, 2002, the case was removed from the Court’s active docket after the parties stipulated to stay the case pending the results of that re-examination. On July 11, 2002, Applied filed its own request for re-examination of Scharf’s patent with the Patent and Trademark Office. Applied’s request for re-examination was granted on September 19, 2002. Applied believes it has meritorious defenses and counterclaims and intends to pursue them vigorously.

ASMI

      On August 27, 2002, ASM America, Inc. and ASM International, N.V. (collectively ASMI) filed a lawsuit against Applied in the United States District Court for the District of Arizona, captioned ASM America, Inc. and ASM International, N.V. v. Applied Materials, Inc. (case no. Civ’02 1660 PHX SMM). The lawsuit seeks a judicial declaration that ASMI does not infringe six patents belonging to Applied that relate to remote cleaning of CVD chambers and to deposition of silicon nitride. The suit also seeks a judicial

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Varian Semiconductor Equipment Associates, Inc.

      On September 13, 2002, Varian Semiconductor Equipment Associates, Inc. filed a demand for arbitration with the American Arbitration Association asserting that Applied Materials has breached a patent license agreement between Varian and Applied Materials dated January 1, 1992. Varian seeks to recover royalties, interest and attorneys’ fees. The arbitration hearing on whether the products are covered by the license agreement has concluded. On May 2, 2003, the arbitration panel issued an interim decision finding that some, but not all, of the products at issue were subject to the agreement. The arbitration panel next will consider whether the asserted claims of the patents under which those products were found to be covered are valid. Applied Materials believes that it has meritorious defenses and intends to pursue them vigorously.

Robert Bosch GmbH

      On October 10, 2002, Robert Bosch GmbH (Bosch), a German company, filed a lawsuit against Applied in the United States District Court for the District of Delaware, captioned Robert Bosch GmbH v. Applied Materials, Inc. (civil action no. 02-1523). The lawsuit alleges that Applied infringes two patents owned by Bosch related to anisotrophic etching. Bosch seeks a preliminary and permanent injunction, damages, costs and attorneys’ fees. Applied has answered the complaint and counterclaimed for declaratory judgment of non-infringement and invalidity. No trial date has been set. Applied believes it has meritorious defenses and intends to pursue them vigorously.

      From time to time, Applied receives notification from customers claiming that such customers are entitled to indemnification or other obligations from Applied related to infringement claims made against the customers by third parties. In addition, Applied is subject to various other legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of these claims cannot be predicted with certainty, Applied does not believe that any of these other existing legal matters will have a material adverse effect on its financial condition or results of operations.

Item 4.	Submission of Matters to a Vote of Security Holders

      The Annual Meeting of Stockholders was held on March 20, 2003 in Santa Clara, California. Ten incumbent directors were re-elected without opposition to serve one-year terms in office. The results of this election were as follows:

Name of Director		Votes For (Shares)				Votes Withheld (Shares)
James C. Morgan			1,443,683,692				28,299,801
Dan Maydan			1,449,437,834				22,545,659
Michael H. Armacost			1,404,741,883				67,241,610
Deborah A. Coleman			1,403,535,353				68,448,140
Herbert M. Dwight, Jr.			1,415,522,011				56,461,482
Philip V. Gerdine			1,405,391,456				66,592,037
Paul R. Low			1,415,456,048				56,527,445
Steven L. Miller			1,364,395,636				107,587,857
Gerhard H. Parker			1,406,790,629				65,192,864
Stan Shih			1,406,240,814				65,742,679

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Item 5.     Other Information

1.     Earnings/ Loss to Fixed Charges

      The ratio of earnings/(loss) to fixed charges for the six months ended April 28, 2002 and April 27, 2003, and for each of the last five fiscal years, was as follows:

Fiscal Year

Six Months Ended

1998

1999

2000

2001

2002

April 28, 2002

April 27, 2003

7.56x

14.03x

32.82x

11.80x

4.58x

1.23x

(1.66)x

2.     Other Matters

      On April 30, 2003, Applied announced the appointment of Michael R. Splinter as president, chief executive officer (CEO) and a member of its Board of Directors. As CEO, Mr. Splinter succeeded James C. Morgan, who will continue as chairman of the Board of Directors, and as president, he succeeded Dan Maydan, who will be president emeritus and remain a member of the Board of Directors. Before joining Applied, Mr. Splinter worked for nearly 20 years at Intel Corporation, where most recently, he was executive vice president and director of the Sales and Marketing Group.

Item 6.     Exhibits and Reports on Form 8-K

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

Exhibit No.				Description
	10.1			Applied Materials, Inc. Stock Purchase Plan for Offshore Employees, as amended on April 16, 2002
	10.2			Term Sheet for employment of Michael R. Splinter
	10.3			Restricted Stock Agreement for Michael R. Splinter
	10.4			Program for Accounts Receivable Transfer Agreement dated April 9, 2003 between Applied Materials, Inc. and Bank of America, N.A.*
	99.1			Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.2			Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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*	Confidential treatment has been requested with respect to portions of this exhibit.

      b) Reports on Form 8-K:

	1.     A Report on Form 8-K was furnished on January 31, 2003. The report contained information announcing Applied Materials, Inc.’s press release issued on January 31, 2003.
	2.     A Report on Form 8-K was furnished on March 17, 2003. The report contained information announcing Applied Materials, Inc.’s press release issued on March 17, 2003.

25

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SIGNATURES

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

	APPLIED MATERIALS, INC.

June 11, 2003

	By:	/s/ JOSEPH R. BRONSON

	______________________________________ Joseph R. Bronson
	Executive Vice President
	and Chief Financial Officer
	(Principal Financial Officer)

	By:	/s/ NANCY H. HANDEL

	______________________________________ Nancy H. Handel
	Group Vice President,
	Deputy Chief Financial Officer
	and Corporate Controller
	(Principal Accounting Officer)

26

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APPLIED MATERIALS, INC.

I, Michael R. Splinter, certify that:

      1.     I have reviewed this quarterly report on Form 10-Q of Applied Materials, Inc.;

      2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

      4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	/s/ MICHAEL R. SPLINTER
	_______________________________________ Michael R. Splinter
	President and
	Chief Executive Officer

Date: June 11, 2003

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I, Joseph R. Bronson, certify that:

      1.     I have reviewed this quarterly report on Form 10-Q of Applied Materials, Inc.;

      2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

      4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	/s/ JOSEPH R. BRONSON
	_______________________________________ Joseph R. Bronson
	Executive Vice President
	and Chief Financial Officer

Date: June 11, 2003

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EXHIBIT INDEX

Exhibit No.				Description
	10.1			Applied Materials, Inc. Stock Purchase Plan for Offshore Employees, as amended on April 16, 2002
	10.2			Term Sheet for employment of Michael R. Splinter
	10.3			Restricted Stock Agreement for Michael R. Splinter
	10.4			Program for Accounts Receivable Transfer Agreement dated April 9, 2003 between Applied Materials, Inc. and Bank of America, N.A.*
	99.1			Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.2			Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

                                                                    EXHIBIT 10.1

                             APPLIED MATERIALS, INC.
                               STOCK PURCHASE PLAN
                             FOR OFFSHORE EMPLOYEES
                       (AS AMENDED THROUGH APRIL 16, 2002)

1.       ESTABLISHMENT; PURPOSE

                  Effective as of October 16, 1995, the Corporation hereby
establishes the Applied Materials, Inc. Employees' Stock Purchase Plan for
Offshore Employees on the following terms and conditions. The Plan is intended
to encourage ownership of Common Stock of the Corporation by selected Offshore
Employees of Affiliates of the Company ("Eligible Employees") and to provide
incentives for them to exert maximum efforts for the success of the Corporation.
By extending to Eligible Employees the opportunity to acquire proprietary
interests in the Corporation and to participate in its success, the Plan may be
expected to benefit the Corporation and its shareholders by making it possible
to attract and retain qualified employees.

2.       DEFINITIONS

                  The following words and phrases shall have the following
meanings unless a different meaning is plainly required by the context:

                  2.1      "Affiliate" means any direct or indirect subsidiary
of the Corporation which has been designated by the Board as a corporation
employees of which may participate in the Plan.

                  2.2      "Board" means the Board of Directors of the
Corporation, as from time to time constituted.

                  2.3      "Common Stock" means the common stock of the
Corporation.

                  2.4      "Corporation" means Applied Materials, Inc., a
Delaware Corporation.

                  2.5      "Eligible Employee" means any Offshore Employee
eligible to participate in the Plan in accordance with Section 5.

                  2.6      "Grant Date" means that date specified by the Board
of the Committee for the granting of options in an Offering under the Plan.

                  2.7      "Offshore Employee" means a natural person employed
by an Affiliate who is neither a U.S. citizen nor a U.S. resident for U.S. tax
purposes.

                  2.8      "Option" means an option to acquire Common Stock
under the terms of this Plan.

                  2.9      "Participating Employee" means, with respect to each
Offering under the Plan, any Eligible Employee who has elected to participate in
accordance with Section 7.

                                     - 1 -



                  2.10     "Plan" means this Stock Purchase Plan for Offshore
Employees as amended from time to time.

                  2.11     "Plan Administrator" means the employee or employees
of the Corporation selected by the Board or the Committee (if authorized by the
Board under Section 4.3) to perform certain ministerial duties in the
administration of the Plan.

3.       STOCK SUBJECT TO THE PLAN

                  No more than 12,800,000 shares of Common Stock may be issued
upon the exercise of Options granted under the Plan, subject to adjustments as
provided in Section 9, which may be unissued shares, reacquired shares, or
shares brought on the market. If any Option which shall have been granted shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares shall again become available for purposes of the Plan (unless
the Plan shall have been terminated).

4.       ADMINISTRATION

                  4.1      The Plan shall be administered by the Board except to
the extent that the Board shall delegate responsibility for the administration
of the Plan as stated in Section 4.3.

                  4.2      The Board shall have the plenary power, subject to
and within the limits of the express provisions of the Plan:

                           (a)      To construe and interpret the Plan and
                  Options granted under it, and to establish, amend and revoke
                  rules and regulations for its administration. The Board, in
                  the exercise of this power, shall generally determine all
                  questions of policy and expediency that may arise, and may
                  correct any defect, supply any omission or reconcile any
                  inconsistency in the Plan or in any instrument associated with
                  the Plan, in such manner and to such extent as the Board shall
                  deem necessary to make the Plan fully effective.

                           (b)      To establish the terms of each Offering of
                  Common Stock under the Plan.

                  4.3      The Board, by resolution, may delegate responsibility
for the administration of the Plan or any part thereof, to a committee (the
"Committee") composed of members of the Board. The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board. To the extent that
responsibility for the administration of the Plan is delegated to the Committee,
the Committee shall have the powers theretofore possessed by the Board, and to
the extent that the Committee has been authorized to act, all references in this
Plan to the Board shall include the Committee, subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as, from time to
time, may be adopted by the Board. The Board at any time, by resolution, may
revoke such delegation and re-vest in the Board all or any part of the
responsibility for the administration of the Plan.

                                     - 2 -



                  4.4      The Board or Committee (if authorized by the Board)
may delegate to the Plan Administrator the responsibility to perform certain
ministerial duties in the administration of the Plan as are specified in the
Plan. To the extent that the Board or Committee has not delegated such duties to
the Plan Administrator, all references in this Plan to Plan Administrator shall
include Board or Committee, as appropriate.

5.       ELIGIBILITY

                  The Committee shall designate the Eligible Employees who shall
be eligible to participate in any Offering under the Plan.

6.       OFFERINGS

                  During the term of the Plan, the Corporation will make one or
more Offerings ("Offering") in which Options to purchase Common Stock will be
granted to Eligible Employees under the Plan. The terms and conditions of
Options to be granted in any such Offering will be determined by the Board under
Section 7. In connection with any Offering, if the number of shares for which
Eligible Employees elect to participate shall be greater than the shares
remaining available, the available shares shall, at the end of the Offering
Period, be allocated among the Participating Employees pro rata on the basis of
the number of shares for which each has elected to participate.

7.       TERMS AND CONDITIONS OF OPTIONS

                  7.1      Subject to the limitations herein contained, the
Board shall determine the terms of Options in each Offering all of which shall
be granted on the same date (the "Grant Date").

                  7.2      The Option price per share for each Offering shall be
as determined by the Board.

                  7.3      The expiration date of the Options granted under each
Offering shall be determined by the Board on or prior to the Grant Date for such
Offering.

                  7.4      All Eligible Employees to whom Options are granted
shall be entitled to purchase the number of full shares as shall be established
by the Board at the Grant Date. Each eligible Employee may elect to participate
for less than the maximum number of shares which he or she is entitled to
purchase under his or her Option. If an Eligible Employee elects to participate
for less than the maximum number of shares which he or she is entitled to
purchase, his or her Option shall at that time terminate and become void to the
extent of the number of shares for which he or she does not elect to
participate.

                  7.5      Each Eligible Employee who desires to participate in
an Offering shall elect to do so by completing and delivering to the Plan
Administrator or a person designated by the Plan Administrator in a timely
fashion such form or forms as may be prescribed by the Board.

                                     - 3 -



                  7.6      A Participating Employee shall exercise his or her
Option by delivering notice of exercise to the Plan Administration or a person
designated by the Plan Administrator at such time and in such form and manner as
the Board shall prescribe.

                  7.7      Upon exercise of an Option, full payment for the
shares subject to the Option shall be made in such form or manner as the Board
shall fix.

                  7.8      The Board may (but is not required to) establish on
such terms and conditions as it shall determine a payroll deduction system for
the purchase of shares covered by the Options hereunder. If there are payroll
deductions under any Offering, the Corporation or an Affiliate shall maintain a
payroll deduction account for each Participating Employee. The Board may (but is
not required to) provide for interest at such rate as the Board shall determine
to be credited to the payroll deduction accounts.

                  7.9      The Board shall establish rules, terms and conditions
for each Offering governing the exercise of outstanding Options in the event of
a Participating Employee's termination of employment or change in employment
status.

                  7.10     The Corporation will seek to obtain from each
regulatory committee or agency having jurisdiction such authority as may be
required to issue and sell shares of Common Stock to satisfy Options granted
under the Plan. Inability of the Corporation to obtain from any such regulatory
commission or agency authority which counsel for the Corporation deems necessary
for the lawful issuance and sale of its Common Stock to satisfy Options granted
under the Plan, shall relieve the Corporation from any liability for failure to
issue and sell Common Stock to satisfy such Options pending the time when such
authority is obtained or is obtainable.

                  7.11     Neither an Eligible Employee to whom an Option is
granted under the Plan nor his or her transferee shall have any rights as a
stockholder with respect to any shares covered by his or her Option until the
date of the issuance of a stock certificate to him for such shares.

                  7.12     Options granted under the Plan shall not be
transferable, except by will or by the laws of descent and distribution, and may
be exercised during the lifetime of a Participating Employee only by him.

                  7.13     Each Option granted under the Plan shall be evidenced
by such instrument or documentation, if any, as the Board shall establish, which
shall be dated the Grant Date and shall comply with and be subject to the terms
and conditions of the Plan.

                  7.14     Nothing in the Plan or in any Option granted under
the Plan shall confer on any Participating Employee any right to continue in the
employ of the Corporation or any of its Affiliates or to interfere in any way
with the right of the Corporation or any of its Affiliates to terminate his or
her employment at any time.

8.       FUNDS

                  Any amounts held by any Affiliate in payroll deduction
accounts under the Plan may be used for any corporate purpose of the Affiliate.

                                     - 4 -



9.       ADJUSTMENT IN NUMBER OF SHARES AND IN OPTION PRICE

                  In the event there is any change in the Common Stock through
declarations of stock dividends or stock split-ups, recapitalizations resulting
in stock split-ups, or combinations or exchanges of shares, or otherwise,
appropriate adjustments in the number of shares available for Option, as well as
the shares subject to any Option and the Option price thereof, shall be made,
provided that no fractional shares shall be subject to an Option and each Option
shall be adjusted down to the nearest full share.

10.      AMENDMENT OF THE PLAN

                  The Board at any time, and from time to time, may amend the
Plan, provided, however, the rights and obligations under the Option granted
before an amendment of the Plan is made effective shall not be altered or
impaired by the amendment without the consent of the Eligible Employee to whom
the Option was granted or the person to whom rights under the Option shall have
passed by will or by the laws of descent and distribution.

11.      TERMINATION OR SUSPENSION OF THE PLAN

                  The Board may at any time suspend or terminate the Plan. No
Offering shall be made under the Plan while it is suspended or after it is
terminated.

12.      EXECUTION

                  IN WITNESS WHEREOF, Applied Materials, Inc., by its duly
authorized officer, has executed the Plan on the date indicated below.

                                                     APPLIED MATERIALS, INC.

Dated: _______________                               By ________________________
                                                      Title: ___________________

                                     - 5 -

                                                                    EXHIBIT 10.2

                                   TERM SHEET
                                 APRIL 21, 2003

1.       POSITION. President and Chief Executive Officer, reporting to the Board
         of Directors.

2.       START DATE. As soon as possible, but no later than May 1, 2003.

3.       BOARD MEMBERSHIP. You will be elected a member of the Board of
         Directors effective on your start date. No additional compensation will
         be paid for Board service. You agree to resign from the Board upon
         termination of employment, unless requested to continue.

4.       BASE SALARY. Base Salary in the amount of $900,000. Base salary will be
         subject to annual review.

5.       INCENTIVE BONUS. Annual Target Bonus of 175% of base salary multiplied
         by a revenue factor and a PAT factor, the same as the senior executive
         bonus plan. Bonuses are based on fiscal year performance and paid in
         December based on the achievement of performance objectives determined
         by the Board each year as part of the senior executive bonus formula.
         For 2003 your bonus will be pro-rated, based on the number of days you
         are employed prior to fiscal year end.

6.       STOCK OPTIONS. You will be granted an Option to purchase 1,200,000
         shares of the Company's Common Stock upon Committee approval. The
         option will have an exercise price equal to the fair market value of
         the Company's Common Stock on the grant date. These options shall vest
         25% on July 15, 2004 and 25% on July 15 of each of the next 3 years.
         The options will have a ten-year term. The remaining terms of the grant
         will be governed by the terms of the Company's Stock Option Plan and
         the standard form option agreement.

7.       "MAKE WHOLE" COMPENSATION. Company recognizes that you would be
         foregoing a substantial amount of unvested "in the money" stock option
         value by leaving your present employer to join Applied Materials. This
         amount is estimated to be approximately $3,000,000. In an effort to
         address this issue we will provide you with a Restricted Stock Grant of
         300,000 shares of the Company's Common Stock vesting 50% on October 1,
         2003 and 50% on October 1, 2004.

8.       BENEFITS. You will be entitled to participate in all employee benefit
         plans or programs of the Company, generally available to any of its
         senior level executive employees. Details of these programs will be
         provided separately. You will also be eligible for relocation benefits
         in accordance with Company policy and applicable laws.

9.       TERMINATION COMPENSATION. For termination other than for cause you will
         receive a payment equal to one year of your then current base salary
         and 100% of the target bonus compensation for that year. You will also
         be allowed to exercise all stock options vesting within one year from
         date of termination.

If the provisions covered by this term sheet are acceptable, please indicate
your acceptance by signing and dating this document. The Board of Directors will
review for approval as soon as possible.

                                                  For: Applied Materials, Inc.

Accepted: /s/ MICHAEL R. SPLINTER                 By: /s/ JAMES C. MORGAN
          -----------------------                     ----------------------

Date: April 21, 2003                              Date: April 21, 2003

                                                                    EXHIBIT 10.3

                             APPLIED MATERIALS, INC.

                           RESTRICTED STOCK AGREEMENT

         Applied Materials, Inc. (the "Company") hereby grants you, Michael R.
Splinter (the "Employee"), a grant of restricted stock. The date of this
Agreement is May 20, 2003. Subject to the provisions of Appendix A (attached),
the principal features of this grant are as follows:


                                                
NUMBER OF SHARES OF RESTRICTED STOCK: 300,000      PURCHASE PRICE PER SHARE: US $0.01
- ------------------------------------               ------------------------




SCHEDULED VESTING DATES/PERIOD OF RESTRICTION:     NUMBER OF SHARES
- ---------------------------------------------      ----------------
                                                
           October 1, 2003                              150,000
           October 1, 2004                              150,000


                                   IMPORTANT:

         Your signature below indicates your agreement and understanding that
this grant is subject to all of the terms and conditions contained in Appendix
A. For example, important additional information on vesting and forfeiture of
the Shares covered by this grant is contained in Paragraphs 4 through 6 of
Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE
SPECIFIC TERMS AND CONDITIONS OF THIS AGREEMENT.

APPLIED MATERIALS, INC.                                  EMPLOYEE

/s/ JAMES C. MORGAN                                      /s/ MICHAEL R. SPLINTER
- -------------------                                      -----------------------
James C. Morgan,                                         Michael R. Splinter
Chairman of the Board of Directors

Date: May 20, 2003                                       Date: May 20, 2003



           APPENDIX A - TERMS AND CONDITIONS OF RESTRICTED STOCK GRANT

         1.       Definitions. As used herein, the following definitions will
apply:

                  (a)      "Affiliate" means any corporation or any other entity
(including, but not limited to, partnerships and joint ventures) controlling,
controlled by, or under common control with the Company.

                  (b)      "Board" means the Board of Directors of the Company.

                  (c)      "Committee" means the Human Resources and
Compensation Committee of the Board.

                  (d)      "Common Stock" means the Common Stock of the Company.

                  (e)      "Restricted Stock" means the Shares issued to the
Employee pursuant to this Agreement.

                  (f)      "Shares" means shares of Common Stock.

         2.       Grant. The Company hereby grants to the Employee the right to
purchase 300,000 Shares of Restricted Stock for $0.01 per Share, subject to all
of the terms and conditions in this Agreement. The Employee has until May 30,
2003 to make such purchase after which date he will have no further right to
purchase the Shares of Restricted Stock under this Agreement.

         3.       Shares Held in Escrow. Unless and until the Shares of
Restricted Stock will have vested in the manner set forth in paragraphs 4 or 5,
such Shares will be issued in the name of the Employee and held by the Secretary
of the Company as escrow agent (the "Escrow Agent"), and will not be sold,
transferred or otherwise disposed of, and will not be pledged or otherwise
hypothecated. The Company may instruct the transfer agent for its Common Stock
to place a legend on the certificates representing the Restricted Stock or
otherwise note its records as to the restrictions on transfer set forth in this
Agreement. The certificate or certificates representing such Shares will not be
delivered by the Escrow Agent to the Employee unless and until the Shares have
vested and all other terms and conditions in this Agreement have been satisfied.

         4.       Vesting Schedule. Except as provided in Section 5, and subject
to Section 6, 150,000 Shares subject to this grant will vest on October 1, 2003
and the remaining 150,000 Shares subject to this grant will vest on October 1,
2004. Vesting actually will occur only if the Company or an Affiliate employs
the Employee through the applicable vesting date.

         5.       Committee Discretion. The Committee, in its discretion, may
accelerate the vesting of the balance, or some lesser portion of the balance, of
the unvested Shares of Restricted Stock at any time. If so accelerated, such
Shares will be considered as having vested as of the date specified by the
Committee.



         6.       Forfeiture. Notwithstanding any contrary provision of this
Agreement, the balance of the Shares of Restricted Stock that have not vested
pursuant to paragraphs 4 or 5 will thereupon be forfeited and automatically
transferred to and reacquired by the Company at no cost to the Company upon the
date the Employee's employment with the Company or an Affiliate terminates for
any reason. The Employee will not be entitled to a refund of the price paid for
any Shares returned to the Company pursuant to this paragraph 6. The Employee
hereby appoints the Escrow Agent with full power of substitution, as the
Employee's true and lawful attorney-in-fact with irrevocable power and authority
in the name and on behalf of the Employee to take any action and execute all
documents and instruments, including, without limitation, stock powers which may
be necessary to transfer the certificate or certificates evidencing such
unvested Shares to the Company upon such violation.

         7.       Death of Employee. Any distribution or delivery to be made to
the Employee under this Agreement will, if the Employee is then deceased, be
made to the Employee's designated beneficiary, or if no beneficiary survives the
Employee, to the administrator or executor of the Employee's estate. Any such
transferee must furnish the Company with (a) written notice of his or her status
as transferee, and (b) evidence satisfactory to the Company to establish the
validity of the transfer and compliance with any laws or regulations pertaining
to said transfer.

         8.       Withholding of Taxes. Notwithstanding any contrary provision
of this Agreement, no certificate representing the Shares may be released from
the escrow established pursuant to paragraph 3 unless and until satisfactory
arrangements (as determined by the Committee) will have been made by the
Employee with respect to the payment of income and employment taxes which the
Company determines must be withheld with respect to such Shares. The Committee,
in its sole discretion and pursuant to such procedures as it may specify from
time to time, may permit the Employee to satisfy such tax withholding
obligation, in whole or in part by (a) electing to have the Company withhold
otherwise deliverable Shares of Restricted Stock, or (b) delivering to the
Company already vested and owned Shares having a fair market value equal to the
minimum amount required to be withheld.

         9.       Rights as Stockholder. Neither the Employee nor any person
claiming under or through the Employee will have any of the rights or privileges
of a stockholder of the Company in respect of any Shares deliverable hereunder
unless and until certificates representing such Shares will have been issued,
recorded on the records of the Company or its transfer agents or registrars, and
delivered to the Employee or the Escrow Agent. Except as provided in Section 11,
after such issuance, recordation and delivery, the Employee will have all the
rights of a stockholder of the Company with respect to voting such Shares and
receipt of dividends and distributions on such Shares.

         10.      No Effect on Employment. The Employee's employment with the
Company and its Affiliates is on an at-will basis only. Accordingly, the terms
of the Employee's employment with the Company and its Affiliates will be
determined from time to time by the Company or the Affiliate employing the
Employee (as the case may be), and the Company or the Affiliate will have the
right, which is hereby expressly reserved, to terminate or change the terms of
the employment of the Employee at any time for any reason whatsoever, with or
without good cause.

                                      -2-



         11.      Changes in Shares. In the event of any merger, reorganization,
consolidation, recapitalization, separation, liquidation, stock dividend,
split-up, Share combination, or other change in the corporate structure of the
Company affecting the Shares, the Shares will be increased, reduced or otherwise
changed, and by virtue of any such change the Employee will in his capacity as
owner of unvested Shares of Restricted Stock that have been awarded to him (the
"Prior Shares") be entitled to new or additional or different shares of stock,
cash or securities (other than rights or warrants to purchase securities); such
new or additional or different shares, cash or securities will thereupon be
considered to be unvested Restricted Stock and will be subject to all of the
conditions and restrictions which were applicable to the Prior Shares pursuant
to this Agreement. If the Employee receives rights or warrants with respect to
any Prior Shares, such rights or warrants may be held or exercised by the
Employee, provided that until such exercise any such rights or warrants and
after such exercise any shares or other securities acquired by the exercise of
such rights or warrants will be considered to be unvested Restricted Stock and
will be subject to all of the conditions and restrictions which were applicable
to the Prior Shares pursuant to this Agreement. The Committee in its absolute
discretion at any time may accelerate the vesting of all or any portion of such
new or additional shares of stock, cash or securities, rights or warrants to
purchase securities or shares or other securities acquired by the exercise of
such rights or warrants.

         12.      Address for Notices. Any notice to be given to the Company
under the terms of this Agreement will be addressed to the Company, in care of
Secretary of the Company, at Applied Materials, Inc., 2881 Scott Blvd., M/S
2064, Santa Clara, CA 95050, or at such other address as the Company may
hereafter designate in writing.

         13.      Grant is Not Transferable. Except to the limited extent
provided in paragraph 7 above, this grant and the rights and privileges
conferred hereby will not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and will not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this grant, or any
right or privilege conferred hereby, or upon any attempted sale under any
execution, attachment or similar process, this grant and the rights and
privileges conferred hereby immediately will become null and void.

         14.      Binding Agreement. Subject to the limitation on the
transferability of this grant contained herein, this Agreement will be binding
upon and inure to the benefit of the heirs, legatees, legal representatives,
successors and assigns of the parties hereto.

         15.      Additional Conditions to Release from Escrow. If at any time
the Company will determine, in its discretion, that the listing, registration or
qualification of the Shares of Restricted Stock upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory authority is necessary or desirable as a condition to the release of
such Shares from the escrow established pursuant to paragraph 3, such release
will not occur unless and until such listing, registration, qualification,
consent or approval will have been effected or obtained free of any conditions
not acceptable to the Company. The Company will make all reasonable efforts to
meet the requirements of any such state or federal law or securities exchange
and to obtain any such consent or approval of any such governmental authority.

                                      -3-



         16.      Committee Authority. The Committee will have the power and
discretion to interpret this Agreement and to adopt such rules for the
administration, interpretation and application of the Agreement as are
consistent herewith and to interpret or revoke any such rules (including, but
not limited to, the determination of whether or not any Shares of Restricted
Stock have vested). All actions taken and all interpretations and determinations
made by the Committee in good faith will be final and binding upon the Employee,
the Company and all other interested persons. No member of the Committee will be
personally liable for any action, determination or interpretation made in good
faith with respect to this Agreement.

         17.      Captions. Captions provided herein are for convenience only
and are not to serve as a basis for interpretation or construction of this
Agreement.

         18.      Agreement Severable. In the event that any provision in this
Agreement will be held invalid or unenforceable, such provision will be
severable from, and such invalidity or unenforceability will not be construed to
have any effect on, the remaining provisions of this Agreement.

         19.      Modifications to the Agreement. This Agreement constitutes the
entire understanding of the parties on the subjects covered. The Employee
expressly warrants that he is not accepting this Agreement in reliance on any
promises, representations, or inducements other than those contained herein.
Modifications to this Agreement can be made only in an express written contract
executed by a duly authorized officer of the Company.

         20.      Notice of Governing Law. This Agreement will be governed by,
and construed in accordance with, the laws of the State of California without
regard to principles of conflict of laws.

         21.      Additional Actions. The parties will execute such further
instruments and take such further action as may reasonably be necessary to carry
out the intent of this Agreement.

                                     o O o

                                       -4-

                                                                    EXHIBIT 10.4

               PROGRAM FOR ACCOUNTS RECEIVABLE TRANSFER AGREEMENT

THIS PROGRAM FOR ACCOUNTS RECEIVABLE TRANSFER AGREEMENT is made this 9th day of
April, 2003 between BANK OF AMERICA, N.A. (together with any successor, "BofA")
and APPLIED MATERIALS, INC., a Delaware corporation ("Client").

                                    Recitals

Client from time to time will own accounts receivable resulting from Client's,
or Client's wholly-owned subsidiaries', sale of products or services. Client
wishes to sell certain accounts receivable to BofA in accordance with the terms
hereof. For purposes hereof, terms defined in Annex I hereto shall have the
respective meanings assigned therein.

Therefore, for good and valuable consideration, the parties agree as follows:

         1.       Purchase of Receivables.

                  (a)      In connection with the execution and delivery of this
         Agreement, Client shall sell to BofA Receivables owned by Client, and
         BofA shall purchase such Receivables from Client, on the terms set
         forth herein and on the initial Schedule A hereto (such Schedule A and
         each other Schedule A hereto being incorporated herein by reference).
         After the date hereof, Client may from time to time (x) seek the right
         to sell to BofA other Receivables owned by Client and (y) submit a
         proposed related Schedule A, in form and substance satisfactory to
         BofA, executed by Client. Within 5 days after the initial tender of
         Receivables in connection with any proposed Schedule A, BofA shall
         notify Client if BofA wishes to accept the proposed Schedule A and
         purchase any or all of such Receivables. The purchase of any such
         Receivables by BofA shall be made pursuant to the terms hereof.

                  All Purchased Receivables shall be evidenced by invoices (in
         electronic or paper form), which invoices shall comport with the
         following as specified on the relevant Schedule A: (i) the tenors of
         the Minimum Invoice Tenor Period and Maximum Invoice Tenor Period, (ii)
         the Minimum Invoice Amount, and (iii) no grace period related thereto
         shall exceed the Past Due Grace Period. Without limiting the other
         terms of this Agreement, BofA's purchase of Receivables of an Approved
         Account Debtor shall be subject to the following conditions: (A) Client
         shall submit an executed Schedule A relating to such Receivables, which
         shall contain the relevant terms and conditions with respect thereto,
         (B) BofA shall sign such Schedule A and return it to Client, (C) the
         aggregate amount of such Receivables being purchased shall be equal to
         the relevant Required Amount, (D) the relevant Schedule A shall contain
         the Effective Date. All Receivables purchased by BofA shall be
         purchased on a non-recourse basis (other than with respect to the
         limited repurchase obligations provided herein). It is the express
         intention of the parties to this Agreement that the purchase of
         Receivables hereunder shall be, and shall be construed as, a true sale
         of such Receivables by Client to BofA. Client acknowledges that the
         representations and warranties made herein (including without
         limitation in Section 4) are a material inducement of BofA's purchase
         of the Receivables to be purchased hereunder.

                  On or prior to the date hereof, Client shall have furnished to
         BofA such authorizing corporate resolutions, corporate organizational
         documents and legal opinions (covering, at a minimum, (x) due
         authorization, execution and delivery, (y) enforceability and
         perfection and (z) true sale) as BofA may request.

                                       1



                  (b)      The parties agree as follows with respect to
         Receivables that are being purchased by BofA pursuant to Schedule A-1
         and that BofA elects to purchase in connection with any other executed
         Schedule A submitted by Client to BofA:

                           (1)      The purchase price (the "Purchase Price")
                  for each Receivable purchased shall be the percentage of the
                  face value thereof as set forth on the relevant Schedule A
                  with respect to such Receivable.

                           (2)      The parties shall consummate Client's sale
                  of the subject Receivables as promptly as practicable after
                  BofA's election to purchase such Receivables. The parties
                  shall take the following actions to effect each such purchase
                  and sale:

                                    (i)      On each Effective Date, BofA shall
                           pay Client an amount equal to the aggregate Purchase
                           Price for the Receivables to be purchased on such
                           date, which shall be wired to the following account:
                           Bank: Mellon Bank N.A.; ABA: 043000261; Acct. No.:
                           020-8830; For: Applied Materials, Inc..

                                    (ii)     With respect to all Remittances of
                           cash required to be paid over to BofA pursuant to
                           Section 1(b)(4), Client shall make such payment in
                           the form of a wire transfer to the following account:
                           Bank: Bank of America, N.A., New York, NY; ABA: 026
                           009 593; Account No.: 6550-219386; For: Rate
                           Derivative Settlements - Attn: Chuck Linton.

                                    (iii)    Client shall execute and deliver to
                           BofA an assignment of or schedule of accounts with
                           respect to (or both) each Receivable to be purchased
                           in such form as BofA may require. In addition, Client
                           shall deliver to BofA with respect to the Receivables
                           to be purchased: (aa) if requested by BofA, a copy of
                           the purchase order signed by the applicable Account
                           Debtor; (bb) if requested by BofA, a valid invoice in
                           the form currently used by Client with regard to the
                           subject Receivables with evidence of shipment of
                           goods in accordance with any applicable purchase
                           order; and (cc) such other documents and certificates
                           as BofA may reasonably request.

                           (3)      From and after Client's sale and BofA's
                  purchase of any Receivable, BofA shall (i) have exclusive
                  control and shall be entitled to collect and receive all
                  amounts payable under the Purchased Receivable and (ii) have a
                  first claim to any rights under a policy of insurance relating
                  to the Purchased Receivable. BofA shall from and after such
                  time be vested with all of Client's rights in the Purchased
                  Receivable including without limitation: (i) Client's right of
                  replevin and reclamation with respect to the merchandise
                  underlying the Purchased Receivable; and (ii) subject only to
                  the rights assigned to Servicer under Section 6, Client's
                  right to extend the time for payment under, or make any
                  compromise, adjustment or modification with respect to, the
                  Purchased Receivable. Without limiting the foregoing, Client
                  hereby assigns to BofA all rights of Client under each
                  Contract underlying a Purchased Receivable relating to the
                  collectibility of payments thereunder, security interests and
                  other liens created in connection therewith and the
                  enforcement thereof, but BofA does not and shall not thereby
                  assume any obligations of Client under any such Contract.
                  Notwithstanding the foregoing, (i) Client shall perform all of
                  its obligations (if any) pursuant to any contract or agreement
                  relating to any Purchased Receivables to the same extent as if
                  such Purchased Receivables had not been transferred hereunder
                  (and the exercise by BofA of its rights hereunder shall not
                  relieve Client from such obligations), (ii) Client shall pay
                  when due any taxes payable by Client under applicable law,
                  including any sales taxes payable in connection with Purchased
                  Receivables and their creation and satisfaction, and (iii)
                  BofA shall not have any obligation or liability with respect
                  to any Purchased Receivable or any security or document or
                  agreement related thereto, nor shall BofA be obligated to
                  perform any of the obligations of Client or any Account Debtor
                  under any of the foregoing.

                                       2



                           (4)      All amounts received by Client with respect
                  to Purchased Receivables shall be tracked (separately from
                  amounts received by Client on Receivables of the same Account
                  Debtor that do not constitute Purchased Receivables) and held
                  in trust by Client for BofA, and Client (or Servicer, if
                  different from Client) will deliver to BofA all amounts
                  received with respect to Purchased Receivables (collectively,
                  "Remittances"). BofA assumes no responsibility in the
                  acceptance of checks or other forms of exchange in payment of
                  the Purchased Receivables. Irrespective of whether or not a
                  Termination Date has occurred, Client and/or Servicer will use
                  commercially reasonable efforts to remit promptly to BofA all
                  Remittances received on, or on account of, Purchased
                  Receivables, but in no event later than 10 days after receipt.

                           (5)      BofA shall not be obligated to purchase any
                  Receivable hereunder unless and until: (i) BofA accepts the
                  Receivable for sale in accordance with the terms hereof; and
                  (ii) all other terms and conditions set forth herein with
                  respect to such purchase shall have been satisfied. BofA's
                  purchase of any Receivable or Receivables on one occasion
                  shall not obligate BofA to purchase any other Receivable on
                  any future occasion.

                           (6)      All invoices relating to the Receivables to
                  be purchased shall be in a form substantially similar to the
                  form of invoice with respect to such Receivables initially
                  reviewed and approved by BofA prior to the relevant Effective
                  Date (or in such other form as BofA may from time to time
                  approve).

                           (7)      If an Approved Account Debtor, after
                  receiving and accepting goods or services rendered (subject to
                  all representations and warranties herein), has failed to pay
                  a Purchased Receivable solely because of such Account Debtor's
                  Financial Inability To Pay, BofA shall bear any loss thereon.
                  If nonpayment is due to any other reason, however, each
                  affected Purchased Receivable shall be subject to repurchase
                  as provided in Section 9(a). Specifically, a Receivable shall
                  be required to be repurchased by Client (i) if nonpayment is
                  because of the assertion of any claim or dispute by an Account
                  Debtor based on or arising out of its commercial dealings or
                  transactions with Client, including without limitation,
                  disputes, denial of a claim, lack of adequate delivery,
                  quantity, quality, or other deficiency relating to the goods
                  and services, or the exercise of any counterclaim or offset
                  (whether or not such claim, dispute, counterclaim or offset
                  relates to the specific Purchased Receivable), which claim,
                  dispute, counterclaim or offset has resulted or in Client's
                  good faith opinion is reasonably likely to result in a
                  reduction of the amount receivable in respect of such
                  Purchased Receivable, or (ii) if any representation or
                  warranty made by Client to BofA with respect to such Purchased
                  Receivable has been breached.

                  (c)      The sale or other transfer or conveyance of Purchased
         Receivables do not create, nor are they intended to create, an
         assumption by BofA of any of Client's obligations in connection with
         such Receivables or any agreement or instrument relating thereto,
         including, without limitation, any obligation to any Account Debtor.
         Notwithstanding the foregoing, it is the further intention of the
         parties to this Agreement that, if a court of competent jurisdiction
         were to determine that such transfer of Purchased Receivables is not a
         sale, such transfer shall be deemed a grant of a first priority
         security interest in such Purchased Receivables to secure a debt
         (Client's return to BofA of the Purchase Price paid by BofA for the
         Purchased Receivables) or any of Client's obligations to BofA under
         this Agreement.

         2.       Term.

                  (a)      The Client may, upon 60 days written notice to BofA,
         terminate this Agreement whereupon BofA shall have no further
         obligation to purchase, and Client shall have no further

                                       3



         obligation to sell any Receivable hereunder (but this Agreement shall
         remain effective as to Receivables purchased prior to such termination
         date).

                  (b)      With respect to any Purchased Receivable, all
         Remittances in respect thereof shall be paid to BofA in accordance with
         the terms of Section 1(b)(4).

         3.       [INTENTIONALLY OMITTED.]

         4.       Representations and Warranties.

                  (a)      Each Client and Servicer represents and warrants to
         BofA on the date hereof, on each applicable Effective Date and at each
         time Client submits to BofA a request that BofA purchase any Receivable
         that: (i) it is duly organized and validly existing and in good
         standing under the laws of the jurisdiction of its organization with
         the corporate power and authority to carry on its activities as now
         conducted and as contemplated under this Agreement, and to execute,
         deliver, perform and secure its obligations under this Agreement in
         accordance with its terms; (ii) the execution, delivery and performance
         by it of this Agreement (aa) have been duly authorized by all necessary
         action, and (bb) do not and will not conflict with, or result in a
         violation of, any applicable provision of existing law, rule or
         regulation applicable to it, any judgment, order or decree applicable
         to or binding on it, its charter or bylaws or any indenture, contract,
         agreement, mortgage, deed of trust or other instruments to which Client
         is a party or by which it or its property is bound; (iii) this
         Agreement has been duly authorized, executed and delivered by it, and
         is a legal, valid and binding obligation of it enforceable against it
         in accordance with its terms, except to the extent, if any, that the
         enforceability thereof may be limited by (aa) the effect of any
         applicable bankruptcy, insolvency, reorganization, moratorium, debt
         adjustment or other similar law or enactment now or hereafter enacted
         affecting the enforcement of creditors' rights generally and (bb)
         general principles of equity (regardless of whether such enforceability
         is considered in a proceeding in equity or at law); (iv) all
         authorizations, permits, consents, approvals, licenses or exemptions
         from, registrations or filings with, or reports to, any governmental or
         regulatory unit or other party or entity necessary for it to enter into
         this Agreement and to perform its obligations hereunder have been
         obtained and remain in full force and effect, and no other such
         authorizations, permits, consents, approvals, licenses, exemptions,
         registrations, filings or reports are necessary for the due execution,
         delivery and performance by it of this Agreement; (v) no agreement
         exists between Client and any Account Debtor that could interfere with
         such Account Debtor's payment of and performance under the Receivables
         in accordance with the relevant invoices; (vi) each Contract underlying
         a Purchased Receivable, by its terms, is freely transferable; (vii)
         each Contract underlying a Purchased Receivable is governed according
         to the laws of a state of the United States of America; and (viii) each
         Contract underlying a Purchased Receivable contains (Y) no material
         restrictions or limitations on Client's (or its assignee's) ability to
         pursue collection of such Receivables and enforcement of such Contract
         and (Z) no mandatory arbitration provisions.

                  (b)      Client acknowledges that as to each Receivable sold
         hereunder that it expressly represents, warrants, agrees (and
         furthermore acknowledges that BofA is expressly relying thereon) that
         immediately prior to the purchase of such Receivable by BofA pursuant
         to Section 1 hereof: (i) Client is the lawful owner of each such
         Receivable; (ii) each such Receivable shall be sold and assigned to
         BofA as absolute owner free and clear of all liens, claims and security
         interests; (iii) each such Receivable is for a certain, definite,
         undisputed and liquidated amount and represents an amount owed to
         Client as a result of a bona fide sale in the ordinary course of
         business of a product or service to an Approved Account Debtor who is
         not affiliated with Client; (iv) complete deliveries have been made
         under any agreement, representation or understanding with the
         applicable Account Debtor with respect to each such Receivable, and any
         contracts or agreements relating to each such Receivable have been
         delivered to BofA ; (v) no such Receivable is past due (i.e., unpaid
         beyond the applicable Maximum Invoice Tenor Period) or for a face value
         less than the applicable Minimum Invoice Amount; (vi) the applicable
         Account Debtor is not, and will not be, entitled to any offset,
         deduction, counterclaim, contra account and/or other

                                       4



         credit with respect to such Receivable or will be subject to any
         dispute or claim by an Account Debtor including, but not limited to,
         with respect to price, terms, quality, quantity or delay in shipment;
         (vii) no such Receivable is or shall otherwise be subject to, any
         offset, counterclaim, contra account or any defense of any kind or
         character with respect to any such Receivable; (viii) Client does not
         have any knowledge of any fact that could reasonably be expected to
         affect the validity or collectibility of any such Receivable; (ix) no
         such Receivable represents a delivery of merchandise upon
         "consignment," "guaranteed sale," "sale or return," "payment on
         reorder" or similar terms; (x) the names of the Account Debtors and the
         amounts owing on the due dates of each such Receivable are correctly
         stated in all instruments of assignment, schedules, invoices or other
         documentation furnished by Client to BofA; (xi) no such Receivable has
         a due date that is more than the Maximum Invoice Tenor Period unless
         otherwise approved by BofA; (xii) no other sale, assignment or grant of
         a security interest or lien of any kind whatsoever presently exists or
         will thereafter be created in favor of any person or entity with
         respect to any such Receivable; (xiii) any and all information
         furnished by Client to BofA in connection with the sale of each such
         Receivable is and will be true and correct in all material respects at
         the time that such information is furnished to BofA; (xiv) Client has
         strictly complied with all applicable laws and regulations in
         connection with Client's sale of products or services giving rise to
         each such Receivable; (xv) all proceeds from the sale of such
         Receivables will be used by Client in accordance with requirements of
         law, and will not be used, directly or indirectly, to purchase or carry
         margin stock (within the meaning of Regulation U of the Board of
         Governors of the Federal Reserve System) or to extend credit to others
         for the purpose of purchasing or carrying margin stock or to refund
         indebtedness originally incurred for such purpose; (xvi) each such
         Receivable is and will be payable in United States dollars; (xvii) each
         such Receivable constitutes an "account" as defined in Section 9-106 of
         the Uniform Commercial Code as in effect in the state of Client's
         formation and in the state of Client's principal place of business; and
         (xviii) the payment terms for each such Receivable require the relevant
         Account Debtor to pay such Receivable on or prior to the Stated
         Termination Date. Client acknowledges that the representations and
         warranties made herein are a material inducement to BofA's purchase of
         the Receivables to be purchased hereunder.

                  (c)      Client authorizes BofA to represent and warrant to
         any subsequent transferee or assignee of any Receivable that at the
         date of purchase of the Receivable by BofA the Receivable represented a
         legally valid indebtedness of the applicable Account Debtor for the
         amount of such Receivable and that there were no known defaults, or
         counterclaims with respect to such Receivable. Client shall indemnify
         BofA from and against any liability incurred by BofA, or any claims
         made against BofA, as a result of any such representation or warranty
         by BofA.

         5.       Covenants of Client. Client and, to the extent applicable,
Servicer shall comply with each of the following covenants during the term of
this Agreement:

                  (a)      Client shall deliver to BofA in form and detail
         satisfactory to BofA (but only to the extent Client is no longer
         subject to the public filing requirements of the Securities and
         Exchange Commission):

                           (i)      as soon as available, but not later than 95
                  days after the end of each fiscal year, a copy of the audited
                  consolidated balance sheet of Client as at the end of such
                  year and the related consolidated statements of income or
                  operations, shareholders' equity and cash flows for such
                  fiscal year, setting forth in each case in comparative form
                  the figures for the previous fiscal year, and accompanied by
                  the opinion of a nationally-recognized independent public
                  accounting firm, which opinion shall state that such
                  consolidated financial statements present fairly, in all
                  material respects, the financial position for the periods
                  indicated in conformity with Generally Accepted Accounting
                  Principles applied on a basis consistent with prior years
                  (except for changes agreed upon by Client and such auditors
                  which are disclosed and described in such statements). Such
                  opinion shall not be qualified or limited because of a
                  restricted or limited examination by such accountant of any
                  material portion of the records of Client; and

                                       5



                           (ii)     as soon as available, but not later than 50
                  days after the end of each of the first three fiscal quarters
                  of each fiscal year, a copy of the unaudited consolidated
                  balance sheet of Client as of the end of such quarter and the
                  related consolidated statements of income and cash flows for
                  the period commencing on the first day and ending on the last
                  day of such quarter, and certified by any responsible
                  financial officer of Client as being complete and correct and
                  fairly presenting in all material respects, in accordance with
                  Generally Accepted Accounting Principles, the financial
                  position and the results of the operations of Client.

                  (b)      Client and Servicer each shall do or cause to be done
         all things necessary to preserve and keep in full force and effect its
         existence, rights and privileges as a corporation or partnership, as
         the case may be, under the laws of its state of organization.

                  (c)      Neither Client nor Servicer will create, incur,
         assume or suffer to exist any lien or other encumbrance (other than
         those arising hereunder and except for such non-consensual encumbrances
         as may arise in the ordinary course of Client's business) on: (i) the
         Purchased Receivables (whether now existing or hereafter arising) or
         (ii) any proceeds of the Purchased Receivables.

                  (d)      [INTENTIONALLY OMITTED.]

                  (e)      In connection with each Purchased Receivable and at
         its own expense, Client and Servicer each shall (i) on the applicable
         date of sale to BofA, indicate or cause to be indicated clearly and
         unambiguously in its accounting records and mark or cause to be marked
         on any paper invoice or the electronic ledger for any electronic
         invoice that such Receivable has been sold to BofA pursuant to this
         Agreement; (ii) ensure that its balance sheet indicates that the
         Purchased Receivables have been sold to BofA; (iii) not mislead any
         creditor with respect to BofA's ownership of the Purchased Receivables;
         (iv) inform any person or entity that may inquire that the Purchased
         Receivables have been sold to BofA without recourse; (v) not hold out
         the Purchased Receivables as being able to satisfy any obligation owed
         or that may be owed to any creditor or potential creditor of Client;
         and (vi) promptly (and in any event within five (5) days) upon the
         request of BofA, provide BofA with a list of, an accounts receivable
         aging report for and any other similar financial or accounting document
         relating to all Purchased Receivables.

                  (f)      Client and Servicer each shall notify BofA in the
         event any of the following events occur as promptly as practical (but
         in any event within five (5) days) after a Responsible Officer of
         Client or Servicer, as applicable, becomes aware that such event has
         occurred or is reasonably likely to occur, and, with respect to clause
         (ii) below, deliver to BofA any related written correspondence:

                           (i)      a Bankruptcy has occurred with respect to
                  any Approved Account Debtor; or

                           (ii)     the assertion of any dispute with respect to
                  any Purchased Receivable by any Approved Account Debtor which
                  dispute has resulted in or in Client's good faith opinion is
                  reasonably likely to result in a reduction of the amount
                  receivable in respect of such Purchased Receivable; or

                           (iii)    a Servicer Default.

                  (g)      Client and Servicer each shall do or cause to be done
         all things necessary or reasonably requested by BofA under any foreign
         laws applicable to an Approved Account Debtor to (i) ensure that BofA
         has and continues to have good title to the Purchased Receivables, and
         (ii) ensure that BofA has and continues to have the ability to enforce
         all rights purported to be transferred to BofA hereunder with respect
         to the Purchased Receivables.

                                       6



                  (h)      Client shall make no material change in its credit
         and collections procedures that would adversely affect the validity,
         enforceability or collectibility of the Purchased Receivables or
         materially adversely affect the ability of Client to perform its
         obligations hereunder without the prior written consent of BofA.

                  (i)      Without the prior written consent of BofA, Client
         will not amend, modify or waive any term or condition of any Contract
         underlying any Purchased Receivable, which amendment, modification or
         waiver would adversely affect the validity, enforceability or
         collectibility of such Receivable or adversely affect BofA's right to
         collect any Purchased Receivable.

         6.       Servicing.

                  (a)      Until BofA gives notice to Client of the designation
         of a new Servicer as provided herein, Client is hereby designated as,
         and hereby agrees to perform the duties and obligations of, the
         servicer pursuant to the terms hereof (the "Servicer") with respect to
         the Purchased Receivables; provided that, with respect to any group of
         Purchased Receivables, Client (solely in its capacity as Servicer) may,
         at any time, upon prior written notice to BofA, designate any affiliate
         of Client as sub-servicer hereunder; provided, however, that such
         affiliate shall not become Servicer and, notwithstanding any such
         delegation, Client shall remain liable for the performance of the
         duties and obligations of Servicer in accordance with the terms of this
         Agreement without diminution of such liability by virtue of such
         delegation and to the same extent and under the same terms and
         conditions as if Client alone were performing such duties and
         obligations. Client acknowledges that BofA has relied on the agreement
         of Client to act as Servicer hereunder in making its decision to
         execute and deliver this Agreement. Accordingly, Client agrees that it
         shall not voluntarily resign as Servicer. If an Event of Default or
         Servicer Default occurs hereunder, BofA may designate as Servicer with
         respect to all or any portion of the Purchased Receivables any person
         (including BofA or any of its affiliates) to succeed Client or any
         successor Servicer, on the condition in each case that any such person
         so designated shall agree to perform the duties and obligations of
         Servicer pursuant to the terms hereof, and Client agrees that it shall
         reimburse BofA for all costs, expenses or fees incurred by it as a
         result of, or in connection with, such designation; provided that the
         maximum amount of such costs, expenses or fees reimbursable by Client
         shall not exceed an amount, determined and payable monthly, **********
         being serviced by the designated person on the first day of each month.

                  (b)      Servicer shall take or cause to be taken all such
         action as may be necessary or advisable to administer, service and
         collect each Purchased Receivable from time to time, all at the
         Servicer's expense and in accordance with this Agreement and all
         applicable laws, rules and regulations, with reasonable care and
         diligence, and in accordance with any credit and collection policy
         agreed to by Client and BofA with respect to a Purchased Receivable;
         provided, however, that Servicer shall not extend the maturity of any
         Purchased Receivable without BofA's prior consent, which consent shall
         not be unreasonably withheld. In addition, Servicer shall remit any and
         all Remittances received with respect to any Purchased Receivables to
         BofA in accordance with the terms of Section 1(b)(4), and shall
         likewise forward all other payments and fees owed to BofA pursuant to
         the terms hereof. Without BofA's consent, Client, in its capacity as
         Servicer, shall not take any action (or omit to take any action that it
         would customarily take in servicing Receivables) where such action (or
         inaction) with respect to any Purchased Receivable is reasonably likely
         to impair BofA's rights therein or the enforceability, value or
         collectibility thereof. Without limiting the foregoing, Client, in its
         capacity as Servicer, shall not take any action (or omit to take any
         action that it would customarily take in servicing Receivables) that
         results in preferential treatment for Receivables of an Approved
         Account Debtor that do not constitute Purchased Receivables. Servicer
         shall have the right to directly communicate with any Account Debtor
         with respect to Purchased Receivables (and, in the case of clause (ii),
         to commence collection proceedings with BofA's consent on BofA's
         behalf): (i) to obtain current information not already provided on such
         Account Debtor's financial condition and creditworthiness, and (ii) to
         determine if any portion of any Purchased Receivable is past due.
         Notwithstanding anything to

                                       7



         the contrary contained herein, upon the occurrence and continuance of
         an Event of Default or to the extent any Purchased Receivable is
         Overdue, BofA may direct Servicer to commence or settle any legal
         action to enforce collection of any Purchased Receivable or to
         foreclose upon or repossess any underlying security related thereto.

                  (c)      If Client is not Servicer, then Client shall deliver
         to Servicer and Servicer shall hold for the benefit of Client and BofA
         in accordance with their respective interests, all records and
         documents (including computer tapes or disks) with respect to each
         Purchased Receivable. Servicer shall hold (and shall cause each
         sub-servicer to hold) in trust (and, during the continuance of an Event
         of Default, at the request of BofA, segregate) for BofA's benefit, any
         Remittances received by Servicer (or any sub-servicer) with respect to
         the Purchased Receivables, and distribute the same to BofA in
         accordance with Section 1(b)(4) or otherwise upon BofA's direction.
         Servicer agrees to make its records, files and books of account
         available to BofA on request, and to allow BofA and its agents and
         representatives to visit Servicer's premises upon reasonable notice and
         during normal business hours to examine such records, files and books
         of account, to make copies or extracts thereof, and to conduct such
         examinations as BofA deems necessary. In addition, on the first
         business day of each month, Servicer shall deliver to BofA a statement
         of its account showing all accountings relating to all Purchased
         Receivables that were within 7 days of becoming Overdue during the
         immediately preceding month.

                  (d)      For all Purchased Receivables which are within 7 days
         of becoming Overdue for any reason, including but not limited to those
         Purchased Receivables which are past due solely and exclusively as a
         result of an Account Debtor's Financial Inability To Pay, Servicer
         shall immediately notify BofA and provide to BofA, promptly (and in any
         event within one Business Day), each of the following: (i) a copy of
         the applicable Account Debtor's purchase order and/or a signed
         confirmation thereof; (ii) a copy of each outstanding invoice (in
         electronic or paper form) and all credit memoranda; (iii) a notarized
         statement of account; (iv) [reserved]; (v) a copy of Servicer's
         complete collection file on the applicable Account Debtor; (vi) all
         guarantees, collateral documents and security agreements relating to
         such Receivables, (vii) proof of delivery of goods or rendering of
         services relating to such Receivables, and (viii) such other documents
         and information that BofA may request relating to such Receivables.
         Further, with respect to any Purchased Receivable that is within 7 days
         of becoming Overdue, Servicer shall provide to BofA upon request
         (promptly, and in any event within one Business Day) (x) a true and
         complete copy of the Contract relating to such Receivable, together
         with any modifications or side letters related thereto, each written in
         English, and (y) any other evidence of nonpayment of such Receivable as
         may reasonably be requested by BofA. Upon any such Purchased Receivable
         becoming Overdue, Servicer shall immediately, on the date such
         Receivable becomes Overdue, provide to BofA (via telecopy, with an
         original to follow via overnight courier) a notarized certificate
         stating that such Receivable is in fact Overdue.

                  (e)      The occurrence of any one or more of the following
         events shall constitute a "Servicer Default" hereunder:

                           (1)      (a) Servicer shall fail to perform or
                  observe any term, covenant or agreement hereunder and such
                  failure shall remain unremedied for ten (10) days after notice
                  or discovery thereof or (b) Servicer shall fail to make any
                  payment or deposit to be made by it hereunder when due; or

                           (2)      any representation, warranty, certification
                  or statement made by the Servicer in this Agreement or in any
                  other document shall prove to have been incorrect in any
                  material respect when made or deemed made; or

                           (3)      an Event of Default.

                                       8



                  (f)      Notwithstanding any other provision of this
         Agreement, during the continuance of Servicer Default, BofA may, by
         written notice to Client and/or Servicer (as applicable):

                           (1)      direct the applicable Account Debtor(s) that
                  payment of all amounts payable under any Purchased Receivable
                  be made directly to BofA or its designee;

                           (2)      instruct Client or Servicer (as applicable)
                  to give notice of the applicable Account Debtor(s), which
                  notice shall be given at Client's/Servicer's expense,
                  directing that payment of all amounts payable under any
                  Purchased Receivable be made directly to BofA or its designee;
                  and/or

                           (3)      terminate and replace Servicer.

                  (g)      Client shall provide to Servicer on a timely basis
         all information needed for the servicing, administration and collection
         obligations of Servicer, including notice of the occurrence of any
         Event of Default or any event specified in Section 5(f) hereof as
         promptly as practicable (but in any event within five (5) days) after
         Client becomes aware, such event has occurred or will likely occur.

                  (h)      If at any time (i) an Account Debtor remits payment
         to Client, in its capacity as Servicer hereunder, on account of
         Purchased Receivables prior to the applicable Grace Period Due Date of
         such Purchased Receivables, and Servicer in turn delivers such
         Remittances to BofA for receipt prior to such Grace Period Due Date, or
         (ii) Client remits to BofA the repurchase price in respect of any
         repurchased Receivable (such Receivable as repurchased pursuant to
         Section 1(b)(7) or Section 9(a)) prior to the applicable Grace Period
         Due Date for such repurchased Receivable, then in each case Servicer
         may deduct from such amount to be remitted an Incentive Servicing
         Credit as determined and provided by BofA. BofA shall calculate such
         Incentive Servicing Credit by multiplying (a) the dollar amount of the
         remittances to be received on such day times (b) a fraction, the
         numerator of which shall be determined by multiplying (x) BofA's
         referenced LIBOR rate then in effect, times (y) the number of days
         after such remittance day (on which such remittance will be received by
         BofA) until but not including the Grace Period Due Date, and the
         denominator of which shall be 360.

         7.       Attorney-in-Fact. Client hereby grants and conveys to BofA an
irrevocable power of attorney (coupled with an interest) authorizing and
permitting BofA, at its option, with or without notice to Client, to do any one
of the following: (a) endorsing the name of Client upon any checks or other
instruments that may come into BofA's possession in payment of Purchased
Receivables; (b) endorsing the name of Client on any freight or express bill or
bill of lading relating to any Purchased Receivables; (c) taking all action as
BofA deems appropriate, including without limitation the execution and filing of
financing statements, in the name of and on behalf of Client to perfect any of
the security interests granted to BofA herein; provided, however, that BofA
shall not exercise any such power until the occurrence and during the
continuance of an Event of Default. Client agrees that neither BofA nor the
attorney-in-fact will be liable for any acts of commission or omission nor for
any error of judgment or mistake of fact or law except to the extent the same
constitutes gross negligence or willful misconduct.

         8.       Waiver. The waiver by BofA of any particular breach by Client
of a provision of this Agreement, or BofA's failure to exercise a right granted
to it herein, shall not constitute a waiver of any subsequent breach or any
other right.

         9.       Indemnity and Repurchase Obligations.

                  (a)      BofA's purchase of a Receivable shall not relieve
         Client from any liability that might arise out of Client's breach of
         any representation, warranty, covenant or agreement hereunder, or out
         of any unauthorized or fraudulent acts of Client, its officers,
         employees or agents. In the event of (i) any breach of any
         representation and warranty set forth in Section 4

                                       9



         with respect to a Purchased Receivable or any such unauthorized or
         fraudulent act with respect to a Purchased Receivable which remains
         uncured for ten (10) days after notice thereof or (ii) an Account
         Debtor's failure to pay a Purchased Receivable for any reason other
         than a Financial Inability To Pay, Client agrees upon BofA's request,
         to repurchase such Receivable at a price equal to the outstanding
         balance thereof.

                  (b)      If Client at any time becomes aware of any fact or
         occurrence that in and of itself or with the passage of time would be
         grounds for requiring Client to repurchase any Purchased Receivable
         under (a) above, Client will as promptly as practicable (but in any
         event within five (5) days) after Client becomes aware of such fact or
         occurrence notify BofA and either cure the cause for repurchase within
         ten (10) days (to the extent capable of being cured) or repurchase the
         Purchased Receivable at the price specified in (a) above.

                  (c)      BofA will, upon payment by Client of all amounts due
         to BofA on account of any repurchased Purchased Receivable, transfer
         the Purchased Receivable and the rights thereto to Client. In the event
         Client repays BofA fully all amounts equating to the repurchase price
         plus any sum due BofA with respect to the Purchased Receivable, then
         any further payments received by BofA thereafter on such Receivable
         shall be remitted to Client.

                  (d)      Client agrees to indemnify BofA from and against all
         losses, damages, liabilities and costs, including attorneys fees and
         expenses (whether incurred in connection with trial or appellate
         proceedings or otherwise), incurred by BofA as a result of or in
         connection with: (i) any claim or defense which any Account Debtor or
         other person may have or assert against Client or BofA in connection
         with Purchased Receivables or this Agreement; or (ii) any breach of any
         of Client's representations, warranties, covenants or agreements
         contained herein, in each case except to the extent (A) resulting from
         BofA's gross negligence or willful misconduct or (B) arising solely out
         of BofA's hedging activities with respect to or assignment of Purchased
         Receivables unless otherwise expressly provided herein.

                  (e)      [INTENTIONALLY OMITTED.]

                  (f)      The remedies set forth in this Agreement or otherwise
         available under applicable law shall be cumulative, and no election by
         BofA to exercise any remedy shall preclude it from thereafter
         exercising any other remedy.

         10.      Default and Remedies. An event of default ("Event of Default")
shall be deemed to have occurred hereunder upon the occurrence of one or more of
the following:

                  (a)      Client shall fail to pay, (i) when and as required to
         be paid herein, any amount on account of repurchasing any Purchased
         Receivable, or (ii) within ten (10) days after the same shall become
         due, any other amount payable hereunder; or

                  (b)      Servicer (i) commences any insolvency proceeding with
         respect to itself; or (ii) takes any action to effectuate or authorize
         the foregoing; or

                  (c)      Any involuntary lien, garnishment, attachment or the
         like shall be issued against or shall attach to the Purchased
         Receivables, the Collateral or any portion thereof and the same is not
         released or Client fails to repurchase such Purchased Receivables
         within ten (10) days;

                  (d)      (i) Any involuntary insolvency proceeding is
         commenced or filed against Servicer; or any writ, judgment, warrant of
         attachment, execution or similar process, is issued or levied against a
         substantial part of Servicer's properties, and any such proceeding or
         petition shall not be dismissed, or such writ, judgment, warrant of
         attachment, execution or similar process shall not be released, vacated
         or fully bonded within 60 days after commencement, filing or levy; (ii)
         Servicer admits the material allegations of a petition against it in
         any insolvency proceeding, or an order for relief (or similar order
         under non-U.S. law) is ordered in any insolvency proceeding; or

                                       10



         (iii) Servicer acquiesces in the appointment of a receiver, trustee,
         custodian, conservator, liquidator, mortgagee in possession (or agent
         therefor), or other similar person for itself or a substantial portion
         of its property or business; or

                  (e)      Client, including in its role as Servicer hereunder,
         shall breach any covenant or agreement set forth herein, or any
         warranty or representation set forth herein shall be untrue when made,
         and the same is not cured to BofA's reasonable satisfaction within ten
         (10) days after such breach or occurrence;

                  (f)      Any report, certificate, schedule, financial
         statement, profit and loss statement or other statement furnished by
         Servicer, or by any other person on behalf of Client, to BofA is not
         true and correct in any material respect as of the date given.

                  (g)      A material adverse change shall have occurred in
         Servicer's financial conditions, business or operations that would
         materially impair Servicer's ability to perform its obligations
         hereunder.

Upon the occurrence and during the continuance of any such Event of Default,
BofA (i) shall have no further obligation to take any action after Client's
tender of Receivables for purchase and (ii) may immediately exercise its rights
and remedies hereunder or pursuant to applicable law with respect to the
Purchased Receivables, including giving notice to each Approved Account Debtor
to remit payment of all amounts payable under any Purchased Receivable directly
to BofA or to an account identified by BofA; provided, however, that BofA will
hold all collections that are not Remittances in trust for Client and, subject
to the provisions of Section 5(d) hereof, will deliver such collections to
Client promptly.

         11.      Cumulative Rights; Waivers. All rights, remedies and powers
granted to BofA in this Agreement, or in any other instrument or agreement
between Client and BofA are cumulative and may be exercised singularly or
concurrently with such other rights as BofA may have. These rights may be
exercised from time to time as to all or any part of the Purchased Receivables
as BofA in its reasonable discretion may determine. In the event BofA deems it
necessary to seek equitable relief, including, but not limited to, injunctive or
receivership remedies, as a result of Client's default, Client waives any
requirement that BofA post or otherwise obtain or procure any bond.
Alternatively, in the event BofA, in its sole and exclusive discretion, desires
to procure and post a bond, BofA may procure and file with the court a bond in
an amount up to and not greater than $10,000,000.00 notwithstanding any common
or statutory law requirement to the contrary. Upon BofA's posting of such bond
it shall be entitled to all benefits as if such bond was posted in compliance
with state law. Client also waives any right it may be entitled to, including an
award of attorney's fees or costs, in the event any equitable relief sought by
and awarded to BofA is thereafter, for whatever reason(s), vacated, dissolved or
reversed.

         12.      Termination. No termination or cancellation (regardless of
cause or procedure) of the transactions or relationship contemplated under this
Agreement shall in any way affect or impair the obligations, duties and
liabilities of Client or the rights of BofA relating to any transaction or event
occurring prior to such termination or cancellation. All undertakings,
agreements, indemnifications, covenants, warranties and representations
contained herein shall survive such termination or cancellation.

         13.      Security Interest. It is the intention of the parties hereto
that Client's transfer of Receivables to BofA shall constitute a sale and
assignment, which sale and assignment shall be absolute, irrevocable and without
recourse (other than with respect to the limited repurchase obligations provided
herein) and shall provide BofA with the full benefits of ownership of the
Purchased Receivables. Notwithstanding the foregoing, to protect BofA in the
event that any transfer of Purchased Receivables is deemed by a court, contrary
to the express intent of the parties, to constitute a pledge rather than a sale
and assignment of such Purchased Receivables, Client does hereby grant to BofA a
security interest in and lien upon all of Client's right, title and interest in
and to the Purchased Receivables and all proceeds thereon (the "Collateral") to
secure a debt (Client's return to BofA of the Purchase Price paid by BofA for
the Purchased Receivables) or any of Client's obligations to BofA under this
Agreement. Client agrees to

                                       11



comply with all appropriate laws in order to perfect BofA's security interest in
and to the Collateral, to execute any financing statements, continuations
thereof, amendment thereto or additional documents as BofA may require. Client
hereby authorizes BofA to prepare and file such financing statements (including
renewal statements) or amendments thereof or supplements thereto or other
instruments as BofA may from time to time deem necessary or appropriate in order
to perfect and maintain the security interests granted hereunder in accordance
with the UCC. Client shall not (a) alter its corporate existence or, in one
transaction or in a series of transactions, merge into or consolidate with any
other entity, or sell all or substantially all of its assets, (b) change its
state of incorporation or formation or (c) change its registered corporate name,
without, in each case, (i) providing 30 days prior written notice to BofA, (ii)
providing such information as BofA may reasonably require in order to allow BofA
to file appropriate amendments to any previously filed financing statements and
(iii) executing any such additional documents as BofA may reasonably require in
order to protect its rights and remedies hereunder. The occurrence and
continuation of any Event of Default shall entitle BofA to all of the default
rights and remedies (without limiting the other rights and remedies exercisable
by BofA either prior or subsequent to an Event of Default) as available to a
secured party under the Uniform Commercial Code in effect in any applicable
jurisdiction.

         14.      Agreement of Client. During the continuation of an Event of
Default, BofA is authorized to apply all funds received by it hereunder to
Client's obligations hereunder in such order as BofA may elect.

         15.      Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered by (a) personal
delivery; (b) courier; (c) telecopy, or (d) certified or registered mail,
postage prepaid to the address set forth below and shall be deemed given at the
time of personal delivery or, if by mail, as of the date of first attempted
delivery:

                  If to BofA, at:   Bank of America, N.A.
                                    100 North Tryon Street
                                    NC1-007-06-07
                                    Charlotte, NC 28255
                                    Attn: William D. Hobbs
                                    Telephone: 704-388-5914
                                    Telecopy: 704-388-3336

                  With a copy to:   Bank of America, N.A.
                                    9 W. 57th Street
                                    NY1-301-06-04
                                    New York, NY 10019
                                    Attn: Gabriella Morizio
                                    Telephone: 212-933-2730
                                    Telecopy: 212-933-2625

                  If to Client, at: Applied Materials, Inc.
                                    2881 Scott Boulevard
                                    M/S 2036
                                    Santa Clara, CA 95050
                                    Attn: Treasury Department
                                    Telephone: 408-235-6765
                                    Telecopy: 408-986-7825

                  With a copy to:   Applied Materials, Inc.
                                    2881 Scott Boulevard
                                    M/S 2062
                                    Santa Clara, CA 95050
                                    Attn: Legal Department
                                    Telephone: 408.563.4763

                                       12



                          Telecopy: 408.986.2836 (fax)

         16.      Account Statements. Absent manifest error, BofA's books and
records shall be admissible in evidence without objection as prima facie
evidence of the status of the accounts between BofA and Client.

         17.      Confidential Information.

                  (a)      The parties agree that the negotiation, existence and
         terms of this Agreement shall constitute confidential information and
         each party shall keep the existence and terms of this Agreement
         confidential. Without limiting the foregoing, Client understands and
         acknowledges that the form and terms of this Agreement are proprietary
         trade products of BofA that BofA desires to keep confidential and
         Client agrees that except for disclosure on a confidential basis to
         Client's accountants, attorneys and other professional advisors
         retained by in connection with this Agreement or as may be required by
         law, the form and terms of this Agreement shall not be disclosed by
         Client in whole or in part to any other person or entity without BofA's
         prior written consent.

                  (b)      The parties further agree that the information
         furnished by Client to BofA regarding any Account Debtor, Client's
         relationship with such Account Debtor and the goods and services
         furnished by Client to such Account Debtor shall constitute
         confidential information. BofA agrees not to disclose such information
         in whole or in part to any other person or entity without Client's
         prior written consent, except for disclosure (i) on a confidential
         basis to BofA's accountants, attorneys and other professional advisors
         retained by BofA in connection with this Agreement or in any way
         related to the Purchased Receivables; (ii) as may be required by law;
         or (iii) of the name of such Account Debtor, the amount of the related
         Purchased Receivable, the Minimum and Maximum Invoice Tenor Period for
         such Purchased Receivable and the quantity of goods purchased as
         specified in the Contract underlying such Purchased Receivable (which
         disclosure may include delivery of the invoice underlying such
         Purchased Receivable as required by the relevant hedge counterparty, in
         such redacted form as approved by BofA and Client, such approvals not
         to be unreasonably withheld) to the extent necessary to carry out any
         hedging activity by BofA related to the Purchased Receivables or
         assignment by BofA of its rights under this Agreement or in respect of
         the Purchased Receivables.

         18.      Miscellaneous.

                  (a)      This Agreement shall be governed and construed in
         accordance with the laws of the State of New York without reference to
         the conflict of laws provisions thereof.

                  (b)      Client shall not assign this Agreement without the
         prior written consent of BofA. This Agreement shall be deemed to be one
         of financial accommodation and not assumable by any debtor, trustee or
         debtor-in-possession in any bankruptcy proceeding without BofA's
         express written consent and may be suspended in the event a petition in
         bankruptcy is filed by or against Client.

                  (c)      This Agreement shall be binding upon, and shall inure
         to the benefit of, the parties hereto and their respective heirs, legal
         representatives, successors and permitted assigns.

                  (d)      This Agreement contains the entire agreement between
         the parties hereto regarding the subject matter hereof, excepting only
         assignments and schedules thereto that may be executed from time to
         time. This Agreement shall not be modified except by written instrument
         signed by all of the parties hereto.

                                       13



                  (e)      Client agrees to execute such further instruments as
         may be required by BofA to evidence the transactions contemplated
         herein. If any provision of this Agreement is found invalid, the
         remaining provisions of this Agreement shall not be affected thereby.

                  (f)      Nothing set forth herein or otherwise shall render
         the parties partners of one another.

                  (g)      Client acknowledges that there is no, and it will not
         seek or attempt to establish any, fiduciary relationship between BofA
         and Client on Client's behalf, and Client waives any right to assert,
         now or in the future, the existence or creation of any such fiduciary
         relationship between BofA and Client in any action or proceeding
         (whether by way of claim, counterclaim, crossclaim or otherwise) for
         damages.

                  (h)      BofA agrees that notwithstanding anything to the
         contrary set forth herein, unless and until such time as an Event of
         Default shall have occurred and be continuing or any Purchased
         Receivable shall be Overdue, BofA shall not, and shall not cause
         Servicer to, contact any Account Debtor directly for any reason with
         respect to any Purchased Receivable.

                  (i)      This Agreement may be executed in a number of
         identical counterparts, each of which shall be deemed an original for
         all purposes and all of which constitute, collectively, one agreement.

         19.      Jury Trial Waiver; Jurisdiction. BOFA AND CLIENT HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED ON THIS AGREEMENT OR ANY
TRANSACTIONS CONTEMPLATED HEREIN, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO,
OR TO ANY RELATED DOCUMENT. THE PARTIES CONSENT TO JURISDICTION AND VENUE IN THE
STATE OR FEDERAL COURTS IN ANY CITY, COUNTY AND STATE OF NEW YORK. CLIENT
FURTHER AGREES TO WAIVE ANY RIGHT IT MAY HAVE TO SEEK A CHANGE OF VENUE BASED ON
INCONVENIENCE OF THE FORUM OR OTHERWISE. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE PARTIES ENTERING INTO THE SUBJECT TRANSACTION.

                                       14



         IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first above written.

      Bank of America, N.A..                Applied Materials, Inc.

      By:/s/ WILLIAM D. HOBBS               By: /s/ JOSEPH R. BROSON
      ---------------------------           -----------------------------------
      Printed Name: William D. Hobbs        Printed Name: Joseph R. Bronson

      Title: Senior Vice President          Title:   Executive Vice President,
                                            Global Executive Committee and Chief
                                            Financial Officer

                                            By: /s/ GEORGE S. DAVIS
                                            -----------------------------------
                                            Printed Name:    George S. Davis

                                            Title: Corporate Vice President and
                                            Treasurer

                                        1



                                   DEFINITIONS

Account Debtor:                    Each person or entity obligated to pay any
                                   Receivable.

Agreement:                         The Program for Accounts Receivable Transfer
                                   Agreement to which this Annex I is attached
                                   (together with any applicable Schedule A), as
                                   amended, restated, extended, supplemented or
                                   otherwise modified in writing from time to
                                   time.

Approved Account Debtor:           Any Account Debtor listed on a Schedule A
                                   that has been executed by BofA.

Bankruptcy:                        An Account Debtor (a) is dissolved (other
                                   than pursuant to a consolidation,
                                   amalgamation or merger); (b) becomes
                                   insolvent or is unable to pay its debts or
                                   fails or admits in writing its inability
                                   generally to pay its debts as they become
                                   due; (c) makes a general assignment,
                                   arrangement or composition with or for the
                                   benefit of its creditors; (d) institutes or
                                   has instituted against it a proceeding
                                   seeking a judgment of insolvency or
                                   bankruptcy or any other relief under any
                                   bankruptcy or insolvency law or other similar
                                   law affecting creditors' rights, or a
                                   petition is presented for its winding-up or
                                   liquidation, and, in the case of any such
                                   proceeding or petition instituted or
                                   presented against it, such proceeding or
                                   petition (i) results in a judgment of
                                   insolvency or bankruptcy or the entry of an
                                   order for relief or the making of an order
                                   for its winding-up or liquidation or (ii) is
                                   not dismissed, discharged, stayed or
                                   restrained in each case within 30 days of the
                                   institution or presentation thereof; (e) has
                                   a resolution passed for its winding-up,
                                   official management or liquidation (other
                                   than pursuant to a consolidation,
                                   amalgamation or merger); (f) seeks or becomes
                                   subject to the appointment of an
                                   administrator, provisional liquidator,
                                   conservator, receiver, trustee, custodian or
                                   other similar official for it or for all or
                                   substantially all its assets; (g) has a
                                   secured party take possession of all or
                                   substantially all its assets or has a
                                   distress, execution, attachment,
                                   sequestration or other legal process levied,
                                   enforced or sued on or against all or
                                   substantially all its assets and such secured
                                   party maintains possession, or any such
                                   process is not dismissed, discharged, stayed
                                   or restrained, in each case within 30 days
                                   thereafter; or (h) causes or is subject to
                                   any event with respect to it which, under the
                                   applicable laws of any jurisdiction, has an
                                   analogous effect to any of the events
                                   specified in clauses (a) to (g) (inclusive).

BofA:                              As defined in the introductory paragraph of
                                   the Agreement.

Client:                            As defined in the introductory paragraph of
                                   the Agreement.

Collateral:                        As defined in Section 13 of the Agreement.

Contract:                          An agreement pursuant to which an Approved
                                   Account Debtor agrees to pay money to Client
                                   for products sold or services rendered by
                                   Client in the ordinary course of its
                                   business.

                                       1



Credit Rating:                     With respect to Client or any Account Debtor,
                                   such person's issuer or counterparty credit
                                   rating as assigned by S&P, Moody's or any
                                   other nationally recognized ratings agency.
                                   To the extent applicable, the respective
                                   Credit Ratings of Client and the relevant
                                   Account Debtor as of the Effective Date are
                                   set forth on the applicable Schedule A.

Effective Date:                    The date set forth after such term on the
                                   applicable Schedule A, which represents the
                                   effective date of BofA's initial purchase of
                                   the subject Receivables.

Event of Default:                  As defined in Section 10 of the Agreement.

Financial Inability To Pay:        An Account Debtor's failure to pay a
                                   Purchased Receivable for any reason other
                                   than one of the circumstances enumerated in
                                   Section 1(b)(7)(i) or such Account Debtor (A)
                                   (i) is dissolved (other than pursuant to a
                                   consolidation, amalgamation or merger); (ii)
                                   becomes insolvent or is unable to pay its
                                   debts or fails or admits in writing its
                                   inability generally to pay its debts as they
                                   become due; (iii) makes a general assignment,
                                   arrangement or composition with or for the
                                   benefit or its creditors; (iv) institutes or
                                   has instituted against it a proceeding
                                   seeking judgment of insolvency or bankruptcy
                                   or any other relief under any bankruptcy or
                                   insolvency law or other similar law affecting
                                   creditor's rights, or a petition is presented
                                   for its winding-up or liquidation, and, in
                                   the case of any such proceeding or petition
                                   instituted or presented against it, such
                                   proceeding or petition (aa) results in a
                                   judgment of insolvency or bankruptcy or the
                                   entry of an order for relief or the making of
                                   an order for its winding-up or liquidation or
                                   (bb) is not dismissed, discharged, stayed or
                                   restrained in each case within thirty (30)
                                   days of the institution or presentation
                                   thereof; (v) has a resolution passed for its
                                   winding-up, official management or
                                   liquidation; (vi) seeks or becomes subject to
                                   the appointment of an administrator,
                                   provisional liquidation, conservator,
                                   receiver, trustee, custodian or other similar
                                   official for it or for all or substantially
                                   all its assets; (vii) has a secured party
                                   take possession of all or substantially all
                                   its assets or has a distress, execution,
                                   attachment, sequestration or other legal
                                   process levied, enforced or sued on or
                                   against all or substantially all its assets
                                   and such secured party maintains possession,
                                   or any such process is not dismissed,
                                   discharged, stayed or restrained, in each
                                   case within 30 days thereafter; (viii) causes
                                   or is subject to any event with respect to it
                                   which, under the applicable laws of any
                                   jurisdiction, has an analogous effect to any
                                   of the events specified in clauses (i) to
                                   (vii) (inclusive); or (ix) takes any action
                                   in furtherance of, or indicating its consent
                                   to, approval of, or acquiescence in, any of
                                   the foregoing acts; or (B) also fails, after
                                   giving effect to any applicable grace period
                                   of the relevant obligation(s) of an Account
                                   Debtor (other than such Purchased
                                   Receivable), to make, when due, any payments
                                   equal to or exceeding $10,000,000.00 under
                                   such obligations.

Grace Period Due Date:             The last day of the applicable Past Due Grace
                                   Period, and the last day on which BofA shall
                                   receive payment of the Required Amount in
                                   respect of a Purchased Receivable, as set
                                   forth in the applicable Schedule A.

Incentive Servicing Credit:        The credit given to Servicer, as determined
                                   by BofA, pursuant to Section 9(h) of the
                                   Agreement.

                                       2



Maximum Invoice Tenor Period:      The time period set forth after such term on
                                   the applicable Schedule A, which represents,
                                   in connection with Receivables that BofA has
                                   approved for purchase with respect to a
                                   specific Approved Account Debtor, the maximum
                                   payment terms (i.e., the time period
                                   following the invoice date within which the
                                   Account Debtor must pay the relevant invoice)
                                   afforded such Account Debtor in any invoice
                                   evidencing such Receivables.

Minimum Invoice Amount:            The amount set forth after such term on the
                                   applicable Schedule A, which represents, in
                                   connection with Receivables that BofA has
                                   approved for purchase with respect to a
                                   specific Approved Account Debtor, the minimum
                                   payment amount specified in any invoice
                                   evidencing such Receivables.

Minimum Invoice Tenor Period:      The time period set forth after such term on
                                   the applicable Schedule A, which represents,
                                   in connection with Receivables that BofA has
                                   approved for purchase with respect to a
                                   specific Approved Account Debtor, the minimum
                                   payment terms (i.e., the time period
                                   following the invoice date within which the
                                   Account Debtor must pay the relevant invoice)
                                   afforded such Account Debtor in any invoice
                                   evidencing such Receivables.

Moody's:                           Moody's Investors Service, Inc. or any
                                   successor.

Overdue:                           The status of any Purchased Receivable that
                                   remains unpaid following its Grace Period Due
                                   Date.

Past Due Grace Period:             The time period set forth after such term on
                                   the applicable Schedule A, which represents,
                                   in connection with Receivables that BofA has
                                   approved for purchase with respect to a
                                   specific Approved Account Debtor, the maximum
                                   past due grace period (i.e., the time period
                                   following the invoice due date within which
                                   Client will accept payment on the relevant
                                   invoice without affording Client the ability
                                   to charge the Account Debtor a late fee,
                                   interest or other penalties) afforded such
                                   Account Debtor in any invoice evidencing such
                                   Receivables.

Purchase Price:                    As defined in Section 1(b)(1) of the
                                   Agreement.

Purchased Receivable:              Any Receivable purchased by BofA pursuant to
                                   the Agreement.

Receivables:                       All receivables, instruments, accounts,
                                   chattel paper, payment intangibles, notes,
                                   contract rights and general intangibles
                                   resulting from Client's sale of products or
                                   services before, on or after the date hereof.

Remittances:                       As defined in Section 1(b)(4) of the
                                   Agreement.

Required Amount:                   The amount set forth after such term on the
                                   applicable Schedule A, which represents the
                                   stated value of Receivables that BofA has
                                   approved for purchase with respect to a
                                   specific Approved Account Debtor.

Responsible Officer:               The assistant treasurer in charge of Client's
                                   Global Credit and Collections Department, or
                                   any equivalent officer with credit and
                                   collection responsibilities.

S&P:                               Standard & Poor's Ratings Services, a
                                   division of The McGraw-Hill Companies, Inc.,
                                   or any successor.

                                       3



Schedule A:                        Any applicable Schedule A (which may be
                                   denoted Schedule A-1, etc.), in substantially
                                   the form of Annex II to the Agreement,
                                   attached and/or executed in connection with
                                   the Agreement, as such schedule is amended,
                                   restated, extended, supplemented or otherwise
                                   modified in writing from time to time.

Servicer:                          As defined in Section 6(a) of the Agreement.

Servicer Default:                  As defined in Section 6(e) of the Agreement.

Termination Date:                  With respect to Purchased Receivables under a
                                   particular Schedule A, the earlier of (a) the
                                   applicable Stated Termination Date and (b)
                                   the date specified in a writing from BofA to
                                   Client (which date may be the date of such
                                   writing).

                                       4



                              FORM OF SCHEDULE A-__

 Subject to Program for Accounts Receivable Transfer Agreement executed or to be
  executed by Client and Bank of America, N.A., the terms of which are hereby
                           incorporated by reference

            Subject to credit approval and satisfactory documentation

    Client signature below mandates Bank of America to initiate Due Diligence

Effective Date: [_________]

Stated Termination Date:        [_________]

Grace Period Due Date:          [_________]

Client/Initial Servicer:        [_________]

Client's Credit Rating:         [_________]

Account Debtor:                 [_________]

Account Debtor's Credit Rating: [_________]

Account Debtor's Country
of Organization:                [_________]

Receivables:

         Required Amount:              [__]
         Minimum Invoice Tenor Period: [__] days
         Maximum Invoice Tenor Period: [__] days
         Minimum Invoice Amount:       $[__]
         Past Due Grace Period:        [__] days

Purchase Price:                 [_________]%

Due Diligence Expenses:         For the account of Client/Initial Servicer

ACCEPTED AND AGREED:

Bank of America, N.A.                                 Applied Materials, Inc.

By: ____________________                              By: ______________________
Name: __________________                              Name: ____________________
Title: _________________                              Title: ___________________

Prospective counterparties should conduct a thorough and independent review of
the legal, tax and accounting aspects of any proposed transaction to determine
its suitability in light of their particular circumstances. Although the
indicative information set forth above is reflective of the terms, as of the
specified date, under which Bank of America believes a contract might be
structured, no assurance can be given that such a contract will in fact be
executed.

                                                                    EXHIBIT 99.1

                             APPLIED MATERIALS, INC.
                  SARBANES-OXLEY ACT SECTION 906 CERTIFICATION

In connection with this quarterly report on Form 10-Q of Applied Materials, Inc.
for the period ended April 27, 2003, I, Michael R. Splinter, President and Chief
Executive Officer of Applied Materials, Inc., hereby certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

         1.   this Form 10-Q for the period ended April 27, 2003 fully complies
              with the requirements of section 13(a) or 15(d) of the Securities
              Exchange Act of 1934; and

         1.   the information contained in this Form 10-Q for the period ended
              April 27, 2003 fairly presents, in all material respects, the
              financial condition and results of operations of Applied
              Materials, Inc. for the periods presented therein.

Date: June 11, 2003
                                                       /S/ MICHAEL R. SPLINTER
                                                       -------------------------

                                                       Michael R. Splinter
                                                       President and
                                                       Chief Executive Officer

A signed original of this written statement required by Section 906 has been
provided to Applied Materials, Inc. and will be retained by Applied Materials,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

                                                                    EXHIBIT 99.2

                             APPLIED MATERIALS, INC.
                  SARBANES-OXLEY ACT SECTION 906 CERTIFICATION

In connection with this quarterly report on Form 10-Q of Applied Materials, Inc.
for the period ended April 27, 2003, I, Joseph R. Bronson, Executive Vice
President and Chief Financial Officer, hereby certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

         1.   this Form 10-Q for the period ended April 27, 2003 fully complies
              with the requirements of section 13(a) or 15(d) of the Securities
              Exchange Act of 1934; and

         2.   the information contained in this Form 10-Q for the period ended
              April 27, 2003 fairly presents, in all material respects, the
              financial condition and results of operations of Applied
              Materials, Inc. for the periods presented therein.

Date: June 11, 2003
                                                    /s/ JOSEPH R. BRONSON
                                                    ----------------------------
                                                    Joseph R. Bronson
                                                    Executive Vice President
                                                    and Chief Financial Officer

A signed original of this written statement required by Section 906 has been
provided to Applied Materials, Inc. and will be retained by Applied Materials,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.