___________________________________________________________________________
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 28, 1996 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. Employer Identification No.]
of incorporation or organization]
1 Infinite Loop 95014
Cupertino California [Zip Code]
[Address of principal executive offices]
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 [ ]
124,478,256 shares of Common Stock Issued and Outstanding as of August 9, 1996
___________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $2,179 $2,575 $7,512 $8,059
Costs and expenses:
Cost of sales 1,776 1,847 7,055 5,822
Research and development 155 168 458 443
Selling, general and
administrative 364 404 1,209 1,205
Restructuring costs -- (6) 207 (23)
2,295 2,413 (8,929) 7,447
Operating income (loss) (116) 162 (1,417) 612
Interest and other income
(expense), net 65 2 82 (33)
Income (loss) before provision
(benefit) for income taxes (51) 164 (1,335) 579
Provision (benefit) for income
taxes (19) 61 (494) 215
Net income (loss) $ (32) $ 103 $ (841) $ 364
Earnings (loss) per common
and common equivalent share $(0.26) $ 0.84 $(6.81) $ 2.97
Cash dividends paid per
common share $ -- $ .12 $ .12 $ 0.36
Common and common equivalent
shares used in the
calculations of earnings
(loss) per share (in
thousands) 123,735 123,203 123,463 122,482
</TABLE>
See accompanying notes.
2
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In millions)
<TABLE>
<CAPTION>
June 28, September 29,
1996 1995
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,359 $ 756
Short-term investments -- 196
Accounts receivable, net of allowance
for doubtful accounts of $96 ($87 at
September 29, 1995) 1,292 1,931
Inventories:
Purchased parts 387 841
Work in process 59 291
Finished goods 615 643
1,061 1,775
Deferred tax assets 401 251
Other current assets 341 315
Total current assets 4,454 5,224
Property, plant, and equipment:
Land and buildings 506 504
Machinery and equipment 573 638
Office furniture and equipment 138 145
Leasehold improvements 189 205
1,406 1,492
Accumulated depreciation and amortization (791) (781)
Net property, plant, and equipment 615 711
Other assets 276 296
$5,345 $6,231
</TABLE>
See accompanying notes.
3
<PAGE>
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
June 28, September 29,
1996 1995
(Unaudited)
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 187 $ 461
Accounts payable 762 1,165
Accrued compensation and employee benefits 125 131
Accrued marketing and distribution 208 206
Accrued restructuring costs 159 --
Other current liabilities 485 362
Total current liabilities 1,926 2,325
Long-term debt 949 303
Deferred tax liabilities 450 702
Shareholders' equity:
Common stock, no par value; 320,000,000
shares authorized; 123,785,350 shares
issued and outstanding at June 28, 1996
(122,921,601 shares at September 29, 1995) 423 398
Retained earnings 1,609 2,464
Accumulated translation adjustment and other (12) 39
Total shareholders' equity 2,020 2,901
$5,345 $6,231
</TABLE>
See accompanying notes.
4
<PAGE>
APPLE COMPUTER, INC.
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 28, June 30,
1996 1995
<S> <C> <C>
Cash and cash equivalents, beginning of the period $ 756 $1,203
Operations:
Net income (loss) (841) 364
Adjustments to reconcile net income (loss) to cash
generated by operations:
Depreciation and amortization 110 104
Net book value of property, plant, and equipment
retirements 43 1
Changes in assets and liabilities:
Accounts receivable 639 28
Inventories 714 (279)
Deferred tax assets (150) 7
Other current assets (26) (53)
Accounts payable (403) 167
Accrued restructuring costs 159 (43)
Other current liabilities 119 5
Deferred tax liabilities (252) 132
Cash generated by operations 112 433
Investments:
Purchase of short-term investments (244) (1,558)
Proceeds from sale of short-term investments 440 1,105
Purchase of property, plant, and equipment (55) (110)
Other (33) (23)
Cash generated by (used for) investment
activities 108 (586)
Financing:
Increase (decrease) in short-term borrowings (274) 114
Increase (decrease) in long-term borrowings 646 (4)
Increases in common stock, net of related tax benefits 25 51
Cash dividends (14) (43)
Cash generated by financing activities 383 118
Total cash generated (used) 603 (35)
Cash and cash equivalents, end of the period $1,359 $1,168
</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 29, 1995, included in its Annual Report on Form 10-K for the
year ended September 29, 1995 (the "1995 Form 10-K").
2. In the third quarter of 1996, the Company issued $661 million aggregate
principal amount of 6% unsecured convertible subordinated notes (the "Notes")
to certain qualified parties in a private placement. The Notes were sold at
100% of par. The Notes pay interest semi-annually and mature on June 1, 2001.
The Notes are convertible by their holders at any time after September 5, 1996
at a conversion price of $29.205 per share subject to adjustments as defined in
the Note agreement. The Notes are redeemable by the Company at 102.4% of the
principal amount, plus accrued interest, for the 12-month period beginning June
1, 1999, and at 101.2% of the principal amount, plus accrued interest, for the
12-month period beginning June 1, 2000. The Notes are subordinated to all
present and future senior indebtedness of the Company as defined in the Note
agreement. In addition, the Company incurred approximately $15 million of
costs associated with the issuance of the Notes. These costs are accounted for
as a deduction from the face amount of the Notes and will be amortized over the
life of the Notes.
3. In the second quarter of 1996, the Company announced and began to
implement a restructuring plan aimed at reducing costs and restoring
profitability to the Company's operations. The restructuring plan was
necessitated by decreased demand for Company products and the Company's
adoption of a new strategic direction. The Company's restructuring actions
consist primarily of terminating approximately 2,800 full-time employees (not
including employees who were hired by SCI Systems, Inc., the purchaser of the
Company's Fountain, Colorado manufacturing facility), canceling or vacating
certain facility leases as a result of these employee terminations, writing
down operating assets to be sold as a result of downsizing operations and
outsourcing various operational functions, and canceling contracts as a result
of terminating eWorld(trademark), Apple's on-line service. These actions have
resulted in a charge of $207 million, including cash expenditures of $44
million and non-cash asset write-downs of $4 million, through the third
quarter. The Company expects that the remaining $159 million accrued balance
at June 28, 1996 will result in cash expenditures of $103 million over the next
12 months and $12 million thereafter. The Company expects that most of the
contemplated restructuring actions will be completed within the next twelve
months and will be financed through current working capital and continued
short-term borrowings. In addition, in connection with the sale of its
Fountain, Colorado manufacturing facility, the Company is obligated to purchase
certain percentages of its total annual volumes of CPUs and logic boards from
SCI Systems, Inc. over each of the next three years. The Company believes
that it
will meet these obligations.
The following table depicts the restructuring activity through the third
quarter of 1996: (In millions)
<TABLE>
<CAPTION>
Category Total Restructuring Balance at
Charge Spending June 28, 1996
<S> <C> <C> <C>
Payments to employees involuntarily
terminated (C) $115 $39 $76
Payments on canceled or vacated facility
leases (C) 26 3 23
Write-down of operating assets to be
sold (N) 48 4 44
Payments on canceled contracts (C) 18 2 16
</TABLE> $207 $48 $159
C: Cash; N: Noncash
6
<PAGE>
4. Interest and other income (expense), net, consists of the following:
(In millions)
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income $10 $32 $38 $76
Interest expense (12) (16) (42) (33)
Foreign currency gain (loss) 1 4 29 (40)
Net premiums and discounts paid on
foreign exchange instruments (3) (17) (13) (34)
Other income (expense), net 69 (1) 70 (2)
</TABLE> $65 $2 $82 $(33)
5. The Company's cash equivalents consist primarily of U.S. Government
securities, Euro-dollar deposits, and commercial paper with maturities of three
months or less at the date of purchase. Short-term investments consisted
principally of Euro-dollar deposits and 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. The Company's cash equivalents,
short-term investments, and marketable equity securities are classified and
accounted for as available-for-sale, and the cash equivalents and short-term
investments are generally held until maturity. The Company's cash and cash
equivalent balance includes $173 million pledged as collateral to support
letters of credit primarily associated with the Company's purchase commitments
under the terms of the sale of the Company's Fountain, Colorado manufacturing
facility to SCI Systems, Inc.
The adjustments recorded to shareholders' equity for unrealized holding
gains (losses) on available-for-sale cash equivalents and marketable equity
securities were not material, either individually or in the aggregate, at June
28, 1996. The gross realized gains recorded to earnings on sales of available-
for-sale securities were $69 million and $71 million for the three and nine
months ended June 28, 1996, respectively.
6. U.S. income taxes have not been provided on a cumulative total of $395
million of undistributed earnings of certain of the Company's foreign
subsidiaries. It is intended that these earnings will be indefinitely invested
in operations outside of 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 in the amount of the Company's federal income taxes for the
years 1989 through 1991. The Company has filed 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.
7. 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. Loss per share is computed using the weighted
average number of common shares outstanding during the period.
7
<PAGE>
8. Certain prior year amounts on the Consolidated Statements of Cash Flows
have been reclassified to conform to the current period presentation.
9. No dividend has been declared for the third quarter of 1996, and the
Board of Directors anticipates that for the foreseeable future the Company will
retain any earnings for use in the operation of its business.
10. The information set forth in Item 1 of Part II hereof is hereby
incorporated by reference.
8
<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)
Except for historical information contained herein, the statements set forth in
this Item 2 are forward-looking and involve risks and uncertainties. For
information regarding potential factors that could affect the Company's
financial results refer to pages of this Management Discussion and Analysis
of Financial Condition and Results of Operations under the heading "Factors
That May Affect Future Results and Financial Condition."
Results of Operations
<TABLE>
<CAPTION> Third Quarter Nine Months
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,179 $2,575 (15.4%) $7,512 $8,059 (6.8%)
Gross margin $403 $728 (44.6%) $457 $2,237 (79.6%)
Percentage of net sales 18.5% 28.3% 6.1% 27.8%
Operating expenses $519 $566 (8.3%) $1,874 $1,625 15.3%
Percentage of net sales 23.8% 22.0% 24.9% 20.2%
Restructuring costs -- $(6) NM $207 $(23) NM
Percentage of net sales -- (0.2%) 2.8% (0.3%)
Interest and other income
(expense), net $65 $2 3,150% $82 $(33) NM
Net income (loss) ($32) $103 (131.1%) ($841) $364 (331.0%)
Earnings (loss) per
share ($.26) $0.84 (131.0%) ($6.81) $2.97 (329.3%)
</TABLE>
NM: Not meaningful
Overview
Over the last six months the Company has experienced a significant decline in
net sales, units shipped and share of the personal computer market. For the
quarter ended June 28, 1996, the number of the Company's Macintosh computers
shipped worldwide declined by 16% when compared with the corresponding quarter
of 1995. Moreover, according to an industry source, in the third quarter of
1996 as compared to the third quarter of 1995, the Company's share of the
worldwide and U.S. personal computer markets declined to 5.3% from 7.4%, and to
7.4% from 10.6%, respectively. This decline in demand, coupled with intense
price competition throughout the industry, has resulted in the Company's
decision to develop and announce key elements of a new strategic direction
intended to improve the Company's competitiveness and restore its
profitability. The Company intends to develop and market products and services
more selectively targeted to education, home and business segments. In moving
in this new strategic direction, the Company expects to reduce the number of
new product introductions and the number of products in certain categories
within its current product portfolio.
9
<PAGE>
Net Sales
Net sales for the third quarter of 1996 decreased when compared with the
corresponding quarter of 1995, resulting from a decrease in Macintosh
(registered trademark) computer net sales and in net sales of peripheral
products such as displays and printers. Total Macintosh computer unit sales
decreased 16% in the third quarter when compared with the corresponding
quarter of 1995, primarily as a result of a decline in worldwide demand for
most product families, primarily entry level products, due principally to
customer concerns regarding the Company's strategic direction, financial
condition and future prospects, and as a result of delays in the shipment of
certain Powerbook products due to quality problems. The average aggregate
revenue per Macintosh computer unit decreased 8% in the third quarter when
compared with the corresponding quarter of 1995, primarily due to pricing
actions across all product lines in order to stimulate demand, partially
offset by increased revenues from a shift in the mix towards the Company's
newer products and products with multi-media configurations, which have higher
average selling prices.
Net sales for the first nine months of 1996 decreased when compared with the
first nine months of 1995, resulting from a decrease in Macintosh computer net
sales and in net sales of peripheral products such as displays and printers.
Total Macintosh computer unit sales decreased 5% in the first nine months of
1996, when compared with the corresponding period of 1995. Unit sales
increased in the first quarter of 1996 when compared with the corresponding
quarter of 1995, but were more than offset by unit sales decreases in the
second and third quarters of 1996 when compared with the corresponding quarters
of 1995. The average aggregate revenue per Macintosh computer unit did not
change in the first nine months of 1996, when compared with the corresponding
period of 1995 primarily due to increased revenues from a shift in the mix
towards the Company's newer products and products with multi-media
configurations, which have higher average selling prices, offset by pricing
actions across all product lines in order to stimulate demand.
International net sales decreased 9% in the third quarter and did not change
in the first nine months of 1996, respectively, when compared with the
corresponding periods of 1995. The decrease in the third quarter was
attributable to a decrease in net sales in Europe due to a decrease in total
Macintosh computer unit sales, partially offset by higher average aggregate
revenue per Macintosh computer unit. The decrease in the third quarter was
also attributable to a decrease in net sales in Japan due to a decrease in the
average aggregate revenue per Macintosh computer unit, partially offset by an
increase in total Macintosh computer unit sales. The flat net sales in the
first nine months primarily reflects strong net sales growth in Japan and
certain countries within Europe during the first quarter of 1996, offset by
decreases in net sales in the second and third quarters. International net
sales represented 52% and 53% of total net sales for the third quarter and
first nine months of 1996, respectively, compared with 49% and 50% for the
corresponding periods of 1995. Domestic net sales decreased by approximately
21% and 13% in the third quarter and first nine months of 1996, respectively,
when compared with the corresponding periods of 1995.
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. The Company's backlog increased to approximately $468
million at August 2, 1996, from approximately $369 million at May 3, 1996.
This increase in backlog is primarily the result of an increase in orders due
to certain new product introductions. The Company estimates that product
backlog would have been approximately $430 million at August 2, 1996 if certain
quality problems with certain Powerbook products had not occurred.
In the Company's experience, the actual amount of product backlog at any
particular time is not necessarily 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 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 ability
to achieve any particular level of revenue or financial performance.
The Company believes that net sales will remain below prior years levels
through at least the first quarter of 1997.
10
<PAGE>
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 in significant part 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. Because
the Company uses some components that are not common to the rest of the
personal computer industry (including certain ASICs), its component costs may
be higher than those incurred by other manufacturers. 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 industrywide competitive pressures.
Gross margin decreased to 18.5% and 6.1% during the third quarter and first
nine months of 1996, respectively, when compared with the corresponding periods
of 1995. The decrease in the third quarter of 1996 as compared to the
corresponding quarter of 1995 is due to the Company's response to extreme
competitive actions by other companies attempting to gain market share, which
included pricing actions in the U.S., Japan and Europe across most product
lines, partially offset by a decrease in the cost of certain product
components. The decrease in gross margin in the first nine months of 1996 as
compared with the first nine months of 1995 is primarily a result of a $616
million charge in the second quarter of 1996 principally for the write-down of
certain inventory, as well as the cost to cancel excess component orders,
necessitated by significantly lower than expected demand for many of the
Company's products, primarily its entry level products. Also, the Company
separately incurred $77 million in charges in the second and third quarters
that reflect the estimated cost to correct certain quality problems in certain
entry level, Performa and Powerbook products, covering both goods held in
inventory and shipped goods. In addition, gross margins were adversely
affected by aggressive pricing actions in Japan, particularly severe in the
first quarter of 1996, in response to extreme competitive actions by other
companies attempting to gain market share, and pricing actions in the U.S. and
Europe across all product lines in order to stimulate demand.
The decrease in gross margin levels in the third quarter and first nine months
of 1996 compared with the corresponding periods of 1995 was slightly offset by
hedging gains less the effects of a stronger U.S. dollar relative to certain
foreign currencies. 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.
Although the Company is taking actions to improve gross margins as it
implements its new strategic plan, it is anticipated that gross margins will
continue to remain under pressure due to a variety of factors, including
continued industrywide pricing pressures, increased competition, compressed
product life cycles, and the need to sell through current inventory at prices
reflecting the recent write-downs.
<TABLE>
<CAPTION>
Research and Development Third Quarter Nine Months
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Research and development $155 $168 (7.7%) $458 $443 3.4%
Percentage of net sales 7.1% 6.5% 6.1% 5.5%
</TABLE>
Research and development expenditures for the third quarter of 1996 decreased
when compared with the corresponding quarter of 1995 as a result of the
termination of certain third party joint development efforts. The increase in
the first nine months is primarily due to higher project and headcount related
spending in the first six months of 1996 as compared to the first six months of
1995, partially offset by a decrease in certain research and development
expenditures in the third quarter of 1996 as compared to the third quarter of
1995 as previously discussed. The increase as a percentage of net sales in the
third quarter of 1996 when compared with the corresponding quarter of 1995 was
a result of the decrease in the level of net sales.
11
<PAGE>
As part of the Company's restructuring plan and new strategic direction, the
Company expects to reduce the number of employees engaged in research and
development activities and to streamline its product offerings. As a result,
the Company expects that research and development expenditures will decrease
relative to historical levels after significant portions of the restructuring
plan have been completed. Nevertheless, the Company believes that continued
investments in research and development are critical to its future growth and
competitive position in the marketplace and are directly related to continued,
timely development of new and enhanced products. The Company believes a
greater portion of its research and development efforts will be conducted
through collaborations with third parties. In addition, where appropriate the
Company plans to acquire and license technologies from third parties.
<TABLE>
<CAPTION>
Selling, General and Third Quarter Nine Months
Administrative 1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative $364 $404 (9.9%) $1,209 $1,205 0.3%
Percentage of net sales 16.7% 15.7% 16.1% 15.0%
</TABLE>
Selling, general and administrative expenses decreased in the third quarter and
remained essentially flat in the first nine months of 1996 when compared with
the corresponding periods of 1995. The decrease in the third quarter of 1996
as compared with the same quarter of 1995 was primarily due to reduced
advertising expenditures, while for the first nine months of 1996 as compared
with the first nine months of 1995 the spending related to marketing and
advertising programs was unchanged. The increase as a percentage of net sales
in the third quarter when compared with the corresponding quarter of 1995 was
primarily a result of the reduced overall level of net sales.
As a result of its restructuring plan, the Company expects that selling,
general and administrative expenditures will decrease relative to historical
levels.
<TABLE>
<CAPTION>
Restructuring Costs Third Quarter Nine Months
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Restructuring costs -- ($6) NM $207 ($23) NM
Percentage of net sales -- 0% 2.8% 0%
</TABLE>
For information regarding the Company's restructuring actions initiated in the
second quarter of 1996, refer to Note 3 of the Notes to Consolidated Financial
Statements (Unaudited) in Part I, Item I, and to Factors That May Affect Future
Results and Financial Condition as well as Liquidity and Capital Resources in
Part I, Item II of this Quarterly Report on Form 10-Q, which information is
hereby incorporated by reference.
In the first and third quarters of 1995, the Company lowered its estimates of
the total remaining costs associated with its restructuring plan initiated in
the third quarter of 1993 and recorded an adjustment that increased income by
$17 million and $6 million, respectively.
12
<PAGE>
<TABLE>
<CAPTION>
Interest and Other Third Quarter Nine Months
Income (Expense), Net 1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Interest and other
income (expense), net $65 $2 3,150% $82 ($33) NM
</TABLE>
Interest and other income (expense), net, increased in the third quarter and
increased from expense to income in the first nine months of 1996 when compared
to the corresponding periods in 1995, primarily due to realized gains on sales
of available-for-sale securities of $69 million in the third quarter of 1996,
and favorable variances related to realized and unrealized foreign exchange
hedging gains (losses) as a result of less volatility in the foreign exchange
markets in the second quarter of 1996 as compared to the second quarter of
1995, offset by unfavorable variances in interest income related primarily to
lower average cash balances and lower interest earnings rates. The Company's
cost of funds has increased as a result of the downgrading from January 1996
through May 1996 of its short-term debt to NP and C by Moody's Investor
Services and Standard and Poor's Rating Agency, respectively, and of its long-
term debt to B1 and B+ by Moody's Investor Services and Standard and Poor's
Rating Agency, respectively.
<TABLE>
<CAPTION>
Provision (Benefit) for Income
Taxes
Third Quarter Nine Months
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit)
for income taxes ($19) $61 (131.1%) ($494) $215 329.8%
Effective tax rate 37% 37% 37% 37%
</TABLE>
The Company's balance sheet at June 28, 1996, contains a total deferred tax
asset of $401 million. A substantial portion of this asset is realizable based
on the ability to offset existing deferred tax liabilities. Realization of
approximately $100 million of the asset is dependent upon the Company's ability
to generate approximately $285 million of future U.S. taxable income.
Management believes that it is more likely than not that the asset will be
realized based upon forecasted income. However, there can be no assurance that
the Company will meet its expectations of future income. The Company will
continue to evaluate the realizability of the deferred tax assets quarterly by
assessing the need for a valuation allowance.
For additional information regarding the Company's Income Tax Provision
(Benefit), refer to Note 6 of the Notes to Consolidated Financial Statements
(Unaudited) in Part I, Item I of this Quarterly Report on Form 10-Q, which
information is hereby incorporated by reference.
13
<PAGE>
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. Potential risks and uncertainties that could affect
the Company's future operating results and financial condition include, without
limitation: continued competitive pressures in the marketplace; the effect any
reaction to such competitive pressures has on inventory levels and inventory
valuations; the ability of the Company to make timely delivery to the
marketplace of successful technological innovations; the effects of significant
adverse publicity; the Company's ability to supply product in certain
categories; the impact of uncertainties concerning the Company's strategic
direction and financial condition on revenue and liquidity; the effect of
degradation in the Company's liquidity; and the effect of restructuring
actions.
The Company expects to continue to incur operating losses throughout at least
the remainder of 1996, if not longer.
Restructuring of Operations
In the second quarter of 1996, the Company formulated a new strategic direction
and announced certain restructuring actions aimed at reducing its cost
structure, improving its competitiveness and restoring profitability. There
are several risks inherent in the Company's efforts to transition to a new cost
structure. These include the risk that the Company will not be able to reduce
expenditures quickly enough to restore profitability and the risk that cost-
cutting initiatives will impair the Company's ability to innovate and remain
competitive in the computer industry.
As part of its restructuring effort, the Company has begun to implement a new
business model. Implementation of the new business model involves several
risks, including the risk that by simplifying its product line the Company will
increase its dependence on fewer products, potentially reduce overall sales and
increase its reliance on unproven products and technology. Another risk of the
new business model is that by increasing the proportion of the Company's
products to be produced under outsourcing arrangements, the Company could lose
control of the quality of the products manufactured and lose the flexibility to
make timely changes in production schedules in order to respond to changing
market conditions. In addition, the new business model could adversely affect
employee morale, thereby damaging the Company's ability to retain and motivate
employees. Also, because the new business model contemplates that the Company
will reduce its research and development expenditures by, among other things,
relying to a greater extent on collaboration and licensing arrangements with
third parties, the Company will have less direct control over its research and
development efforts and its ability to create innovative new products may be
reduced. Finally, even if the new business model is successfully implemented,
there can be no assurance that it will effectively resolve the various issues
currently facing the Company. In addition, although the Company believes that
the action that it is taking under its restructuring plan should help restore
marketplace confidence in the Macintosh platform, there can be no assurance
that such actions will succeed.
For the foregoing reasons there can be no assurance that the current
restructuring actions will achieve their goals or that similar actions will not
be required in the future. The Company's future operating results and
financial condition could be adversely affected should it encounter difficulty
in effectively managing the transition to the new business model and cost
structure.
For more information regarding the Company's restructuring actions initiated
in the second quarter of 1996, refer to Note 3 of the Notes to Consolidated
Financial Statements (Unaudited) in Part I, Item I, and to Liquidity and
Capital Resources in Part I, Item II of this Quarterly Report on Form 10-Q,
which information is hereby incorporated by reference.
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, the manufacturing of products in appropriate
quantities to meet anticipated demand, and the risk that new products may have
quality or other defects in the early stages of introduction. Accordingly, the
Company cannot determine the ultimate effect that new products will have on its
sales or results of operations. In addition, the uncertainties and risks
associated with new product introductions may be increased as a result of the
Company's new business model which will, in part, emphasize a refocusing of
product offerings and the introduction of new products for key growth segments.
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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 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 products previously in
backlog.
Backlog is often volatile after new product introductions due to the
aforementioned demand factors, often increasingly coincident with introduction,
and then decreasing once dealers and customers believe they can obtain
sufficient supply of products.
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.
The greater integration of functions and complexity of operations of the
Company's products also increase the risk that latent defects or other faults
could be discovered by customers or end-users after volumes of products have
been produced or shipped. If such defects were significant, the Company could
incur material recall and replacement costs under product warranties.
Competition
The personal computer industry is highly competitive and is characterized by
aggressive pricing practices, downward pressure on gross margins, frequent
introduction of new products, short product life cycles, continual improvement
in product price/performance characteristics, price sensitivity on the part of
consumers and a large number of competitors. In the first nine months of 1996,
the Company's results of operations and financial condition were, and in the
near future are expected to be, adversely affected by industrywide pricing
pressures and downward pressures on gross margins. The industry has also been
characterized by rapid technological advances in software functionality and
hardware performance and features based on existing or emerging industry
standards. Some of the Company's competitors have greater financial,
marketing, manufacturing and technological resources, broader product lines
and larger installed customer bases than those of the Company.
The Company's future operating results and financial condition may be affected
by overall demand for personal computers and general customer preferences for
one platform over another or one set of product features over another.
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The Company is currently the primary maker of hardware that uses the Macintosh
operating system ("Mac OS"). The Mac OS 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. The Company believes that the Mac OS, with its perceived advantages
over MS-DOS and Windows, has been a driving force behind sales of the Company's
personal computer hardware for the past several years. Recent innovations in
the Windows platform, including those introduced by Windows 95, have added
features to the Windows platform similar to those offered by the Mac OS. The
Company is currently taking and will continue to take steps to respond to the
competitive pressures being placed on its personal computer sales as a result
of the recent innovations in the Windows platform. The Company's future
operating results and financial condition may be affected by its ability to
increase the installed base for the Macintosh platform. The Company recently
announced a new strategy with respect to updating its operating system. Rather
than introduce a comprehensive new operating system in a single release, the
Company intends to issue periodic releases consisting of discrete operating
system components. The Company expects that this will enable it to introduce
some new functionality for the operating system sooner than it would be able to
introduce a complete new operating system. As part of its efforts to increase
the installed base for the Macintosh platform, the Company announced the
licensing of the Mac OS to other personal computer vendors in January 1995,
and several vendors currently sell products that utilize the Macintosh
operating system. 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 that licensing will 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 Mac OS. In addition, as a result
of licensing its operating system, the Company is forced to compete with other
companies producing Mac OS-based computer systems. The benefits to the Company
from licensing the Mac OS to third parties may be more than offset by the
disadvantages of being required to compete with them.
As a supplemental means of addressing the competition from MS-DOS and Windows,
the Company has devoted substantial resources toward developing personal
computer products capable of running application software designed for the
MS-DOS or Windows operating systems ("Cross-Platform Products"). These products
include both the RISC-based PowerPC 601 microprocessor and the 486 DX2/66
microprocessor, which enable users to run concurrently applications that
require the Mac OS, MS-DOS, Windows 3.1 or Windows 95 operating systems.
During the third quarter of 1996 the Company began shipment of Cross-Platform
Products that include the Pentium or 586-class chip, or in which a Pentium or
586-class microprocessor can be installed through the use of an add-on card.
Depending on customer demand, the Company may supply customers who purchase
Cross-Platform Products with Windows operating system software under licensing
agreements with Microsoft. However, in order to do so, the Company will need
to enter into one or more agreements with certain Microsoft distributors.
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 is moving forward with
its efforts to make the Macintosh operating system available on the common
platform. In line with its efforts, on November 13, 1995, the Company, IBM,
and Motorola, Inc. announced the availability of the "PowerPC Platform"
specifications, which define a "unified" personal computer architecture in
order to give access to both the Power Macintosh platform and the PC
environment. The Company's future operating results and financial condition
may be affected by its ability to continue to implement this agreement and
to manage the risk associated with the transition to this new hardware
reference platform.
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, maintaining and upgrading 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 perceived strength of
the Company and its products, the anticipated potential revenue that may be
earned, and the costs of developing such software products. To the extent the
Company's recent financial losses have caused software developers to question
the Company's position in the personal computer market, they could be less
inclined to develop new application software or upgrade existing software for
the Company's products and more inclined to devote their resources toward
developing and upgrading software for the larger MS-DOS and Windows market.
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 the vendor of the Windows operating systems.
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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
PowerPC RISC microprocessor for certain of the Company's products, to continue
to supply to the Company microprocessors that 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 Intel microprocessors as well as
workstations based on the PowerPC microprocessor, and is also the developer of
OS/2, a competing operating system to the Company's Mac OS. Accordingly, IBM's
interest in supplying the Company with 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.
Recently, several competitors of the Company, including Compaq, IBM and
Microsoft, have either targeted or announced their intention to target certain
of the Company's key market segments, including education and publishing. Some
of these companies have greater financial, marketing, manufacturing and
technological resources than the Company.
The Company intends to integrate Internet capabilities into its new and
existing hardware and software platforms. There can be no assurance that the
Company will be able to successfully integrate Internet capabilities into its
products. In addition, the Internet market is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced
or developed products addressing access to, or authoring or communication over,
the Internet. Some of these competitors have a significant lead over the
Company in developing products for the Internet or have significantly greater
financial, marketing, manufacturing and technological resources than the
Company, or both.
The Company's future operating results and financial condition may also be
affected by the Company's ability to successfully expand and capitalize on its
investments in other markets, such as the markets for 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, and in
particular a strengthening of the U.S. dollar, 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 currently 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.
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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, 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 and option transactions in order to diversify a portion
of the Company's exposure away from fluctuations in short-term U.S. interest
rates. These instruments may extend the Company's cash investment horizon up
to a maximum 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 nonhedge portfolios, the Company continually monitors its
foreign exchange forward and option positions, and its interest rate swap 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. The Company generally does
not engage in leveraged hedging.
The Company's current financial condition may have an impact on the costs of
its hedging transactions, as well as the willingness of its trading partners to
enter into hedging transactions with the Company.
Inventory and Supply
In line with the Company's efforts to redesign its business model, the Company
intends to streamline its product offerings in its key usage areas in
education, business and the home. This simplification of product lines has
resulted in inventory reserves. Cancellation fees related to custom component
inventory purchased for anticipated product introductions that have been
canceled have also been paid or incurred. The Company has also separately
provided for the estimated cost to correct certain quality problems on certain
entry level, Performa and Powerbook products. Although the Company believes
its inventory and related reserves are adequate, no assurance can be given that
the Company will not incur additional inventory charges.
The Company must order components for its products and build inventory well in
advance of product shipments. Because the Company's markets are volatile and
subject to rapid technology and price changes, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products. The Company's operating results and financial condition
have been and may in the future be materially adversely affected by the
Company's ability to manage its inventory levels and respond to short-term
shifts in customer demand patterns.
Certain of the Company's products are manufactured in whole or in part by
third-party manufacturers, either pursuant to design specifications of the
Company or otherwise. As a result of the Company's restructuring plan, which
includes the sale of the Company's Fountain, Colorado manufacturing facility to
SCI Systems, Inc. ("SCI") and a related manufacturing outsourcing agreement
with SCI, the proportion of the Company's products produced under outsourcing
arrangements will increase. While outsourcing arrangements may lower the fixed
cost of operations, they may also reduce the direct control the Company has
over production. It is uncertain what effect such lessened control will have
on the quality of the products manufactured or the flexibility of the Company
to respond to changing market conditions. Furthermore, any efforts by the
Company to manage its inventory under outsourcing arrangements could subject
the Company to liquidated damages or cancellation of the arrangement.
Moreover, although arrangements with such manufacturers may contain provisions
for warranty expense reimbursement, the Company remains at least initially
responsible to the ultimate consumer for warranty service. Accordingly, in the
event of product defects or warranty liability, the Company may remain
primarily liable. Any unanticipated product defect or warranty liability,
whether pursuant to arrangements with contract manufacturers or otherwise,
could adversely affect the Company's future operating results and financial
condition.
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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 and ASICs
presents the most significant potential for constraining the Company's ability
to produce products. 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 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 components customized to meet the
Company's requirements. Such product supply constraints and corresponding
increased costs could decrease the Company's market share and adversely affect
the Company's future operating results and financial condition.
Marketing and Distribution
A number of uncertainties may affect the marketing and distribution of the
Company's products. Currently, the Company's primary means of distribution is
through third-party computer resellers. The Company also distributes product
through 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
resellers weakens or if resellers within consumer channels decide not to
continue to distribute the Company's products.
Uncertainty over the demand for the Company's products may cause resellers to
reduce the ordering and marketing of the Company's products. Under the
Company's arrangements with its resellers, resellers have the option to reduce
or eliminate unfilled orders previously placed, in most instances without
financial penalty. Resellers also have the option to return products to the
Company without penalty within certain limits, beyond which they may be
assessed fees. In the third quarter of 1996, the Company experienced a
reduction in ordering from historical levels by resellers due to uncertainty
concerning the Company's condition.
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.
Production and marketing of products in certain states and countries may
subject the Company to environmental and other regulations which include, in
some instances, the requirement that the Company provide consumers with the
ability to return to the Company product at the end of its useful life, and
leave responsibility for environmentally safe disposal or recycling with the
Company. It is unclear what the effect of such regulation will have on the
Company's future operating results and financial condition.
The Company is currently in the process of replacing its existing transaction
systems (which include order management, distribution, and 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 if the Company is unable to implement and
effectively manage the transition to this new integrated system.
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.
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Liquidity and Capital Resources
The Company's financial position with respect to cash, cash equivalents, and
short-term investments, net of short-term borrowings, increased to $1,172
million at June 28, 1996, from $491 million at September 29, 1995. The
Company's financial position with respect to cash, cash equivalents, and short-
term investments increased to $1,359 million at June 28, 1996, from $952
million at September 29, 1995. The Company's cash and cash equivalent
balance includes $173 million pledged as collateral to support letters of
credit primarily associated with the Company's purchase commitments under the
terms of the sale of the Company's Fountain, Colorado manufacturing facility to
SCI Systems, Inc., and at September 29, 1995 includes $90 million pledged as
collateral to support short-term borrowings.
Cash generated by operations during the first nine months of 1996 totaled $112
million. Cash generated by operations was primarily the result of decreases in
accounts receivable and inventories, partially offset by a decrease in accounts
payable. Cash generated during the first nine months of 1996 from the sale of
certain equity investments and the sale of the Fountain manufacturing facility
to SCI Systems, Inc. totaled $120 million.
Net cash used for the purchase of property, plant, and equipment totaled $55
million in the first nine months of 1996, and consisted primarily of increases
in manufacturing machinery and equipment. The Company expects that capital
expenditures in 1996 will remain below 1995 levels.
Short-term borrowings at June 28, 1996, were approximately $274 million lower
than at September 29, 1995. During the third quarter, an outstanding loan to
Apple Computer B.V., a subsidiary of the Company, in the amount of $200
million was repaid in full. At June 28, 1996, Apple Japan, Inc., a subsidiary
of the Company, held $187 million of short-term borrowings from several banks,
with maturity dates ranging from September 1996 to December 1996. The majority
of these loans are guaranteed by the Company.
The Company's balance of long-term debt increased during the first nine months
of 1996 due to the issuance of $661 million aggregate principal amount of 6%
unsecured convertible subordinated notes to certain qualified parties in a
private placement. These notes were sold at 100% of par. These notes pay
interest semi-annually and mature on June 1, 2001. For more information
regarding the Company's unsecured convertible subordinated notes, refer to Note
2 of the Notes to Consolidated Financial Statements (Unaudited) in Part I, Item
I of this Quarterly Report on Form 10-Q, which information is hereby
incorporated by reference. The remainder of long-term borrowings consists of
$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. 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 Internal Revenue Service 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 has filed 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.
As noted on page 13 under the subheading "Interest and other income (expense),
net", the Company's cost of funds has increased as a result of the downgrading
from January 1996 through May 1996 of its short-term debt to NP and C by
Moody's Investor Services and Standard and Poor's Rating Agency, respectively,
and of its long-term debt to B1 and B+ by Moody's Investor Services and
Standard and Poor's Rating Agency, respectively. In addition, the Company may
be required to pledge additional collateral with respect to certain of its
borrowings and letters of credit and to agree to more stringent covenants than
in the past. The Company believes that its balances of cash and cash
equivalents, together with continued short-term borrowings and the sale of
certain assets and other investments, will be sufficient to meet its operating
cash requirements, including the impact of planned restructuring actions, on a
short- and long-term basis. No assurance can be given that short-term
borrowings can be continued, or that any additional financing that may be
required if the restructuring plan takes longer to implement than anticipated
or is not successful can be obtained. If the Company is unable to obtain such
financing, its liquidity, results of operations and financial condition will be
materially adversely affected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 1 of Part II of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 29, 1996 for a discussion of
certain purported shareholder class action suits filed in January 1996 and
March 1996. In August 1996, the Company's demurrer to the complaint in the
action styled Abraham and Evelyn Kostick Trust v. Peter Crisp, et al. was
sustained on a variety of grounds. The court granted the plaintiffs sixty
days to amend their complaint. In June 1996, a purported class action
complaint naming the Company and certain current and former officers, directors
and employees was filed in the California Superior Court for Alameda County,
styled as LS Men's Clothing Defined Benefit Pension Plan v. Spindler, et al.,
No. CV 767971. The complaint, which seeks damages, generally alleges that the
defendants misrepresented or omitted material facts about the Company's
operations and financial results which plaintiff contends artificially inflated
the Company's stock price. None of the defendants has yet responded to the
complaint.
The Company has been named as a defendant in numerous lawsuits (fewer than 100)
in each of which the complaint alleges that the plaintiff incurred so-called
"repetitive stress injuries" to the upper extremities as a result of using
keyboards and/or mouse input devices sold by the Company. All of these cases
are in various stages of pre-trial activity. These suits are similar to those
filed against other major suppliers of personal computers. Ultimate resolution
of the litigation against the Company may depend on progress in resolving this
type of litigation in the industry overall.
In August 1995, the Company was named, along with forty-one other entities,
including computer manufacturers and computer monitor vendors, in a putative
nationwide class action filed in the California Superior Court for Orange
County, styled Keith Long, et al. v. AAmazing Technologies Corp., et al. The
complaint alleges that each of the defendants engaged in false or misleading
advertising with respect to the size of computer monitor screens. Also in
August 1995, the Company was named as the sole defendant in a purported class
action alleging similar claims filed in the New Jersey Superior Court for
Camden County, entitled Mahendri Shah v. Apple Computer, Inc. Subsequently,
in November 1995, the Company, along with 26 other entities, was named in a
purported class action alleging similar claims filed in the New Jersey Superior
Court for Essex County, entitled Maizes & Maizes v. Apple Computer, Inc., et
al. Similar punative class actions have been filed in other California
counties in which the Company was not named as a defendant. The complaints in
all of these cases seek restitution in the form of refunds or product exchange,
damages, punitive damages and attorneys fees. In December 1995, the California
Judicial Council ordered all of the California actions, including Long,
coordinated for purposes of pre-trial proceedings and trial before a single
judge, the Honorable William Cahill, sitting in the County of San Francisco.
All of the California actions were subsequently coordinated under the name In
re Computer Monitor Litigation and a master consolidated complaint filed
superseding all of the individual complaints in those actions. On July 3,
1996, Judge Cahill ordered all of the California cases dismissed without leave
to amend as to plaintiffs residing in California on the ground that a
stipulated judgment entered in September 1995 in a prior action brought by the
California Attorney General alleging the same cause of action was res judicata
as to the plaintiffs in the consolidated California class action suits. Both
the New Jersey cases and the consolidated California cases are at a preliminary
stage, with no discovery having taken place.
The Company has various claims, lawsuits, disputes with third parties,
investigations and pending actions involving allegations of false or misleading
advertising, product defects, discrimination, infringement of intellectual
property rights, and breach of contract and other matters against the Company
and its subsidiaries incident to the operation of its business. The liability,
if any, associated with these matters was not determinable as of the date of
this filing.
The Company believes the resolution of the actions cited above will not have a
material adverse effect on its financial condition as reported in the
accompanying financial statements. However, depending on the amount and timing
of any unfavorable resolution of these lawsuits, it is possible that the
Company's future results of operations or cash flows could be materially
affected in a particular period.
21
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Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
10.A.32 Employment Agreement dated June 13, 1996, between
Registrant and Robert M. Calderoni.
10.A.33 Employment Agreement dated June 25, 1996, between
Registrant and Ellen M. Hancock.
10.A.34 Retention Agreement dated June 25, 1996, between
Registrant and Ellen M. Hancock.
10.A.35 Retention Agreement dated June 27, 1996, between
Registrant and George M. Scalise.
10.A.36 Airplane Use Agreement dated June 27, 1996, among
Registrant, Gilbert F. Amelio and Aero Ventures.
10.A.37 Letter Agreement dated May 1, 1996, between
Registrant and Jeanne Seeley.
10.A.38 Separation Agreement effective March 28, 1996, between
Registrant and Michael H. Spindler.
10.A.39 Letter Agreement dated June 3, 1996, between Registrant
and James J. Buckley.
10.B.16 Fountain Manufacturing Agreement dated May 31, 1996
between Registrant and SCI Systems, Inc.
11 Computation of per share earnings
27 Financial Data Schedule
b) Reports on Form 8-K
A Current Report on Form 8-K dated June 14, 1996 was filed by
Registrant with the Securities and Exchange Commission to report under Item 5
thereof the press releases issued to the public on June 3, 1996, June 4, 1996
and June 10, 1996, respectively, and the Registant's private placement of
convertible subordinated debentures described therein.
22
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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 12, 1996 BY /s/ Fred D. Anderson
Fred D. Anderson
Executive Vice President and
Chief Financial Officer
DATE: August 12, 1996 BY /s/ Jeanne Seeley
Jeanne Seeley
Vice President, Finance and
Corporate Controller
23
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APPLE COMPUTER, INC.
INDEX TO EXHIBITS
Exhibit Index Description Page Number
10.A.32 Employment Agreement dated June 13,
1996, between Registrant and Robert M.
Calderoni. 25
10.A.33 Employment Agreement dated June 25,
1996, between Registrant and Ellen M.
Hancock. 31
10.A.34 Retention Agreement dated June 25, 1996,
between Registrant and Ellen M. Hancock. 36
10.A.35 Retention Agreement dated June 27, 1996,
between Registrant and George M. Scalise. 49
10.A.36 Airplane Use Agreement dated June 27, 1996,
among Registrant, Gilbert F. Amelio and Aero
Ventures. 65
10.A.37 Letter Agreement dated May 1, 1996, between
Registrant and Jeanne Seeley. 70
10.A.38 Separation Agreement effective March 28,
1996, between Registrant and Michael H.
Spindler. 72
10.A.39 Letter Agreement dated June 3, 1996, between
Registrant and James J. Buckley. 83
10.B.16 Fountain Manufacturing Agreement dated May
31, 1996 between Registrant and SCI Systems,
Inc. 85
11 Computation of per share earnings 117
27 Financial Data Schedule 118
24
<PAGE>
Exhibit 10.A.32
June 13, 1996
Mr. Robert M. Calderoni
19670 Scotland Road
Saratoga, California 95070
Employment Agreement
Dear Mr. Calderoni:
The following sets forth our agreement regarding the terms anD
provisions of your employment as an officer and employee of Apple Computer,
Inc. (the" Company"). Capitalized words which are not otherwise defined herein
shall have the meanings assigned to such words in Section 6 of this Agreement.
1. Commencement of Employment. Your employment under this
Agreement shall commence on July 8, 1996 (the "Effective Date").
2. Position. You shall be employed as Senior Vice President,
Finance and Operations Controller of the Company and shall report directly to
the Chief Financial Officer of the Company, and your duties and
responsibilities to the Company shall be consistent in all respects with such
position. You shall devote substantially all of your business time, attention,
skills and efforts exclusively to the business and affairs of the Company,
other than de minimis amounts of time devoted by you to the management of your
personal finances or to engaging in charitable or community services. Your
principal place of employment shall be the executive offices of the Company in
Cupertino, California, although you understand and agree that you will be
required to travel from time to time for business purposes.
3. Compensation.
(a) Base Salary. As compensation to you for all services
rendered to the Company and its subsidiaries, the Company will pay you a base
salary at the rate of not less than two hundred seventy five thousand dollars
($275,000) per annum as of the Effective Date. Your base salary will be paid
to you in accordance with the Company's regular payroll practices applicable
to its executive employees.
25
<PAGE>
(b) Bonus. You shall be eligible to participate in the annual
Senior Executive Bonus Plan (domestic) sponsored by the Company or any successor
plan thereto. Such bonus program shall afford you the opportunity to earn an
annual bonus for each fiscal year of the Company during your employment.
During the remainder of the Company's Fiscal Year 1996 only, you shall be
guaranteed a bonus payout at the end of Q4 in the amount of thirty five
thousand dollars ($35,000). During the Company's Fiscal Year 1997 only, your
target annual bonus will be one hundred fifty thousand dollars ($150,000).
During the Company's Fiscal Year 1997 only, you shall be guaranteed a minimum
bonus payout of at least seventy five thousand dollars ($75,000) payable at the
end of the Company's Fiscal Year 1997. The amount of your target annual bonus
thereafter shall be reviewed annually by the Company. Subject to the provision
above regarding a guaranteed bonus payout during the Company's Fiscal Year 1996
and 1997, each annual bonus shall be paid to you in accordance with the terms
and conditions of the bonus plan then in effect.
(c) Hiring Bonus. Subject to other provisions of this
Agreement, the Company shall pay you a Hiring Bonus in the amount of one
hundred twenty five thousand dollars ($125,000). It shall be paid to you
within 5 days after the Effective Date of this Agreement.
(d) Stock Options. In consideration of this Agreement, we
will recommend to the Apple Computer, Inc. Board of Directors an initial stock
option grant of 75,000 shares of Apple Computer, Inc. common stock. Each grant
vests over a three year period at 33% increments beginning one year from the
grant date and shall at all times be subject to the terms and conditions of the
Apple Computer, Inc. 1990 Stock Option Plan, as amended, and any successor
plans thereto ("1990 Stock Plan").
(e) Benefits. You shall be eligible to participate in all
employee 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.
26
<PAGE>
4. Termination.
(a) Termination for Cause. If your employment is terminated
by the Company for Cause, the Company shall pay you the full amount of the
accrued but unpaid base salary you have earned through the date of your
termination, plus a cash payment (calculated on the basis of your base salary
then in effect) for all unused accrued vacation. In addition, you shall be
entitled to benefits under the employee plans and arrangements described in
Section 3(e) above in accordance with terms and provisions of such plans and
arrangements.
(b) Termination Other than for Cause. During the first twelve (12)
months following the Effective Date only, if your employment is terminated by
the Company for reasons other than for Cause, the Company shall pay you the
full amount of the accrued but unpaid base salary you have earned through the
date of your termination. In addition, you shall be eligible for participation
in Apple's Executive Severance Plan ("ESP"). Under the current terms and
conditions of the ESP, you would remain an active employee, receiving full
salary and benefits, for a period up to ninety (90) days after your date of
termination, and be eligible to receive a severance benefit equal to four (4)
month's pay. In addition, you will be entitled to receive the following
amounts:
50% of FY 97 target bonus
as guaranteed ($75,000)
or
The actual prorated bonus amount
payable under the ESP
There shall be no other payments or benefits on termination during the first
twelve (12) months following the Effective Date.
(c) Although the terms and conditions of the ESP would govern your
participation, the following highlights some of the material terms and
conditions in the event of a Change in Control, as defined in and provided for
under the June 9, 1995 Supplement to the ESP:
COVERAGE: Employees of the Company who are otherwise Eligible Employees under
the Executive Severance Plan, other than those who have employment
or retention agreements.
TERM: The Supplement is effective for two years, beginning on the Change
in Control Date. Change in Control Date generally means the date
of the Change in Control or the date of the approval of an agreement
which will result in a Change in Control.
27
<PAGE>
SEVERANCE: The Supplement to the Executive Severance Plan provides for the
following enhanced severance benefits:
-The regular severance payment schedule for such employees is
doubled, with a minimum of 8 months of severance and a maximum of
24 months.
-The regular benefit continuation period is also doubled.
-Employees who are terminated in the two-year period following the
Change in Control Date receive a special bonus equal to 1 times
target bonus in lieu of the prorated bonus provided under the normal
plan provisions.
-Employees can resign for "Good Reason" and collect the foregoing
amounts if their principal place of employment is relocated to a
location which is more than 50 miles from their current place of
employment or if their job duties are significantly changed
(i.e., a drop of two grade levels or a required pay reduction).
Severance payments are contingent upon the signing a release in
favor of the Company in substantially the form of the release
contemplated under the current terms of the Executive Severance
Plan.
GROSS-UP: All payments and benefits to eligible employees are "grossed-up" to
eliminate the effects of the 20% excise tax under the "golden
parachute" rules. These gross-up provisions are intended to place
the employees in the same after-tax position they would have enjoyed
had the excise tax not applied. These provisions apply to all pay
and benefits subject to the excise tax. The provisions also apply
whether or not a termination of employment has occurred because the
Company's equity plans confer benefits which could trigger the
excise tax provisions even if employment is not terminated. No
gross-up is payable if the payments to an eligible employee are not
subject to the golden parachute excise tax.
CHANGE IN
CONTROL: The definition includes a change in the majority of the Board of
Directors not otherwise approved by the Incumbent Directors, the
acquisition of 30% or more of the voting stock of Apple by a third
party, or a merger, consolidation or other corporate transaction if
the stockholders of Apple before the transaction do not own,
immediately after the transaction, more than 50% of the combined
voting power of the resulting corporation.
AMENDMENT: The Executive Severance Plan cannot be amended after the Change in
Control Date to eliminate or reduce benefits. No amendment reducing
benefits will be effective if made within the 1-year period prior to
the Change in Control Date.
28
<PAGE>
5. Relocation. The Company will provide you with full
executive relocation benefits up to a maximum amount of seventy five thousand
dollars ($75,000) in accordance with the Company's Relocation Policy for
executives. Any relocation expenses and benefits must be submitted for
reimbursement or payment by you before the eighteen (18) months following the
Effective Date. Any additional relocation items or arrangements will be
determined in writing as authorized by the Company's Senior Vice President of
Human Resources.
6. Definitions. For purposes of this Agreement, the following
capitalized words shall have the meanings set forth below:
"Cause" shall mean a termination of your employment 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) after a written demand for substantial performance is delivered to you
by the Company's Chief Executive Officer, which demand specifically identifies
the manner in which the Company 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.
7. 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 Apple Computer, Inc., 1 Infinite Loop, MS 75-8A, Cupertino, California
95014, Attn.: Fred Anderson, Chief Financial Officer, 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.
8. Miscellaneous.
(a) Amendments, Waivers, Retention Agreement, 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.
29
<PAGE>
(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) Withholding. Amounts paid to you hereunder shall be subject to
all applicable federal, state and local withholding taxes.
(e) 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.
(f) 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.
(g) 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.
* * * *
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_/s/ Fred D. Anderson
Fred D. Anderson
Agreed to as of this 18th day of June, 1996.
/s/ Robert M. Calderoni
Robert M. Calderoni
30
<PAGE>
Exhibit 10.A.33
June 25, 1996
Ms. Ellen Hancock
165 Altura Vista
Los Gatos, CA 95030
Employment Agreement
Dear Ellen:
The following sets forth our agreement regarding the terms and
provisions of your employment as an officer and employee of Apple Computer,
Inc. (the" Company"). Capitalized words which are not otherwise defined herein
shall have the meanings assigned to such words in Section 5 of this Agreement.
1. Commencement of Employment. Your employment under this
Agreement shall commence on July 8, 1996 (the "Effective Date").
2. Position. You shall be employed as Executive Vice
President of the Company's Research and Development and Chief Technology
Officer of the Company and shall report directly to the Chief Executive
Officer of the Company, and your duties and responsibilities to the Company
shall be consistent in all respects with such position. You shall devote
substantially all of your business time, attention, skills and efforts
exclusively to the business and affairs of the Company, other than de minimis
amounts of time devoted by you to the management of your personal finances or
to engaging in charitable or community services. Your principal place of
employment shall be the executive offices of the Company in Cupertino,
California, although you understand and agree that you will be required to
travel from time to time for business purposes.
3. Compensation.
(a) Base Salary. As compensation to you for all services
rendered to the Company and its subsidiaries, the Company will pay you a base
salary at the rate of not less than four hundred eighty thousand dollars
($480,000) per annum as of the Effective Date. Your base salary will be paid
to you in accordance with the Company's regular payroll practices applicable
to its executive employees.
31
<PAGE>
(b) Bonus. You shall be eligible to participate in the annual
Senior Executive Bonus Plan (domestic) sponsored by the Company or any successor
plan thereto. Such bonus program shall afford you the opportunity to earn an
annual bonus for each fiscal year of the Company during your employment.
During the Company's Fiscal Year 1997 only, your target annual bonus will be
three hundred sixty thousand dollars ($360,000). The amount of your target
annual bonus thereafter shall be reviewed annually by the Company. Each annual
bonus, if any, shall be paid to you in accordance with the terms and conditions
of the bonus plan then in effect.
(c) Hiring Bonus. Subject to other provisions of this
Agreement, the Company shall pay you a Hiring Bonus in the amount of two
hundred thousand dollars ($200,000) within 5 days after the Effective Date.
(d) Stock Options. In consideration of this Agreement, we
will recommend to the Apple Computer, Inc. Board of Directors an initial stock
option grant of 300,000 shares of Apple Computer, Inc. common stock. Each
grant vests over a three year period at 33% increments beginning one year from
the grant date and shall at all times be subject to the terms and conditions of
the Apple Computer, Inc. 1990 Stock Option Plan ("1990 Stock Plan").
(e) Benefits. You shall be eligible to participate in all
employee 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.
4. Termination.
(a) Termination for Cause. If your employment is terminated
by the Company for Cause, the Company shall pay you the full amount of the
accrued but unpaid base salary you have earned through the date of your
termination, plus a cash payment (calculated on the basis of your base salary
then in effect) for all unused accrued vacation. In addition, you shall be
entitled to benefits under the employee plans and arrangements described in
Section 3(e) above in accordance with terms and provisions of such plans and
arrangements.
(b) Termination Other than for Cause. During the three (3)
year period following the Effective Date only, if your employment is terminated
by the Company for reasons other than for Cause, the Company shall pay you the
full amount of the accrued but unpaid base salary you have earned through the
date of your termination, plus a cash payment (calculated on the basis of your
base salary then in effect) for all unused accrued vacation. In addition, the
Company shall pay you a lump sum amount depending on the date of your
employment termination as follows:
32
<PAGE>
Termination Date Amount
During 1-year period 100% of annual base salary
following Effective Date ($480,000)
100% of target bonus
($360,000)
Following first anniversary 100% of annual base salary
of Effective Date 100% of target annual bonus
There shall be no other payments or benefits on termination.
5. Definitions. For purposes of this Agreement, the following
capitalized words shall have the meanings set forth below:
"Cause" shall mean a termination of your employment which is a
result of (i) your felony conviction, (ii) your willful and unauthorized
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) after a written demand for substantial performance
is delivered to you by the Company's Chief Executive Officer, which demand
specifically identifies the manner in which the Company 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.
6. 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 Apple Computer, Inc., 1 Infinite Loop, MS 75-8A, Cupertino, California
95014, Attn.: Gilbert F. Amelio, Chairman and Chief Executive Officer, 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.
33
<PAGE>
7. Miscellaneous.
(a) Amendments, Waivers, Retention Agreement, 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 the Retention Agreement between you and
the Company dated June 25, 1996 shall supersede this Agreement in its entirety,
with the exception of paragraph 3(c) above, upon the Change in Control Date as
specified in the Retention Agreement.
(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) Withholding. Amounts paid to you hereunder shall be
subject to all applicable federal, state and local withholding taxes.
(e) 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.
(f) 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.
(g) 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.
* * * *
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.
34
<PAGE>
Sincerely,
APPLE COMPUTER, INC.
By /s/ Gilbert F. Amelio
Gilbert F. Amelio
Chairman and C.E.O.
Agreed to as of this 30th day of June, 1996.
/s/ Ellen M. Hancock
Ellen Hancock
35
<PAGE>
Exhibit 10.A.34
June 25, 1996
Ms. Ellen Hancock
165 Altura Vista
Los Gatos, CA 95030
Retention Agreement
Dear Ellen:
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.
36
<PAGE>
(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.
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.
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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;
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.
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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 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).
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(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
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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.
(d) General. Anything in this Agreement to the contrary not
withstanding, 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.
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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:
(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;
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(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
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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.
"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;
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(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;
(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;
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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.
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"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: 75 8A,
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.
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(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.
* * * *
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 /s/ Gilbert F. Amelio
Name: Gilbert F. Amelio
Title: Chief Executive Officer
Agreed to as of this 30th day of June, 1996.
_/s/ Ellen M. Hancock
Ellen Hancock
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Exhibit 10.A.35
June 27, 1996
Mr. George M. Scalise
26055 Newbridge Road
Los Altos Hills, California 94022
Retention Agreement
Dear George:
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.
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(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.
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.
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(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.
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(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;
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.
_______________________________________
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.
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(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
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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
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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 $0.00. 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.
(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.
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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.
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"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:
(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;
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(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.
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"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.
"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.
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"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
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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 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: 75 8A,
Cupertino, CA 95014, with a copy to the General Counsel of the Company, or to
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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 including but not
limited to the Letter Agreement between you and the Company dated February 26,
1996; 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.
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(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.
* * * *
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 /s/ Gilbert F. Amelio
Name: Gilbert F. Amelio
Title: Chairman and Chief
Executive Officer
Agreed to as of this 28th day of June, 1996.
/s/ George M. Scalise
George M. Scalise
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Exhibit 10.A.36
AIRPLANE USE AGREEMENT
# C98-96-00012
This Airplane Use Agreement ("Agreement") is entered into as of the 27th day of
June, 1996, by and between Apple Computer, Inc., a California corporation,
having its principal place of business at 1 Infinite Loop, Cupertino, CA 95014
("Apple"), Gilbert F. Amelio, 13416 Middle Fork Lane, Los Altos Hills, CA
94022 ("Amelio"), and Aero Ventures, 13416 Middle Fork Lane, Los Altos Hills,
CA 94022 ("Aero Ventures").
INTRODUCTION
Amelio owns and Aero Ventures manages an airplane (N55OAV) which will be used
for Apple business-related travel.
AGREEMENT
1. Ownership
Amelio represents and warrants that he is the sole owner of the aircraft
described in Exhibit A ("the Airplane"). Amelio must inform Apple immediately
upon any change in his ownership status of the Airplane.
2. Apple's Rights and Responsibilities
2.1 Authorized Business Use. Apple shall use the Airplane for travel on
Apple business when such use is appropriate and is specified on a Travel
Authorization Form approved prior to the commencement of travel in accordance
with Apple's applicable Corporate and Finance policies ("Authorized Business
Use").
2.2 Apple's Lease of the Airplane. Apple shall lease the Airplane from
Amelio for Authorized Business Use at the Apple Lease Rate, as described below.
Such leased use shall include travel for Authorized Business Uses. Apple will
pay the pilot and/or co-pilot directly for piloting fees.
2.3 Costs Paid By Apple. In addition to the payments described in Section
2.2 above, Apple will reimburse Amelio for (1) costs actually incurred by
Amelio to maintain currency and proficiency as a pilot, such as flight medical
expenses and simulator training; and (2) the costs of food, beverages, other
personal items, parking fees, landing fees, and fuel incurred during Authorized
Business Use by Apple.
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2.4 Apple Lease Rate. Apple will pay to Amelio an hourly rate for lease
of the Airplane based on actual flying time as recorded on the Airplane's log
book. This Apple Lease Rate is determined to be the fair market value of such
leased use, and as such will be subject to annual review and if necessary,
adjustment. The initial Apple Lease Rate shall be $700.00 per hour for all
usage. If Amelio upgrades to a more capable airplane, there will be no
adjustment without prior Apple approval.
2.5 Apple Advance. Apple will pay to Amelio a non-refundable, monthly
advance on lease payments in the amount of $6,000. This monthly advance
amount shall be applied against lease payments payable by Apple to Amelio for
Authorized Business Use of the Airplane. Apple may carry forward any unused
monthly advance payments as credits toward lease payments due in subsequent
months. However, such carried-forward monthly advance payments shall not
affect Apple's obligation to pay the full, monthly advance on lease payments.
2.6 Apple's Insurance. Amelio will maintain $20 million of liability
insurance. Apple shall be responsible for any liability insurance coverage
in excess of $20 million.
2.7 No Other Obligations. The payments and reimbursements specified in
this section shall constitute the extent of Apple's obligation to pay Amelio
for the costs of maintenance, depreciation, insurance, and any and all other
expenses related to maintaining the Airplane in flightworthy condition.
3. Amelio's Responsibilities
3.1 Amelio's Use Of The Airplane. Amelio's use of the Airplane in
connection with his performance of services for Apple shall be limited to
Authorized Business Use.
3.2 Amelio's Costs. Amelio shall be responsible for payment of all costs
not specifically charged to Apple in this Agreement.
3.3 Amelio's Pilot Training And License. Amelio is responsible for
arranging for and undertaking instruction and flying time to maintain currency
and proficiency as a pilot of the Airplane. Amelio must notify Apple of any
change or lapse in his pilot license status.
3.4 Amelio's Operation Of The Airplane. When operating the Airplane on
Apple Business Use, Amelio will maintain and operate the Airplane at all times
in compliance with all Federal, state or local laws and regulations applicable
to the operation of the Airplane or private aircraft in general. In addition,
Amelio agrees to comply with any and all restrictions and limitations imposed
by Apple's insurance policies related to Amelio's use of the Airplane.
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3.5 Passengers. Amelio understands and agrees that as a general policy,
he will not carry as passengers on Authorized Business Use any persons who are
not Apple employees, officers or directors. To the extent there are legitimate
business purposes for exceptions, Amelio will carry such non-Apple passengers
only if they have each executed and filed with Apple a release, in form and
substance approved in writing by Apple, releasing Apple from any and all
liability arising out of such passenger accompanying Amelio on the Airplane in
connection with an Authorized Business Use.
3.6 Indemnity And Insurance.
(a) Indemnity. Amelio hereby agrees to indemnify and hold harmless
Apple, its directors, officers, employees and other agents
(collectively, "the Indemnitees") against and from any and all
liabilities, claims, demands, losses, costs and expenses of any kind
or nature whatsoever which may be asserted against or suffered or
incurred by the Indemnitees or any of them arising out of or in
connection with Amelio's ownership, operation or use of the Airplane
whether for Authorized Business Use or any other purpose and whether
in accordance with or in breach of this Agreement. The foregoing
indemnity is specifically intended to apply whether or not any such
liability, claim, demand, loss, cost or expense may to any extent have
arisen out of or been based upon the negligence or claimed negligence
of Amelio or any of the Indemnitees.
(b) Insurance. Amelio will carry Comprehensive General Liability
insurance from USAIG, AAU, CIGNA or another insurer suitable to Apple
with limits not less than $20,000,000 combined single limit per
occurrence and with a worldwide coverage territory. Before operating
the Airplane on any Authorized Business Use, Amelio will deliver to
Apple a Certificate of Insurance which shows the coverage specified
above, which names Apple as an additional insured, and which provides
a 30-day notice period for cancellation or reduction in coverage or
limits.
4. Term and Termination
4.1 Term. This Agreement will become effective upon execution by Apple,
and after approval by the Board of Directors of Apple. The Agreement is
retroactive in its effect to the beginning of Amelio's employment by Apple,
and will continue in effect until terminated as provided below.
4.2 Termination.
(a) This Agreement may be canceled by Apple or Amelio upon thirty days
written notice to the other party.
(b) This Agreement will terminate upon the termination of Amelio's
employment with Apple.
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4.3 Effect Of Termination. Upon any termination of this Agreement, each
party will be released from all obligations and liabilities to the other
occurring or arising after the date of such termination, except that the
provisions of Sections 3.6(a), 4.3 and 6, and any liability arising from
breach of this Agreement will survive termination of this Agreement. Neither
party will be liable to the other for damages of any sort solely as a result
of terminating this Agreement in accordance with its terms, except as
specifically provided above. Termination of this Agreement will be without
prejudice to any other right or remedy of either party.
5. Upgrade
It is Amelio's intention to upgrade the Airplane to a more capable
airplane within the next 12 months. Upon such upgrade, the lease rate will
not be adjusted to reflect the fair market value for the new aircraft without
prior Apple approval.
6. General
6.1 Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the United States and the State of California as
applied to agreements entered into and to be performed entirely within
California between California residents.
6.2 Jurisdiction and Venue. The parties hereby submit to the jurisdiction
of, and waive any venue objections against, the United States District Court
for the Northern District of California, the Superior Court of the State of
California for the County of Santa Clara, the Santa Clara Municipal Court, and
any mutually agreed to alternative dispute resolution proceeding taking place
in Santa Clara County, California, in any litigation arising out of the
Agreement.
6.3 Severability. If for any reason a court of competent jurisdiction
finds any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of
this Agreement will continue in full force and effect.
6.4 No Waiver. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any
other provision.
6.5 No Rights in Third Parties. This Agreement is made for the benefit
of Amelio and Apple and their respective subsidiaries and affiliates, if any,
and not for the benefit of any third parties.
6.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but which collectively
will constitute one and the same instrument.
6.7 Headings and References. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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6.8 Construction. This Agreement has been negotiated by the parties and
their respective counsel. This Agreement will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either party.
6.9 Complete Agreement. This Agreement, including all exhibits,
constitutes the entire agreement between the parties with respect to the
subject matter hereof, and supersedes and replaces all prior or contemporaneous
understandings or agreements, written or oral, regarding such subject matter.
No amendment to or modification of this Agreement will be binding unless in
writing and signed by a duly authorized representative of both parties.
6.10 Consent Of Spouse. Charlene Amelio, wife of Gilbert F. Amelio,
consents and agrees to the terms and conditions contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
Apple: Amelio:
APPLE COMPUTER, INC. GILBERT F. AMELIO
BY: /s/ George M. Scalise BY: /s/ Gilbert F. Amelio
NAME: George M. Scalise NAME: Gilbert F. Amelio
TITLE: Executive Vice President and
Chief Administrative Officer DATE:
DATE:
BY: Charlene Amelio
NAME: /s/ Charlene Amelio
DATE:
Aero Ventures:
AERO VENTURES
BY: /s/ Gilbert F. Amelio
NAME: Gilbert F. Amelio
TITLE: owner
DATE:
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Exhibit 10.A.37
May 1, 1996
Jeanne Seeley
27501 Black Mountain Road
Los Altos Hills, CA 94022
Re: Employment
Dear Jeanne:
The following sets forth our agreement ("Letter Agreement")
regarding the terms and conditions of your employment, participation in Apple's
Executive Severance Plan ("Plan") and special bonus upon the termination of
your employment in accordance with this Letter Agreement. This Letter
Agreement supersedes the previous Letter Agreement in its entirety dated on or
about January 12, 1996 between you and Apple.
Subject to the conditions of this Letter Agreement, Apple shall
designate you for participation in the Apple Computer, Inc. Executive Severance
Plan on or about August 25, 1996 provided that Apple's Q3 books are closed and
provided further that (1) you have not obtained or been offered another
comparable position with the Apple or its affiliates, and (2) the termination
of your employment was not the result of your voluntary resignation, except for
a resignation for 'good cause" under the terms of the Plan, and (3) the
decision to terminate your employment was not for "Business Reasons".
"Business Reasons" shall mean that you are terminated for any of the following
reasons: (i) engaging in unfair or unlawful competition with Apple; or (ii)
inducing any customer of Apple to breach any contract with Apple; or (iii)
making any unauthorized disclosure of or otherwise misusing any of the secrets
or confidential information of Apple; or (iv) committing any act of
embezzlement, fraud or material theft with respect to any Apple property; or
(v) violating any Apple policy or guideline or the terms of this Letter
Agreement; or (vi) causing material loss, damage or injury to or otherwise
endangered the property, reputation or employees of Apple; or (vii)
engaging in malfeasance, negligence or misconduct, or failing to perform
reasonable duties and responsibilities consistent with your duties and
responsibilities to Apple; or (viii) failure to act in accordance with
specific, reasonable and lawful instructions from Apple's Chief Financial
Officer. To the extent practical, you agree to use accrued vacation time
during the month of August. Separate and apart from any benefits to which you
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may be entitled under Apple's Executive Severance Plan, and subject to the
employment termination conditions of this paragraph, Apple shall pay you a
special bonus in the amount of one-hundred fifty thousand dollars ($150,000),
ninety thousand dollars ($90,000) of which shall be paid to you on or before
May 10, 1996, and the balance of sixty thousand dollars ($60,000) to be paid
to you at the end of your employment with Apple.
The terms and conditions of Apple's Executive Severance Plan in effect
at the time you are designated for participation in the Plan shall govern with
respect to your eligibility for and level of benefits under the Plan.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to me the enclosed copy of this letter which will then
constitute our agreement on this subject.
Sincerely,
APPLE COMPUTER, INC.
By /s/ Fred Anderson
Fred Anderson
Executive Vice President
Chief Financial Officer
By /s/ Kevin Sullivan
Kevin Sullivan
Senior Vice President
Human Resources
Agreed to as of this 2nd day of May, 1996
/s/ Jeanne Seeley
Jeanne Seeley
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Exhibit 10.A.38
Separation Agreement
In consideration of the mutual agreements set forth below, Michael
H. Spindler ("Spindler") and Apple Computer, Inc. ("Apple") agree to the
following terms and conditions of this Separation Agreement (the
"Agreement"):
1. Nature of Business. Apple is in the business of designing,
developing, producing, selling and marketing computer systems, related
products and services. The business practices of Apple and the market
conditions in which Apple operates change rapidly and these changes
have necessitated prompt changes in management, and/or managers'
responsibilities. These changes are needed from time to time in the high
level management positions such as those for which Spindler has been
employed.
2. Resignation from Board, Termination of Employment and
Rescission of Retention Agreement. Spindler has resigned from his
position on Apple's Board of Directors effective as of February 2, 1996 and
has been terminated from his position as Chief Executive Officer effective
as of February 2, 1996. Spindler also hereby resigns from all other
positions he holds on behalf of Apple, its subsidiaries and affiliates (except
for his position as an employee), which positions are set forth at Exhibit A
hereto. Spindler agrees to sign at Apple's request all appropriate
mutually agreeable documentation prepared by Apple to facilitate these
resignations and termination.
Spindler and Apple agree that in exchange for the terms and
conditions of this Agreement, the June 9, 1995 Retention Agreement
between Spindler and Apple, a copy of which is attached hereto as Exhibit
B, is hereby rescinded and that neither party has any further rights or
obligations under the Retention Agreement.
3. Employment Status/Termination. During the period
February 2, 1996 through March 31, 1996 ("Termination Date"), Spindler
will remain an employee of Apple as provided in this paragraph reporting
to Gilbert F. Amelio ("Amelio") and shall be available to assist Amelio as
may be mutually agreed to between Spindler and Amelio. Spindler shall
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be on sabbatical from February 15, 1996 through Termination Date. Until
Termination Date, Spindler will continue to receive his regular salary and
full executive level medical insurance benefits. Termination shall be
accomplished by the return of Spindler's Apple Identification Badge to
Edward B. Stead. Beyond the return of Spindler's Apple Identification
Badge, Spindler represents that all other Apple property has been
returned to Apple and there are no further actions required to be taken by
Spindler prior to Termination Date. To the extent this Agreement varies
from the terms and conditions of any Apple employee benefit plan,
program or policy, or any other agreement, written or oral, this
Agreement shall govern.
4. Compensation and Benefits Upon Termination. Within
five (5) days of Termination Date, Apple will pay the following:
a. Severance Payments. Spindler shall receive the full
amount of his accrued but unpaid base salary earned through Termination
Date plus a cash payment (calculated on the basis of Spindler's base salary
then in effect) for all accrued but unused vacation as of Termination Date.
In addition, Apple shall also pay Spindler a lump sum payment of three
million, seven hundred twelve thousand, five hundred dollars
($3,712,500). Apple shall continue to pay for and provide Spindler with
health insurance benefits in accordance with terms and provisions of such
plans and arrangements in effect on the Termination Date for a period of
two (2) years from Termination Date.
Apple's Board of Directors (the "Board") previously granted Spindler
options to purchase shares of Apple Common Stock under Apple's 1981
and 1990 Stock Option Plans (the "1981 and 1990 Plans") and options to
purchase shares of stock under Apple's 1987 Executive Long Term Stock
Option Plan ("ELTSOP"). Except as expressly provided below, nothing in
this Agreement shall alter the terms and conditions of such options and
such options shall continue to vest and be exercisable in accordance with
the terms of the grant agreement issued to Spindler with respect to such
grants, and the terms of the 1981 and 1990 Stock Option Plans and the
ELTSOP administered by the Board. As of Termination Date, (a) all stock
option grants previously awarded to Spindler under the ELTSOP shall
continue to vest for a period of one (1) year from Termination Date and
shall be exercisable for a period of two (2) years from Termination Date
provided, however, that all such options shall be subject to the 10-year
expiration provisions of the ELTSOP, and (b) all stock option grants
previously awarded to Spindler under the 1981 and 1990 Plans shall
continue to vest during, and be exercisable for, a period of ninety (90) days
from Termination Date.
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The payment outlined in this Paragraph 4(a) shall constitute full
satisfaction of all Apple's obligations to pay severance benefits to Spindler
under Apple's Executive Severance Plan, as amended by the June 9, 1995
Supplement, Apple's Senior/Executive Incentive Bonus, and any and all
other written or oral agreements between Spindler and Apple including
but not limited to, the employment agreement dated April 12, 1991, a copy
of which is attached hereto as Exhibit C. Except as provided for in
Paragraph 3 above and in Paragraph 4(b) below, there shall be no other
payments to Spindler except as stated in this Paragraph 4(a).
b. Relocation and House Repurchase. Apple shall pay
Spindler, in full satisfaction of any and all obligations to pay moving
expenses for Spindler and his family under any Apple policy, plan or
program a lump sum payment in the amount of fifty thousand dollars
($50,000). In addition, Apple shall pay Spindler one hundred fifty
thousand dollars ($150,000) in full satisfaction of any and all obligations
Apple may have had to purchase Spindler's Atherton, California house
under any Apple plan, program, policy, or agreement, both oral and in
writing.
c Receipt of Documentation. Spindler acknowledges
that he has previously received from Apple copies of pertinent portions of
Apple's Executive Severance Plan, as amended by the June 9, 1995
Supplement, Apple's Senior/Executive Bonus Program, Apple's 1981 and
1990 Stock Option Plans, Apple's ELTSOP, Apple's Vacation and Holiday
Policies, and Apple's Benefit Plans relating to health care, life insurance,
accidental death and disability, short and long term disability and Savings
Plans. Spindler understands and agrees to be bound by the written terms
and conditions of these various plans, policies or programs, unless
expressly provided for otherwise under this Agreement or in the Plan, and
agrees that Apple has reserved the right and option, in its sole discretion,
to change, interpret, modify or terminate these and all other plans, policies
or programs at any time without Spindler's consent so long as such action
does not conflict with or reduce Spindler's rights under this Agreement.
d. No Other Benefits. Spindler will not be entitled to
receive any other compensation, bonus or benefits provided by, through
or on behalf of Apple, its affiliates or subsidiaries, other than benefits that
are vested as of Termination Date and that are payable in accordance with
the terms of any applicable Benefit Plan, or otherwise provided for herein.
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5. Confidentiality. The terms of this Agreement are
confidential. Neither Spindler nor Apple will at any time disclose to any
third party the terms of this Agreement, except as authorized by this
agreement or as required by law. Spindler may also make such disclosure
to his spouse, tax advisor and/or lawyer, all of whom shall be instructed
to keep the information disclosed to them confidential; any disclosure by
any such party shall be deemed a disclosure by Spindler. Apple and
Spindler shall not disparage each other in their communications in
response to all inquiries from the press, public media or any other third
parties regarding this Agreement or Spindler's employment termination.
If Apple makes a press statement which disparages Spindler, then
Spindler may invoke the procedures outlined in Paragraph 21 of this
Agreement. If Spindler makes a press statement which disparages Apple,
then Apple may invoke the procedures outlined in Paragraph 21 of this
Agreement.
6. Trade Secrets, Proprietary and Confidential Information.
Spindler agrees to comply with Apple's "Proprietary Rights and
Information Agreement" which is attached hereto as Exhibit D to this
Agreement.
In addition, Spindler agrees to continue to abide by the principles
and guidelines in Apple's Global Ethics brochure, the terms of which are
incorporated herein to the extent it applies to employee through
Termination Date and to former employees thereafter.
On or before Termination Date, Spindler agrees to promptly return
to Apple or its records retention designee, all Apple proprietary and
confidential information, including but not limited to all inventions,
discoveries, improvements, computer programs, designs, documentation,
notes, plans, drawings and copies thereof to Apple. Spindler shall be
entitled to keep as his own personal property the equipment listed at
Exhibit E together with manuals and product data information associated
with such equipment.
Spindler and Apple agree that this section regarding Trade Secrets,
Proprietary and Confidential Information shall survive the termination of
this Agreement.
7. Non-Solicitation. Spindler further recognizes that Apple's
work force constitutes an important and vital aspect of its business.
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Spindler agrees, therefore, that he shall not solicit others employed by
Apple, or any of its subsidiaries or affiliates, to become employed by any
firm, company or other business enterprise through March 31, 1997.
Spindler further represents that he has no time prior to this Agreement
solicited any employee to leave Apple. Nothing in this Agreement will
prevent Spindler from providing favorable recommendations or favorable
references on behalf of persons who previously worked with Spindler.
Spindler and Apple also agree, that upon a breach or violation or
threatened breach or violation of any confidentiality, trade secrets, or non-
solicitation agreement by Spindler contained herein, or if any provision of
Sections 5, 6, or 7 of this Agreement, Apple, in addition to all other
remedies which might be available to it including rescission of the
Agreement and repayment of the consideration paid to Spindler for the
covenants or promises breached, shall be entitled as a matter of right to
equitable relief in any court of competent jurisdiction, including the right
to obtain injunctive relief or specific performance. Spindler and Apple
agree that the remedies at law for any such breach or violation are not
fully adequate and that the injuries to Apple as a result of the continuation
of any breach or violation are incapable of full calculation in monetary
terms and therefore constitute irreparable harm. This Paragraph 7 shall
survive the termination of this Agreement.
8. Indemnification. All rights of indemnification previously
provided by Apple to Spindler by Apple's By-Laws and/or by the
Indemnification Agreement dated January 27, 1988 shall continue in full
force and effect in accordance with their terms, following the date of this
Agreement. A copy of Spindler's Indemnification Agreement is attached
hereto as Exhibit F to this Agreement.
9. Successors. Apple will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of Apple to expressly
assume and agree to perform this Agreement in the manner and to the
same extent that Apple would be required to perform it if no such
succession had taken place. Failure of Apple to obtain such assumption
and agreement prior to the effectiveness of any such succession shall
entitle Spindler to the benefits listed in Paragraphs 3 and 4 of this
Agreement, subject to the terms and conditions therein.
10. Governing Law. The validity, interpretation, effect, and
enforcement of this Agreement shall be governed by the laws of the State
of California without regard to its choice of law principles.
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11. Entire Agreement. This Agreement, and Exhibits A, B, C, D,
E & F to this Agreement, set forth the entire Agreement and
understanding between Spindler and Apple, and supersede any other
negotiations, written agreements, understandings, oral agreements,
representations or past or future practices, whether written or oral, by
Apple, including but not limited to, the employment agreement between
Apple and Spindler dated April 12, 1991, the July 26, 1995 letter
employment agreement, and the June 9, 1995 Retention Agreement. This
Agreement may be amended only by written agreement, signed by the
parties to be bound by the amendment. Parol evidence will be
inadmissible to show agreement by and between the parties to any term or
condition contrary to or in addition to the terms and conditions contained
in this Agreement.
Each Apple plan or policy referred to herein directly or by
implication (except the 1981 and 1990 Stock Option Plans and the
ELTSOP) is incorporated herein only insofar as it does not contradict this
Agreement. If any inconsistencies exist between this Agreement and any
such plan or policy, this Agreement shall control. If any inconsistencies
exist between this Agreement and the 1981 and 1990 Stock Option Plans or
the ELTSOP, with the exception of the terms and conditions of Paragraph
4 above, those stock plans shall control.
12. Right to Advice of Counsel. Spindler understands that he
has the right to have this Agreement reviewed by his lawyer and
acknowledges that Apple has encouraged him to consult with his lawyer
so that he is fully aware of his rights and obligations under this
Agreement. Spindler acknowledges that he has done so.
13. Modification. This Agreement may not be amended,
modified, changed or discharged in any respect except as agreed in
writing and signed by Spindler and the Chief Executive Officer of Apple
Computer, Inc.
14. Severability and Interpretation. In the event that any
provision or any portion of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, such provision or
portion thereof shall be considered separate and apart from the remainder
of this Agreement and the other provisions shall remain fully valid and
enforceable, provided that, if Paragraph 2, 5, 6, 7, 19 or 21 is held to be
invalid or unenforceable in response to a motion, argument or other act by
Spindler, then Apple, at its sole discretion, may rescind the Agreement
and recover all consideration paid to Spindler under the Agreement.
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15. Notices. All notices required by this Agreement shall by
given in writing either by personal delivery or by first class mail, return
receipt requested. Notices shall be addressed as follows:
To Apple: Apple Computer, Inc.
1 Infinite Loop, Mail Stop 75- 8A
Cupertino, California 95014
Attention: General Counsel
To Spindler : 67 Orchard Hill
Atherton, CA 94027
or in each case to such other address as Spindler or Apple shall notify the
other. Notice given by mail shall be deemed given five (5) days following
the date of mailing.
16. Miscellaneous. The rights and obligations of Apple under
this Agreement shall inure to the benefit of and shall be binding upon the
present and future subsidiaries of Apple, any and all subsidiaries of a
subsidiary, all affiliated corporations, and successors and assigns of
Apple. No assignment of this Agreement by Apple will relieve Apple of
its obligations. Spindler shall not assign any of his rights and/or
obligations under this Agreement and any such attempted assignment
will be void. This Agreement shall be binding upon and inure to the
benefit of Spindler's heirs, executors, administrators, or other legal
representatives and their legal assigns.
17. Damage Limitation. At Termination Date, Spindler shall
not be entitled to recover any compensation, benefits or damages except as
specifically described in this Agreement. This damage waiver provides
that no damages (including without limitation, special, consequential,
general, liquidated or punitive damages or attorneys fees or costs) shall be
sought or due from Apple.
18. Waiver. A waiver by either party of any of the terms or
conditions of this Agreement in any instance shall not be deemed or
construed to be a waiver of such term or condition for the future, or of any
subsequent breach thereof. All remedies, rights, undertakings,
obligations, and agreements contained in this Agreement shall be
cumulative and none of them shall be in limitation of any other remedy,
right, undertaking, obligation or agreement of either party.
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19. Release. Spindler hereby completely releases and forever
discharges Apple, its Board of Directors, officers, directors, agents,
employees, attorneys, insurers, subsidiaries and affiliates ("Apple
Parties") from, and covenants not to sue any Apple Party with respect to,
all claims, rights, demands, actions, obligations, debts, sums of money,
damages (including but not limited to general, special, punitive,
liquidated and compensatory damages) and causes of action of every
kind, nature and character, known and unknown, in law or equity,
connected with Spindler's employment relationship with the Apple
Parties, or any other act or omission of any Apple Party which may have
occurred prior to the date this Agreement is signed. Spindler further
agrees that by his acceptance and negotiation of the payment provided for
in Paragraph 4 of this Agreement, he thereby completely releases and
forever discharges the Apple Parties from, and covenants not to sue any
Apple Party with respect to, all claims, rights, demands, actions,
obligations, debts, sums of money, damages (including but not limited to
general, special, punitive, liquidated and compensatory damages) and
causes of action of every kind, nature and character, known and
unknown, in law or equity, connected with Spindler's employment
relationship with the Apple Parties, or the termination of such
relationship, or any other act or omission of any Apple Party which may
have occurred prior to Termination Date. This release and discharge
includes, but is not limited to, all "wrongful discharge" claims; all claims
relating to any contracts of employment, express or implied; any covenant
of good faith and fair dealing, express or implied; any tort of any nature:
any federal, state, or municipal statute or ordinance; any claims under the
California Fair Employment and Housing Act, Title VII of the Civil Rights
Act of 1964, 42 U.S.C. Section 1981, and any other laws and regulations
relating to employment discrimination and any and all claims for
attorney's fees and costs. Spindler specifically acknowledges that the
foregoing release includes a complete release and discharge of all Apple
Parties from any and all claims, damages of any kind, and claims for
attorneys fees and costs, under the Age Discrimination in Employment
Act of 1967 ("ADEA") as amended by the Older Worker Benefit Protection
Act ("OWBPA"). Spindler and Apple agree that part of the consideration
payable to Spindler under this Agreement is consideration that Spindler
would not otherwise be entitled to and is in consideration for Spindler's
release of claims under the ADEA as amended by the OWBPA.
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Spindler acknowledges that he understands the protections
provided by the OWBPA and that the provisions of the OWBPA have
been met by the terms of this Agreement. Spindler states that he
knowingly and voluntarily enters into this Agreement. Spindler
acknowledges that this Agreement is written in a manner calculated to be
understood by him. Spindler further acknowledges that this Agreement
refers without limitation to rights under the Age Discrimination in
Employment Act. Spindler understands that by this Agreement, he does
not waive rights or claims that may arise after the date the Agreement is
executed. Spindler acknowledges that he is entering this Agreement in
exchange for consideration in addition to anything of value to which he
already is entitled due to his employment with Apple. Further, Spindler
acknowledges that this release of claims under the OWBPA is not
requested in connection with an exit incentive program or other
employment termination program offered to a group or class of
employees within the meaning of OWBPA. Notwithstanding this
provision, Spindler acknowledges that he has been allowed up to forty
five (45) days from the date that he received this Agreement to accept its
terms. Spindler acknowledges he has consulted with an attorney about
the Agreement. Spindler acknowledges that after he signs the Agreement,
he will then be given seven (7) days following the date on which he signs
the Agreement to revoke it and that this Agreement will only become
effective after this seven (7) day period has lapsed. Any such revocation
must be in writing signed by Spindler and immediately delivered to
Apple's General Counsel.
Spindler has read and expressly waives Section 1542 of the
California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
This waiver is not a mere recital, but is a known waiver of rights
and benefits. This is a bargained-for provision of this Agreement and is
further consideration for the covenants and conditions contained herein.
The Apple Parties hereby release and forever discharge Spindler,
his agents and attorneys from, and covenant not to sue Spindler, his
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agents and attorneys with respect to, all claims, rights, demands, actions,
obligations, debts, sums of money, damages, and causes of action
("claims") arising from his employment relationship with Apple to the
extent permitted by law and public policy, except for any claims arising
from any intentional acts of misconduct, or any other act taken in bad faith
or without a reasonable belief that it was in the best interests of the Apple
Parties.
20. Cooperation. Spindler agrees that he will make himself
available at reasonable times and intervals to participate in the conduct of
and preparation for any pending or future litigation to which Apple is a
party and in which his experience or knowledge may be relevant.
Spindler shall be reimbursed for his reasonable travel and out-of-pocket
expenses incurred by virtue of his cooperation as described in this
Paragraph. In no respect shall this provision be deemed to pertain to or
affect the nature or substance of Spindler testimony at deposition or trial
or in any other truthful testimony at deposition or trial or in any other
circumstances.
21. Remedies in Event of Future Dispute.
a. Except as provided in sub Paragraph (b) below, in the
event of any future dispute, controversy or claim between the parties
arising from or relating to this Agreement, its breach, any matter
addressed by this Agreement, and/or Spindler's employment with Apple
through Termination Date, the parties will first attempt to resolve the
dispute through confidential mediation to be conducted in San Francisco
by a member of the firm of Gregoria, Haldeman & Piazza, Mediated
Negotiations, 625 Market Street, Suite 400, San Francisco, California 94105.
If the parties' dispute is not resolved through mediation, it will be
resolved through binding confidential arbitration to be conducted by the
American Arbitration Association in San Francisco, pursuant to its
California Employment Dispute Resolution Rules, and judgment upon the
award rendered by the Arbitrator(s) may be entered by any court having
jurisdiction of the matter. The prevailing party in such arbitration shall be
entitled to recover from the losing party, not only the amount of any
judgment awarded in its favor, but also any and all costs and expenses,
incurred in arbitrating the dispute or in preparing for such arbitration.
b. In the event that a dispute arises concerning
compliance with this Agreement, either party will be entitled to obtain
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from a court with jurisdiction over the parties preliminary and permanent
injunctive relief to enjoin or restrict the other party from such breach or to
enjoin or restrict a third party from inducing any such breach, and other
appropriate relief, including money damages. In seeking any such relief,
however, the moving party will retain the right to have any remaining
portion of the controversy resolved by binding confidential arbitration in
accordance with sub paragraph (a) above.
By signing the below, the parties agree to the terms hereof,
including the Exhibits hereto, and agree that this document, and Exhibits
A, B, C, D, E & F hereto, set forth their entire agreement, except as
otherwise expressly provided herein.
APPLE COMPUTER, INC.
February 13, 1996 By /s/ Gilbert F. Amelio
Date Gilbert F. Amelio
Chief Executive Officer,
Chairman, Board of Directors
Apple Computer, Inc.
I have read, understand, and agree to the foregoing:
February 12, 1996 By /s/ Michael H. Spindler
Date Michael H. Spindler
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Exhibit 10.A.39
June 3, 1996
James Buckley
124 Bridgton Court
Los Altos, CA 94022
Re: Additional Benefits Beyond Executive Severance Plan
Dear Jim:
In addition to the benefits available to you under Apple's Executive
Severance Plan, Apple has agreed to provide you with additional
benefits. In exchange for your agreement to waive your right to move
back east and seek reimbursement from Apple for moving expenses,
Apple win agree to waive its right to collect mortgage assistance
prepayments paid to you. In addition, you may keep as your personal
property the Apple equipment currently in your possession at home.
Please provide me a list of this equipment as soon as possible.
If you have any questions about this supplemental letter, please give
me a call. Otherwise, please return to me a signed original of this letter.
Sincerely,
Apple Computer, Inc.
/s/ Kevin Sullivan
Kevin Sullivan
Senior Vice President, Human Resources
Agreed to as of this 30th day of June, 1996.
/s/ James J. Buckley
James J. Buckley
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Supplemental Information to Letter Agreement
dated June 3, 1996 between Apple Computer, Inc.
and James J. Buckley (the "1996 Agreement")
1. Pursuant to the terms of a letter agreement dated January 17, 1995
(the "1995 Agreement"), between Mr. Buckley and Apple Computer,
Inc. ("Apple"), Apple had agreed to relocate Mr. Buckley and his family
to any city within the continental United States in accordance with
Apple's standard relocation package in the event of Mr. Buckley's
termination (other than for Business Reasons as defined in the 1995
Agreement) on or before January 16, 1997. Pursuant to the terms of the
1996 Agreement, Mr. Buckley has waived his right of relocation under
the 1995 Agreement.
2. In consideration for Mr. Buckley's waiver of his right of
relocation under the 1995 Agreement, Apple has agreed to waive its
right to collect a pro rata portion ($31,250) of the mortgage assistance
prepayment made to Mr. Buckley for calendar year 1996 in the amount
of $75,000.
3. Apple has agreed to let Mr. Buckley keep as his personal property
Apple equipment as set forth below:
Macintosh Duo 2300
Duo Dock
Personal Laserwriter 320 printer
Hewlett-Packard Fax 700
Compact Disc Player
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Exhibit 10.B.16
FOUNTAIN MANUFACTURING AGREEMENT
between
APPLE COMPUTER, INC.
and
SCI SYSTEMS, INC.
This Fountain Manufacturing Agreement (the "Agreement") by and between Apple
Computer Inc., a California corporation, with its principal place of business
at 1 Infinite Loop, Cupertino, California 95014 ("Apple"), and SCI Systems
Colorado, Inc., a Colorado corporation having its principal place of business
at 702 Bandley Drive, Fountain, Colorado 80817 is entered into on May 31, 1996
and effective as of the Closing Date, defined below.
PURPOSE
Apple and SCI entered into a Stock Purchase Agreement on April 4, 1996 (the
"Stock Purchase Agreement") pursuant to which SCI will purchase Apple's
manufacturing facility located at 702 Bandley Drive, Fountain, Colorado
("Fountain") and certain related assets.
The parties desire that Apple engage SCI to assemble, test and package
certain Products, Service Units and Spare Parts, as defined below, on a
turnkey basis at Fountain on the terms and conditions of this Agreement.
This Agreement defines the general terms and conditions governing all
transactions between them for Products, Service Units and Spare Parts
manufactured at Fountain. Individual "Product Plans" attached as Addenda to
this Agreement, and incorporated herein by reference, define the specific terms
and conditions for each Product, Service Unit and/or Spare Part. The initial
Product Plans are attached to Exhibit A and numbered A-1 through A-11.
Additional Products and Product Plans may be added to this Agreement by addenda
to Exhibit A signed by both parties. Such addenda will be numbered
sequentially, A-12, A-13 and so on.
In consideration of the above and the mutual promises contained herein, Apple
and SCI agree as follows:
AGREEMENT
1. DEFINITIONS
Whenever capitalized in this Agreement:
"Additional Apple Inventory" has the meaning set forth in Section 7.1.
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"Americas" means all countries in North, South, and Central America and
the Caribbean.
"Apple Authorized Vendor" means: (i) Apple; (ii) third parties selected,
approved and qualified by Apple in writing; and (iii) with Apple's prior
written approval, third parties selected by SCI.
"Applicable Labor Hours" has the meaning set forth in Exhibit B,
Schedule 1.
"Apple Proprietary Components" means materials and components that are
proprietary to Apple or contain Apple proprietary technology, including
all copyrights, patent rights, trademarks, trade secrets and other
intellectual property rights embodied therein.
"Base Factory Load" or "BFL" has the meaning set forth in Exhibit B,
Schedules 1 and 2.
"Base Load Commitment" or "BLC" has the meanings set forth in Exhibit
B, Schedules 1 and 2.
"Closing" and "Closing Date" have the meanings set forth in Section
2.1, below.
"Confidential Information" means: (a) for Apple, all Apple custom and
proprietary components supplied to SCI by Apple or an Apple Authorized
Vendor, the Specifications, the Quality Requirements, the Products, any
test software, equipment or fixtures developed by or for Apple, and any
trade secrets related to any of the foregoing; (b) for SCI, the Service
Documentation, any test software, equipment or fixtures developed by or
for SCI, and any trade secrets related to any of the foregoing; (c) any
information, including but not limited to any information relating to
Apple's product plans, designs, costs, prices and names, finances,
marketing plans, business opportunities, personnel, research,
development or know-how, that is designated by the disclosing party as
confidential in writing or, if disclosed orally, reduced to writing and
designated as confidential within thirty (30) days; and (d) the terms,
conditions and existence of this Agreement; provided, however that
"Confidential Information" will not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and has
been reduced to tangible form by the receiving party at the time of
disclosure and is not subject to restriction; (iii) is independently
developed by the receiving party; (iv) is lawfully obtained from a third
party who has the right to make such disclosure; or (v) is released for
publication by the disclosing party in writing.
"DPM" means Defective Units Per Million.
"Delivery" or "Deliver" means delivery of or to deliver the quantity of
Product ordered by Apple in a particular Purchase Order to the Delivery
Point.
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"Delivery Point" means FOB for PCBA Products shipped to Apple's
Sacramento facility FOB destination and for all other Products SCI's
dock, unless otherwise agreed in the Product Plan for a particular
Product, Service Unit and/or Spare Part. If FOB destination, Apple
will pay for freight and insurance in transit to such destination.
"Direct Labor Cost" means Standard Labor Hours for a Product multiplied
by the Labor Rate for such Product.
"Epidemic Failure" means Product failures at or above mutually agreed
upon rates set forth in the Product Plan for such Product resulting
from defects in material, workmanship, manufacturing process and/or
design deficiencies attributable to SCI (or its subcontractors),
including but not limited to use of components with inherent or latent
defects, or consistent misadjustments during manufacture. There are
two types of Epidemic Failures: (a) product failure(s) attributable to
a single root cause; or (b) a product failure attributable to multiple
root causes.
"Fountain" means the manufacturing facility located 702 Bandley Drive,
Fountain, Colorado 80817.
"Initial Inventory" means the parts inventory purchased by SCI pursuant
to the Stock Purchase Agreement.
"IP License" means the Intellectual Property License Agreement between
the parties granting SCI a non-exclusive license to use certain
manufacturing technology and information systems at Fountain.
"Labor Rate" for a Product means the rate SCI may charge Apple for each
Standard Labor Hour required to manufacture such Product determined as
set forth in Exhibit B, Schedule 1.
"Lead Time" means the amount of time in advance of Delivery Apple must
issue a Purchase Order, as specified in the Product Plan for a
particular Product, Service Unit or Spare Part.
"Long Lead-Time Components" means components and/or materials that SCI
must order from a supplier at least ninety (90) days before the
requested delivery date.
"Other Cost Adders" for a Product means the percentage markup,
determined as set forth in Exhibit B, Schedule 2, that SCI may add to
the Procured Material Cost for such Product to cover SCI's overhead
costs including, without limitation, freight, scrap, duty, attrition,
rework and cost of money.
"Percentage Volume Commitment" has the meaning set forth in Section
3.1.
"Preferred Carrier(s)" means the carrier(s) specified by Apple from
time to time.
"Pre-Production Deliverables" means the pre-production deliverables
specified in the Product Plans.
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"Price Schedule" means the schedule used to determine the unit price of
a Product as set forth in the Product Plan for such Product.
"Procured Materials" means the materials purchased by SCI to manufacture
the Products for Apple under this Agreement, including the Initial
Inventory.
"Procured Materials Cost" means the amount SCI may charge Apple for
Procured Materials in a Product determined in accordance with Section
10.4 (Procured Material Cost).
"Product" means a printed circuit board assembly (PCBA) or final
assembled and tested product (FATP) to be assembled and tested by SCI
under this Agreement.
"Product Plan" means the Specifications, Quality Requirements, Price
Schedule, Epidemic Failure Rate and other unique terms related to a
particular Product as set forth in an attachment or addendum to Exhibit
A.
"Product Warranty" means the warranty on workmanship and materials that
Apple may purchase for any or all Products pursuant to Section 15.3.
"Profit" for each Product means the percentage of Direct Labor Cost and
Procured Material Cost, determined in accordance with Exhibit B,
Schedule 2, that SCI may charge Apple as profit.
"Purchase Orders" means written or electronically transmitted purchase
orders for the Products issued by Apple to SCI.
"Quality Requirements" means: (i) the quality requirements for each
Product as specified in the Product Plan for such Product; and (ii) the
Supplier Quality Business Requirements reference set forth in Exhibit
E.
"Service Documentation" means and may include some or all of the
following as specified in the Product Plan, in English and in
reproducible format, for the Products and associated Service Units and
Spare Parts, including assemblies and cable harnesses as applicable:
(a) Product Specification;
(b) Schematic, block, and component layout diagrams, and drawings
with reference designators where appropriate;
(c) Complete bill of materials, with reference designators to the
schematics and vendor part numbers, of all levels within the
Product, including two samples of each part submitted;
(d) Test and inspection procedures and assembly and disassembly
instructions, trouble-shooting procedures, alignment and
calibration procedures and safety procedures; and
(e) Specifications (data sheets) for commercially available
components with sources of supply, cross-referenced to the
schematics and vendor part number.
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"Service Software" means software necessary for the testing and
inspection of the Product and/or Service Units.
"Service Units" means serviceable modules and/or field replaceable
service units of each respective Product, as separately identified in
the Product Plan for such Product. Service Units are a subset of the
Spare Parts for a particular Product.
"Spare Parts" means spare parts associated with each respective
Product, as separately identified in the Product Plan for such Product.
"Specifications" means the specifications for a Product and associated
Pre-Production Deliverables as set forth in the Product Plan for such
Product. Specifications may be amended from time to time by documented
engineering change orders in accordance with Section 8, below.
"Standard Apple Hours" has the meaning set forth in Exhibit B, Schedule
1.
"Standard Cost" of a component means the actual price paid by such party
for such component as adjusted by such party from time to time to reflect
changing prices.
"Standard Labor Hours" for a Product means the number of standard SCI
labor hours required to assemble and test such Product, determined
using the methodology set forth in Exhibit B. Standard Labor Hours
for a third party means the number of standard SCI labor hours expended
for such third party.
"Standard Third Party Hours" has the meaning set forth in Exhibit B,
Schedule 1.
"Stock Purchase Agreement' means the agreement between the parties
entitled "Stock Purchase Agreement" dated April 4, 1996.
"Term" means the term of this Agreement, including the Initial Term and
any Renewal Terms, as defined in Section 2 of this Agreement.
"Tooling" means the manufacturing tooling and inspection equipment used
in manufacture and assembly of a particular Product, Service Units
and/or Spare Parts as specified in the relevant Addendum.
"Unique Components" means components purchased by SCI on behalf of
Apple that are non-cancelable, non-returnable and unusable in
manufacturing products for SCI's other customers.
2. TERM OF AGREEMENT
2.1 Closing Date. The rights and obligations of the parties under this
Agreement are conditioned upon and subject to close of the Stock
Purchase Agreement and related agreements between Apple and SCI (the
"Closing"). The Closing will occur on May 31, 1996 or such other date
as the parties agree (the "Closing Date").
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2.2 Initial Term. This Agreement will commence on the Closing Date and
remain in effect until July 1, 1999 (the "Initial Term"), unless
earlier terminated pursuant to Section 18 (Termination) or renewed
pursuant to Section 2.3 (Renewal Terms), below.
2.3 Renewal Terms. This Agreement will renew automatically for successive
one (1) year renewal terms (the "Renewal Terms") unless one party
provides the other written notice of its intent not to renew the
Agreement at least ninety (90) days before the end of the Initial Term
or any Renewal Term thereafter. The provisions of Section 3
(Percentage Volume Commitments) will not apply in any Renewal Term.
3. PERCENTAGE VOLUME COMMITMENTS
3.1 Percentage of Apple's Volumes Committed to SCI. Apple commits to
purchase from SCI, and SCI agrees to manufacture and deliver to Apple,
in each year of the Initial Term, the following percentages of Apple's
total annual volumes of Apple-labeled personal computer systems and of
main logic boards for such systems, excluding OEM and ODM boards or
systems, that are manufactured for sale in the Americas during such
year ("Percentage Volume Commitment"):
Year 1 Year 2 Year 3
(7/1/96-6/30/97) (7/1/97-6/30/98) (7/1/98-6/30/99)
Main Logic
Boards 60% 50% 40%
Computer
Systems 40% 40% 30%
3.2 Conditions. Apple's Percentage Volume Commitment is conditioned upon
and subject to:
(i) SCI offering and delivering Products with comparable quality,
and with competitive pricing, Lead Time and flexibility terms,
when compared with other suppliers located in the United States
who provide a comparable range of contract manufacturing and
engineering services similar to those SCI provides in
connection with Products;
(ii) SCI allocating adequate capacity at Fountain or with Apple's
prior written approval, at other SCI Systems, Inc. facilities
to deliver such volumes to Apple; and
(iii) SCI's performance of its obligations under this Agreement.
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To the extent SCI fails to do so, Apple may, without prejudice to any
other rights or remedies available to it, apply volumes manufactured
elsewhere, by Apple or any third party, to its satisfaction of the
Percentage Volume Commitment.
3.3 Volumes Manufactured at Another SCI Facility. Apple will have the
option to move volumes above SCI's Base Factory Load (as defined in
Exhibit B, Schedules 1 and 2) to any other SCI facility to achieve more
competitive pricing, better service, better quality or for any other
reason. All such volumes will be credited against Apple's Percentage
Volume Commitment.
3.4 Failure to Meet Percentage Volume Commitment. If Apple does not meet
its Percentage Volume Commitment in Year 1, Year 2 or Year 3 of the
Initial Term for any reason other than SCI's breach of this Agreement,
failure to allocate adequate capacity to Apple, or failure to offer
competitive product on competitive terms and conditions, as required
above, Apple may remedy its obligations under this Agreement in one of
two ways; either by:
(i) adding the shortfall (the number of units Apple was committed
to purchase less the number it actually purchased from SCI
during that year) to Apple's commitment for the following year
(except a shortfall in year 3); or
(ii) paying SCI the profit that SCI would have enjoyed had Apple
purchased the shortfall. The profit will be calculated by
multiplying:
- the shortfall (the number of units Apple was committed
to purchase less the number it actually purchased from
SCI during that year);
- the average unit cost (excluding profit) of product in
the category in which there was a shortfall (i.e.
boards or systems); and
- the percentage profit that would have applied to the
shortfall per the Pricing Formula set forth in Exhibit
A.
Apple's failure to do so within three (3) months after the end of the
year in which the shortfall occurred will constitute a breach of the
Agreement.
4. PRODUCT PLANS
4.1 Generally. Apple and SCI will establish a Product Plan, in the format
and containing the information set forth in Exhibit A, for each Product
to be manufactured under this Agreement. On or before June 21, 1996,
Apple will provide and the parties will execute Product Plans for the
initial Products that SCI will manufacture and attach such Product Plans
as addenda A1-A11 to Exhibit A. The parties may add new Products to
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this Agreement after the Closing Date by adding Product Plans for such
Products, executed by both parties and in the format and containing the
information set forth in Exhibit A, as addenda to Exhibit A. SCI will
have no obligation to perform the pre-production or manufacturing
services under a Product Plan until Apple has issued a Purchase Order
or Letter of Authorization for such services.
4.2 Pricing for New Products. SCI will provide Apple a price quote for
each new Product proposed by Apple. Such price quotes will be
consistent with the pricing formula and Standard Labor Hour methodology
set forth in Exhibit B and will include the following information:
(a) NRE and Tooling costs, if any;
(b) Direct Labor Cost; and
(c) Actual cost of Procured Material (i.e. the actual price quoted
by the vendor for each component, including any related rebates
or discounts or leveraged volumes) by line item;
(d) Other Cost Adders;
(e) Packaging costs;
(f) Product Warranty cost, if any; and
(g) SCI's profit.
The agreed upon price and projected annual volumes for each new Product
will be set forth in the Product Plan.
4.3 Other Documents in Product Plan. Unless otherwise agreed, Apple will
be solely responsible for the identification of Products, Service Units
and Spare Parts, Apple part numbers, Specifications, Quality
Requirements, and Unique Components included in each new Product Plan.
The parties will be jointly responsible for the identification of
Pre-Production Services, the Pre-Production Delivery and Payment
Schedule, Lead Time, Service Related Terms, Manufacturing Technology,
Equipment, Labor, Materials and Facilities, Test Equipment and
Fixtures, Tooling and other Product Specific Terms and Conditions.
5. PRE-PRODUCTION SERVICES
5.1 Scope of Work. SCI's pre-production services will be specified in the
Product Plan for each Product, and may include, without limitation,
development of assembly and test processes; development of test
programs and/or fixtures; and production of prototype and/or validation
units. SCI will perform such services and deliver any Pre-Production
Deliverables to Apple in accordance with the Pre-Production Delivery
and Payment Schedule and Purchase Order(s). Unless otherwise agreed in
the Product Plan or in the IP License, SCI will provide all test and
manufacturing technology, equipment, labor, materials and facilities
necessary to perform the scope of work under this Agreement.
5.2 Test Engineering. Unless otherwise agreed in the Product Plan or in
the IP License, SCI will provide and maintain all test systems,
testers, tools and fixtures required to perform the scope of work under
this Agreement. Apple will provide SCI test vectors and other
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information Apple deems necessary to develop test programs and fixtures
for the Products, Service Units and/or Spare Parts. SCI will name a
test engineer, or more than one if Apple deems necessary and as
mutually agreed, who will interface with Apple's test engineering group
as needed to timely develop and/or support, as specified in the
relevant Product Plan, Test Programs and Test Fixtures for use in
manufacturing such Product for Apple. Upon Apple's request, SCI will
locate such test engineer(s) at Apple's engineering facilities. Test
engineers on Apple's premises will be subject to the provisions of
Section 22.3 (Personnel), below.
5.3 Progress Reports. At Apple's request, SCI will provide Apple with
regular written progress reports, such reports to include the
following:
(a) status of progress toward next scheduled milestone;
(b) short description of problems, if any, in meeting such
milestone;
(c) recovery method proposed in order to meet the next milestone,
if needed;
(d) any changes in the estimated Price of the Product;
(e) any other information related to the pre-production services
reasonably requested by Apple.
5.4 Pre-Production Review. Apple may conduct periodic reviews to ensure
its satisfaction with SCI's pre-production services under each Product
Plan. Upon reasonable notice, SCI will allow Apple, during SCI's
normal business hours, to visit its facility to discuss and inspect the
status of pre-production. Apple personnel on SCI's premises will be
subject to the provisions of Section 22.3 (Personnel), below.
5.5 Acceptance of Pre-Production Deliverables.
(a) Apple, with such assistance from SCI, as specified in the
Product Plan, will examine and test each Pre-Production
Deliverable to determine whether it conforms to the
Specifications for such Deliverable set forth in the Product
Plan within ten (10) working days after delivery to Apple.
Apple will either: (i) accept the Pre-Production Deliverable
and so inform SCI in writing; or (ii) reject the Pre-Production
Deliverable and provide SCI with a written detailed statement
of errors. Notwithstanding the Pre-Production Schedule, Apple
will not be obligated to pay for any Pre-Production Deliverable
for which Apple has submitted to SCI a detailed statement of
errors until such time as SCI has corrected such errors to
Apple's reasonable satisfaction.
(b) If Apple provides SCI a statement of errors: (i) SCI will, at
its earliest convenience, correct all errors set forth in the
statement of errors and redeliver the Pre-Production
Deliverable to Apple within ten (10) working days after receipt
of the statement of errors; or (ii) the parties will, within
ten (10) working days after SCI's receipt of the statement of
errors, negotiate in good faith the time permitted for such
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correction. Apple will, within ten (10) working days after any
redelivery of a Pre-Production Deliverable, accept or reject
the redelivery in accordance with Subsection 5.5(a) above.
This process will be repeated until Apple either accepts the
Pre-Production Deliverable or terminates this Agreement in
accordance with Section 18 (Termination), below.
(c) If Apple fails to give a statement of errors within such ten
(10) working day period, SCI may notify Apple that Apple must
provide such a statement within ten (10) working days after
Apple's receipt of SCI's notice. The Pre-Production
Deliverables must be particularly described in any such
notification. If Apple does not accept the Pre-Production
Deliverable or provide SCI a statement of errors within such
ten (10) day period, Apple will be deemed to have accepted the
Pre-Production Deliverable.
5.6 Notice of Qualification. After completing its Pre-Production Review
and accepting all Pre-Production Deliverables with respect to a
Product, Apple will give SCI a written notice of qualification,
attaching to the notice any modifications to the Specifications or any
additions thereto, as agreed between Apple and SCI. Such modifications
and/or additions will be made part of the final Specification for such
Product. SCI will not implement any change to the final Specification
without Apple's prior written consent. Upon receipt of Apple's notice
of qualification, SCI will be authorized to begin producing such
Product for sale to Apple pursuant to the terms of this Agreement.
6. MANUFACTURING SERVICES
SCI will accept Purchase Orders for Products, Service Units and/or Spare Parts
issued in accordance with Section 11 (Forecasts, Orders & Adjustments),
purchase materials for, assemble, test and package such Products, Service Units
and/or Spare Parts on a turnkey basis in accordance with Apple's Specifications
and Quality Requirements, and Deliver them to Apple in accordance with the
terms of this Agreement. SCI will use only ISO 9002 manufacturing sites to
perform services under this Agreement and will not subcontract assembly,
testing or packaging services, or provide such services at any location other
than Fountain, without Apple's prior written approval. Unless otherwise agreed
in the Product Plan or in the IP License, SCI will provide all manufacturing
technology, equipment, labor, materials and facilities necessary to perform the
scope of work.
7. MATERIALS MANAGEMENT
7.1 Initial Inventory of Materials and Components.
(a) Generally. As part of the Stock Purchase Agreement, SCI will
purchase from Apple, at Apple's Standard Cost, certain
materials and components for consumption in Products forecasted
for the first six months of the Initial Term (the "Initial
Inventory"). Provided space is available at Fountain, any
additional inventory owned by Apple and on-hand at Fountain on
the Closing Date ("Additional Apple Inventory") will be kept
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in a separate cage at Fountain without charge to Apple, or at
Apple's option at an offsite location, and purchased by SCI as
required on a just-in-time basis until such inventory is either
consumed in Products or redeployed by Apple.
(b) Use of Initial Inventory and Additional Apple Inventory. SCI
will use the Initial Inventory and any Additional Apple
Inventory before any materials or components purchased by SCI
from any other source. SCI will provide Apple regular
transactional reports showing its use of the SCI Purchased
Inventory and Additional Apple Inventory. Apple will invoice
SCI for Additional Apple Inventory used by SCI.
(c) Warranty. Apple warrants that the Initial Inventory and
Additional Apple Inventory purchased by SCI will meet the
requirements of Apple's specifications for such materials
and/or components for a period of twelve (12) months after
SCI's purchase thereof. Apple will replace, or at Apple's
option, refund the purchase price, of any Initial Inventory or
Additional Apple Inventory purchased by SCI and found by SCI to
be defective by SCI, provided that: (i) SCI gives Apple prompt
written notice of such defect and returns the defective unit(s)
to Apple using Apple's RMA procedure; and (ii) Apple will not
replace or refund the purchase price of any Initial Inventory
or Additional Apple Inventory that has been abused, damaged,
altered or misused by someone other than Apple or that is
defective as a result of external causes not caused by Apple.
(d) Apple's Obligation to Repurchase.
Six (6) months after the Closing Date, Apple will repurchase,
at the original purchase price without markup or carrying
charges, any Initial Inventory that SCI has not already
consumed in components or finished goods and that it will not
consume in forecasted purchases during the next six (6) months
of the Initial Term.
Twelve (12) months after the Closing Date, Apple will
repurchase, at the original purchase price without markup or
carrying charges, any remaining Initial Inventory not consumed
in components or finished goods. The parties will mutually
agree upon a disposition plan for any Additional Apple
Inventory remaining at the end of such twelve (12) month
period, provided that Apple may, in its sole discretion,
redeploy the material for any other purpose.
7.2 Open Vendor Purchase Orders. On the Closing Date, Apple will assign to
SCI and SCI will assume any open purchase orders that Apple has issued
to vendors for materials and components matching the Bill of Materials
for Products and quantities on Apple's Initial Purchase Order,
including purchase orders for Long Lead-Time Components, taking into
consideration the quantity of such materials included in the Initial
Inventory and Additional Apple Inventory.
7.3 Procurement of Materials. To the extent the Initial Inventory, the
Additional Apple Inventory do not contain sufficient quantities of
materials and components to fulfill Apple's Purchase Orders, SCI will
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purchase such materials and components directly from vendors authorized
by Apple as set forth in Section 7.4, below. The terms and conditions
of SCI's purchase of such materials and components will be determined
by agreement between SCI and the Apple Authorized Vendors. Apple will
not be a party to these purchase transactions and SCI will be solely
responsible for all payments for Procured Materials. To the extent
provided in Apple's agreements with its Apple Authorized Vendors, SCI
will receive the benefit of any third party provisions therein which
are intended to apply to it and SCI will comply with such provisions.
Apple agrees to provide SCI with advance notice in writing of such
provisions.
SCI will purchase Procured Materials using standard purchasing
practices including, but not limited to, Economic Order Quantities,
ABC Order Policies and long lead time component management.
SCI will manage its inventory of Procured Materials in a manner:
(i) consistent with standard industry inventory management
practices, including but not be limited to the use of Economic
Order Quantities, ABC buy policies, and long lead-time
component management; and
(ii) that will ensure that SCI can fill Apple Purchase Orders on a
turnkey basis according to the agreed upon Lead Times and
flexibility terms and obtain competitive prices for such
materials and components.
7.4 Apple Authorized Vendors. SCI will procure materials only from Apple
Authorized Vendors. Apple will provide SCI with an Approved Vendor
List/Preferred Vendor List for each phase of Product manufacture. All
suppliers of Procured Materials will be considered tier two suppliers
to Apple. SCI will not change vendors without Apple's advance written
approval. Apple's specification of vendors will not release SCI from
any of its obligations for meeting the standards of workmanship or any
other obligations it has under this Agreement.
7.5 Long Lead-Time Components. Apple and SCI will identify any Long Lead-
Time Components in writing in the Product Plan or at any time during
the production of a Product. SCI will not purchase Long Lead-Time
Components except as expressly approved by Apple in a letter of
authorization which will be as binding as a Purchase Order for such
Long Lead-Time Components.
7.6 Use of Proprietary Components. SCI agrees to use Proprietary
Components for the sole purpose of producing the Products, Service
Units and Spare Parts for Apple and not for any other purpose. SCI
agrees not to engage in, nor will it authorize others to engage in,
the reverse engineering, disassembly or the decompilation of any
Proprietary Components.
7.7 Reports. Upon request, SCI agrees to provide Apple written reports on
Procured Materials, current inventory and scheduling in the format
specified by Apple. SCI will also authorize its suppliers to provide
Apple information regarding the Procured Materials.
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7.8. Packaging And Printed Materials. All packaging, product graphics,
instructional materials and other Apple-specified related print matter
will be created, developed and produced in accordance with Apple's
requirements as outlined in the Product Plan.
7.9 Operations Manager. Each company will name a person to be a single
point of contact to handle operational matters related to the day to
day administration of this Agreement. The current operational
contacts for each party are shown in Exhibit F.
8. DESIGN, MATERIAL AND PROCESS CHANGES
8.1 At SCI's Request. SCI will not change any Product, including any
component, material or process used in manufacturing such Product,
without obtaining Apple's prior written consent utilizing the process
set forth in the Apple Vendor Request for Action Information Guide
(P/N 080-0504-A). SCI's request will include any cost, schedule or
other impact of such change. If Apple requests, SCI will also provide
sample units of the modified Product for Apple's evaluation. Apple
will approve or disapprove SCI's request within thirty (30) days after
receipt.
8.2 At Apple's Request. Should Apple desire modifications in the design of
a Product, Apple will submit a written Engineering Change Order ("ECO")
to SCI. Within one (1) week after SCI's receipt of the ECO, SCI will
advise Apple of any cost, schedule or other impact of such change, and
will not implement any such change unless and until Apple has approved
such impact writing.
8.3 Emergency Changes. If Apple submits an emergency ECO clearly
identified as such, SCI will implement such ECO as soon as possible;
provided that SCI has advised Apple of and Apple has approved in
writing any cost or other impact of such change.
8.4 Impact on Open Purchase Orders. Unless Apple specifies otherwise in
its written approval of changes pursuant to this Section, such changes
will not impact any units already scheduled for Delivery as of the date
of Apple's approval.
9. QUALITY AND INSPECTION
9.1 Quality Requirements. SCI will manufacture the Products in accordance
with the Quality Requirements, including the Product-specific quality
requirements set forth in the Product Plan and the Supplier Quality
Requirements set forth in Exhibit C. SCI will provide Apple regular
reports and analysis of its yields, DPM and PPM. SCI will also provide
Apple, for Apple's review and approval, its corrective action
procedures, defect containment plan, recall risks, repair capabilities
and costs, business risk insurance, and known liabilities.
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9.2 Incoming Inspection. Apple may inspect Product Delivered under this
Agreement for deficiencies in workmanship or material either at the
Delivery Point and/or at its destination. Apple may return defective
or non-conforming Products to SCI at SCI's cost (using SCI's selected
carrier) within thirty (30) days after Delivery in accordance with the
agreed RMA procedure set forth in the Product Plan.
9.3 Ship to Stock/Ship to Distribution. This Agreement and the Pricing
Schedules are based on the assumption that SCI can produce the Products
at quality levels suitable for shipment directly to Apple's
distribution system. SCI's inability to achieve certification status
as defined in Exhibit E, will create a significant increase in costs to
Apple. SCI will develop a plan to meet such requirements and
understands that failure to achieve certification status within a
reasonable time frame may result in disqualification as an approved
Apple supplier.
9.4 On-Site Inspections. SCI acknowledges that it is essential for Apple
to have periodic access to SCI's premises for the purpose of conducting
inspections and/or audits under this Agreement, including, without
limitation, audits of SCI's compliance with the Quality Requirements
and with export and environmental laws. Upon reasonable notice, SCI
will allow Apple, during SCI's normal business hours, to visit its
facility to discuss and inspect its manufacturing processes, test the
Products, review SCI's records, etc. Such inspections/audits and any
testing done by Apple during them, will not relieve SCI of liability
for Products later found to be defective or for SCI's failure to meet
its obligations under this Agreement.
9.5 Agency Approvals. Unless the parties agree otherwise in the Product
Plan, Apple will be responsible for obtaining agency and regulatory
approvals; provided, however, that SCI will provide Apple all
information and assistance reasonably requested by Apple for the
purpose of obtaining such approvals. If recertification is required
due to changes to a Product requested by SCI, SCI may be required
obtain and bear the cost of such recertification.
10. PRICING
10.1 The Pricing Formula. The unit price of each Product manufactured at
Fountain will be determined using the pricing formula set forth in
Exhibit B. SCI will provide Apple a price quote for each new Product
proposed by Apple as set forth in Section 4.2, above. The unit price
agreed upon by the parties will be set forth in the Pricing Schedule
for such Product; provided, however, that such prices may vary in
accordance with Section 10.2, below.
10.2 Labor Rates and Other Cost Adders. The Labor Rate and Other Cost Adder
components of the pricing formula are variable depending on the actual
load at Fountain in each quarter of the Term, as follows:
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The Labor Rate (for the Initial Products and any new Products) will be
determined as set forth in Schedule 1 to Exhibit B based on the total
number of "Applicable Labor Hours" during the quarter. "Applicable
Labor Hours" is defined in Schedule 1 to Exhibit B.
The Other Cost Adders (for the Initial Products and any new Products)
will be determined as set forth in Schedule 2 to Exhibit B depending on
the total number of "Applicable Units" manufactured by SCI during the
quarter. "Applicable Units" is defined in Schedule 2 to Exhibit B.
For purposes of pricing in Years 2 and 3 of the Initial Term of this
Agreement, SCI will be responsible for a portion of the factory load if
Apple's load falls below a hypothetical "Base Factory Load" defined in
Schedules 1 and 2 to Exhibit B. This Base Factory Load is for pricing
purposes only and does not represent a purchase commitment of any kind.
Both the Labor Rates and Other Cost Adders for a given calendar quarter
will be determined prospectively based on Apple's forecasts for upcoming
quarter. At the end of the quarter, the Labor Rate and Other Cost Adders
will be adjusted retrospectively to reflect the actual number of units
manufactured by SCI and Standard Labor Hours expended by SCI during that
quarter. Within ten (10) business days after the end of each calendar
quarter, SCI will:
(a) provide Apple written verification of the actual volumes
manufactured by SCI during the quarter, including: the number
of units manufactured for Apple under the Agreement; the number
of units manufactured at Fountain for Mac OS Licensees; the
Apple Standard Hours (as defined in Schedule 1 to Exhibit B);
and the Third Party Standard Hours (as defined in Schedule 1 to
Exhibit B); and
(b) identify to Apple any overpayment or any underpayment resulting
from a difference between Apple's forecasts and actual volumes
during the quarter which shall be paid to either party, as
appropriate, within thirty (30) days.
10.3 Standard Labor Hours. When determining the number of hours required to
assemble and test each new Product, SCI will use a methodology
consistent with that used in quoting the Initial Product prices. This
methodology is set forth in Exhibit B.
10.4 Procured Material Cost. The Procured Material Cost for Initial
Products will be based on the cost of materials purchased from Apple
(Initial Inventory or Additional Apple Inventory) on a dollar for
dollar basis. Thereafter, SCI will adjust the Procured Material Cost
to the lowest prices available from its vendors according to the
following schedule:
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For Category A items: immediately (will be credited retroactively at
end of month)
For Category B items: monthly
For Category C items: quarterly
Where:
Category A = hard drives, CD-ROM drives, RAM, flat panel displays,
MPUs and other strategic components added to Category
A by agreement of the parties;
Category B = system sub-assemblies and ASICs;
Category C = all other components and materials.
Upon repricing, a net adjustment will be made, by invoice to the
appropriate party, to revalue on-hand inventory. Where, despite SCI's
efforts, a supplier refuses to revalue on-order inventory effective
immediately, the net adjustment will include those on-order units as well.
Upon request, SCI will provide Apple the actual cost of specified
materials used in its Products. With advance notice to SCI, Apple may
renegotiate the price of any component or material, and/or delivery or
other terms, with suppliers at any time. SCI will pass through to
Apple, according to the above schedule, any cost reductions, including
any rebates, discounts or other value received by SCI in connection
with any component purchased for use in Apple's products or by
leveraging Apple's volumes. Failure to do so will constitute a
material breach and grounds for immediate termination, except for de
minimus or accidental errors which are promptly remedied with interest
(not to exceed 1% per month on all amounts not remedied within 15
days).
10.5 Tooling and NRE Costs. SCI will quote tooling, NRE, and other one time
costs separately, and will not incur any such cost without Apple's
prior written approval. Apple will pay only those tooling costs and
NRE actually incurred by SCI, without markup, and will have the option
to amortize its payments over a reasonable period of time or number of
units to be agreed by the parties. SCI will substantiate all such
costs, which will not exceed the initial agreed estimate unless due to
changes requested by Apple.
10.6 Product Cost Reviews.
(a) Apple and SCI will agree upon cost reduction goals with stair
step costs reductions to be implemented over an agreed upon
period of time. These goals will be set forth in the Product
Plan.
(b) SCI will meet with Apple every three (3) months during the Term
to review the existing Product cost and establish a plan to
pursue all reasonable cost reduction opportunities.
10.7 Most Favored Customer Pricing. SCI hereby warrants that at no time
will the prices charged Apple for any Product under this Agreement
exceed the prices offered other customers on similar terms and
conditions.
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10.8 Taxes. The prices set forth in the Price Schedules are exclusive of
state or local sales, use, excise or similar taxes, which, if
applicable, will be paid by Apple.
10.9 Reports. SCI will provide Apple monthly reports within ten (10)
business days after the end of each month, and quarterly reports within
ten (10) business days after the end of each of calendar quarter
showing: (i) the number of Standard Labor Hours actually expended at
Fountain for third parties during such month or quarter; and (ii) the
number of Mac OS Systems and boards for Mac OS Systems manufactured at
Fountain for third parties during such month or quarter.
10.10 Royalties. Unless stated otherwise in a Product Plan, SCI will have no
obligation to collect and pay separate royalties to any third party
(except those royalties contained within a vendor's product price).
11. FORECASTS, ORDERS & ADJUSTMENTS
11.1 Forecasts. Apple will provide SCI, every calendar month during the
Term, a forecast covering the period of six (6) calendar months
beginning with the month in which such forecast is provided. Such
forecast will specify the number of units of the Products which Apple
anticipates purchasing during such six (6) month period. Such
forecasts will be non-binding and will not be regarded as a commitment
to purchase by either party.
11.2 Purchase Orders. Apple will order Products by issuing monthly Purchase
Orders to SCI on a rolling four month basis, in writing or by
electronic means, in accordance with the applicable Lead Time(s). To
be effective, all Purchase Orders must reference this Agreement and
contain the following terms, summary of initial P.O. attached as
Exhibit _________.
(a) description of the Products to be purchased, including Apple's
part number;
(b) quantity to be purchased;
(c) delivery instructions, including routing, delivery schedule and
destination; and
(d) confirmation of price.
SCI will accept Apple Purchase Orders within five (5) working days
after it receives them. Failure to deliver an acknowledgment to Apple
within such five (5) day period will be deemed acceptance. Only terms
(a) - (d), above, and the terms of this Agreement will apply to orders
for Products, even if Apple's Purchase Order and/or SCI's
acknowledgment form contains other terms and conditions. In the case
of conflict between this Agreement and any Purchase Order, the terms of
this Agreement will prevail. Any remedies at law or equity not
specifically disclaimed or modified by this Agreement remain available
to both parties.
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11.3 Authorized Purchasing Locations. SCI agrees to accept and act upon
only those Purchase Orders received from the following authorized
purchasing locations:
Apple Computer, Inc. Apple Computer Limited
One Infinite Loop Holly Hill Industrial Estate
Cupertino, CA 95014 Cork City, Ireland
Apple Computer Limited Apple Computer B.V.
7 Ang Mo Kio Street 64 P.O. Box 600
Singapore 569086 7300 AP, Apeldoorn,
The Netherlands
Apple Computer, Inc. Apple Computer, Inc.
2911 Laguna Blvd. 20400 Stevens Creek Blvd.
Elk Grove, CA 95832 Cupertino, CA 95014
Apple Computer, Inc..
900 E. Hamilton Avenue
Campbell, CA 95008
The above list of authorized purchasing locations may revised by Apple
from time to time by written notice to SCI.
11.4 Order Adjustments.
Apple may increase, decrease or reschedule the number of units under a
particular purchase order as follows:
For PCBA Orders:
Adjustments Made Permissible Adjustment*
Within 30 Days* up to 25%
31 to 45 Days up to 50%
46 to 60 Days up to 75%
60+ Days up to 100%+
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For FATP Orders:
Adjustments Made Permissible Adjustment**
Within 7 Days*: negotiated
8 to 14 Days up to 25%
15 to 21 Days up to 50%
22+ Days up to 100%+
* "Days" means the number of calendar days between Apple's order
adjustment and the scheduled Delivery date.
** "Adjustment" means the percentage of units ordered for Delivery
on such Delivery Date that Apple may add to the order, delete
from the order or reschedule for later delivery.
Contingent on availability of materials and labor, SCI will supply
increased units on the originally scheduled Delivery date.
If Apple reschedules the Delivery date under a particular Purchase
Order more than sixty (60) days after the original Delivery date, Apple
will pay SCI an inventory carrying charge equal to 1% of the actual
cost of affected inventory held by SCI on the last day of each month
thereafter, provided that SCI will use every effort to mitigate such
carrying charges to Apple by, without limitation, canceling or delaying
orders, returning components and utilizing components in other products
currently produced by SCI at any of its sites.
Apple will be responsible for:
(i) any overtime charges required to meet Apple's needs where Apple
requires greater flexibility than is permitted above; and
(ii) any vendor premiums required to meet Apple's flexibility needs,
provided that such premiums are incurred due to circumstances
beyond SCI's control; provided that SCI will use every effort
to minimize such charges or premiums and will advise Apple of
any such charges or premiums in advance so that Apple may
choose whether to incur the additional cost in order to achieve
the desired flexibility.
11.5 Configuration Changes. Subject to availability of materials, Apple may
change the configuration of quantities under a particular Purchase Order
at any time without penalty; provided that SCI may adjust the cost of
such quantities pursuant to the terms of Section 10, above.
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11.6 Cancellation of Purchase Orders. Apple may cancel any Purchase
Order(s), in whole or in part, on thirty (30) days notice to SCI,
provided that Apple will reimburse SCI for costs actually and
reasonably incurred by SCI, including the actual cost of materials and
components for the ordered quantity and material adders therefore (as
set forth in Exhibit B "Other Cost Adders"), as the result of such
cancellation, but not profit or opportunity cost. Both parties will
undertake reasonable measures to mitigate the costs of termination.
11.7 Lead Time Reduction Program. SCI and Apple will meet periodically to
discuss options to effect reductions in Lead Times to allow improved
flexibility in ordering and delivery. The agenda for each meeting will
include identification of such options, schedules for determination of
associated cost and schedules for implementation.
12. DELIVERY, TITLE, CARRIER & RISK OF LOSS
12.1 Delivery. SCI will Deliver the total number of units ordered in a
particular Purchase Order to the Delivery Point on or before the date
specified in such Purchase Order, subject to the provisions of Section
11.4 above.
12.2 Carrier; Risk of Loss. SCI will use Apple's Preferred Carrier(s) for
Delivery, provided that if Apple does not designate a preferred
carrier, SCI may select a common carrier at its discretion. All
shipments will be FOB point of shipment, with title and risk of loss or
damage passing to Apple upon Delivery to the Delivery Point.
12.3 Failure to Meet Delivery Date.
In addition, and without prejudice to any other rights or remedies
available to Apple under law or otherwise:
(a) If a Delivery is or will be late by one or more days, provided
late delivery was not caused by Apple, SCI will pay the
incremental cost associated with air freighting the order to
Apple.
(b) If SCI fails to Deliver all or part of any order within five
(5) days after the Delivery date specified in the Purchase
Order, Apple may, without prejudice to any other rights or
remedies available to Apple under law or otherwise, terminate
the late portion of the Purchase Order without cancellation
charges. The canceled units will be credited against Apple's
Percentage Volume Commitment. With respect to the portion of
a Purchase Order not terminated, if any, the unit price will
not change and SCI will otherwise continue performance under
this Agreement.
(c) If SCI fails to deliver all or part of an order within thirty
(30) days after the Delivery date specified in the Purchase
Order, Apple may, without prejudice to any other rights or
remedies available to Apple under law or otherwise, terminate
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the Purchase Order without cancellation charges and purchase
substitute products from another source; provided that, prior
to such cancellation, Apple will provide SCI the opportunity to
manufacture and deliver the Product within thirty (30) days
from any other SCI facility or to subcontract the effort to
another source approved by Apple for delivery within such
thirty (30) day period. SCI will reimburse Apple for the
difference between the price of the products and the price paid
by Apple for substituted products. Any such substitute
products will be credited against Apple's Percentage Volume
Commitments. With respect to the portion of a Purchase Order
not terminated, if any, the unit price will not change and SCI
will otherwise continue performance under this Agreement.
13. PAYMENTS
Apple will pay SCI for quantities of Product Delivered to Apple net thirty (30)
days from the date of SCI's invoice, provided that the date of the invoice will
be no earlier than the Delivery date for such quantities. Apple's payment of
SCI's invoice will not constitute final acceptance of the Product and is
subject to adjustments for errors, shortages and defects. Unless otherwise
agreed by the parties, payment will be made by telegraphic transfer to a bank
account designated by SCI. Neither party will have the right of offset of set
off. At its option, five (5) working days after written notice to Apple, SCI
may impose a late payment fee of up to one percent (1%) per month on all
amounts past due by more than fifteen (15) days. Both parties agree to work
diligently to resolve any discrepancies involving invoices.
14. SERVICE UNITS, SPARE PARTS & SERVICE DOCUMENTATION
14.1 Purchase of Spare Parts and Service Units. Apple or its designee may
purchase Service Units and Spare Parts during the period beginning at
the Product's initial production and ending seven (7) years after SCI's
last shipment of such Product to Apple (even if after expiration of the
Agreement). Such purchases will be governed by the applicable terms
and conditions of this Agreement. Lead Times for Service Units and
Spare Parts during production will be no greater than the then
prevailing Lead Time for the Product. In an emergency, SCI will,
contingent on availability of labor and components, Deliver Service
Units and Spare Parts for Products in production within three (3) days;
provided that SCI will advise Apple of any cost, schedule or other
impact of such short lead time in advance of Delivery and will not
Deliver such Service Units or Spare Parts unless Apple approves such
impact in writing. Apple acknowledges that after production, Lead
Times for such Service Units and Spare Parts may increase, though they
will at all times during such period be reasonable given the
availability of materials and labor.
14.2 Allocation of Components. If SCI does not have sufficient inventory of
Procured Materials to satisfy Apple's Purchase Orders for Service Units
and Spare Parts and open Purchase Order for Products, Apple may divert
components allocated for production of Products and Service Units to
Spare Parts production. The extent such diversion of components
causes additional actual labor cost to SCI and/or scheduled delivery
delays, such impacts will be equitably negotiated between the parties.
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14.3 Tear-Down of Completed Product. If after a reasonable attempt to re-
allocate components pursuant to Section 14.2 above, Apple is required
to tear down completed Product or Service Units to obtain Spare Parts
to repair units in the field, SCI will accept return of the incomplete
Products or Service Units, freight collect, to SCI's designated repair
facilities, promptly repair the units and return the units to Apple
freight prepaid. Apple will be obligated to pay SCI the reasonable
costs incurred by SCI in making the repairs, including SCI's freight
cost and profit as set forth in Exhibit B.
14.4 Packaging. Unless otherwise agreed by the parties, Service Units will
be packaged with electronic static discharge protection and will be
individually packaged in accordance with Apple's Packaging
Specification (P/N 062-0087) attached as a part of Exhibit A. Unless
otherwise agreed by the parties, all other Spare Parts will be packaged
in bulk form with Apple's Spare Part description, part number, and
quantity identification on the outside of a bulk container approved by
Apple. SCI will provide one packing slip for each shipment of Service
Units and Spare Parts on Purchase Orders submitted by Apple. This
packing slip will be located on the outside of each shipping box and
will list: (a) Apple's and SCI's part number and the quantity for each
Service Unit and Spare Part shipped; and (b) the Purchase Order number.
The Purchase Order number should also appear on the shipping label for
each separate carton shipped, and all packages of individual Service
Units and Spare Parts in a carton should be clearly indicated and
marked with Apple's part number.
14.5 Service Documentation and Tools. SCI will provide Apple reasonably
complete and accurate Service Documentation as specified in the Product
Plan to assist Apple or an approved third party in the preparation of
materials for servicing, repairing and inspecting the Products. SCI
will also provide Apple any Service Software or other tools or fixtures
specified by the parties in the Product Plan, provided that Apple may
be required to pay for materials and components used in such tools or
fixtures at prices set forth in such in such Product Plan.
15. WARRANTIES
15.1 Pass Through Warranties: SCI will purchase and pass through to Apple
material and workmanship warranties on Procured Materials specified by
Apple in the Product Plan, including without limitation product
liability warranties, so that Apple may, at its option, take warranty
claims directly to the vendors of such Procured Materials, rather than
make such claims through SCI. If such action by Apple will impact SCI's
cost or delivery schedule, such cost or schedule will be equitably
adjusted. SCI will also establish a process permitting Apple to
purchase components and materials and procure out-of-warranty repairs
directly from such vendors. Such vendors will keep SCI apprised of
Apple's returns and business requirements. Apple's direct relationship
with any such vendor will not release SCI from any of its obligations
under this Agreement.
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15.2 Epidemic Failure Warranty. If a Product demonstrates an Epidemic
Failure within three (3) years of the date of manufacture, SCI will
promptly repair the affected Product or Service Unit, replace it with
a functionally equivalent product or service unit, or credit Apple an
amount equal to the purchase price. SCI will also (i) pay freight in
and out; and (ii) reimburse Apple for reasonable direct costs
associated with the Epidemic Failure, including without limitation
labor costs associated with diagnostics, removal of Service Units and
repair or replacement by Apple or Apple's service provider.
The Formula for determining when an Epidemic Failure is set forth in
the Product Plan for each Product attached to Exhibit A.
Apple will notify SCI whenever an Epidemic Failure is identified or
suspected and work with SCI to develop a recovery plan, which may
include a preventative action plan if appropriate under the
circumstances. The recovery plan actually implemented by Apple is in
Apple's sole discretion; provided, however that (i) Apple and SCI will
work together to minimize costs associated with Apple's recovery plan
as much as possible without compromising Apple's ability to
aggressively respond to its customer's needs; and (ii) SCI will
reimburse Apple only for reasonable direct costs incurred by Apple in
implementing that portion of the recovery plan associated with the
Epidemic Failure. SCI shall not be responsible for Epidemic Failures
caused by Apple's specifications, instructions, drawings, or designs.
15.3 Optional Product Warranty.
In addition to the Epidemic Failure warranty provided under Section
15.1, above, Apple will have the option to purchase a fifteen (15)
month warranty of materials and workmanship (a "Product Warranty") for
any or all Products under this Agreement at a price not to exceed one-
half of one percent (.5%) of the unit price of the warranted Product.
Apple may exercise its option to purchase a Product Warranty for a
particular Product by giving notice to SCI at any time before such
Product is shipped to Apple. The agreed price of the Product Warranty
will be set forth in the Product Plan for such Product.
SCI represents and warrants to Apple that each Product for which Apple
purchases a Product Warranty (a "Warranted Product") will be free from
defects in workmanship and materials for fifteen (15) months from the
date SCI shipped such Product to Apple. The Product Warranty will not
apply to any Warranted Product that has been abused, damaged, altered
or misused by someone other than SCI or that is defective as a result
of causes external to the Product and not caused by SCI or caused by
Apple supplied materials. A Warranted Product will be considered to
be free from defects in workmanship if it was manufactured in
accordance with SCI's manufacturing workmanship standards and conforms
to the Specifications and Quality Requirements for such Warranted
Product.
15.4 Repair Under Product Warranty. If SCI breaches the Product Warranty,
Apple may return the defective subassembly/field replaceable unit to
SCI for prompt repair or for replacement with a functionally equivalent
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subassembly or field replacement unit, at SCI's option. SCI will
issue a return authorization to Apple within two (2) days after receipt
of Apple's warranty claim. Apple will return such Product, freight
prepaid, to the factory or service center designated by SCI in its
return authorization. SCI will promptly repair or replace such units
at SCI's expense and deliver the repaired or replaced units to Apple
FOB destination, freight prepaid by SCI. Repaired or replaced Product
will carry the same Product Warranty for the balance of the original
warranty period. If SCI is unable to repair or replace a unit within
forty five (45) days of receipt, SCI will refund to Apple the purchase
price for that unit unless Apple has approved a repair or replacement
after such forty five (45) day period. SCI may sell any units repaired
after such forty five (45) day period to Apple to fulfill Apple's
P.O.'s for Service Units or Spare Parts.
15.5 Tracking Product and Epidemic Failure Warranties. SCI will (i) develop
and maintain a system for tracking the date each unit of each Product
was manufactured and shipped to Apple so that the parties may identify
Product covered by the Product Warranty and the Epidemic Failure
Warranty; and (ii) make such information available to Apple upon
Apple's request. SCI's tracking system will be subject to Apple's
approval and will be maintained at least one-hundred and twenty (120)
days after termination or expiration of this Agreement.
15.6 Regulatory Compliance. SCI will comply with all applicable laws and
regulations in performing its services under this Agreement.
15.7 Notice of Non Compliance. If SCI discovers or suspects that any Apple
Product fails to comply with any applicable consumer product or
electrical safety rule or contains a defect that could create a
substantial product or electrical hazard, SCI will notify Apple
immediately and supply Apple with information concerning the nature and
extent of the defect involved and the nature and severity of injuries
or potential injuries related to the particular Product. SCI will
notify Apple immediately of any claim made or proceeding commenced a
gainst it arising out of its activities under this Agreement.
15.8 Limitation of Warranty.
(a) All claims for breach of Product Warranty or Epidemic Failure
Warranty must be received by SCI no later than thirty (30)
days after the expiration of the warranty period;
(b) THE WARRANTIES IN THIS SECTION ARE THE ONLY WARRANTIES GIVEN
BY SCI. SCI MAKES, AND APPLE RECEIVES, NO OTHER WARRANTY
EITHER EXPRESS OR IMPLIED. ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE ARE EXPRESSLY
DISCLAIMED AND EXCLUDED.
(c) UNLESS EXPRESSLY AGREED TO BY SCI IN WRITING, SCI MAKES NO
WARRANTY THAT A PRODUCT WILL (I) MEET ANY SPECIFICATION NOT
MAKE KNOWN TO SCI, OR (II) RECEIVE THE APPROVAL OF OR BE
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CERTIFIED BY UNDERWRITERS LABORATORY, ANY FEDERAL, STATE,
LOCAL OR FOREIGN GOVERNMENT AGENCY (INCLUDING WITHOUT
LIMITATION THE FEDERAL COMMUNICATIONS COMMISSION) OR ANY
OTHER PERSON OR ENTITY. COMPANY ASSUMES NO RESPONSIBILITY
FOR OBTAINING SUCH APPROVALS OR CERTIFICATIONS, OR FOR
MEETING ANY SPECIFICATIONS BEYOND THOSE INCLUDED IN APPLE'S
SPECIFICATIONS.
15.9 No Waiver. Apple's approval or acceptance of any Products which do not
meet the Specifications will not relieve SCI of its warranty
obligations under this Section 15.
15.10 Apple warrants the accuracy and completeness of the drawings,
specifications and documentation provided to SCI for the manufacture of
components and products.
16. INDEMNIFICATION
16.1 Indemnity by SCI. SCI will, at SCI's expense, indemnify, hold harmless
and, at Apple's request, defend Apple any of its subsidiaries,
affiliates, directors, officers, employees, agents and independent
contractors, from and against any and all loss, cost, liability or
expense (including costs and reasonable fees of attorneys and other
professionals) arising out of or in connection with a third party claim
that: (i) a Product caused injury or damage to a person or property; or
(ii) that a Product, material or component provided or procured by SCI,
or SCI's manufacturing process infringes any patent, copyright, trade
mark right, trade secret, mask work right or other proprietary right of
any third party; provided, however, that SCI will have no liability
under this Section 16.1 to the extent such infringement is attributable
to the incorporation of designs or materials provided by Apple into the
Product.
16.2 Indemnity by Apple. Apple will, at Apple's expense, indemnify, hold
harmless and, at SCI's request, defend SCI any of its subsidiaries,
affiliates, directors, officers, employees, agents and independent
contractors, from and against any and all loss, cost, liability or
expense (including costs and reasonable fees of attorneys and other
professionals) arising out of or in connection with a third party claim
that a Product infringes any patent, copyright, trade mark right, trade
secret, mask work right or other proprietary right of any third party
to the extent that such claim is attributable to SCI's incorporation
of designs or materials provided by Apple into the Product.
16.3 Legal Compliance. Each party will defend, indemnify, and hold the
other party harmless from any loss, cost, or expense directly
resulting from the first party's violation of any law, rule, regulation
or ordinance of the United States, any state, or any other governmental
agency in the performance of this Agreement.
16.4 Conditions. A party's obligation to indemnify the other under this
Section 16 is conditioned upon and subject to: (a) the indemnified
party giving the indemnifying party reasonably prompt notice in writing
of any such suit and permits the indemnifying party through counsel of
its choice, to answer the charge of infringement and defend such claim
or suit; (b) the indemnified party provides the indemnifying party
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information, assistance and authority, at the indemnifying party's
expense, to enable such party to defend the suit; and (c) the
indemnifying party will not be responsible for any settlement made
by indemnified party without its prior written consent. The
indemnifying party agrees not to disclose or publicize the terms of
any settlement of a suit against the indemnified party without first
obtaining the such party's written permission.
17. CONFIDENTIALITY
Each party will protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that
each such party uses to protect its own like information, but at a
minimum, with a reasonable degree of care. Neither party will use the
other's Confidential Information for purposes other than those
necessary to perform this Agreement and only employees of the receiving
party who have a need to know such Confidential Information will have
access thereto. Neither party will disclose to third parties the
other's Confidential Information without the prior written consent of
the other party.
18. TERMINATION
18.1 Termination for Cause.
(a) Either party may terminate this Agreement effective immediately
upon written notice to the other (i) for a material breach by
such other party not cured within thirty (30) days after written
notice of such breach; or (ii) if the other party admits in
writing its insolvency or inability to pay its debts or perform
its obligations as they mature or makes an assignment for the
benefit of creditors, or a receiver or similar officer is
appointed to take charge of all or a portion of the parties
assets.
(b) Apple may terminate this Agreement effective immediately upon
written notice to SCI if SCI materially breaches its obligation
of confidentiality under Section 17.
18.2 Termination Without Cause. After the Initial Term, but not during such
Term, either party may terminate this Agreement without cause by giving
the other ninety (90) days advance written notice.
18.3 Effect of Termination For Cause. Upon termination of this Agreement:
(i) SCI will, to the extent and at times specified by Apple, stop
all work on outstanding Purchase Orders, incur no further
direct costs, and protect all property in which Apple has or
may acquire an interest. Apple will have the option to request
that SCI complete work in progress pursuant to any Purchase
Orders open on the date of termination;
(ii) Apple will compensate SCI for all Product delivered and accepted
by Apple; and
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(iii) SCI will deliver to Apple and Apple will purchase from SCI, at
SCI's Standard Cost, any usable Unique Components in SCI's
inventory of the date of termination that were purchased to
fulfill firm Purchase Orders or pursuant to a Letter of
Authorization from Apple.
(iv) Each party will return to the other, freight collect, all
materials that contain the other's Confidential Information,
or if the other party gives written instructions to do so,
destroy all such materials and provide the other a written
certificate of destruction within thirty (30) days after such
destruction;
Notwithstanding any termination of this Agreement, the obligations of
the parties under Sections 1, 3.4, will remain in effect.
18.4 Inventory Indemnification.
18.4.1 Upon expiration of this Agreement or termination of this
Agreement for cause by SCI or for convenience by Apple after
the Initial Term, Apple will be responsible for:
(i) all work-in-process at receipt of the notice of
termination or intent not to renew; and
(ii) all procured materials purchased to fill a Purchase
Order or authorized by Apple in a letter of
Authorization to be purchased by Customer which are on
hand or on order at receipt of the notice of
termination or intent not to renew. Items (i) and (ii)
are referred to as the "Termination Inventory".
18.4.2 SCI will make every reasonable effort to use the Termination
Inventory on other current customer programs, will cancel all
outstanding material orders with vendors, and will attempt to
return piece parts to vendors with Apple's prior approval.
Apple will be responsible for costs, charges and fees actually
incurred by SCI to cancel or return any portion of the
Termination Inventory to vendors and, upon mutual agreement,
the cost to modify the procured material for other programs.
18.4.3 With thirty (30) days from termination or cancellation, SCI
will invoice, and Apple will purchase, the Termination
Inventory remaining after vendor cancellations and returns and
after other program use, as follows: (i) for Procured Material
Inventory and authorized long lead time components, at SCI's
standard cost, plus a reasonable handling charge; (ii) for WIP,
at a reasonable pro rata percentage of the finished Product
purchase price; and (iii) for finished Product, at the purchase
price in effect at termination or cancellation. With Apple's
prior approval, Apple will be responsible for any substantiated
negative price differential between the price SCI paid for the
Procured Material and authorized long lead time components and
the price at which SCI was able to return and/or utilize the
items on other programs. SCI will credit Customer for any
positive price differentials.
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18.5 Limited License to Manufacture and Distribute. See Section 7 of the IP
License.
19. LIMITATION OF LIABILITY
EXCEPT PURSUANT TO SECTION 16 (INDEMNIFICATION), IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON CONTRACT,
TORT OR ANY OTHER LEGAL THEORY, INCLUDING WITHOUT LIMITATION LOST
PROFITS AND OPPORTUNITY DAMAGE TO ASSOCIATED EQUIPMENT, COST OF
CAPITAL, FACILITIES, SERVICE, OR REPLACEMENT POWER, DOWNTIME COSTS, OR
CLAIMS OF EITHER PARTY'S CUSTOMERS FOR SUCH DAMAGES, WHETHER OR NOT
EITHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
20. PROPERTY FURNISHED BY APPLE
Apple will retain title to and beneficial ownership of any tools, dies, molds,
jigs, patterns, hobs, computer equipment, electrodes, punches, artwork,
screens, tapes, templates, machinery, test equipment, fixtures, gauges, Apple
Proprietary Technology, Specifications, drawings or other documents or data
furnished, paid for or charged to Apple. While in SCI's possession, SCI will
hold such property in trust for Apple and maintain and preserve such property
for Apple's benefit for a period of seven (7) years following termination of
this Agreement. SCI will clearly mark all of Apple's property its possession
"Property of Apple Computer, Inc." (or substantially similar marking) and will
not use such property for any purpose other than to perform the services under
this Agreement without Apple's prior consent. SCI will keep an up to date
inventory of all Apple property in its possession and provide a copy to Apple
upon Apple's request. Apple may, on forty-eight (48) hours prior notice,
require that SCI return some or all of such property and, if it does so, SCI
will immediately deliver all such property to Apple or, in Apple's discretion,
permit Apple to take possession of such property wherever it is situated. If
Apple requires that SCI return of any Apple-owned property that is required to
manufacture and deliver a Product, SCI will be relieved of its obligation to
supply such Product to Apple.
21. EXPORT/IMPORT COMPLIANCE
21.1 Export Controlled Commodities, Technical Data and Software. This
Agreement is subject to all laws, regulations, orders or other
limitations on the export and re-export of commodities, technical data
and software. The parties hereby agrees that they will not export,
re-export, resell or transfer any export controlled commodity,
technical data or software (i) in violation of such limitations imposed
by the United States or any other appropriate national government
authority, or (ii) to any country for which an export license or other
governmental approval is required at the time of export, without first
obtaining all necessary licenses or other approvals. SCI will make
records of all export transactions available to Apple upon Apple's
written request in order to permit Apple to confirm SCI's compliance
with its obligations under this Section.
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21.2 Exporter of Record. Unless the parties agree otherwise in the Product
Plan for particular Product(s), Apple will be the Exporter of Record
for all such Products manufactured at Fountain and Delivered to Apple
or its designee outside of the United States. The Exporter of Record
will be responsible for obtaining necessary export licenses and other
government approvals required for export, and for preparing export
documentation such as commercial invoices, shipper's export
declarations, and international waybills. Each party agrees to comply
fully with the export control laws of the United States and with the
U.S. Export Administration Regulations and the U.S. Arms Export Control
Act when acting as the Exporter of Record.
21.3 Certificates of Delivery. Upon Apple's request and at SCI's expense,
SCI will provide Apple: (i) Certificates of Delivery to Apple for
Products imported into the United States by SCI and Delivered to Apple
in the United States as imported goods; and (ii) Certificates of
Manufacture and Delivery for Products imported and then further
manufactured by SCI and Delivered to Apple in the United States as
imported goods. Each Certificate will describe the imported
merchandise and reference both Apple's and SCI's Part Numbers. Apple
will use the Certificates only for the purpose of obtaining duty
drawbacks.
21.4 Country of Origin Marking. SCI certifies that articles manufactured
by SCI, or repacked by SCI, will conform with the U.S. Customs Marking
requirements as stated 19 U.S.C. 1304 and 19 CFR Part 134.
21.5 NAFTA. SCI agrees to review, upon Apple's request, North American Free
Trade Agreement (NAFTA) eligibility of products or material shipped
directly from SCI to NAFTA qualifying country (eg: U.S., Canada or
Mexico). Apple agrees to cooperate in providing information reasonably
required by SCI to evaluate NAFTA eligibility of Products. When
products are shipped directly from SCI's facility to a qualifying NAFTA
country, SCI will generate the supporting NAFTA certificate of origin
for the importer in such qualifying country. In addition, SCI agrees
maintain documentation in support of all NAFTA certificates issued.
When goods are shipped to an Apple facility in the U.S., SCI agrees to
supply Apple, upon Apple's request, with a statement of NAFTA
qualification and maintain documentation in support of such statement.
22. GENERAL TERMS
22.1 Force Majeure. Neither party will be deemed in default of this
Agreement to the extent that performance of its obligations or attempts
to cure any breach are delayed or prevented by reason of any act of
God, fire, natural disaster, accident, act of government, or an act
that is beyond the reasonable control of either party, provided that
such party gives the other party written notice thereof promptly and,
in any event, within fifteen (15) days of discovery thereof and uses
its best efforts to continue to so perform or cure. In the event of
such a Force Majeure, the time for performance or cure will be extended
for a period equal to the duration of the Force Majeure, but in no
event more than thirty (30) days.
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22.2 Relationship of the Parties. Each of the parties will at all times
during the Term act as, and will represent itself to be, an independent
contractor. Neither party will have any right or authority to assume
or create any obligations or to make any representations or warranties
on behalf of the other party whether express, implied, by appearance or
otherwise to bind the other party in any respect whatsoever.
22.3 Personnel: SCI's employees, consultants, contractors and agents will
observe the working hours, working rules and holiday schedule of Apple
while working on Apple's premises. Apple employee, et, consultants,
contractors and agents will observe the working hours, working rules
and holiday schedule of SCI while working on SCI's premises.
22.4 Assignment. The rights and liabilities of the parties hereto will bind
and inure to the benefit of their respective successors, executors and
administrators, as the case may be; provided that, neither party may
assign or delegate its obligations specified under this Agreement
either in whole or in part, without the prior written consent of the
other, which will not be unreasonably withheld. Any attempted
assignment in violation of the provisions of this Section will be void.
22.5 Insurance. Before beginning the scope of work under this Agreement,
SCI will deliver to Apple's Corporate Procurement Department, (1
Infinite Loop, M/S: 36PO, Cupertino, CA 95014-2084) a Certificate of
Insurance which shows the coverage specified below, and which provides
a thirty (30) day notice period for cancellation or reduction in
coverage or limits, and will maintain such insurance throughout the
Term:
(a) Comprehensive General Liability, including Products/Completed
Operations and Advertising Injury Liability, with limits not
less than $1,000,000 combined single limit per occurrence;
(b) Umbrella Liability, including Products/Completed Operations
with limits not less than $5,000,000 combined single limit per
occurrence;
(c) Automobile Liability with limits not less than $500,000 single
limit of liability per occurrence bodily injury and property
damage combined;
(d) Workers Compensation and Employers Liability in compliance with
all statutory regulations in the state where the work is being
done.
(e) Property Insurance covering (i) any Apple property in its
possession or control, including but not limited to any
equipment, software, tooling or materials, against all loss and
damage (at replacement value); and (ii) any Apple product
manufactured only by SCI against "all risk" including business
interruption and extra expense; limit dependent on size of
exposure to loss; contingency plan needs to be addressed.
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22.6 Trademark Usage. SCI will not, without Apple's prior written consent,
use any Apple trademarks, service marks, trade names, logos or other
commercial or product designations, for any purpose, including, but not
limited to, use in connection with any SCI products, promotions,
advertisements or Exhibitions.
22.7 Publicity. Unless otherwise agreed by the parties in writing, no press
releases, conferences, interviews or other public announcements, in
whatever form, will be made or given by either party in relation to
this Agreement.
22.8 No Third-Party Beneficiaries. This Agreement is for the sole benefit
of Apple and SCI and their permitted assigns and nothing herein
expressed or implied will give or be construed to give to any person,
other than Apple and SCI and such assigns, any legal or equitable
rights hereunder.
22.9 Severability. If for any reason a court of competent jurisdiction
finds any provision of this Agreement or portion thereof to be
unenforceable, that provision of this Agreement will be enforced to the
maximum extent permissible to effect the intent of the parties and the
remainder of this Agreement will continue in full force and effect.
22.10 No Waiver. All rights and remedies conferred under this Agreement or
by any other instrument or law will be cumulative and may be exercised
singularly or concurrently. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future
enforcement of that or any other provision.
22.11 Notices. All notices required or permitted under this Agreement will
be in writing, will reference this Agreement and will be deemed given
when: (i) delivered personally; (ii) when sent by confirmed telex or
facsimile; (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one
(l) day after deposit with a commercial overnight carrier, with written
verification of receipt. All communications will be sent to addresses
set forth below or such other address as may be designated by a given
party by giving written notice to the other party pursuant to this
Section.
Apple: SCI:
Sr. Vice President, President, Chief Operating Officer
Worldwide Operations SCI Systems, Inc.
Apple Computer, Inc. 2101 W. Clinton Avenue
1 Infinite Loop Huntsville, AL 35807
Mail Stop 75-6KC
Cupertino, California 95014 With a copy to:
SCIVP, Plant Manager
With a copy to General Counsel, Plant 22
at the same address, MS 75-8A
22.12 Governing Law. This Agreement will be governed by and construed
according to the laws of the State of California as applied to
agreements entered into and to be performed entirely within California
between California residents, except for that body of law relating to
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conflict of laws. Any litigation or other dispute resolution between
the parties relating to this Agreement will take place in the Northern
District of California. The parties consent to the personal
jurisdiction of and venue in the state and federal courts within that
District.
22.13 Interpretation. This Agreement has been negotiated by the parties and
their respective counsel. This Agreement will be fairly interpreted
according to its terms and without any strict construction in favor of
or against either party. The headings and captions are included for
reference purposes only and do not affect the interpretation of the
provisions hereof.
22.14 Equitable Relief. Because SCI will have access to and become
acquainted with Confidential Information of Apple, the unauthorized
use or disclosure of which would cause irreparable harm and significant
injury which would be difficult to ascertain and which would not be
compensable by damages alone, both parties agree that, in addition
to any other remedy available to Apple at law or in equity, the
confidentiality provisions of this Agreement will be enforceable under
the provisions of the California Uniform Trade Secrets Act, California
Civil Code Section 3426, as amended.
22.15 Guarantee of Performance. SCI Systems, Inc. and Apple Computer, Inc.
hereby absolutely and unconditionally guarantee the performance of
their respective subsidiaries and affiliates under the terms of this
Agreement, including without limitation the payment of all moneys due
in a timely manner. Apple's and SCI Systems, Inc.'s overseas
subsidiaries and affiliates shall either reference this Agreement on
the face of the Purchase Orders or shall provide written acknowledgment
that any Purchase Orders issued by the overseas subsidiary or affiliate
shall be governed by this Agreement.
22.16 Complete Agreement. This Agreement, including all Exhibits, all
Addenda thereto and Specifications and Quality Requirements
identified therein, and all Purchase Orders issued hereunder,
constitutes the entire Agreement between the parties in connection
with the subject matter hereof, and terminates and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral
or written, between the parties. No amendment to or modification of
this Agreement will be binding unless in writing and signed by a duly
authorized representative of both parties.
APPLE COMPUTER, INC. SCI SYSTEMS, INC.
BY: /s/ G. Fred Forsyth BY: /s/ David F. Jenkins
NAME: G. Fred Forsyth NAME: David F. Jenkins
TITLE: Senior Vice President TITLE: Senior Vice President
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EXHIBIT 11
APPLE COMPUTER, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
<C> <C> <C> <C> <C>
Primary Earnings Per Share
Earnings (Loss)
Net income (loss) applicable
to common stock ($32,123) $103,019 ($840,967) $364,122
Shares
Weighted average number of
common shares outstanding 123,735 121,379 123,463 120,681
Adjustment for dilutive effect - 1,824 - 1,801
of outstanding stock options
Weighted average number of
common and common equivalent
shares used for primary
earnings per share 123,735 123,203 123,463 122,482
Primary earnings (loss) per
common share ($ 0.26) $ 0.84 ($ 6.81) $ 2.97
Fully Diluted Earnings Per Share
Earnings (Loss)
Net income (loss) applicable
to common stock ($32,123) $103,019 ($840,967) $364,122
Shares
Weighted average number of
common shares outstanding 123,735 121,379 123,463 120,681
Adjustment for dilutive effect - 2,647 - 2,095
of outstanding stock options
Weighted average number of
common and common equivalent
shares used for fully diluted
earnings per share 123,735 124,026 123,463 122,776
Fully diluted earnings (loss)
per common share ($ 0.26) $ 0.83 ($ 6.81) $ 2.97
</TABLE>
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EXHIBIT 27
APPLE COMPUTER, INC.
FINANCIAL DATA SCHEDULE
(In millions, except per share amounts)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME OF
APPLE COMPUTER, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,359
<SECURITIES> 0
<RECEIVABLES> 1,292
<ALLOWANCES> 96
<INVENTORY> 1,061
<CURRENT-ASSETS> 4,454
<PP&E> 1,406
<DEPRECIATION> 791
<TOTAL-ASSETS> 5,345
<CURRENT-LIABILITIES> 1,926
<BONDS> 949
<COMMON> 423
0
0
<OTHER-SE> 1,597
<TOTAL-LIABILITY-AND-EQUITY> 5,345
<SALES> 7,512
<TOTAL-REVENUES> 7,512
<CGS> 7,055
<TOTAL-COSTS> 7,055
<OTHER-EXPENSES> 1,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> (1,335)
<INCOME-TAX> (494)
<INCOME-CONTINUING> (841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (841)
<EPS-PRIMARY> (6.81)
<EPS-DILUTED> (6.81)
<PAGE>
</TABLE>
