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 27, 1999 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 942404110
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1 Infinite Loop 95014
Cupertino, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 996-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Titles of classes)
___________
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 ____
137,058,898 shares of Common Stock Issued and Outstanding as of April 30, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
March 27, March 27, March 27, March 27,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $1,530 $1,405 $3,240 $2,983
Cost of sales 1,127 1,056 2,355 2,281
Gross margin 403 349 885 702
Operating expenses:
Research and development 76 75 152 154
Selling, general, and
administrative 239 223 518 457
Restructuring costs 9 -- 9 --
Total operating expenses 324 298 679 611
Operating income 79 51 206 91
Gain from sale of investment 55 -- 87 --
Interest and other income
(expense), net 19 8 29 15
Total interest and other
income (expense), net 74 8 116 15
Income before provision for
income taxes 153 59 322 106
Provision for income taxes 18 4 35 4
Net income $ 135 $ 55 $ 287 $ 102
Earnings per common share:
Basic $ 0.99 $ 0.42 $ 2.11 $ 0.78
Diluted $ 0.84 $ 0.38 $ 1.79 $ 0.71
Shares used in computing earnings
per share (in thousands):
Basic 136,371 131,969 135,820 130,021
Diluted 173,204 145,915 172,619 142,769
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share amounts)
<TABLE>
<CAPTION>
ASSETS
March 27, 1999 September 25,1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,358 $1,481
Short-term investments 1,564 819
Accounts receivable, less allowances of
$79 and $81, respectively 804 955
Inventories 18 78
Deferred tax assets 154 182
Other current assets 194 183
Total current assets 4,092 3,698
Property, plant, and equipment, net 330 348
Other assets 513 243
Total assets $4,935 $4,289
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 791 $ 719
Accrued expenses 753 801
Total current liabilities 1,544 1,520
Long-term debt 955 954
Deferred tax liabilities 261 173
Total liabilities 2,760 2,647
Commitments and contingencies
Shareholders' equity:
Series A non-voting convertible preferred
stock, no par value; 150,000 shares
authorized, issued and outstanding 150 150
Common stock, no par value; 320,000,000
shares authorized; 136,656,673 and
135,192,769 shares issued and
outstanding, respectively 672 633
Retained earnings 1,185 898
Accumulated other comprehensive
income (loss) 168 (39)
Total shareholders' equity 2,175 1,642
Total liabilities and
shareholders' equity $4,935 $4,289
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
APPLE COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 27, 1999 March 27, 1998
<S> <C> <C>
Cash and cash equivalents,
beginning of the period $1,481 $1,230
Operating:
Net income 287 102
Adjustments to reconcile net income to
cash generated by operating activities:
Depreciation and amortization 47 56
Provision for deferred income taxes 6 1
Gain on sale of ARM shares (87) --
Changes in operating assets and liabilities:
Accounts receivable 151 220
Inventories 60 180
Other current assets (11) 89
Other assets 11 (9)
Accounts payable 72 (162)
Other current liabilities (44) (190)
Cash generated by operating activities 492 287
Investing:
Purchase of short-term investments (2,254) (941)
Proceeds from sales and maturities of
short-term investments 1,509 632
Net proceeds from property, plant, and
equipment retirements 20 45
Purchase of property, plant, and equipment (24) (12)
Proceeds from sale of ARM shares 96 --
Other 2 32
Cash used for investing activities (651) (244)
Financing:
Decrease in notes payable to banks -- (2)
Increase in long-term borrowings 1 2
Increases in common stock 35 12
Cash generated by financing activities 36 12
Total cash used (123) 55
Cash and cash equivalents, end of the period $1,358 $1,285
Supplemental cash flow disclosures:
Cash paid for interest $ 30 $ 30
Cash paid (received) for income taxes, net $ (1) $ (5)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
APPLE COMPUTER, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
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 Condensed Consolidated
Financial Statements (Unaudited). The results for interim periods are not
necessarily indicative of results to be expected for the entire year. These
condensed consolidated financial statements and accompanying notes should be
read in conjunction with the Company's annual consolidated financial
statements and the notes thereto for the fiscal year ended September 25, 1998,
included in its Annual Report on Form 10-K for the year ended September 25,
1998 (the 1998 Form 10-K).
During the first quarter of 1999, the Company amended its By-laws to provide
that beginning with the first fiscal quarter of 1999 each of the Company's
fiscal quarters would end on Saturday rather than Friday. Accordingly, one day
was added to the first quarter of 1999 so that the quarter ended on Saturday,
December 26, 1998. This change did not have a material effect on the
Company's results of operations for either the first or second quarters of
fiscal 1999 and had no effect on the amount of revenue recognized in either
quarter.
Note 2 - Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common
shares outstanding during the period increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The dilutive effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method. The dilutive effect of convertible securities is
reflected using the if-converted method.
5
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except net income and per share amounts):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
3/27/99 3/27/98 3/27/99 3/27/98
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic
earnings per share -
Net income (in millions) $ 135 $ 55 $ 287 $ 102
Interest expense on
convertible debt 11 -- 22 --
Numerator for diluted
earnings per share - Adjusted
net income (in millions) $ 146 $ 55 $ 309 $ 102
Denominator:
Denominator for basic earnings
per share -- weighted average
shares outstanding 136,371 131,969 135,820 130,021
Effect of dilutive securities:
Convertible preferred stock 9,091 9,091 9,091 9,091
Convertible debt 22,642 -- 22,642 --
Dilutive options 5,100 4,855 5,066 3,657
Dilutive potential
common shares 36,833 13,946 36,799 12,748
Denominator for diluted
earnings per share -- adjusted
weighted-average shares and
assumed conversions 173,204 145,915 172,619 142,769
Basic earnings per share $ 0.99 $ 0.42 $ 2.11 $ 0.78
Diluted earnings per share $ 0.84 $ 0.38 $ 1.79 $ 0.71
</TABLE>
Options to purchase approximately 253,000 weighted-average shares of common
stock were outstanding during the quarter ended March 27, 1999, that were not
included in the computation of diluted earnings per share for the three months
ended March 27, 1999, because the options' exercise price was greater than the
average market price of the Company's common stock during the period and,
therefore, the effect would be antidilutive.
The Company has outstanding $661 million of unsecured convertible subordinated
debentures (the Debentures) which are convertible by their holders into
approximately 22.6 million shares of common stock at a conversion price of
$29.205 per share subject to the adjustments as defined in the Debenture
agreement. The common shares represented by these Debentures upon conversion
6
<PAGE>
were included in the computation of diluted earnings per share for the three
and six month periods ended March 27, 1999, as the effect of using the if-
converted method was dilutive for that period. The common shares represented
by these Debentures were not included in the computation of diluted earnings
per share for the three and six month periods ended March 27, 1998, because
the effect of using the if-converted method for those periods would be anti-
dilutive. For additional disclosures regarding the outstanding preferred
stock, employee stock options and the Debentures, see the 1998 Form 10-K and
footnote 10 of these notes to Condensed Consolidated Financial Statements.
Note 3 - Consolidated Financial Statement Details (in millions)
<TABLE>
<CAPTION>
Inventories 03/27/99 9/25/98
<S> <C> <C>
Purchased parts $ 2 $ 32
Work in process 2 5
Finished goods 14 41
Total inventories $ 18 $ 78
</TABLE>
<TABLE>
<CAPTION>
Property, Plant, and Equipment 03/27/99 9/25/98
<S> <C> <C>
Land and buildings $ 326 $ 338
Machinery and equipment 307 277
Office furniture and equipment 74 80
Leasehold improvements 124 129
Accumulated depreciation and amortization (501) (476)
Net property, plant, and equipment $ 330 $ 348
</TABLE>
<TABLE>
<CAPTION>
Accrued Expenses 03/27/99 9/25/98
<S> <C> <C>
Accrued compensation and employee benefits $ 77 $ 99
Accrued marketing and distribution 171 205
Accrued warranty and related costs 114 132
Other current liabilities 391 365
Total accrued expenses $ 753 $ 801
</TABLE>
<TABLE>
<CAPTION>
Interest and Other Income (Expense) Six Months Ended
03/27/99 03/27/98
<S> <C> <C>
Interest income $ 65 $ 45
Interest expense (31) (32)
Other income (expense), net (5) 2
Interest and other income (expense), net $ 29 $ 15
</TABLE>
7
<PAGE>
Note 4 - Equity Investment Gains
As of September 25, 1998, the Company owned 25.9% of the outstanding stock of
ARM Holdings plc (ARM), a publicly held company in the United Kingdom
involved in the design of high performance microprocessors and related
technology. Through September 25, 1998, the Company accounted for this
investment using the equity method. During the first quarter of fiscal 1999,
the Company sold 2.9 million shares of ARM stock for net proceeds of
approximately $37 million, recorded a gain of approximately $32 million as
other income, and recognized related income tax expense of approximately $3
million. During the second quarter of fiscal 1999, the Company sold 2 million
shares of ARM stock for net proceeds of approximately $59 million, recorded a
gain before taxes of approximately $55 million as other income, and recognized
related income tax expense of approximately $5 million. Subsequent to this
sale, the Company held approximately 7.3 million shares of ARM stock.
As a result of the sale of ARM stock in October 1998, the Company's ownership
interest in ARM fell to 19%. Consequently, beginning in the first quarter of
fiscal 1999, the Company ceased accounting for its remaining investment in
ARM using the equity method and has categorized its remaining shares as
available for sale requiring the shares be carried at fair value, with
unrealized gains and losses net of taxes reported as a component of
accumulated other comprehensive income in shareholders' equity. As of March
27, 1999, the carrying value of the Company's remaining shares in ARM
included in other assets was approximately $326 million, and the total
unrealized gains net of taxes included in equity as a component of accumulated
other comprehensive income was approximately $205 million. For additional
disclosures regarding the Company's investment in ARM, see footnote 10 of
these notes to Condensed Consolidated Financial Statements (Unaudited).
8
<PAGE>
Note 5 - Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," beginning with the Company's first
quarter of 1999. SFAS No. 130 separates comprehensive income into two
components, net income and other comprehensive income. Other comprehensive
income refers to revenue, expenses, gains and losses that under generally
accepted accounting principles are recorded as an element of shareholders'
equity but are excluded from net income. While SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income, it has no impact
on the Company's net income or total shareholders' equity. The Company's
other comprehensive income is comprised of foreign currency translation
adjustments from those subsidiaries not using the U.S. dollar as their
functional currency and from unrealized gains and losses on marketable
securities categorized as available for sale. See Note 4 regarding unrealized
gains on available for sale securities.
The components of comprehensive income, net of tax, are as
follows (in millions):
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
3/27/99 3/27/98 3/27/99 3/27/98
<S> <C> <C> <C> <C>
Net income $ 135 $ 55 $ 287 $ 102
Other comprehensive income:
Change in accumulated
translation adjustment (10) (2) 2 (6)
Unrealized gain on investments, net 142 -- 255 --
Reclassification adjustment for
gain included in net income (50) -- (50) --
Total comprehensive income $ 217 $ 53 $ 494 $ 96
</TABLE>
Note 6 - Restructuring Costs
During the second quarter of 1999, the Company took further actions to improve
the flexibility and efficiency of its manufacturing operations by moving final
assembly of certain of its products to third-party manufacturers. These
restructuring actions resulted in the Company recognizing a charge to
operations of approximately $9 million during the second quarter of 1999 which
was comprised of $6 million for severance benefits to be paid to employees
involuntarily terminated, $2 million for the write-down of operating assets
to be disposed of, and $1 million for payments on cancelled contracts. As of
March 27, 1999, the Company had utilized approximately $1 million of these
reserves in the form of severance payments to terminated employees.
9
<PAGE>
Note 7 - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", and in
June 1998 issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." A discussion of these accounting standards is included in
the notes to consolidated financial statements included in the 1998 Form 10-K
under the subheading "Recent Accounting Pronouncements." Although the
Company continues to review the effect of the implementation of SFAS No.
133, the Company does not currently believe its adoption will have a material
impact on its consolidated results of operations or financial position and
does not believe adoption will result in significant changes to its financial
risk management practices.
In March 1998, the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which provides guidance on accounting for the costs of computer
software intended for internal use. SOP 98-1 must be adopted by the Company
effective as of fiscal 2000 and is not expected to have a material impact on
the Company's consolidated results of operations or financial position.
During the first quarter of 1999, the Company adopted AICPA SOP 97-2,
"Software Revenue Recognition." SOP 97-2 established standards relating to
the recognition of software revenue. SOP 97-2 was effective for transactions
entered into by the Company beginning in the first quarter of fiscal 1999. The
adoption of this accounting standard did not have a material impact on the
Company's results of operations.
Note 8 - Contingencies
The Company is subject to various legal proceedings and claims which are
discussed in detail in the 1998 Form 10-K. The Company is also subject to
certain other legal proceedings and claims which have arisen in the ordinary
course of business and which have not been fully adjudicated. The results of
legal proceedings cannot be predicted with certainty; however, in the opinion
of management, the Company does not have a potential liability related to any
legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
The Internal Revenue Service ("IRS") has proposed federal income tax
deficiencies for the years 1984 through 1991, and the Company has made certain
prepayments thereon. The Company contested the proposed deficiencies by filing
petitions with the United States Tax Court, and most of the issues in dispute
have now been resolved. On June 30, 1997, the IRS proposed income tax
adjustments for the years 1992 through 1994. Although a substantial number of
issues for these years have been resolved, certain issues still remain in
dispute and are being contested by the Company. Management believes that
adequate provision has been made for any adjustments that may result from tax
examinations.
10
<PAGE>
Note 9 - Reclassifications
Certain amounts in the Condensed Consolidated Statement of Cash Flows for
the six months ended March 27, 1998, have been reclassified to conform to the
1999 presentation.
Note 10 - Subsequent Events
On April 14, 1999, the Company announced the call for redemption on June 1,
1999, of all of its 6 percent convertible subordinated debentures due June 1,
2001. Debentures in an aggregate principal amount outstanding totaled
approximately $661 million as of March 27, 1999, which includes
approximately $7 million of unamortized debt issuance costs which would have
to be expensed during the third quarter of 1999 in the event the debentures
are redeemed. Debenture holders have the option of receiving principal plus a
2.4% call premium of approximately $16 million or converting their debentures
into Apple common stock at a conversion price of $29.205 per share. For
additional disclosures regarding the outstanding Debentures, see the 1998 Form
10-K.
On April 22, 1999, ARM effected a 4 for 1 stock split which increased the
Company's holdings in ARM stock to approximately 29 million shares. On
April 29, 1999, the Company sold approximately 9 million shares of ARM stock
for net proceeds of approximately $95 million and a gain before taxes of
approximately $90 million which will be recognized as other income by the
Company in the third quarter of 1999. Subsequent to this sale, the Company
holds 20 million shares of ARM stock.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the subsection entitled "Factors That May
Affect Future Results and Financial Condition" below. The following discussion
should be read in conjunction with the 1998 Form 10-K and the condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-Q. All information is based on the Company's fiscal calendar.
11
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
Tabular information (dollars in millions, except per share amounts):
Three Months Ended Six Months Ended
3/27/99 3/27/98 Change 3/27/99 3/27/98 Change
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,530 $1,405 9% $3,240 $2,983 9%
Macintosh CPU
unit sales 827,000 650,000 27% 1,771,000 1,285,000 38%
Gross margin $403 $349 15% $885 $702 26%
Percentage of net sales 26% 25% 27% 24%
Research and development $ 76 $ 75 1% $152 $154 (1%)
Percentage of net sales 5% 5% 5% 5%
Selling, general and
administrative $239 $223 7% $518 $457 13%
Percentage of net sales 16% 16% 16% 15%
Restructuring costs $ 9 $ -- $ 9 $ --
Other income (expense), net $ 74 $ 8 825% $116 $ 15 673%
Provision for income taxes $ 18 $ 4 350% $ 35 $ 4 775%
Effective tax rate 11.8% 6.8% 11% 3.8%
Net income $135 $ 55 145% $287 $102 181%
Basic earnings per share $0.99 $0.42 136% $2.11 $0.78 171%
Diluted earnings per share $0.84 $0.38 121% $1.79 $0.71 152%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
3/27/99 12/25/98 Change
<S> <C> <C> <C>
Net sales $1,530 $1,710 (11%)
Macintosh CPU
unit sales 827,000 944,000 (12%)
Gross margin $403 $482 (16%)
Percentage of net sales 26% 28%
Research and development $ 76 $ 76 0%
Percentage of net sales 5% 4%
Selling, general and
administrative $239 $279 (14%)
Percentage of net sales 16% 16%
Restructuring costs $ 9 $ --
Other income (expense), net $ 74 $ 42 76%
Provision for income taxes $ 18 $ 17 6%
Effective tax rate 11.8% 10%
Net income $135 $152 (11%)
Basic earnings per share $0.99 $1.12 (12%)
Diluted earnings per share $0.84 $0.95 (12%)
</TABLE>
12
<PAGE>
Net income for the first quarter of 1999 includes a $32 million gain before
tax associated with the sale by the Company of 2.9 million shares of its
investment in ARM which was recognized as other income. Income tax expense
recognized in the first quarter on this gain was approximately $3 million. Net
income for the second quarter of 1999 includes a $55 million gain before tax
associated with the sale by the Company of 2 million shares of its investment
in ARM which was recognized as other income. Income tax expense recognized
in the second quarter on this gain was approximately $5 million.
Net Sales
Net sales for the second quarter of 1999 were $1.53 billion, a 9% increase
over the same quarter in 1998. The increase in net sales is primarily
attributable to a year-over-year 27% increase in Macintosh CPU unit volume.
Volumes were favorably affected by sales of iMac, the Company's moderately
priced Macintosh system designed for education and consumer markets
introduced during the fourth quarter of 1998, which represented 42% or 351,000
of the total Macintosh CPU units sales during the second quarter of 1999.
During the second quarter of 1999, the Company also experienced year-over-
year unit volume growth in its Power Macintosh G3 product line of 13%.
Overall, total net sales only from the sale of Macintosh CPU's rose 12% or
$134 million during the second quarter of 1999 compared to the same quarter
in 1998. The positive effect of increased unit volume on second quarter 1999
net sales was partially offset by a decline in the average revenue per
Macintosh system, a function of total net sales related to hardware shipments
and total Macintosh CPU unit sales, which fell 13% to $1,813 during the second
quarter of 1999 as compared to the same quarter in 1998. The decline in the
average revenue per Macintosh system was the result of lower priced iMac
systems comprising a significant portion of second quarter 1999 net sales, the
decline in net sales from the phase out of certain peripheral products, and
the overall industry trend towards lower priced products.
Net sales for the first six months of 1999 increased $257 million or 9% over
the same period in 1998. A 38% increase in Macintosh CPU unit volume was
the principal cause of the year-over-year increase in net sales. The impact of
the increase in unit volume was partially offset by a decline in the average
revenue per Macintosh system described above.
Net sales declined sequentially $180 million or 11% during the second quarter
of 1999 as compared to the first quarter of 1999. The sequential revenue
decline is primarily attributable to a 12% decrease in Macintosh unit
shipments and a sequential decline in net sales from MacOS 8.5 upgrades, the
current version of the Company's operating system which was introduced in the
first quarter of 1999. The decline in unit sales during the second quarter is
consistent with the historical seasonal pattern experienced by the Company
due to lower demand in that time frame from its domestic education and
consumer markets.
International net sales for both the second quarter of 1999 and the second
quarter of 1998 represented 50% of consolidated net sales and represented 47%
of consolidated net sales for the first quarter of fiscal 1999. In total,
international net sales during the second quarter of 1999 increased
13
<PAGE>
approximately 10% or $70 million over the same period in 1998 and fell
approximately 5% or $40 million sequentially from the first quarter of 1999.
The year over year increase and the relatively small sequential decline in
international net sales reflect strong growth in international unit sales. On
a year-over-year basis, total Macintosh unit sales during the second quarter
of 1999 increased 52% in Japan, 41% in the rest of Asia, and 26% in Europe.
Domestic net sales increased 8% or $55 million during the second quarter of
1999 as compared to 1998 while declining sequentially from the first quarter
of 1999 $140 million or 16% due to the historical seasonal pattern experienced
in the Company's domestic education and consumer markets.
Gross Margin
Gross margin for the second quarter of 1999 was 26.3% compared to 24.8% for
the same quarter in 1998 and 28.2% for the first quarter of 1999. Gross margin
for the first six months of 1999 was 27.3% as compared to 23.5% for the same
period in 1998. The year-over-year increase in gross margin for both the
second quarter and the first six months of the fiscal year is attributable to
various operational changes made by the Company throughout fiscal 1998 and the
first half of fiscal 1999 that improved operational efficiency and reduced
product costs. These changes included simplification of the Company's product
line, focus on the use of industry standard parts, expanded use of supplier
inventory hubs, outsourcing of various aspects of product manufacturing, and
streamlining of product distribution channels and policies. Margins have also
been favorably impacted during the last year by the declining cost of various
components of the Company's products, particularly those sourced from Asia.
The sequential decrease in gross margin from the first quarter of 1999 to the
second quarter of 1999 is primarily attributable to aggressive pricing on
Power Macintosh G3 and iMac systems, lower selling prices experienced on sales
of Powerbooks, and the impact on the first quarter of high margin incremental
net sales of MacOS 8.5. Sales of MacOS 8.5 accounted for a sequential
improvement in first quarter 1999 gross margin of approximately 1.5 percentage
points that was not repeated during the second quarter.
There can be no assurance that current or targeted consolidated gross margin
levels will be achieved or that current margins on existing individual
products will be maintained. In general, gross margins and margins on
individual products will remain under significant downward pressure due to a
variety of factors, including continued industry wide global pricing
pressures, increased competition, compressed product life cycles, potential
increases in the cost of raw material and outside manufacturing services, and
potential changes to the Company's product mix, including higher unit sales of
consumer products with lower average selling prices and lower gross margins.
In response to these downward pressures, the Company expects that 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, to stimulate demand for certain of its products,
and to effectively manage the final assembly of certain of its products by
third parties. The Company's operating strategy and pricing take into account
anticipated changes in foreign currency exchange rates over time; however, the
Company's results of operations can be significantly affected in the short
term by fluctuations in exchange rates.
14
<PAGE>
Operating Expenses
Selling, general and administrative expenses, not including restructuring
costs, increased approximately $16 million or 7% during the second quarter of
1999 as compared to the same period in 1998 and decreased sequentially $40
million or 14% from the first quarter of 1999. Selling, general and
administrative expenses for the first six months of 1999 increased $61 million
or 13% as compared to same period in 1998. The year-over-year increases for
both the second quarter and the first six months of the fiscal year were due
primarily to higher advertising and marketing costs. The sequential decline
from the first quarter of 1999 reflects a typical seasonal decline in
advertising and promotional activity associated with the 1998 holiday season
and the first quarter worldwide introduction of iMac and MacOS 8.5.
Expenditures for research and development remained relatively consistent in
terms of absolute dollars between the second quarter of 1999, the same quarter
in 1998, and the first quarter of 1999.
During the second quarter of 1999, the Company took further actions to improve
the flexibility and efficiency of its manufacturing operations by moving final
assembly of certain of its products to third party manufacturers. These
restructuring actions resulted in the Company recognizing a charge to
operations of approximately $9 million during the second quarter of 1999
primarily for severance benefits to be paid to employees to be involuntarily
terminated.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, is comprised of interest income on
the Company's cash and investment balances, interest expense on the Company's
debt, gains and losses recognized on investments accounted for using the
equity method, realized gains and losses on the sale of securities, certain
foreign exchange gains and losses, and other miscellaneous income and expense
items. The call for redemption on April 14, 1999, of the Company's 6 percent
convertible subordinated debentures discussed below under the heading
"Liquidity" will result in approximately $3 million less interest expense
being incurred in the third quarter of 1999 and approximately $10.5 million
less interest expense being incurred in all quarters thereafter.
As of September 25, 1998, the Company owned 25.9% of the outstanding stock
of ARM Holdings plc (ARM), a publicly held company in the United Kingdom
involved in the design of high performance microprocessors and related
technology. During the first quarter of 1999, the Company sold 2.9 million
shares of ARM stock for net proceeds of approximately $37 million, a gain of
approximately $32 million recorded as other income, and related income tax
expense of approximately $3 million. During the second quarter of 1999, the
Company sold 2 million shares of ARM stock for net proceeds of approximately
$59 million and a gain before taxes of approximately $55 million recorded as
other income, and related tax expense of approximately $5 million. Subsequent
to this sale and subsequent to ARM's 4 for 1 stock split which was effective
on April 22, 1999, the Company held approximately 29 million shares of ARM
stock.
15
<PAGE>
On April 29, 1999, the Company sold approximately 9 million shares of ARM
stock for net proceeds of approximately $95 million and a gain before taxes of
approximately $90 million which will be recognized as other income by the
Company in the third quarter of 1999. Subsequent to this sale, the Company
holds 20 million shares of ARM stock.
Provision for Income Taxes
As of March 27, 1999, the Company had deferred tax assets arising from
deductible temporary differences, tax losses, and tax credits of $625 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.
As of March 27, 1999, a valuation allowance of $142 million was recorded
against the deferred tax asset for the benefits of tax losses which may not be
realized. Realization of approximately $73 million of the asset representing
tax loss and credit carryforwards is dependent on the Company's ability to
generate approximately $209 million of future U.S. taxable income.
Management believes that it is more likely than not that forecasted U.S.
income, including income that may be generated as a result of certain tax
planning strategies, will be sufficient to utilize the tax carryforwards prior
to their expiration in 2011 and 2012 to fully recover this asset. However,
there can be no assurance that the Company will meet its expectations of
future U.S. taxable 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 consolidated financial results. 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.
The Company's effective tax rate for the second quarter of 1999 was
approximately 12% which brings the tax rate for the 6 months ended March 27,
1999, to 11%. The overall effective tax rate of 11% is less than the statutory
federal income tax rate of 35% due primarily to the reversal of a portion of
the previously established valuation allowance for tax loss and credit
carryforwards and certain undistributed foreign earnings for which no U.S.
taxes were provided.
The Company anticipates that its tax rate for the remainder of fiscal 1999
will be between 11% and 15%. The Company anticipates that its tax rate will
increase significantly in fiscal 2000 as its currently available valuation
allowance for tax loss and credit carryforwards is reversed. The foregoing
statements are forward looking. The Company's actual results could differ
because of several factors, including those set forth below in the subsection
entitled "Factors That May Affect Future Results and Financial Condition."
16
<PAGE>
Liquidity and Capital Resources
The following table presents selected financial information and statistics for
each of fiscal quarters ending on the dates indicated (dollars in millions):
<TABLE>
<CAPTION>
3/27/99 9/25/98 3/27/98
<S> <C> <C> <C>
Cash, cash equivalents,
and short-term investments $2,922 $ 2,300 $1,823
Accounts receivable, net $804 $955 $807
Inventory $ 18 $ 78 $257
Working capital $2,548 $2,178 $1,829
Days sales in accounts receivable (a) 48 56 52
Days of supply in inventory (b) 1 6 22
Days payables outstanding (c) 64 60 52
Operating cash flow $269 $282 $153
</TABLE>
(a) Based on ending net trade receivables and most recent quarterly net sales
for each period
(b) Based on ending inventory and most recent quarterly cost of sales for each
period
(c) Based on ending accounts payable and most recent quarterly cost of sales
adjusted for the change in inventory
As of March 27, 1999, the Company had approximately $2.9 billion in cash,
cash equivalents, and short-term investments, an increase of over $600 million
over the same balances at the end of fiscal 1998. During the second quarter of
1999, the most significant sources of cash were $135 million of net income, a
decline in net accounts receivable of $109 million, an increase in accounts
payable of $136 million, and proceeds on the sales of ARM shares of $59
million. These factors were partially offset by the net purchase of short term
investments of $207 million and a decrease in other current liabilities of $72
million. The Company's cash and cash equivalent balances as of March 27,
1999, and September 25, 1998, include $4 million and $56 million,
respectively, pledged as collateral to support letters of credit.
The Company's debt ratings are currently non-investment grade. As of March
27, 1998, the Company's senior and subordinated long-term debt ratings were
B- and CCC, respectively, by Standard and Poor's (S&P) Rating Agency, and B3
and Caa2, respectively, by Moody's Investor Services (Moody's). In June 1998,
Moody's upgraded the Company's senior debt to B2 from B3 and subordinated
debt to Caa1 from Caa2 citing strengthened debtholder protection measurements
as the major reason for the upgrade. On November 9, 1998, S&P upgraded the
Company's senior debt to B+ from B- and upgraded its subordinated debt to B-
from CCC citing the Company's improved profitability and financial profile for
the upgrade. Despite these recent upgrades, the Company's continued non-
investment grade debt ratings will maintain pressure on the Company's cost of
funds in future periods and may require the Company to pledge additional
collateral or agree to more stringent debt covenants.
17
<PAGE>
On April 14, 1999, the Company announced the call for redemption on June 1,
1999, of all of its 6 percent convertible subordinated debentures due June 1,
2001. Debentures in an aggregate principal amount outstanding totaled
approximately $661 million as of March 27, 1999. Debenture holders have the
option of receiving principal plus a 2.4% call premium of approximately $16
million or of converting their debentures into Apple common stock at a
conversion price of $29.205 per share.
The Company believes that its balances of cash, cash equivalents, and short-
term investments will be sufficient to meet its cash requirements over the
next twelve months, including any cash that may be utilized as a result of the
early call of its 6 percent convertible subordinated debentures. However,
given the Company's current debt ratings, if the Company should need to obtain
short-term borrowings, there can no assurance that such borrowings could be
obtained at favorable rates. The inability to obtain such borrowings at
favorable rates could materially adversely affect the Company's results of
operations, financial condition, and liquidity.
18
<PAGE>
Year 2000 Compliance
The information presented below related to Year 2000 (Y2K) compliance
contains forward looking statements that are subject to risks and
uncertainties. The Company's actual results may differ significantly from
those discussed below and elsewhere in this Form 10-Q regarding Year 2000
compliance.
Year 2000
The Year 2000 (Y2K) issue is the result of certain computer hardware,
operating system software and software application programs having been
developed using two digits rather than four to define a year. For example the
clock circuit in the hardware may be incapable of holding a date beyond the
year 1999; some operating systems may recognize a date using "00" as the year
1900 rather than 2000 and certain applications may have limited date
processing capabilities. These problems could result in the failure of major
systems or miscalculations, which could have a material impact on companies
through business interruption or shutdown, financial loss, damage to
reputation, and legal liability to third parties.
State of Readiness
The Company's Information Systems and Technology department (IS&T) began
addressing the Y2K issue in 1996 as part of its Next Generation strategy,
which addressed the need for ongoing enhancement and replacement of the
Company's various disparate legacy information technology (IT) Systems. In
1998, the Company established a Year 2000 Executive Steering Committee
(Steering Committee) comprised of senior executives of the Company and the
Company's Year 2000 Project Management Office (PMO). The PMO reports to
the Executive Vice President and Chief Financial Officer, the Steering
Committee, and the Audit and Finance Committee of the Board of Directors.
The PMO developed and manages the Company's worldwide Y2K strategic plan
(Y2K Plan) to address the potential impact of Y2K on the Company's operations
and business processes. In particular, the Y2K Plan addresses four principal
areas that may be impacted by the Y2K issue: Apple Branded Products; Third
Party Relationships; Non-IT Business Systems; and IT Systems. Regardless of
the planned or actual status of any of the principal areas of the Y2K Plan,
all areas remain under review and subject to modification as deemed necessary
throughout the remainder of calendar 1999. With respect to the IT Systems and
Non-IT Business Systems, the Y2K Plan consists of four separate but
overlapping phases: Phase I - Inventory and Risk Assessments; Phase II -
Remediation Cost Estimation; Phase III - Remediation; and Phase IV -
Remediation Testing. In addition, the Company has an ongoing Y2K Awareness
Program designed to keep employees informed about Y2K issues. The Company's
goal is to substantially complete Phase III - Remediation during the third
quarter of 1999; substantially complete Phase IV - Remediation Testing during
the fourth quarter of 1999, and to continue compliance efforts throughout the
remainder of calendar year 1999. There have been no significant changes made
to this schedule during the first half of 1999, and the Company remains on
schedule to meet these goals.
19
<PAGE>
Apple Products
The Company designs and manufacturers microprocessor-based personal
computers, related peripherals, operating system software and application
software, including Macintosh personal computers and the Mac OS which are
marketed under the "Apple" brand (collectively "Apple Branded Products"). The
Company tested certain Apple Branded Products to determine Y2K compliance,
although such testing did not include third party products bundled with Apple
Branded Products and certain Apple Branded Products no longer supported by the
Company. For purposes of this discussion, Y2K compliant means a product will
not produce errors processing date data in connection with the year change
from December 31, 1999, to January 1, 2000, when used with accurate date data
in accordance with its documentation, provided all other products (including
other software, firmware and hardware) used with it properly exchange date
data with it. A Y2K compliant product will recognize the Year 2000 as a leap
year. Information regarding the Y2K readiness of all Apple Branded Products is
available on the Apple corporate web site at www.apple.com. Such information
is not to be considered part of this quarterly report. The Company believes
that the unsupported Apple Branded Products are Y2K compliant because, unlike
other company's personal computers and related products, the Company's
products do not rely upon the two digit date format but use a long word
approach which allows the correct representation of dates up to the year 2040.
The current date and time utilities utilized by Apple Branded Products are 64
bit signed value which covers dates from 30081 BC to 29940 AD. Since the
Company does not control the design of non-Apple Branded Products or third
party products bundled with Apple Branded Products, it cannot assure they are
Y2K compliant. Certain products acquired from NeXT Software, Inc., including
OpenStep and NextStep, and prior versions of WebObjects which incorporate
technology from OpenStep and NextStep, are not currently Y2K compliant. The
Company intends to develop and make available during the third quarter of 1999
a software patch intended to allow such products to become Y2K compliant. The
Company recently discovered that certain prior versions of its FileMaker Pro
database application software are not fully Y2K compliant. The Company plans
to have a patch available for these versions of the product in the third
quarter of fiscal 1999 or early in the fourth quarter.
Third Party Relationships
The Company's business operations are heavily dependent on third party
corporate service vendors, materials suppliers, outsourced operations
partners, distributors and others. The Company is working with key external
parties to identify and attempt to mitigate the potential risks to it of Y2K.
The failure of external parties to resolve their own Y2K issues in a timely
manner could result in a material financial risk to the Company. As part of
its overall Y2K program and to establish the state of readiness of certain
third parties, the Company is actively communicating on an ongoing basis with
certain third parties whose lack of Y2K compliance would present a high degree
of risk to the Company. Based on information obtained from various sources,
the Company believes that it is reasonably possible there will be short-term
interruptions in airfreight services early in calendar year 2000 that could
20
<PAGE>
result in shipping delays of raw material and finished goods. See further
discussion regarding this issue below under the heading "Contingency Plans."
The Company believes that its review of certain third parties is approximately
25% complete as of the end of the second quarter of fiscal 1999. Although
numerous third parties have advised the Company that they are addressing their
Y2K issues on a timely basis, the readiness of third parties overall varies
widely. Because the Company's Y2K compliance is dependent on the timely Y2K
compliance of third parties, there can be no assurances that the Company's
efforts alone will resolve all Y2K issues.
IT Systems and Non-IT Business Systems
Phase I - Inventory and Risk Assessment:
This Phase requires an inventory and assessment of the Non-IT Business systems
used by the Company including systems with embedded technology, building
access systems, and health and safety systems. This Phase also includes
inventory and assessment of IT Systems used by the Company which include
large IS&T systems, desktop hardware and software, and network hardware and
software. Each such system is evaluated and the business risk is quantified as
being High, Medium or Low Risk to the Company's Business. Systems which
are High Risk are those which if uncorrected would cause an interruption of or
complete failure to conduct the Company's business. Medium Risks are those
which would negatively impact the business but complete cessation could be
avoided with some inconvenience. Low Risks are those where the risk to
business interruption or cessation are remote. High and Medium Risk items
will be remediated or replaced, and Low risk items will likely not be
addressed prior to the Year 2000. As of the end the second quarter of fiscal
1999, the Company is substantially complete with this Phase for both IT
Systems and Non-IT Systems. However, the Company will continue to review
information developed as the result of its overall Y2K effort which could
result in additional items being added to its Y2K inventory.
Phase II - Remediation Cost Estimation:
This Phase involves the analysis of each High and Medium Risk to determine
how such risks may be remediated and the cost of such remediation. The
Company has substantially completed this Phase for the IT Systems and is
approximately 85% complete for the identified Non-IT Business Systems. The
Company anticipates that this Phase will be substantially completed during the
third quarter of fiscal 1999
Phase III - Remediation:
This Phase includes the replacement or correction of the High and Medium Risk
Non-IT Business Systems and IT Systems. A detailed project plan for such
remediation has been developed and is currently being implemented. This Phase
is substantially complete for the IT Systems and is approximately 50% complete
for the Non-IT Business Systems. The Company anticipates that this Phase will
be completed during the third quarter of fiscal 1999.
21
<PAGE>
Phase IV - Remediation Testing:
This Phase includes the future date testing of the remediation efforts made in
Phase III to confirm that the changes made bring the affected systems into
compliance, no new problems have arisen as a result of the remediation, and
that new systems which replaced noncompliant systems are Y2K compliant.
This Phase is approximately 50% complete for the IT Systems and has just
commenced for the Non-IT Systems. The Company anticipates that this Phase
will be completed by the fourth quarter of fiscal 1999.
Costs to Address Y2K
The costs of the Y2K program are primarily costs associated with the
utilization of existing internal resources and incremental external spending.
The Company has incurred approximately $6.4 million of incremental external
spending directly associated with Y2K issues through March 27, 1999. Based on
the current status of the Company's remediation cost estimation discussed
above, the Company estimates it will incur future incremental external
spending associated with Y2K issues of approximately $6.8 million to address
those risks identified as High or Medium. The Company's estimate of total
incremental external spending has increased by approximately $4 million to
$13.2 million primarily as a result of increased costs identified to address
the Y2K compliance of certain Apple Branded Products. As the Company's Y2K
Plan continues, the actual future incremental external spending may prove to
be higher. Also, this estimate does not include the costs that could be
incurred by the Company if one or more of its significant third party vendors
fails to achieve Y2K compliance. The Company is not separately identifying and
including in these estimates the Y2K costs incurred that are the result of
utilization of the Company's existing internal resources.
Contingency Plans.
Under the guidance and management of the PMO, the Company is in the process
of preparing Y2K contingency plans to mitigate the potential impact of various
Y2K failures. The Company's contingency plans, which will be based in part on
the assessment of the magnitude and probability of potential risks, will
primarily focus on proactive steps to prevent Y2K failures from occurring, or
if they should occur, to detect them quickly, minimize their impact and
expedite their repair. The Y2K contingency plans will supplement disaster
recovery and business continuity plans already in place, and are expected to
include measures such as selecting alternative suppliers and channels of
distribution. The Company believes development of its Y2K contingency plans is
approximately 10% complete as of the end of the second quarter of fiscal 1999
and expects to be substantially complete by the end of the fourth quarter of
fiscal 1999.
As noted above, the Company believes that it is reasonably possible there will
be short-term interruptions in airfreight services early in calendar year 2000
that could result in shipping delays of raw material and finished goods. The
Company currently believes it can develop and implement contingency plans to
mitigate the effects of a short-term interruption in such service. However, if
the Company fails to develop and implement adequate contingency plans, if the
interruption in service lasts for an extended period of time, or if
22
<PAGE>
alternative Y2K compliant services are not readily available at reasonable
cost, there could be material adverse effects on the Company's consolidated
results of operations and financial position.
Risk Factors
At this point, the Company has not completed its assessment of reasonably
likely worst case scenario of Non-IT Business Systems and/or IT Systems
failures and related consequences. However, based on current information, the
Company believes that the most likely worst case scenario is that it will
experience a number of minor malfunctions and failures of its IT Systems and
Non-IT Business Systems at the beginning of the Year 2000 that were not
previously detected during the Company's inventory and risk assessment and
remediation activities. The Company currently believes these malfunctions and
failures will not have a material impact on its consolidated results of
operations or financial condition. However, there can be no assurance that
the Y2K remediation by the Company or third parties will be properly and
timely completed, and the failure to do so could have a material adverse
effect on the Company, its business, its consolidated results of operations,
and its financial condition. In particular, the Company has not yet completed
its assessment of the Y2K readiness of its significant third party vendors.
Completion of this assessment may result in the identification of additional
issues which could have a material adverse effect on the Company's results of
operations. In addition, important factors that could cause results to differ
materially include, but are not limited to, the ability of the Company to
successfully identify systems and vendors which have a Y2K issue, the nature
and amount of remediation effort required to fix the affected systems, the
adequacy of such remediation efforts, the production-related contingency
plans of competitors with the Company's third party suppliers, and the costs
and availability of labor and resources to successfully address the Y2K
issues and/or to execute on any required contingency plans.
Factors That May Affect Future Results and Financial Condition
The Company operates in a rapidly changing environment that involves a number
of uncertainties, some of which are beyond the Company's control. In addition
to the uncertainties described elsewhere in this report, there are many
factors that will affect the Company's future results and business which may
cause the actual results to differ from those currently expected. 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. Inherent in this process are a number of factors that the Company
must successfully manage in order to achieve favorable future operating
results and a favorable financial condition.
Potential risks and uncertainties that could affect the Company's future
operating results and financial condition include, among other things,
continued competitive pressures in the marketplace and the effect of any
23
<PAGE>
reaction by the Company to such competitive pressures, including pricing
actions by the Company; risks associated with international operations,
including economic and labor conditions, the continuing economic problems
being experienced in Asia and Latin America, political instability, tax laws,
and currency fluctuations; increasing dependence on third-parties for
manufacturing and other outsourced functions such as logistics; the
availability of key components on terms acceptable to the Company; the
continued availability of certain components and services essential to the
Company's business currently obtained by the Company from sole or limited
sources, including PowerPC RISC microprocessors developed by and obtained
from IBM and Motorola and the final assembly of certain of the Company's
products; 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 continue to make timely
delivery of planned enhancements to the current Mac OS and timely delivery of
future versions of the Mac OS; the availability of third-party software for
particular applications; the Company's ability to attract, motivate and retain
key employees; the effect of Y2K compliance issues; managing the continuing
impact of the European Union's transition to the Euro as its common legal
currency; and the Company's ability to retain the operational and cost
benefits derived from its recently completed restructuring program.
For a discussion of these and other factors affecting the Company's future
results and financial condition, see "Item 7 - Management's Discussion and
Analysis -- Factors That May Affect Future Results and Financial Condition"
in the Company's 1998 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information presented below regarding Market Risk contains forward
looking statements that are subject to risks and uncertainties. The Company's
actual results may differ significantly from those discussed below and
elsewhere in this Form 10-Q regarding market risk. The following discussion
should be read in conjunction with the 1998 Form 10-K and the condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-Q.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investments and long-term debt obligations and
related derivative financial instruments. The Company places its investments
with high credit quality issuers and, by policy, limits the amount of credit
exposure to any one issuer. The Company's general policy is to limit the risk
of principal loss and ensure the safety of invested funds by limiting market
and credit risk. All highly liquid investments with a maturity of three months
or less at the date of purchase are considered to be cash equivalents;
investments with maturities between three and twelve months are considered to
be short-term investments. As of March 27, 1999, there are no investments with
maturities greater than 12 months.
24
<PAGE>
The Company enters into interest rate derivative transactions, including
interest rate swaps, collars, and floors, with financial institutions in
order to better match the Company's floating-rate interest income on its cash
equivalents and short-term investments with its fixed-rate interest expense on
its long-term debt, and/or to diversify a portion of the Company's exposure
away from fluctuations in short-term U.S. interest rates. The Company may also
enter into interest rate contracts that are intended to reduce the cost of the
interest rate risk management program. The Company does not hold or transact
in such financial instruments for purposes other than risk management.
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.
The Company enters into foreign exchange forward and option contracts with
financial institutions primarily to protect against currency exchange risks
associated with existing assets and liabilities, certain firmly committed
transactions, and probable but not firmly committed transactions. The
Company's foreign exchange risk management policy requires it to hedge a
majority of its existing material foreign exchange transaction exposures.
However, the Company may not hedge certain foreign exchange transaction
exposures that are immaterial either in terms of their minimal U.S. dollar
value or in terms of the related currency's historically high correlation with
the U.S. dollar. Foreign exchange forward contracts are carried at fair value
in other current liabilities. The premium costs of purchased foreign exchange
option contracts are recorded in other current assets and amortized over the
life of the option.
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 and
the anticipatory nature of the exposures intended to hedge, 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 consolidated operating results and financial position.
25
<PAGE>
For a complete description of the Company's interest rate and foreign currency
related market risks, see the discussion in Part II, Item 7A of the Company's
1998 Form 10-K. There has not been a material change in the Company's
exposure to interest rate and foreign currency risks since the date of the
1998 Form 10-K.
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings and claims which are
discussed in the 1998 Form 10-K. The Company is also subject to certain other
legal proceedings and claims which have arisen in the ordinary course of
business and which have not been fully adjudicated. The results of legal
proceedings cannot be predicted with certainty; however, in the opinion of
management, the Company does not have a potential liability related to any
legal proceedings and claims that would have a material adverse effect on its
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on March 24, 1999. All matters
voted on were approved. The results are as follows:
PROPOSAL I
The following directors were elected at the meeting to serve a one-year term
as Class I directors:
For Authority Withheld
Gareth C.C. Chang 114,130,859 853,852
William V. Campbell 114,037,235 947,476
Jerome B. York 114,129,231 855,480
The following directors are continuing to serve their two-year terms as
Class II directors which will expire at the next annual meeting:
Steven P. Jobs
Lawrence J. Ellison
Edgar S. Woolard, Jr.
PROPOSAL II
The proposal to amend the Company's Restated Articles of Incorporation to
eliminate the classification of the Board of Directors and thereby ensure that
each director will stand for election annually was approved. As a result, the
Company's Restated Articles of Incorporation will be amended to eliminate the
classification of the Board and the terms of all directors will end at next
year's annual meeting of shareholders.
For Against Abstained Broker Non-Vote
73,065,031 611,254 459,798 40,848,628
27
<PAGE
PROPOSAL III
Ratification of appointment of KPMG LLP as the Company's independent
auditors for fiscal year 1999.
For Against Abstained Broker Non-Vote
114,313,398 183,870 487,443 -0-
The proposals above are described in detail in the Registrant's definitive
proxy statement dated February 9, 1999, for the Annual Meeting of
Shareholders held on March 24, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
3.2 Amendment to Restated Articles of Incorporation, filed with
the Secretary of State of the state of California on
April 22, 1999
3.3 By-Laws of the Company, as amended through March 24, 1999.
10.A.49 1997 Employee Stock Option Plan, as amended through 12/1/98.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
28
<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 11, 1999
29
<PAGE>
INDEX TO EXHIBITS
Exhibit
Index
Number Description Page
3.2 Amendment to Restated Articles of Incorporation, filed with
the Secretary of State of the State of California on
April 22, 1999 31
3.3 By-Laws of the Company, as amended through March 24, 1999 33
10.A.49 1997 Employee Stock Option Plan, as amended through 12/1/98 57
27 Financial Data Schedule. 69
30
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
APPLE COMPUTER, INC.
Fred D. Anderson and Nancy R. Heinen certify that:
1. They are the Executive Vice President and Chief Financial Officer,
and the Senior Vice President, General Counsel and Secretary, respectively,
of Apple Computer, Inc., a California corporation.
2. Articles VII of the Restated Articles of Incorporation of this
corporation is amended to read in its entirety as follows:
"VII.
Through and until immediately prior to the annual meeting of shareholders to
be held in fiscal year 2000, the directors shall be divided into two classes,
designated Class I and Class II, each consisting of one-half of the directors
or as close an approximation as possible, and each director shall serve for a
term running until the second annual meeting of shareholders succeeding his
or her election and until his or her successor shall have been duly elected
and qualified; provided, however, that the terms of all directors shall
expire at the annual meeting of shareholders to be held in fiscal year 2000.
Commencing at the annual meeting of shareholders to be held in fiscal year
2000, each director shall be elected to serve until the annual meeting of
shareholders held in the following fiscal year or until his or her successor
shall have been duly elected and qualified."
3. The foregoing amendment of the Restated Articles of Incorporation
of this corporation was duly approved by the Board of Directors at its meeting
held on August 4, 1998, at which a quorum was present and acting throughout.
4. The foregoing amendment of the Restated Articles of Incorporation
of this corporation was duly approved by the required vote of shareholders in
accordance with Sections 902 and 301.5 of the California Corporations Code,
at a meeting held on March 24, 1999. The corporation has 150,000 shares of
non-voting Preferred Stock outstanding. The total number of shares of
Common Stock outstanding at the record date for determining shareholders
entitled to vote was 136,416,662. The number of shares of Common Stock
voting in favor of the amendment equaled or exceeded the vote required, which
was more than 50% of the Common Stock.
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5. This corporation is a "listed corporation" within the meaning of
subdivision (d) of Section 301.5 of the California Corporations Code because
it has outstanding Common Stock designated as qualified for trading as a
national market system security on the National Association of Securities
Dealers Automatic Quotation System and had at least 800 holders of its
Common Stock as of the record date of its most recent annual meeting of
shareholders, which was held on March 24, 1999.
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing certificate are true of their own knowledge.
Executed at Cupertino, California on March 31, 1999.
\s\Fred D. Anderson
Fred D. Anderson
Executive Vice President and
Chief Financial Officer
\s\Nancy R. Heinen
Nancy R. Heinen
Senior Vice President, General Counsel
and Secretary
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EXHIBIT 3.3
BY-LAWS
OF
APPLE COMPUTER, INC.
(a California corporation)
(as amended through December 15, 1998)
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 six (6) 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
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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.
Section 2.5: Election and Term of Office. Through and until
immediately prior to the annual meeting of shareholders to be held in fiscal
year 2000, the directors shall be divided into two classes, designated Class I
and Class II, each consisting of one-half of the directors or as close an
approximation as possible, and each director shall serve for a term running
until the second annual meeting of shareholders succeeding his or her election
and until his or her successor shall have been duly elected and qualified;
provided, however, that the terms of all directors shall expire at the annual
meeting of shareholders to be held in fiscal year 2000. Commencing at the
annual meeting of shareholders to be held in fiscal year 2000, each director
shall be elected to serve until the annual meeting of shareholders held in the
following fiscal year or 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
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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:
(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.
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(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.
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(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, 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
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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.
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.
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(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 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.
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
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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.
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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.
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.
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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,
(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.
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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.
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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 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
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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 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.
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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
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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.
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
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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
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
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(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
nomination or 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.
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.
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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
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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 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
Saturday 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.
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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.
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.
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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
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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.
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.49
APPLE COMPUTER, INC.
1997 EMPLOYEE STOCK OPTION PLAN
(as amended through 12/1/98)
1. Purposes of the Plan. The purposes of this 1997 Employee Stock Option
Plan are to assist the Company in attracting and retaining high quality
personnel, to provide additional incentive to Employees who are not Directors
or Officers of the Company and to promote the success of the Company's
business. Options granted under the Plan shall be Nonstatutory Stock
Options. SARs granted under the Plan may be granted in connection with
Options or independently of Options.
2. Definitions. As used herein, the following definitions shall apply:
"Administrator" means the Board or any of its Committees, as shall be
administering the Plan from time to time pursuant to Section 4 of the Plan.
"Affiliated Company" means a corporation which is not a Subsidiary but
with respect to which the Company owns, directly or indirectly through one or
more Subsidiaries, at least twenty percent of the total voting power, unless
the Administrator determines in its \discretion that such corporation is not
an Affiliated Company.
"Applicable Laws" shall have the meaning set forth in Section 4 of the
Plan.
"Board" means the Board of Directors of the Company.
"Change in Control" shall have the meaning set forth in Section 10 of
the Plan.
"Change in Control Price" shall have the meaning set forth in Section 12
of the Plan.
"Common Stock" means the common stock, no par value, of the Company.
"Company" means Apple Computer, Inc., a California corporation, or its
successor.
"Committee" means a Committee, if any, appointed by the Board in
accordance with Section 4(a) of the Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
57
<PAGE>
"Continuous Status as an Employee" means the absence of any interruption
or termination of the employment relationship with the Company or any
Subsidiary or Affiliated Company. Continuous Status as an Employee shall not
be considered interrupted in the case of (i) medical leave, military leave,
family leave, or any other leave of absence approved by the Administrator,
provided, in each case, that such leave does not result in termination of the
employment relationship with the Company or any Subsidiary or Affiliated
Company, as the case may be, under the terms of the respective Company policy
for such leave; or (ii) in the case of transfers between locations of the
Company or between the Company, its Subsidiaries, its successor or its
Affiliated Companies.
"Director" means a member of the Board.
"Employee" means any person, employed by and on the payroll of the
Company, any Subsidiary or any Affiliated Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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 date of determination or, if the date
of determination is not a trading day, the immediately preceding trading day,
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 on the date of
determination or, if there are no quoted prices on the date of determination,
on the last day on which there are quoted prices prior to the date 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.
"Nonstatutory Stock Option" means an Option that is not intended to be an
incentive stock option within the meaning of Section 422 of the Code.
"Officer" means any individual designated by the Board as an elected
officer of the Company.
"Option" means an option granted pursuant to the Plan.
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<PAGE>
"Optioned Stock" means the Common Stock subject to an Option or SAR.
"Optionee" means an Employee who receives an Option or SAR.
"Parent" corporation shall have the meaning defined in Section 424(e) of
the Code.
"Plan" means this Apple Computer, Inc. 1997 Employee Stock Option Plan.
"SAR" means a stock appreciation right granted pursuant to Section 9 below.
"Section 3 Limit" shall have the meaning set forth in Section 3 of the
Plan.
"Share" means a share of the Common Stock, as adjusted in accordance with
Section 12 of the Plan.
"Sixty-Day Period " shall have the meaning set forth in Section 12(f) of
the Plan.
"Subsidiary" corporation has the meaning defined in Section 424(f) of the
Code.
"Tax Date" shall have the meaning set forth in Section 9 of the Plan.
3. Stock Subject to the Plan.
(a) Limit. Subject to the provisions of Section 12 of the Plan, the
maximum aggregate number of Shares which may be optioned and sold under the
Plan or for which SARs may be granted and exercised is 10,000,000 Shares (the
"Section 3 Limit"). The Shares may be authorized but unissued or reacquired
Common Stock. In the discretion of the Administrator, any or all
of the Shares authorized under the Plan may be subject to SARs issued
pursuant to the Plan.
(b) Rules Applicable to the Calculation of the Section 3 Limit. In
calculating the number of Shares available for issuance under the Plan, the
following rules shall apply:
(i) The Section 3 Limit shall be reduced by the number of Shares of
Optioned Stock subject to each outstanding Option or freestanding SAR.
(ii) The Section 3 Limit shall be increased by the number of Shares of
Optioned Stock subject to the portion of an Option or SAR that expires
unexercised or is forfeited for any reason.
(iii) The Section 3 Limit shall be increased by the number of Shares
tendered to pay the exercise price of an Option or the number of Shares of
Optioned Stock withheld to satisfy an Optionee's tax liability in connection
with the exercise of an Option or SAR.
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<PAGE>
(iv) Option Stock subject to both an outstanding Option and SAR granted
in connection with the Option shall be counted only once in calculating the
Section 3 Limit.
4. Administration of the Plan.
(a) Composition of Administrator. The Plan may be administered by (i)
the Board or (ii) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the applicable securities laws,
California corporate law and the Code (collectively, "Applicable Laws").
Once a Committee has been appointed pursuant to this Section 4(a), such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies (however caused) and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan
and, in the case of the Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority,
in its discretion: (i) to determine the Fair Market Value of the Common
Stock in accordance with the Plan; (ii) to determine, in accordance with
Section 8(a) of the Plan, the exercise price per Share of Options and SARs
to be granted; (iii) to determine the Employees to whom, and the time or
times at which, Options and SARs shall be granted and the number of Shares
to be represented by each Option or SAR (including, without limitation,
whether or not a corporation shall be excluded from the definition of
Affiliated Company); (iv) to construe and interpret the provisions of the Plan
and any agreements or certificates issued under or in connection with the
Plan; (v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option or SAR granted hereunder (including, but not
limited to, any restriction or limitation, or any vesting acceleration or
waiver of forfeiture restrictions regarding any Option or SAR or the Shares
relating thereto, based in each case on such factors as the Administrator
shall determine, in its sole discretion); (vi) to approve forms of agreement
for use under the Plan; (vii) to prescribe, amend and rescind rules and
regulations relating to the Plan; (viii) to modify or amend each Option or
SAR or accelerate the exercise date of any Option or SAR; (ix) to reduce
the exercise price of any Option or SAR to the then current Fair Market Value
if the Fair Market Value of the Common Stock covered by such Option or SAR
shall have declined since the date the Option or SAR was granted; (x) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option or SAR previously granted by
the Administrator; and (xi) 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 Optionees and any other holders of any Options.
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5. Eligibility. The Administrator may grant Options and SARs only to
individuals who are Employees or who are consultants to the Company, or a
Subsidiary or Affiliated Company. In no event may an Option or SAR be
granted to any individual who, at the time of grant, is an Officer or
Director. An Employee who has been granted an Option or SAR may, if he or she
is otherwise eligible, be granted an additional Option or Options, SAR or
SARs. Each Option shall be evidenced by a written Option agreement, which
shall be in such form and contain such provisions as the Administrator shall
from time to time deem appropriate. Without limiting the foregoing, the
Administrator may, at any time, or from time to time, authorize the Company,
with the consent of the respective recipients, to issue new Options or Options
in exchange for the surrender and cancellation of any or all outstanding
Options, other options, SARs or other stock appreciation rights.
Neither the Plan nor any Option or SAR agreement shall confer upon any
Optionee any right with respect to continuation of employment by the Company
(or any Parent, Subsidiary or Affiliated Company), nor shall it interfere in
any way with the Optionee's right or the right of the Company (or any Parent,
Subsidiary or Affiliated Company) to terminate the Optionee's employment at
any time or for any reason.
If an Option or SAR is granted to an individual who is a consultant to the
Company or any Subsidiary or Affiliate, all references in the Plan to
"Employee" shall be deemed to include the term "consultant" and all references
in the Plan to "employment," "Continuous Status as an Employee" and
"termination of employment" shall be deemed to refer to the individual's
consultancy or status as a consultant.
6. Term of Plan. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be ten (10) years from the
date of grant thereof or such shorter term as may be provided in the Option
agreement.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares issuable
pursuant to an Option shall be such price as is determined by the
Administrator, but shall in no event be less than 100% of the Fair Market
Value of Common Stock, determined as of the date of grant of the Option. In
the event that the Administrator shall reduce the exercise price, the exercise
price shall be no less than 100% of the Fair Market Value as of the date of
that reduction.
(b) Method of Payment. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
be determined by the Administrator and may consist of (i) cash, (ii) check,
(iii) promissory note, (iv) other Shares which have a Fair Market Value on
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<PAGE>
the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (v) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds required to pay
the exercise price, or (vi) any combination of the foregoing methods of
payment and/or any other consideration or method of payment as shall be
permitted under applicable corporate law.
9. Stock Appreciation Rights.
(a) Granted in Connection with Options. At the sole discretion of the
Administrator, SARs may be granted in connection with all or any part of an
Option, either concurrently with the grant of the Option or at any time
thereafter during the term of the Option. The following provisions apply to
SARs that are granted in connection with Options:
(i) The SAR shall entitle the Optionee to exercise the SAR by
surrendering to the Company unexercised a portion of the related Option.
The Optionee shall receive in exchange from the Company an amount equal to
the excess of (x) the Fair Market Value on the date of exercise of the SAR of
the Common Stock covered by the surrendered portion of the related Option
over (y) the exercise price of the Common Stock covered by the surrendered
portion of the related Option. Notwithstanding the foregoing, the
Administrator may place limits on the amount that may be paid upon exercise
of an SAR; provided, however, that such limit shall not restrict the
exercisability of the related Option.
(ii) When an SAR is exercised, the related Option, to the extent
surrendered, shall no longer be exercisable.
(iii) An SAR shall be exercisable only when and to the extent that the
related Option is exercisable and shall expire no later than the date on
which the related Option expires.
(iv) An SAR may only be exercised at a time when the Fair Market Value
of the Common Stock covered by the related Option exceeds the exercise price
of the Common Stock covered by the related Option.
(b) Independent SARs. At the sole discretion of the Administrator, SARs
may be granted without related Options. The following provisions apply to
SARs that are not granted in connection with Options:
(i) The SAR shall entitle the Optionee, by exercising the SAR, to
receive from the Company an amount equal to the excess of (x) the Fair Market
Value of the Common Stock covered by exercised portion of the SAR, as of the
date of such exercise, over (y) the Fair Market Value of the Common Stock
covered by the exercised portion of the SAR, as of the date on which the SAR
was granted; provided, however, that the Administrator may place limits on the
amount that may be paid upon exercise of an SAR.
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<PAGE>
(ii) SARs shall be exercisable, in whole or in part, at such times
as the Administrator shall specify in the Optionee's SAR agreement.
(c) Form of Payment. The Company's obligation arising upon the exercise
of an SAR may be paid in Common Stock or in cash, or in any combination of
Common Stock and cash, as the Administrator, in its sole discretion, may
determine. Shares issued upon the exercise of an SAR shall be valued at their
Fair Market Value as of the date of exercise.
10. Method of Exercise.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option or SAR
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator and as shall be permissible
under the terms of the Plan.
An Option or SAR shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of
the Option or SAR by the person entitled to exercise the Option or SAR and
full payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may, as authorized by the
Administrator and permitted by the Option agreement, consist of any
consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 12
of the Plan. An Option or SAR may not be exercised with respect to a fraction
of a Share.
(b) Termination of Continuous Employment. Upon termination of an
Optionee's Continuous Status as Employee (other than termination by reason of
the Optionee's death), the Optionee may, but only within ninety days after the
date of such termination, exercise his or her Option or SAR to the extent that
it was exercisable at the date of such termination. Notwithstanding the
foregoing, however, an Option or SAR may not be exercised after the date the
Option or SAR would otherwise expire by its terms due to the passage of time
from the date of grant.
(c) Death of Optionee. In the event of the death of an Optionee:
(i) Who is at the time of death an Employee and who shall have been in
Continuous Status as an Employee since the date of grant of the Option, the
Option or SAR may be exercised at any time within six (6) months (or such
other period of time not exceeding twelve (12) months as determined by the
Administrator) following the date of death by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
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<PAGE>
inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and terminated his or her
employment six (6) months (or such other period of time not exceeding twelve
(12) months as determined by the Administrator) after the date of death; or
(ii) Within ninety days after the termination of Continuous Status as
an Employee, the Option or SAR may be exercised, at any time within six (6)
months (or such other period of time not exceeding twelve (12) months as
determined by the Administrator) following the date of death by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination.
Notwithstanding the foregoing, however, an Option or SAR may not be
exercised after the date the Option or SAR would otherwise expire by its terms
due to the passage of time from the date of grant.
(d) Stock Withholding to Satisfy Withholding Tax Obligations. When an
Optionee incurs tax liability in connection with the exercise of an Option or
SAR, which tax liability is subject to tax withholding under applicable tax
laws, and the Optionee is obligated to pay the Company an amount required to
be withheld under applicable tax laws, the Optionee may satisfy the
withholding tax obligation (including, at the election of the Optionee, any
additional amount which the Optionee desires to have withheld in order to
satisfy in whole or in part the Optionee's full estimated tax in connection
with the exercise) by electing to have the Company withhold from the Shares to
be issued upon exercise of the Option, or the Shares to be issued upon
exercise of the SAR, if any, that number of Shares having a Fair Market Value
equal to the amount required to be withheld (and any additional amount desired
to be withheld, as aforesaid). The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall
be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
and
(ii) all elections shall be subject to the consent or disapproval of the
Administrator.
11. Non-Transferability of Options. Options and SARs may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder; provided,
however, that the Administrator may grant Nonstatutory Stock Options that are
freely transferable. The designation of a beneficiary by an Optionee or
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<PAGE>
holder of an SAR does not constitute a transfer. An Option or an SAR may be
exercised, during the lifetime of the Optionee or SAR holder, only by the
Optionee or SAR holder or by a transferee permitted by this Section 11.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each
outstanding Option and SAR, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options or SARs
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or SAR, as well as the price per Share
covered by each such outstanding Option or SAR, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
aggregate number of issued Shares effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an Option or SAR.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, all outstanding Options and SARs will
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Administrator. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option or
SAR shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option or SAR as to all or any part
of the Optioned Stock or SAR, including Shares as to which the Option or SAR
would not otherwise be exercisable.
(c) Sale of Assets or Merger. Subject to the provisions of Section 12(d),
in the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation,
each outstanding Option and SAR shall be assumed or an equivalent option or
stock appreciation right shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation, unless the
Administrator determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the Optionee shall have the right to
exercise the Option or SAR as to all of the Optioned Stock, including Shares
as to which the Option or SAR would not otherwise be exercisable. If the
Administrator makes an Option or SAR fully exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option or SAR shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option or SAR
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will terminate upon the expiration of such period. For purposes of this
paragraph, an Option granted under the Plan shall be deemed to be assumed if,
following the sale of assets or merger, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the sale of assets or merger, the consideration (whether stock, cash
or other securities or property) received in the sale of assets or merger by
holders of Common Stock for each Share held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the sale of
assets or merger was not solely Common Stock of the successor corporation or
its parent, the Administrator may, with the consent of the successor
corporation and the participant, provide for the per share consideration to be
received upon exercise of the Option to be solely Common Stock of the
successor corporation or its parent equal in Fair Market Value to the per
share consideration received by holders of Common Stock in the sale of assets
or merger.
(d) Change in Control. In the event of a "Change in Control" of the
Company, as defined in Section 12(e), unless otherwise determined by the
Administrator prior to the occurrence of such Change in Control, the following
acceleration and valuation provisions shall apply:
(i) Any Options and SARs 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; and
(ii) The value of all outstanding Options and SARs shall, unless
otherwise determined by the Administrator at or after grant, be cashed-out.
The amount at which such Options and SARs shall be cashed out shall be equal
to the excess of (x) the Change in Control Price (as defined below) over (y)
the exercise price of the Common Stock covered by the Option or SAR. The
cash-out proceeds shall be paid to the Optionee or, in the event of death of
an Optionee prior to payment, to the estate of the Optionee or to a person who
acquired the right to exercise the Option or SAR by bequest or inheritance.
(e) "Definition of "Change in Control". For purposes of this Section 12,
a "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 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
(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.
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(f) Change in Control Price. For purposes of this Section 12, "Change in
Control Price" shall be, as determined by the Administrator, (i) the highest
Fair Market Value at any time within the sixty-day period immediately
preceding the date of determination of the Change in Control Price by the
Administrator (the "Sixty-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 Sixty-Day Period.
13. Time of Granting Options and SARs. The date of grant of an Option or
SAR shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option or SAR. Notice of the determination shall
be given to each Employee to whom an Option or SAR is so granted within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan, as it may deem advisable.
(b) Effect of Amendment or Termination. Any such amendment, alteration,
suspension or termination of the Plan shall not impair the rights of any
Optionee or SAR holder under any grant theretofore made without his or her
consent. Such Options and SARs shall remain in full force and effect as if
this Plan had not been amended or terminated.
15. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an Option or SAR unless the exercise of such Option or SAR and 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.
As a condition to the exercise of an Option or SAR or the issuance of
Shares upon exercise of an Option or SAR, the Company may require the
person exercising such Option or SAR to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
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 and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
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16. Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-END> MAR-27-1999
<CASH> 1,358
<SECURITIES> 1,564
<RECEIVABLES> 804
<ALLOWANCES> 79
<INVENTORY> 18
<CURRENT-ASSETS> 4,092
<PP&E> 831
<DEPRECIATION> 501
<TOTAL-ASSETS> 4,935
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0
150
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<CGS> 2,355
<TOTAL-COSTS> 2,355
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<INCOME-PRETAX> 322
<INCOME-TAX> 35
<INCOME-CONTINUING> 287
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<EPS-PRIMARY> 2.11
<EPS-DILUTED> 1.79
<PAGE>
