___________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995 or
[ ] 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 0-10030
APPLE COMPUTER, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2404110
[State or other jurisdiction [I.R.S. EmployerIdentification No.]
of incorporation or organization]
1 Infinite Loop
Cupertino California 95014
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code: (408) 996-1010
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 [X] No [ ]
122,691,266 shares of Common Stock Issued and Outstanding as of August 4,1995
___________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 2,575 $ 2,150 $ 8,059 $ 6,695
Costs and expenses:
Cost of sales 1,847 1,576 5,822 5,030
Research and development 168 135 443 422
Selling, general and 404 333 1,205 1,038
administrative
Restructuring costs (6) (127) (23) (127)
2,413 1,917, 7,447 6,363
Operating income 162 233 612 332
Interest and other income
(expense), net 2 (10) (33) (17)
Income before provision
for income taxes 164 223 579 315
Provision for income taxes 61 85 215 120
Net income $ 103 $ 138 $ 364 $ 195
Earnings per common and
common equivalent share $ 0.84 $ 1.16 $ 2.97 $ 1.65
Cash dividends paid per
common share $ 0.12 $ 0.12 $ 0.36 $ 0.36
Common and common
equivalent shares used in
the calculations of
earnings per share (in
thousands) 123,203 118,860 122,482 118,253
</TABLE>
See accompanying notes.
2
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In millions)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,168 $ 1,203
Short-term investments 508 55
Accounts receivable, net of allowance for
doubtful accounts of $98($91 at September
30, 1994) 1,553 1,581
Inventories:
Purchased parts 690 469
Work in process 188 207
Finished goods 489 412
1,367 1,088
Deferred tax assets 286 293
Other current assets 309 256
Total current assets 5,191 4,476
Property, plant, and equipment:
Land and buildings 486 484
Machinery and equipment 639 573
Office furniture and equipment 150 158
Leasehold improvements 225 237
1,500 1,452
Accumulated depreciation and amortization (809) (785)
Net property, plant, and equipment 691 667
Other assets 230 160
$ 6,112 $ 5,303
</TABLE>
See accompanying notes.
3
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited)
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 406 $ 292
Accounts payable 1,048 882
Accrued compensation and employee benefits 145 137
Accrued marketing and distribution 189 178
Other current liabilities 390 455
Total current liabilities 2,178 1,944
Long-term debt 303 305
Deferred tax liabilities 803 671
Shareholders' equity:
Common stock, no par value; 320,000,000
shares authorized; 121,905,285 shares issued
and outstanding at June 30, 1995
(119,542,527 shares at September 30, 1994) 356 298
Retained earnings 2,419 2,096
Accumulated translation adjustment 53 (11)
Total shareholders' equity 2,828 2,383
$ 6,112 $ 5,303
</TABLE>
See accompanying notes.
4
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 30, July 1,
1995 1994
<S> <C> <C>
Cash and cash equivalents, beginning of the $ 1,203 $ 676
period
Operations:
Net income 364 196
Adjustments to reconcile net income to cash
generated by operations:
Depreciation and amortization 104 122
Net book value of property, plant, and
equipment retirements 1 11
Changes in assets and liabilities:
Accounts receivable 28 105
Inventories (279) 310
Other current assets (46) --
Accounts payable 167 (47)
Accrued restructuring costs (43) (233)
Other current liabilities 5 5
Deferred tax liabilities 132 26
Cash generated by operations 433 495
Investments:
Purchase of short-term investments (1,558) (257)
Proceeds from sale of short-term investments 1,105 386
Purchase of property, plant, and equipment (110) (123)
Other (23) (35)
Cash (used for) investment
activities (586) (29)
Financing:
Increase (decrease) in short-term borrowings 114 (308)
Increase (decrease) in long-term borrowings (4) 298
Increases in common stock, net of related
tax benefits and changes in notes receivable
from shareholders 51 52
Cash dividends (43) (42)
Cash generated by (used for)
financing activities 118 --
Total cash generated (used) (35) 466
Cash and cash equivalents, end of the period $ 1,168 $ 1,142
</TABLE>
See accompanying notes.
5
<PAGE>
APPLE COMPUTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim information is unaudited; however, in the opinion of the
Company's management, all adjustments necessary for a fair statement of
interim results have been included. All adjustments are of a normal
recurring nature unless specified in a separate note included in these
Notes to Consolidated Financial Statements. The results for interim
periods are not necessarily indicative of results to be expected for
the entire year. These financial statements and notes should be read
in conjunction with the Company's annual consolidated financial
statements and the notes thereto for the fiscal year ended September
30, 1994, included in its Annual Report on Form 10-K for the year ended
September 30, 1994 (the "1994 Form 10-K").
2. The Company lowered its estimates of the total remaining costs
associated with its restructuring plan initiated in the third quarter
of 1993 and recorded adjustments that increased income by $17 million
($11 million, or $0.09 per share, after taxes) and $6 million ($4
million, or $0. 03 per share, after taxes) in the first and third
quarters of 1995, respectively. These adjustments primarily reflected
favorable cancellation settlements of certain R&D project commitments
and facility leases and the completion of other actions at lower costs
than originally estimated.
At June 30, 1995, the Company had $15 million of accrued restructuring
costs for actions that are currently under way. Approximately $6
million in charges to the accrual are expected to be incurred during
1995 with the remaining $9 million incurred beyond 1995. Charges to be
incurred beyond 1995 relate primarily to recurring payments under
certain noncancelable operating leases.
3. Interest and other income (expense), net, consists of the following:
(In millions)
Three Months Ended Nine Months Ended
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
Interest income $ 32 $ 9 $ 76 $ 27
Interest expense (16) (9) (33) (27)
Gain (loss) on foreign exchange
instruments 4 (2) (40) 8
Net premiums and discounts earned
(paid) on forward and option foreign
exchange instruments (17) (9) (34) (26)
Other income (expense), net (1) 1 (2) 1
$ 2 $ (10) $ (33) $ (17)
4. Effective October 1, 1994, the Company adopted Financial Accounting
Standard No. 115 (FAS 115), "Accounting for Certain Investments in Debt
and Equity Securities". In accordance with FAS 115, prior period
financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect of the change was not
material to shareholders' equity as of October 1, 1994. Under FAS 115,
debt securities that a company has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities
that a company does not have the positive intent and ability to hold to
maturity and all marketable equity securities are classified as either
available-for-sale or trading and are carried at fair value.
Generally, unrealized holding gains and losses on securities classified
as available-for-sale are reported as a component of shareholders'
equity. Unrealized holding gains and losses on securities classified
as trading are included in earnings.
The Company's cash equivalents consist primarily of certificates of
deposit, time deposits and commercial paper with maturities of three
months or less at the date of purchase. Short-term investments consist
principally of commercial paper with maturities between three and
twelve months. The Company's marketable equity securities consist of
securities issued by U.S. corporations and are included in "Other
assets" on the accompanying balance sheet. As of June 30, 1995, the
Company's cash equivalents, short-term investments and marketable
equity securities are classified as available-for-sale.
The adjustments recorded to shareholders' equity for unrealized holding
gains (losses) on available-for-sale cash equivalents and short-term
investments were not material either individually or in the aggregate,
at June 30, 1995. The net adjustment recorded to shareholders' equity
for unrealized holding gains (losses) related to marketable equity
securities was an unrealized gain of approximately $39 million at June
30, 1995. The realized gains (losses) recorded to earnings on sales of
available-for-sale securities, either individually or in the aggregate,
were not material for the three and nine months ended June 30, 1995.
6
<PAGE>
5. U.S. income taxes have not been provided on a cumulative total of $391
million of undistributed earnings of the Company's foreign
subsidiaries. It is intended that these earnings will be indefinitely
invested in operations outside the United States. It is not
practicable to determine the income tax liability that might be
incurred if these earnings were to be distributed. Except for such
indefinitely invested earnings, the Company provides for federal and
state income taxes currently on undistributed earnings of foreign
subsidiaries.
The Internal Revenue Service (IRS) has proposed federal income tax
deficiencies for the years 1984 through 1991, and the Company has made
certain prepayments thereon. The Company contested the proposed
deficiencies for the years 1984 through 1988, and most of the issues in
dispute for these years have been resolved. On June 29, 1995, the IRS
issued a notice of deficiency proposing increases to the amount of the
Company's federal income taxes for the years 1989 through 1991. The
Company intends to file a petition with the United States Tax Court to
contest these alleged tax deficiencies. Management believes that
adequate provision has been made for any adjustments that may result
from these tax examinations.
6. Earnings per share is computed using the weighted average number of
common and dilutive common equivalent shares attributable to stock
options outstanding during the period.
7. Certain prior year amounts on the consolidated balance sheets and the
consolidated statements of cash flows have been reclassified to conform
to the current period presentation.
8. On July 18, 1995, the Board of Directors declared a cash dividend of
$0.12 per share for the Company's third fiscal quarter ended June 30,
1995. The dividend is payable on September 8, 1995, to shareholders of
record as of August 18, 1995.
9. The information set forth in Item 1 of Part II hereof is hereby
incorporated by reference.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the
consolidated financial statements and notes thereto. All information is
based on Apple's fiscal calendar.
(Tabular information: Dollars in millions, except per share amounts)
Results of Operations
Third Quarter Nine Months
1995 1994 Change 1995 1994 Change
Net sales $ 2,575 $ 2,150 19.8% $ 8,059 $ 6,695 20.4%
Gross margin $ 728 $ 574 26.8% $ 2,237 $ 1,665 34.4%
Percentage of net
sales 28.3% 26.7% 27.8% 24.9%
Operating expenses
(excluding
restructuring
costs) $ 572 $ 468 22.2% $ 1,648 $ 1,460 12.9%
Percentage of net
sales 22.2% 21.8% 20.4% 21.8%
Restructuring
costs $ (6) $ (127) -95.3% $ (23) $ (127) -81.9%
Percentage of
net sales -0.2% -5.9% -0.3% -1.9%
Interest and other
income (expense),
net $ 2 $ (10) 120.0% $ (33) $ (17) -94.1%
Net income $ 103 $ 138 -25.4% $ 364 $ 195 86.7%
Earnings per share $ 0.84 $ 1.16 -27.6% $ 2.97 $ 1.65 80.0%
Net sales for the third quarter and first nine months of 1995 increased
over the comparable periods of 1994, primarily resulting from a combination
of unit growth, higher average selling prices and changes in currency
exchange rates. The increase in average selling prices was driven by a
shift in mix towards the Company's newer products and products with multi-
media configurations. Specifically, the Company recorded strong sales of
products within its Performa(registered trademark) family and the Power
Macintosh(Trademark) family ofpersonal computers. Increased sales of
these products contributed to an increase in the average aggregate revenue
per Macintosh(registered trademark) computer unit of
approximately 8% and 14% in the third quarter and first nine months of
1995, respectively, over the comparable periods of 1994. Total Macintosh
computer unit sales increased 20% and 12% in the third quarter and first
nine months of 1995, respectively, over the comparable periods of 1994.
This unit sales growth principally resulted from strong sales of the
Company's Power Macintosh products which account for over 50% of total unit
shipments at the end of the third quarter of 1995, compared with 27% in the
comparable period of 1994, and from newer product offerings within the
Performa family of desktop personal computers. This unit growth was
partially offset by declining unit sales of certain of the Company's older
product offerings.
International net sales grew 24% and 26% in the third quarter and first
nine months of 1995, respectively, over the comparable periods of 1994,
primarily reflecting strong net sales growth in the Pacific region,
particularly Japan, and favorable changes in currency exchange rates. Net
sales for the third quarter and first nine months of 1995 grew moderately
in Europe over the comparable periods of 1994. International net sales
represented 49% and 50% of total net sales for the third quarter and first
nine months of 1995, respectively, compared with 47% and 48%, respectively,
for the corresponding periods of 1994. Domestic net sales grew 16% in both
the third quarter and first nine months of 1995, respectively, over the
comparable periods of 1994, primarily resulting from strong growth in the
education and business markets.
In general, the Company's resellers typically purchase products on an as-
needed basis. Resellers frequently change delivery schedules and order
rates depending on changing market conditions. Unfilled orders ("backlog")
can be, and often are, canceled at will. The Company attempts to fill
orders on the requested delivery schedules. However, products may be in
relatively short supply from time to time until production volumes have
reached a level sufficient to meet demand or if other production or
fulfillment constraints exist. The Company's backlog increased to
approximately $1,047 million at August 4, 1995, from approximately $795
million at May 5, 1995, primarily due to backlog of the Company's Power
Macintosh products.
In the Company's experience, the actual amount of product backlog at any
particular time is not a meaningful indication of its future business
prospects. In particular, backlog often increases in anticipation of or
immediately following introduction of new products because of over-ordering
by dealers anticipating shortages. Backlog often is reduced sharply once
dealers and customers believe they
8
<PAGE>
can obtain sufficient supply. Because of the foregoing, as well as other
factors affecting the Company's backlog, backlog should not be considered a
reliable indicator of the Company's future revenue or financial
performance. Further information regarding the Company's backlog may be
found under Part I, Item 2 of this Form 10-Q under the heading "Factors
that May Affect Future Results and Financial Condition", which information
is hereby incorporated by reference.
Gross Margin
Gross margin represents the difference between the Company's net sales and
its cost of goods sold. The amount of revenue generated by the sale of
products is influenced principally by the price set by the Company for its
products relative to competitive products. The cost of goods sold is based
primarily on the cost of components and to a lesser extent, direct labor
costs. The type and cost of components included in particular
configurations of the Company's products (such as memory and disk drives)
are often directly related to the need to market products in configurations
competitive with other manufacturers. Competition in the personal computer
industry is intense, and in the short term, frequent changes in pricing and
product configuration are often necessary in order to remain competitive.
Accordingly, gross margin as a percentage of net sales can be significantly
influenced in the short term by actions undertaken by the Company in
response to industry-wide competitive pressures.
Gross margin increased both in amount and as a percentage of net sales
during the third quarter and first nine months of 1995, respectively, over
the comparable periods of 1994. The increase in gross margin as a
percentage of net sales was primarily a result of a shift in product mix
towards the Company's newer, high margin products within each product
category which included strong sales of certain products within the
Company's entry-level Macintosh Performa family and of products within its
Power Macintosh family of personal computers.
The increase in gross margin levels was affected favorably by changes in
foreign currency exchange rates as a result of a weaker U.S. dollar
relative to certain foreign currencies during the first, second and third
quarters of 1995 compared with the corresponding periods of 1994. The
Company's operating strategy and pricing take into account changes in
exchange rates over time; however, the Company's results of operations can
be significantly affected in the short term by fluctuations in foreign
currency exchange rates.
The Company's gross margin percentage improved from 26.2% in the second
quarter of 1995 to 28.3% in the third quarter of 1995, resulting primarily
from the introduction and sale of new products within the entry level and
desktop product categories, including new Power Macintosh products, as well
as from the impact of changes in currency exchange rates. However, it is
anticipated that gross margins will remain under pressure and could fall
below prior years' levels worldwide due to a variety of factors, including
continued industry-wide pricing pressures, increased competition, and
compressed product life cycles.
<TABLE>
<CAPTION>
Research and Third Quarter Nine Months
Development
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Research and
development $168 $135 24.4% $443 $422 5.0%
Percentage of net
sales 6.5% 6.3% 5.5% 6.3%
</TABLE>
Research and development expenditures increased in amount in the third
quarter and first nine months of 1995 when compared with the corresponding
periods of 1994, due to higher project- and headcount-related spending as
the Company continues to invest in the development of new products and
technologies.
As a percentage of net sales, research and development expenditures
remained relatively consistent in the third quarter of 1995 when compared
with the corresponding period of 1994. Research and development
expenditures in the first nine months of 1995 decreased as a percentage of
net sales when compared with the corresponding period of 1994, primarily
due to the increase in the level of net sales.
The Company anticipates that research and development expenditures will
decrease as a percentage of net sales during the remaining quarter of 1995.
9
<PAGE>
<TABLE>
<CAPTION>
Selling, General Third Quarter Nine Months
and Administrative 1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Selling, general
and administrative $404 $333 21.3% $1,205 $1,038 16.1%
Percentage of net
sales 15.7% 15.5% 15.0% 15.5%
</TABLE>
Selling, general and administrative expenses increased in amount in the
third quarter and first nine months of 1995 when compared with the
corresponding periods of 1994. This increase was primarily a result of
increased advertising and channel marketing program spending as the Company
continued its efforts to expand its market share. Although the Company has
increased its selling and marketing expenses in an effort to expand its
market share, there can be no assurance that such an increase in spending
will result in a corresponding increase in market share. Despite this
increase in expenditures, selling, general and administrative expenses
remained relatively flat as a percentage of net sales in the third quarter
and first nine months of 1995 when compared with the corresponding periods
of 1994, primarily as a result of the increase in the level of net sales
combined with the Company's ongoing efforts to manage total operating
expense growth.
The Company will continue to face the challenge of managing selling,
general and administrative expenses relative to gross margin levels,
particularly in light of the Company's expectation of continued pressure on
gross margins, and continued competitive pressures worldwide. The Company
anticipates that selling, general and administrative expenses will increase
in amount during the remaining quarter of 1995.
<TABLE>
<CAPTION>
Restructuring costs Third Quarter Nine Months
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Restructuring costs $(6) $(127) -95.3% $(23) $(127) -81.9%
Percentage of net
sales -0.2% -5.9% -0.3% -1.9%
</TABLE>
For information regarding the Company's restructuring actions, refer to
Note 2 of the Notes to Consolidated Financial Statements (Unaudited) in
Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is
hereby incorporated by reference.
<TABLE>
<CAPTION>
Interest and Other Third Quarter Nine Months
Income (Expense), Net 1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Interest and other
income (expense), net $2 $(10) 120.0% $(33) $(17) -94.1%
</TABLE>
Interest and other income (expense), net, increased by approximately $12
million in income in the third quarter of 1995 compared with the
corresponding period of 1994. Higher cash and short-term investment
balances coupled with higher investment interest rates resulted in
increased interest income of approximately $15 million. The increase in
income was partially offset by increased interest expense due to higher
borrowing rates and increased hedging costs as a result of increased
volatility in the currency exchange markets as the value of the U.S. dollar
declined relative to other foreign currencies.
Interest and other income (expense), net, increased by approximately $16
million in expense in the first nine months of 1995 when compared with the
corresponding period of 1994. Net losses recorded for the mark-to-market
valuation of outstanding currency forwards and sold currency options
undertaken for currency risk management purposes and costs related to
foreign exchange risk management activity during the second and third
quarters of 1995 resulted in increased expenses of approximately $56
million when compared with the corresponding periods of 1994. This
increase in expense was partially offset by an approximate $41 million
increase in interest and other income, net, during the first nine months of
1995 when compared with the corresponding period of 1994, reflecting higher
cash and short-term investment balances coupled with higher investment
interest rates.
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<PAGE>
Notional principal amounts on certain of the Company's foreign exchange
instruments increased significantly compared with the balances at September
30, 1994, in accordance with the Company's currency risk management
strategies. Specifically, notional principal amounts on purchased and sold
foreign exchange options not accounted for as hedges increased
approximately $2.2 billion and $2.0 billion, respectively, compared with
the balances at September 30. 1994. The notional principal amounts for off-
balance-sheet instruments provide one measure of the transaction volume
outstanding at a particular point in time, and do not necessarily represent
the amount of the Company's exposure to credit or market risk.
Further information regarding the Company's foreign exchange hedging
programs may be found in Part I, Item 2 of this Form 10-Q under the
subheading "Global Market Risks" included under the heading "Factors that
May Affect Future Results and Financial Condition."
<TABLE>
<CAPTION>
Provision for Income Third Quarter Nine Months
Taxes
1995 1994 Change 1995 1994 Change
<S> <C> <C> <C> <C> <C> <C>
Provision for income
taxes $61 $85 -28.2% $215 $120 79.2%
Effective tax rate 37% 38% 37% 38%
</TABLE>
The information contained in Note 5 of the Notes to Consolidated Financial
Statements (Unaudited) in Part I, Item 1 of this Quarterly Report on Form
10-Q is incorporated by reference into this discussion.
Factors That May Affect Future Results and Financial Condition
The Company's future operating results and financial condition are
dependent on the Company's ability to successfully develop, manufacture,
and market technologically innovative products in order to meet dynamic
customer demand patterns. Inherent in this process are a number of factors
that the Company must successfully manage in order to achieve favorable
future operating results and financial condition.
Product Introductions and Transitions
Due to the highly volatile nature of the personal computer industry, which
is characterized by dynamic customer demand patterns and rapid
technological advances, the Company frequently introduces new products and
product enhancements. The success of new product introductions is
dependent on a number of factors, including market acceptance, the
Company's ability to manage the risks associated with product transitions,
the availability of application software for new products, the effective
management of inventory levels in line with anticipated product demand, and
the manufacturing of products in appropriate quantities to meet anticipated
demand. Accordingly, the Company cannot determine the ultimate effect that
new products will have on its sales or results of operations.
In 1994, the Company introduced Power Macintosh, a new line of Macintosh
computers based on a new PowerPC family of RISC microprocessors. The
Company's results of operations and financial condition may be adversely
affected if it is unable to successfully complete the transition of its
lines of personal computers and servers from the Motorola 68000 series of
microprocessors to the PowerPC(registered trademark) microprocessor.
The success of this ongoing transition will depend on the Company's
ability to continue to sell products based on the Motorola 68000 series
of microprocessors while gaining market acceptance of the new PowerPC
processor-based products, to successfully manage inventory levels of both
product lines simultaneously, and to continue to coordinate the timely
development and distribution by independent software vendors of new
"native" software applications specifically designed for the PowerPC
processor-based products.
The rate of product shipments immediately following introduction of a new
product is not necessarily an indication of the future rate of shipments
for that product, which depends on many factors, some of which are not
under the control of the Company. These factors may include initial large
purchases by a small segment of the user population that tends to purchase
new technology prior to its acceptance by the majority of users ("early
adopters"); purchases in satisfaction of pent-up demand by users who
anticipated new technology and as a result deferred purchases of other
products; and over-ordering by dealers who anticipate shortages due to the
aforementioned factors. The preceding may also be offset by other factors,
such as the deferral of purchases by many users until new
11
<PAGE>
technology is accepted as "proven" and for which commonly used software
products are available; and the reduction of orders by dealers once they
believe they can obtain sufficient supply of product previously in backlog.
Backlog is often volatile after new product introductions due to the
aforementioned demand factors, often increasing sharply coincident with
introduction, and then reducing sharply once dealers and customers believe
they can obtain sufficient supply of product.
The measurement of demand for newly introduced products is further
complicated by the availability of different product configurations, which
may include various types of built-in peripherals and software.
Configurations may also require certain localization (such as language) for
various markets and, as a result, demand in different geographic areas may
be a function of the availability of third-party software in those
localized versions. For example, the availability of European-language
versions of software products manufactured by U.S. producers may lag behind
the availability of U.S. versions by a quarter or more. This may result in
lower initial demand for the Company's new products outside the United
States, even though localized versions of the Company's products may be
available.
Competition
The personal computer industry is highly competitive and continues to be
characterized by consolidations in the hardware and software industries,
aggressive pricing practices, and downward pressure on gross margins. The
Company's results of operations and financial condition could be adversely
affected should the Company be unable to effectively manage the impact of
industry-wide pricing pressures.
The Company's future operating results and financial condition may also be
affected by the Company's ability to offer customers competitive
technologies while effectively managing the impact on inventory levels and
the potential for customer confusion created by product proliferation.
On November 7, 1994, the Company reached an agreement with International
Business Machines Corporation (IBM) and Motorola, Inc. on a new hardware
reference platform for the PowerPC microprocessor that is intended to
deliver a much wider range of operating system and application choices for
computer customers. As a result of this agreement, the Company intends to
make the Macintosh operating system available on the common platform.
Accordingly, the Company's future operating results and financial
condition may be affected by its ability to implement this agreement and
certain other collaboration agreements, and to manage the associated
competitive risk.
The Company is currently the primary maker of hardware that uses the
Macintosh operating system, and it has a minority market share in the
personal computer market, which is dominated by makers of computers that
run the MS-DOS(registered trademark) and Microsoft Windows(trademark)
operating systems. Future operating results and financial condition may be
affected by the Company's ability to increase market share in its personal
computer business. As part of its efforts to increase overall market
share, the Company announced the licensing of the Macintosh operating
system to other personal computer vendors in January 1995, and several
vendors are currently selling product
which utilizes the Macintosh operating system. The Company's efforts to
increase its overall market share through licensing of the Macintosh
operating system will depend in part on the success of the Company's
ability to manage the risks associated with competing companies producing
Macintosh OS-based computer systems. Accordingly, the Company cannot
determine the ultimate effect that licensing of the Macintosh operating
system will have on its product sales or future operating results and
financial condition. The Company believes that licensing the operating
system will result in a broader installed base on which software vendors
can develop and provide technical innovations for the Macintosh platform.
However, there can be no assurance that the installed base will be
broadened by the licensing of the operating system or result in an increase
in the number of application software titles or the rate at which vendors
will bring to market application software based on the Macintosh operating
system.
The Company's principal competitor in producing operating system software,
Microsoft Corporation, is a large, well-financed corporation which has a
dominant position in various segments of the personal computer software
industry. Microsoft Corporation is expected to release Windows 95, another
of its operating system offerings, in the next several weeks. The Company
believes that this event will likely create competitive pressure on the
Company and will further challenge the Company's efforts in developing and
marketing the Company's products. Accordingly, the Company's future
operating results and financial condition could be adversely affected by
the release of Windows 95.
Certain of the Company's personal computer products are capable of running
application software designed for the MS-DOS or
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Windows operating systems, through software emulation of Intel Corporation
microprocessor chips by use of software specifically designed for the
Company's products, either those based on the Motorola 68000 series of
microprocessors or those based on the PowerPC microprocessor. The Company
has also introduced products which include both the RISC-based PowerPC 601
microprocessor and the 486 DX2/66 microprocessor which enable users to
switch between Macintosh and DOS computing environments.
Decisions by customers to purchase the Company's personal computers, as
opposed to MS-DOS or Windows-based systems, are often based on the
availability of third-party software for particular applications. The
Company believes that the availability of third-party application software
for the Company's hardware products depends in part on the third-party
developers' perception and analysis of the relative benefits of developing
such software for the Company's products versus software for the larger MS-
DOS and Windows market. This analysis is based on factors such as the
relative market share of the Company's products, the anticipated potential
revenue that may be earned, and the costs of developing such software
products. Microsoft Corporation is an important developer of application
software for the Company's products. Accordingly, Microsoft's interest in
producing application software for the Company's products may be influenced
by Microsoft's perception of its interests as an operating system vendor.
The Company's ability to produce and market competitive products is also
dependent on the ability of IBM and Motorola, Inc., the suppliers of the
new PowerPC RISC microprocessor for certain of the Company's products, to
continue to supply to the Company microprocessors which produce superior
price/performance results compared with those supplied to the Company's
competitors by Intel Corporation, the developer and producer of the
microprocessors used by most personal computers using the MS-DOS and
Windows operating systems. IBM produces personal computers based on the
Intel microprocessors as well as on the PowerPC microprocessor, and is also
the developer of OS/2, a competing operating system to the Company's
Macintosh operating system. Accordingly, IBM's interest in supplying the
Company with improved versions of microprocessors for the Company's
products may be influenced by IBM's perception of its interests as a
competing manufacturer of personal computers and as a competing operating
system vendor.
The Company's future operating results and financial condition may also be
affected by the Company's ability to successfully expand its new
businesses and product offerings into other markets, such as the markets
for on-line services and personal digital assistant (PDA) products.
Global Market Risks
A large portion of the Company's revenue is derived from its international
operations. As a result, the Company's operations and financial results
could be significantly affected by international factors, such as changes
in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. When the
U.S. dollar strengthens against other currencies, the U.S. dollar value of
non-U.S. dollar-based sales decreases. When the U.S. dollar weakens, the
U.S. dollar value of non-U.S. dollar-based sales increases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs
increases when the U.S. dollar weakens and decreases when the U.S. dollar
strengthens. Overall, the Company is a net receiver of currencies other
than the U.S. dollar and, as such, benefits from a weaker dollar and is
adversely affected by a stronger dollar relative to major currencies
worldwide. Accordingly, changes in exchange rates may negatively affect
the Company's consolidated sales and gross margins (as expressed in U.S.
dollars).
To mitigate the short-term impact of fluctuating currency exchange rates on
the Company's non-U.S. dollar-based sales, product procurement, and
operating expenses, the Company regularly hedges its non-U.S. dollar-based
exposures. Specifically, the Company enters into foreign exchange forward
and option contracts to hedge firmly committed transactions. Currently,
hedges of firmly committed transactions do not extend beyond one year. The
Company also purchases foreign exchange option contracts to hedge certain
other probable, but not firmly committed transactions. Hedges of probable,
but not firmly committed transactions do not extend beyond one year. To
reduce the costs associated with these ongoing foreign exchange hedging
programs, the Company also regularly sells foreign exchange option
contracts and enters into certain other foreign exchange transactions. All
foreign exchange forward and option contracts not accounted for as hedges,
including all transactions intended to reduce the costs associated with the
Company's foreign exchange hedging programs, are carried at fair value and
are adjusted on each balance sheet date for changes in exchange rates.
While the Company is exposed with respect to fluctuations in the interest
rates of many of the world's leading industrialized countries, the
Company's interest income and expense is most sensitive to fluctuations in
the general level of U.S. interest rates. In this regard,
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changes in U.S. interest rates affect the interest earned on the Company's
cash, cash equivalents, and short-term investments as well as interest paid
on its short-term borrowings and long-term debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company has entered into interest
rate swap and option transactions. Certain of these swaps are intended to
better match the Company's floating-rate interest income on its cash, cash
equivalents, and short-term investments with the fixed-rate interest
expense on its long-term debt. The Company also enters into interest rate
swap, swaption, and option transactions in order to extend the effective
duration of a portion of its cash, cash equivalent, and short-term
investment portfolios. These swaps may extend the Company's cash investment
horizon up to a maximum effective duration of three years.
To ensure the adequacy and effectiveness of the Company's foreign exchange
and interest rate hedge positions, as well as to monitor the risks and
opportunities of the non hedge portfolios, the Company continually monitors
its foreign exchange forward and option positions, and its interest rate
swap, swaption, and option positions on a stand-alone basis and in
conjunction with its underlying foreign currency- and interest rate-related
exposures, respectively, from both an accounting and an economic
perspective. However, given the effective horizons of the Company's risk
management activities, there can be no assurance that the aforementioned
programs will offset more than a portion of the adverse financial impact
resulting from unfavorable movements in either foreign exchange or interest
rates. In addition, the timing of the accounting for recognition of gains
and losses related to mark-to-market instruments for any given period may
not coincide with the timing of gains and losses related to the underlying
economic exposures, and as such, may adversely affect the Company's
operating results and financial position.
Inventory and Supply
The Company's ability to satisfy demand for its products may be limited by
the availability of key components. The Company believes that the
availability from suppliers to the personal computer industry of
microprocessors, application specific integrated circuits (ASIC's) and
dynamic random access memory (DRAM) present the most significant potential
for constraining the Company's ability to produce product. Specific
microprocessors manufactured by Motorola, Inc., and IBM are currently
available only from single sources, while some advanced microprocessors are
currently in the early stages of ramp-up for production and thus have
limited availability. The current market for DRAM is very constrained, and
competition for DRAM among producers of personal computers is intense,
based in part on the increased requirements for DRAM made by newer
operating systems such as Windows 95. The Company and other producers in
the personal computer industry also compete for other semiconductor
products with other industries that have experienced increased demand for
such products due to either increased consumer demand or increased use of
semiconductors in their products (such as the cellular phone and automotive
industries.) Finally, the Company uses some components that are not common
to the rest of the personal computer industry (including certain ASICs).
Continued availability of these components may be affected if producers
were to decide to concentrate on the production of common components
instead of custom components. The Company's future operating results and
financial condition could be adversely affected by such product constraints
and increased costs, including loss of market share.
The Company's future operating results and financial condition may also be
adversely affected by the Company's ability to manage inventory levels and
lead times required to obtain components in order to be more responsive to
short-term shifts in customer demand patterns. In addition, if anticipated
unit sales growth for new and current product offerings is not realized,
inventory valuation reserves may be necessary that would adversely affect
the Company's results of operations and financial condition.
Marketing and Distribution
A number of uncertainties exist regarding the marketing and distribution of
the Company's products. Currently, the Company's primary means of
distribution is through third-party computer resellers. However, the
Company is continuing its expansion into various consumer channels, such as
mass-merchandise stores consumer electronics outlets, and computer
superstores. The Company's business and financial results could be
adversely affected if the financial condition of these sellers weakens or
if sellers within consumer channels decide not to continue to distribute
the Company's products.
Other Factors
The majority of the Company's research and development activities, its
corporate headquarters, and other critical business operations are located
near major seismic faults. The Company's operating results and financial
condition could be materially adversely affected in the event of a major
earthquake.
The Company plans to replace its current transaction systems (which include
order management, distribution, manufacturing, and
14
<PAGE>
finance) with a single integrated system as part of its ongoing effort to
increase operational efficiency. The Company's future operating results
and financial condition could be adversely affected by its ability to
implement and effectively manage the transition to this new integrated
system.
In April 1995, the Company announced a company-wide reorganization designed
to more closely align the Company's organizational structure with the
Company's business strategy of placing increased focus on customer needs
and expanding its presence in the home, education, and business markets.
The Company's future operating results and financial condition could be
adversely affected by its ability to effectively manage the transition to
this new organizational structure.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility of the Company's common stock price.
Liquidity and Capital Resources
Nine
Months
1995
Cash, cash equivalents and short-term
investments, net of short-term borrowings $1,270
Cash generated by operations $433
Cash used for investment activities,
excluding short-term investments $133
Cash generated by financing activities $118
The Company's financial position with respect to cash, cash equivalents and
short-term investments, net of short-term borrowings increased to $1,270
million at June 30, 1995 from $966 million at September 30, 1994. This
increase was primarily attributable to the Company's continued efforts to
increase profit levels and to manage working capital, particularly in the
areas of inventory, accounts payable and accounts receivable.
Cash generated by operations during the first nine months of 1995 totaled
$433 million. Cash was generated primarily by higher sales levels related
to a shift in product mix towards higher-margin products which typically
have higher average selling prices.
Net cash used for the purchase of property, plant and equipment totaled
approximately $110 million during the first nine months of 1995. These
purchases primarily included manufacturing machinery and equipment. The
Company anticipates that capital expenditures in 1995 will be relatively
consistent with 1994 expenditures of $160 million.
Short-term borrowings at June 30, 1995 were approximately $114 million
higher than at September 30, 1994. These borrowings were primarily made to
fund expected working capital growth in certain markets worldwide. In
general, the Company's short-term borrowings typically reflect borrowings
made under its commercial paper program and short-term uncommitted bid-line
arrangements with certain commercial banks. In particular, Apple Japan,
Inc., and Apple Computer BV, (Netherlands) wholly owned subsidiaries of the
Company, incurred short-term borrowings from several banks, totaling
approximately $233 million and $173 million, respectively, at June 30,
1995.
Long-term borrowings of $303 million at June 30, 1995 remained consistent
with the balance at September 30, 1994. Substantially the entire amount of
long-term borrowings represents $300 million aggregate principal amount of
6.5% unsecured notes issued under an omnibus shelf registration statement
filed with the Securities and Exchange Commission in 1994. This shelf
registration covers the registration of debt and other securities for an
aggregate offering price of up to $500 million. The notes were sold at
99.925% of par, for an effective yield to maturity of 6.51%. The notes pay
interest semi-annually and mature on February 15, 2004.
The Company expects that it will continue to incur short- and long-term
borrowings from time to time generally to finance U.S. working capital
needs and capital expenditures, because a substantial portion of the
Company's cash, cash equivalents, and short-term
15
<PAGE>
investments is held by foreign subsidiaries, generally in U.S.
dollar-denominated holdings. Amounts held by foreign subsidiaries would be
subject to U.S. income taxation upon repatriation to the United States; the
Company's financial statements fully provide for any related tax liability
on amounts that it reasonably expects may be repatriated.
The Internal Revenue Service (IRS) has proposed federal income tax
deficiencies for the years 1984 through 1991, and the Company has made
certain prepayments thereon. The Company contested the proposed
deficiencies for the years 1984 through 1988, and most of the issues in
dispute for these years have been resolved. On June 29, 1995, the IRS
issued a notice of deficiency proposing increases to the amount of the
Company's federal income taxes for the years 1989 through 1991. The
Company intends to file a petition with the United States Tax Court to
contest these alleged tax deficiencies. Management believes that adequate
provision has been made for any adjustments that may result from these tax
examinations.
The Company believes that its balances of cash, cash equivalents, and short-
term investments, together with funds generated from operations and short-
and long-term borrowing capabilities, will be sufficient to meet its
operating cash requirements on a short- and long-term basis.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to page 39 of the Company's 1994 Annual Report on Form 10-
K under the subheading "Litigation" for a discussion of certain litigation
involving Microsoft Corporation and Hewlett-Packard Company.
In the case of Apple Computer, Inc. v. Microsoft Corporation and Hewlett-
Packard Company, the Company's petition for a writ of certiorari was denied
by the Supreme Court of the United States on February 21, 1995.
Accordingly, the decision of the appellate court affirming the dismissal of
the Company's copyright infringement case against Microsoft Corporation
("Microsoft") and Hewlett-Packard Company ("HP") is now final. HP's
request for attorneys' fees has been settled by agreement between the
Company and HP. Microsoft's request for attorneys' fees remains pending.
The Company believes the resolution of the above matter will not have a
material adverse effect on its financial condition and results of
operations as reported in the accompanying financial statements. However,
depending on the amount and timing of an unfavorable resolution of the
matter, it is possible that the Company's future results of operations or
cash flows could be materially affected in a particular period.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
10.A.19-1 Supplement to the Executive Severance Plan effective
as of June 9, 1995
10.A.21 Form of Senior Executive Retention Agreement dated
June 9, 1995
10.A.22 Retention Agreement dated June 9, 1995 between the
Registrant and Michael H. Spindler
11 Computation of per share earnings
27 Financial Data Schedule
b) Reports on Form 8-K
None.
16
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SIGNATURE
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.
APPLE COMPUTER, INC.
(Registrant)
DATE: August 10, 1995 BY /s/ Joseph A. Graziano
Joseph A. Graziano
Executive Vice President and
Chief Financial Officer
17
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APPLE COMPUTER, INC.
INDEX TO EXHIBITS
Exhibit Description Page Number
Index
10.A.19-1 Supplement to the Executive Severance
Plan effective as of June 9, 1995 19
10.A.21 Form of Senior Executive Retention 25
Agreement dated June 9, 1995
10.A.22 Retention Agreement dated June 9,
1995 between the Registrant and 35
Michael H. Spindler
11 Computation of per Share Earnings 45
27 Financial Data Schedule 46
18
<PAGE>
EXHIBIT 10.A.19-1
SUPPLEMENT TO THE
APPLE COMPUTER, INC. EXECUTIVE SEVERANCE PLAN
(Effective June 9, 1995)
SECTION 1. ESTABLISHMENT AND PURPOSE.
This Supplement (the "Supplement") to the Apple Computer, Inc.
Executive Severance Plan (the "Plan") is hereby established effective as of
the date it is approved by the Board of Directors of Apple (the "Board"). The
purpose of this Supplement is to set forth the terms and provisions of the
Plan that will apply in the event of a Change in Control of Apple.
Capitalized words not otherwise defined herein shall have the meanings
assigned to such words in the Plan.
SECTION 2. ADDITIONAL BENEFITS.
(a) Each Eligible Employee (i) whose employment with the Company is
involuntary terminated by the Company for any reason during the Supplement
Term, other than due to such Employee's misuse of confidential or proprietary
information or a violation of the standards described in Apple's Global Ethics
brochure or any other Apple policy or guideline or (ii) who resigns during the
Supplement Term for Good Reason shall automatically become a Participant,
whether or not such person is designated as a Participant in accordance with
Section 3.1 of the Plan (hereinafter, a "Section 2(a) Participant"); provided,
however, that no Eligible Employee described in Section 3.3(c), (d), (e) or
(f), or an Eligible Employee described in Section 3.3(b) who resigns other
than for Good Reason, shall become a Section 2(a) Participant. In addition,
during the Supplement Term, the definition of "Eligible Employee" in the Plan
is revised to exclude reference to "any other plan, program or practice by
which Apple provides any separation allowance" which is established on or
after the Change in Control Date or which is implemented at any time with the
intention, express or implied, of eliminating Apple's obligations under the
Plan or this Supplement. Employees of the Company who are otherwise Eligible
Employees and who are parties to a Retention Agreement shall continue to be
eligible to be designated as Participants in the Plan if their employment
terminates prior to the Change in Control Date or after the expiration of the
term of their Retention Agreement.
(b) Section 4.1(e) of the Plan is revised to prohibit the Company
from ending the Termination Notice Period for any such Termination Notice
Period that begins within the Supplement Term for any reason other than the
Section 2(a) Participant's misuse of confidential or proprietary information
or a violation of the standards described in Apple's Global Ethics brochure or
any other Apple policy or guideline.
(c) Section 4.3 of the Plan is revised to substitute "30 additional
calendar days" for "14 additional calendar days" for any Termination Notice
Period that begins during the Supplemental Term.
(d) Section 4.5 of the Plan is revised to require the Company to
provide job placement assistance or counseling to each Section 2(a)
Participant who requests such assistance; provided, however, that the
individual Participant cost to Apple of providing such benefits to a Section
2(a) Participant need not exceed $7,500.
(e) Section 7.1 of the Plan is revised for each Section 2(a)
Participant as follows:
Years of Service* Months of Pay
3 or less 8
4 10
5 12
6 14
7 16
8 18
9 20
10 22
11 or more 24 (maximum)
*Years of Service will be determined as of the Participant's
actual termination date.
19
(f) Section 7.2 of the Plan is revised for each Section 2(a)
Participant as follows: In lieu of the Prorated Bonus, each Section 2(a)
Participant shall receive a special severance bonus (the "Severance Bonus")
equal to the greater of (i) the target annual bonus amount payable to the
Section 2(a) Participant for the fiscal year in which the Notification Date
occurs and (ii) the target annual bonus amount payable to the Section 2(a)
Participant for the last fiscal year ended prior to the Change in Control
Date, in either case, calculated on the assumption that all applicable
performance targets had been achieved. The Severance Bonus shall not be
subject to any proration and shall otherwise be payable at such time and
manner as the Prorated Bonus.
(g) Section 7.3 of the Plan is revised for each Section 2(a)
Participant as follows:
Participant's Grade Period of Extended
Level Coverage from
at Close of Close of Termination
Termination Notice Notice Period
Period
97-100 24 months
94-96 18 months
(h) The additional payments and benefits provided by this Section 2
of the Supplement are subject to the condition that the Section 2(a)
Participant execute a release in the form and manner contemplated by Section
5.2 of the Plan.
SECTION 3. GROSS-UP PAYMENT.
A new Section 7.8 is added to the Plan as follows:
7.8 Gross-Up Payment.
(a) Right to Payment. Notwithstanding anything in the Plan or the
Supplement to the contrary, if it is determined that any Payment to an
Eligible Employee (whether or not such employee qualifies for benefits under
the Plan or the Supplement and whether or not such employee is a Section 2(a)
Participant at the time of determination) would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties with respect
to such excise tax (such excise tax, together with any interest or penalties
thereon, is herein referred to as an "Excise Tax"), then such Eligible
Employee shall be entitled to an additional payment (a "Gross-Up Payment") in
an amount that will place such Eligible Employee in the same after-tax
economic position that such employee would have enjoyed if the Excise Tax had
not applied to the Payment. The amount of the Gross-Up Payment shall be
determined by the Accounting Firm in accordance with the formula {(E x (1 -
M)/(1 - T)) - E} (or such other formula as the Accounting Firm deems
appropriate which is intended to achieve the same result), where
E equals the Payments which are determined to be "excess
parachute payments" within the meaning of Section 280G(b)(1) of
the Code;
M equals the sum of the highest marginal rates1 for Taxes
applicable to the Eligible Employee at the time of the Payment;
and
T equals M plus the rate of Excise Tax applicable to the Payment.
No Gross-Up Payments shall be payable to an Eligible Employee hereunder if the
Accounting Firm determines that the Payments to such Eligible Employee are not
subject to an Excise Tax.
(b) Determination of Gross-Up Payment. Subject to the provisions
of Section 7.8(c), all determinations required under this Section 7.8,
including whether a Gross-Up Payment is required, the amount of the Payments
constituting excess parachute payments, and the amount of the Gross-Up
Payment, shall be made by the Accounting Firm, which shall provide detailed
supporting calculations both to the Eligible Employee and the Company within
fifteen days of the Change in Control Date, the date of the Eligible
Employee's termination of employment with the Company and its subsidiaries or
any other date reasonably requested by the Eligible Employee or the Company on
which a determination under this Section 3 is necessary or advisable. The
Company shall pay each Eligible Employee the initial Gross-Up Payment within 5
days of the receipt by the Company of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is payable to an Eligible
Employee (or class of Eligible Employees), the Company shall cause the
Accounting Firm to provide such Eligible Employee (or each member of the class
of Eligible Employees) with an opinion that the Accounting Firm has
substantial authority under the Code and Regulations not to report
20
___________________________
1To be expressed in up to three decimal places. For example, a combined
federal, state and local marginal rate of 56% would be expressed as .560.
<PAGE>
an Excise Tax on the Eligible Employee's federal income tax return. Any
determination by the Accounting Firm shall be binding upon the Eligible
Employee and the Company. If the initial Gross-Up Payment is insufficient to
cover the amount of the Excise Tax that is ultimately determined to be owing
by the Eligible Employee with respect to any Payment (hereinafter an
"Underpayment"), the Company, after exhausting its remedies under Section
7.8(c) below, shall promptly pay to the Eligible Employee an additional Gross-
Up Payment in respect of the Underpayment.
(c) Procedures. As a condition to Apple's obligations hereunder to
an Eligible Employee, each Eligible Employee shall be required to notify Apple
in writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by Apple of a Gross-Up Payment by such Eligible
Employee. Such notice shall be given as soon as practicable after the
Eligible Employee knows of such claim and shall apprise Apple of the nature of
the claim and the date on which the claim is requested to be paid. An
Eligible Employee shall agree not to pay the claim until the expiration of the
thirty-day period following the date on which the Eligible Employee notifies
Apple, or such shorter period ending on the date the Taxes with respect to
such claim are due (the "Notice Period"). If Apple notifies the Eligible
Employee in writing prior to the expiration of the Notice Period that it
desires to contest the claim, the Eligible Employee shall: (i) give Apple any
information reasonably requested by Apple relating to the claim; (ii) take
such action in connection with the claim as Apple may reasonably request,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by Apple and reasonably
acceptable to the Eligible Employee; (iii) cooperate with Apple in good faith
in contesting the claim; and (iv) permit Apple to participate in any
proceedings relating to the claim. An Eligible Employee shall permit Apple to
control all proceedings related to the claim and, at its option, permit Apple
to pursue or forgo any and all administrative appeals, proceedings, hearings,
and conferences with the taxing authority in respect of such claim. If
requested by Apple, an Eligible Employee shall agree either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner
and to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts as Apple shall determine; provided, however, that, if Apple directs
such Eligible Employee to pay such claim and pursue a refund, Apple shall
advance the amount of such payment to the Eligible Employee on an after-tax
and interest-free basis (the "Advance"). Apple's control of the contest
related to the claim shall be limited to the issues related to the Gross-Up
Payment and the Eligible Employee shall be entitled to settle or contest, as
the case may be, any other issues raised by the Internal Revenue Service or
other taxing authority. If Apple does not notify the Eligible Employee in
writing prior to the end of the Notice Period of its desire to contest the
claim, Apple shall pay to the Eligible Employee an additional Gross-Up Payment
in respect of the excess parachute payments that are the subject of the claim,
and the Eligible Employee shall be required to pay the amount of the Excise
Tax that is the subject of the claim to the applicable taxing authority in
accordance with applicable law.
(d) Repayments. If, after receipt by an Eligible Employee of an
Advance, the Eligible Employee becomes entitled to a refund with respect to
the claim to which such Advance relates, the Eligible Employee shall pay Apple
the amount of the refund (together with any interest paid or credited thereon
after Taxes applicable thereto). If, after receipt by Eligible Employee of an
Advance, a determination is made that the Eligible Employee shall not be
entitled to any refund with respect to the claim and Apple does not promptly
notify the Eligible Employee of its intent to contest the denial of refund,
then the amount of the Advance shall not be required to be repaid by Eligible
Employee and the amount thereof shall offset the amount of the additional
Gross-Up Payment then owing to the Eligible Employee.
(e) Further Assurances. Apple shall indemnify each Eligible
Employee and hold each Eligible Employee harmless, on an after-tax basis, from
any costs, expenses, penalties, fines, interest or other liabilities
("Losses") incurred by the Eligible Employee with respect to the exercise by
Apple of any of its rights under this Section 7.8, including, without
limitation, any Losses related to Apple's decision to contest a claim or any
imputed income to the Eligible Employee resulting from any Advance or action
taken on Eligible Employee on behalf by Apple hereunder. Apple shall pay all
legal fees and expenses incurred under this Section 7.8, and shall promptly
reimburse each Eligible Employee for the reasonable expenses incurred by the
Eligible Employee in connection with any actions taken by Apple or required to
be taken by the Eligible Employee hereunder. Apple shall also pay all of the
fees and expenses of the Accounting Firm, including, without limitation, the
fees and expenses related to the opinion referred to in Section 7.8(b).
(f) Combined Payments. Anything in this Section 7.8 to the
contrary notwithstanding, Apple shall have no obligation to pay an Eligible
Employee a required Gross-Up Payment under this Section 7.8 if the aggregate
amount of all Combined Payments has at the time such payment is due exceeded
the Limit. If the amount of a Gross-Up Payment to an Eligible Employee under
this Section 7.8 would result in the Combined Payments exceeding the Limit,
Apple shall pay the Eligible Employee the portion, if any, of the Gross-Up
Payment which can be paid to such employee without causing the aggregate
amount of all Combined Payments to exceed the Limit. In the event that an
Eligible Employee is entitled to a Gross-Up Payment under this Section 7.8 and
other employees or former employees of the Company are also entitled to gross-
up payments under this Section 7.8 or under the corresponding provisions of
any other applicable Combined Arrangement and the aggregate amount of all such
payments would cause the Limit on Combined Payments to be exceeded, Apple
shall allocate the amount of the reduction necessary to comply with the Limit
among all such payments in the proportion that the amount of each such gross-
up payment bears to the aggregate amount of all such payments. Nothing in
this Section 7.8(f) shall require any Eligible Employee to repay to Apple any
amount that was previously paid to such employee under this Section 7.8.
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SECTION 4. AMENDMENT AND ASSUMPTION.
(a) Section 12.1 of the Plan is revised as follows: The Plan and
this Supplement may not be amended or terminated by Apple on and after the
occurrence of the Change in Control Date in any way that would reduce or
eliminate the payments and benefits owing under the Plan and this Supplement
to any Section 2(a) Participant. In addition, no amendment or termination
which would be precluded under the previous sentence if made on or after the
Change in Control Date shall be effective if made or first effective within
the twelve month period ending on the Change in Control Date.
(b) Apple will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business or assets of Apple expressly to assume and to agree to perform
this Agreement in the same manner and to the same extent that Apple would be
required to perform it if no such succession had taken place; provided,
however, that no such assumption shall relieve Apple of its obligations
hereunder.
SECTION 5. DEFINITIONS.
For purposes of the Plan and this Supplement, the following
capitalized words shall have the meanings set forth below:
"Accounting Firm" shall mean [NAME] or, if such firm is unable or
unwilling to perform such calculations, such other national accounting firm as
shall be designated by Apple in accordance with the terms of the Retention
Agreements.
"Change in Control" shall mean a change in control of Apple of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not Apple is then subject to such reporting requirement; provided, however,
that, anything in the Plan or this Supplement to the contrary notwithstanding,
a Change in Control shall be deemed to have occurred if:
(i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or person, or any
syndicate or group deemed to be a person under Section 14(d)(2) of the
Exchange Act, is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of Apple representing 30% or more
of the combined voting power of Apple's then outstanding securities
entitled to vote in the election of directors of Apple;
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement), individuals who at
the beginning of such period constituted the Board and any new directors,
whose election by the Board or nomination for election by Apple's
stockholders was approved by a vote of at least three-fourths (3/4ths) of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved (the "Incumbent Directors"), cease for any reason
to constitute a majority thereof;
(iii) There occurs a reorganization, merger, consolidation or
other corporate transaction involving the Company (a "Transaction"), in
each case, with respect to which the stockholders of the Company
immediately prior to such Transaction do not, immediately after the
Transaction, own more than 50 percent of the combined voting power of the
Company or other corporation resulting from such Transaction;
(iv) all or substantially all of the assets of Apple are sold,
liquidated or distributed; or
(v) there is a "change in control" of Apple within the meaning of
Section 280G of the Code and the Regulations.
"Change in Control Date" shall mean the earliest of (i) the date on
which the Change in Control occurs, (ii) the date on which Apple executes an
agreement, the consummation of which would result in the occurrence of a
Change in Control, (iii) the date the Board approves a transaction or series
of transactions, the consummation of which would result in a Change in Control
and (iv) the date Apple fails to satisfy its obligations to have the Plan and
this Supplement assumed by any successor to Apple in accordance with Section
4(b) of this Supplement. If the Change in Control Date occurs as a result of
an agreement described in clause (ii) of the previous sentence or as a result
of the approval of the Board described in clause (iii) of the previous
sentence and the Change in Control to which such agreement or approval relates
(the "Contemplated Change in Control") subsequently does not occur, then the
Supplement Term shall expire on the sixtieth day (the "Reset Date") following
the date the Board certifies by resolution duly adopted by three-fourths
(3/4ths) of the Incumbent Directors then in office that the Contemplated
Change in Control is not reasonably likely to occur; provided, however, that
this sentence shall not apply (A) to any Section 2(a) Participant whose
termination of employment with Apple has occurred on and after the Change in
Control Date and on or prior to the Reset Date or (B) if the
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<PAGE>
Contemplated Change in Control subsequently occurs within three months of the
Reset Date. Following the Reset Date, the provisions of the Plan and this
Supplement shall remain in effect and a new Supplement Term shall commence
upon the occurrence of a subsequent Change in Control Date. Notwithstanding
the first sentence of this section, if an individual's employment with the
Company terminates prior to the Change in Control Date and it is reasonably
demonstrated that such termination of employment (i) was at the request of the
third party who has taken steps reasonably calculated to effect the Change in
Control or (ii) otherwise arose in connection with or in anticipation of the
Change in Control, then, solely with respect to the affected Participant, the
Change in Control Date shall mean the date immediately prior to the date of
such Participant's termination of employment.
"Combined Arrangements" shall mean this Supplement to the Plan (as
the same may be amended from time to time) and the Retention Agreements.
"Combined Payments" shall mean the aggregate cash amount of (i)
severance payments made to employees or former employees under Section 3(a) of
the Retention Agreements or the corresponding provisions of the applicable
Combined Arrangement, (ii) severance payments made to Section 2(a)
Participants under Sections 2(e) and 2(f) of the Supplement or to any other
employee or former employee under the corresponding provisions of the
applicable Combined Arrangement, (iii) Gross-up Payments made to an Eligible
Employee under Section 3 of the Supplement or to any other employee or former
employee under the corresponding provisions of the applicable Combined
Arrangement, (iv) fees and expenses which are paid or reimbursed to employees
or former employees under Section 6 of the Retention Agreements or to any
other employee or former employee under the corresponding provisions of the
applicable Combined Arrangement, (v) payments made to employees or former
employees under Section 5 of the Retention Agreements or to any other employee
or former employee under the corresponding provisions of the applicable
Combined Arrangement and (vi) costs incurred by Apple in respect of a Section
2(a) Participant under Section 2(d) of the Supplement or to any other employee
or former employee under the corresponding provisions of the applicable
Combined Arrangement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor provisions thereto.
"Common Stock" shall mean the common stock of Apple.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor provisions thereto.
"Good Reason" shall mean:
(i) The relocation of the office of the Company where an Eligible
Employee is employed immediately prior to the Change in Control Date (the
"CIC Location") to a location which is more than fifty (50) miles away
from the CIC Location or the Company's requiring an Eligible Employee to
be based more than fifty (50) miles away from the CIC Location (except
for required travel on the Company's business to an extent substantially
consistent with your customary business travel obligations in the
ordinary course of business prior to the Change in Control Date); or
(ii) The Company's assignment of an Eligible Employee to a job with
significantly reduced duties and responsibilities and which involves
either (A) a reduction in the Eligible Employee's base salary or target
bonus opportunity or (B) a drop of two grade designations or more;
provided, however, that clause (B) shall not apply if the reduction in
employee's grade designation causes such employee to cease to qualify as
an Eligible Employee for purposes of the Plan and this Supplement;
provided, however, that an event described above shall not constitute Good
Reason unless it is communicated by the Eligible Employee to the Company in
writing and is not corrected by the Company in a manner which is reasonably
satisfactory to the Eligible Employee (including full retroactive correction
with respect to any monetary matter) within 10 days of the Company's receipt
of such written notice.
"Limit" shall mean the dollar amount determined in accordance with
the formula [A x B x C], where
A equals 0.02;
B equals the number of issued and outstanding shares of Common
Stock of Apple immediately prior to the Change in Control Date;
and
C equals the greater of (i) (A) if the Common Stock is listed on
any established stock exchange or national market system
(including, without limitation, the National Market System of
the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the highest closing sale price (or
closing bid price, if no sales are reported) of a share of
Common Stock, or (B) if the Common Stock is
23
<PAGE>
regularly quoted on the NASDAQ System (but not on a national
market system) or quoted by a recognized securities dealer but
selling prices are not reported, the highest mean between the
high and low asked prices for the Common Stock, in each case,
on any day during the ninety-day period ending on the Change in
Control Date, and (ii) the highest price paid or offered, as
determined by the Accounting Firm, in any bona fide transaction
or bona fide offer related to the Change in Control.
"Notification Date" shall mean, during the Supplement Term, the
date an Eligible Employee is notified of his or her termination of employment
or the end of the date on which the cure period referred to in the definition
of Good Reason expires without the Company effecting the cure contemplated by
such definition.
"Payment" means (i) any amount due or paid to an Eligible Employee
under the Plan or this Supplement, (ii) any amount that is due or paid to an
Eligible Employee under any plan, program or arrangement of the Company, and
(iii) any amount or benefit that is due or payable to an Eligible Employee
under the Plan or this Supplement or under any plan, program or arrangement
of the Company not otherwise covered under clause (i) or (ii) hereof which
must reasonably be taken into account under Section 280G of the Code and the
Regulations in determining the amount of the "parachute payments" received by
the Eligible Employee, including, without limitation, any amounts which must
be taken into account under the Code and Regulations as a result of (A) the
acceleration of the vesting of any option, restricted stock or other equity
award granted under Apple's equity-based incentive plans or otherwise, (B) the
acceleration of the time at which any payment or benefit is receivable by an
Eligible Employee or (C) any contingent severance or other amounts that are
payable to an Eligible Employee.
"Regulations" shall mean the proposed, temporary and final
regulations under Section 280G of the Code or any successor provision thereto.
"Retention Agreements" means the Retention Agreements, dated as of
the date of this Supplement, to which Apple is a party and any Retention
Agreement entered into after the date hereof which is specifically designated
in the terms thereof as one of the Combined Arrangements.
"Supplement Term" shall mean the period commencing on the Change in
Control Date and ending on the second anniversary thereof.
"Transaction Date" shall mean the date described in clause (i) of
the definition of Change in Control Date.
APPLE COMPUTER, INC.
By
Kevin J. Sullivan
Senior Vice President,
Human Resources
24
<PAGE>
EXHIBIT 10.A.21
DATA List of Officers
June 9, 1995
Mr. "Name"
1 Infinite Loop
Cupertino, California 95014
Retention Agreement
Dear "First name":
Apple Computer, Inc., a California corporation (the "Company"),
considers it essential to the best interests of its stockholders to take
reasonable steps to retain key management personnel. Further, the Board of
Directors of the Company (the "Board") recognizes that the uncertainty and
questions which might arise among management in the context of a change in
control of the Company could result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.
The Board has determined, therefore, that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the management of the Company and its
subsidiaries, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising
from any possible change in control of the Company.
In order to induce you to remain in the employ of the Company,
the Company has determined to enter into this letter agreement (this
"Agreement") which addresses the terms and conditions of your employment in
the event of a change in control of the Company. Capitalized words which
are not otherwise defined herein shall have the meanings assigned to such
words in Section 8 of this Agreement.
1. Term of Employment Under the Agreement. The term of your
employment under this Agreement shall commence on the Change in Control
Date and shall continue until the second anniversary of the Change in
Control Date (the "Term").
2. Employment During the Term. During the Term, the following
terms and conditions shall apply to your employment with the Company:
(a) Titles; Reporting and Duties. Your position, titles, nature
and status of responsibilities and reporting obligations shall be no less
favorable to you than those that you enjoyed immediately prior to the
Change in Control Date.
(b) Salary and Bonus. Your base salary and annual bonus
opportunity may not be reduced, and your base salary shall be periodically
reviewed and increased in the manner commensurate with increases awarded to
other similarly situated executives of the Company.
(c) Incentive Compensation. You shall be eligible to
participate in each long-term incentive plan or arrangement established by
the Company for its executive employees, in accordance with the terms and
provisions of such plan or arrangement and at a level consistent with the
Company's practices applicable to you prior to the Change in Control Date.
(d) Benefits. You shall be eligible to participate in all
pension, welfare and fringe benefit plans and arrangements that the Company
provides to its executive employees in accordance with the terms of such
plans and arrangements, which shall be no less favorable to you, in the
aggregate, than the terms and provisions available to other executive
employees of the Company.
(e) Location. You will continue to be employed at the business
location at which you were employed prior to the Change in Control Date and
the amount of time that you are required to travel for business purposes
will not be increased in any significant respect from the amount of
business travel required of you prior to the Change in Control Date.
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<PAGE>
3. Involuntary Termination During the Term.
(a) Severance Payment. In the event of your Involuntary
Termination during the Term, the Company shall pay you within 5 days of the
date of such Involuntary Termination the full amount of any earned but
unpaid base salary through the Date of Termination at the rate in effect at
the time of the Notice of Termination, plus a cash payment (calculated on
the basis of your Reference Salary) for all unused vacation time which you
may have accrued as of the Date of Termination. The Company shall also pay
you within 5 days of the Date of Termination a pro rata portion of the
annual bonus for the year in which your Involuntary Termination occurs,
calculated on the basis of your target bonus for that year and on the
assumption that all performance targets have been or will be achieved. In
addition, the Company shall pay you in a cash lump sum, within 8 days
following the date of your execution of the release described in the last
sentence of this Section 3(a) (or on the Date of Termination, if later), an
amount (the "Severance Payment") equal to the sum of (i) two times your
Reference Salary and (ii) one times your Reference Bonus. The Severance
Payment shall be in lieu of any other severance payments which you are
entitled to receive under any other severance pay plan or arrangement
sponsored by the Company and its subsidiaries. Your right to the Severance
Payment shall be conditioned upon your execution of a release in favor of
the Company in substantially the form of the release required for the
receipt of severance payments under the Severance Plan (as in effect on the
date of this Agreement) which is not revoked by you within the seven-day
revocation period specified therein.
(b) Benefit Payment. In the event of your Involuntary
Termination during the Term, you and your eligible dependents shall
continue to be eligible to participate during the Benefit Continuation
Period (as hereinafter defined) in the medical, dental, health, life and
other fringe benefit plans and arrangements applicable to you immediately
prior to your Involuntary Termination on the same terms and conditions in
effect for you and your dependents immediately prior to such Involuntary
Termination. For purposes of the previous sentence, "Benefit Continuation
Period" means the period beginning on the Date of Termination and ending on
the earlier to occur of (i) the second anniversary of the Date of
Termination and (ii) the date that you and your dependents are eligible and
elect coverage under the plans of a subsequent employer which provide
substantially equivalent or greater benefits to you and your dependents.
(c) Date and Notice of Termination. Any termination of your
employment by the Company or by you during the Term shall be communicated
by a notice of termination to the other party hereto (the "Notice of
Termination"). The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of your employment under the provision so indicated. The
date of your termination of employment with the Company and its
subsidiaries (the "Date of Termination") shall be determined as follows:
(i) if your employment is terminated for Disability, thirty (30) days after
a Notice of Termination is given (provided that you shall not have returned
to the full-time performance of your duties during such thirty (30) day
period), (ii) if your employment is terminated by the Company in an
Involuntary Termination, five (5) days after the date the Notice of
Termination is received by you and (iii) if your employment is terminated
by the Company for Cause, the later of the date specified in the Notice of
Termination or ten (10) days following the date such notice is received by
you. If the basis for your Involuntary Termination is your resignation for
Good Reason, the Date of Termination shall be ten (10) days after the date
your Notice of Termination is received by the Company. The Date of
Termination for a resignation of employment other than for Good Reason
shall be the date set forth in the applicable notice, which shall be no
earlier than ten (10) days after the date such notice is received by the
Company.
(d) No Mitigation or Offset. You shall not be required to
mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation
earned by you as the result of employment by another employer or by pension
benefits paid by the Company or another employer after the Date of
Termination or otherwise except as specifically provided in clause (ii) of
the last sentence of Section 3(b).
4. Additional Payment.
(a) Gross-Up Payment. Notwithstanding anything herein to the
contrary, if it is determined that any Payment would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with any
interest or penalties thereon, is herein referred to as an "Excise Tax"),
then you shall be entitled to an additional payment (a "Gross-Up Payment")
in an amount that will place you in the same after-tax economic position
that you would have enjoyed if the Excise Tax had not applied to the
Payment. The amount of the Gross-Up Payment shall be determined by the
Accounting Firm in accordance with the formula
{(E x (1 - M)/(1 - T)) - E} (or such other formula as the Accounting Firm
deems appropriate which is intended to achieve the same result), where
E equals the Payments which are determined to be "excess
parachute payments" within the meaning of Section
280G(b)(1) of the Code;
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<PAGE>
M equals the sum of the highest marginal rates1 for Taxes
applicable to you at the time of the Payment; and
T equals M plus the rate of Excise Tax applicable to the
Payment.
No Gross-Up Payments shall be payable hereunder if the Accounting Firm
determines that the Payments are not subject to an Excise Tax.
(b) Determination of Gross-Up Payment. Subject to the
provisions of Section 4(c), all determinations required under this Section
4, including whether a Gross-Up Payment is required, the amount of the
Payments constituting excess parachute payments, and the amount of the
Gross-Up Payment, shall be made by the Accounting Firm, which shall provide
detailed supporting calculations both to you and the Company within fifteen
days of the Change in Control Date, your Date of Termination or any other
date reasonably requested by you or the Company on which a determination
under this Section 4 is necessary or advisable. The Company shall pay to
you the initial Gross-Up Payment within 5 days of the receipt by you and
the Company of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by you, the Company shall cause
the Accounting Firm to provide you with an opinion that the Accounting Firm
has substantial authority under the Code and Regulations not to report an
Excise Tax on your federal income tax return. Any determination by the
Accounting Firm shall be binding upon you and the Company. If the initial
Gross-Up Payment is insufficient to cover the amount of the Excise Tax that
is ultimately determined to be owing by you with respect to any Payment
(hereinafter an "Underpayment"), the Company, after exhausting its remedies
under Section 4(c) below, shall promptly pay to you an additional Gross-Up
Payment in respect of the Underpayment.
(c) Procedures. You shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of a Gross-Up Payment. Such notice shall be
given as soon as practicable after you know of such claim and shall apprise
the Company of the nature of the claim and the date on which the claim is
requested to be paid. You agree not to pay the claim until the expiration
of the thirty-day period following the date on which you notify the
Company, or such shorter period ending on the date the Taxes with respect
to such claim are due (the "Notice Period"). If the Company notifies you in
writing prior to the expiration of the Notice Period that it desires to
contest the claim, you shall: (i) give the Company any information
reasonably requested by the Company relating to the claim; (ii) take such
action in connection with the claim as the Company may reasonably request,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company and
reasonably acceptable to you; (iii) cooperate with the Company in good
faith in contesting the claim; and (iv) permit the Company to participate
in any proceedings relating to the claim. You shall permit the Company to
control all proceedings related to the claim and, at its option, permit the
Company to pursue or forgo any and all administrative appeals, proceedings,
hearings, and conferences with the taxing authority in respect of such
claim. If requested by the Company, you agree either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner
and to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts as the Company shall determine; provided, however, that, if the
Company directs you to pay such claim and pursue a refund, the Company
shall advance the amount of such payment to you on an after-tax and
interest-free basis (the "Advance"). The Company's control of the contest
related to the claim shall be limited to the issues related to the Gross-Up
Payment and you shall be entitled to settle or contest, as the case may be,
any other issues raised by the Internal Revenue Service or other taxing
authority. If the Company does not notify you in writing prior to the end
of the Notice Period of its desire to contest the claim, the Company shall
pay to you an additional Gross-Up Payment in respect of the excess
parachute payments that are the subject of the claim, and you agree to pay
the amount of the Excise Tax that is the subject of the claim to the
applicable taxing authority in accordance with applicable law.
(d) Repayments. If, after receipt by you of an Advance, you
become entitled to a refund with respect to the claim to which such Advance
relates, you shall pay the Company the amount of the refund (together with
any interest paid or credited thereon after Taxes applicable thereto). If,
after receipt by you of an Advance, a determination is made that you shall
not be entitled to any refund with respect to the claim and the Company
does not promptly notify you of its intent to contest the denial of refund,
then the amount of the Advance shall not be required to be repaid by you
and the amount thereof shall offset the amount of the additional Gross-Up
Payment then owing to you.
(e) Further Assurances. The Company shall indemnify you and
hold you harmless, on an after-tax basis, from any costs, expenses,
penalties, fines, interest or other liabilities ("Losses") incurred by you
with respect to the exercise by the Company of any of its rights under this
Section 4, including, without limitation, any Losses related to the
Company's decision to contest a claim or any imputed income to you
resulting from any Advance or action taken on your behalf by the Company
hereunder. The Company shall pay all legal fees and expenses incurred
under this Section 4, and shall promptly reimburse you for the reasonable
expenses incurred by you in connection with any actions taken by the
Company or required to be taken by you hereunder. The Company shall also
pay all of
27
__________________________
1 To be expressed in up to three decimal places. For example, a combined
federal, state and local marginal rate of 56% would be expressed as
.560.
<PAGE>
the fees and expenses of the Accounting Firm, including, without
limitation, the fees and expenses related to the opinion referred to in
Section 4(b).
(f) Combined Payments. Anything in this Section 4 to the
contrary notwithstanding, the Company shall have no obligation to pay you a
required Gross-Up Payment under this Section 4 if the aggregate amount of
all Combined Payments has at the time such payment is due exceeded the
Limit. If the amount of a Gross-Up Payment to you under this Section 4
would result in the Combined Payments exceeding the Limit, the Company
shall pay you only the portion, if any, of the Gross-Up Payment which can
be paid to you without causing the aggregate amount of all Combined
Payments to exceed the Limit. In the event that you are entitled to a Gross-
Up Payment under this Section 4 and other employees or former employees of
the Company are also entitled to gross-up payments under the corresponding
provisions of the applicable Combined Arrangements and the aggregate amount
of all such payments would cause the Limit on Combined Payments to be
exceeded, the Company shall allocate the amount of the reduction necessary
to comply with the Limit among all such payments in the proportion that the
amount of each such gross-up payment bears to the aggregate amount of all
such payments. Nothing in this Section 4(f) shall require you to repay to
the Company any amount that was previously paid to you under this Section
4.
5. Other Provisions.
(a) Vesting and Exercise. All Equity Awards granted to you
under the Equity Plans (including Short-Term Awards) shall vest and become
exercisable in the event of your Involuntary Termination on or following
the Change in Control Date. If you are employed by the Company on the date
of the Equity Plan Change in Control, your Equity Awards will vest and
become exercisable as of such date.
(b) Effect of 30-Day Alternative. In accordance with the terms
of the Equity Plans, upon an Equity Plan Change in Control, Equity Awards
which are options or stock appreciation rights are "cashed out," unless the
Administrator in its discretion determines not to do so. In the event that
the Administrator elects not to cash out such Equity Awards, the
Administrator has the discretion in the context of a merger or sale of all
or substantially all of the assets of the Company either (i) to cause such
Equity Awards to be assumed or an equivalent option or stock appreciation
right granted by the successor corporation to the Company or a parent or
subsidiary of such successor corporation, or (ii) to provide that your
Equity Awards will remain outstanding for a thirty-day period beginning on
the date that you are so notified of such action by the Administrator and
that such Equity Awards will expire to the extent not exercised at the end
of such thirty-day period (the "30-Day Alternative"). If the Administrator
determines to utilize the 30-Day Alternative, the Company shall pay you
with respect to each such Equity Award the excess, if any (the "Additional
Amount"), of the Change in Control Price you would have received had the
Equity Award been cashed out on the date of the Equity Plan Change in
Control over the value of the consideration actually received by you in
settlement of such awards (determined as of the date such consideration is
received by you). Further, in the event of your Involuntary Termination on
or after the Change in Control Date but on or prior to the date of the
Equity Plan Change in Control, the Company shall pay you the Additional
Amount as if your employment had continued through the date of the Equity
Plan Change in Control. In either case, the payment of the Additional
Amount shall be made within 5 days following the determination by the
Administrator of the Change in Control Price.
(c) Short-Term Awards. In the event that (i) the transaction
resulting in an Equity Plan Change in Control occurs at such a time or is
structured in such a manner so as to make it reasonably likely that you
would be subject to actual or potential liability for short-swing profits
under Section 16 of the Exchange Act ("Short-Swing Profit Liability") if
you were to exercise, tender, sell or otherwise dispose (including through
a merger) of your Short-Term Awards as part of, or prior to, such
transaction and (ii) your inability to exercise, tender, sell or otherwise
dispose of your Short-Term Awards on or prior to the date of such Equity
Plan Change in Control eliminates or reduces the value of some or all of
your Short-Term Awards, then, on the date of the Equity Plan Change in
Control, the Company shall pay you in a cash lump sum the amount of
"amount". The provisions of clause (ii) of the previous sentence shall be
deemed to apply where (a) you are precluded from exercising, tendering or
otherwise disposing of your Short-Term Awards on or prior to the
Transaction Date in order to avoid Short-Swing Profit Liability, (b) a
Short-Term Award cannot be repurchased, exchanged or cashed-out by the
Company (or other person) on or prior to the Transaction Date without a
risk of Short-Swing Profit Liability to you, or (c) you are required to
delay the exercise, sale, tender, or other disposition of your Short-Term
Awards in order to avoid Short-Swing Profit Liability and such delay
results in your receiving consideration for your Short-Term Awards (valued
at the date such consideration is received) which is of lesser value than
the consideration you would have received (valued as of the date of the
Equity Plan Change in Control) for such awards had such delay not occurred.
The foregoing provisions shall apply to your Equity Awards notwithstanding
your Involuntary Termination of employment with the Company on or after the
Change in Control Date but prior to the Equity Plan Change in Control. The
provisions of this Section 5(c) shall not apply if (A) prior to the Equity
Plan Change in Control, the Company provides you at its expense with an
opinion from a nationally recognized firm of attorneys stating that the
exercise, tender, sale or other disposition of your Short-Term Awards as
part of, or prior to, the transaction resulting in the Equity Plan Change
in Control will not subject you to Short-Swing Profit Liability and (B)
following your receipt of such opinion there is sufficient time for you to
exercise, tender, sell or otherwise dispose of your Short-Term Awards on or
prior to the Equity Plan Change in Control without impairing the value
thereof.
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(d) General. Anything in this Agreement to the contrary
notwithstanding, in no event shall the vesting and exercisability
provisions applicable to you under the terms of your Equity Awards be less
favorable to you then the terms and provisions of such awards in effect on
the date hereof.
6. Legal Fees and Expenses. The Company shall pay or reimburse
you on an after-tax basis for all costs and expenses (including, without
limitation, court costs and reasonable legal fees and expenses which
reflect common practice with respect to the matters involved) incurred by
you as a result of any claim, action or proceeding (i) arising out of your
termination of employment during the Term, (ii) contesting, disputing or
enforcing any right, benefits or obligations under this Agreement or (iii)
arising out of or challenging the validity, advisability or enforceability
of this Agreement or any provision thereof; provided, however, that the
amount of the payments and reimbursements under this Section 6 shall not
exceed $2 million.
7. Successors; Binding Agreement.
(a) Assumption by Successor. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business or assets of the
Company expressly to assume and to agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place; provided, however, that
no such assumption shall relieve the Company of its obligations hereunder.
As used in this Agreement, the "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be
binding upon and inure to the benefit of you (and your personal
representatives and heirs) and the Company and any organization which
succeeds to substantially all of the business or assets of the Company,
whether by means of merger, consolidation, acquisition of all or
substantially all of the assets of the Company or otherwise, including,
without limitation, as a result of a Change in Control or by operation of
law. This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to
your estate.
8. Definitions. For purposes of this Agreement, the following
capitalized words shall have the meanings set forth below:
"Accounting Firm" shall mean Ernst & Young or, if such firm is
unable or unwilling to perform such calculations, such other national
accounting firm as shall be designated by agreement between you and the
Company. To the extent reasonably practicable, one such accounting firm
shall be designated to perform the calculations in respect of the Combined
Arrangements.
"Administrator" shall mean the "Administrator" as defined in the
applicable Equity Plan or, if no such term is defined in the Equity Plan,
the Board.
"Cause" shall mean a termination of your employment during the
Term which is a result of (i) your felony conviction, (ii) your willful
disclosure of material trade secrets or other material confidential
information related to the business of the Company and its subsidiaries or
(iii) your willful and continued failure substantially to perform your
duties with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or any such actual or
anticipated failure resulting from a resignation by you for Good Reason)
after a written demand for substantial performance is delivered to you by
the Board, which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your duties, and
which performance is not substantially corrected by you within 10 days of
receipt of such demand. For purposes of the previous sentence, no act or
failure to act on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less
than three-fourths (3/4ths) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clause (i), (ii) or
(iii) of the first sentence of this section and specifying the particulars
thereof in detail.
"Change in Control" shall mean a change in control of the
Company of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange
Act, whether or not the Company is then subject to such reporting
requirement; provided, however, that, anything in this Agreement to the
contrary notwithstanding, a Change in Control shall be deemed to have
occurred if:
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(i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or person, or any
syndicate or group deemed to be a person under Section 14(d)(2) of the
Exchange Act, is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities entitled to vote in the election of directors of the
Company;
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement)
individuals who at the beginning of such period constituted the Board
and any new directors, whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least three-fourths (3/4ths) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved (the "Incumbent
Directors"), cease for any reason to constitute a majority thereof;
(iii) There occurs a reorganization, merger, consolidation or
other corporate transaction involving the Company (a "Transaction"),
in each case, with respect to which the stockholders of the Company
immediately prior to such Transaction do not, immediately after the
Transaction, own more than 50 percent of the combined voting power of
the Company or other corporation resulting from such Transaction;
(iv) all or substantially all of the assets of the Company are
sold, liquidated or distributed; or
(v) there is a "change in control" of the Company within the
meaning of Section 280G of the Code and the Regulations.
"Change in Control Date" shall mean the earliest of (i) the date
on which the Change in Control occurs, (ii) the date on which the Company
executes an agreement, the consummation of which would result in the
occurrence of a Change in Control, (iii) the date the Board approves a
transaction or series of transactions, the consummation of which would
result in a Change in Control and (iv) the date the Company fails to
satisfy its obligations to have this agreement assumed by any successor to
the Company in accordance with Section 7(a) of this Agreement. If the
Change in Control Date occurs as a result of an agreement described in
clause (ii) of the previous sentence or as a result of the approval of the
Board described in clause (iii) of the previous sentence and the Change in
Control to which such agreement or approval relates (the "Contemplated
Change in Control") subsequently does not occur, then the Term shall expire
on the sixtieth day (the "Reset Date") following the date the Board
certifies by resolution duly adopted by three-fourths (3/4ths) of the
Incumbent Directors then in office that the Contemplated Change in Control
is not reasonably likely to occur; provided, however, that this sentence
shall not apply if (A) an Involuntary Termination of your employment with
the Company has occurred on and after the Change in Control Date and on or
prior to the Reset Date or (B) the Contemplated Change in Control
subsequently occurs within three months of the Reset Date. Following the
Reset Date, the provisions of this Agreement shall remain in effect and a
new Term shall commence upon the occurrence of a subsequent Change in
Control Date. Notwithstanding the first sentence of this section, if your
employment with the Company terminates prior to the Change in Control Date
and it is reasonably demonstrated that your termination of employment (i)
was at the request of the third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise arose in
connection with or in anticipation of the Change in Control, then Change in
Control Date shall mean the date immediately prior to the date of your
termination of employment.
"Change in Control Price" shall mean the "Change in Control
Price" as defined in the applicable Equity Plan and determined by the
Administrator as of the date of the Equity Plan Change in Control, whether
or not the Administrator is required under the terms of the applicable
Equity Plan to determine such price as of such date.
"Combined Arrangements" shall mean this Agreement, the Retention
Agreements entered into as of the date first set forth above between the
Company and certain of its executive officers, any Retention Agreement
entered into after the date hereof which is specifically designated by the
terms thereof as one of the Combined Arrangements and the Supplement to the
Severance Plan.
"Combined Payments" shall mean the aggregate cash amount of (i)
severance payments made to you under Section 3(a) of this Agreement or to
any other employee or former employee under the corresponding provisions of
the applicable Combined Arrangement, (ii) severance payments made under
Sections 2(e) and 2(f) of the Supplement or the corresponding provisions of
the applicable Combined Arrangement, (iii) Gross-Up Payments made to you
under Section 6 of this Agreement or to any other employee or former
employee under the corresponding provisions of the applicable Combined
Arrangement, (iv) fees and expenses which are paid or reimbursed to you
under Section 6 of this Agreement or to any other employee or former
employee under the corresponding provisions of the applicable Combined
Arrangement, (v) payments made to you under Section 5 of this Agreement or
to any other employee or former employee under the corresponding provisions
of the applicable Combined Arrangement and (vi) costs incurred by the
Company in respect of any employee or former employee under Section 2(d) of
the Supplement or the corresponding provisions of the applicable Combined
Arrangement.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and any successor provisions thereto.
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"Common Stock" shall mean the common stock of the Company.
"Disability" shall mean (i) your incapacity due to physical or
mental illness which causes you to be absent from the full-time performance
of your duties with the Company for six (6) consecutive months, and (ii)
your failure to return to full-time performance of your duties for the
Company within thirty (30) days after written Notice of Termination due to
Disability is given to you. Any question as to the existence of your
Disability upon which you and the Company cannot agree shall be determined
by a qualified independent physician selected by you (or, if you are unable
to make such selection, such selection shall be made by any adult member of
your immediate family), and approved by the Company. The determination of
such physician made in writing to the Company and to you shall be final and
conclusive for all purposes of this Agreement.
"ELTSOP" shall mean the Apple Computer, Inc. 1987 Executive Long
Term Stock Option Plan, as amended, and any successor plan thereto.
"Equity Awards" shall mean options, restricted stock, bonus stock
or other grants or awards which consist of, or relate to, equity securities
of the Company and which have been granted to you under the Equity Plans.
For purposes of this Agreement, Equity Awards shall also include any
securities acquired upon the exercise of an option, warrant or similar
right that constitutes an Equity Award.
"Equity Plan Change in Control" shall mean a change in control of
the Company as defined in the applicable Equity Plan.
"Equity Plans" shall mean the Stock Option Plan, the ELTSOP, and
any other equity-based incentive plan or arrangement adopted by the
Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and any successor provisions thereto.
"Good Reason" shall mean a resignation of your employment during
the Term as a result of any of the following:
(i) A meaningful and detrimental alteration in your position,
your titles, or the nature or status of your responsibilities
(including your reporting responsibilities) from those in effect
immediately prior to the Change in Control Date;
(ii) A reduction by the Company in your annual base salary as in
effect immediately prior to the Change in Control Date or as the same
may be increased from time to time thereafter; a failure by the
Company to increase your salary at a rate commensurate with that of
other key executives of the Company; or a reduction in your target
annual bonus (expressed as a percentage of base salary) below the
target in effect for you prior to the Change in Control Date;
(iii) The relocation of the office of the Company where you
are employed immediately prior to the Change in Control Date (the "CIC
Location") to a location which is more than fifty (50) miles away from
the CIC Location or the Company's requiring you to be based more than
fifty (50) miles away from the CIC Location (except for required
travel on the Company's business to an extent substantially consistent
with your customary business travel obligations in the ordinary course
of business prior to the Change in Control Date);
(iv) The failure by the Company to continue in effect any
compensation plan in which you participated prior to the Change in
Control Date or made available to you after the Change in Control
Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan in connection with the Change in Control, or the failure by the
Company to continue your participation therein on at least as
favorable a basis, both in terms of the amount of benefits provided
and the level of your participation relative to other participants, as
existed on the Change in Control Date;
(v) The failure by the Company to continue to provide you with
benefits at least as favorable in the aggregate to those enjoyed by
you under the Company's pension, savings, life insurance, medical,
health and accident, disability, and fringe benefit plans and programs
in which you were participating immediately prior to the Change in
Control Date; or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of
years of service with the Company in accordance with the Company's
normal vacation policy in effect immediately prior to the Change in
Control;
(vi) The failure of the Company to obtain an agreement reasonably
satisfactory to you from any successor to assume and agree to perform
this Agreement, as contemplated in Section 7(a) hereof or, if the
business of the Company for which your services are principally
performed is sold at any time after a Change in Control, the failure
of the Company to obtain such an agreement from the purchaser of such
business;
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(vii) Any termination of your employment which is not
effected pursuant to the terms of this Agreement; or
(viii) A material breach by the Company of the provisions of
this Agreement;
provided, however, that an event described above in clause (i), (ii), (iv),
(v) or (viii) shall not constitute Good Reason unless it is communicated by
you to the Company in writing and is not corrected by the Company in a
manner which is reasonably satisfactory to you (including full retroactive
correction with respect to any monetary matter) within 10 days of the
Company's receipt of such written notice from you.
"Involuntary Termination" shall mean (i) your termination of
employment by the Company and its subsidiaries during the Term other than
for Cause or Disability or (ii) your resignation of employment with the
Company and its subsidiaries during the Term for Good Reason.
"Limit" shall mean the dollar amount determined in accordance
with the formula [A x B x C], where
A equals 0.02;
B equals the number of issued and outstanding shares of Common
Stock of the Company immediately prior to the Change in
Control Date; and
C equals the greater of (i) (A) if the Common Stock is listed
on any established stock exchange or national market system
(including, without limitation, the National Market System
of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the highest closing
sale price (or closing bid price, if no sales are reported)
of a share of Common Stock, or (B) if the Common Stock is
regularly quoted on the NASDAQ System (but not on a national
market system) or quoted by a recognized securities dealer
but selling prices are not reported, the highest mean
between the high and low asked prices for the Common Stock,
in each case, on any day during the ninety-day period ending
on the Change in Control Date, and (ii) the highest price
paid or offered, as determined by the Accounting Firm, in
any bona fide transaction or bona fide offer related to the
Change in Control.
"Payment" means (i) any amount due or paid to you under this
Agreement, (ii) any amount that is due or paid to you under any plan,
program or arrangement of the Company and its subsidiaries (including,
without limitation, the Equity Plans), and (iii) any amount or benefit that
is due or payable to you under this Agreement or under any plan, program or
arrangement of the Company and its subsidiaries not otherwise covered under
clause (i) or (ii) hereof which must reasonably be taken into account under
Section 280G of the Code and the Regulations in determining the amount of
the "parachute payments" received by you, including, without limitation,
any amounts which must be taken into account under the Code and Regulations
as a result of (A) the acceleration of the vesting of any option,
restricted stock or other equity award granted under the Equity Plans or
otherwise, (B) the acceleration of the time at which any payment or benefit
is receivable by you or (C) any contingent severance or other amounts that
are payable to you.
"Reference Bonus" shall mean the greater of (i) the target annual
bonus applicable to you for the year in which your Involuntary Termination
occurs and (ii) the highest target annual bonus applicable to you in any of
the three years ending prior to the Change in Control Date.
"Reference Salary" shall mean the greater of (i) the annual rate
of your base salary from the Company and its subsidiaries in effect
immediately prior to the date of your Involuntary Termination and (ii) the
annual rate of your base salary from the Company in effect at any point
during the three-year period ending on the Change in Control Date.
"Regulations" shall mean the proposed, temporary and final
regulations under Section 280G of the Code or any successor provision
thereto.
"Severance Plan" means the Apple Computer, Inc. Executive
Severance Plan, as amended.
"Short-Term Awards" shall mean Equity Awards which have been
granted to you within the six-month period ending on the date of a Equity
Plan Change in Control. For purposes of this Agreement, Short-Term Awards
shall also include any securities acquired upon the exercise of an Equity
Award that constitutes a Short-Term Award.
"Stock Option Plan" shall mean the Apple Computer, Inc. 1990
Stock Option Plan, as amended, and any successor plan thereto.
"Supplement" means the amendment to the Severance Plan adopted as
of the date of this Agreement and any future
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amendment thereto.
"Taxes" shall mean the federal, state and local income taxes to
which you are subject at the time of determination, calculated on the basis
of the highest marginal rates then in effect, plus any additional payroll
or withholding taxes to which you are then subject.
"Transaction Date" shall mean the date described in clause (i) of
the definition of Change in Control Date.
9. Notice. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid,
addressed to the Board of Directors, Apple Computer, Inc., 1 Infinite Loop,
M/S: 381, Cupertino, CA 95014, with a copy to the General Counsel of the
Company, or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change
of address shall be effective only upon receipt.
10. Miscellaneous.
(a) Amendments, Waivers, Etc. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements
or representations, oral or otherwise, express or implied, with respect to
the subject matter hereof have been made by either party which are not
expressly set forth in this Agreement and this Agreement shall supersede
all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, with respect to the subject
matter hereof; provided, however, that, except as expressly set forth
herein, this Agreement shall not supersede the terms of Equity Awards
previously granted to you.
(b) Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
(c) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
(d) No Contract of Employment. Nothing in this Agreement shall
be construed as giving you any right to be retained in the employ of the
Company or shall affect the terms and conditions of your employment with
the Company prior to the commencement of the Term hereof.
(e) Withholding. Amounts paid to you hereunder shall be subject
to all applicable federal, state and local withholding taxes.
(f) Source of Payments. All payments provided under this
Agreement, other than payments made pursuant to a plan which provides
otherwise, shall be paid in cash from the general funds of the Company, and
no special or separate fund shall be established, and no other segregation
of assets made, to assure payment. You will have no right, title or
interest whatsoever in or to any investments which the Company may make to
aid it in meeting its obligations hereunder. To the extent that any person
acquires a right to receive payments from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor of the Company.
(g) Headings. The headings contained in this Agreement are
intended solely for convenience of reference and shall not affect the
rights of the parties to this Agreement.
(h) Governing Law. The validity, interpretation, construction,
and performance of this Agreement shall be governed by the laws of the
State of California applicable to contracts entered into and performed in
such State.
* * * *
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If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
APPLE COMPUTER, INC.
By______________________
Name:
Title:
Agreed to as of this day of , 1995.
____________________________
"name"
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EXHIBIT 10.A.22
June 9, 1995
Mr. Michael H. Spindler
1 Infinite Loop
Cupertino, California 95014
Retention Agreement
Dear Mr. Spindler:
Apple Computer, Inc., a California corporation
(the "Company"), considers it essential to the best interests of its
stockholders to take reasonable steps to retain key management personnel.
Further, the Board of Directors of the Company (the "Board") recognizes that
the uncertainty and questions which might arise among management in the
context of a change in control of the Company could result in the departure
or distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined, therefore, that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the management of the Company and its subsidiaries,
including yourself, to their assigned duties without distraction in the face
of potentially disturbing circumstances arising from any possible change in
control of the Company.
In order to induce you to remain in the employ of the Company,
the Company has determined to enter into this letter agreement
(this "Agreement") which addresses the terms and conditions of your employment
in the event of a change in control of the Company. Capitalized words which
are not otherwise defined herein shall have the meanings assigned to such
words in Section 8 of this Agreement.
1. Term of Employment Under the Agreement. The term of
your employment under this Agreement shall commence on the Change in Control
Date and shall continue until the third anniversary of the Change in Control
Date (the "Term").
2. Employment During the Term. During the Term, the
following terms and conditions shall apply to your employment with the
Company:
(a) Titles; Reporting and Duties. Your position, titles,
nature and status of responsibilities and reporting obligations shall be no
less favorable to you than those that you enjoyed immediately prior to the
Change in Control Date.
(b) Salary and Bonus. Your base salary and annual bonus
opportunity may not be reduced, and your base salary shall be periodically
reviewed and increased in the manner commensurate with increases awarded to
other senior executives of the Company.
(c) Incentive Compensation. You shall be eligible to
participate in each long-term incentive plan or arrangement established by
the Company for its executive employees, in accordance with the terms and
provisions of such plan or arrangement and at a level consistent with the
Company's practices applicable to you prior to the Change in Control Date.
(d) Benefits. You shall be eligible to participate in
all pension, welfare and fringe benefit plans and arrangements that the
Company provides to its executive employees in accordance with the terms of
such plans and arrangements, which shall be no less favorable to you,
in the aggregate, than the terms and provisions available to other executive
employees of the Company.
(e) Location. You will continue to be employed at the
business location at which you were employed prior to the Change in Control
Date and the amount of time that you are required to travel for business
purposes will not be increased in any significant respect from the amount
of business travel required of you prior to the Change in Control Date.
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3. Involuntary Termination During the Term.
(a) Severance Payment. In the event of your Involuntary
Termination during the Term, the Company shall pay you within 5 days of the
date of such Involuntary Termination the full amount of any earned but unpaid
base salary through the Date of Termination at the rate in effect at the time
of the Notice of Termination, plus a cash payment (calculated on the basis
of your Reference Salary) for all unused vacation time which you may have
accrued as of the Date of Termination. The Company shall also pay you
within 5 days of the Date of Termination a pro rata portion of the annual
bonus for the year in which your Involuntary Termination occurs, calculated
on the basis of your target bonus for that year and on the assumption that
all performance targets have been or will be achieved. In addition, the
Company shall pay you in a cash lump sum, within 8 days following the date
of your execution of the release described in the last sentence of this
Section 3(a) (or the Date of Termination, if later), an amount (the
"Severance Payment") equal to three times the sum of your Reference Salary
and your Reference Bonus. The Severance Payment shall be in lieu of any
other severance payments which you are entitled to receive under any other
severance pay plan or arrangement sponsored by the Company and its
subsidiaries. Your right to the Severance Payment shall be conditioned
upon your execution of a release in favor of the Company in substantially
the form of the release required for the receipt of severance payments
under the Severance Plan (as in effect on the date of this Agreement) which
is not revoked by you within the seven-day revocation period specified
therein.
(b) Benefit Payment. In the event of your Involuntary
Termination during the Term, you and your eligible
dependents shall continue to be eligible to participate during the Benefit
Continuation Period (as hereinafter defined) in the medical,
dental, health, life and other fringe benefit plans and arrangements
applicable to you immediately prior to your Involuntary
Termination on the same terms and conditions in effect for you and your
dependents immediately prior to such Involuntary
Termination. For purposes of the previous sentence, "Benefit Continuation
Period" means the period beginning on the Date of
Termination and ending on the earlier to occur of (i) the third anniversary
of the Date of Termination and (ii) the date that you and
your dependents are eligible and elect coverage under the plans of a
subsequent employer which provide substantially equivalent or
greater benefits to you and your dependents.
(c) Date and Notice of Termination. Any termination of
your employment by the Company or by you during
the Term shall be communicated by a notice of termination to the other
party hereto (the "Notice of Termination"). The Notice of
Termination shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated. The date of
your termination of employment with the Company and its subsidiaries (the
"Date of Termination") shall be determined as follows: (i)
if your employment is terminated for Disability, thirty (30) days after a
Notice of Termination is given (provided that you shall not
have returned to the full-time performance of your duties during such thirty
(30) day period), (ii) if your employment is terminated by
the Company in an Involuntary Termination, five (5) days after the date the
Notice of Termination is received by you and (iii) if your
employment is terminated by the Company for Cause, the later of the date
specified in the Notice of Termination or ten (10) days
following the date such notice is received by you. If the basis for your
Involuntary Termination is your resignation for Good Reason,
the Date of Termination shall be ten (10) days after the date your Notice
of Termination is received by the Company. The Date of
Termination for a resignation of employment other than for Good Reason
shall be the date set forth in the applicable notice, which
shall be no earlier than ten (10) days after the date such notice is
received by the Company.
(d) No Mitigation or Offset. You shall not be required
to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by you as the result of
employment by another employer or by pension benefits
paid by the Company or another employer after the Date of Termination or
otherwise except as specifically provided in clause (ii) of
the last sentence of Section 3(b).
4. Additional Payment.
(a) Gross-Up Payment. Notwithstanding anything herein
to the contrary, if it is determined that any Payment
would be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties with respect to such excise tax
(such excise tax, together with any interest or penalties thereon, is
herein referred to as an "Excise Tax"), then you shall be entitled to
an additional payment (a "Gross-Up Payment") in an amount that will place
you in the same after-tax economic position that you
would have enjoyed if the Excise Tax had not applied to the Payment. The
amount of the Gross-Up Payment shall be determined by
the Accounting Firm in accordance with the formula
{(E x (1 - M)/(1 - T)) - E} (or such other formula as the Accounting Firm
deems appropriate which is intended to achieve the same
result), where
E equals the Payments which are determined to be "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code;
36
<PAGE>
M equals the sum of the highest marginal rates1 for Taxes
applicable to you at the time of the Payment; and
T equals M plus the rate of Excise Tax applicable to the
Payment.
No Gross-Up Payments shall be payable hereunder if the Accounting Firm
determines that the Payments are not subject to an Excise Tax.
(b) Determination of Gross-Up Payment. Subject to the
provisions of Section 4(c), all determinations required
under this Section 4, including whether a Gross-Up Payment is required, the
amount of the Payments constituting excess parachute
payments, and the amount of the Gross-Up Payment, shall be made by the
Accounting Firm, which shall provide detailed supporting
calculations both to you and the Company within fifteen days of the Change
in Control Date, your Date of Termination or any other
date reasonably requested by you or the Company on which a determination
under this Section 4 is necessary or advisable. The
Company shall pay to you the initial Gross-Up Payment within 5 days of the
receipt by you and the Company of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax
is payable by you, the Company shall cause the
Accounting Firm to provide you with an opinion that the Accounting Firm has
substantial authority under the Code and Regulations
not to report an Excise Tax on your federal income tax return. Any
determination by the Accounting Firm shall be binding upon you
and the Company. If the initial Gross-Up Payment is insufficient to cover
the amount of the Excise Tax that is ultimately determined
to be owing by you with respect to any Payment (hereinafter an
"Underpayment"), the Company, after exhausting its remedies under
Section 4(c) below, shall promptly pay to you an additional Gross-Up
Payment in respect of the Underpayment.
(c) Procedures. You shall notify the Company in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up Payment.
Such notice shall be given as soon as practicable
after you know of such claim and shall apprise the Company of the nature of
the claim and the date on which the claim is requested to
be paid. You agree not to pay the claim until the expiration of the
thirty-day period following the date on which you notify the
Company, or such shorter period ending on the date the Taxes with respect
to such claim are due (the "Notice Period"). If the
Company notifies you in writing prior to the expiration of the Notice
Period that it desires to contest the claim, you shall: (i) give the
Company any information reasonably requested by the Company relating to the
claim; (ii) take such action in connection with the
claim as the Company may reasonably request, including, without limitation,
accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company and reasonably acceptable
to you; (iii) cooperate with the Company in good faith
in contesting the claim; and (iv) permit the Company to participate in any
proceedings relating to the claim. You shall permit the
Company to control all proceedings related to the claim and, at its option,
permit the Company to pursue or forgo any and all
administrative appeals, proceedings, hearings, and conferences with the
taxing authority in respect of such claim. If requested by the
Company, you agree either to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner and to prosecute
such contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts
as the Company shall determine; provided, however, that, if the Company
directs you to pay such claim and pursue a refund, the
Company shall advance the amount of such payment to you on an after-tax and
interest-free basis (the "Advance"). The Company's
control of the contest related to the claim shall be limited to the issues
related to the Gross-Up Payment and you shall be entitled to
settle or contest, as the case may be, any other issues raised by the
Internal Revenue Service or other taxing authority. If the Company
does not notify you in writing prior to the end of the Notice Period of its
desire to contest the claim, the Company shall pay to you an
additional Gross-Up Payment in respect of the excess parachute payments
that are the subject of the claim, and you agree to pay the
amount of the Excise Tax that is the subject of the claim to the applicable
taxing authority in accordance with applicable law.
(d) Repayments. If, after receipt by you of an Advance,
you become entitled to a refund with respect to the
claim to which such Advance relates, you shall pay the Company the amount
of the refund (together with any interest paid or credited
thereon after Taxes applicable thereto). If, after receipt by you of an
Advance, a determination is made that you shall not be entitled to
any refund with respect to the claim and the Company does not promptly
notify you of its intent to contest the denial of refund, then
the amount of the Advance shall not be required to be repaid by you and the
amount thereof shall offset the amount of the additional
Gross-Up Payment then owing to you.
(e) Further Assurances. The Company shall indemnify
you and hold you harmless, on an after-tax basis, from
any costs, expenses, penalties, fines, interest or other liabilities
("Losses") incurred by you with respect to the exercise by the
Company of any of its rights under this Section 4, including, without
limitation, any Losses related to the Company's decision to
37
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1To be expressed in up to three decimal places. For example, a combined
federal, state and local marginal rate of 56% would be
expressed as .560.
<PAGE>
contest a claim or any imputed income to you resulting from any Advance or
action taken on your behalf by the Company hereunder.
The Company shall pay all legal fees and expenses incurred under this
Section 4, and shall promptly reimburse you for the reasonable
expenses incurred by you in connection with any actions taken by the
Company or required to be taken by you hereunder. The
Company shall also pay all of the fees and expenses of the Accounting Firm,
including, without limitation, the fees and expenses
related to the opinion referred to in Section 4(b).
(f) Combined Payments. Anything in this Section 4 to
the contrary notwithstanding, the Company shall have
no obligation to pay you a required Gross-Up Payment under this Section 4
if the aggregate amount of all Combined Payments has at
the time such payment is due exceeded the Limit. If the amount of a Gross-Up
Payment to you under this Section 4 would result in
the Combined Payments exceeding the Limit, the Company shall pay you only
the portion, if any, of the Gross-Up Payment which can
be paid to you without causing the aggregate amount of all Combined Payments
to exceed the Limit. In the event that you are entitled
to a Gross-Up Payment under this Section 4 and other employees or former
employees of the Company are also entitled to gross-up
payments under the corresponding provisions of the applicable Combined
Arrangements and the aggregate amount of all such
payments would cause the Limit on Combined Payments to be exceeded, the
Company shall allocate the amount of the reduction
necessary to comply with the Limit among all such payments in the proportion
that the amount of each such gross-up payment bears to
the aggregate amount of all such payments. Nothing in this Section 4(f)
shall require you to repay to the Company any amount that
was previously paid to you under this Section 4.
5. Other Provisions.
(a) Vesting and Exercise. All Equity Awards granted to
you under the Equity Plans (including Short-Term
Awards) shall vest and become exercisable in the event of your Involuntary
Termination on or following the Change in Control Date.
If you are employed by the Company on the date of the Equity Plan Change in
Control, your Equity Awards will vest and become
exercisable as of such date.
(b) Effect of 30-Day Alternative. In accordance with
the terms of the Equity Plans, upon an Equity Plan
Change in Control, Equity Awards which are options or stock appreciation
rights are "cashed out," unless the Administrator in its
discretion determines not to do so. In the event that the Administrator
elects not to cash out such Equity Awards, the Administrator
has the discretion in the context of a merger or sale of all or
substantially all of the assets of the Company either (i) to cause such
Equity Awards to be assumed or an equivalent option or stock appreciation
right granted by the successor corporation to the Company
or a parent or subsidiary of such successor corporation, or (ii) to provide
that your Equity Awards will remain outstanding for a thirty-
day period beginning on the date that you are so notified of such action by
the Administrator and that such Equity Awards will expire
to the extent not exercised at the end of such thirty-day period (the
"30-Day Alternative"). If the Administrator determines to utilize
the 30-Day Alternative, the Company shall pay you with respect to each such
Equity Award the excess, if any (the "Additional
Amount"), of the Change in Control Price you would have received had the
Equity Award been cashed out on the date of the Equity
Plan Change in Control over the value of the consideration actually
received by you in settlement of such awards (determined as of the
date such consideration is received by you). Further, in the event of your
Involuntary Termination on or after the Change in Control
Date but on or prior to the date of the Equity Plan Change in Control, the
Company shall pay you the Additional Amount as if your
employment had continued through the date of the Equity Plan Change in
Control. In either case, the payment of the Additional
Amount shall be made within 5 days following the determination by the
Administrator of the Change in Control Price.
(c) Short-Term Awards. In the event that (i) the
transaction resulting in an Equity Plan Change in Control
occurs at such a time or is structured in such a manner so as to make it
reasonably likely that you would be subject to actual or
potential liability for short-swing profits under Section 16 of the
Exchange Act ("Short-Swing Profit Liability") if you were to
exercise, tender, sell or otherwise dispose (including through a merger) of
your Short-Term Awards as part of, or prior to, such
transaction and (ii) your inability to exercise, tender, sell or otherwise
dispose of your Short-Term Awards on or prior to the date of
such Equity Plan Change in Control eliminates or reduces the value of some
or all of your Short-Term Awards, then, on the date of the
Equity Plan Change in Control, the Company shall pay you in a cash lump sum
the amount of $0. The provisions of clause (ii) of the
previous sentence shall be deemed to apply where (a) you are precluded from
exercising, tendering or otherwise disposing of your
Short-Term Awards on or prior to the Transaction Date in order to avoid
Short-Swing Profit Liability, (b) a Short-Term Award cannot
be repurchased, exchanged or cashed-out by the Company (or other person) on
or prior to the Transaction Date without a risk of Short-
Swing Profit Liability to you, or (c) you are required to delay the
exercise, sale, tender, or other disposition of your Short-Term
Awards in order to avoid Short-Swing Profit Liability and such delay
results in your receiving consideration for your Short-Term
Awards (valued at the date such consideration is received) which is of
lesser value than the consideration you would have received
(valued as of the date of the Equity Plan Change in Control) for such
awards had such delay not occurred. The foregoing provisions
shall apply to your Equity Awards notwithstanding your Involuntary
Termination of employment with the Company on or after the
Change in Control Date but prior to the Equity Plan Change in Control.
The provisions of this Section 5(c) shall not apply if (A) prior
to the Equity Plan Change in Control, the Company provides you at its
expense with an opinion from a nationally recognized firm of
attorneys stating that the exercise, tender, sale or other disposition of
your Short-Term Awards as part of, or prior to, the transaction
resulting in the Equity Plan Change in Control will not subject you to
Short-Swing Profit Liability and (B) following your receipt of
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<PAGE>
such opinion there is sufficient time for you to exercise, tender, sell or
otherwise dispose of your Short-Term Awards on or prior to the
Equity Plan Change in Control without impairing the value thereof.
(d) General. Anything in this Agreement to the contrary
notwithstanding, in no event shall the vesting and
exercisability provisions applicable to you under the terms of your Equity
Awards be less favorable to you then the terms and
provisions of such awards in effect on the date hereof.
6. Legal Fees and Expenses. The Company shall pay or
reimburse you on an after-tax basis for all costs and
expenses (including, without limitation, court costs and reasonable legal
fees and expenses which reflect common practice with
respect to the matters involved) incurred by you as a result of any claim,
action or proceeding (i) arising out of your termination of
employment during the Term, (ii) contesting, disputing or enforcing any
right, benefits or obligations under this Agreement or (iii)
arising out of or challenging the validity, advisability or enforceability
of this Agreement or any provision thereof; provided, however,
that the amount of the payments and reimbursements under this Section 6
shall not exceed $2 million.
7. Successors; Binding Agreement.
(a) Assumption by Successor. The Company will require
any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business or assets of the Company expressly to assume
and to agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it
if no such succession had taken place; provided, however, that no such
assumption shall relieve the Company of its obligations
hereunder. As used in this Agreement, the "Company" shall mean the Company
as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law or otherwise.
(b) Enforceability; Beneficiaries. This Agreement
shall be binding upon and inure to the benefit of you (and
your personal representatives and heirs) and the Company and any
organization which succeeds to substantially all of the business or
assets of the Company, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of the Company
or otherwise, including, without limitation, as a result of a Change in
Control or by operation of law. This Agreement shall inure to
the benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would still be
payable to you hereunder if you had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee
or other designee or, if there is no such designee, to your estate.
8. Definitions. For purposes of this Agreement, the
following capitalized words shall have the meanings set
forth below:
"Accounting Firm" shall mean Ernst & Young or, if such firm
is unable or unwilling to perform such calculations,
such other national accounting firm as shall be designated by agreement
between you and the Company. To the extent reasonably
practicable, one such accounting firm shall be designated to perform the
calculations in respect of the Combined Arrangements.
"Administrator" shall mean the "Administrator" as defined
in the applicable Equity Plan or, if no such term is
defined in the Equity Plan, the Board.
"Cause" shall mean a termination of your employment during
the Term which is a result of (i) your felony
conviction, (ii) your willful disclosure of material trade secrets or other
material confidential information related to the business of the
Company and its subsidiaries or (iii) your willful and continued failure
substantially to perform your duties with the Company (other
than any such failure resulting from your incapacity due to physical or
mental illness or any such actual or anticipated failure resulting
from a resignation by you for Good Reason) after a written demand for
substantial performance is delivered to you by the Board,
which demand specifically identifies the manner in which the Board believes
that you have not substantially performed your duties,
and which performance is not substantially corrected by you within 10 days
of receipt of such demand. For purposes of the previous
sentence, no act or failure to act on your part shall be deemed "willful"
unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4ths) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable
notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth above
in clause (i), (ii) or (iii) of the first sentence of this section and
specifying the particulars thereof in detail.
"Change in Control" shall mean a change in control of the
Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, whether or not the
Company is then subject to such reporting requirement; provided, however,
that, anything in this Agreement to the contrary
39
<PAGE>
notwithstanding, a Change in Control shall be deemed to have occurred if:
(i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity
or person, or any syndicate or group deemed to be a person under Section
14(d)(2) of the Exchange Act, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then
outstanding securities entitled to vote in the election of directors of the
Company;
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this
Agreement) individuals who at the beginning of such period constituted the
Board and any new directors, whose election by
the Board or nomination for election by the Company's stockholders was
approved by a vote of at least three-fourths (3/4ths)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved (the "Incumbent Directors"), cease
for any reason to constitute a majority thereof;
(iii) There occurs a reorganization, merger, consolidation or
other corporate transaction involving the Company
(a "Transaction"), in each case, with respect to which the stockholders of
the Company immediately prior to such Transaction
do not, immediately after the Transaction, own more than 50 percent of the
combined voting power of the Company or other
corporation resulting from such Transaction;
(iv) all or substantially all of the assets of the Company are
sold, liquidated or distributed; or
(v) there is a "change in control" of the Company within the
meaning of Section 280G of the Code and the
Regulations.
"Change in Control Date" shall mean the earliest of (i) the
date on which the Change in Control occurs, (ii) the date
on which the Company executes an agreement, the consummation of which would
result in the occurrence of a Change in Control, (iii)
the date the Board approves a transaction or series of transactions, the
consummation of which would result in a Change in Control
and (iv) the date the Company fails to satisfy its obligations to have this
agreement assumed by any successor to the Company in
accordance with Section 7(a) of this Agreement. If the Change in Control
Date occurs as a result of an agreement described in clause
(ii) of the previous sentence or as a result of the approval of the Board
described in clause (iii) of the previous sentence and the
Change in Control to which such agreement or approval relates (the
"Contemplated Change in Control") subsequently does not occur,
then the Term shall expire on the sixtieth day (the "Reset Date") following
the date the Board certifies by resolution duly adopted by
three-fourths (3/4ths) of the Incumbent Directors then in office that the
Contemplated Change in Control is not reasonably likely to
occur; provided, however, that this sentence shall not apply if (A) an
Involuntary Termination of your employment with the Company
has occurred on and after the Change in Control Date and on or prior to the
Reset Date or (B) the Contemplated Change in Control
subsequently occurs within three months of the Reset Date. Following the
Reset Date, the provisions of this Agreement shall remain
in effect and a new Term shall commence upon the occurrence of a subsequent
Change in Control Date. Notwithstanding the first
sentence of this section, if your employment with the Company terminates
prior to the Change in Control Date and it is reasonably
demonstrated that your termination of employment (i) was at the request of
the third party who has taken steps reasonably calculated
to effect the Change in Control or (ii) otherwise arose in connection with
or in anticipation of the Change in Control, then Change in
Control Date shall mean the date immediately prior to the date of your
termination of employment.
"Change in Control Price" shall mean the "Change in Control
Price" as defined in the applicable Equity Plan and
determined by the Administrator as of the date of the Equity Plan Change in
Control, whether or not the Administrator is required
under the terms of the applicable Equity Plan to determine such price as of
such date.
"Combined Arrangements" shall mean this Agreement, the
Retention Agreements entered into as of the date first set
forth above between the Company and certain of its executive officers, any
Retention Agreement entered into after the date hereof
which is specifically designated by the terms thereof as one of the
Combined Arrangements and the Supplement to the Severance Plan.
"Combined Payments" shall mean the aggregate cash amount of
(i) severance payments made to you under Section
3(a) of this Agreement or to any other employee or former employee under
the corresponding provisions of the applicable Combined
Arrangement, (ii) severance payments made under Sections 2(e) and 2(f) of
the Supplement or the corresponding provisions of the
applicable Combined Arrangement, (iii) Gross-Up Payments made to you under
Section 6 of this Agreement or to any other employee
or former employee under the corresponding provisions of the applicable
Combined Arrangement, (iv) fees and expenses which are
paid or reimbursed to you under Section 6 of this Agreement or to any other
employee or former employee under the corresponding
provisions of the applicable Combined Arrangement, (v) payments made to you
under Section 5 of this Agreement or to any other
employee or former employee under the corresponding provisions of the
applicable Combined Arrangement and (vi) costs incurred by
the Company in respect of any employee or former employee under
Section 2(d) of the Supplement or the corresponding provisions of
the applicable Combined Arrangement.
40
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor provisions thereto.
"Common Stock" shall mean the common stock of the Company.
"Disability" shall mean (i) your incapacity due to physical
or mental illness which causes you to be absent from the
full-time performance of your duties with the Company for six (6)
consecutive months, and (ii) your failure to return to full-time
performance of your duties for the Company within thirty (30) days after
written Notice of Termination due to Disability is given to
you. Any question as to the existence of your Disability upon which you
and the Company cannot agree shall be determined by a
qualified independent physician selected by you (or, if you are unable to
make such selection, such selection shall be made by any
adult member of your immediate family), and approved by the Company. The
determination of such physician made in writing to the
Company and to you shall be final and conclusive for all purposes of this
Agreement.
"ELTSOP" shall mean the Apple Computer, Inc. 1987 Executive
Long Term Stock Option Plan, as amended, and
any successor plan thereto.
"Equity Awards" shall mean options, restricted stock, bonus
stock or other grants or awards which consist of, or
relate to, equity securities of the Company and which have been granted to
you under the Equity Plans. For purposes of this
Agreement, Equity Awards shall also include any securities acquired upon
the exercise of an option, warrant or similar right that
constitutes an Equity Award.
"Equity Plan Change in Control" shall mean a change in
control of the Company as defined in the applicable Equity
Plan.
"Equity Plans" shall mean the Stock Option Plan, the ELTSOP,
and any other equity-based incentive plan or
arrangement adopted by the Company.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any successor provisions thereto.
"Good Reason" shall mean a resignation of your employment
during the Term as a result of any of the following:
(i) A meaningful and detrimental alteration in your position, or
the nature or status of your responsibilities
(including those as a director of the Company) from those in effect
immediately prior to the Change in Control Date or a
meaningful and detrimental change in your reporting responsibilities or
titles as in effect immediately prior to the Change in
Control Date;
(ii) A reduction by the Company in your annual base salary as in
effect immediately prior to the Change in
Control Date or as the same may be increased from time to time thereafter;
a failure by the Company to increase your salary
at a rate commensurate with that of other key executives of the Company; or
a reduction in your target annual bonus
(expressed as a percentage of base salary) below the target in effect for
you on the Change in Control Date;
(iii) The relocation of the office of the Company where you are
employed immediately prior to the Change in
Control Date (the "Location") to a location which, in your good faith
assessment, is in an area not generally considered
conducive to maintaining the offices of a company such as the Company
because of hazardous or undesirable conditions
including, without limitation, a high crime rate or inadequate facilities,
or to a location which is more than fifty (50) miles
away from the Location or the Company's requiring you to be based more than
fifty (50) miles away from the Location
(except for required travel on the Company's business to an extent
substantially consistent with your customary business
travel obligations in the ordinary course of business prior to the
Change in Control Date);
(iv) The failure by the Company to continue in effect any
compensation plan in which you participated prior to
the Change in Control Date or made available to you after the Change in
Control Date, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan in connection with the
Change in Control, or the failure by the Company to continue your
participation therein on at least as favorable a basis, both
in terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed on the
Change in Control Date;
(v) The failure by the Company to continue to provide you with
benefits at least as favorable in the aggregate
to those enjoyed by you under the Company's pension, savings, life
insurance, medical, health and accident, disability, and
fringe benefit plans and programs (including, without limitation, programs,
if any, relating to use of a car, secretary, office
space, telephones, expense reimbursement and club dues) in which you were
participating immediately prior to the Change in
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<PAGE>
Control Date; or the failure by the Company to provide you with the number
of paid vacation days to which you are entitled
on the basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect
immediately prior to the Change in Control;
(vi) The failure of the Company to obtain an agreement
reasonably satisfactory to you from any successor to
assume and agree to perform this Agreement, as contemplated in Section 7(a)
hereof;
(vii) Any termination of your employment which is not effected
pursuant to the terms of this Agreement; or
(viii) A material breach by the Company of the provisions of this
Agreement;
provided, however, that an event described above in clause (ii), (iv), (v)
or (viii) shall not constitute Good Reason unless it is
communicated by you to the Company in writing and is not corrected by the
Company in a manner which is reasonably satisfactory to
you (including full retroactive correction with respect to any monetary
matter) within 10 days of the Company's receipt of such written
notice from you.
"Involuntary Termination" shall mean (i) your termination
of employment by the Company and its subsidiaries
during the Term other than for Cause or Disability or (ii) your resignation
of employment with the Company and its subsidiaries
during the Term for Good Reason.
"Limit" shall mean the dollar amount determined in
accordance with the formula [A x B x C], where
A equals 0.02;
B equals the number of issued and outstanding shares of Common Stock
of the Company immediately prior
to the Change in Control Date; and
C equals the greater of (i) (A) if the Common Stock is listed on any
established stock exchange or national market system (including, without
limitation, the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, the highest
closing sale price (or closing bid price, if no sales are reported) of a
share of Common Stock, or (B) if the Common Stock is
regularly quoted on the NASDAQ System (but not on a national market system)
or quoted by a recognized securities dealer but selling prices are not
reported, the highest mean between the high and low asked prices
for the Common Stock, in each case, on any day during the ninety-day period
ending on the Change in Control Date, and (ii) the highest price paid or
offered, as determined by the Accounting Firm, in any bona
fide transaction or bona fide offer related to the Change in Control.
"Payment" means (i) any amount due or paid to you under this
Agreement, (ii) any amount that is due or paid to you
under any plan, program or arrangement of the Company and its subsidiaries
(including, without limitation, the Equity Plans), and (iii)
any amount or benefit that is due or payable to you under this Agreement or
under any plan, program or arrangement of the Company
and its subsidiaries not otherwise covered under clause (i) or (ii) hereof
which must reasonably be taken into account under Section
280G of the Code and the Regulations in determining the amount of the
"parachute payments" received by you, including, without
limitation, any amounts which must be taken into account under the Code and
Regulations as a result of (A) the acceleration of the
vesting of any option, restricted stock or other equity award granted under
the Equity Plans or otherwise, (B) the acceleration of the
time at which any payment or benefit is receivable by you or (C) any
contingent severance or other amounts that are payable to you.
"Reference Bonus" shall mean the greater of (i) the target
annual bonus applicable to you for the year in which your
Involuntary Termination occurs and (ii) the highest target annual bonus
applicable to you in any of the three years ending prior to the
Change in Control Date.
"Reference Salary" shall mean the greater of (i) the annual
rate of your base salary from the Company and its
subsidiaries in effect immediately prior to the date of your Involuntary
Termination and (ii) the annual rate of your base salary from
the Company in effect at any point during the three-year period ending on
the Change in Control Date.
"Regulations" shall mean the proposed, temporary and final
regulations under Section 280G of the Code or any
successor provision thereto.
"Severance Plan" means the Apple Computer, Inc. Executive
Severance Plan, as amended.
"Short-Term Awards" shall mean Equity Awards which have
been granted to you within the six-month period
42
<PAGE>
ending on the date of a Equity Plan Change in Control. For purposes of
this Agreement, Short-Term Awards shall also include any
securities acquired upon the exercise of an Equity Award that constitutes a
Short-Term Award.
"Stock Option Plan" shall mean the Apple Computer, Inc.
1990 Stock Option Plan, as amended, and any successor
plan thereto.
"Supplement" means the amendment to the Severance Plan
adopted as of the date of this Agreement and any future
amendment thereto.
"Taxes" shall mean the federal, state and local income
taxes to which you are subject at the time of determination,
calculated on the basis of the highest marginal rates then in effect,
plus any additional payroll or withholding taxes to which you are
then subject.
"Transaction Date" shall mean the date described in clause
(i) of the definition of Change in Control Date.
9. Notice. For the purpose of this Agreement, notices
and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed to the Board of
Directors, Apple Computer, Inc., 1 Infinite Loop, M/S: 381,
Cupertino, CA 95014, with a copy to the General Counsel of the Company, or
to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
10. Miscellaneous.
(a) Amendments, Waivers, Etc. No provision of this
Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing. No
waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which
are not expressly set forth in this Agreement and this Agreement shall
supersede all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, with
respect to the subject matter hereof; provided, however, that,
except as expressly set forth herein, this Agreement shall not supersede
the terms of Equity Awards previously granted to you.
(b) Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
(c) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to
be an original but all of which together will constitute one and the same
instrument.
(d) No Contract of Employment. Nothing in this Agreement shall
be construed as giving you any right to be
retained in the employ of the Company or shall affect the terms and
conditions of your employment with the Company prior to the
commencement of the Term hereof.
(e) Withholding. Amounts paid to you hereunder shall be
subject to all applicable federal, state and local
withholding taxes.
(f) Source of Payments. All payments provided under this
Agreement, other than payments made pursuant to
a plan which provides otherwise, shall be paid in cash from the general
funds of the Company, and no special or separate fund shall be
established, and no other segregation of assets made, to assure payment.
You will have no right, title or interest whatsoever in or to
any investments which the Company may make to aid it in meeting its
obligations hereunder. To the extent that any person acquires a
right to receive payments from the Company hereunder, such right shall be
no greater than the right of an unsecured creditor of the
Company.
(g) Headings. The headings contained in this Agreement are
intended solely for convenience of reference and
shall not affect the rights of the parties to this Agreement.
(h) Governing Law. The validity, interpretation, construction,
and performance of this Agreement shall be
governed by the laws of the State of California applicable to contracts
entered into and performed in such State.
* * * *
43
<PAGE>
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
APPLE COMPUTER, INC.
By______________________
Name:
Title:
Agreed to as of this day of , 1995.
____________________________
Michael H. Spindler
44
<PAGE>
EXHIBIT 11
APPLE COMPUTER, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
Three Months Nine Months Ended
Ended
June 30, July 1, June 30, July 1,
1995 1994 1995 1994
Primary Earnings Per Share
Earnings
Net income applicable
to common stock $ 103,019 $ 138,101 $ 364,122 $ 195,523
Shares
Weighted average number
of common shares
outstanding 121,379 118,267 120,681 117,375
Adjustment for dilutive
effect of outstanding
stock options 1,824 593 1,801 878
Weighted average number of
common and common equivalent
shares used for primary
earnings per share 123,203 118,860 122,482 118,253
Primary earnings per
common share $ 0.84 $ 1.16 $ 2.97 $ 1.65
Fully Diluted Earnings Per
Share
Earnings
Net income applicable
to common stock $ 103,019 $ 138,101 $ 364,122 $ 195,523
Shares
Weighted average number
of common shares
outstanding 121,379 118,267 120,681 117,375
Adjustment for dilutive
effect of outstanding
stock options 2,647 593 2,095 904
Weighted average number of
common and common equivalent
shares used for fully diluted
earnings per share 124,026 118,860 122,776 118,279
Fully diluted earnings per
common share $ 0.83 $ 1.16 $ 2.97 $ 1.65
45
<PAGE>
EXHIBIT 27
APPLE COMPUTER, INC.
FINANCIAL DATA SCHEDULE
(In millions, except per share amounts)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,168
<SECURITIES> 508
<RECEIVABLES> 1,651
<ALLOWANCES> 98
<INVENTORY> 1,367
<CURRENT-ASSETS> 5,191
<PP&E> 1,500
<DEPRECIATION> 809
<TOTAL-ASSETS> 6,112
<CURRENT-LIABILITIES> 2,178
<BONDS> 303
<COMMON> 356
0
0
<OTHER-SE> 2,472
<TOTAL-LIABILITY-AND-EQUITY> 6,112
<SALES> 8,059
<TOTAL-REVENUES> 8,059
<CGS> 5,822
<TOTAL-COSTS> 5,822
<OTHER-EXPENSES> 1,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 579
<INCOME-TAX> 215
<INCOME-CONTINUING> 364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364
<EPS-PRIMARY> 2.97
<EPS-DILUTED> 2.97
<PAGE>
</TABLE>
