Employment Agreement - Apple Computer Inc. and Gilbert F. Amelio
Apple Computer, Inc.
1 Infinite Loop
Cupertino, CA 95014
Dr. Gilbert F. Amelio
13416 Middle Fork Lane
Los Altos Hills, CA 94022
Employment Agreement
Dear Dr. Amelio:
The following sets forth our agreement regarding the terms and
provisions of your employment as an officer and employee of Apple Computer,
Inc. (the "Company") during the Term. Capitalized words which are not
otherwise defined herein shall have the meanings assigned to such words in
Section 8 of this Agreement.
1. Term of Employment Under the Agreement. The term of your
employment under this Agreement (the "Term") shall commence on February 2,
1996 (the "Effective Date") and shall continue until the fifth anniversary
of the Effective Date. For purposes of this Agreement, "Contract Year"
means each 12-month period during the term beginning on the Effective Date
or anniversary thereof, and "Fiscal Year" means the Company's fiscal year.
Subject to the provisions of Section 5 below, either party may terminate
the Term at any time.
2. Employment During the Term. During the Term, you shall be
employed as the Chairman and Chief Executive Officer of the Company and
shall report directly to the Board of Directors of the Company (the
"Board"), and your duties and responsibilities to the Company shall be
consistent in all respects with such positions. During the Term, the
Company will take all steps reasonably necessary to assure that you
continue to be elected or appointed to the Board. You shall devote
substantially all of your business time, attention, skills and efforts
exclusively to the business and affairs of the Company, other than de
minimis amounts of time devoted by you to the management of your personal
finances or to engaging in charitable or community services. During the
Term, you shall be permitted to continue serving as a member of the boards
of directors of the corporations on which you are serving as a director on
the Effective Date (and on such other boards of directors as may be
approved in writing from time to time by the Board) as long as such service
does not adversely affect the performance of your duties to the Company as
contemplated hereunder. Your principal place of employment shall be the
executive offices of the Company as established from time to time, although
you understand and agree that you will be required to travel from time to
time for business purposes.
<PAGE>
3. Compensation During the Term.
(a) Base Salary. As compensation to you for all services
rendered to the Company and its subsidiaries, the Company will pay you a
base salary (the "Salary") at the rate of $990,000 per annum. Your Salary
will be paid to you in accordance with the Company's regular payroll
practices applicable to its executive officers. Your rate of Salary will
be reviewed annually by the Board and may be increased by the Board on the
basis of such review.
(b) Bonus.
(i) Annual Bonus. You shall be eligible to earn an annual bonus
(the "Annual Bonus") for each whole or partial Fiscal Year during the Term
consisting of the sum of (i) the Component A Bonus (as defined below) for
that Fiscal Year and (ii) the Component B Bonus (as defined below) for such
Fiscal Year. The Annual Bonus for each given Fiscal Year will be paid
within 90 days following the end of the Fiscal Year to which such Annual
Bonus relates. The "Component A Bonus" shall be based upon the Company
achieving one or more performance goals established in good faith by the
Compensation Committee of the Board (the "Committee") and approved by the
Board for such Fiscal Year. The performance goal or goals applicable to
the Component A Bonus for the Fiscal Year of the Company that includes the
Effective Date will be established within 60 days following the Effective
Date. The performance goals for the Component A Bonus for subsequent Fiscal
Years will be established, to the extent practicable, prior to the start of
the applicable Fiscal Year, but in no event later than 90 days following
the commencement of the Fiscal Year. The target amount of your Component A
Bonus for each 12-month Fiscal Year will equal 100% of your annual rate of
Salary based upon the rate in effect on the first day of that Fiscal Year.
The target amount for any Fiscal Year of fewer than 12 months will be
prorated by multiplying the target amount determined in accordance with the
previous sentence by a fraction (in no event greater than one), the
numerator of which is the number of days in such Fiscal Year in the Term
and the denominator of which is 365 ( the "Proration Fraction"). The
actual amount of the Component A Bonus paid to you for a given Fiscal Year
(which, for purposes of this Agreement, will be deemed earned as of the
last day of the applicable Fiscal Year) may range from 50% to 300% of the
target amount, based upon a performance schedule established by the
Committee for the applicable Fiscal Year and the relationship between the
Company's actual performance for the Fiscal Year and the target performance
established for that year by the Committee (it being understood that
payments in excess of 200% of target will be made only for extraordinarily
good corporate performance and payments of no Component A Bonus will be
made for only poor corporate performance); provided, however, that the
minimum Component A Bonus for the first Fiscal Year ending during the Term
shall be 50% of the target amount for that Fiscal Year. There shall be no
minimum guaranteed Component A Bonus for any Fiscal Year other than the
first Fiscal Year ending during the Term. The "Component B Bonus" shall be
$1,000,000 for each Fiscal Year of the Company ending during the Term (and,
for purposes of this Agreement, will be deemed earned as of the last day of
the applicable Fiscal Year ending during the Term). In no event may the
sum of the Component B Bonuses paid for all Fiscal Years during the Term
exceed $5 million. In the event that the Company changes its Fiscal Year
during the Term, an equitable adjustment shall be made to the bonus
arrangement which, in the reasonable good faith judgment of the Committee,
preserves, to the extent practicable, the bonus opportunity (including the
timing of payment of the Component B Bonuses) set forth above.
(ii) Signing Bonus. In addition to any amounts payable under
Section 3(b)(i) above, the Company will pay you as soon as practicable
following the Effective Date a one-time signing bonus of $200,000.
<PAGE>
(c) Loan. On or as soon as practicable after the Effective
Date, the Company shall cause one of its subsidiaries (the "Lender") to
lend you the amount of $5,000,000 (the "Loan"). The Loan shall initially
be made to you on a fully recourse basis but shall, subject to Section
5(h), become nonrecourse (and thereafter remain nonrecourse) as to the
portion of the principal amount of the Loan that is secured by collateral
with a value on the date such collateral is pledged by you equal to 125% of
the outstanding principal amount of the Loan. To the extent that the
collateral pledged by you does not have a value equal to 125% of the
outstanding principal amount of the Loan, the portion of the Loan that
shall be recourse shall be determined in accordance with the formula [P -
(C/1.25)], where "P" is the outstanding principal amount of the Loan and
"C" is the fair market value of all collateral securing the Loan determined
as of the date such collateral is pledged. The collateral that may be
pledged by you to secure the Loan shall consist of Performance Shares
earned by you and such other collateral as the Lender may reasonably
accept. The Company agrees to release its security interest in Performance
Shares prior to the full repayment of the Loan to the extent necessary to
permit you to sell such shares in order to pay the tax liability incurred
by you in connection with your earning of the Performance Shares, to pay
any currently due interest on the Loan or to pay any outstanding principal
amount of the Loan. The Loan shall bear interest at the minimum rate
necessary to avoid the imputation of interest under the Code. Interest
shall compound and be payable annually on each anniversary of the Effective
Date and on the date of your termination or resignation of employment.
Twenty per cent of the initial principal amount of the Loan shall be due
and payable on each of the first through fifth anniversaries of the
Effective Date. The entire principal amount of the Loan and any accrued
but unpaid interest on the Loan shall be immediately due and payable 90
days following the Date of Termination (as hereinafter defined). You may
prepay some or all of the principal amount of the Loan and any portion of
the accrued but unpaid interest on the Loan at any time without premium or
penalty. Repayments of principal and interest on the Loan shall be applied
ratably at the time of payment to the recourse and nonrecourse portions of
the Loan. Following your termination or resignation of employment for any
reason, the Company and the Lender shall have the unconditional right to
reduce any payments owed to you hereunder by the amount of any due and
unpaid principal and interest on the Loan and you hereby agree and consent
to such right on the part of the Company and the Lender. As a condition to
making the Loan to you, you shall execute a promissory note in favor of the
Lender and any other applicable Loan documentation consistent with the
terms of this Section 3(c) which is reasonably requested by the Lender.
(d) Benefits. During the Term, you shall be eligible to
participate in all welfare and fringe benefit plans and arrangements that
the Company provides to its executive employees in accordance with the
terms of such plans and arrangements, which shall be no less favorable to
you, in the aggregate, than the terms and provisions available to other
executive employees of the Company. Subject to your insurability at
standard commercial rates, in lieu of your participating in the Company's
regular life insurance programs, the Company agrees to maintain a whole
life insurance policy for you during the Term with a death benefit equal to
5 times your annual rate of Salary. The whole life policy shall be on
terms which are substantially similar to those applicable to the whole life
policy in effect with your prior employer (including the provisions thereof
applicable to the allocation of premiums on the policy between you and the
Company).
(e) Expenses. The Company will reimburse you in accordance with
its regular policies and practices for business expenses reasonably
incurred by you in connection with the performance of your duties under
this Agreement, subject to your presentation of appropriate documentation
of such expenses.
(f) Airplane Lease. The Company agrees to lease your current
airplane for business purposes on terms which are commercially reasonable
to you and the Company. The terms of such airplane lease will be negotiated
in good faith by you and the Company after the Effective Date and will be
memorialized in appropriate documentation.
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<PAGE>
4. Long-Term Incentive Compensation. In order to align your
interests more closely with those of the Company's stockholders, the
Company will offer the following long-term incentive compensation
arrangements to you, subject to the terms and conditions set forth below.
(a) Stock Option. Subject to Section 4(c) below, as soon as
practicable after the Effective Date, the Company will grant to you
pursuant to the Apple Computer, Inc. 1990 Stock Option Plan (the "Option
Plan") a stock option (the "Option") covering 1,000,000 shares of common
stock of the Company (the "Common Stock"). The per share exercise price of
the Option shall be the fair market value of a share of Common Stock on the
day before the date the Option is granted to you by the Committee, as
determined in accordance with the provisions of the Option Plan. The
Option shall become vested and exercisable with respect to 20% of the
shares of Common Stock subject thereto on the Initial Vesting Date and on
each of the second through fifth anniversaries of the Effective Date,
provided that you have remained in the continuous full-time employ of the
Company through each such vesting date and stockholder approval of the
grant of the Option is obtained in accordance with Section 4(c) below. The
Option will be subject to the terms and provisions of the Option Plan and
such other terms consistent with the Option Plan as the Committee may
specify and set forth in the applicable Option Agreement.
(b) Performance Shares. (i) Subject to Section 4(c) below, for
each Fiscal Year during the Term, you shall be afforded the opportunity to
earn the Target Amount (as defined below) of shares of Common Stock (the
"Performance Shares"), subject to the Company's attaining the performance
goal or goals established in good faith by the Committee and approved by
the Board for that Fiscal Year (hereinafter, the "Performance Share
Arrangement"). The "Target Amount" for each 12-month Fiscal Year during
the Term shall be 200,000 shares of Common Stock. The "Target Amount" for
each Fiscal Year of the Term of fewer than 12 months shall be 200,000
shares of Common Stock multiplied by the Proration Fraction. In no event
may you have the opportunity to earn more than 1,000,000 Performance Shares
during the Term. The performance goal or goals for first Fiscal Year will
be established within 60 days following the Effective Date. The
performance goals for subsequent Fiscal Years will be established, to the
extent practicable, prior to the start of the applicable Fiscal Year, but
in no event later than 90 days following the start of the Fiscal Year. The
performance goal or goals established by the Committee for a given Fiscal
Year need not be the same goal or goals established by the Committee under
Section 3(b) above. You may earn fewer than the full number of Performance
Shares in a given year for performance that is below target for that year
based upon an award schedule established by the Committee at the time it
sets the performance targets for the year. In the event that the Company
changes its Fiscal Year during the Term, an equitable adjustment shall be
made to the Performance Share Arrangement which, in the reasonable good
faith judgment of the Committee, preserves, to the extent practicable, the
long-term incentive opportunity set forth above.
(ii) The Performance Shares earned by you for the first Fiscal
Year will be deemed earned on the Initial Vesting Date (subject to
applicable performance targets being achieved) and will be awarded to you
as soon as practicable following the Initial Vesting Date, provided that
you have remained in the continuous full-time employ of the Company through
that date. The Performance Shares for the second Fiscal Year will be
awarded to you on the Initial Vesting Date (provided you are then employed
by the Company), but will be forfeited in whole or in part as of the last
day of that Fiscal Year if the performance goal or goals applicable to that
year are not achieved. The Performance Shares for each subsequent Fiscal
Year will be awarded to you as of the first day of the Fiscal Year
(provided you are then employed by the Company), but will be forfeited in
whole or in part as of the last day of that Fiscal Year if the performance
goal or goals applicable to that year are not achieved. Performance Shares
will not be transferrable by you until they have been earned by you in
accordance with the provisions of this Section 4(b). Performance Shares
awarded for Fiscal Years during the Term other than the first Fiscal Year
will be issued in your name, but the share certificates representing such
shares will be held by the Company or its agent until they have been earned
in accordance with the provisions of this Section 4(b) and will bear an
appropriate legend or legends reflecting the transfer restrictions and
forfeiture provisions applicable thereto.
<PAGE>
(iii) In the event of a Change in Control of the Company, the
Company shall make equitable adjustments to the Performance Share
Arrangement in an manner intended to preserve the economic value of the
arrangement; provided, however, that, in the event of a merger of the
Company with or into another corporation, such adjustment shall consist of
a conversion of Performance Shares to be earned under the Performance Share
Arrangement into shares of the surviving corporation in accordance with the
exchange ratio approved by the Company's stockholders and an equitable
adjustment to the performance goals applicable to the Performance Share
Arrangement.
(c) Stockholder Approval. The grant of the Option is expressly
conditioned upon the stockholders of the Company approving in a separate
vote of the stockholders at the first annual or special meeting of
stockholders of the Company to occur after the Effective Date (i) the grant
of the Option and (ii) an amendment to the Option Plan to permit it to
comply with the requirements of Section 162(m) of the Code applicable to
qualified performance-based compensation. If such stockholder approval is
not obtained in the manner contemplated by the previous sentence, the
Option grant shall be void ab initio and of no further force and effect.
Similarly, the Performance Share Arrangement is expressly conditioned upon
the stockholders of the Company approving in a separate vote of the
stockholders at the first annual or special meeting of stockholders of the
Company to occur after the Effective Date the Performance Share Arrangement
and such additional terms as shall be necessary for the arrangement to meet
the requirements of Section 162(m) of the Code applicable to qualified
performance-based compensation. If such stockholder approval is not
obtained in the manner contemplated by the previous sentence, any
outstanding Performance Shares shall be immediately forfeited and the
Performance Share Arrangement shall be void ab initio and of no further
force and effect. If the stockholder approval contemplated by this Section
4(c) is not obtained, you and the Company agree to negotiate an alternative
long-term compensation arrangement to be submitted to stockholders and to
submit such alternative long-term compensation arrangement to stockholders
as soon as reasonably practicable, and to repeat this process to the extent
necessary until an alternative long-term compensation arrangement
negotiated by you and the Company is subsequently approved by the
stockholders. You and the Company agree to make a good faith and diligent
effort to obtain the stockholder approval contemplated by this Section 4(c)
as soon as reasonably possible. Anything in this Agreement to the contrary
notwithstanding, the Company shall have no obligation to call a special
meeting of stockholders for the purpose of obtaining any approval
contemplated by this Section 4(c).
(d) Registration; Reservation of Shares. To the extent
practicable, the Company will undertake to register the Option, the shares
of Common Stock underlying the Option and the Performance Shares on Form S-
8 under the Securities Act. The previous sentence, however, shall not in
any way be construed as (i) prohibiting the Company from engaging in any
transaction (including a transaction that will result in a Change in
Control), (ii) requiring the Company to file any reports under the Exchange
Act or to maintain its registration under the Exchange Act if such
registration is not otherwise required or (iii) requiring the registration
of the Option, the shares of Common Stock underlying the Option or the
Performance Shares on Form S-8 (or any other form) if Form S-8 is not
available to the Company. As soon as practicable following the Effective
Date, the Company shall reserve for issuance 1,000,000 shares of Common
Stock for issuance under the Performance Share Arrangement. As soon as
practicable following the Effective Date, the Company shall reserve for
issuance 1,000,000 shares of Common Stock for issuance under the Option
Plan in connection with the grant of the Option.
<PAGE>
5. Effect of Termination of Employment.
(a) Right to Resign Following a Year One Change in Control. In
the event of a Year One Change in Control, you shall have the right to
resign for any reason or for no stated reason during the Election Window.
In the event of such a resignation, the Company shall pay you the full
amount of the accrued but unpaid Salary you have earned through the Date of
Termination, plus a cash payment (calculated on the basis of your rate of
Salary then in effect) for all unused vacation time which you may have
accrued as of the Date of Termination. In addition, the Company shall pay
you on the Severance Payment Date an "all in" cash lump sum payment of $10
million. You will relinquish, as of the Date of Termination, the Option,
all rights under the Performance Share Arrangement and any outstanding
Performance Shares and the right to any additional payments or benefits
from the Company under this Agreement. The provisions of the Section 5(a)
shall not apply if, at the time of your resignation, the Company is
entitled to terminate your employment for Cause.
(b) Involuntary Termination Prior to the Initial Vesting Date.
In the event of your Involuntary Termination prior to the Initial Vesting
Date, the Company shall pay you the full amount of the accrued but unpaid
Salary you have earned through the Date of Termination, plus a cash payment
(calculated on the basis of your rate of Salary then in effect) for all
unused vacation time which you may have accrued as of the Date of
Termination. In addition, the Company shall pay you on the Severance
Payment Date an "all in" cash lump sum payment of $10 million. You will
relinquish as of the Date of Termination the Option, all rights under the
Performance Share Arrangement and any outstanding Performance Shares and
the right to any additional payments or benefits from the Company under
this Agreement.
(c) Involuntary Termination On or After the Initial Vesting
Date. (i) In the event of your Involuntary Termination on or after the
Initial Vesting Date, the Company shall pay you the full amount of the
accrued but unpaid Salary you have earned through the date of such
Involuntary Termination, plus a cash payment (calculated on the basis of
your rate of Salary then in effect) for all unused vacation time which you
may have accrued as of the date of Involuntary Termination. In addition,
the Company shall pay you on the Severance Payment Date a cash lump sum
amount equal to the sum of (i) the Salary payable to you for the remaining
portion of the Term and (ii) your annual rate of Salary (at the rate then
in effect) times the number of whole and partial Contract Years remaining
in the Term. In the event of an Involuntary Termination on or after the
Initial Vesting Date, you will retain all Performance Shares that have been
earned by you on or prior to the date of such Involuntary Termination and
you will continue to have the opportunity to earn the Performance Shares
for the Fiscal Year in which the Involuntary Termination occurs if the
applicable performance goals for that Fiscal Year are achieved; provided,
however, that, if your employment is Involuntarily Terminated (i) on or
after the Initial Vesting Date and (ii) on or after a Change in Control
(other than a Year One Change in Control), then the number of Performance
Shares you shall earn for the Fiscal Year in which the Date of Termination
occurs shall not be less than the Target Amount for that Fiscal Year (in no
event greater than 200,000) multiplied by a fraction (in no event greater
than one), the numerator of which is the number of days in such Fiscal Year
up to and including the Date of Termination and the denominator of which is
365 (the "Change in Control Fraction"). All other rights under the
Performance Share Arrangement and all other outstanding Performance Shares
will be forfeited as of the Date of Termination. You will retain the
portion of the Option that has vested on or prior to the Date of
Termination. In addition, if your employment is Involuntarily Terminated
(i) on or after the Initial Vesting Date and (ii) on or after a Change in
Control (other than a Year One Change in Control), you shall also vest in
an additional portion of the Option on the Date of Termination determined
by multiplying the number of shares of Common Stock in which the Option was
scheduled to vest on the anniversary of the Effective Date occurring on or
immediately following the Date of Termination by the Change in Control
Fraction. The vested portion of the Option will remain exercisable for 90
days following the Date of Termination. Any remaining unvested portion of
the Option will be forfeited as of the Date of Termination.
<PAGE>
(ii) In the event of your Involuntary Termination on or after the
Initial Vesting Date, you and your eligible dependents shall continue to be
eligible to participate during the Benefit Continuation Period (as
hereinafter defined) in the medical, dental, health and life insurance
plans applicable to you immediately prior to your Involuntary Termination
on the same terms and conditions in effect for you and your dependents
immediately prior to such Involuntary Termination. For purposes of the
previous sentence, "Benefit Continuation Period" means the period beginning
on the date of Date of Termination and ending on the first anniversary of
the Date of Termination; provided, however, that your coverage under such
plans and arrangements shall end on the date that you and your dependents
are eligible and elect coverage under the plans of a subsequent employer
which provide substantially equivalent or greater benefits to you and your
dependents. Following the end of the Benefit Continuation Period, you
shall be eligible to elect any applicable "continuation coverage" under
Section 4980B(f) of the Code as if the last day of the Benefit Continuation
Period was the date of your "qualifying event" for such continuation
coverage.
(iii) Except as otherwise provided in this Section 5(c), as
of the Date of Termination, you will relinquish the right to any additional
payments or benefits from the Company under this Agreement.
(d) Termination for Cause; Resignation Without Good Reason. In
the event you resign without Good Reason or you are terminated by the
Company for Cause at any time during the Term, the Company shall pay you
the full amount of the accrued but unpaid Salary you have earned through
the Date of Termination, plus a cash payment (calculated on the basis of
your rate of Salary then in effect) for all unused vacation time which you
may have accrued as of the Date of Termination. You will immediately
forfeit as of the Date of Termination the then unvested portion of the
Option, all future rights under the Performance Share Arrangement and any
outstanding Performance Shares that have not been earned as of the Date of
Termination. You will retain the portion of the Option that has vested on
or prior to the Date of Termination which will remain exercisable for 90
days following the Date of Termination. In addition, you shall immediately
relinquish the right to any additional payments or benefits from the
Company under this Agreement.
(e) Death or Disability. If your employment with the Company
ends as a result of your death or Disability during the Term, the Company
shall pay you (or, in the event of your death, your Beneficiary) the full
amount of the accrued but unpaid base salary you have earned through the
Date of Termination, plus a cash payment (calculated on the basis of your
rate of Salary then in effect) for all unused vacation time which you may
have accrued as of the Date of Termination. In the event of your death or
Disability, you (or in the event of your death, your Beneficiary) will
retain all Performance Shares that have been earned on or prior to the date
of your death or Disability and you (or in the event of your death, your
Beneficiary) will continue to have the opportunity to earn the Performance
Shares for the Fiscal Year in which the Involuntary Termination occurs if
the applicable performance goals for that Fiscal Year are achieved. All
other rights under the Performance Share Arrangement or and all other
outstanding Performance Shares will be forfeited as of the Date of
Termination. You will retain the portion of the Option that has vested on
or prior to the Date of Termination which will remain exercisable in
accordance with the provisions of the Option Plan. In addition, in the
event of your death, the Option will continue to vest in accordance with
the provisions of the Option Plan during the six-month period beginning on
the date of your death. Any remaining portion of the Option which has not
vested by the end of the period described in the previous sentence will be
forfeited. Except as otherwise provided in this Section 5(e), as of the
Date of Termination, you will relinquish the right to any additional
payments or benefits from the Company under this Agreement.
<PAGE>
(f) Date and Notice of Termination. Any termination of your
employment by the Company or by you during the Term shall be communicated
by a notice of termination to the other party hereto (the "Notice of
Termination"). The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of your employment under the provision so indicated. The
date of your termination of employment with the Company and its
subsidiaries (the "Date of Termination") shall be determined as follows:
(i) if your employment is terminated for Disability, thirty (30) days after
a Notice of Termination is delivered to you by the Company (provided that
you shall not have returned to the full-time performance of your duties
during such thirty (30) day period), (ii) if your employment is terminated
by the Company in an Involuntary Termination, the date the Notice of
Termination is delivered to you by the Company, (iii) if your employment is
terminated by the Company for Cause, subject to the applicable cure
provisions, the date such notice is delivered to you by the Company and
(iv) if you resign during the Election Window, the date the Notice of
Termination is delivered to the Company by you. If the basis for your
Involuntary Termination is your resignation for Good Reason, the Date of
Termination shall be, subject to the applicable cure provisions, ten (10)
days after the date your Notice of Termination is delivered to the Company
by you. The Date of Termination for a resignation of employment other than
for Good Reason other than during the Election Window shall be the date the
Notice of Termination is delivered to you by the Company. The Date of
Termination in the event of your death shall be the date of your death. If
your employment ends as a result of the expiration of the Term, the Date of
Termination shall be the last day of the Term.
(g) No Mitigation. You shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by you
as the result of employment by another employer.
(h) Right of Setoff. Anything in this Agreement to the contrary
notwithstanding, upon your termination or resignation of employment with
the Company for any reason, the full amount of the outstanding principal
and interest on the Loan shall become due and payable 90 days following the
applicable Date of Termination, and the Company and the Lender shall have
the right to apply any and all amounts payable to you under this Section 5
(or otherwise payable to you under this Agreement) to the payment of the
full amount of the then outstanding principal and interest on the Loan.
You hereby consent to such action by the Company and hereby irrevocably
designate the Company as your agent for purposes of the Loan repayment and
authorize and direct the Company to repay the Loan in the manner
contemplated by this Section 5(h). Any remaining amount of outstanding
principal and interest that is not paid in the manner contemplated by this
Section 5(h) shall be due and payable by you within 90 days following the
applicable Date of Termination.
6. Additional Payment.
(a) Gross-Up Payment. Notwithstanding anything herein to the
contrary, if it is determined that any Payment would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with any
interest or penalties thereon, is herein referred to as an "Excise Tax"),
then you shall be entitled to an additional payment (a "Gross-Up Payment")
in an amount that will place you in the same after-tax economic position
that you would have enjoyed if the Excise Tax had not applied to the
Payment. The amount of the Gross-Up Payment shall be determined by the
Accounting Firm in accordance with the formula {(E x (1 - M)/(1 - T)) - E}
(or such other formula as the Accounting Firm deems appropriate which is
intended to achieve the same result), where
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E equals the Payments which are determined to be "excess
parachute payments" within the meaning of Section 280G(b)(1)
of the Code;
M equals the sum of the highest marginal rates1 for Taxes
applicable to you at the time of the Payment; and
T equals M plus the rate of Excise Tax applicable to the
Payment.
(b) Determination of Gross-Up Payment. Subject to the
provisions of Section 5(c), all determinations required under this Section
6, including whether a Gross-Up Payment is required, the amount of the
Payments constituting excess parachute payments, and the amount of the
Gross-Up Payment, shall be made by the Accounting Firm, which shall provide
detailed supporting calculations both to you and the Company within fifteen
days of the Change in Control Date, your Date of Termination after the
Change in Control Date or any other date reasonably requested by you or the
Company on which a determination under this Section 6 is necessary or
advisable. The Company shall pay to you the initial Gross-Up Payment
within 5 days of the receipt by you and the Company of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax
is payable by you, the Company shall cause the Accounting Firm to provide
you with an opinion that the Accounting Firm has substantial authority
under the Code and Regulations not to report an Excise Tax on your federal
income tax return. Any determination by the Accounting Firm shall be
binding upon you and the Company. If the initial Gross-Up Payment is
insufficient to cover the amount of the Excise Tax that is ultimately
determined to be owing by you with respect to any Payment (hereinafter an
"Underpayment"), the Company, after exhausting its remedies under Section
6(c) below, shall promptly pay to you an additional Gross-Up Payment in
respect of the Underpayment.
(c) Procedures. You shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of a Gross-Up Payment. Such notice shall be
given as soon as practicable after you know of such claim and shall apprise
the Company of the nature of the claim and the date on which the claim is
requested to be paid. You agree not to pay the claim until the expiration
of the thirty-day period following the date on which you notify the
Company, or such shorter period ending on the date the Taxes with respect
to such claim are due (the "Notice Period"). If the Company notifies you in
writing prior to the expiration of the Notice Period that it desires to
contest the claim, you shall: (i) give the Company any information
reasonably requested by the Company relating to the claim; (ii) take such
action in connection with the claim as the Company may reasonably request,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company and
reasonably acceptable to you; (iii) cooperate with the Company in good
faith in contesting the claim; and (iv) permit the Company to participate
in any proceedings relating to the claim. You shall permit the Company to
control all proceedings related to the claim and, at its option, permit the
Company to pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such
claim. If requested by the Company, you agree either to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner
and to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts as the Company shall determine; provided, however, that, if the
Company directs you to pay such claim and pursue a refund, the Company
shall advance the amount of such payment to you on an after-tax and
interest-free basis (the "Advance"). The Company's control of the contest
related to the claim shall be limited to the issues related to the Gross-Up
Payment and you shall be entitled to settle or contest, as the case may be,
any other issues raised by the Internal Revenue Service or other
<PAGE>
taxing authority. If the Company does not notify you in writing prior to
the end of the Notice Period of its desire to contest the claim, the
Company shall pay to you an additional Gross-Up Payment in respect of the
excess parachute payments that are the subject of the claim, and you agree
to pay the amount of the Excise Tax that is the subject of the claim to the
applicable taxing authority in accordance with applicable law.
(d) Repayments. If, after receipt by you of an Advance, you
become entitled to a refund with respect to the claim to which such Advance
relates, you shall pay the Company the amount of the refund (together with
any interest paid or credited thereon after Taxes applicable thereto). If,
after receipt by you of an Advance, a determination is made that you shall
not be entitled to any refund with respect to the claim and the Company
does not promptly notify you of its intent to contest the denial of refund,
then the amount of the Advance shall not be required to be repaid by you
and the amount thereof shall offset the amount of the additional Gross-Up
Payment then owing to you.
(e) Further Assurances. The Company shall indemnify you and
hold you harmless, on an after-tax basis, from any costs, expenses,
penalties, fines, interest or other liabilities ("Losses") incurred by you
with respect to the exercise by the Company of any of its rights under this
Section 6, including, without limitation, any Losses related to the
Company's decision to contest a claim or any imputed income to you
resulting from any Advance or action taken on your behalf by the Company
hereunder. The Company shall pay all legal fees and expenses incurred
under this Section 6, and shall promptly reimburse you for the reasonable
expenses incurred by you in connection with any actions taken by the
Company or required to be taken by you hereunder. The Company shall also
pay all of the fees and expenses of the Accounting Firm, including, without
limitation, the fees and expenses related to the opinion referred to in
Section 6(b).
7. Successors; Binding Agreement; Attorneys Fees.
(a) Assumption by Successor. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business or assets of the
Company expressly to assume and to agree in writing, with a copy to you, to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place; provided, however, that no such assumption shall relieve the Company
of its obligations hereunder. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be
binding upon and inure to the benefit of you (and your personal
representatives and heirs) and the Company and any organization which
succeeds to substantially all of the business or assets of the Company,
whether by means of merger, consolidation, acquisition of all or
substantially all of the assets of the Company or otherwise, including,
without limitation, as a result of a Change in Control or by operation of
law. This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees or other
Beneficiary. If you should die while any amount would still be payable to
you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to your Beneficiary.
(c) Attorney's Fees. The Company will pay or reimburse you for
the reasonable attorneys fees and expenses incurred by you in the
negotiation of this Agreement in an amount not to exceed $5,000.
8. Definitions. For purposes of this Agreement, the following
capitalized words shall have the meanings set forth below:
<PAGE>
"Accounting Firm" shall mean Ernst & Young or, if such firm is
unable or unwilling to perform such calculations, such other national
accounting firm as shall be designated by agreement between you and the
Company.
"Beneficiary" shall mean the person or persons designated by you
in writing to receive any benefits payable to you hereunder in the event of
your death or, if no such persons are so designated, your estate. No
Beneficiary designation shall be effective unless it is in writing and
received by the Company prior to the date of your death.
"Cause" shall mean a termination of your employment during the
Term which is a result of (i) your felony conviction or your plea of "no
contest" to a felony, (ii) your willful disclosure of material trade
secrets or other material confidential information related to the business
of the Company and its subsidiaries, or (iii) your willful and continued
failure substantially to perform your duties with the Company (other than
any such failure resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure resulting from a
resignation by you for Good Reason) after a written demand for substantial
performance is delivered to you by the Board, which demand specifically
identifies the manner in which the Board believes that you have not
substantially performed your duties, and which performance is not
substantially corrected by you within 10 days of delivery of such demand to
you. For purposes of the previous sentence, no act or failure to act on
your part shall be deemed "willful" unless done, or omitted to be done, by
you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution
duly adopted by the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth
above in clause (i), (ii) or (iii) of the first sentence of this section
and specifying the particulars thereof in reasonable detail.
"Change in Control" shall mean a change in control of the
Company of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange
Act, whether or not the Company is then subject to such reporting
requirement; provided, however, that, anything in this Agreement to the
contrary notwithstanding, a Change in Control shall be deemed to have
occurred if:
(i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or person, or any
syndicate or group deemed to be a person under Section 14(d)(2) of the
Exchange Act, is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities entitled to vote in the election of directors of the
Company;
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement)
individuals who at the beginning of such period constituted the Board
and any new directors, whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof;
(iii) there occurs a reorganization, merger, consolidation or
other corporate transaction involving the Company (a "Transaction"),
in each case, with respect to which the stockholders of the Company
immediately prior to such Transaction do not, immediately after the
Transaction, own more than 50 percent of the combined voting power of
the Company or other corporation resulting from such Transaction;
<PAGE>
(iv) all or substantially all of the assets of the Company are
sold, liquidated or distributed.
"Change in Control Date" shall mean the date on which the Change
in Control occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and any successor provisions thereto.
"Disability" shall mean (i) your incapacity due to physical or
mental illness which causes you to be absent from the full-time performance
of your duties with the Company for six (6) consecutive months, and (ii)
your failure to return to full-time performance of your duties for the
Company within thirty (30) days after written Notice of Termination due to
Disability is given to you. Any question as to the existence of your
Disability upon which you and the Company cannot agree shall be determined
by a qualified independent physician selected by you (or, if you are unable
to make such selection, such selection shall be made by any adult member of
your immediate family), and approved by the Company. The determination of
such physician made in writing to the Company and to you shall be final and
conclusive for all purposes of this Agreement.
"Election Window" shall mean the thirty-day period beginning 180
days following the Change in Control Date applicable to the Year One Change
in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor provisions thereto.
"Good Reason" shall mean a resignation of your employment during
the Term as a result of any of the following: (i) a meaningful and
detrimental alteration in your position, titles, responsibilities or
reporting responsibilities from that contemplated under this Agreement;
provided, however, that a change in your position, titles, responsibilities
or reporting responsibilities as a result of or in connection with a Year
One Change in Control shall not constitute an event of Good Reason for
purposes of this Agreement; (ii) the failure of the Company to obtain an
agreement reasonably satisfactory to you from any successor to assume and
agree to perform this Agreement, as contemplated in Section 7(a) hereof; or
(iii) the reduction by the Company in your annual rate of Salary or the
failure of the Company to pay you in the time and manner contemplated by
Section 3(b) above any Component A Bonus or Component B Bonus earned by
you; or (iv) the failure of the Company to grant you the Option or to pay
you any Performance Shares earned by you, in each case, in the manner
contemplated by Section 4 above; provided, however, that the failure of the
stockholders of the Company to approve the Option grant or the Performance
Share Arrangement shall in no event constitute Good Reason hereunder; and
provided further, that an event described in this sentence shall not
constitute Good Reason unless it is communicated by you to the Company in
writing within thirty days of the date you know or have reason to know of
such event and is not corrected by the Company in a manner which is
reasonably satisfactory to you (including full retroactive correction with
respect to any monetary matter) within 10 days of the date of your delivery
of such written notice to the Company.
"Initial Vesting Date" shall mean the following:
1. In the event a Year One Change in Control occurs, the
earlier to occur of (i) the expiration of the Election
Window and (ii) 18 months after the Effective Date, but in
no event prior to the later to occur of the first
anniversary of the Effective Date and the date of the
stockholder approval contemplated by Section 4(c) hereof;
and
2. In the event a Year One Change in Control does not occur,
the later of (i) first anniversary of the Effective Date and
(ii) the date of the stockholder approval contemplated by
Section 4(c) hereof.
<PAGE>
"Involuntary Termination" shall mean (i) your termination of
employment by the Company and its subsidiaries other than for Cause or
Disability or (ii) your resignation of employment with the Company and its
subsidiaries for Good Reason.
"Payment" means (i) any amount due or paid to you under this
Agreement, (ii) any amount that is due or paid to you under any plan,
program or arrangement of the Company and its subsidiaries (including,
without limitation, under the equity plans of the Company), and (iii) any
amount or benefit that is due or payable to you under this Agreement or
under any plan, program or arrangement of the Company and its subsidiaries
not otherwise covered under clause (i) or (ii) hereof which must reasonably
be taken into account under Section 280G of the Code and the Regulations in
determining the amount of the "parachute payments" received by you,
including, without limitation, any amounts which must be taken into account
under the Code and Regulations as a result of (A) the acceleration of the
vesting of any option, restricted stock or other equity award granted
hereunder or under any equity plan of the Company, (B) the acceleration of
the time at which any payment or benefit is receivable by you or (C) any
contingent severance or other amounts that are payable to you.
"Regulations" shall mean the proposed, temporary and final
regulations under Section 280G of the Code or any successor provision
thereto.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor provisions thereto.
"Severance Payment Date" shall mean five business days following
the later to occur of (i) the Date of Termination applicable under Section
5(a), 5(b) or 5(c), as the case may be, and (ii) the date that all
outstanding principal and interest on the Loan has been repaid in full.
"Taxes" shall mean the federal, state and local income taxes to
which you are subject at the time of determination, calculated on the basis
of the highest marginal rates then in effect, plus any additional payroll
or withholding taxes to which you are then subject.
"Year One Change in Control" shall mean a Change in Control
occurring on or prior to the first anniversary of the Effective Date.
9. Notice. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid,
addressed to the Board of Directors, Apple Computer, Inc., 1 Infinite Loop,
M/S: 381, Cupertino, CA 95401, with a copy to the General Counsel of the
Company, or to you at the address set forth on the first page of this
Agreement or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change
of address shall be effective only upon receipt.
10. Miscellaneous.
(a) Amendments, Waivers, Etc. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements
or representations, oral or otherwise, express or implied, with respect to
the subject matter hereof have been made by either party which are not
expressly set forth in this Agreement and this Agreement shall supersede
all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, with respect to the subject
matter hereof.
<PAGE>
(b) Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
(c) Representation. You hereby represent and warrant to the
Company that the execution and delivery by you of this Agreement to the
Company will not breach the terms of any contract, agreement or
understanding to which you are a party. You further acknowledge and agree
that a breach of this representation by you shall render this Agreement
void ab initio and of no further force and effect.
(d) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
(e) Withholding. Amounts paid to you hereunder shall be subject
to all applicable federal, state and local wage withholding.
(f) Source of Payments. All payments provided under this
Agreement (other than payments made pursuant to a plan which provides
otherwise or as otherwise expressly provided hereunder), shall be paid in
cash from the general funds of the Company, and no special or separate fund
shall be established, and no other segregation of assets made, to assure
payment. You will have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than
the right of an unsecured creditor of the Company.
(g) Headings. The headings contained in this Agreement are
intended solely for convenience of reference and shall not affect the
rights of the parties to this Agreement.
(h) Arbitration and Expenses. Any controversy or claims arising
out of or relating to this Agreement or the breach of this Agreement that
cannot be resolved by you and the Company, including any dispute as to the
calculation of your benefits or any payments hereunder, shall be submitted
to arbitration in San Francisco under the supervision of the American
Arbitration Association ("AAA") by one arbitrator to be mutually selected
by the Company and you, with the AAA to appoint an arbitrator experienced
in the resolution of executive employment disputes in the event that the
parties are unable to agree on the selection of an arbitrator. The
proceedings at arbitration shall be confidential, and all documents and
other information relating to the arbitration shall not be disclosed to any
third party except as required by law. The award of the arbitrator shall
be final and conclusive upon the parties, and the parties shall not contest
or seek relief from the award in any court. Judgment upon the arbitration
award may be rendered in any court having jurisdiction thereof, or
application may be made to such court for a judicial acceptance of the
award and an order of enforcement, as the case may be. The Company shall
pay or reimburse you for any and all costs and expenses reasonably incurred
by you (including arbitration costs and legal fees and expenses) in
clarifying or enforcing your rights under this Agreement if you prevail on
the merits of the claim in respect of which such legal fees and expenses
are incurred, and you shall pay or reimburse the Company for any and all
costs and expenses reasonably incurred by the Company (including
arbitration costs and legal fees and expenses) in clarifying or enforcing
its rights under this Agreement if the Company prevails on the merits of
the claim in respect of which such legal fees and expenses are incurred.
(i) Governing Law. The validity, interpretation, construction,
and performance of this Agreement shall be governed by the laws of the
State of California applicable to contracts entered into and performed in
such State.
<PAGE>
* * * *
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
APPLE COMPUTER, INC.
By: /s/ A.C. Markkula, Jr.
Agreed to as of this 28th day of February, 1996.
_/s/ G.F. Amelio___
Gilbert F. Amelio
37