________________________________________________________________
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 March 28, 1997 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
Cupertino California 95014
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code: (408) 996-1010
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
126,354,086 shares of Common Stock Issued and Outstanding as of May 2, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions, except per share amounts)
APPLE COMPUTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
March 28, March 29, March 28, March 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $1,601 $ 2,185 $3,730 $ 5,333
Costs and expenses:
Cost of sales 1,298 2,606 3,030 5,279
Research and
development 141 150 290 303
Selling, general
and administrative 348 404 720 845
In-process research
and development 375 - 375 -
Restructuring costs 155 207 155 207
2,317 3,367 4,570 6,634
Operating loss (716) (1,182) (840) (1,301)
Interest and
other income
(expense),net 8 7 12 17
Loss before benefit
from income taxes (708) (1,175) (828) (1,284)
Benefit from
income taxes - (435) - (475)
Net loss $(708) $(740) $(828) $ (809)
Loss per
common share $(5.64) $(5.99) $(6.62) $(6.55)
Cash dividends
paid per
common share $ -- $ -- $ -- $ 0.12
Common shares
used in the
calculations of
loss per share
(in thousands) 125,609 123,659 125,071 123,326
</TABLE>
<PAGE> 1
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In millions)
<TABLE>
<CAPTION>
March 28, September 27
1997 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,273 $1,552
Short-term investments 186 193
Accounts receivable, net
of allowance for doubtful
accounts of $96 ($91 at
September 27, 1996) 1,149 1,496
Inventories:
Purchased parts 220 213
Work in process 19 43
Finished goods 270 406
509 662
Deferred tax assets 303 342
Other current assets 222 270
Total current assets 3,642 4,515
Property, plant, and equipment:
Land and buildings 461 480
Machinery and equipment 529 544
Office furniture and equipment 124 136
Leasehold improvements 181 188
1,295 1,348
Accumulated depreciation and
amortization (739) (750)
Net property, plant, and equipment 556 598
Other assets 289 251
$4,487 $ 5,364
</TABLE>
<PAGE> 2
APPLE COMPUTER, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
March 28, September 27
1997 1996
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 133 $ 186
Accounts payable 840 791
Accrued compensation and
employee benefits 137 120
Accrued marketing and distribution 277 257
Accrued warranty and related 143 181
Accrued restructuring costs 227 117
Other current liabilities 254 351
Total current liabilities 2,011 2,003
Long-term debt 952 949
Deferred tax liabilities 282 354
Shareholders' equity:
Common stock, no par value;
320,000,000 shares authorized;
126,424,977 shares issued and
outstanding at March 28, 1997
(124,496,972 shares at
September 27, 1996) 472 439
Retained earnings 806 1,634
Other (36) (15)
Total shareholders' equity 1,242 2,058
$4,487 $ 5,364
</TABLE>
<PAGE> 4
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 28, 1997 March 29, 1996
<S> <C> <C>
Cash and cash equivalents,
beginning of the period $1,552 $ 756
Operating:
Net loss (828) (809)
Adjustments to reconcile net
loss to cash generated by
operating activities:
Depreciation and amortization 55 88
Net book value of property,
plant, and equipment
retirements 32 2
In-process research and
development 375 ---
Changes in assets and liabilities,
net of effect of the acquisition
of NeXT:
Accounts receivable 356 565
Inventories 153 309
Deferred tax assets 39 (228)
Other current assets 49 (59)
Accounts payable 48 (348)
Accrued restructuring costs 110 181
Other current liabilities (123) 224
Deferred tax liabilities (72) (100)
Cash generated by
(used for) operating
activities 194 (175)
Investing:
Purchases of short-term
investments (671) (244)
Proceeds from sale of short-
term investments 678 348
Purchases of property,
plant and equipment (36) (42)
Cash used to acquire NeXT (383) ---
Other (17) (42)
Cash generated by (used for)
investing activities (429) 20
Financing:
Decrease in notes payable
to banks (53) (109)
Increase in long-term
borrowings 1 --
Increases in common stock,
net of related tax benefits
and effect of the acquisition
of NeXT 8 22
Cash dividends -- (14)
Cash used for financing
activities (44) (101)
Total cash used (279) (256)
Cash and cash equivalents,
end of the period $1,273 $500
</TABLE>
4
<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 27, 1996, included in its Annual Report on Form 10-K for the
year ended September 27, 1996 (the 1996 Form 10-K).
2. 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. These actions resulted in a net
charge of $179 million after subsequent adjustments recorded in the fourth
quarter of 1996. In the second quarter of 1997, the Company announced and
began to implement supplemental restructuring actions to meet the foregoing
objectives of the plan. The Company recognized a $155 million charge in the
second quarter for the estimated incremental costs of those actions. The
restructuring actions consist of terminating approximately 3,500 full-time
employees, approximately 2,100 of whom have been terminated from the second
quarter of 1996 through March 28, 1997, excluding employees who were hired by
SCI Systems, Inc. and MCI Systemhouse, the purchasers of the Company's
Fountain, Colorado manufacturing facility and the Napa, California data
center facility, respectively; canceling or vacating certain facility leases
as a result of those employee terminations; writing down certain land,
buildings and equipment to be sold as a result of downsizing operations
and outsourcing various operational functions; and canceling contracts for
projects and technologies that are not central to the Company's core business
strategy. The restructuring actions under the plan have resulted in cash
expenditures of $79 million and noncash asset write-downs of $28 million from
the second quarter of 1996 through March 28, 1997. The Company expects that
the remaining $227 million accrued balance at March 28, 1997 will result in
cash expenditures of approximately $170 million over the next twelve months
and $11 million thereafter. The Company expects that most of the contemplated
restructuring actions related to the plan will be completed within the next
six months and will be financed through current working capital and continued
short-term borrowings.
5
<PAGE>
The following table depicts the restructuring activity from September 27,
1996 to March 28, 1997: (In millions)
<TABLE>
<CAPTION>
Category Balance at Balance at
September 27, Net March 28,
1996 Additions Spending 1997
<S> <C> <C> <C> <C>
Payments to employees
involuntarily
terminated (C) $33 $109 $12 $130
Payments on canceled or
vacated facility
leases (C) 15 16 5 26
Write-down of operating
assets to be sold (N) 47 20 21 46
Payments on canceled
contracts (C) 22 10 7 25
$117 $155 $45 $227
</TABLE>
C: Cash; N: Noncash
3. On February 4, 1997, the Company acquired all of the
outstanding shares of NeXT Software, Inc. ("NeXT"). NeXT, headquartered in
Redwood City, California, had developed, marketed and supported
software that enables customers to easily and quickly implement business
applications on the Internet/World Wide Web, intranets and enterprise-
wide client/server networks. The total purchase price was $424 million and
was comprised of cash payments of $319 million and the issuance of 1.5
million shares of the Company's common stock to the NeXT shareholders
valued at approximately $25 million according to the terms of the purchase
agreement; the issuance of approximately 1.8 million options to
purchase the Company's common stock to the NeXT optionholders valued at
approximately $16 million based on the difference between the exercise price
of the options and the market value of the Company's stock on the date the
options were granted; cash payments of $56 million to the NeXT debtholders;
and cash payments of $8 million for closing and related costs. The acquisition
was accounted for as a purchase and, accordingly, the operating results
pertaining to NeXT subsequent to the date of acquisition have been included
in the Company's consolidated operating results. The excess purchase price
over the fair value of the net tangible assets acquired was $422 million of
which $375 million was allocated to purchased in-process research and
development and $47 million was allocated to goodwill and other intangible
assets. The purchased in-process research and development was charged to
operations upon acquisition, and the goodwill and other intangible assets are
being amortized on a straight-line basis over 2 to 7 years. The purchase price
allocation is based on preliminary estimates of the fair value of the acquired
net assets and in-process research and development and may be subject to
adjustment as management completes its evaluation of the technology
acquired and additional information becomes available during 1997.
The following unaudited proforma summary combines the
consolidated results of operations of the Company and NeXT as if the
acquisition had occurred at the beginning of the three and six months
ended March 28, 1997 and March 29, 1996, after giving effect to certain
adjustments, including in-process research and development,
amortization of intangible assets, lower interest income as a result of lower
cash investment balances, and lower interest expense as a result of the
settlement of the NeXT debt, and related income tax effects. The proforma
summary does not necessarily reflect the results of operations as they would
have been had the Company and NeXT been combined as of the beginning of
such periods.
6
<PAGE>
Proforma Results of Operations
(dollars in millions) Second Quarter Six Months Ended
1997 1996 March 28, March 29,
1997 1996
[S] [C] [C] [C] [C]
Net sales $1,603 $2,194 $3,747 $5,352
Net loss $(714) $(1,125) $(843) $(1,204)
Loss per
common share $(5.66) $(8.99) $(6.69) $(9.64)
4. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS 128"). Under the provisions of FAS 128, primary earnings per share will
be replaced with basic earnings per share, and fully diluted earnings per
share will be replaced with diluted earnings per share for companies with
potentially dilutive securities such as outstanding options and convertible
debt. FAS 128 is effective for annual and interim periods ending after December
15, 1997 and will require restatement of all comparative per share amounts.
The basic loss per share will be no different than the primary loss per share
as presented in the accompanying consolidated statements of operations as
neither consider outstanding options or convertible debt. If and when the
Company becomes profitable, it will be required to present both basic and
diluted earnings per share. Basic earnings per share, which does not consider
potentially dilutive securities, will be greater than the replaced primary
earnings per share which did consider those securities. In addition, diluted
earnings per share will not differ materially from the replaced fully
diluted earnings per share.
5. The information set forth in Item 1 of Part II hereof is hereby
incorporated by reference.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. All information is based
on the Company's fiscal calendar.(Tabular information: Dollars in
millions, except per share amounts)
<TABLE>
<CAPTION>
Results of Operations
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
Net sales $ 1,601 $ 2,185 (27%)
Gross margin $ 303 $ (421) NM
Percentage of net sales 18.9% (19.3%)
Research and development $ 141 $ 150 (6%)
Percentage of net sales 8.8% 6.9%
Selling, general and
administrative $ 348 $ 404 (14%)
Percentage of net sales 21.7% 18.5%
In-Process research and
development $ 375 $ --- NM
Percentage of net sales 23.4% ---
Restructuring costs $ 155 $ 207 NM
Percentage of net sales 9.7% 9.5%
Interest and other income
(expense), net $ 8 $ 7 14%
Net loss $ (708) $ (740) (4%)
Loss per share $ (5.64) $ (5.99) (6%)
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
Net sales $ 3,730 $ 5,333 (30%)
Gross margin $ 700 $ 54 NM
Percentage of net sales 18.8% 1.0%
Research and development $ 290 $ 303 (4%)
Percentage of net sales 7.8% 5.7%
Selling, general and
administrative $ 720 $ 845 (15%)
Percentage of net sales 19.3% 15.8%
In-Process research and
development $ 375 $ --- NM
Percentage of net sales 10.1% ---
Restructuring costs $ 155 $ 207 NM
Percentage of net sales 4.2% 3.9%
Interest and other income
(expense), net $ 12 $ 17 (29%)
Net loss $ (828) $ (809) (2%)
Loss per share $ (6.62) $ (6.55) (1%)
Second First
Quarter Quarter
1997 1996 Change
<S> <C> <C> <C>
Net sales $ 1,601 $ 2,129 (25%)
Gross margin $ 303 $ 397 (24%)
Percentage of net sales 18.9% 18.6%
Research and development $ 141 $ 149 (5%)
Percentage of net sales 8.8% 7.0%
Selling, general and
administrative $ 348 $ 372 (6%)
Percentage of net sales 21.7% 17.5%
In-Process research and
development $ 375 $ --- NM
Percentage of net sales 23.4 ---
Restructuring costs $ 155 $ --- NM
Percentage of net sales 9.7% ---
Interest and other income
(expense), net $ 8 $ 4 100%
Net loss $ (708) $ (120) (490%)
Loss per share $ (5.64) $ (0.96) (488%)
</TABLE>
NM: Not meaningful.
8
<PAGE>
Overview
During the second quarter of 1997, the Company continued to experience
declines in net sales, units shipped and share of the personal computer
market. Faced with this continued decline in demand and the resulting
continued operating losses, coupled with intense price competition
throughout the industry, the Company announced and began to effect
supplemental restructuring actions, including significant additional
headcount reductions, in order to reduce costs and return the Company to
sustainable profitability. In addition, the Company completed its acquisition
of NeXT. The Company plans to develop and market a new operating system
("OS") based on its Mac OS and NeXT software technologies.
Net Sales
Q2 97 compared with Q2 96
Net sales decreased 27% in the second quarter of 1997 compared with the
same period of 1996. Total Macintosh computer unit sales and peripheral
unit sales decreased 33% and 44%, respectively, in the second quarter of
1997, compared with the same period of 1996, as a result of a decline in
worldwide demand for most product families, especially the Performa(R) and
Power Macintosh(R) lines of consumer-oriented products, which the Company
believes was due principally to customer concerns regarding the
Company's strategic direction, financial condition, future prospects
and the viability of the Macintosh platform, and to competitive pressures
in the marketplace. In addition, Macintosh unit sales were negatively
affected as a result of the Company's inability to fulfill all purchase orders
of Power Macintosh products due to the unavailability of sufficient quantities
of certain components and product transition constraints. The average
aggregate revenue per Macintosh unit increased 9% in the second quarter of
1997 compared with the same period of 1996, as a result of a shift in mix
toward the Company's newer and higher priced PowerBook(R) and Power Macintosh
products, partially offset by continued pricing actions, including
rebates, across the Performa and other product lines in an effort to stimulate
demand. The average aggregate revenue per peripheral product
increased 22% in the second quarter of 1997 compared with the same period of
1996, as a result of a shift in mix toward the Company's newer and higher
priced products, partially offset by continued pricing actions, including
rebates, across most product lines in an effort to stimulate demand. The
average aggregate revenue per Macintosh unit and per peripheral
unit will remain under significant downward pressure due to a variety of
factors, including industrywide pricing pressures, increased
competition, and the need to stimulate demand for the Company's products.
International net sales represented 49% of total net sales in the second
quarter of 1997 compared with 59% in the same period of 1996. International
net sales declined 39% in the second quarter of 1997 compared with the
same period of 1996. Net sales in both European markets and Japan decreased
during the second quarter of 1997 compared with the same period in 1996,
as a result of decreases in Macintosh and peripheral unit sales and the
average aggregate revenue per Macintosh unit, partially offset by an
increase in the average aggregate revenue per peripheral unit.
Domestic net sales declined 9% in the second quarter of 1997, over the
comparable period of 1996, due to decreases in unit sales of Macintosh
computers and peripheral products, partially offset by increases in the
average aggregate revenue per Macintosh and peripheral unit.
According to industry sources, in the second quarter of 1997 compared with
the comparable period of 1996, the Company's approximate share of the
worldwide and U.S. personal computer markets declined to 3.1% from 5.8% and
to 4.0% from 7.3%, respectively. In addition, the Company believes that its
licensees' share of the worldwide personal computer market increased to
approximately 0.3% from approximately 0.1%.
9
<PAGE>
Six Months Ended March 28, 1997 compared with Six Months Ended
March 29, 1996
Net sales decreased 30% in the first six months of 1997 compared with the
same period of 1996. Total Macintosh computer unit sales and peripheral
unit sales decreased 30% and 34%, respectively, in the first six months of
1997, compared with the same period of 1996, as a result of a decline in
worldwide demand for most product families, especially the Performa line
of consumer-oriented products, which the Company believes was due
principally to customer concerns regarding the Company's strategic
direction, financial condition, future prospects and the viability of the
Macintosh platform, and to competitive pressures in the marketplace. In
addition, Macintosh unit sales were negatively affected as a result of the
Company's inability to fulfill all purchase orders of Power Macintosh
products due to the unavailability of sufficient quantities of certain
components and product transition constraints. The average aggregate
revenue per Macintosh unit decreased 3% in the first six months of 1997
compared with the same period of 1996, primarily due to continued pricing
actions, including rebates, across most product lines in an effort to
stimulate demand, partially offset by a shift in mix toward higher priced
PowerBook and Power Macintosh products. The average aggregate revenue per
peripheral product increased 15% in the first six months of 1997 compared
with the same period of 1996, as a result of a shift in mix toward the
Company's newer and higher priced products, partially offset by continued
pricing actions, including rebates, across most product lines in an effort
to stimulate demand.
International net sales represented 53% of total net sales in the first six
months of 1997 compared with 54% in the same period of 1996. International
net sales declined 31% in the first six months of 1997 compared with the
same period of 1996. Net sales in European markets and Japan decreased
during the first six months of 1997 compared with the same period in 1996,
as a result of decreases in Macintosh and peripheral unit sales and the
average aggregate revenue per Macintosh unit, partially offset by an
increase in the average aggregate revenue per peripheral unit.
Domestic net sales declined 29% in the first six months of 1997, over the
comparable period of 1996, due to decreases in unit sales of Macintosh
computers and peripheral products and a slight decrease in the average
aggregate revenue per Macintosh unit, slightly offset by an increase in the
average aggregate revenue per peripheral unit.
Q2 97 compared with Q1 97
Net sales decreased 25% in the second quarter of 1997 compared with the first
quarter of 1997. Total Macintosh computer unit sales decreased 35% in
the second quarter of 1997 compared with the prior quarter primarily as a
result of a decline in unit sales of Performa and Power Macintosh
products, which the Company believes was due principally to customer
concerns regarding the Company's strategic direction, financial condition,
future prospects and the viability of the Macintosh platform, and to
competitive pressures in the marketplace, as well as the seasonal
decline in unit sales and a reduction in channel inventory levels from the
first quarter to the second quarter, partially offset by an increase in unit
sales of PowerBook products as a result of new product introductions which
satisfied pent-up demand. Power Macintosh unit sales were negatively
affected as a result of the Company's inability to fulfill all purchase orders
due to the unavailability of sufficient quantities of certain components and
product transition constraints. Unit sales of peripheral products decreased
38% in the second quarter of 1997 compared with the first quarter of
1997. The average aggregate revenue per Macintosh and peripheral unit
increased 14% and 11%, respectively, in the second quarter of 1997 compared
with the first quarter of 1997, primarily due to a shift in product mix
toward the Company's newer and higher priced products.
10
<PAGE>
International net sales represented 49% of total net sales in the second
quarter of 1997, compared with 56% in the first quarter of 1997. International
net sales decreased 34% in the second quarter compared with the first
quarter of 1997. Net sales in European markets and Japan decreased during
the second quarter compared with the first quarter of 1997, as a result of
decreases in Macintosh and peripheral unit sales and average aggregate
revenue per Macintosh unit, partially offset by an increase in the average
aggregate revenue per peripheral unit.
Domestic net sales declined 13% in the second quarter of 1997 compared with
the prior quarter, due to decreases in Macintosh and peripheral unit sales,
partially offset by increases in the average aggregate revenue per
Macintosh and peripheral unit.
According to industry sources, in the second quarter of 1997 compared with
the first quarter of 1997, the Company's share of the worldwide and U.S.
personal computer markets declined to 3.1% from 4.3%, and to 4.0% from 5.2%,
respectively. In addition, the Company believes that its licensees' share of
the worldwide personal computer market decreased to approximately 0.3% from
approximately 0.5%.
In general, the Company's resellers 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 decreased to
approximately $409 million at May 2, 1997, from approximately $454 million
at January 31, 1997, primarily due to a decrease in backlog of PowerBook
product as a result of satisfying pent-up demand, partially offset by an
increase in backlog of Power Macintosh product due to the
Company's inability to fulfill all purchase orders, as discussed above.
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 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 be below the level of the prior
year's comparable periods through at least the fourth quarter of 1997, if not
longer.
Gross Margin
Gross margin represents the difference between the Company's net
sales and its cost of goods sold. The amount of revenue generated by the
sale of products is influenced principally by the price set by the
Company for its products relative to competitive products. The cost of goods
sold is based primarily on the cost of components and, to a lesser extent,
direct labor costs. The type and cost of components included in particular
configurations of the Company's products (such as memory and disk
drives) are often directly related to the need to market products in
configurations competitive with other manufacturers. Competition in the
personal computer industry is intense and, in the short term, frequent
changes in pricing and product configuration are often necessary in
order to remain competitive. Accordingly, gross margin as a
percentage of net sales can be significantly influenced in the short
term by actions undertaken by the Company in response to industrywide
competitive pressures.
11
<PAGE>
Gross margin increased as a percentage of sales in the second
quarter and the first six months of 1997, respectively, when compared
with the corresponding periods of 1996, primarily as a result of a $616
million charge in the second quarter of 1996 that related principally to the
write-down of certain inventory, as well as to 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 a $60 million charge in the
second quarter of 1996 to reflect the estimated cost to correct certain quality
problems in certain entry level, Performa and PowerBook products. In
addition, gross margins in the second quarter of 1996, and to a lesser degree
the first quarter of that year, were adversely affected by aggressive
pricing actions in Japan in response to extreme competitive actions by other
companies, as well as pricing actions in the U.S. and Europe across all
product lines in order to stimulate demand.
Gross margin remained relatively flat as a percentage of sales in the second
quarter, compared with the first quarter of 1997, primarily due to a shift
in mix toward higher priced and higher margin PowerBook products,
offset by continued pricing actions, including rebates, across the Performa
and other product lines in an effort to stimulate demand.
The gross margin levels in the second quarter of 1997 compared with the first
quarter of 1997 and the second quarter of 1996, and in the first 6 months of
1997 compared with the corresponding period of 1996, were also adversely
affected by a stronger U.S. dollar relative to certain foreign currencies,
offset by hedging gains. 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.
There can be no assurance that the Company will be able to sustain the
gross margin levels achieved in the second quarter and in the first six
months of 1997. Gross margins will remain under significant downward
pressure due to a variety of factors, including continued industrywide
pricing pressures around the world, increased competition, and compressed
product life cycles. In response to those downward pressures, the
Company expects it will continue to take pricing actions with respect to its
products. Gross margins could also be affected by the Company's ability to
effectively manage quality problems and warranty costs, and to stimulate
demand for certain of its products.
<TABLE>
<CAPTION>
Research and Development
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
Research and development $ 141 $ 150 (6%)
Percentage of net sales 8.8% 6.9%
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
Research and development $ 290 $ 303 (4%)
Percentage of net sales 7.8% 5.7%
Second First
Quarter Quarter
1997 1997 Change
<S> <C> <C> <C>
Research and development $ 141 $ 149 (5%)
Percentage of net sales 8.8% 7.0%
</TABLE>
12
<PAGE>
Research and development expenditures decreased slightly in
amount in the second quarter of 1997 compared with the first quarter of 1997
and the second quarter of 1996, and during the first six months of 1997
compared with the same period of 1996, primarily due to reduced expenditures
as a result of the Company initiating certain restructuring actions late in
the second quarter of 1997. The increases as a percentage of net sales
resulted from decreases in the levels of net sales.
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 that are central to the Company's core business
strategy. The Company believes its research and development
expenditures will significantly decrease in the third and fourth
quarters of 1997 compared with the same periods of the prior year and
compared with the second quarter of 1997, as the Company completes and
more fully realizes the cost reduction benefits of its restructuring plan. For
additional information regarding the restructuring plan, refer to Note 2 of
the Notes to the 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.
<TABLE>
<CAPTION>
In-Process Research and Development
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
In-Process research
and development $ 375 $ --- NM
Percentage of net sales 23.4% ---
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
In-Process research
and development $ 375 $ --- NM
Percentage of net sales 10.1% ---
Second First
Quarter Quarter
1997 1997 Change
<S> <C> <C> <C>
In-Process research
and development $ 375 $ --- NM
Percentage of net sales 23.4% ---
</TABLE>
NM: Not meaningful.
As a result of the NeXT acquisition, the Company took a substantial charge for
in-process research and development during the second quarter of 1997. For
additional information regarding the acquisition of NeXT, refer to Note 3 of
the Notes to the 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.
13
<PAGE>
<TABLE>
<CAPTION>
Selling, General and Administrative
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
Selling, general and
administrative $ 348 $ 404 (14%)
Percentage of net sales 21.7% 18.5%
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
Selling, general and
administrative $ 720 $ 845 (15%)
Percentage of net sales 19.3% 15.8%
Second First
Quarter Quarter
1997 1997 Change
<S> <C> <C> <C>
Selling, general and
administrative $ 348 $ 372 (6%)
Percentage of net sales 21.7% 17.5%
</TABLE>
Selling, general and administrative expenses decreased in amount in the
second quarter of 1997 compared with the first quarter of 1997 and the second
quarter of 1996, and during the first six months of 1997 compared with the
same period of 1996, primarily due to reduced expenditures as a result of
actions taken under the Company's restructuring plan. In addition,
selling, general and administrative expenses decreased in amount in the
second quarter of 1997 compared with the first quarter due to the higher
level of advertising and marketing expenditures incurred during the first
quarter for the holiday buying season. The increases as a percentage of net
sales resulted from decreases in the levels of net sales.
The Company believes its selling, general and administrative
expenditures will significantly decrease in the third and fourth
quarters of 1997 compared with the same quarters of the prior year and
compared with the second quarter of 1997, as the Company completes and
more fully realizes the cost reduction benefits of its restructuring plan,
slightly offset by the amortization expense on the intangible assets the
Company recognized as a result of the acquisition of NeXT. For additional
information regarding the Company's restructuring actions and the
acquisition of NeXT, refer to Notes 2 and 3, respectively, of the Notes to the
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.
14
<PAGE>
<TABLE>
<CAPTION>
Restructuring Costs
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
Restructuring costs $ 155 $ 207 NM
Percentage of net sales 9.7% 9.5%
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
Restructuring costs $ 155 $ 207 NM
Percentage of net sales 4.2% 3.9%
Second First
Quarter Quarter
1997 1997 Change
<S> <C> <C> <C>
Restructuring costs $ 155 $ --- NM
Percentage of net sales 9.7% ---
</TABLE>
NM: Not meaningful.
For information regarding the Company's restructuring actions
initiated in the second quarters of 1997 and 1996, refer to Note 2 of the Notes
to the 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.
<TABLE>
<CAPTION>
Interest and Other Income (Expense), Net
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
Interest and other
income(expense), net $ 8 $ 7 14%
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
Interest and other
income(expense), net $ 12 $ 17 (29%)
Second First
Quarter Quarter
1997 1997 Change
<S> <C> <C> <C>
Interest and other
income(expense), net $ 8 $ 4 100%
</TABLE>
Interest and other income (expense), net, increased slightly in the second
quarter of 1997 compared with the same period of 1996, primarily as a
result of higher interest income, partially offset by lower net gains on
foreign exchange instruments. Interest and other income (expense),
net, increased in the second quarter of 1997 compared with the first quarter of
1997, primarily as a result of higher net gains on foreign exchange
instruments.
Interest and other income (expense), net, decreased in the first six months of
1997 compared with the same period of 1996, primarily due to lower foreign
currency gains, partially offset by greater interest income.
15
<PAGE>
The Company expects interest income to decrease in the third and fourth
quarters of 1997 compared with the immediate prior quarters, due to lower
cash balances as a result of cash used to acquire NeXT, fund the restructuring
actions over primarily the next two quarters, and fund operations over at
least the next quarter.
In the second quarter of 1997, the Company's senior and subordinated
long-term debt were downgraded to B and CCC+, respectively, by Standard and
Poor's Rating Agency and to B3 and Caa, respectively, by Moody's Investor
Services. These actions could increase the Company's cost of funds in future
periods.
<TABLE>
<CAPTION>
Income Tax Provision (Benefit)
Second Quarter
1997 1996 Change
<S> <C> <C> <C>
Provision (benefit)
for income taxes -- $ (435) NM
Effective tax rate -- 37%
Six Months Ended
March 28, March 29,
1997 1996 Change
<S> <C> <C> <C>
Provision (benefit)
for income taxes -- $ (475) NM
Effective tax rate -- 37%
Second First
Quarter Quarter
1997 1997 Change
<S> <C> <C> <C>
Provision (benefit)
for income taxes -- -- NM
Effective tax rate -- --
</TABLE>
NM: Not meaningful.
At March 28, 1997, the Company had deferred tax assets arising from
deductible temporary differences, tax losses, and tax credits of $651 million
before being offset against certain deferred tax liabilities for presentation
on the Company's balance sheet. A substantial portion of this asset is
realizable based on the ability to offset existing deferred tax liabilities. In
the first six months of 1997, a valuation allowance of $199 million was
recorded against the deferred tax asset for the benefits of tax losses which
may not be realized. Realization of approximately $85 million of the asset is
dependent on the Company's ability to generate approximately $245 million of
future U.S. taxable income. Management believes that it is more likely than not
that the asset will be realized based on forecasted U.S. income. However, there
can be no assurance that the Company will meet its expectations of future U.S.
income. As a result, the amount of the deferred tax assets considered
realizable could be reduced in the near and long term if estimates of future
taxable U.S. income are reduced. Such an occurrence could materially
adversely affect the Company's financial results and condition. The
Company will continue to evaluate the realizability of the deferred tax assets
quarterly by assessing the need for and amount of the valuation allowance.
16
<PAGE>
Factors That May Affect Future Results and Financial Condition
Overview
The Company's future operating results and financial condition are
dependent upon the Company's ability to successfully develop, manufacture,
and market technologically innovative products in order to meet dynamic
customer demand patterns, and its ability to effect a change in
marketplace perception of the Company's prospects, including the
viability of the Macintosh platform. 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 and the effect of any
reaction by the Company to such competitive pressures, including
pricing actions by the Company; the Company's ability to supply products in
certain categories; the Company's ability to supply products free of latent
defects or other faults; the Company's ability to make timely delivery to the
marketplace of technological innovations, including its ability to
make timely delivery of planned enhancements to the current
Macintosh operating system ("Mac(R) OS") and to make timely delivery of a
new and substantially backward-compatible OS; the Company's ability to
successfully integrate NeXT technologies, processes and employees
with those at Apple; the Company's ability to successfully implement its
strategic direction and restructuring actions, including reducing its
expenditures; the Company's ability to attract, motivate and retain employees;
the effects of significant adverse publicity; and the availability of third-
party software for particular applications.
The Company expects that it will not return to profitability until at least the
fourth quarter of 1997, if not later.
Restructuring of Operations and New Business Model
During 1996, the Company began to implement certain restructuring
actions aimed at reducing its cost structure, improving its
competitiveness, and restoring sustained profitability. In the second
quarter of 1997, the Company announced and began to implement
supplemental restructuring actions, including significant headcount
reductions, to meet the foregoing objectives. 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 sustained 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 been implementing 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 manufactured under outsourcing
arrangements, the Company could lose control of the quality or quantity of
the products manufactured, or 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 rely to a greater extent on collaboration and licensing
arrangements with third parties, the Company will have less direct control
over certain of its research and development efforts, and its ability to
create innovative new products may be reduced. In addition, the new business
model now includes the acquisition of NeXT. There can be no assurance that the
technologies acquired from NeXT will be successfully exploited, or that key
NeXT employees and processes will be retained and successfully integrated with
those at Apple. Finally, even if the new business model is successfully
implemented, there can be no assurance that it will effectively
17
<PAGE>
resolve the various issues currently facing the Company. In addition,
although the Company believes that the actions it is taking and will take
under its restructuring plan and its acquisition of NeXT should help restore
marketplace confidence in the Macintosh platform, there can be no
assurance that such actions will be successful.
For the foregoing reasons, there can be no assurance that the new business
model, including the restructuring actions and the acquisition of NeXT,
will enable the Company to achieve its objectives of reducing its cost
structure, improving its competitiveness, and restoring
sustained profitability. 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 information regarding the Company's restructuring actions and
the acquisition of NeXT, refer to Notes 2 and 3, respectively, of the Notes to
the 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, including the recent introductions of certain
PowerBook and Power Macintosh products. 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 availability 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,
although the number of new product introductions may decrease under the
Company's new business model, the risks and uncertainties associated with
new product introductions may increase as the Company refocuses its
product offerings on key growth segments.
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 overordering by dealers who anticipate shortages due to
the aforementioned factors. These factors may be offset by others, 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 increasing coincident with
introduction, and then decreasing once dealers and customers believe they can
obtain sufficient supply of the new 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
18
<PAGE>
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 increasing 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.
The Company recently announced a "dual track" approach to its OS
development. The Company plans to continue to introduce enhancements to
the current Mac OS and later introduce a new OS (code named "Rhapsody")
which is expected to offer advanced functionality based upon the Mac OS
and NeXT software technologies. However, the NeXT software
technologies that the Company plans to use in the development of Rhapsody
were not originally designed to be compatible with the Mac OS. As a result,
there can be no assurance that the development of Rhapsody will be
successful. In addition, Rhapsody may not be fully backward-compatible with
all existing applications, which could result in a loss of existing customers.
Finally, it is uncertain whether Rhapsody or the planned
enhancements to the current Mac OS will gain developer support and market
acceptance. Inability to successfully develop and make timely delivery of a
substantially backward-compatible Rhapsody or of planned enhancements
to the current Mac OS, or to gain developer support and market
acceptance for those operating systems, may have an adverse impact
on the Company's operating results and financial condition.
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. The Company's results of operations and financial condition
have been, and in the future may continue 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. Many 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.
The Company is currently the primary maker of hardware that uses the 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 and
Microsoft Windows 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 included in Windows 95 and Windows NT, have added features to the
Windows platform which make the differences between the Mac OS and
Microsoft's operating systems less significant. 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 maintain and
increase the installed base for the Macintosh platform.
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 1995 and
19
<PAGE>
1996. 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
competes 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 competing 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 the RISC-based
PowerPC(TM) microprocessor and either include the Pentium or 586-class
microprocessor or can accommodate an add-on card containing a Pentium or
586-class microprocessor. These products enable users to run
concurrently applications that require the Mac OS, MS-DOS, Windows 3.1, or
Windows 95 operating systems.
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.
The Company, International Business Machines Corporation ("IBM") and
Motorola, Inc. have agreed upon and announced the availability of
specifications for a PowerPC microprocessor-based hardware
reference platform. These specifications define a "unified"
personal computer architecture that gives access to both the Power
Macintosh platform and the PC environment and utilizes standard
industry components. 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. Microsoft recently announced that it
would no longer adapt its Windows NT operating system software, which is
being used more by corporations, to run on the PowerPC microprocessor.
This decision may adversely affect revenues derived from 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 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 generated, and the costs of
developing such software products. To the extent the Company's recent
financial losses and declining demand for the Company's product have caused
software developers to question the Company's prospects in the personal
computer market, developers 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 to 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.
The Company's ability to produce and market competitive products is also
dependent on the ability and desire of IBM and Motorola, Inc., the suppliers of
the PowerPC RISC microprocessor for certain of the Company's products, to
supply to the Company in adequate numbers
20
<PAGE>
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. In
addition, the desire of IBM and Motorola to continue producing these
microprocessors may be influenced by Microsoft's decision not to adapt its
Windows NT operating system software to run on the PowerPC microprocessor.
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.
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.
Many of these companies have greater financial, marketing, manufacturing,
and technological resources than the Company.
The Company is integrating Internet capabilities into its new and existing
hardware and software platforms. There can be no assurance that the
Company will be able to continue to do so successfully. 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, authoring for, or communication over, the Internet.
Many of these competitors have a significant lead over the Company in
developing products for the Internet, have significantly greater financial,
marketing, manufacturing, and technological resources than the
Company, or both.
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 its assets, liabilities and 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.
21
<PAGE>
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 notes payable to
banks and long-term debt. To mitigate the impact of fluctuations in U.S.
interest rates, the Company has entered into interest rate swap, collar,
and floor transactions. Certain of these transactions 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 these
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, option and floor positions both 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, therefore, 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 is expected to increase the
costs of its hedging transactions, as well as affect the nature of the
hedging transactions into which the Company's counterparties are willing
to enter.
Inventory and Supply
The Company provides reserves against any inventories of products that have
become obsolete or are in excess of anticipated demand, accrues for any
cancellation fees of orders for inventories that have been cancelled,
and accrues for the estimated costs to correct any product quality problems.
Although the Company believes its inventory and related reserves are
adequate, no assurance can be given that the Company will not incur
additional inventory and related charges. In addition, such charges
have had, and may again have, a material affect on the Company's
financial position and results of operations.
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 in the past 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 actions,
which include the sale of the Company's Fountain, Colorado,
manufacturing facility to SCI Systems, Inc. ("SCI") and a related
manufacturing outsourcing agreement with SCI, both in the second quarter of
1996, the proportion of the Company's products produced and distributed
under outsourcing arrangements will increase. While outsourcing
22
<PAGE>
arrangements may lower the fixed cost of operations, they will also reduce the
direct control the Company has over production. It is uncertain what effect
such diminished control will have on the quality or quantity 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 cancelation 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.
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 manufacture products. 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 microprocessors and 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 net sales and adversely affect the Company's 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. Such resellers
include 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 weakened or if resellers within consumer
channels were to decide not to continue to distribute the Company's
products.
Uncertainty over demand for the Company's products may cause
resellers to reduce their 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. The Company has experienced a reduction
in ordering from historical levels by resellers due to uncertainty
concerning the Company's condition and prospects.
Other Factors
The majority of the Company's research and development activities,
its corporate headquarters, and other critical business operations, including
certain major vendors, 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
23
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Company. It is unclear what effect such regulation will have on the
Company's future operating results and financial condition.
The Company is currently reevaluating replacement of all its existing
transaction systems (which include order management, product
procurement, 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, or, alternatively, if
the Company is unable to effectively manage its existing transaction
systems.
As part of the Company's restructuring plan, the Company entered into a
"Master Logistics Management Services" agreement with Ryder
Integrated Logistics, Inc. to outsource the Company's domestic operations
transportation and logistics management. While this outsourcing
agreement, and other similar agreements entered into to outsource
the Company's European operations transportation and logistics
management, may lower the Company's fixed costs of operations, it will also
reduce the direct control the Company has over its transportation and
logistics management. It is uncertain what effect such diminished control
will have on the Company's transportation and logistics
management.
As part of the Company's restructuring plan, the Company sold its Napa,
California, data center to MCI Systemhouse ("MCI") and entered into a
data processing outsourcing agreement with MCI in the fourth quarter of 1996.
While this outsourcing agreement may lower the Company's fixed costs of
operations, it will also reduce the direct control the Company has over its
data processing. It is uncertain what effect such diminished control will
have on the Company's data processing.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition, the Company's participation
in a highly dynamic industry often results in significant volatility of the
Company's common stock price.
Liquidity and Capital Resources
The Company's financial position with respect to cash, cash equivalents, and
short-term investments, net of notes payable to banks, decreased to $1,326
million at March 28, 1997, from $1,559 million at September 27, 1996. The
Company's financial position with respect to cash, cash equivalents, and
short-term investments decreased to $1,459 million at March 28, 1997, from
$1,745 million at September 27, 1996. The Company's cash and cash
equivalent balance at March 28, 1997 and September 27, 1996, includes $167
million and $177 million, respectively, 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.
Cash generated by operations during the first six months of 1997 totaled $194
million, primarily the result of a decrease in accounts receivable and
inventories, partially offset by the Company's net loss adjusted for non-
cash expenses such as in-process research and development. The
Company expects to use cash to fund operations over at least the next
quarter.
The Company expects that cash generated from the sale of equity
investments and property, plant and equipment will be significantly less
for the remainder of 1997 compared with the same period of 1996.
24
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Cash used to acquire NeXT totaled $383 million in the second quarter of 1997.
The Company expects no additional cash expenditures related to the NeXT
acquisition. Cash used for the purchase of property, plant, and equipment
totaled $36 million in the first six months of 1997, and consisted
primarily of increases in manufacturing machinery and
equipment. The Company expects that the level of capital expenditures for
the remainder of 1997 will be comparable to the same period of 1996.
In the second quarter of 1997, the Company's senior and subordinated
long-term debt were downgraded to B and CCC+, respectively, by Standard and
Poor's Rating Agency and to B3 and Caa, respectively, by Moody's Investor
Services. The Company was also placed on negative credit watch by Moody's
Investor Services. These actions may increase the Company's cost of funds in
future periods. 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 and
short-term investments, together with continued short-term borrowings from
banks, will be sufficient to meet its cash requirements over the next 12
months. In addition to funding an expected net loss for at least the next
quarter, expected cash requirements over the next twelve months include
an estimated $170 million to effect actions under the restructuring plan,
most of which will be effected over the next two quarters. Also, the notes
payable to banks all become due prior to July 1, 1997. No assurance can be
given that short-term borrowings from banks can be continued, or that
any additional required financing could be obtained should the
restructuring plan take longer to implement than anticipated or be
unsuccessful. If the Company is unable to obtain such financing, its liquidity,
results of operations, and financial condition would be materially
adversely affected.
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.
25
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to page 45 of the Company's 1996 Annual Report on
Form 10-K under the subheading "Litigation" and to page 23 of the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 1996 under the heading "Legal Proceedings" for a discussion of
certain purported shareholder class action suits, certain consumer class
actions relating to monitor-size advertising, and "repetitive stress
injury" claims.
In February 1997, the Court in the case styled Abraham and Evelyn Kostick
Trust v. Peter Crisp et. al. sustained the Company's demurrer with respect
to purported class action claims and overruled it with respect to purported
derivative claims. In April 1997, the Company filed a motion to strike most
of the substantive allegations of the second amended complaint.
In February 1997, the Court in the case styled Derek Pritchard v. Michael
Spindler et. al. sustained the Company's demurrer and dismissed the
plaintiff's first amended complaint, with prejudice.
In March 1997, the plaintiff in the case styled LS Men's Clothing Defined
Benefit Pension Fund v. Michael Spindler et. al. filed an amended
complaint expanding the class period from April 4, 1995 to January 15, 1997
and adding several current and former officers of the Company as defendants.
The Company intends to file a demurrer seeking dismissal of the
amended complaint.
In March 1997, the court in the case styled In re Computer Monitor
Litigation preliminarily approved a proposed settlement to which the
Company and all but three of the other defendants in the action are parties
and provisionally certified a settlement class with respect thereto. A hearing
regarding final approval of the proposed settlement is scheduled for
June 30, 1997. If approved, the Company does not anticipate its
obligations pursuant to the proposed settlement will have a material adverse
effect on its financial condition as reported in the accompanying
financial statements.
The Company has various other 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 matters 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.
26
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Note Description
3.3 By-Laws of Apple Computer, Inc., as amended
through April 4, 1997.
10.A.3-2 Amendment No. 2 to the Apple Computer, Inc.
Savings and Investment Plan.
10.A.5 97/S8/A 1990 Stock Option Plan, as amended through
December 4, 1996.
10.A.6 97/S8/A Apple Computer, Inc. Employee Stock Purchase
Plan, as amended through December 4, 1996.
10.A.26 97/S8/B Employment Agreement dated as of February 28,
1996 between Apple Computer, Inc. and Dr.
Gilbert F. Amelio.
10.A.42 Senior Officers Restricted Performance Share
Plan, as amended through March 25, 1997.
10.A.43 97/S8/A NeXT Computer, Inc. 1990 Stock Option Plan,
as amended.
10.A.44 Non-Employee Director Stock Plan.
27 Financial Data Schedule.
Notes
97/S8/A-10.A.5,
10.A.6, 10.A.43 Incorporated by reference to Exhibit 4.2, 4.3 and 4.4,
respectively, in the Company's Registration Statement on
Form S-8 filed March 21, 1997, titled "1990 Stock
Option Plan; Employee Stock Purchase Plan; NeXT Software,
Inc. 1990 Stock Option Plan".
97/S8/B-10.A.26 Incorporated by reference to Exhibit 10.A.26 in the
Company's Registration Statement on Form S-8 filed
March 21, 1997, titled "Senior Officers Restricted
Performance Share Plan, and Employment Agreement dated
as of February 28, 1996 between Apple Computer, Inc.
and Dr. Gilbert F. Amelio".
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLE COMPUTER, INC.
(Registrant)
By: /s/Fred D. Anderson
Fred D. Anderson
Executive Vice President and Chief
Financial Officer
May 9, 1997
28
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INDEX TO EXHIBITS
Exhibit
Index
Number Note Description Page
3.3 By-Laws of Apple Computer, Inc., as amended
through April 4, 1997. 30
10.A.3-2 Amendment No. 2 to the Apple Computer, Inc.
Savings and Investment Plan. 48
10.A.5 (1) 1990 Stock Option Plan, as amended through
December 4, 1996. 27
10.A.6 (1) Apple Computer, Inc. Employee Stock Purchase
Plan, as amended through December 4, 1996. 27
10.A.26 (1) Employment Agreement dated as of February 28,
1996 between Apple Computer, Inc. and Dr.
Gilbert F. Amelio. 27
10.A.42 Senior Officers Restricted Performance Share
Plan, as amended through March 25, 1997 49
10.A.43 (1) NeXT Computer, Inc. 1990 Stock Option Plan,
as amended. 27
10.A.44 Non-Employee Director Stock Plan 58
27 Financial Data Schedule. 70
(1) Incorporated by reference at page
indicated.
29
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EXHIBIT 3.3
BY-LAWS
OF
APPLE COMPUTER, INC.
(a California corporation)
(as amended through April 4, 1997)
Article I
OFFICES
Section 1.1: Principal Office. The principal executive office for the
transaction of the business of this corporation shall be 1 Infinite Loop,
Cupertino, California 95014. The Board of Directors is hereby granted full
power and authority to change the location of the principal executive
office from one location to another.
Section 1.2: Other Offices. One or more branch or other subordinate
offices may at any time be fixed and located by the Board of Directors at
such place or places within or without the State of California as it deems
appropriate.
Article II
DIRECTORS
Section 2.1: Exercise of Corporate Powers. Except as otherwise
provided by these By-Laws, by the Articles of Incorporation of this
corporation or by the laws of the State of California now or hereafter in
force, the business and affairs of this corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
Section 2.2: Number. The number of directors of the corporation
shall be not less than five (5) nor more than nine (9). The exact number of
directors shall be seven (7) until changed within the limits specified
above, by a by-law amending this section, duly adopted by the Board of
Directors or by the shareholders. The indefinite number of directors may be
changed, or a definite number fixed without provision for an indefinite
number, by a duly adopted amendment to the Articles of Incorporation or by
an amendment to this by-law duly adopted by the vote or written consent
of holders of a majority of the outstanding shares entitled to vote;
provided, however, that an amendment reducing the fixed number or the
minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting of the
shareholders, or the shares not consenting in the case of action by
written consent, are equal to more than 16-2/3% of the outstanding shares
entitled to vote. No amendment may change the stated maximum number of
authorized directors to a number greater than two times the stated
minimum number of directors minus one.
Section 2.3: Need Not Be Shareholders. The directors of this
corporation need not be shareholders of this corporation.
Section 2.4: Compensation. Directors and members of committees
may receive such compensation, if any, for their services as may be fixed
or determined by resolution of the Board of Directors. Nothing herein
contained shall be construed to preclude any director from serving
this corporation in any other capacity and receiving compensation therefor.
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Section 2.5: Election and Term of Office. The directors shall be
divided into two classes, designated Class I and Class II. Each class shall
consist of one-half of the directors or as close an approximation as possible.
The initial term of office of the directors of Class I shall expire at the
annual meeting to be held during fiscal year 1991 and the initial term of
office of the directors of Class II shall expire at the annual meeting to be
held during fiscal year 1992. At each annual meeting, commencing with the
annual meeting to be held during fiscal year 1991, each of the successors to
the directors of the class whose term shall have expired at such annual meeting
shall be elected for a term running until the second annual meeting next
succeeding his or her election and until his or her successor shall have been
duly elected and qualified.
Section 2.6: Vacancies. A vacancy or vacancies on the Board of
Directors shall exist in case of the death, resignation or removal of any
director, or if the authorized number of directors is increased, or if the
shareholders fail, at any annual meeting of shareholders at which any
director is elected, to elect the full authorized number of directors to be
voted for at that meeting. The Board of Directors may declare vacant the office
of a director if he or she is declared of unsound mind by an order of court or
convicted of a felony or if, within 60 days after notice of his or her
election, he or she does not accept the office. Any vacancy, except for a
vacancy created by removal of a director as provided in Section 2.7 hereof, may
be filled by a person selected by a majority of the remaining directors
then in office, whether or not less than a quorum, or by a sole remaining
director. Vacancies occurring in the Board of Directors by reason of
removal of directors shall be filled only by approval of shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled
by the directors. Any such election by written consent requires the consent
of a majority of the outstanding shares entitled to vote. If, after the filling
of any vacancy by the directors, the directors then in office who have been
elected by the shareholders shall constitute less than a majority of the
directors then in office, any holder or holders of an aggregate of 5% or more
of the total number of shares at the time outstanding having the right to
vote for such directors may call a special meeting of shareholders to be
held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor. Any director
may resign effective upon giving written notice to the Chairman of the
Board, if any, the Chief Executive Officer, the President, the Secretary or
the Board of Directors of this corporation, unless the notice specifies
a later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective. A reduction of the authorized number of
directors shall not remove any director prior to the expiration of such
director's term of office.
Section 2.7: Removal. The entire Board of Directors or any
individual director may be removed without cause from office by an
affirmative vote of a majority of the outstanding shares entitled to vote;
provided that, unless the entire Board of Directors is removed, no director
shall be removed when the votes cast against removal, or not consenting in
writing to such removal, would be sufficient to elect such director if voted
cumulatively (without regard to whether such shares may be voted
cumulatively) at an election at which the same total number of votes were
cast, or, if such action is taken by written consent, all shares entitled to
vote were voted, and either the number of directors elected at the most recent
annual meeting of shareholders, or if greater, the number of directors for
whom removal is being sought, were then being elected. If any or all
directors are so removed, new directors may be elected at the same meeting or
at a subsequent meeting. If at any time a class or series of shares is
entitled to elect one or more directors under authority granted by the
Articles of Incorporation of this corporation, the provisions of this
Section 2.7 shall apply to the vote of that class or series and not to the
vote of the outstanding shares as a whole.
Section 2.8: Powers and Duties. Without limiting the generality or
extent of the general corporate powers to be exercised by the Board of
Directors pursuant to Section 2.1 of these By-Laws, it is hereby provided
that the Board of Directors shall have full power with respect to the
following matters:
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(a) To purchase, lease, and acquire any and all kinds of
property, real, personal or mixed, and at its discretion to pay therefor in
money, in property and/or in stocks, bonds, debentures or other securities
of this corporation.
(b) To enter into any and all contracts and agreements
which in its judgment may be beneficial to the interests and purposes
of this corporation.
(c) To fix and determine and to vary from time to
time the amount or amounts to be set aside or retained as reserve funds or as
working capital of this corporation or for maintenance, repairs,
replacements or enlargements of its properties.
(d) To declare and pay dividends in cash, shares and/or
property out of any funds of this corporation at the time legally
available for the declaration and payment of dividends on its shares.
(e) To adopt such rules and regulations for the conduct of
its
meetings and the management of the affairs of this corporation as it may
deem proper.
(f) To prescribe the manner in which and the person or
persons by whom any or all of the checks, drafts, notes, bills of exchange,
contracts and other corporate instruments shall be executed.
(g) To accept resignations of directors; to declare
vacant the office of a director as provided in Section 2.6 hereof; and, in
case of vacancy in the office of directors, to fill the same to the extent
provided in Section 2.6 hereof.
(h) To create offices in addition to those for which
provision is made by law or these By-Laws; to elect and remove at pleasure all
officers of this corporation, fix their terms of office, prescribe their powers
and duties, limit their authority and fix their salaries in any way it may deem
advisable which is not contrary to law or these By-Laws; and, if it sees fit,
to require from the officers or any of them security for faithful service.
(i) To designate some person to perform the duties and
exercise the powers of any officer of this corporation during the temporary
absence or disability of such officer.
(j) To appoint or employ and to remove at pleasure such
agents and employees as it may see fit, to prescribe their titles, powers and
duties, limit their authority, and fix their salaries in any way it may deem
advisable which is not contrary to law or these By-Laws; and, if it sees fit,
to require from them or any of them security for faithful performance.
(k) To fix a time in the future, which shall not be more
than 60 days nor less than 10 days prior to the date of the meeting nor more
than sixty (60) days prior to any other action for which it is fixed, as a
record date for the determination of the shareholders entitled to notice of and
to vote at any meeting, or entitled to receive any payment of any dividend
or other distribution, or allotment of any rights, or entitled to exercise any
rights in respect of any other lawful action; and in such case only
shareholders of record on the date so fixed shall be entitled to notice of and
to vote at the meeting or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of this corporation after any record date
fixed as aforesaid. The Board of Directors may close the books of this
corporation against transfers of shares during the whole or any part of such
period.
(l) To fix and locate from time to time the principal
office for the transaction of the business of this corporation and one or more
branch or other subordinate office or offices of this corporation within or
without the State of California; to designate any place within or without
the State of California for the holding of any meeting or meetings of the
shareholders or the Board of Directors, as provided in Sections 10.1 and 11.1
hereof; to adopt,
32
<PAGE>
make and use a corporate seal, and to prescribe the forms of certificates for
shares and to alter the form of such seal and of such certificates from time
to time as in its judgment it may deem best, provided such seal and such
certificates shall at all times comply with the provisions of law now or
hereafter in effect.
(m) To authorize the issuance of shares of stock of this
corporation in accordance with the laws of the State of California and the
Articles of Incorporation of this corporation.
(n) Subject to the limitation provided in Section 14.2
hereof, to adopt, amend or repeal from time to time and at any time these By-
Laws and any and all amendments thereof.
(o) To borrow money and incur indebtedness on behalf of
this corporation, including the power and authority to borrow money from
any of the shareholders, directors or officers of this corporation, and to
cause to be executed and delivered therefor in the corporate name
promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities therefor, and the
note or other obligation given for any indebtedness of this corporation,
signed officially by any officer or officers thereunto duly authorized by
the Board of Directors shall be binding on this corporation.
(p) To designate and appoint committees of the Board of
Directors as it may see fit, to prescribe their names, powers and duties and
limit their authority in any way it may deem advisable which is not contrary
to law or these By-Laws.
(q) Generally to do and perform every act and thing
whatsoever that may pertain to the office of a director or to a board of
directors.
Article III
OFFICERS
Section 3.1: Election and Qualifications. The officers of this
corporation shall consist of a Chief Executive Officer, a President, one or
more Vice Presidents, a Secretary, a Chief Financial Officer and such other
officers, including, but not limited to, a Chairman of the Board of Directors,
a Treasurer, and Assistant Secretaries and Assistant Treasurers as the Board
of Directors shall deem expedient, who shall be chosen in such manner and
hold their offices for such terms as the Board of Directors may prescribe. Any
two or more of such offices may be held by the same person. Any Vice
President, Assistant Treasurer or Assistant Secretary, respectively, may
exercise any of the powers of the Chief Executive Officer, the President, the
Chief Financial Officer, or the Secretary, respectively, as directed by
the Board of Directors, and shall perform such other duties as are
imposed upon him or her by the By-Laws or the Board of Directors.
Section 3.2: Term of Office and Compensation. The term of office
and salary of each of said officers and the manner and time of the payment of
such salaries shall be fixed and determined by the Board of Directors
and may be altered by said Board from time to time at its pleasure, subject to
the rights, if any, of an officer under any contract of employment. Any
officer may resign at any time upon written notice to this corporation,
without prejudice to the rights, if any, of this corporation under any contract
to which the officer is a party. If any vacancy occurs in any office of this
corporation, the Board of Directors may elect a successor to fill such vacancy.
33
<PAGE>
Article IV
CHAIRMAN OF THE BOARD
Section 4.1: Powers and Duties. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings
of the Board of Directors and shall have such other powers and shall be
subject to such other duties as the Board of Directors may from time to time
prescribe.
Article V
CHIEF EXECUTIVE OFFICER
Section 5.1: Powers and Duties. The powers and duties of the Chief
Executive Officer are:
(a) To act as the general manager and chief executive
officer of this corporation and, subject to the control of the Board of
Directors, to have general supervision, direction and control of the business
and affairs of this corporation.
(b) To preside at all meetings of the shareholders and, in
the absence of the Chairman of the Board or if there be no Chairman, at all
meetings of the Board of Directors.
(c) To call meetings of the shareholders and meetings of the
Board of Directors to be held at such times and, subject to the limitations
prescribed by law or by these By-Laws, at such places as he or she shall deem
proper.
(d) To affix the signature of this corporation to all
deeds, conveyances, mortgages, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized
by the Board of Directors or which, in the judgment of the Chief Executive
Officer, should be executed on behalf of this corporation; to sign certificates
for shares of stock of this corporation; and, subject to the direction of the
Board of Directors, to have general charge of the property of this
corporation and to supervise and control all officers, agents and
employees of this corporation.
Article VA
PRESIDENT
Section 5A.1: Powers and Duties. The powers and duties of the
President are:
(a) To act as the general manager of this corporation
and, subject to the control of the Board of Directors, to have general
supervision, direction and control of the business and affairs of this
corporation.
(b) To preside at all meetings of the shareholders and, in
the absence of the Chairman of the Board and the Chief Executive Officer
or if there be no Chairman or Chief Executive Officer, at all meetings of the
Board of Directors.
(c) To affix the signature of this corporation to all
deeds, conveyances, mortgages, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized
by the Board of Directors or which, in the judgment of the President, should
be executed on behalf of this corporation; to sign certificates for
shares of stock of this corporation; and, subject to the direction of the
Boardof Directors, to have general charge of the property of this corporation
and to supervise and control all officers, agents and employees of this
corporation.
34
<PAGE>
Section 5A.2: President Pro Tem. If neither the Chairman of
the Board, the Chief Executive Officer, the President, nor any Vice
President is present at any meeting of the Board of Directors, a President
pro tem may be chosen to preside and act at such meeting. If neither
the Chief Executive Officer, the President nor any Vice President is
present at any meeting of the shareholders, a President pro tem may
be chosen to preside at such meeting.
Article VI
VICE PRESIDENT
Section. 6.1: Powers and Duties. The titles, powers and duties of
the Vice President or Vice Presidents shall be prescribed by the Board of
Directors. In case of the absence, disability or death of the Chief Executive
Officer, the President, the Vice President, or one of the Vice Presidents,
shall exercise all his or her powers and perform all his or her duties. If
there is more than one Vice President, the order in which the Vice Presidents
shall succeed to the powers and duties of the Chief Executive Officer or
President shall be as fixed by the Board of Directors.
Article VII
SECRETARY
Section 7.1: Powers and Duties. The powers and duties of the
Secretary are:
(a) To keep a book of minutes at the principal executive
office of this corporation, or such other place as the Board of Directors
may order, of all meetings of its directors and shareholders with the
time and place of holding, whether regular or special, and, if special, how
authorized, the notice thereof given, the names of those present at directors'
meetings, the number of shares present or represented at
shareholders' meetings and the proceedings thereof.
(b) To keep the seal of this corporation and to affix the
same to all instruments which may require it.
(c) To keep or cause to be kept at the principal executive
office of this corporation, or at the office of the transfer agent or agents, a
record of the shareholders of this corporation, giving the names and
addresses of all shareholders and the number and class of shares held by
each, the number and date of certificates issued for shares and the
number and date of cancellation of every certificate surrendered for
cancellation.
(d) To keep a supply of certificates for shares of this
corporation, to fill in all certificates issued, and to make a proper record of
each such issuance; provided that so long as this corporation shall have one
or more duly appointed and acting transfer agents of the shares, or any
class or series of shares, of this corporation, such duties with respect to
such shares shall be performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of this corporation
any and all shares of this corporation; provided that so long as this
corporation shall have one or more duly appointed and acting transfer
agents of the shares, or any class or series of shares, of this corporation,
such duties with respect to such shares shall be performed by such transfer
agent or transfer agents, and the method of transfer of each certificate
shall be subject to the reasonable regulations of the transfer agent to
which the certificate is presented for transfer and, also, if this corporation
then has one or more duly appointed and acting registrars, subject to the
reasonable regulations of the registrar
to which a new certificate is presented for registration; and provided,
further, that no certificate for shares of stock shall be issued or delivered
or, if issued or delivered, shall have any validity whatsoever until and unless
it has been signed or authenticated in the manner provided in Section 12.3
hereof.
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(f) To make service and publication of all notices that
may be necessary or proper and without command or direction from anyone. In
case of the absence, disability, refusal or neglect of the Secretary to make
service or publication of any notices, then such notices may be served and/or
published by the Chief Executive Officer, the President or a Vice
President, or by any person thereunto authorized by either of them or by the
Board of Directors or by the holders of a majority of the outstanding shares of
this corporation.
(g) Generally to do and perform all such duties as pertain
to such office and as may be required by the Board of Directors.
Article VIII
CHIEF FINANCIAL OFFICER
Section 8.1: Powers and Duties. The powers and duties of the Chief
Financial Officer are:
(a) To supervise and control the keeping and maintaining of
adequate and correct accounts of this corporation's properties and business
transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books of
account shall at all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidences
of indebtedness and other valuable documents of this corporation and, at
his or her discretion, to cause any or all thereof to be deposited for the
account of this corporation with such depository as may be designated from
time to time by the Board of Directors.
(c) To receive or cause to be received, and to give or
cause to be given, receipts and acquittances for moneys paid in for the
account of this corporation.
(d) To disburse, or cause to be disbursed, all funds of
this corporation as may be directed by the Chief Executive Officer, the
President or the Board of Directors, taking proper vouchers for such
disbursements.
(e) To render to the Chief Executive Officer, the President
or to the Board of Directors, whenever either may require, accounts of all
transactions as Chief Financial Officer and of the financial condition of this
corporation.
(f) Generally to do and perform all such duties as pertain
to such office and as may be required by the Board of Directors.
Article VIIIA
APPOINTED VICE PRESIDENTS, ETC.
Section 8A.l: Appointed Vice Presidents, Etc.; Appointment, Duties,
etc. The Chief Executive Officer of the corporation shall have the power, in
the exercise of his or her discretion, to appoint additional persons to hold
positions and titles such as vice president of the corporation or a
division of the corporation or president of a division of the
corporation, or similar such titles, as the business of the corporation may
require, subject to such limits in appointment power as the Board may
determine. The Board shall be advised of any such appointment at a meeting
of the Board, and the appointment shall be noted in the minutes of the
meeting. The minutes shall clearly state that such persons are non-corporate
officers appointed pursuant to this Section 8A.l of these By-laws.
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Each such appointee shall have such title, shall serve in such
capacity and shall have such authority and perform such duties as the Chief
Executive Officer of the corporation shall determine.
Appointees may hold titles such as "president" of a division or
other group within the corporation, or "vice president" of the corporation or
of a division or other group within the corporation. However, any such
appointee, absent specific election by the Board as an elected corporate
officer, (i) shall not be considered an officer elected by the Board of
Directors pursuant to Article III of these By-Laws and shall not have the
executive powers or authority of corporate officers elected pursuant to
such Article III, (ii) shall not be considered (a) an "officer" of the
corporation for the purposes of Rule 3b-2 promulgated under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Act") or an "executive officer" of the
corporation for the purposes of Rule 3b-7 promulgated under the Act, and
similarly shall not be considered an "officer" of the corporation for the
purposes of Section 16 of the Act (as such persons shall not be given the
access to inside information of the corporation enjoyed by officers of the
corporation) or an "executive officer" of the corporation for the purposes of
Section 14 of the Act or (b) a "corporate officer" for the purposes of Section
312 of the California Corporation Code (the "Code"), except in any such case as
otherwise required by law, and (iii) shall be empowered to represent
himself or herself to third parties as an appointed vice president, etc., only,
and shall be empowered to execute documents, bind the corporation or
otherwise act on behalf of the corporation only as authorized by the
Chief Executive Officer or the President of the Corporation or by resolution of
the Board of Directors.
An elected officer of the corporation may also serve in an
appointed capacity hereunder.
Article IX
EXECUTIVE COMMITTEE
Section 9.1: Appointment and Procedure. The Board of Directors may,
by resolution adopted by a majority of the authorized number of directors,
appoint from among its members an Executive Committee of two or more
members. The Executive Committee may make its own rules of procedure
subject to Section 11.9 hereof, and shall meet as provided by such rules or by
a resolution adopted by the Board of Directors (which resolution shall take
precedence). A majority of the members of the Executive Committee
shall constitute a quorum, and in every case the affirmative vote of a majority
of all members of the Committee shall be necessary to the adoption of any
resolution by such Committee.
Section 9.2: Powers. During the intervals between the meetings of
the Board of Directors, the Executive Committee, in all cases in which
specific directions shall not have been given by the Board of Directors, shall
have and may exercise all the powers and authority of the Board of Directors
in the management of the business and affairs of this corporation in such
manner as the Committee may deem best for the interests of this corporation,
except with respect to:
(a) any action for which California law also requires
shareholder approval,
(b) the filling of vacancies on the Board of Directors or
in the committee,
(c) the fixing of compensation of the directors for
serving on the Board of Directors or on any committee,
(d) the amendment or repeal of By-Laws or the adoption of
new By-Laws,
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable,
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(f) a distribution to the shareholders of this corporation,
except at a rate or in a periodic amount or within a price range determined by
the Board of Directors,
(g) the appointment of other committees of the Board of
Directors or the members thereof.
Article X
MEETINGS OF SHAREHOLDERS
Section 10.1: Place of Meetings. Meetings (whether regular, special
or adjourned) of the shareholders of this corporation shall be held at the
principal executive office for the transaction of business of this
corporation, or at any place within or without the State which may be
designated by written consent of all the shareholders entitled to vote
thereat, or which may be designated by resolution of the Board of Directors.
Any meeting shall be valid wherever held if held by the written consent of
all the shareholders entitled to vote thereat, given either before or after
the meeting and filed with the Secretary of this corporation.
Section 10.2: Annual Meetings. The annual meeting of the
shareholders shall be held at the hour of 10:00 a.m. on the last Wednesday in
January in each year , if not a legal holiday, and if a legal holiday, then on
the next succeeding business day not a legal holiday or at such other time in a
particular year as may be designated by written consent of all the
shareholders entitled to vote thereat or which may be designated by resolution
of the Board of Directors. Such annual meetings shall be held at the place
provided pursuant to Section 10.1 hereof. Said annual meetings shall be
held for the purpose of the election of directors, for the making of reports of
the affairs of this corporation and for the transaction of such other business
as may come before the meeting.
Section 10.3: Special Meetings. Special meetings of the shareholders
for any purpose or purposes whatsoever may be called at any time
by the President or by the Board of Directors, or by two or more members
thereof, or by one or more holders of shares entitled to cast not less than ten
percent (10%) of the votes on the record date established pursuant to
Section 10.8. Upon request in writing sent by registered mail to the Chief
Executive Officer, President, Vice President or Secretary, or delivered to
any such officer in person, by any person or persons entitled to call a
special meeting of shareholders (such request, if sent by a shareholder or
shareholders, to include the information required by Section 10.13),
it shall be the duty of such officer, subject to the immediately succeeding
sentence, to cause notice to be given to the shareholders entitled to vote that
a meeting will be requested by the person or persons calling the meeting,
the date of which meeting, which shall be set by such officer, to be not less
than 35 days nor more than 60 days after such request or, if applicable,
determination of the validity of such request pursuant to the immediately
succeeding sentence. Within seven days after receiving such a written
request from a shareholder or shareholders of the corporation, the
Board of Directors shall determine whether shareholders owning not less
than ten percent (10%) of the shares as of the record date established pursuant
to Section 10.8 for such request support the call of a special meeting and
notify the requesting party or parties of its finding.
Section 10.4: Notice of Meetings. Notice of any meeting of shareholders
shall be given in writing not less than 10 nor more than 60 days before the
date of the meeting to each shareholder entitled to vote thereat by the
Secretary or an Assistant Secretary, or other person charged with that duty,
or if there be no such officer or person, or in case of his or her neglect
or refusal, by any director or shareholder. The notice shall state the
place, date and hour of the meeting and (i) in the case of a special meeting,
the general nature of the business to be transacted, and no other business may
be transacted, or (ii) in the case of the annual meeting, those matters which
the Board of Directors, at the time of the mailing of the notice, intends to
present for action by the shareholders, but any proper matter may be
presented at the meeting for such action except
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that notice must be given or waived in writing of any proposal relating to
approval of contracts between the corporation and any director of this
corporation, amendment of the Articles of Incorporation, reorganization of
this corporation or winding up of this corporation. The notice of any meeting
at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
Written notice shall be given by this corporation to any shareholder, either
(i) personally or (ii) by mail or other means of written communication,
charges prepaid, addressed to such shareholder at such shareholder's
address appearing on the books of this corporation or given by such
shareholder to this corporation for the purpose of notice. If a shareholder
gives no address or no such address appears on the books of this
corporation, notice shall be deemed to have been given if sent by mail or
other means of written communication addressed to the place where the
principal executive office of this corporation is located, or if published
at least once in a newspaper of general circulation in the county in which
such office is located. The notice shall be deemed to have been given at the
time when delivered personally or deposited in the United States mail,
postage prepaid, or sent by other means of written communication and
addressed as hereinbefore provided. An affidavit of delivery or mailing of
any notice in accordance with the provisions of this Section 10.4, executed
by the Secretary, Assistant Secretary or any transfer agent, shall be prima
facie evidence of the giving of the notice. If any notice addressed to the
shareholder at the address of such shareholder appearing on the books of
the corporation is returned to this corporation by the United States Postal
Service marked to indicate that the United States Postal Service is unable to
deliver the notice to the shareholder at such address, all future notices shall
be deemed to have been duly given without further mailing if the same
shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of this corporation for a period
of one year from the date of the giving of the notice to all other
shareholders.
Section 10.5: Consent to Shareholders' Meetings. The
transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each of the shareholders
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of such meeting or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by
law to be included in the notice but not so included, if such objection is
expressly made at the meeting. Neither the business to be transacted at nor the
purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, except as to approval of
contracts between this corporation and any of its directors, amendment of the
Articles of Incorporation, reorganization of this corporation or
winding up the affairs of this corporation.
Section 10.6: Quorum. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business. Shares
shall not be counted to make up a quorum for a meeting if voting of such
shares at the meeting has been enjoined or for any reason they cannot
be lawfully voted at the meeting. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact
business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
Section 10.7: Adjourned Meetings. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by
the vote of a majority of the shares, the holders of which are either present
in person or represented by proxy thereat, but, except as provided in
Section 10.6 hereof, in the absence of a quorum, no other business may be
transacted at such meeting. When a meeting is adjourned for more than 45
days or if after adjournment a new
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record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote
at a meeting. Except as aforesaid, it shall not be necessary to give any
notice of the time and place of the adjourned meeting or of the business to
be transacted thereat other than by announcement at the meeting at which
such adjournment is taken. At any adjourned meeting the shareholders
may transact any business which might have been transacted at the
original meeting.
Section 10.8: Voting Rights. Only persons in whose names shares
entitled to vote stand on the stock records of this corporation at the close
of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held or, if some other day be
fixed for the determination of shareholders of record pursuant to
Section 2.8(k) hereof, then on such other day, shall be entitled to vote at
such meeting. In the absence of any contrary provision in the Articles of
Incorporation or in any applicable statute relating to the election of
directors or to other particular matters, each such person shall be entitled to
one vote for each share.
In order that the corporation may determine the shareholders entitled to
consent to corporate action in writing without a meeting or request a special
meeting of the shareholders pursuant to Section 10.3, the Board of Directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than fourteen (14) days after the
date upon which the resolution fixing the record date is adopted by the Board
of Directors. Any shareholder of record seeking to have the shareholders
authorize or take corporate action by written consent or request a special
meeting of the shareholders pursuant to Section 10.3 shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The
Board of Directors shall promptly, but in no event later than twenty eight (28)
days after the date on which such request is received, adopt a resolution
fixing the record date.
Section 10.9: Action by Written Consents. Any action which may be
taken at any annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Within fourteen (14) days after
receiving such written consent or consents from shareholders of the
corporation, the Board of Directors shall determine whether holders of
outstanding shares as of the record date established pursuant to Section
10.8 having not less than the minimum number of votes which would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted have properly consented
thereto in writing and notify the requesting party of its finding. Unless
the consents of all shareholders entitled to vote have been solicited in
writing, notice of any shareholder approval of (i) contracts between this
corporation and any of its directors, (ii) indemnification of any person,
(iii) reorganization of this corporation or (iv) distributions to shareholders
upon winding up of this corporation in certain circumstances without a
meeting by less than unanimous written consent shall be given at least
10 days before the consummation of the action authorized by such
approval, and prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less
than unanimous written consent, to those shareholders entitled to vote who
have not consented in writing. All notices given hereunder shall conform
to the requirements of Section 10.4 hereto and applicable law. When
written consents are given with respect to any shares, they shall be
given by and accepted from the persons in whose names such shares
stand on the books of this corporation at the time such respective consents
are given, or any shareholder's proxy holder, or a transferee of the shares or
a personal representative of the shareholder or their respective proxy
holders, may revoke the consent by a writing received by this corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary of this
corporation, but may not do so thereafter. Such revocation is
effective upon its receipt by the Secretary of this corporation.
Notwithstanding anything to the contrary, directors may not be elected
by written consent except by unanimous written consent of all
shares entitled to vote for the election of directors.
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Section 10.10: Elections of Directors. In any election of directors,
the candidates receiving the highest number of affirmative votes of the
shares entitled to be voted for them up to the number of directors to be
elected by such shares are elected; votes against the directors and votes
withheld with respect to the election of the directors shall have no legal
effect. Elections of directors need not be by ballot except upon demand made
by a shareholder at the meeting and before the voting begins.
Section 10.11: Proxies. Every person entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by a written proxy executed by such person or such
person's duly authorized agent and filed with the Secretary of this
corporation. No proxy shall be valid (l) after revocation thereof, unless the
proxy is specifically made irrevocable and otherwise conforms to this Section
10.11 and applicable law, or (2) after the expiration of eleven months from
the date thereof, unless the person executing it specifies therein the
length of time for which such proxy is to continue in force. Revocation may
be effected by a writing delivered to the Secretary of this corporation
stating that the proxy is revoked or by a subsequent proxy executed by, or by
attendance at the meeting and voting in person by, the person executing the
proxy. A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, a written notice of such death or
incapacity is received by this corporation. A proxy which states that
it is irrevocable is irrevocable for the period specified therein when it is
held by any of the following or a nominee of any of the following: (l) a
pledgee, (2) a person who has purchased or agreed to purchase or holds an
option to purchase the shares or a person who has sold a portion of such
person's shares in this corporation to the maker of the proxy, (3) a creditor
or creditors of this corporation or the shareholder who extended or continued
credit to this corporation or the shareholder in consideration of the proxy if
the proxy states that it was given in consideration of such extension or
continuation of credit and the name of the person extending or continuing
the credit, (4) a person who has contracted to perform services as an
employee of this corporation, if a proxy is required by the contract of
employment and if the proxy states that it was given in consideration of
such contract of employment, the name of the employee and the period of
employment contracted for, (5) a person designated by or under a close
corporation shareholder agreement or a voting trust agreement. In addition,
a proxy may be made irrevocable if it is given to secure the performance of a
duty or to protect a title, either legal or equitable, until the happening of
events which, by its terms, discharge the obligation secured by it.
Notwithstanding the period of irrevocability specified, the proxy
becomes revocable when the pledge is redeemed, the option or agreement to
purchase is terminated or the seller no longer owns any shares of this
corporation or dies, the debt of this corporation or the shareholder is paid,
the period of employment provided for in the contract of employment has
terminated or the close corporation shareholder agreement or the voting
trust agreement has terminated. In addition, a proxy may be revoked,
notwithstanding a provision making it irrevocable, by a purchaser of shares
without knowledge of the existence of the provision unless the existence of
the proxy and its irrevocability appears on the certificate
representing such shares. Every form of proxy or written consent, which
provides an opportunity to specify approval or disapproval with respect to
any proposal, shall also contain an appropriate space marked "abstain",
whereby a shareholder may indicate a desire to abstain from voting his or her
shares on the proposal. A proxy marked "abstain" by the shareholder
with respect to a particular proposal shall not be voted either for or against
such proposal. In any election of directors, any form of proxy in which
the directors to be voted upon are named therein as candidates and which
is marked by a shareholder "withhold" or otherwise marked in a manner
indicating that the authority to vote for the election of directors is withheld
shall not be voted either for or against the election of a director.
Section 10.12: Inspectors of Election. Before any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the
Chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting.
The number of inspectors shall be either one (l) or three (3). If
inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the
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holders of a majority of shares or their proxies present at the meeting shall
determine whether one (l) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
Chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of
proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any
way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
Section 10.13: Advance Notice of Shareholder Proposals and Director
Nominations. Shareholders may nominate one or more persons for election as
directors at a meeting of shareholders or propose business to be brought before
a meeting of shareholders, or both, only if such shareholder has given timely
notice in proper written form of such shareholder's intent to make such
nominationor nominations or to propose such business. To be timely, a
shareholder's notice must be received by the Secretary of the Corporation not
later than 60 days prior to such meeting; provided, however, that in
the event less than 70 days' notice or prior public disclosure of the date of
the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form a shareholder's notice to the Secretary shall set forth (i) the
name and address of the shareholder who intends to make the nominations
or propose the business and, as the case may be, of the person or persons to be
nominated or of the business to be proposed, (ii) a representation that the
shareholder is a holder of record of stock of the Corporation that intends to
vote such stock at such meeting and, if applicable, intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice, (iii) if applicable, a description of all arrangements or
understandings between the shareholder and each nominee or any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder, (iv) such
other information regarding each nominee or each matter of business to
be proposed by such shareholder as would be required to be included in a
proxy statement filed pursuant to Regulation 14A promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934 had the nominee been nominated, or intended to be
nominated, or the matter been proposed, or intended to be proposed,
by the Board of Directors of the Corporation and (v) if applicable, the
consent of each nominee as director of the Corporation if so elected. The
chairman of a meeting of shareholders may refuse to acknowledge the
nomination of any person or the proposal of any business not made in
compliance with the foregoing procedure.
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Article XI
MEETINGS OF DIRECTORS
Section 11.1: Place of Meetings. Meetings (whether regular, special or
adjourned) of the Board of Directors of this corporation shall be held at the
principal office of this corporation for the transaction of business, as
specified in accordance with Section 1.1 hereof, or at any other place within
or without the State which has been designated from time to time by
resolution of the Board or which is designated in the notice of the
meeting.
Section 11.2: Regular Meetings. Regular meetings of the Board of
Directors shall be held after the adjournment of each annual meeting
of the shareholders (which regular directors' meeting shall be designated
the "Regular Annual Meeting") and at such other times as may be designated
from time to time by resolution of the Board of Directors. Notice of the time
and place of all regular meetings shall be given in the same manner as for
special meetings, except that no such notice need be given if (l) the time and
place of such meetings are fixed by the Board of Directors or (2) the Regular
Annual Meeting is held at the principal place of business provided at
Section 1.1 hereof and on the date specified in Section 10.2 hereof.
Section 11.3: Special Meetings. Special meetings of the Board of Directors
may be called at any time by the Chairman of the Board, if any, or the
President, or any Vice President, or the Secretary or by any two or more
directors.
Section 11.4: Notice of Special Meetings. Special meetings of the
Board of Directors shall be held upon no less than four days' notice by mail
or 48 hours' notice delivered personally or by telephone or telegraph to each
director. Notice need not be given to any director who signs a waiver of notice
or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the home or office of the director who the person giving the notice
has reason to believe will promptly communicate it to the director. A notice
or waiver of notice need not specify the purpose of any meeting of the Board.
If the address of a director is not shown on the records and is not readily
ascertainable, notice shall be addressed to him at the city or place in which
the meetings of the directors are regularly held. If the meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place
shall be given prior to the time of the adjourned meeting to all directors not
present at the time of adjournment.
Section 11.5: Quorum. A majority of all directors elected by the
shareholders and appointed to fill vacancies as provided in Section 2.6
hereof shall constitute a quorum of the Board of Directors for the transaction
of business. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of
the Board of Directors subject to provisions of law relating to interested
directors and indemnification of agents of this corporation. A majority
of the directors present, whether or not a quorum is present, may adjourn
any meeting to another time and place. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 11.6: Conference Telephone. Members of the Board of
Directors may participate in a meeting through use of conference telephone
or similar communications equipment, so long as all directors participating in
such meeting can hear one another. Participation in a meeting pursuant to
this Section 11.6 constitutes presence in person at such meeting.
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Section 11.7: Waiver of Notice and Consent. The transactions of
any meeting of the Board of Directors, however called and noticed or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present, and if, either
before or after the meeting, each of the directors not present signs a
written waiver of notice, a consent to holding such meeting or an approval
of the minutes thereof. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Section 11.8: Action Without a Meeting. Any action required or
permitted by law to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board of Directors shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors. Such action by written consent shall have the same
force and effect as the unanimous vote of such directors.
Section 11.9: Committees. The provisions of this Article XI apply
also to committees of the Board of Directors and action by such committees,
mutatis mutandis.
Article XII
SUNDRY PROVISIONS
Section 12.1: Instruments in Writing. All checks, drafts, demands
for money and notes of this corporation, and all written contracts of this
corporation, shall be signed by such officer or officers, agent or agents, as
the Board of Directors may from time to time designate. No officer, agent, or
employee of this corporation shall have the power to bind this corporation by
contract or otherwise unless authorized to do so by these By-Laws or by the
Board of Directors.
Section 12.2: Shares Held by the Corporation. Shares in other
corporations standing in the name of this corporation may be voted or
represented and all rights incident thereto may be exercised on behalf of
the corporation by any officer of this corporation authorized so to do by
resolution of the Board of Directors.
Section 12.3: Certificates of Stock. There shall be issued to every
holder of shares in this corporation a certificate or certificates signed in
the name of this corporation by the Chairman of the Board of Directors, if
any, or the Chief Executive Officer or the President or a Vice President and
by the Chief Financial Officer or an Assistant Chief Financial Officer or the
Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by
this corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
Section 12.4: Lost Certificates. Where the owner of any certificate
for shares of this corporation claims that the certificate has been lost,
stolen or destroyed, a new certificate shall be issued in place of the original
certificate if the owner (l) so requests before this corporation has notice
that the original certificate has been acquired by a bona fide purchaser, (2)
files with this corporation an indemnity bond in such form and in
such amount as shall be approved by the Chief Executive Officer, the
President or a Vice President of this corporation, and (3) satisfies any other
reasonable requirements imposed by this corporation. The Board of
Directors may adopt such other provisions and restrictions with
reference to lost certificates, not inconsistent with applicable law, as it
shall in its discretion deem appropriate.
Section 12.5: Certification and Inspection of By-Laws. This
corporation shall keep at its principal executive or business office the
original or a copy of these By-Laws as amended or
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otherwise altered to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Section 12.6: Annual Reports. The making of annual reports to the
shareholders is dispensed with and the requirement that such annual reports
be made to shareholders is expressly waived, except as may be directed from
time to time by the Board of Directors or the President.
Section 12.7: Fiscal Quarters. Each fiscal quarter of the
Corporation shall be comprised of 13 weeks each of which shall end at midnight
on Friday of such week, and the fiscal months in any one calendar quarter shall
be comprised of at least four consecutive calendar weeks with one week to be
added, at management's discretion, to any one month during such fiscal year.
Section 12.8: Officer Loans and Guaranties. If the corporation has
outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money
or property to, or guarantee the obligations of, any officer of the
corporation or its parent or subsidiaries, whether or not the officer
is a director, upon the approval of the Board of Directors alone. Such approval
by the Board of Directors must be determined by a vote of a majority of
the disinterested directors, if it is determined that such a loan or
guaranty may reasonably be expected to benefit the corporation. In no event
may an officer owning 2% or more of the outstanding common shares of the
corporation be extended a loan under this provision.
Article XIII
CONSTRUCTION OF BY-LAWS WITH
REFERENCE TO PROVISIONS OF LAW
Section 13.1: By-Law Provisions Additional and Supplemental to
Provisions of Law. All restrictions, limitations, requirements and other
provisions of these By-Laws shall be construed, insofar as possible, as
supplemental and additional to all provisions of law applicable to the
subject matter thereof and shall be fully complied with in addition to the
said provisions of law unless such compliance shall be illegal.
Section 13.2: By-Law Provisions Contrary to or Inconsistent with
Provisions of Law. Any article, section, subsection, subdivision, sentence,
clause or phrase of these By-Laws which, upon being construed in the
manner provided in Section 13.1 hereof, shall be contrary to or
inconsistent with any applicable provision of law, shall not apply so
long as said provisions of law shall remain in effect, but such result shall
not affect the validity or applicability of any other portions of these
By-Laws, it being hereby declared that these By-Laws, and each article,
section, subsection, subdivision, sentence, clause, or phrase thereof, would
have been adopted irrespective of the fact that any one or more articles,
sections, subsections, subdivisions, sentences, clauses or phrases is or are
illegal.
Article XIV
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
Section 14.1: By Shareholders. By-Laws may be adopted, amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. By-Laws specifying or changing a fixed
number of directors or the maximum or minimum number or changing
from a fixed to a variable board or vice versa may only be adopted by the
shareholders; provided, however, that a By-Law or amendment of the Articles
of Incorporation reducing the number or the minimum number of directors to
a number less than five cannot be adopted if the votes cast against its
adoption at a meeting or the shares not consenting in the case of action by
written consent are equal to more than 16-2/3% of the outstanding shares
entitled to vote.
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Section 14.2: By the Board of Directors. Subject to the right of
shareholders to adopt, amend or repeal By-Laws, By-Laws, other than a By-Law
or amendment thereof specifying or changing a fixed number of directors
or the maximum or minimum number or changing from a fixed to a variable
board or vice versa, may be adopted, amended or repealed by the Board of
Directors. A By-Law adopted by the shareholders may restrict or eliminate
the power of the Board of Directors to adopt, amend or repeal By-Laws.
Article XV
RESTRICTIONS ON TRANSFER OF STOCK
Section 15.1: Subsequent Agreement or By-Law. If (a) any two or
more shareholders of this corporation shall enter into any agreement
abridging, limiting or restricting the rights of any one or more of them to
sell, assign, transfer, mortgage, pledge, hypothecate or transfer on the books
of this corporation any or all of the shares of this corporation held by
them, and if a copy of said agreement shall be filed with this corporation, or
if (b) shareholders entitled to vote shall adopt any By-Law provision
abridging, limiting or restricting the aforesaid rights of any shareholders,
then, and in either of such events, all certificates of shares of stock subject
to such abridgments, limitations or restrictions shall have a reference
thereto endorsed thereon by an officer of this corporation and such
certificates shall not thereafter be transferred on the books of this
corporation except in accordance with the terms and provisions of such
agreement or ByLaw, as the case may be; provided, that no restriction shall
be binding with respect to shares issued prior to adoption of the
restriction unless the holders of such shares voted in favor of or consented
in writing to the restriction.
Article XVI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 16.1: Indemnification of Directors and Officers. The
corporation shall, to the maximum extent and in the manner permitted by the
Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding (as defined in Section 317(a) of the Code), arising by reason of
the fact that such person is or was an agent of the corporation.For purposes
of this Article XVI, a "director" or "officer" of the corporation includes
any person (i) who is or was a director or officer of the corporation, (ii)
who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at
the request of such predecessor corporation.
Section 16.2: Indemnification of Others. The corporation shall have the
power, to the extent and in the manner permitted by the Code, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in
connection with any proceeding (as defined in Section 317(a) of the Code),
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article XVI, an "employee" or "agent"
of the corporation (other than a director or officer) includes any
person (i) who is or was an employee or agent of the corporation, (ii) who is
or was serving at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation
which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
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Section 16.3: Payment of Expenses in Advance. Expenses
incurred in defending any civil or criminal action or proceeding for
which indemnification is required pursuant to Section 16.1 or for which
indemnification is permitted pursuant to Section 16.2 following authorization
thereof by the Board of Directors, shall be paid by the corporation in advance
of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such
amount if it shall ultimately be determined that the indemnified party
is not entitled to be indemnified as authorized in this Article XVI.
Section 16.4: Indemnity Not Exclusive. The indemnification
provided by this Article XVI shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors
or otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
Section 16.5: Insurance Indemnification. The corporation
shall have the power to purchase and maintain insurance on behalf of any
person who is or was an Agent of the corporation against any liability
asserted against or incurred by such person in such capacity or arising out
of such person's status as such, whether or not the corporation would
have the power to indemnify him against such liability under the
provisions of this Article XVI.
Section 16.6: Conflicts. No indemnification or advance shall be
made under this Article XVI, except where such indemnification or
advance is mandated by law or the order, judgment or decree of any court
of competent jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the
shareholders or an agreement in effect at the time of the accrual of the
alleged cause of the action asserted in the proceeding in which the expenses
were incurred or other amounts were paid, which prohibits or otherwise
limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
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EXHIBIT 10.A.3-2
AMENDMENT NO. 2 TO THE
APPLE COMPUTER, INC.
SAVINGS AND INVESTMENT PLAN
The Apple Computer, Inc. Savings and Investment Plan, as
amended and restated effective July 1, 1995 (the "Plan"), is hereby amended as
follows, effective July 1, 1995 unless otherwise indicated:
1. Section 2(c)(iii) is amended as follows:
"(iii) Any individual employed in or by one or more divisions,
plants, locations or other identifiable employee groups designated by
the Company, by means of an amendment to the Plan pursuant to Section
16, as not eligible to participate in the Plan;"
2. Section 2(c)(v) is amended as follows:
"(v) Any individual who is enrolled in a university or college
program and who is employed to work on an assignment in the Company's
'College Intern Program,' 'College Co-Op Program' or other similar
program."
3. Section 10(d) is amended by adding the phrase "(or has exceeded
$3,500 at the time of any prior withdrawal or distribution)" after the
phrase "if a Participant's Plan Benefit would exceed $3,500)."
4. Section 1.11 of Appendix I is amended to read as follows:
"'Section 415 Compensation' means the definition of compensation
described in Subsection (c) of Section 1.13 of this Appendix I
received by an Employee from members of the Section 415 Employer
Group."
5. Section 5.2 of Appendix I is amended by adding the phrase ", as
modified by section 416(h)(1) of the Code if the Plan is a Top-Heavy
Plan for the Plan Year pursuant to Section 17" to the end of the second
sentence.
6. Appendix II is amended effective January 1, 1993 by adding the
phrase "(Effective January 1, 1993)" directly underneath the heading
"DIRECT ROLLOVERS."
To record the adoption of this Amendment No. 2 to the Plan, the
Company has caused its authorized officer to execute the same this
_12th___ day of __December_____, 1996.
APPLE COMPUTER, INC.
By __/s/ Patricia Sharp__
Title: Sr. V. P. Human Resources
Attest:
___/s/ Michael Assad_____
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EXHIBIT 10.A.42
APPLE COMPUTER, INC.
SENIOR OFFICERS RESTRICTED
PERFORMANCE SHARE PLAN
1. PURPOSE
This annual performance-based incentive plan (the "Performance
Share Plan" or the "Plan") is designed to reward executive officers of Apple
Computer, Inc. and its subsidiaries (the "Company") for achieving
performance objectives. The Performance Share Plan is intended to
provide an incentive for superior performance and to motivate
participating officers toward even higher achievement and business
results, to tie their goals and interests to those of the Corporation and its
shareholders, to promote the maintenance of substantial stock
ownership levels by officers of the Corporation, and to enable the
Corporation to attract and retain highly qualified executive officers.
The Performance Share Plan is also intended to secure the full deductibility
of incentive compensation payable to the Corporation's Chief Executive
Officer and the four highest compensated executive officers
(collectively the "Covered Employees") whose compensation is required to be
reported in the Corporation's proxy statement and all compensation
payable hereunder to such persons is intended to qualify as "performance-
based compensation" as described in Section 162(m)(4)(C) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. ELIGIBILITY AND PARTICIPATION
Only (i) those executive officers of the Corporation at the level of senior
vice president or above and (ii) such other key employees of the Company as
are recommended by management to and designated by the Compensation
Committee shall be eligible to participate in the Performance Share
Plan. Prior to or at the time performance objectives are established
for a "Performance Period", as defined below, the Compensation Committee
(the "Committee") of the Company's Board of Directors (the "Board") will
designate in writing those executive officers and other key employees
among those who may be eligible to participate in the Plan who shall in
fact be participants for such Performance Period (the
"Participants"). The initial Participants in the Performance Share
Plan shall be the individuals holding the positions identified in Appendix A.
3. PLAN YEAR AND PERFORMANCE OBJECTIVES
(A) PLAN YEAR: The fiscal year of the Performance Share Plan (the "Plan
Year") shall be the fiscal year beginning on the first day of the
Company's fiscal year and ending on the last day of the Company's fiscal
year. The performance period (the "Performance Period") with respect to
which awards may be payable under the Plan shall be the Plan Year, or, in
the event the Committee designates an employee to participate in the Plan as
of a date that is after the beginning of the Plan Year, such shorter period as
the Committee designates. The initial Plan Year shall commence on
September 30, 1996 and end on September 26, 1997.
(B) PERFORMANCE GOAL SETTING PERIOD: Within the first ninety (90)
days of each Performance Period the Committee shall establish in writing,
with respect to such Performance Period, one or more performance goals,
a specific target objective or objectives with respect to such performance
goals and an objective formula or method for computing the amount of
performance shares payable to each Participant under the Plan if the
performance goals are attained. Notwithstanding the foregoing sentence, for any
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Performance Period, such goals, objectives and compensation formulae
or methods must be established within that number of days, beginning on the
first day of such Performance Period, which is no more than twenty-five
percent (25%) of the total number of days in such Performance Period. The
Committee may, but shall not be required to, set performance goals for
any Participant whose Performance Period is shorter than the Plan Year
that are different from the performance goals for Participants
whose Performance Period is the Plan Year, and may, but shall not be
required to, set such separate performance goals within twenty-five
percent (25%) of the total number of days remaining in the Plan Year at the
time such Participants are designated as Participants in the Plan. Any such
separate performance goals shall be selected from among the performance
goals listed in Section 3(C) hereof.
(C) PERFORMANCE MEASUREMENT: Performance goals shall be based upon
one or more of the following business criteria for the Company:
- earnings per share
- share price
- revenue growth
- return on equity
- return on net assets
- timing objectives for delivery of new products
- retention of key employees
The Committee may adopt other performance goals in its sole and
absolute discretion, provided, however, that in the event the Committee
determines to adopt performance goals based on criteria other than those
stated above, the Committee shall obtain shareholder approval of such
criteria. All performance goals adopted by the Committee shall be
preestablished, objective performance goals as described in Reg. Sec. 1.162-
27(e)(2), promulgated under Section 162(m) of the Code. Measurements of
the Company's or a Participant's performance against the performance
goals established by the Committee shall be objectively determinable and,
to the extent any performance goal is expressed in standard accounting
terms, such performance goal shall be determined according to generally
accepted accounting principles as in existence on the date on which the
performance goals are established and without regard to any changes in such
principles after such date.
4. DETERMINATION OF PERFORMANCE SHARE AWARDS
(A) SHARES COVERED BY THE PLAN: Shares awarded under the
Performance Share Plan shall be shares of the Company's common stock
("Shares"). The maximum number of Shares that may be awarded under the
Plan shall be 2,000,000 in the aggregate and, in any single Plan Year, 300,000
to any one individual, subject to adjustment as provided in Section 6(k).
Shares that are converted to cash in accordance with Section 5 shall be
treated as shares awarded under the Plan for purposes of the aggregate and
individual limits in the previous sentence. Any increase in the number
of Shares allocated
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to the Plan must be approved by the Company's shareholders. Any Shares
deliverable under the Plan may be made available from authorized but
unissued Shares or Shares reacquired by the Company, including Shares
purchased in the open market or in private transactions.
(B) GRANTS OF PERFORMANCE SHARES: At the beginning of each Performance
Period, each Participant will be granted the target number of Shares
(see Appendix A) that can be earned based on performance with respect to
that Performance Period (the "Conditional Grant"). At the time the
Conditional Grant is made on behalf of a Participant, certificates representing
the target number of Shares will be registered in the name of the
Participant. During the Performance Period, the certificates representing
those Shares will be held by the Company. The Committee may specify
that the Conditional Grant for a Performance Period will be earned if
the applicable target is achieved for one goal or for any one of a number of
goals. The Committee may also provide that the Conditional Grant for a
Performance Period will be earned only if targets are achieved for more
than one performance goal. The Committee may also provide that the
Conditional Grant to be earned for a given Performance Period will vary
based upon different levels of achievement of the applicable
performance targets.
As soon as practicable after the end of each Performance Period, the
Committee shall certify in writing to what extent the Company and the
Participants have achieved the performance goal or goals for such
Performance Period, including the specific target objective or objectives
and the satisfaction of any other material terms of the Plan and the
Committee shall calculate the amount of each Participant's actual award for
such Performance Period based upon the performance goals, objectives and
computation formulae or methods for such Performance Period (the "Actual
Grant"). The Committee shall have no discretion to increase the maximum
amount of any Participant's Actual Grant as so determined, but may reduce
the amount of or totally eliminate such award, as it determines, in its
absolute and sole discretion, in an amount appropriate to reflect the
Participant's performance.
No Participant's Actual Grant for any Plan Year shall exceed the number of
Shares stated in Appendix A.
Only after the Actual Grant has been awarded to a Participant will he or she
have the rights of a shareholder in the Company with respect to any of the
Shares covered by the Conditional Grant, including the right to vote the
Shares and the right to receive any distributions with respect to such
Shares.
5. PAYMENT OF AWARDS
Approved performance share awards shall be payable by the Company to
each Participant in Shares, or, at the election of the Participant, fifty
percent (50%) in Shares and fifty percent (50%) in cash ("Cash
Election"), as soon as reasonably practicable after the last day of the
relevant Performance Period (the "vesting date"), provided that the
Committee has first certified in writing that the relevant performance goals
were achieved. In the event that a Participant makes a Cash Election, the
amount of cash to be awarded shall be determined by the Committee as of each
vesting date, such that (subject to the performance goals for that
Performance Period being fully satisfied), the Participant receives fifty
percent of the total value of the Shares earned as of the vesting date in cash
and the remainder in Shares, based on the closing price of the Company's
common stock on the vesting date. Cash Elections for any Performance
Period shall be made on a form
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provided for the purpose by the Committee within sixty (60) days of the
date an employee is notified by the Committee that he or she has been
designated as a Participant in the Plan for that Performance Period. Except in
the case of an Actual Grant made to a Participant's Beneficiary (as
hereinafter defined), a participant is precluded from selling or otherwise
disposing of any interest in Actual Grant Shares until such time as the
Shares are distributed to the Participant.
If a Participant ceases to be employed by the Company prior to the end of any
Plan Year, award payment rights will be determined as follows:
A. Involuntary termination by the Company for cause or voluntary
termination by a Participant would lead to a Participant's forfeiture of all
Performance Share Plan awards for that Plan Year. Termination for cause
is defined as follows: conviction of (i) a felony, (ii) embezzlement from the
Company or (iii) other business fraud.
B. Termination on account of death, disability, or involuntary
termination not for cause by the Company entitles a Participant, or the
Participant's Beneficiary, to a prorated share of the performance share award.
Prorated awards are determined based on the number of completed months
that the Participant was employed in the Performance Period divided by 12
months (or by such lesser number of months as constitutes the Performance
Period in the case of a Performance Period that is shorter than the Plan
Year) and are subject to reduction as provided in Section 4(b). Prorated
awards shall be paid at the same time as if the Participant had remained
employed until the end of the Plan Year.
6. OTHER TERMS AND CONDITIONS
(A) TERM OF PLAN: The Performance Share Plan shall become effective
upon its adoption by the Board, subject to the subsequent approval thereof by
the shareholders of the Company in accordance with Section 6(b). It shall
continue in effect for a term of five (5) years unless sooner terminated under
Section 7 of the Plan.
(B) SHAREHOLDER APPROVAL: No Actual Grants shall be awarded under
the Performance Share Plan unless and until the material terms (within
the meaning of Section 162(m)(4)(C) of the Code) of the Plan, including the
business criteria described in the Plan, are disclosed to the Company's
shareholders and are approved by the shareholders by a majority of votes
cast in person or by proxy (including abstentions to the extent abstentions
are counted as voting under applicable state law).
(C) NO PARTICIPATION RIGHTS: No person shall have any legal claim to be
granted an award under the Performance Share Plan and the
Committee shall have no obligation to treat Participants uniformly.
Participation in the Performance Share Plan in any Plan Year does not
entitle any Participant to participate in the Plan in any other Plan Year. The
right to receive a targeted number of performance shares in any given year
does not entitle a Participant to participate with respect to the same
number of Shares in any subsequent year.
(D) NO RIGHTS TO SPECIFIC PROPERTY: Except as may be otherwise required by
law, Conditional Grants and Actual Grants under the Performance Share
Plan shall not be subject in any manner to anticipation, alienation,
sale, transfer, assignment,
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pledge, encumbrance, charge, garnishment, execution, or levy of any
kind, either voluntary or involuntary. No Participant shall have any claim
with respect to any specific assets of the Company or to stock certificates
registered in the Participant's name prior to the vesting of the shares
represented by such certificates.
(E) NO EMPLOYMENT RIGHTS: Neither the Performance Share Plan nor any
action taken under the Plan shall confer upon any Participant any right
with respect to continuation of employment by the Company (or any
subsidiary or affiliated company) or to maintain any Participant's
compensation at any level, nor shall it interfere in any way with any
Participant's right or the right of the Company (or any subsidiary or
affiliated company) to terminate a Participant's employment at any time
or for any reason.
(F) OTHER BENEFITS: Performance share awards shall not be considered as
part of a Participant's salary or used for the calculation of any other pay,
allowance, pension or other benefit unless otherwise permitted by other
benefit plans provided by the Company or its subsidiaries, or required by law
or by contractual obligations of the Company or its subsidiaries.
(G) BENEFICIARY: The term "Beneficiary" shall mean the person or
persons designated by a Participant to whom performance share are to be
paid pursuant to the terms of the Performance Share Plan in the event
of the Participant's death. The designation shall be on a form
provided by the Committee, executed by the Participant, and delivered to the
Committee. A Participant may change his or her Beneficiary designation at
any time. If no Beneficiary is designated, the designation is
ineffective, or in the event the Beneficiary dies before the balance of the
performance share award is paid, the balance shall be paid to the Participant's
spouse, or if there is no spouse, in equal shares to the Participant's lineal
descendants, or if there is no surviving spouse or lineal descendant, to the
Participant's estate.
(H) PERMANENT DISABILITY: For purposes of the Performance Share
Plan, a permanent disability shall mean a disability which would qualify
a Participant to receive benefits under the Apple Computer, Inc. Long-Term
Disability Plan (after satisfying the elimination period thereunder) as now
or hereafter in effect.
(I) INCAPACITY OF PARTICIPANT OR BENEFICIARY: If the Committee finds
that any Participant or Beneficiary to whom a performance share award is
payable under the Performance Share Plan is unable to care for his or her
affairs because of illness or accident or is under a legal disability, any
performance share award due (unless a prior claim therefore shall have been
made by a duly appointed legal representative) at the discretion of the
Committee, may be paid to the spouse, child, parent or brother or sister of
such Participant or Beneficiary or to any person whom the Committee has
determined has incurred expense for such Participant or Beneficiary. Any
such payment shall be a complete discharge of the obligations of the
Company under provisions of the Performance Share Plan to the extent
of such payment.
(J) TAX WITHHOLDING: The Company will withhold from each Actual Grant
at the time of payment thereof all applicable state, local and federal
withholding taxes, as required by law, as determined by Apple in its sole
discretion. Such withholding will be made first from the amount of the
Participant's Cash Election, if any, and second from the Participant's Shares,
to the extent required. Alternatively, in lieu of withholding from Shares, the
Participant may elect to fund the payment of withholding taxes
determined by Apple to be due by making payment of the full amount of
the withholding taxes to Apple on or before the due date of the withholding
taxes.
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(K) ADJUSTMENTS DUE TO CHANGES IN CAPITALIZATION
If the outstanding Shares are increased, decreased, or exchanged for
a different number of kind of shares or other securities, or if additional
Shares or other securities are distributed with respect to such Shares or
other securities, through merger, consolidation, sale of all or
substantially all of the property of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other distribution with respect to such Shares or other
securities, an appropriate and proportionate adjustment may be made in
(i) the maximum number and kind of Shares provided for in Section 4(a) of
the Plan, (ii) the annual individual maximum grant limit provided for in
Section 4(a), (iii) the number and kind of Shares subject to each then
outstanding performance share award, and (iv) each Participant's target
number of Shares as provided in Appendix A.
Adjustments under this Section 6(k) will be made by the Committee, whose
determination as to what adjustments will be made and the extent thereof
will be final, binding and conclusive on all interested persons. No fractional
Share or other interest will be issued under the Plan on account of any of
such adjustments
(L) CHANGE IN CONTROL: In the event of a change in control (as defined
below) of the Company, the Committee shall make equitable adjustments to the
Participant's Performance Shares in a manner intended to preserve their
economic value as of the date of the change in control, including
modifications to performance measures and performance goals if necessary;
provided, however, that if a Participant's employment with the
Company is terminated without cause in connection with a change in
control, then any other provision of the Plan to the contrary
notwithstanding, the Participant shall be entitled to receive the maximum
annual number of Performance Shares for the year in which the change-in-
control occurs following such termination regardless of whether the
Performance Goals are achieved. For purposes of this Plan, change in
control is defined as follows:
A. When any "person", as such term is used in Section 13(d) and 14(d)
of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as a trustee)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities; or
B. The occurrence of a transaction requiring shareholder approval and
involving either the sale of all or substantially all of the assets of the
Company or the merger of the Company with or into another entity.
(M) CONDITIONS UPON ISSUANCE OF SHARES: Shares shall not be issued with
respect to an Actual Grant unless the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of
any stock exchange or quotation system upon which the Shares may
then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
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Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance of any Shares hereunder, shall relieve the
Company of any liability in respect of the non-issuance of such Shares as to
which such requisite authority shall not have been obtained.
(N) GOVERNING LAW: The place of administration of the Performance
Share Plan shall be in the State of California and the validity,
construction, interpretation, administration and effect of the
Performance Share Plan and the rules, regulations and rights relating to the
Performance Share Plan, shall be determined solely in accordance with
the laws of the State of California.
7. ADMINISTRATION
(A) ADMINISTRATOR: The Plan shall be administered by a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan and grants and awards
thereunder to comply with Rule 16b-3 as it applies to grants to officers and
in such a manner as to satisfy the Applicable Laws. All members of the
Committee shall be persons who qualify as "outside directors" as defined
under Section 162(m) of the Code. Until changed by the Board, the Compensation
Committee of the Board shall constitute the Committee hereunder.
(B) POWERS OF THE ADMINISTRATOR: The Committee shall have full power,
authority and discretion to administer and interpret the provisions of the
Performance Share Plan and to adopt such rules, regulations, agreements,
guidelines and instruments for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or
advisable. Without limitation of the foregoing, subject to the provisions of
the Plan and such limitations as are necessary or desirable in order for
incentive awards paid to Covered Employees to constitute qualified
performance-based compensation under Section 162(m) of the Code, the
Committee shall have the authority, in its discretion: (i) to determine the
amount of cash to be awarded pursuant to any Cash Election under Section 5
above; (ii) to determine the employees who shall be Participants in the Plan;
(iii) to interpret the Plan; (iv) to determine the terms and conditions,
not inconsistent with the terms of the Plan, of any Conditional Grant or
Actual Grant awarded hereunder (including, but not limited to, any
restriction or limitation, or any waiver of forfeiture restrictions regarding
any Grant and/or the Shares relating thereto, based in each case on such
factors as the Administrator shall determine, in its sole discretion); (v) to
approve forms of agreement for use under the Plan; (vi) to prescribe,
amend and rescind rules and regulations relating to the Plan; (vii)
to modify or amend each Grant (with the consent of the Participant); (viii)
to authorize any person to execute on behalf of the Company any instrument
required to effectuate any Grant previously granted by the
Administrator; and (ix) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(C) EFFECT OF DECISIONS BY THE ADMINISTRATOR: All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Participants.
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8. AMENDMENT AND TERMINATION
The Board may at any time amend, alter, suspend or terminate the Plan, as
it may deem advisable; provided that except as otherwise required by law,
any amendment required to conform the Performance Share Plan to the
requirements of Section 162(m) of the Code or to conform the Performance
Share Plan or any grant made thereunder to the requirements for
exemption under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor thereto ("Rule 16b-3"),
shall be made by the Committee, and provided that, to the extent necessary
and desirable to comply with Section 162(m) of the Code (or any other
applicable law, regulations or rules), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
is required, including, without limitation, any amendment to the class
of individuals who are eligible to participate in the Performance Share
Plan, to the performance criteria specified in Section 2 hereof or to the
maximum incentive award payable to any Participant, unless shareholder
approval is not required in order for incentive awards paid to Covered
Employees to constitute qualified performance-based compensation
under Section 162(m) of the Code. Any such amendment, alteration,
suspension or termination of the Plan shall not impair the rights of any
Plan Participant under any grant theretofore made without his or her
consent. Such grants shall remain in full force and effect as if this Plan
had not been amended or terminated, except as may otherwise be required by
applicable law.
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APPENDIX A
Position Maximum Total Award Annual Maximum
of Performance Shares Performance Share Awards
Chief Executive Officer 1,000,000 200,000
Chief Operating Officer 100,000 20,000
Chief Financial Officer 80,000 16,000
Chief Technology Officer 80,000 16,000
Chief Administrative Officer 80,000 16,000
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EXHIBIT 10.A.44
Apple Computer, Inc.
Non-Employee Director Stock Plan
(Effective March 25, 1997)
1. Purposes. The purposes of the Plan are (i) to retain
the services of qualified individuals who are not employees of the Company
to serve as members of the Board and to secure for the Company the benefits of
the incentives inherent in increased Common Stock ownership by such
individuals by granting such individuals Options to purchase shares
of Common Stock and (ii) to provide such individuals an opportunity to
defer payment of a portion of their Director's Fees in accordance with the
terms and conditions set forth herein.
2. Administration.
The Administrator will be responsible for administering the Plan. The
Administrator will have authority to adopt such rules as it may deem
appropriate to carry out the purposes of the Plan, and shall have authority to
interpret and construe the provisions of the Plan and any agreements and
notices under the Plan and to make determinations pursuant to any Plan
provision. Each interpretation, determination or other action made or
taken by the Administrator pursuant to the Plan shall be final and binding on
all persons. The Administrator shall not be liable for any action or
determination made in good faith, and shall be entitled to indemnification and
reimbursement in the manner provided in the Company's Articles of
Incorporation and By-Laws as such documents may be amended from time
to time.
3. Shares Available.
Subject to the provisions of Section 8(b) of the Plan, the
maximum number of shares of Common Stock which may be issued under the
Plan shall not exceed 700,000 shares (the "Section 3 Limit"). Either
authorized and unissued shares of Common Stock or treasury shares may
be delivered pursuant to the Plan. For purposes of determining the number
of shares that remain available for issuance under the Plan, the following
rules shall apply:
a) the number of outstanding Phantom Stock Units and
shares of Common Stock underlying Options shall be charged against the
Section 3 Limit; and
(b) the Section 3 Limit shall be increased by (A) the
number of shares subject to an Option which lapses, expires or is otherwise
terminated without the issuance of such shares, and (B) the number of
shares tendered to pay the exercise price of an Option.
4. Options. Each Non-Employee Director shall receive
grants of Options under the Plan as follows:
(a) Option Grants.
(i) Initial Grant. On the date of a Non-Employee Director's
initial election or appointment to the Board (or, in the case of Non-Employee
Directors who were members of the Board on the Effective Date, on the
Effective Date), such Non-Employee Director (including any Non-Employee
Director reelected or reappointed after a period of at least 12 calendar months
during which he did not serve on the Board) shall be granted an Option to
purchase 15,000 shares of Common Stock. Such Option shall have a per
share exercise price equal to the Fair Market Value of the Common Stock
determined as of the date of grant and shall be subject to the vesting schedule
provided for in Section 4(b) and the other terms and conditions provided
for herein. The provisions of this Section 4(a)(i) shall not apply to any
member of the Board who first becomes a Non-Employee Director by reason of
such member's ceasing to be an employee of the Company and its
Subsidiaries.
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(ii) Annual Grants. At each Annual Meeting occurring after the
Effective Date and during the term of the Plan, each individual who has
continuously served as a Non-Employee Director for a period ending on the
date of such Annual Meeting and who is reelected at such Annual Meeting or
who will otherwise continue to serve on the Board following such Annual
Meeting will receive an Option to purchase that number of shares of
Common Stock equal to the sum of "A" plus "B", where "A" equals 7,500, and
"B" equals the product obtained by multiplying 3,500 by the number of
committees of the Board for which the Non-Employee Director is either
elected or appointed as of the date of the Annual Meeting to serve as
chairperson for the upcoming year. The Option shall have a per share
exercise price equal to the Fair Market Value of the Common Stock determined
as of the date of grant and shall be subject to the vesting schedule
provided for in Section 4(b) and the other terms and conditions provided
for herein.
(b) Vesting Schedule of Options. Options awarded pursuant
to the Plan shall vest and become exercisable in equal annual
installments on each of the first through third anniversaries (each, a
"Vesting Date") of the date of grant of the Option; provided, however, that if
(i) a Non-Employee Director is not renominated for election to the Board
at an Annual Meeting at which such director's term is scheduled to expire,
(ii) the NonEmployee Director serves as a Non-Employee Director through the
date of such Annual Meeting and (iii) the next scheduled Vesting Date of any
Option granted to such NonEmployee Director falls within the three-month
period following the date of such Annual Meeting, then such Vesting
Date shall be deemed for purposes of the Plan and each such Option to have
occurred on the day immediately prior to the date of such Annual Meeting.
Any fractional share which results from the application of the foregoing
vesting schedule shall vest in the final vesting installment. In addition, if
a Non-Employee Director's service with the Board terminates as a result of such
Non-Employee Director's death, then, as of the date of death, all Options
previously granted to such Non-Employee Director shall become fully
and immediately vested and exercisable.
(c) Term of Options.
(i) Ten-Year Term. Each Option shall expire ten years from its
date of grant, subject to earlier termination as provided herein.
(ii) Exercise Following Termination of Service Due to Death. If
a NonEmployee Director ceases to be a member of the Board by reason of such
NonEmployee Director's death, the Options granted to such Non-Employee
Director may be exercised by such Non-Employee Director's Beneficiary at
any time within three years after the date of such termination of service,
subject to the earlier expiration of such Options as provided for in Section
4(c)(i) above. At the end of such three-year period, the vested portion
of the Option shall expire.
(iii) Termination of Options if a Non-Employee Director is Removed
from the Board for Cause. In the event a Non-Employee Director is removed
from the Board for "cause," all Options granted to such Non-Employee Director
(whether or not then vested and exercisable) shall immediately
terminate and be of no further force and effect as of the effective date of
such removal from the Board. Whether a Non-Employee Director is removed by
the Board for "cause" shall be determined by the Board in accordance
with the By-Laws of the Company.
(iv) Exercise Following Other Terminations of Service. If a Non-
Employee Director ceases to be a member of the Board for any reason
other than death or removal from the Board for cause, then (A) the Non-
Employee Director shall have the right, subject to the terms and conditions
hereof, to exercise the Option, at any time within ninety days after the date
of such termination, subject to the earlier expiration of the Option as
provided for in Section 4(c)(i) above, but only to the extent that such Option
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was exercisable by the Non-Employee Director on the date of such
termination. The unvested portion of the Option shall expire on the date of
the Non-Employee Director's termination of service with the Board. At the
end of such ninety-day period, the vested portion of the Option shall expire.
(d) Time and Manner of Exercise of Options.
(i) Notice of Exercise. Subject to the other terms and
conditions hereof, a Non-Employee Director may exercise any Options, to
the extent such Options arevested, by giving written notice of exercise to the
Company; provided, however, that in no event shall an Option be exercisable
for a fractional share. The date of exercise of an Option shall be the later
of (A) the date on which the Company receives such written notice and (B)
the date on which the conditions provided in Section 4(d)(ii) are
satisfied.
(ii) Payment. Subject to the last three sentences of this Section
4(d)(ii), prior to the issuance of a certificate pursuant to Section 4(d)(v)
hereof evidencing the shares of Common Stock in respect of which all
or a portion of an Option shall have been exercised, a Non-Employee
Director shall have paid to the Company the exercise price of the
Option for all such shares purchased pursuant to the exercise of such Option.
Payment may be made by personal check, bank draft or postal or express
money order (such modes of payment are collectively referred to as "cash")
payable to the order of the Company in U.S. dollars, or in shares of Common
Stock already owned by the Non-Employee Director for at least six
months at the time of exercise valued at their Fair Market Value as of the last
business day preceding the date of exercise, or in a combination of cash or
such shares. Payment of the exercise price in shares of Common Stock shall
be made by delivering to the Company the share certificate(s) representing
the required number of shares, with the NonEmployee Director signing his
or her name on the back, or by attaching executed stock powers (the
signature of the Non-Employee Director must be guaranteed in either
case). In addition to the exercise methods described above, a Non-
Employee Director may exercise an Option through a "cashless exercise"
procedure whereby the Non-Employee Director delivers to the Company an
irrevocable notice of exercise in exchange for the Company issuing the
shares of Common Stock subject to the Option to a broker previously
designated or approved by the Company. Such broker will
immediately sell a sufficient number of shares of Common Stock on behalf of
the Non-Employee Director to pay the exercise price of the Option and shall
remit the amount of the exercise price to the Company in cash from the sales
proceeds and deliver the balance, if any, of the sales proceeds (net of
commissions) to such NonEmployee Director. Any shares not sold by the
broker shall be delivered to the NonEmployee Director in the manner
contemplated by Section 4(d)(v) below.
(iii) Stockholder Rights. A Non-Employee Director shall have no
rights as a stockholder with respect to any shares of Common Stock issuable
upon exercise of an Option until a certificate evidencing such shares
shall have been issued to the NonEmployee Director pursuant to
Section 4(d)(v), and no adjustment shall be made for dividends or
distributions or other rights in respect of any share for which the record date
is prior to the date upon which the Non-Employee Director shall become
the holder of record thereof.
(iv) Limitation on Exercise. No Option shall be exercisable unless
the Common Stock subject thereto has been registered under the Securities
Act and qualified under applicable state "blue sky" laws in connection
with the offer and sale thereof, or the Company has determined that an
exemption from registration under the Securities Act and from qualification
under such state "blue sky" laws is available.
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(v) Issuance of Shares. Subject to the foregoing conditions, as
soon as is reasonably practicable after its receipt of a proper notice of
exercise and payment of the exercise price of the Option for the number of
shares with respect to which the Option is exercised, the Company shall
deliver to the Non-Employee Director (or following the Non-Employee
Director's death, the Beneficiary entitled to exercise the Option), at the
principal office of the Company or at such other location as may be
acceptable to the Company and the Non-Employee Director (or such
Beneficiary), one or more stock certificates for the appropriate number
of shares of Common Stock issued in connection with such exercise.
Shares sold in connection with a "cashless exercise" shall be delivered to
the broker designated or appointed by the Company in the time and manner
described in Section 4(d)(ii) above. Any such shares shall be fully paid and
nonassessable.
(e) Restrictions on Transfer. An Option may not be
transferred, pledged, assigned, or otherwise disposed of, except by will or
by the laws of descent and distribution; provided, however, that the
Administrator may, subject to such terms and conditions as the
Administrator shall specify, permit the transfer of an Option to a Non-
Employee Director's family members or to one or more trusts established in
whole or in part for the benefit of one or more of such family members. The
Option shall be exercisable, during the NonEmployee Director's lifetime, only
by the Non-Employee Director or by the individual or entity to whom the
Option has been transferred in accordance with the previous
sentence. No assignment or transfer of the Option, or of the rights
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise, except by will or the laws of descent and distribution, shall vest
in the assignee or transferee any interest or right in the Option, but
immediately upon any attempt to assign or transfer the Option the same shall
terminate and be of no force or effect.
5. Deferral of
Director's Fees.
(a) Deferral Elections.
(i) General Provisions. Non-Employee Directors may elect to defer
all or a specified percentage of their Director's Fees with respect to a
Deferral Period in the manner provided in this Section 5. A Non-
Employee Director's Deferred Benefit is at all times nonforfeitable.
(ii) Deferral Election Forms. Before the Election Date applicable
to a Deferral Period, each Non-Employee Director will be provided with a
Deferral Election Form and a Beneficiary Designation Form. In
order for a Non-Employee Director to participate in the deferral portion of
the Plan for a given Deferral Period, a Deferral Election Form, completed and
signed by him, must be delivered to the Company on or prior to the applicable
Election Date. A Non-Employee Director electing to participate in the
Plan for a given Deferral Period shall indicate on his Deferral Election Form:
(A) the percentage of the Director's Fees for the Deferral
Period to be deferred;
(B) if the Deferral Election Form is the first such form
filed by the Non-Employee Director, the Non-Employee Director's election,
in accordance with Sections 5(f) and 5(g), as to the timing and manner of
payment of the Deferred Benefits. A Non-Employee Director's election as to
the timing and manner of payment of Deferred Benefits in the initial
Deferral Election Form shall govern the timing and manner of payment of
all subsequent deferrals under the Plan and may not be changed or
revoked without the prior written consent of the Administrator; and
(C) whether amounts deferred for the Deferral Period will
be credited to the Deferred Compensation Account as Phantom Stock Units in
accordance with Section 5(b) below or Phantom Cash Amounts in accordance
with Section 5(c) below. A Non-Employee Director's election as to the
method of crediting deferred
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amounts for a given Deferral Period may not be subsequently changed or
revoked. Director's Fees for a given Deferral Period may be deferred in
part in Phantom Cash Amounts and in part in Phantom Stock Units. Any such
allocation shall be in multiples of 10% (not to exceed 100%) of the amounts
deferred.
(iii) Effect of No Deferral Election. A Non-Employee Director
who does not submit a completed and signed Deferral Election Form to the
Company on or prior to the applicable Election Date may not defer his
Director's Fees for the Deferral Period.
(b) Establishment of Deferred Compensation Accounts. A
Non-Employee Director's deferrals will be credited to a Deferred Compensation
Account set up for that Non-Employee Director by the Company in accordance
with the provisions of this Section 5.
(c) Crediting of Phantom Cash Amounts to Deferred
Compensation Accounts. The portion of the Director's Fees that a Non-Employee
Director elects to deferin the form of Phantom Cash Amounts shall be
credited to the Deferred Compensation Account as of the last business day of
the fiscal quarter in which such portion of the Director's Fees would
otherwise have been payable to the Non-Employee Director. The Phantom
Cash Amount credited to the Deferred Compensation Account shall thereafter
be credited with notional interest as of the last day of each month. The
annual rate of interest in effect for a Deferral Period shall be the
"applicable federal rate" for short-term loans with monthly compounding, as
promulgated by the Internal Revenue Service under Section 1274 of the Internal
Revenue Code for the first month in such Deferral Period.
(d) Crediting of Phantom Stock Units to Deferred
Compensation Accounts.
(i) Number of Phantom Stock Units. The portion of the Director's
Fees that a Non-Employee Director elects to defer in the form of Phantom
Stock Units shall be credited to the Deferred Compensation Account as of
the last business day of the fiscal quarter in which such portion of the
Director's Fees would otherwise have been payable to the Non-Employee
Director. The number of Phantom Stock Units to be credited to the
Deferred Compensation Account shall be determined by dividing (1) the
amount of the Director's Fees deferred over such quarter by (2) the Fair
Market Value of a share of Common Stock as of the date of crediting. Any
partial Phantom Stock Unit that results from the application of the previous
sentence shall be rounded up to a whole Phantom Stock Unit.
(ii) Dividend Equivalents. In the event that the Company pays any
cash or other dividend or makes any other distribution in respect of the
Common Stock, each Phantom Stock Unit credited to the Deferred
Compensation Account of a NonEmployee Director will be credited
with an additional number of Phantom Stock Units (including fractions
thereof) determined by dividing (A) the amount of cash, or the value (as
determined by the Administrator) of any securities or other property, paid
or distributed in respect of one outstanding share of Common Stock by
(B) the Fair Market Value of a share of Common Stock as of the date of such
payment or distribution. Any partial Phantom Stock Unit that results from
the application of the previous sentence shall be rounded up to a
whole Phantom Stock Unit. Such credit shall be made effective as of the date
of the dividend or other distribution in respect of the Common Stock.
(iii) No Rights as Stockholder. The crediting of Phantom Stock Units
to a Non-Employee Director's Deferred Compensation Account shall not confer on
the Non-Employee Director any rights as a stockholder of the Company.
(e) Written Statements of Account. The Company will furnish
each NonEmployee Director with a statement setting forth the value of
such Non-Employee Director's Deferred Compensation Account as of the end of
each Deferral Period and all credits to and
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payments from the Deferred Compensation Account during the Deferral Period.
Such statement will be furnished no later than 60 days after the end of the
Deferral Period.
(f) Manner of Payment of Deferred Benefit. Payment
of the portion of the Deferred Benefits under the Plan credited as Phantom
Cash Amounts shall be in cash and payment of the portion of the Deferred
Benefits credited in Phantom Stock Units shall be in shares of Common
Stock. Payment shall be made either in a single lump sum or in a series of
five or fewer annual installments. The amount of each installment payment to
a NonEmployee Director shall be determined in accordance with the
formula B/(N - P), where "B" is the total value of the Deferred
Compensation Account as of the installment calculation date, "N" is the
number of installments elected by the Non-Employee Director and "P" is the
number of installments previously paid to the Non-Employee Director. If a
Non-Employee Director's Deferred Benefit is credited in part in Phantom
Cash Amounts and in part in Phantom Stock Units and the Non-Employee
Director elects the payment of Deferred Benefits in more than one installment,
then the formula in the previous sentence shall be applied separately
with respect to each such portion of the Deferred Compensation Account.
(g) Commencement of Payment of Deferred Benefit. Payment
of a NonEmployee Director's Deferred Benefit shall commence as soon as
practicable (but in no event more than 60 days) after the earlier to occur of:
(i) termination of service as a member of the Board; and
(ii) the date specified in the Deferral Election Form executed by the
NonEmployee Director.
(h) Death. In the event of a Non-Employee Director's death,
the NonEmployee Director's entire Deferred Benefit (including any unpaid
portion thereof corresponding to installments not yet paid at the time
of death), to the extent not distributed earlier pursuant to Section 5(g),
will be distributed in a lump sum to the Non-Employee Director's Beneficiary as
soon as practicable after the date of death, but in no event more than six
months after the Non-Employee Director's date of death.
(i) Restrictions on Transfer. The Company shall pay all
Deferred Benefits payable under the Plan only to the Non-Employee
Director or Beneficiary designated under the Plan to receive such
amounts. Neither a Non-Employee Director nor his Beneficiary shall have
any right to anticipate, alienate, sell, transfer, assign, pledge, encumber or
change any benefits to which he may become entitled under the Plan, and
any attempt to do so shall be void. A Deferred Benefit shall not be subject to
attachment, execution by levy, garnishment, or other legal or
equitable process for a Non-Employee Director's or Beneficiary's debts or
other obligations.
6. Designation of Beneficiary.
(a) Beneficiary Designations. Each Non-Employee
Director may designate a Beneficiary to receive any Deferred Benefit due
under the Plan or to exercise an Option upon the Non-Employee Director's
death by executing a Beneficiary Designation Form.
(b) Change of Beneficiary Designation. A Non-
Employee Director may change an earlier Beneficiary designation by
executing a later Beneficiary Designation Form and delivering it to
the Administrator. The execution of a Beneficiary Designation Form and its
receipt by the Administrator revokes and rescinds any prior Beneficiary
Designation Form.
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7. Change in Control.
Anything in the Plan to the contrary notwithstanding, in the
event of a Change in Control of the Company, the following provisions
shall apply:
(a) Any Options outstanding as of the date such Change
in Control is determined to have occurred that are not yet exercisable
and vested on such date shall become fully exercisable and vested.
(b) The value of all outstanding Options (to the extent
not previously exercised) shall be cashed out on the date of the Change in
Control. The amount at which such Options shall be cashed out shall be
equal to the excess, if any, of (i) the Change in Control Price over (ii) the
exercise price of the Common Stock covered by the Option. The cash-out
proceeds shall be paid to the Non-Employee Director or, in the event of
death of the Non-Employee Director prior to payment, to the Beneficiary
thereof.
(c) All Deferred Benefits credited to the Non-Employee
Director's Deferred Compensation Account as of the date of the Change in
Control shall be paid in cash to the Non-Employee Director or, in the event
of death of the Non-Employee Director prior to payment, to the Beneficiary
thereof on the date of the Change in Control. The cash amount paid for each
whole or partial Phantom Stock Unit shall be the Change in Control Price.
(d) If the Administrator shall receive an opinion
from a nationally recognized firm of accountants to the Company that the
cash-out provisions in Section 7(b) above with respect to Options or the
payment of Phantom Stock Units in cash by the Company in accordance
with Section 7(c) above will prohibit the utilization of "pooling of interests"
accounting in connection with the transaction resulting in the Change in
Control of the Company, then the following shall apply, but only to the
extent necessary to permit such accounting treatment: (i) (A) the
provisions of Section 7(b) shall not apply to the Options,(B) each such
Option shall become immediately vested and exercisable as of the date such
opinion is received by the Administrator, and (C) the
Administrator shall promptly inform each Non-Employee Director of such
opinion and of the accelerated vesting and exercisability of the Option
sufficiently prior to the anticipated date of the Change in Control so as to
permit the Options to be exercised prior to the date of the Change in Control,
and (ii) the Phantom Stock Units shall be settled in shares of Common Stock
on the date that such opinion is received by the Administrator.
8. Recapitalization or Reorganization.
(a) Authority of the Company and Shareholders. The
existence of the Plan shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or authorize
any adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation
of the Company, any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or prior preference stocks
whose rights are superior to or affect the Common Stock or the rights thereof
or which are convertible into or exchangeable for Common Stock, or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
(b) Change in Capitalization. Notwithstanding any
other provision of the Plan, in the event of any change in the
outstanding Common Stock by reason of a stock dividend, recapitalization,
reorganization, merger, consolidation, stock split, combination or exchange of
shares (a "Change in Capitalization"), (i) such proportionate adjustments as
may be necessary (in the form determined by the Administrator in its
sole discretion) to reflect such change shall be made to prevent dilution or
enlargement of the rights of Non-Employee Directors under the Plan with respect
to the aggregate number of shares of Common Stock authorized to be awarded
under the Plan, the number of shares of Common Stock covered by each
outstanding Option and the exercise prices in respect thereof, the
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number of shares of Common Stock covered by future Option grants and
the number of Phantom Stock Units credited to a Non-Employee Director's
Deferred Compensation Account and (ii) the Administrator may make such
other adjustments, consistent with the foregoing, as it deems appropriate in
its sole discretion.
(c) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, each outstanding Option
will vest and become exercisable on a date prior to the consummation of the
proposed action that is reasonably sufficient to enable the Non-Employee
Directors to exercise their Options. All Deferred Benefits credited to the
Non-Employee Director's Deferred Compensation Account as of the date of
the consummation of a proposed dissolution or liquidation shall be paid
in cash to the NonEmployee Director or, in the event of death of the Non-
Employee Director prior to payment,to the Beneficiary thereof on the date of
the consummation of such proposed action. The cash amount paid for each
whole or partial Phantom Stock Unit shall be the Fair Market Value of a
share of Common Stock as of the date of the consummation of such proposed
action.
9. Termination and Amendment of the Plan.
(a) Termination. The Plan shall terminate on the tenth
anniversary of the Effective Date. Following the Effective Date, no
further grants of Options shall be made pursuant to the Plan and no further
Director's Fees may be deferred by a Non-Employee Director.
(b) General Power of Board. Notwithstanding anything
herein to the contrary, the Board may at any time and from time to time
terminate, modify, suspend or amend the Plan in whole or in part; provided,
however, that no such termination, modification, suspension or
amendment shall be effective without shareholder approval if such approval
is required to comply with any applicable law or stock exchange rule;
and provided further, that the Board may not, without shareholder
approval, increase the maximum number of shares issuable under the
Plan except as provided in Section 8(b) above.
(c) When Non-Employee Directors' Consents Required.
The Board may not alter, amend, suspend, or terminate the Plan without
the consent of any Non-Employee Director to the extent that such action
would (i) adversely affect his or her rights with respect to Options that have
previously been granted or (ii) result in the distribution to such
NonEmployee Director of amounts then credited to his Deferred Compensation
Account in any manner other than as provided in the Plan or could
reasonably be expected to result in the immediate taxation to such Non-
Employee Director of Deferred Benefits.
10. Miscellaneous.
(a) No Right to Reelection. Nothing in the Plan shall
be deemed to create any obligation on the part of the Board to nominate any
of its members for reelection by the Company's stockholders, nor confer
upon any Non-Employee Director the right to remain a member of the Board
for any period of time, or at any particular rate of compensation.
(b) Unfunded Plan.
(i) Generally. This Plan is unfunded. Amounts payable under the
Plan will be satisfied solely out of the general assets of the Company subject
to the claims of the Company's creditors.
(ii) Deferred Benefits. A Deferred Benefit represents at all times
an unfunded and unsecured contractual obligation of the Company and each
Non-Employee Director or Beneficiary will be an unsecured creditor of
the Company. No Non-Employee Director, Beneficiary or any other person shall
have any interest in any fund or in any specific asset of the Company by reason
of any amount credited to him hereunder, nor shall any Non-Employee Director,
Beneficiary or any other person have any right to
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receive any distribution under the Plan except as, and to the extent,
expressly provided in the Plan. The Company will not segregate any funds
or assets for Deferred Benefits or issue any notes or security for the payment
of any Deferred Benefits. Any reserve or other asset that the Company may
establish or acquire to assure itself of the funds to provide benefits under
the Plan shall not serve in any way as security to any Non-Employee Director,
Beneficiary or other person for the performance of the Company under
the Plan.
(c) Other Compensation Arrangements. Benefits
received by a NonEmployee Director pursuant to the provisions of the Plan
shall not be included in, nor have any effect on, the determination of benefits
under any other arrangement provided by the Company.
(d) Securities Law Restrictions. The Administrator may
require each NonEmployee Director purchasing or acquiring shares of
Common Stock pursuant to the Plan to agree with the Company in writing
that such Non-Employee Director is acquiring the shares for investment
and not with a view to the distribution thereof. All certificates for shares
of Common Stock delivered under the Plan shall be subject to such stock-
transfer orders and other restrictions as the Administrator may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission or any exchange upon which the Common
Stock is then listed, and any applicable federal or state securities law, and
the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. No
shares of Common Stock shall be issued hereunder unless the Company shall
have determined that such issuance is in compliance with, or pursuant to an
exemption from, all applicable federal and state securities laws.
(e) Expenses. The costs and expenses of administering the
Plan shall be borne by the Company.
(f) Applicable Law. Except as to matters of federal law,
the Plan and all actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
conflicts of law principles.
(g) Effective Date. The Plan shall be effective as of the
Effective Date, subject to the approval thereof by the stockholders of the
Company by no later than the next Annual Meeting to occur after the
Effective Date. If such stockholder approval is notobtained by the date of
such Annual Meeting, (i) all prior Option grants shall be void ab initio
and of no further force and effect, and (ii) all Director's Fees previously
deferred under the Plan (together with notional interest credited at the rate
described in the last sentence of Section 5(c) above) shall be paid to the
Non-Employee Director in cash within ten days following the date of the
Annual Meeting.
11. Definitions.
"Administrator" means the Chief Executive Officer of the Company or
the individual appointed by the Chief Executive Officer of the Company to
administer the Plan.
"Annual Fees" means the cash portion of (i) any annual fee payable
to a NonEmployee Director for service on the Board, (ii) any other fee
determined on an annual basis and payable for service on, or for acting as
chairperson of, any committee of the Board and (iii) any similar annual fee
or fees payable in respect of service on the board of directors of any
Subsidiary or any committee of any such board of directors.
"Annual Meeting" means an annual meeting of the Company's
stockholders.
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<PAGE>
"Beneficiary" or "Beneficiaries" means an individual or entity
designated by a Non-Employee Director on a Beneficiary Designation Form to
receive Deferred Benefits and to exercise Options in the event of the
Non-Employee Director's death; provided, however, that, if no such
individual or entity is designated or if no such designated individual is alive
at the time of the Non-Employee Director's death, Beneficiary shall
mean the Non-Employee Director's estate.
"Beneficiary Designation Form" means a document, in a form approved
by the Administrator to be used by Non-Employee Directors to name their
respective Beneficiaries. No Beneficiary Designation Form shall be
effective unless it is signed by the Non-Employee Director and received
by the Administrator prior to the date of death of the Non-Employee Director.
"Board" means the Board of Directors of the Company.
"Change in Control" means the happening of any of the following:
(i) When any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan
acting as trustee) is or becomes the "beneficial owner" (as defined in Rule
13d-3 underthe Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities; or
(ii) The occurrence of a transaction requiring shareholder
approval, and involving the sale of all or substantially all of the assets of
the Company or the merger of the Company with or into another corporation.
"Change in Control Price" means, as determined by the
Administrator, (i) the highest Fair Market Value at any time within the
60-day period immediately preceding the date of determination of the
Change in Control Price by the Administrator (the "60-Day Period"), or
(ii) the highest price paid or offered, as determined by the Administrator, in
any bona fide transaction or bona fide offer related to the Change in Control
of the Company, at any time within the 60-Day Period.
"Code" means the Internal Revenue Code of 1986, as amended, and
the applicable rules and regulations promulgated thereunder.
"Common Stock" means the common stock of the Company, no par
value per share.
"Company" means Apple Computer, Inc., a California
corporation, or any successor to substantially all of its business
"Deferral Election Form" means a document, in a form approved by the
Administrator, pursuant to which a Non-Employee Director makes a
deferral election under the Plan.
"Deferral Period" means each period commencing on the date of an
Annual Meeting and ending on the date immediately preceding the next
Annual Meeting. The first Deferral Period under the Plan shall commence
on the first day of the first fiscal quarter of the Company to begin after
April 21, 1997. If an individual becomes eligible to participate in the
Plan after the commencement of a Deferral Period, the Deferral Period for
the individual shall be the remainder of such Deferral Period.
"Deferred Benefit" means an amount that will be paid on a deferred
basis under the Plan to a Non-Employee Director who has made a deferral
election pursuant to Section 5.
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<PAGE>
"Deferred Compensation Account" means the bookkeeping record
established for each Non-Employee Director. A Deferred Compensation Account
is establishedonly for purposes of measuring a Deferred Benefit and not to
segregate assets or to identify assets that may be used to pay a Deferred
Benefit.
"Director's Fees" means the aggregate of a Non-Employee Director's
Annual Fees and Meeting Fees.
"Effective Date" means, subject to Section 10(g), March 25, 1997.
"Election Date" means the day immediately preceding the
commencement of a Deferral Period. If an individual first becomes eligible to
participate in the Plan on an Annual Meeting date or after the start of a
Deferral Period, the Election Date shall be the thirtieth day following such
Annual Meeting date or initial participation date, as the case may be.
The Election Date for the first Deferral Period shall be the last business day
prior to the first fiscal quarter of the Company to begin after the Effective
Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the applicable rules and regulations promulgated
thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations promulgated thereunder.
"Fair Market Value" means the value of Common Stock determined as
follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system (including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System), its Fair Market Value shall be
the closing sales price for such stock or the closing bid if no sales were
reported, as quoted on such system or exchange (or the exchange with the
greatest volume of trading in the Common Stock) for the last market
trading day prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable.
(ii) If the Common Stock is regularly quoted on the NASDAQ
System (but not on the National Market System) or quoted by a recognized
securities dealer, but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common
Stock for the last day on which there are quoted prices prior to the time of
determination.
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
"Meeting Fees" means (i) any meeting fee payable in respect of
attendance at or participation in meetings of the Board or any
committee of the Board or any meeting of the stockholders of the Company and
(ii) any similar meeting fee payable in respect of service on the board of
directors of any Subsidiary or any committee of any such board of directors.
"Non-Employee Director" means a member of the Board who is not an
employee of the Company or any of its Subsidiaries.
"Option" means an option to purchase shares of Common Stock
awarded to a Non-Employee Director pursuant to the Plan.
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<PAGE>
"Phantom Cash Amounts" means the amounts credited to a Deferred
Compensation Account in accordance with Section 5(c).
"Phantom Stock Unit" means a bookkeeping unit representing one
share of Common Stock credited to a Deferred Compensation Account in
accordance with Section 5(d).
"Plan" means the Apple Computer, Inc. Non-Employee Director
Stock Plan.
"Subsidiary" means any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect
to the Company.
69
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-END> MAR-28-1997
<CASH> 1,273
<SECURITIES> 186
<RECEIVABLES> 1,245
<ALLOWANCES> 96
<INVENTORY> 509
<CURRENT-ASSETS> 3,642
<PP&E> 1,295
<DEPRECIATION> 739
<TOTAL-ASSETS> 4,487
<CURRENT-LIABILITIES> 2,011
<BONDS> 952
<COMMON> 472
0
0
<OTHER-SE> 770
<TOTAL-LIABILITY-AND-EQUITY> 4,487
<SALES> 3,730
<TOTAL-REVENUES> 3,730
<CGS> 3,030
<TOTAL-COSTS> 3,030
<OTHER-EXPENSES> 1,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (828)
<INCOME-TAX> 0
<INCOME-CONTINUING> (828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (828)
<EPS-PRIMARY> (6.62)
<EPS-DILUTED> (6.62)
70
<PAGE>
