UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

APPLE INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On May 10, 2007

To Holders of Common Stock of Apple Inc.:

Notice is hereby given that the Annual Meeting of Shareholders of Apple Inc., a California corporation (the “Company”), will be held on Thursday, May 10, 2007 at 10:00 a.m., local time, at the Company’s principal executive offices located at 1 Infinite Loop, Building 4, Cupertino, California 95014, for the following purposes, as more fully described in the accompanying Proxy Statement:

1.                To elect the Company’s Board of Directors.

2.                To approve amendments to the Apple Inc. 2003 Employee Stock Plan.

3.                To approve amendments to the Apple Inc. Employee Stock Purchase Plan.

4.                To approve amendments to the Apple Inc. 1997 Director Stock Option Plan.

5.                To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2007.

6.                To consider six shareholder proposals if properly presented at the meeting.

7.                To transact such other business as may properly come before the meeting and any postponement(s) or adjournment(s) thereof.

All shareholders are cordially invited to attend the meeting in person. However, to ensure that each shareholder’s vote is counted at the meeting, shareholders are requested to mark, sign, date and return the enclosed proxy card as promptly as possible in the envelope provided. Shareholders attending the meeting may vote in person even if they have previously returned proxy cards.

Only shareholders of record as of the close of business on March 20, 2007 are entitled to receive notice of, to attend and to vote at the meeting.

 

Cupertino, California

April 16, 2007

APPLE INC.

1 Infinite Loop
Cupertino, California 95014

PROXY STATEMENT

Introduction

The enclosed proxy is solicited on behalf of the Board of Directors (the “Board”) of Apple Inc., a California corporation (the “Company”), for use at the Company’s annual meeting of shareholders (the “Annual Meeting”) to be held on Thursday, May 10, 2007 at 10:00 a.m., local time, and at any postponement(s) or adjournment(s) thereof. The purposes of the Annual Meeting are set forth in this Proxy Statement and in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the Company’s principal executive offices at the address shown above.

The Company’s complete mailing address is 1 Infinite Loop, Cupertino, California  95014, and its telephone number is (408) 996-1010. Georgeson Shareholder Communications Inc., which is assisting with the mechanics of the return of the proxies, may be contacted at (800) 223-2064.

These proxy solicitation materials were first mailed on or about April 16, 2007 to all shareholders entitled to vote at the Annual Meeting.

Procedural Matters

Only shareholders of record as of the close of business on March 20, 2007 (the “Record Date”) are entitled to receive notice of, to attend, and to vote at the Annual Meeting. There were approximately 864,487,955 shares of Common Stock issued and outstanding on the Record Date, held by approximately 29,861 holders of record. Each share has one vote on each matter. The closing sale price of Common Stock as reported on the NASDAQ Global Select Market on the Record Date was $91.48 per share.

A shareholder may revoke any proxy given pursuant to this solicitation by attending the Annual Meeting and voting in person, or by delivering to the Company’s Corporate Secretary at the Company’s principal executive offices referred to above, prior to the Annual Meeting, a written notice of revocation or a duly executed proxy bearing a date later than that of the previously submitted proxy.

The Company will bear the cost of this solicitation. The Company has retained the services of Georgeson Shareholder Communications Inc. to assist in obtaining proxies from brokers and nominees of shareholders for the Annual Meeting. The estimated cost of such services is $14,000 plus out-of-pocket expenses. In addition, the Company will reimburse brokerage firms and other persons representing beneficial owners of shares for their reasonable expenses in forwarding solicitation material to such beneficial owners. Certain of the Company’s directors, officers and regular employees, without additional compensation, may solicit proxies personally or by telephone, facsimile or email.

Attendance at the Annual Meeting is limited to shareholders. Admission to the meeting will be on a first-come, first-served basis. Registration will begin at 9:00 a.m. and each shareholder may be asked to present valid picture identification such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

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Voting of Proxies

All valid proxies received prior to the meeting will be voted. All shares represented by a proxy will be voted, and where a shareholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the specification so made. If no choice is indicated on the proxy, the shares will be voted FOR each of the nominees of the Board (Proposal No. 1), FOR the approval of amendments to the Apple Inc. 2003 Employee Stock Plan (Proposal No. 2), FOR the approval of amendments to the Apple Inc. Employee Stock Purchase Plan (Proposal No. 3), FOR the approval of amendments to the Apple Inc. 1997 Director Stock Option Plan (Proposal No. 4), FOR the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2007 (Proposal No. 5), AGAINST each shareholder proposal, if properly presented at the meeting (Proposals No. 6, 7, 8, 9, 10 and 11), and as the proxy holders may determine in their discretion with respect to any other matters that properly come before the meeting. See “OTHER MATTERS.”

Quorum; Abstentions; Broker Non-Votes

In the election of directors, the seven candidates receiving the highest number of affirmative votes will be elected as directors. Proposals 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 each require for approval (i) the affirmative vote of a majority of the shares “represented and voting” and (ii) the affirmative vote of a majority of the required quorum. The required quorum for the transaction of business at the Annual Meeting is a majority of the shares of Common Stock issued and outstanding on the Record Date. Shares that are voted “FOR”, “AGAINST” or “ABSTAIN” in a matter are treated as being present at the meeting for purposes of establishing the quorum, but only shares voted “FOR” or “AGAINST” are treated as shares “represented and voting” at the Annual Meeting with respect to such matter. Accordingly, abstentions and broker non-votes will be counted for purposes of determining the presence or absence of the quorum for the transaction of business, but will not be counted for purposes of determining the number “represented and voting” with respect to a proposal.

Voting via the Internet and by Telephone

Shareholders whose shares are registered in the name of a bank or brokerage firm may be eligible to vote electronically through the Internet or by telephone. A large number of banks and brokerage firms participate in the ADP Investor Communication Services online program. This program provides eligible shareholders the opportunity to vote via the Internet or by telephone. Voting forms will provide instructions for shareholders whose banks or brokerage firms participate in ADP’s program.

Registered shareholders may vote electronically through the Internet by following the instructions included with their proxy card. A shareholder not wishing to vote electronically through the Internet or whose form does not reference Internet or telephone voting information should complete and return the enclosed paper proxy card. Signing and returning the proxy card or submitting the proxy via the Internet or by telephone does not affect the right to vote in person at the Annual Meeting.

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Directors

Listed below are the Company’s seven directors nominated for re-election at the Annual Meeting. All of the directors elected at the Annual Meeting will serve a one-year term expiring at the next annual meeting of shareholders.

 

William V. Campbell has been Chairman of the Board of Directors of Intuit, Inc. (“Intuit”) since August 1998. From September 1999 to January 2000, Mr. Campbell acted as Chief Executive Officer of Intuit. From April 1994 to August 1998, Mr. Campbell was President and Chief Executive Officer and a director of Intuit. From January 1991 to December 1993, Mr. Campbell was President and Chief Executive Officer of GO Corporation. Mr. Campbell also serves on the Board of Directors of Opsware, Inc.

Millard S. Drexler has been Chairman and Chief Executive Officer of J. Crew Group, Inc. since January 2003. Previously, Mr. Drexler was Chief Executive Officer of Gap Inc. from 1995 and President from 1987 until September 2002. Mr. Drexler was also a member of the Board of Directors of Gap Inc. from November 1983 until October 2002.

Albert A. Gore, Jr. has served as a Senior Advisor to Google, Inc. (“Google”) since 2001. He has also served as Executive Chairman of Current TV since 2002 and as Chairman of Generation Investment Management since 2004. He is a visiting professor at Middle Tennessee State University. Mr. Gore was inaugurated as the 45th Vice President of the United States in 1993. He was re-elected in 1996 and served for a total of eight years as President of the Senate, a member of the Cabinet and the National Security Council. Prior to 1993, he served eight years in the U.S. Senate and eight years in the U.S. House of Representatives.

Steven P. Jobs is one of the Company’s co-founders and currently serves as its Chief Executive Officer. Mr. Jobs is also a director of The Walt Disney Company.

Arthur D. Levinson, Ph.D. has been Chief Executive Officer and a Director of Genentech Inc. (“Genentech”) since July 1995. Dr. Levinson has been Chairman of the Board of Directors of Genentech since September 1999. He joined Genentech in 1980 and served in a number of executive positions, including Senior Vice President of R&D from 1993 to 1995. Dr. Levinson also serves on the Board of Directors of Google, Inc.

Eric E. Schmidt, Ph.D. has served as the Chief Executive Officer of Google since July 2001 and as a member of Google’s Board of Directors since March 2001, where he served as Chairman of the Board from March 2001 to April 2004. In April 2004, Dr. Schmidt was named Chairman of the Executive Committee of Google’s Board of Directors. From April 1997 to November 2001, Dr. Schmidt served as Chairman of the Board of Directors of Novell, Inc. (“Novell”), a computer networking company, and, from April 1997 to July 2001, as the Chief Executive Officer of Novell. Dr. Schmidt was a director of Siebel Systems, Inc. until January 2006.

Jerome B. York has been Chief Executive Officer of Harwinton Capital Corporation, a private investment company that he controls, since September 2003. From January 2000 until September 2003,

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Mr. York was Chairman and Chief Executive Officer of MicroWarehouse, Inc., a reseller of computer hardware, software and peripheral products. From September 1995 to October 1999, he was Vice Chairman of Tracinda Corporation. From May 1993 to September 1995 he was Senior Vice President and Chief Financial Officer of IBM Corporation (“IBM”), and served as a member of IBM’s Board of Directors from January 1995 to August 1995. Mr. York is also a director of Tyco International Ltd.

Role of the Board; Corporate Governance Matters

It is the paramount duty of the Board to oversee the Chief Executive Officer and other senior management in the competent and ethical operation of the Company on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their position, and set standards to ensure that the Company is committed to business success through maintenance of the highest standards of responsibility and ethics.

Members of the Board bring to the Company a wide range of experience, knowledge and judgment. These varied skills mean that governance is far more than a “check the box” approach to standards or procedures. The governance structure in the Company is designed to be a working structure for principled actions, effective decision-making and appropriate monitoring of both compliance and performance. The key practices and procedures of the Board are outlined in the Corporate Governance Guidelines available on the Company’s website at www.apple.com/investor.

The Board met a total of five times during fiscal year 2006. The Board has determined that all Board members, excluding Steve Jobs, are independent under the applicable National Association of Securities Dealers rules.

Board Committees

The Board has a standing Compensation Committee, a Nominating and Corporate Governance Committee (“Nominating Committee”) and an Audit and Finance Committee (“Audit Committee”). All committee members are independent under the listing standards of the NASDAQ Global Select Market. The members of the committees are identified in the table below.

 

The Audit Committee is primarily responsible for overseeing the services performed by the Company’s independent registered public accounting firm and internal audit department, evaluating the Company’s accounting policies and its system of internal controls and reviewing significant financial transactions. Members of the Audit Committee are Messrs. Campbell and York and Dr. Levinson. The Audit Committee met a total of 12 times during fiscal year 2006.

The Compensation Committee is primarily responsible for reviewing the compensation arrangements for the Company’s executive officers, including the Chief Executive Officer, and for administering the Company’s equity compensation plans. Members of the Compensation Committee are Messrs. Campbell, Drexler, and Gore. The Compensation Committee met a total of three times during fiscal year 2006.

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The Nominating Committee assists the Board in identifying qualified individuals to become directors, determines the composition of the Board and its committees, monitors the process to assess Board effectiveness and helps develop and implement the Company’s corporate governance guidelines. The Nominating Committee also considers nominees proposed by shareholders. Members of the Nominating Committee are Messrs. Drexler and Gore and Dr. Levinson. The Nominating Committee met a total of seven times during fiscal year 2006 and met subsequent to the end of the last fiscal year to recommend to the full Board each of the nominees for election to the Board of Directors, as presented herein.

The Audit, Compensation and Nominating Committees operate under written charters adopted by the Board. These charters are available on the Company’s website at www.apple.com/investor.

During fiscal year 2006, each member of the Board of Directors attended or participated in seventy-five percent (75%) or more of the aggregate of (i) the total number of meetings of the Board of Directors held during the fiscal year or the portion thereof following such person’s appointment to the Board and (ii) the total number of meetings held by all committees on which such Director served during the past fiscal year or the portion thereof following such person’s appointment to one or more of those committees. There are no family relationships among executive officers or Directors of the Company.

Audit Committee Financial Expert

All members of the Company’s Audit Committee, Messrs. Campbell and York and Dr. Levinson, qualify as “audit committee financial experts” as defined by the Securities and Exchange Commission (the “SEC’’) and also meet the additional criteria for independence of Audit Committee members set forth in Rule 10A-3(b)(l) under the Exchange Act.

Code of Ethics

The Company has a code of ethics that applies to all of the Company’s employees, including its principal executive officer, principal financial officer and principal accounting officer, and its Board. A copy of this code, “Ethics: The Way We Do Business Worldwide,” is available on the Company’s website at www.apple.com/investor. The Company intends to disclose any changes in or waivers from its code of ethics by posting such information on its website or by filing a Form 8-K.

Director Compensation

The form and amount of director compensation are determined by the Board after a review of recommendations made by the Nominating Committee. The current practice of the Board is to base a substantial portion of a director’s annual retainer on equity. In 1998, shareholders approved the 1997 Director Stock Option Plan (the “Director Plan”) and 1,600,000 shares were reserved for issuance thereunder on a stock split-adjusted basis. Pursuant to the Director Plan, the Company’s non-employee directors are granted an option to acquire 30,000 shares of Common Stock upon their initial election to the Board (“Initial Options”). The Initial Options vest and become exercisable in three equal annual installments on each of the first through third anniversaries of the grant date. On the fourth anniversary of a non-employee director’s initial election to the Board and on each subsequent anniversary thereafter, the director will be entitled to receive an option to acquire 10,000 shares of Common Stock (“Annual Options”). Annual Options are fully vested and immediately exercisable on their date of grant. As of the end of fiscal year 2006, there were options for 760,000 shares outstanding under the Director Plan. Since accepting the position of CEO, Mr. Jobs is no longer eligible for grants under the Director Plan. Non-employee directors also receive a $50,000 annual retainer paid in quarterly increments. In addition, directors receive up to two free computer systems per year and are eligible to purchase additional equipment at a discount. Directors do not receive any additional consideration for serving on committees or as a committee chairperson.

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Communications with the Board

The Company does not have formal procedures for shareholder communication with the Board. Any matter intended for the Board, or for any individual member or members of the Board, should be directed to the Company’s Corporate Secretary at 1 Infinite Loop, Cupertino, California 95014, with a request to forward the same to the intended recipient. In general, all shareholder communication delivered to the Company’s Corporate Secretary for forwarding to the Board or specified Board members will be forwarded in accordance with the shareholder’s instructions. However, the Company’s Corporate Secretary reserves the right not to forward to Board members any abusive, threatening or otherwise inappropriate materials. Information regarding the submission of comments or complaints relating to the Company’s accounting, internal accounting controls or auditing matters can be found on the Company’s website at www.apple.com/investor.

The Company encourages all incumbent directors and nominees for election as director to attend the Annual Meeting. Then-current directors Steve Jobs, William Campbell and Fred Anderson attended the Annual Meeting in April 2006.

Compensation Committee Interlocks and Insider Participation

The current members of the Compensation Committee are Messrs. Campbell, Drexler and Gore, none of whom are employees of the Company and all of whom are considered “independent” directors under the applicable NASD listing standards. There were no interlocks or insider participation between any member of the Board or Compensation Committee and any member of the board of directors or compensation committee of another company.

Executive Officers

The following sets forth certain information regarding executive officers of the Company. Information pertaining to Mr. Jobs, who is both a director and an executive officer of the Company, may be found in the section entitled “Directors.”

Timothy D. Cook, Chief Operating Officer (age 46), joined the Company in March 1998. Mr. Cook also served with the Company as Executive Vice President, Worldwide Sales and Operations from 2002 to 2005. In 2004, his responsibilities were expanded to include the Company’s Macintosh hardware engineering. From 2000 to 2002, Mr. Cook served in the role of Senior Vice President, Worldwide Operations, Sales, Service and Support. From 1998 to 2000, Mr. Cook served in the position of Senior Vice President, Worldwide Operations. Prior to joining the Company, Mr. Cook held the position of Vice President, Corporate Materials for Compaq Computer Corporation (“Compaq”). Previous to his work at Compaq, Mr. Cook was the Chief Operating Officer of the Reseller Division at Intelligent Electronics. Mr. Cook also spent 12 years with IBM, most recently as Director of North American Fulfillment. Mr. Cook also serves as a member of the Board of Directors of Nike, Inc.

Anthony Fadell, Senior Vice President, iPod Division (age 38), joined the Company in 2001. From 2004 to April 2006, Mr. Fadell was Vice President of iPod Engineering. From 2001 to 2004, Mr. Fadell was the Senior Director of the Company’s iPod Engineering Team. Prior to joining Apple, Mr. Fadell was a co-founder, CTO, and director of engineering of the Mobile Computing Group at Philips Electronics where he was responsible for all aspects of business and product development for a variety of products. Mr. Fadell later became VP of Business Development for Philips U.S. Strategy & Ventures, focusing on building the company’s digital media strategy and investment portfolio. Prior to joining Philips, Mr. Fadell was a hardware and software architect at General Magic.

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Ronald B. Johnson, Senior Vice President, Retail (age 48), joined the Company in January 2000. Prior to joining the Company, Mr. Johnson spent 16 years with Target Stores, most recently as Senior Merchandising Executive.

Peter Oppenheimer, Senior Vice President and Chief Financial Officer (age 44), joined the Company in July 1996. Mr. Oppenheimer also served with the Company in the position of Vice President and Corporate Controller, and as Senior Director of Finance for the Americas. Prior to joining the Company, Mr. Oppenheimer was CFO of one of the four business units for Automatic Data Processing, Inc. (“ADP”). Prior to joining ADP, Mr. Oppenheimer spent six years in the Information Technology Consulting Practice with Coopers and Lybrand.

Donald J. Rosenberg, Senior Vice President, General Counsel and Secretary (age 56), joined the Company in December 2006. Prior to joining the Company, Mr. Rosenberg spent 31 years with IBM, most recently as Senior Vice President and General Counsel. Prior to that he held a number of senior positions at IBM, including over ten years as Vice President and Assistant General Counsel for litigation.

Philip W. Schiller, Senior Vice President, Worldwide Product Marketing (age 46), rejoined the Company in 1997. Prior to rejoining the Company, Mr. Schiller was Vice President of Product Marketing at Macromedia, Inc. from December 1995 to March 1997, and was Director of Product Marketing at FirePower Systems, Inc. from 1993 to December 1995. Prior to that, Mr. Schiller spent six years at the Company in various marketing positions.

Bertrand Serlet, Ph.D., Senior Vice President, Software Engineering (age 46), joined the Company in February 1997 upon the Company’s acquisition of NeXT. At NeXT, Dr. Serlet held several engineering and managerial positions, including Director of Web Engineering. Prior to NeXT, from 1985 to 1989, Dr. Serlet worked as a research engineer at Xerox PARC.

Sina Tamaddon, Senior Vice President, Applications (age 49), joined the Company in September 1997. Mr. Tamaddon has also served with the Company in the position of Senior Vice President, Worldwide Service and Support, and Vice President and General Manager, Newton Group. Before joining the Company, Mr. Tamaddon held the position of Vice President, Europe with NeXT from September 1996 through March 1997. From August 1994 to August 1996, Mr. Tamaddon held the position of Vice President, Professional Services with NeXT.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of March 20, 2007 (the “Table Date”) with respect to the beneficial ownership of the Company’s Common Stock by (i) each person the Company believes beneficially holds more than 5% of the outstanding shares of Common Stock; (ii) each director; (iii) each Named Executive Officer listed in the Summary Compensation Table under the heading “Information Regarding Executive Compensation;” and (iv) all directors and executive officers as a group. On the Table Date, approximately 864,487,955 shares of Common Stock were issued and outstanding. Unless otherwise indicated, all persons named as beneficial owners of Common Stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned. In addition, unless otherwise indicated, all persons named below can be reached at Apple Inc., 1 Infinite Loop, Cupertino, California 95014.

Security Ownership of 5% Holders, Directors, Nominees and Executive Officers

       (1) Represents shares of Common Stock held and options held by such individuals that were exercisable at the Table Date or within 60 days thereafter. This does not include options or restricted stock units that vest more than 60 days after the Table Date. The share numbers have been adjusted to reflect the Company’s two-for-one stock split in February 2005.

       (2) Based on a Form 13G/A filed February 14, 2007 by FMR Corp. FMR Corp. lists its address as 82 Devonshire Street, Boston, MA 02109, in such filing.

       (3) Includes 120,000 shares of Common Stock that Mr. Jobs has the right to acquire by exercise of stock options.

       (4) Includes 220,000 shares of Common Stock that Mr. Campbell has the right to acquire by exercise of stock options.

       (5) Excludes 600,000 unvested restricted stock units.

       (6) Includes 40,000 shares of Common Stock that Mr. Drexler holds indirectly and 180,000 shares of Common Stock that Mr. Drexler has the right to acquire by exercise of stock options.

       (7) Consists of 70,000 shares of Common Stock that Mr. Gore has the right to acquire by exercise of stock options.

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       (8) Includes 1,300,000 shares of Common Stock that Mr. Johnson has the right to acquire by exercise of stock options and excludes 450,000 unvested restricted stock units.

       (9) Includes 2,000 shares of Common Stock that Dr. Levinson holds indirectly and 100,000 shares of Common Stock that Dr. Levinson has the right to acquire by exercise of stock options.

(10) Excludes 450,000 unvested restricted stock units.

(11) Excludes 400,000 unvested restricted stock units.

(12) Consists of 12,284 shares of Common Stock that Dr. Schmidt holds indirectly. Dr. Schmidt has declined to participate in the 1997 Director Stock Option Plan.

(13) Includes 40,000 shares of Common Stock that Mr. York has the right to acquire by exercise of stock options.

(14) Includes 2,233,683 shares of Common Stock that executive officers or directors have the right to acquire by exercise of stock options and excludes 2,700,000 unvested restricted stock units.

*                    Represents less than 1% of the issued and outstanding shares of Common Stock on the Table Date.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Executive officers, directors and greater than ten percent shareholders also are required by rules promulgated by the SEC to furnish the Company with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to the Company or written representations that no Forms 5 were required, the Company believes that all Section 16(a) filing requirements were met during fiscal year 2006, except for the following: (i) one Form 4 was filed for Arthur D. Levinson on August 17, 2006 to report an automatic stock option grant under the Company’s 1997 Director Stock Option Plan made on August 14, 2006; and (ii) one Form 4 was filed for Anthony Fadell on September 1, 2006 with respect to the purchase and sale by Mr. Fadell’s trust of 300 and 25 shares, respectively, of the Company’s Common Stock in June 2006 and August 2006.

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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION

The following report of the Compensation Committee of the Board of Directors shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

Compensation Committee / Corporate Governance

Purpose.   Responsibilities of the Compensation Committee of the Board (the “Committee”) are to:  1) establish and modify compensation and incentive plans and programs for all employees of the Company, including executive officers; 2) review and approve compensation and awards under compensation and incentive plans and programs for executive officers of the Company; and 3) act as the administering committee for equity compensation plans as designated by the Board.

Member independence.   Three non-employee directors serve on the Committee: Messrs. Campbell, Drexler and Gore. They are independent directors as determined in accordance with various NASDAQ and SEC rules. Director independence is reviewed annually by the full Board.

Charter.   The Committee’s role is to work with executive management in developing a compensation philosophy; to evaluate and approve compensation for the Chief Executive Officer (the “CEO”), executive officers, and key executives; and to oversee the Company’s employee equity compensation plan and employee stock purchase plan. The Committee’s charter is available on the Company’s website at www.apple.com/investor.

Oversight of compensation related disclosures.   The Committee is responsible for overseeing the Company’s executive compensation-related disclosures. The SEC issued new rules in August 2006 for executive compensation and related party disclosure. The new rules do not apply to this Proxy Statement, but they will be effective for Apple’s proxy statement for fiscal year 2007.

Independent consultants and advisors.   The Committee has the authority to retain and terminate any independent, third-party compensation consultant and to obtain advice and assistance from internal and external legal, accounting and other advisors. During fiscal year 2006, the Committee engaged Frederic W. Cook & Co., Inc. (“F.W. Cook”) to advise on compensation matters. F.W. Cook has not provided any other services to the Company and has received no compensation other than with respect to the services provided to the Committee.

Committee meetings.   Each year, the Committee develops a quarterly agenda for the coming year. The Chair reports the Committee’s actions and recommendations to the full Board following each Committee meeting. The Committee held seven formal meetings during fiscal year 2006. Each meeting included time for a private session, during which only the independent directors and their advisors, if invited, were present. The executive officers, with the exception of the CEO, play no role and provide no recommendations with respect to the Company’s compensation programs, practices and packages for executives, other employees or directors. The CEO is consulted when the Committee reviews performance of other executive officers. Further, the Committee discusses the CEO’s compensation package with him but he is not present when pay decisions regarding his own compensation are made.

Objectives of the Company’s Compensation Program

It is the Company’s objective and philosophy to align compensation programs with shareholders’ interests and the Company’s business objectives, reward outstanding performance, be externally competitive and internally equitable, and retain entrepreneurial and innovative top talent on a long-term

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basis. This is achieved through a straightforward compensation package that relies on equity compensation and limits cash compensation and perquisites.

Executive Officer Benchmarking / Peer Groups.   The compensation of the CEO and other executive officers was compared by the Committee’s consultants to data from peer group companies and from published survey data. To identify appropriate peer group companies, management, the Committee and the Committee’s consultants mutually developed the following selection criteria:

1.                Labor market and capital market competitors;

2.                High technology and retail companies (the latter for the Senior Vice President, Retail only); and

3.                Similar pay models and growth experiences.

The fiscal year 2006 peer group companies identified to benchmark all executive officers with the exception of the Company’s Senior Vice President, Retail included:

 

An additional fiscal year 2006 Retail peer group of companies was identified to benchmark the Company’s Senior Vice President, Retail and included:

 

 

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Compensation Program Design

The Company’s executive compensation program is designed to attract and retain top entrepreneurial and innovative leadership talent needed to execute its business strategy and achieve its business objectives.

The Company approaches executive compensation from a market total direct compensation (“TDC”) perspective. Market TDC includes the sum of base salary, short- and long-term bonus, and value of equity at time of grant. The Company does not offer a long-term bonus program.

The Company’s compensation program design utilizes a mix of base salary, annual bonus and equity.

CEO compensation.   The CEO has received the majority of his compensation through an equity grant and is paid only $1 per year in base salary with no bonus opportunity. No additional compensation is currently received by the CEO.

Executive officer compensation.   All other executive officers receive base salary and an annual bonus opportunity, with the balance of TDC weighted toward equity. Since 2004, equity compensation grants have consisted of restricted stock units (RSUs) at the executive officer level. Additional compensation received by the executive officers is described further below in the section entitled “Elements of Compensation.”

Impact of Performance on Compensation

Annual bonus.   The Company must meet or exceed target level annual business plan revenue and operating margin objectives to fund the payout formula for the annual bonus. No annual bonus is earned if achievement does not meet target level business plan objectives. Target awards pay out at 50% of salary and can go as high as 100% of salary for significantly exceeding the Company’s goals. Once the performance targets are met, the Committee retains the authority to reduce a cash bonus payout based on individual performance.

Equity compensation.   Equity grants made to executive officers incorporate time-based vesting and are subject to a long cliff-vesting period to support achievement of the Company’s performance and retention goals. The Company is considering the use of performance-based RSU grants for executive officers in the future.

The Committee believes the compensation program targets and payout levels are appropriate for the Company, particularly in light of the fact that the Company has outperformed every peer group comparator in annualized shareholder return for each of the past two years.

Elements of Compensation

Total Direct Compensation.   TDC at the Company is the sum of annual salary plus annual bonus plus the estimated fair value of equity-based compensation measured at the time of award. The Company focuses on TDC to gauge the appropriate total value of cash and equity in making external comparisons and assessing internal fairness.

Annual salary.   The Company pays an annual salary to its employees and executive officers, excluding the CEO, as consideration for fulfillment of certain roles and responsibilities. The Committee annually reviews base salaries for executive officers with an independent compensation consultant. Base salaries for executive officers are generally targeted at market median, and are increased if determined appropriate based on market data and performance.

Annual bonus.   Cash bonus award programs for executive officers, excluding the CEO, are designed to promote the Company’s annual operating performance by aligning payouts with achievement of revenue and operating margin goals. The cash bonus awards qualify as performance-based compensation under

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Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), as further outlined below in the section entitled “Impact of Regulatory Requirements on Compensation.”

·       Determining cash bonus targets.   The Committee approved the fiscal year 2006 Executive Bonus Program at its November 2005 meeting, including maximum bonus levels (expressed as a percentage of fiscal year end annual salary) and the formula (the Company’s achievement against annual revenue and operating margin goals) for funding the officer bonus pool.

·       Determining cash bonus payouts.   The cash bonus award for each executive officer is determined by applying the payout formula to the level of actual performance. The payout target is 50% of the executive officer’s salary with a maximum payout of 100% of salary. The Committee, in its sole discretion, may eliminate or reduce the cash bonus awards payable to any executive officer that otherwise would be payable under the payout formula. In fiscal year 2006 all eligible executive officers earned cash bonus awards based on the payout formula.

Equity compensation.   The Company grants equity-based compensation to executive officers to give them a stake in the success of the Company, to align their interests with shareholders, and to retain top leadership talent. While the Company relies heavily on equity to compensate its executives and other employees, it also currently limits the average annual distribution of new equity awards to no more than approximately 2.5% of shares outstanding. Currently, total dilution overhang from outstanding awards and shares available for future grants is equal to approximately 10.6% of the Company’s fully-diluted shares outstanding.

·       Determining the amount of equity-based awards.   The CEO did not receive an equity award in fiscal year 2006. RSUs were awarded to all other executive officers to encourage stock ownership and retention. The fiscal year 2006 RSU award to executive officers was designed to provide two years of grant value with the expectation that no new RSU award will be provided to these officers in fiscal year 2007. Equity-based awards are targeted above the 75th percentile of the market on an annualized basis.

·       Timing of grants.   All of the Company’s executive officers, excluding the CEO, were granted two years of grant value through the use of RSUs in fiscal year 2006, with the expectation that no new award will be provided in fiscal year 2007. With the exception of RSU grants to Anthony Fadell, the Company’s RSU grants have traditionally been made once every two years with vesting structured so that there is always a substantial amount that will be vested in two years and again in four years. This unvested value is intended to provide a strong retention component and continued alignment with shareholders’ interests over the long term:

 

·       Mr. Fadell was promoted to Senior Vice President, iPod Division during fiscal year 2006. His executive RSU grant vests 50% in fiscal year 2008 and 50% in fiscal year 2010.

·       Due to the two-year RSU grant design in 2006, the Committee anticipates next reviewing executive officer equity compensation positioning beginning in fiscal year 2008. The Company anticipates that such analysis and grant of equity awards to executive officers will occur annually after fiscal year 2007.

Personal benefits and perquisites.   The Company does not provide its executive officers with any additional benefits or perquisites not available to all other employees. The Company provides a health plan to all employees including executive officers and eligible dependents.

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Elements of post-termination compensation and benefits.   All Company employees, including the executive officers, are employed “at will” and do not have employment agreements.

Severance.   A standard Severance Plan that provides for two months of pay regardless of length of service or level applies to all Company employees.

Change-in-Control Provisions.   Except with respect to the provisions of certain equity awards, as described in “Change of Control Arrangements—Stock Options and Restricted Stock Units,” executive officers do not have change of control agreements. Moreover, none of the executive officers have any agreements with the Company to be “grossed up” with respect to any golden parachute excise taxes.

Stock Ownership / Retention Guidelines.

During fiscal year 2006, the Committee discussed the introduction of stock ownership and retention guidelines for both outside directors and executive officers. The Committee considered that executive officers currently have significant ownership through their RSU holdings. Though a formal program was not adopted for fiscal year 2006, the Committee intends to reconsider during fiscal year 2007 whether such policies would be beneficial.

Impact of Regulatory Requirements on Compensation.

In evaluating compensation program alternatives, the Committee considers the potential impact of Internal Revenue Code Section 162(m). Code Section 162(m) generally precludes publicly held companies from deducting compensation paid to Named Executive Officers that is in excess of $1 million a year. Certain performance-based compensation is excluded from this limit provided that specific requirements are met, including the use of predetermined performance goals, set by a Compensation Committee composed solely of two or more outside directors. William V. Campbell was an officer of FileMaker, Inc., a subsidiary of the Company, and, as such, does not qualify as an outside director under Code Section 162(m). For this reason, he abstains from voting on any Code Section 162(m) matters. The annual bonus program for executive officers qualifies for tax deductibility under Code Section 162(m), but time-vested RSUs granted to executive officers do not qualify. The Committee is reviewing a proposal to begin granting performance-based equity compensation with one of the goals being to qualify such compensation for tax deductibility under Code Section 162(m).

Members of the Compensation Committee

 

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Information Regarding Executive Compensation

The following table summarizes compensation information for the last three fiscal years for (i) Mr. Jobs, Chief Executive Officer, and (ii) the four most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers of the Company at the end of the fiscal year (collectively, the “Named Executive Officers”).

SUMMARY COMPENSATION TABLE

(1)          The following table reflects the aggregated restricted stock holdings for each of the Company’s Named Executive Officers as of the end of the 2006 fiscal year and the value of such restricted stock based on $76.98 per share, the closing price of the Company’s common stock on the NASDAQ Global Select Market on September 29, 2006 (the last day of trading for the 2006 fiscal year). The table has been adjusted to reflect the Company’s two-for-one stock split in February 2005.

(a)          Includes 300,000 unvested restricted stock units that are part of a grant of 600,000 restricted stock units (split-adjusted) made on March 24, 2004. Fifty percent (50%) of such units vested in March 2006, and the remainder is scheduled to vest in March 2008. Also includes 300,000 unvested restricted stock units that were granted on December 14, 2005, and are scheduled to vest in their entirety in March 2010. The restricted stock units do not include the right to receive dividends prior to vesting.

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(b)         Includes 250,000 unvested restricted stock units that are part of a grant of 500,000 restricted stock units (split-adjusted) made on March 24, 2004. Fifty percent (50%) of such units vested in March 2006, and the remainder is scheduled to vest in March 2008. Also includes 200,000 unvested restricted stock units that were granted on December 14, 2005, and are scheduled to vest in their entirety in March 2010. The restricted stock units do not include the right to receive dividends prior to vesting.

(c)          Includes 250,000 unvested restricted stock units that are part of a grant of 500,000 restricted stock units (split-adjusted) made on March 24, 2004. Fifty percent (50%) of such units vested in March 2006, and the remainder is scheduled to vest in March 2008. Also includes 150,000 unvested restricted stock units that were granted on December 14, 2005, and are scheduled to vest in their entirety in March 2010. The restricted stock units do not include the right to receive dividends prior to vesting.

(2)          In March 2003, Mr. Jobs voluntarily cancelled all of his outstanding options, excluding those granted to him in his capacity as a director. In March 2003, the Board awarded Mr. Jobs 10 million (split-adjusted) restricted shares of the Company’s common stock, which vested in full in March 2006.

(3)          Marketvalue of restricted stock units granted on December 14, 2005 (based on $72.01 per share, the closing price of the Company’s common stock on the NASDAQ Global Select Market on the day of grant). The restricted stock units vest in March 2010.

(4)          Marketvalue of restricted stock units granted on March 24, 2004 (based on $12.75 per share, the split-adjusted closing price of the Company’s common stock on the NASDAQ Global Select Market on the day of grant). The restricted stock units granted on this date generally vest over four years with 50% of the total number of shares vesting on each of the second and fourth anniversaries of the grant date.

(5)          Consists of matching contributions made by the Company in accordance with the terms of the 401(k) plan.

Option Grants in Last Fiscal Year

There were no options granted to the Named Executive Officers during fiscal year 2006. Grants of restricted stock units to the Named Executive Officers are disclosed above in the Summary Compensation Table.

Options Exercised and Year-End Option Holdings

The following table provides information about stock option exercises by the Named Executive Officers during fiscal year 2006 and stock options held by each of them at fiscal year-end. The table has been adjusted to reflect the Company’s two-for-one stock split in February 2005.

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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

(1)          Market value of securities underlying in-the-money options at the end of fiscal year 2006 (based on $76.98 per share, the closing price of Common Stock on the NASDAQ Global Select Market on September 29, 2006), minus the exercise price.

(2)          Consists of 120,000 options granted to Mr. Jobs in his capacity as a director pursuant to the 1997 Director Stock Option Plan. Since accepting the position of CEO, Mr. Jobs is no longer eligible to receive option grants under the Director Plan. In March 2003, Mr. Jobs voluntarily cancelled all of his outstanding options, excluding those granted to him in his capacity as a director.

(3)          Excludes 600,000 restricted stock units granted to Mr. Cook that are currently unvested, 450,000 restricted stock units granted to each of Messrs. Oppenheimer and Johnson that are currently unvested, and 400,000 restricted stock units granted to Mr. Schiller that are currently unvested.

Equity Compensation Plan Information

The following table sets forth certain information, as of September 30, 2006, concerning shares of common stock authorized for issuance under all of the Company’s equity compensation plans. The table has been adjusted to reflect the Company’s two-for-one stock split in February 2005.

(1)          This number includes 2,297,225 shares of common stock reserved for issuance under the Employee Stock Purchase Plan, 400,000 shares available for issuance under the 1997 Director Stock Option Plan, and 54,593,466 shares available for issuance under the 2003 Employee Stock Plan. The grant of 3,410,000 restricted stock units has been deducted from the number of shares available for future issuance. Shares of restricted stock and restricted stock units granted after April 2005 count against the shares available for grant as two shares for every share granted. This amount does not include shares under the 1990 Stock Option Plan that was terminated in 1997. No new options can be granted under the 1990 Stock Option Plan.

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(2)          This table does not include 17,266 shares of Common Stock underlying options assumed in connection with a prior acquisition of a company that originally granted those options. These assumed options have a weighted average exercise price of $4.30 per share. No additional options may be granted under the assumed plan.

The following table sets forth certain information, as of March 1, 2007, concerning shares of common stock authorized for issuance under all of the Company’s equity compensation plans. As of the table date, there were 864,265,296 shares of common stock outstanding and a total of 55,344,239 options outstanding under the Company’s equity compensation plans with a weighted average exercise price of $37.6056 and a weighted average remaining term of 3.28 years. The Company has only two active plans, the 1997 Director Stock Option Plan and the 2003 Employee Stock Plan. Both plans have been approved by shareholders. In conjunction with the amendments to the 2003 Employee Stock Plan approved by shareholders in April 2005, the number of shares granted under the Plan will be reduced by two times the number of restricted shares and restricted stock units granted. Outstanding options that are forfeited or cancelled under the two active plans will be available for future grant. No additional awards may be granted under plans that have been terminated.

 

In addition to the options listed above, there are 4,680,000 restricted stock units outstanding with a weighted average term of 3.23 years.

Arrangements with Named Executive Officers

Change In Control Arrangements—Stock Options and Restricted Stock Units

In the event of a “change in control” of the Company, all outstanding options under the Company’s stock option plans and all restricted stock units granted on or after January 1, 2005, will, unless otherwise determined by the plan administrator, become fully exercisable, and will be cashed out at an amount equal to the difference between the applicable “change in control price” and the exercise price. A “change in control” under these plans is generally defined as (i) the acquisition by any person of 50% or more of the combined voting power of the Company’s 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.

Agreements governing certain restricted stock units granted to the Named Executive Officers and other officers prior to January 1, 2005 generally provide that in the event there is a “change in control,” as defined in the Company’s stock option plans, and if in connection with or following such “change in control,” their employment is terminated without “Cause” or if they should resign for “Good Reason,” those options, restricted stock, and restricted stock units outstanding that are not yet vested as of the date of such “change in control” shall become fully vested. Further, these restricted stock unit agreements also provide that, in the event the Company terminates the Officer without cause at any time, the restricted stock and restricted stock units will vest in full. Generally, “Cause” is defined to include a felony conviction, willful disclosure of confidential information, or willful and continued failure to perform his or her employment duties. “Good Reason” includes resignation of employment as a result of a substantial diminution in position or duties, or an adverse change in title or reduction in annual base salary.

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Certain Relationships and Related Transactions

In March 2002, the Company entered into a Reimbursement Agreement with its CEO, Steve Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Company business. The Reimbursement Agreement became effective for expenses incurred by Mr. Jobs for Company business purposes since he took delivery of the plane in May 2001. The Company recognized a total of $202,000 in expenses pursuant to the Reimbursement Agreement during fiscal year 2006.

In 2006, the Company entered into an agreement with Pixar to sell certain of Pixar’s short films on the iTunes Store. Mr. Jobs was the CEO, Chairman, and a large shareholder of Pixar. On May 5, 2006, The Walt Disney Company (“Disney”) acquired Pixar, which resulted in Pixar becoming a wholly-owned subsidiary of Disney. Upon Disney’s acquisition of Pixar, Mr. Jobs’ shares of Pixar common stock were exchanged for Disney’s common stock and he was elected to the Disney Board of Directors. Royalty expense recognized by the Company under the arrangement with Pixar from September 25, 2005 through May 5, 2006 was less than $1 million.

Report of the Audit and Finance Committee

The following is the report of the Audit and Finance Committee (the “Audit Committee”) with respect to the Company’s audited financial statements for the fiscal year ended September 30, 2006. The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference in such filing.

The Audit and Finance Committee (the “Audit Committee”) consists of three members: Messrs. Campbell and York and Dr. Levinson. All of the members are independent directors under the NASDAQ and Securities and Exchange Commission audit committee structure and membership requirements. The Audit Committee operates under a written charter adopted by the Board. A copy of the charter can be found on the Company’s website at www.apple.com/investor.

The Audit Committee is primarily responsible for assisting the Board in fulfilling its oversight responsibility by reviewing the financial information that will be provided to shareholders and others, appointing the independent auditor, reviewing the services performed by the Company’s independent registered public accounting firm and internal audit department, evaluating the Company’s accounting policies and its system of internal controls that management and the Board have established, and reviewing significant financial transactions. The Audit Committee does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of the Company’s financial statements.

In fulfilling its oversight responsibility of appointing and reviewing the services performed by the Company’s independent registered public accounting firm, the Audit Committee carefully reviews the policies and procedures for the engagement of the independent auditor, including the scope of the audit, audit fees, auditor independence matters and the extent to which the independent auditor may be retained to perform non-audit related services.

The Company maintains  an auditor independence policy that bans its auditors from performing non-financial consulting services, such as information technology consulting and internal audit services. This auditor policy mandates that the audit and non-audit services and related budget be approved by the Audit Committee in advance, and that the Audit Committee be provided with quarterly reporting on actual spending. This policy also mandates that no auditor engagements for non-audit services may be entered into without the express approval of the Audit Committee.

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended September 30, 2006 with the Company’s management and KPMG LLP, the Company’s independent

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registered public accounting firm. The Audit Committee has also discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees.”

The Audit Committee has also received and reviewed the written disclosures and the letter from KPMG LLP required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and has discussed with the auditors the auditors’ independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

Members of the Audit and Finance Committee

 

Company Stock Performance

The following graph shows a five-year comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, for the Company, the S&P 500 Composite Index (the “S&P 500”) and the S&P Computers (Hardware) Index (the “Industry Index”). The graph assumes $100 was invested in each of the Company’s common stock, the S&P 500 and the Industry Index on September 30, 2001. Data points on the graph are annual. Note that historic stock price performance is not necessarily indicative of future stock price performance.

Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended, or the Exchange Act, as amended, that might incorporate this Proxy Statement or future filings made by the Company under those statutes, the Stock Performance Graph and reference to the Audit Committee Charter and independence of the Audit Committee members are not deemed filed with the Securities and Exchange Commission and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by the Company under those statutes.

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OVERVIEW OF PROPOSALS

This Proxy Statement contains 11 proposals requiring shareholder action. Proposal No. 1 requests the election of seven directors to the Board. Proposal No. 2 requests the approval of amendments to the Apple Inc. 2003 Employee Stock Plan. Proposal No. 3 requests the approval of amendments to the Apple Inc. Employee Stock Purchase Plan. Proposal No. 4 requests the approval of amendments to the Apple Inc. 1997 Director Stock Option Plan. Proposal No. 5 requests the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2007. Proposals No. 6, 7, 8, 9, 10 and 11 are shareholder proposals. Each of the proposals is discussed in more detail in the pages that follow.

PROPOSAL NO. 1
Election of Directors

The Board has nominated the current directors, Messrs. Campbell, Drexler, Gore, Jobs and York and Drs. Levinson and Schmidt to be elected to serve for a one-year term and until their successors are duly elected and qualified. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, for the election of the Board’s seven nominees. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote for a nominee designated by the present Board to fill the vacancy.

Vote Required

The seven nominees for director receiving the highest number of affirmative votes of the shares entitled to be voted for them shall be elected as directors. Votes withheld from any director are counted for purposes of determining the presence or absence of the quorum, but have no other legal effect under California law.

Recommendation of the Board of Directors

The Board unanimously recommends that shareholders vote FOR the election of Messrs. Campbell, Drexler, Gore, Jobs and York and Drs. Levinson and Schmidt.

PROPOSAL NO. 2
Approval of Amendments to the Apple Inc. 2003 Employee Stock Plan

At the annual meeting, shareholders will be asked to approve amendments to the 2003 Employee Stock Plan (the “2003 Plan”), which was adopted, subject to shareholder approval, by the Board of Directors in April 2007. The plan, as amended, reflects the following amendments, which are subject to shareholder approval of this proposal: 

·       Increase in Aggregate Share Limit. The amended version of the 2003 Plan authorizes a 28,000,000 share increase in the number of shares of common stock available for award grants under the 2003 Plan.

·       Extension of Term of Plan. The amended version of the 2003 Plan extends the term of the plan by two years to May 10, 2017.

·       Modification and Extension of Performance-Based Award Features. One element of the 2003 Plan is the flexibility to grant certain performance-based awards designed to satisfy the requirements for deductibility of compensation under Section 162(m) of the U.S. Internal Revenue Code. These awards are referred to as “Performance-Based Awards” and are in addition to other awards, such as stock options and stock appreciation rights, expressly authorized under the 2003 Plan that may also qualify as performance-based compensation for Section 162(m) purposes. If shareholders approve

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this 2003 Plan proposal, the Company will have the flexibility to grant Performance-Based Awards under the plan that are payable in cash, and the Company’s authority to grant Performance-Based Awards under the plan will be extended through the first annual meeting of the Company’s shareholders that occurs in 2012 (this expiration time is earlier than the general expiration date of the 2003 Plan and is required under applicable tax rules).

Discussion of the Increase in Aggregate Share Limit

The Board of Directors approved the additional share authority requested under the 2003 Plan based, in part, on a belief that the number of shares currently available under the plan does not give the Company sufficient authority and flexibility to adequately provide for future incentives. The Company also believes that operation of the 2003 Plan is critical to attracting and retaining employees in a competitive labor market, which is essential to the Company’s long-term growth and success.

The Company last requested additional shares in 2005 to issue awards under the plan through fiscal year 2007 and, at that time, committed to keeping the average number of shares subject to awards granted each year to approximately 2.5% of shares outstanding. Since fiscal year 2005, the Company has met this commitment. The Board of Directors believes that the additional shares requested would enable the Company to meet its needs through the end of fiscal year 2009 while still honoring its commitment to limit the average number of shares subject to grants made under the plan each year to approximately 2.5% of shares outstanding.

During recent years, the Company’s investments have resulted in a significantly broadened and innovative product offering, including the iPhone, iPod, iTunes, Mac OS X, and several new application software programs. The Company has also expanded its distribution capabilities by opening over 175 of its own retail stores and substantially increasing third-party resale locations. The Company’s successful execution of its strategies has led to significant revenue and earnings growth. In addition, since the Company’s last request for an increase in shares under this plan on April 21, 2005, the Company has added approximately $50 billion in market capitalization, an increase of approximately 162%.

The Board believes the Company’s recent success is due to its highly talented employee base and that future success depends on the ability to attract and retain high caliber employees. The Company’s primary center for innovation is in the Silicon Valley, where it must compete with many companies, including several successful and high profile Internet search and commerce organizations, for a limited pool of talented people. The ability to grant equity awards is a necessary and powerful recruiting and retention tool for the Company to obtain the quality employees it needs to move its business forward.

The Compensation Committee (which administers the 2003 Plan) recognizes its responsibility to strike a balance between shareholder concerns regarding the potential dilutive effect of equity awards and the ability to attract, retain and reward employees whose contributions are critical to the long-term success of the Company. The Committee anticipates that the additional shares requested will fund the equity compensation program through the end of fiscal 2009. The Company intends to limit the average annual number of options, restricted stock, and restricted stock units granted during that timeframe to approximately 2.5% of shares outstanding.

To further address shareholder concerns, the Company actively manages its program to use its equity plan resources as effectively as possible. Equity awards are generally limited to (1) those positions deemed critical to the Company’s future success, (2) individuals whose personal performance makes them highly valuable to the Company and (3) essential new hires. As a result, equity awards are generally granted to senior level individual contributors and management across all functions in the Company.

The Committee believes that the proposed amendments and additional shares are necessary for the Company to offer a competitive equity incentive program. If approved, the additional shares will be a

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critical factor in attracting, retaining, and rewarding the high caliber employees that are essential to the Company’s future success. The 2003 Plan is the Company’s only active employee equity plan and the current number of shares remaining available for grant is expected to last until approximately the end of fiscal year 2008. If shareholders do not approve the proposed increase in shares authorized under the plan, the Company will not be able to continue its equity program after that time. This will likely preclude the Company from successfully attracting and retaining the best possible talent.

Description of the 2003 Plan

The following is a summary of the principal features of the 2003 Plan assuming that shareholders approve this Proposal. This summary does not purport to be a complete description of all of the provisions of the 2003 Plan. It is qualified in its entirety by reference to the full text of the 2003 Plan. A copy of the 2003 Plan has been filed with the SEC with this proxy statement, and any shareholder who desires to obtain a copy of the plan may do so by written request to the Company’s Secretary at Apple’s headquarters in Cupertino, California.

Share Reserve

Currently, the maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards granted under the 2003 Plan is 145,000,000 shares, of which 41,390,563 shares of common stock remained available for future award grants as of March 1, 2007. If shareholders approve the 2003 Plan proposal, the plan’s share limit will be increased by 28,000,000 shares so that the new share limit on awards granted under the plan will be 173,000,000 shares.

In addition, shares issued in respect of stock grants and restricted stock unit awards granted under the 2003 Plan are counted against the plan’s aggregate share limit as two shares for every one share actually issued in connection with the award. For example, if 100 shares are issued with respect to a restricted stock award granted under the plan, 200 will be counted against the plan’s aggregate share limit in connection with that award.

The maximum number of shares of common stock which may be subject to options and stock appreciation rights granted under the 2003 Plan to any one individual during any fiscal year is 15,000,000, and the maximum number of shares that may be subject to awards of stock grants and restricted stock units under the plan to any one individual during any fiscal year is 5,000,000, in each case subject to adjustment as provided in the plan.

To the extent that an award is settled in cash or a form other than shares, the shares that would have been delivered had there been no such cash or other settlement will not be counted against the shares available for issuance under the 2003 Plan. To the extent that shares are delivered pursuant to the exercise of a stock appreciation right or stock option, the number of underlying shares as to which the exercise related shall be counted against the applicable share limits, as opposed to only counting the shares actually issued. (To clarify, if a stock appreciation right relates to 100,000 shares and is exercised at a time when the payment due to the participant is 15,000 shares, 100,000 shares shall be charged against the applicable share limits with respect to such exercise.) Shares that are subject to or underlie awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under the 2003 Plan will again be available for subsequent awards under the plan. Shares that are exchanged by a participant or withheld by the Company to pay the exercise price of an award granted under the plan, as well as any shares exchanged or withheld to satisfy the tax withholding obligations related to any award, will not be available for subsequent awards under the plan. The Company may not increase the applicable share limits of the 2003 Plan by repurchasing shares of common stock on the market (by using cash received through the exercise of stock options or otherwise).

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Administration

The Compensation Committee will administer the 2003 Plan with respect to persons who are subject to Section 16 of the Securities Exchange Act of 1934, as amended, and awards intended to qualify as “performance-based compensation” under Code Section 162(m). The Compensation Committee or a separate committee of one or more directors of the Company appointed by the Board of Directors will administer the 2003 Plan with respect to all other persons and awards.

Eligibility, Limitations and Types of Awards Under the 2003 Plan

The 2003 Plan permits the granting of stock options, stock appreciation rights, stock grants and restricted stock units by the plan administrator. Stock appreciation rights may be awarded in combination with stock options or stock grants, and such awards shall provide that the stock appreciation rights will not be exercisable unless the related stock options or stock grants are forfeited.

Employees (including executive officers and directors who are also the Company’s employees) and consultants of the Company, and any parent or subsidiary of the Company are eligible to participate in the 2003 Plan. Non-employee directors are not eligible to participate. On March 3, 2007, the Company had approximately 20,000 employees (including executive officers) who would have been eligible to participate in the 2003 Plan if the amended plan had been in effect as of that date. The Company currently does not make equity awards to consultants.

Stock Options

The plan administrator may grant nonstatutory stock options or incentive stock options (which are entitled to potentially favorable tax treatment) under the 2003 Plan. The vesting schedule and number of shares covered by each stock option granted to a participant will be determined by the plan administrator. The plan administrator may grant stock options with time-based vesting or vesting upon satisfaction of performance goals and/or other conditions. The stock option exercise price is determined at grant by the plan administrator and must be at least 100% of the fair market value of a share on the date of grant (110% for incentive stock options granted to shareholders who own more than 10% of the total outstanding shares of the Company, its parent or any of its subsidiaries). Consistent with applicable laws, regulations and rules, payment of the exercise price of stock options may be made by cashless exercise, or by any other form of payment approved by the Committee. The term of a stock option shall not exceed seven years from the date of grant.

Stock Grants

The plan administrator may award stock, subject to vesting conditions, under the 2003 Plan. Participants may be required to pay cash or other legal consideration to the Company at the time of a stock grant, but the 2003 Plan does not establish a minimum purchase price for shares awarded as stock grants. The plan administrator may award stock grants with time-based vesting or vesting upon satisfaction of performance goals and/or other conditions. Subject to certain exceptions set forth in the 2003 Plan, stock grants subject to time-based vesting requirements may not vest more rapidly than in monthly installments over the three-year period following the grant date, and stock grants subject to performance-based vesting requirements may not vest earlier than the first anniversary of the grant date. When the stock grant award conditions are satisfied, then the participant will be vested in the shares and will have complete ownership of the shares.

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Restricted Stock Units

The plan administrator may award restricted stock units under the 2003 Plan. Participants are not required to pay any consideration to the Company at the time of grant of a restricted stock unit. The plan administrator may grant restricted stock units with time-based vesting or vesting upon satisfaction of performance goals and/or other conditions. Subject to certain exceptions set forth in the 2003 Plan, awards of restricted stock units subject to time-based vesting requirements may not vest more rapidly than in monthly installments over the three-year period following the grant date, and awards of restricted stock units subject to performance-based vesting requirements may not vest earlier than the first anniversary of the grant date. When the participant satisfies the conditions of the restricted stock unit award, the Company may settle the award in shares, cash or any combination of both, as determined by the plan administrator, in its sole discretion, at the time of grant.

Stock Appreciation Rights

The plan administrator may grant stock appreciation rights under the 2003 Plan. The vesting schedule and number of shares covered by each stock appreciation right granted to a participant will be determined by the plan administrator. The plan administrator may grant stock appreciation rights with time-based vesting or vesting upon satisfaction of performance goals and/or other conditions. The exercise price of a stock appreciation right will be established by the plan administrator and may not be less than 100% of the fair market value of a share on the date of grant. Upon exercise of a stock appreciation right, the participant will receive payment from the Company in an amount determined by multiplying (a) the difference between (i) the fair market value of a share on the date of exercise and (ii) the exercise price times (b) the number of shares with respect to which the stock appreciation right is exercised. Stock appreciation rights may be paid in cash, shares, or any combination of both, as determined by the plan administrator, in its sole discretion, at the time of grant. The term of a stock appreciation right shall not exceed seven years from the date of grant.

Performance-Based Awards

Awards under the 2003 Plan may be made subject to performance conditions as well as time-vesting conditions. Such performance conditions may be established and administered in accordance with the requirements of Code Section 162(m) for awards intended to qualify as “performance-based compensation” thereunder. If shareholders approve the 2003 Plan proposal, performance-based awards that are payable in cash may be granted under the plan. Performance conditions under the 2003 Plan shall utilize one or more objective measurable performance goals as determined by the plan administrator based upon one or more factors, including: (i) operating income; (ii) earnings before interest, taxes, depreciation and amortization; (iii) earnings; (iv) cash flow; (v) market share; (vi) sales or revenue; (vii) expenses; (viii) cost of goods sold; (ix) profit/loss or profit margin; (x) working capital; (xi) return on equity or assets; (xii) earnings per share; (xiii) total shareholder return; (xiv) price/earnings ratio; (xv) debt or debt-to-equity; (xvi) accounts receivable; (xvii) writeoffs; (xviii) cash; (xix) assets; (xx) liquidity; (xxi) operations; (xxii) intellectual property (e.g., patents); (xxiii) product development; (xxiv) manufacturing, production or inventory; (xxv) mergers and acquisitions or divestitures; and/or (xxvi) individual performance objective. Any criteria used may be measured, as applicable, (a) in absolute terms, (b) in relative terms (including but not limited to, the passage of time and/or against other companies or financial metrics), (c) on a per share and/or share per capital basis, (d) against the performance of the Company as a whole or against particular entities, segments, operating units or products of the Company and/or (e) on a pre-tax or after tax basis. Awards to participants who are not subject to the limitations of Code Section 162(m) may be determined without regard to performance goals and may involve the plan administrator’s discretion.

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No Repricing

In no case (except due to an adjustment to reflect a stock split or similar event or any repricing that may be approved by shareholders) would any adjustment be made to a stock option or a stock appreciation right award under the 2003 Plan (by amendment, cancellation and regrant, exchange or other means) that would constitute a repricing of the per-share exercise or base price of the award.

Transferability of Awards

Subject to certain exceptions contained in the plan, awards under the 2003 Plan generally are not transferable by the recipient other than by will or the laws of descent and distribution and are generally exercisable, during the recipient’s lifetime, only by the recipient. Any amounts payable or shares issuable pursuant to an award generally will be paid only to the recipient or the recipient’s beneficiary or representative. The plan administrator has discretion, however, to establish written conditions and procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable federal and state securities laws and, with limited exceptions set forth in the plan, are not made for value.

Corporate Transactions

Generally, and subject to limited exceptions set forth in the 2003 Plan, if the Company dissolves or undergoes certain corporate transactions such as a merger, business combination, or other reorganization, or a sale of substantially all of its assets, all awards then-outstanding under the plan will terminate or be terminated in such circumstances, unless the plan administrator provides for the assumption, substitution or other continuation of the award.

Adjustments

As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the 2003 Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the shareholders.

Amendment and Termination

The Board of Directors may amend the 2003 Plan at any time and for any reason, provided that any such amendment will be subject to shareholder approval to the extent the amendment is required by applicable laws, regulations or rules. The Board of Directors may terminate the 2003 Plan at any time and for any reason. If shareholders approve the 2003 Plan proposal, the plan will terminate on May 10, 2017 unless re-adopted or extended by the shareholders prior to or on such date. The termination or amendment of the 2003 Plan may not adversely affect any award previously made under the plan.

Federal Income Tax Consequences

The following is a brief summary of the U.S. federal income tax consequences applicable to awards granted under the 2003 Plan based on the federal income tax laws in effect on the date of this proxy statement. This summary is not intended to be exhaustive and does not address all matters relevant to a particular participant based on his or her specific circumstances. The summary expressly does not discuss the income tax laws of any state, municipality, or non-U.S. taxing jurisdiction, or the gift, estate, excise (including the rules applicable to deferred compensation under Code Section 409A), or other tax laws other than federal income tax law. The following is not intended or written to be used, and cannot be used,

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for the purposes of avoiding taxpayer penalties. Because individual circumstances may vary, the Company advises all participants to consult their own tax advisor concerning the tax implications of awards granted under the 2003 Plan.

A recipient of a stock option or stock appreciation right will not have taxable income upon the grant of the stock option or stock appreciation right. For nonstatutory stock options and stock appreciation rights, the participant will recognize ordinary income upon exercise in an amount equal to the difference between the fair market value of the shares and the exercise price on the date of exercise. Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss.

The acquisition of shares upon exercise of an incentive stock option will not result in any taxable income to the participant, except, possibly, for purposes of the alternative minimum tax. The gain or loss recognized by the participant on a later sale or other disposition of such shares will either be long-term capital gain or loss or ordinary income, depending upon whether the participant holds the shares for the legally-required period (two years from the date of grant and one year from the date of exercise). If the shares are not held for the legally-required period, the participant will recognize ordinary income equal to the lesser of (i) the difference between the fair market value of the shares on the date of exercise and the exercise price, and (ii) the difference between the sales price and the exercise price.

For awards of stock grants, the participant will not have taxable income upon the receipt of the award (unless the participant elects to be taxed at the time the stock is granted rather than when it becomes vested). The stock grants will generally be subject to tax upon vesting as ordinary income equal to the fair market value of the shares at the time of vesting less the amount paid for such shares (if any).

A participant is not deemed to receive any taxable income at the time an award of restricted stock units is granted. When vested restricted stock units (and dividend equivalents, if any) are settled and distributed, the participant will recognize ordinary income equal to the amount of cash and/or the fair market value of shares received less the amount paid for such restricted stock units (if any).

If the participant is an employee or former employee, the amount a participant recognizes as ordinary income in connection with any award is subject to withholding taxes (not applicable to incentive stock options) and the Company is allowed a tax deduction equal to the amount of ordinary income recognized by the participant. In addition, Code Section 162(m) contains special rules regarding the federal income tax deductibility of compensation paid to the Company’s chief executive officer and to each of the Company’s other four most highly compensated executive officers. The general rule is that annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, the Company can preserve the deductibility of certain compensation in excess of $1,000,000 if such compensation qualifies as “performance-based compensation” by complying with certain conditions imposed by the Code Section 162(m) rules (including the establishment of a maximum number of shares with respect to which awards may be granted to any one employee during one fiscal year) and if the material terms of such compensation are disclosed to and approved by the Company’s shareholders.

Specific Benefits

The Company has not approved any awards that are conditioned on shareholder approval of the 2003 Plan proposal. The Company cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to executive officers and employees (including employee directors) under the 2003 Plan. If the proposed increase in the share limit for the 2003 Plan had been in effect in 2006, the Company expects that its award grants for 2006 would not have been substantially different from those actually made in that year under the plan.

As of March 20, 2007, the fair market value of a share of Company common stock was $91.48.

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Aggregate Past Grants Under the 2003 Employee Stock Plan

As of March 1, 2007, awards covering 170,144,259 shares of the Company’s common stock had been granted under the Plan. The following table shows information regarding the distribution of those awards among the persons and groups identified below, option exercises and restricted stock and RSU vesting prior to that date, and any option, unvested restricted stock and RSU holdings as of that date.

(1)             Reflects options that were subsequently cancelled in 2003.

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation of the Board of Directors

The Board unanimously recommends that shareholders vote FOR the amendments to the Apple Inc. 2003 Employee Stock Plan.

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PROPOSAL NO. 3
Approval of Amendments to the Apple Inc. Employee Stock Purchase Plan

At the annual meeting, shareholders will be asked to approve amendments to the Employee Stock Purchase Plan (the “Purchase Plan”), which were adopted, subject to shareholder approval, by the Board of Directors in April 2007. The amended Purchase Plan essentially provides the same benefits to employees that are currently provided under the plan, but would increase the number of shares of Company common stock authorized for issuance under the Purchase Plan by 6,000,000 shares. In addition, the amended version of the Purchase Plan limits the number of shares that may be purchased by all participants under the plan in any calendar year to 3,000,000 shares and permits international employees to participate in the Purchase Plan under terms that are modified to the extent required to comply with local laws.

The Board of Directors believes that the Purchase Plan encourages employees to acquire shares of the Company’s common stock, thereby better aligning their interests with those of the other shareholders, promotes financial saving for the future by the Company’s employees and fosters good employee relations. Therefore, the Purchase Plan is an important part of the Company’s compensation program, and the Board believes it is essential to the Company’s ability to attract, retain and motivate highly qualified employees in an extremely competitive environment both in the U.S. and internationally.

In recent years, the Company has seen significant growth, and now approximately 20,000 employees are eligible to participate in the Purchase Plan. The Board is asking shareholders to approve an amendment to increase the number of shares of Company common stock that remain available for issuance under the Purchase Plan by 6,000,000 shares so that the number of shares that are currently available for issuance under the Purchase Plan would be increased from 1,573,893 shares to 7,573,893 shares. The Board believes this share increase will enable the Company to continue offering the Purchase Plan to its employees through June 30, 2009.

Description of the Purchase Plan

The following is a summary of the principal features of the amended version of the Purchase Plan. This summary does not purport to be a complete description of all of the provisions of the Purchase Plan. It is qualified in its entirety by reference to the full text of the Purchase Plan. A copy of the Purchase Plan has been filed with the SEC with this proxy statement, and any shareholder who desires to obtain a copy of the plan may do so by written request to the Company’s Secretary at Apple’s headquarters in Cupertino, California.

Share Reserve.   Currently, 70,000,000 shares of the Company’s common stock are authorized for issuance under the Purchase Plan. Of these shares, 68,426,107 shares have previously been purchased and 1,573,893 shares remain available for purchase in the current and future offering periods under the Purchase Plan. If shareholders approve this Purchase Plan proposal, the maximum aggregate number of shares that may be issued under the Purchase Plan will increase from 70,000,000 shares to 76,000,000 shares.

Eligibility.   Any person who is employed by the Company (or by any of its designated subsidiaries) for at least twenty hours per week and more than five months per calendar year is eligible to participate in the Purchase Plan, subject to certain limitations imposed by Code Section 423(b), including (i) the requirement that no person may be granted rights under this Purchase Plan (and all plans qualified under Code Section 423(b) maintained by the Company or any subsidiary) to purchase more than $25,000 worth of Company common stock (valued at the time each right is granted) for each calendar year in which rights are outstanding, and (ii) the requirement that, no person who owns or holds options to purchase or who, as a result of participation in the Purchase Plan, would own or hold options to purchase five percent (5%) or more of our outstanding common stock is eligible to participate in the Purchase Plan. Non-employee

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directors are not eligible to participate in the Purchase Plan. As of March 3, 2007, approximately 20,000 employees were eligible to participate in the Purchase Plan, of which nine were executive officers of the Company. International employees who may participate in the portion of the Purchase Plan that does not comply with Code Section 423(b) may not be required to work for at least twenty hours per week and more than five months per calendar year if such hourly conditions would be viewed as discriminating against employees under the applicable local laws.

Participation in an Offering.   Shares are currently offered under the Purchase Plan through consecutive offering periods of approximately six months that generally begin with the first business day of the second and fourth fiscal quarter of each year. To participate in the Purchase Plan, eligible employees must authorize payroll deductions in whole percentages up to ten percent (10%) of eligible earnings, including, base salary, overtime pay, and commissions. Once an employee becomes a participant in the Purchase Plan, the employee will automatically participate in each successive offering period until such time as the employee withdraws from or is no longer eligible to participate in the Purchase Plan.

Purchase Price.   The purchase price per share of Company common stock under the Purchase Plan is equal to 85% of the lesser of the fair market value of the Company’s common stock on (i) the first day of the relevant offering period or (ii) the last day of the relevant offering period. The fair market value of a Share of the Company’s common stock on these measurement dates will be equal to the closing price per share as reported on the NASDAQ Global Select Market.

Shares Purchased.   The number of shares of the Company’s common stock a participant purchases during each offering period is determined by dividing the total amount of payroll deductions withheld from the participant’s paychecks during the offering period by the purchase price. In the event that the Purchase Plan’s annual cap limits the number of shares of Company common stock that may be issued and sold during any offering period, the number of shares that each participant purchases in that offering period will be reduced in proportion to the respective amounts which would otherwise have been purchasable by each such participant if enough shares had been available to enable all participants to purchase the full amount they elected. Any cash not applied to the purchase of fractional shares will be applied toward the purchase of shares in subsequent offerings.

Withdrawal.   A participant may withdraw from an offering under the Purchase Plan at any time without affecting his or her eligibility to participate in future offerings. However, once a participant withdraws from an offering, that participant may not subsequently participate in the same offering. A participant will automatically be withdrawn from an offering under the Purchase Plan upon a termination of employment and, in certain cases, following a leave of absence, a layoff, or a temporary period of ineligibility.

Transferability.   No option grants under the Purchase Plan will be transferable by the participant, except by will or the laws of inheritance following a participant’s death.

Adjustments.   In the event any change is made in the Company’s capitalization during an offering period, such as a stock split or stock dividend, that results in an increase or decrease in the number of shares of Common Stock outstanding without receipt of consideration by the Company, appropriate adjustments will be made to the purchase price and to the number of shares subject to stock purchase under the Purchase Plan, to the number of shares authorized for issuance under the Purchase Plan, and to the maximum number of shares that may be purchased by an employee during any six-month purchase period.

Corporate Transactions.   In the event Apple is acquired by merger or sale of all or substantially all of Apple’s assets or outstanding voting stock, all outstanding options will automatically be exercised immediately prior to the effective date of such acquisition. The purchase price will generally be equal to 85% of the lesser of the fair market value of the Company’s common stock on (i) the first day of the

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relevant offering period or (ii) the day immediately prior to consummation of the transaction. In addition, in accordance with the principles of Code Section 423, the plan administrator may create special purchase periods or special purchase dates for individuals who become employees in connection with the acquisition of another company or cease to be employees in connection with the disposition of any portion of the Company or its subsidiaries.

Administration and Amendment.   The Purchase Plan is administered, at the Company’s expense, by the Board of Directors or a committee appointed by the Board, and is currently being administered by the Compensation Committee. All questions of interpretation or application of the Purchase Plan are determined in the sole discretion of the Committee, and its decisions are final and binding upon all participants. The Board of Directors may at any time amend or terminate the Purchase Plan; however, such termination or amendment may not make any changes in an option previously granted that would adversely affect the rights of any participant. No amendment may be made to the Purchase Plan without the approval or ratification of the Company’s shareholders if such amendment would require shareholder approval under Code Section 423, or any other applicable law or regulation.

U.S. Federal Income Tax Consequences

The following summary is intended only as a general guide as to federal income tax consequences, under current U.S. tax law, of participation in the Purchase Plan and does not attempt to describe all potential tax consequences. This discussion is intended for the information of our shareholders considering how to vote at the Annual Meeting and not as tax guidance to individuals who participate in the Purchase Plan. The following is not intended or written to be used, and cannot be used, for the purposes of avoiding taxpayer penalties. Tax consequences are subject to change, and a taxpayer’s particular situation may be such that some variation in application of the described rules is applicable. Accordingly, participants have been advised to consult their own tax advisors with respect to the tax consequences of participating in the Purchase Plan.

The Purchase Plan is intended to be an “employee stock purchase plan” within the meaning of Code Section 423. Under this type of plan, no taxable income will be reportable by a participant, and no deductions will be allowable to the Company, due to the grant of the option at the beginning of an offering or the purchase of shares at the end of an offering. A participant will, however, recognize taxable income in the year in which the shares purchased under the Purchase Plan are sold or otherwise made the subject of disposition.

A sale or other disposition of shares purchased under the Purchase Plan will be a disqualifying disposition if it is made within two years after the date the option is granted (i.e., the commencement date of the offering period to which the option pertains).

If the participant makes a disqualifying disposition of shares purchased under the Purchase Plan, the excess of the fair market value of the shares on the date of purchase over the purchase price will be treated as ordinary income to the participant at the time of such disposition and the Company will be entitled to an income tax deduction for the same amount for the taxable year of the Company in which the disposition occurs, although the income tax deduction may be limited by the deductibility of compensation paid to certain of the Company’s officers under Code Section 162(m). In no other instance will the Company be allowed a deduction with respect to the participant’s disposition of the purchased shares. Any additional gain (or loss) on the disposition will be a capital gain (or loss) to the participant.

If the participant disposes of shares purchased under the Purchase Plan after satisfying the holding period outlined above (a qualifying disposition), then the participant will realize ordinary income in the year of disposition equal to the lesser of (i) the amount by which the fair market value of the shares on the date of disposition exceeds the purchase price or (ii) 15% of the fair market value of the shares on the day the option relating to the disposed shares was first granted. This amount of ordinary income will be added

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to the basis in the shares and any gain (or loss) recognized upon the disposition will be a long-term capital gain (or loss).

Specific Benefits

The benefits that will be received by or allocated to eligible employees under the Purchase Plan cannot be determined at this time because the amount of contributions set aside to purchase shares of the Common Stock under the Purchase Plan (subject to the limitations discussed above) is entirely within the discretion of each participant. If the proposed amendment of the Purchase Plan had been in effect for the 2006 fiscal year, the Company does not expect that the number of shares purchased by participants in the Purchase Plan during that year would have been materially different than the number of shares purchased as set forth in the table below.

As of March 20, 2007, the fair market value of a share of Company common stock was $91.48.

Aggregate Past Purchases Under the Employee Stock Purchase Plan

As of March 1, 2007, 68,426,107 shares of the Company’s common stock had been purchased under the Purchase Plan since its inception in 1981. The following number of shares have been purchased by the persons and groups identified below:

 

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

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Recommendation of the Board of Directors

The Board unanimously recommends that shareholders vote FOR the amendments to the Apple Inc. Employee Stock Purchase Plan.

PROPOSAL NO. 4
Approval of Amendments to the 1997 Director Stock Option Plan

At the annual meeting, shareholders will be asked to approve the following amendments to the 1997 Director Stock Option Plan (the “Director Plan”), which were adopted, subject to shareholder approval, by the Board in April 2007:

·       Extension of Plan Term. The proposed amendments would extend the Company’s authority to grant new awards under the Director Plan by five years until May 10, 2012.

·       Elimination of Repricing. The proposed amendments would clarify that the Company may not reprice options granted under the Director Plan (except due to an adjustment to reflect a stock split or similar event or any repricing that might be approved by shareholders).

·       Modification of Share-Counting Provisions. Under the proposed amendments, shares that are exchanged by a director or withheld by the Company to pay the exercise price of an option granted under the Director Plan would not be available for subsequent awards under the plan.

Shareholders are not being asked to approve any increase in the number of shares of the Company’s common stock that may be delivered pursuant to awards granted under the Director Plan. The Director Plan’s existing aggregate share limit of 1,600,000 shares would be retained. As of March 1, 2007, 420,000 shares were available for future award grants under the Director Plan.

Description of Director Plan

The following is a summary of the principal features of the Director Plan. This summary does not purport to be a complete description of all of the provisions of the Director Plan. It is qualified in its entirety by reference to the full text of the Director Plan. A copy of the Director Plan has been filed with the SEC with this proxy statement, and any shareholder who desires to obtain a copy of the plan may do so by written request to the Company’s Secretary at Apple’s headquarters in Cupertino, California.

Purpose.   The Director Plan provides for the automatic grant of stock options to non-employee directors. The purposes of the Director Plan are to promote the Company’s long-term growth and financial success by attracting, motivating and retaining non-employee directors of outstanding ability, and to foster a greater identity of interest between the Company’s non-employee directors and shareholders.

Eligibility.   Only directors who are not employees of the Company or any of its subsidiaries may participate in the Director Plan. All members of the Board of Directors (other than Mr. Jobs) are currently eligible to participate in the Director Plan.

Shares Available for Issuance.   A cumulative total of 1,600,000 shares of Common Stock may be delivered pursuant to awards granted under the Director Plan. As of March 1, 2007, 420,000 shares remained available for future award grants under the Director Plan. If an option lapses, expires or is otherwise terminated without the issuance of shares, the shares underlying the lapsed, expired or terminated option or the tendered shares will be available for future award grants under the Director Plan. However, if shareholders approve the Director Plan proposal, shares that are exchanged by a director or withheld by the Company to pay the exercise price of an option granted under the plan, as well as any shares exchanged or withheld to satisfy the tax withholding obligations related to an option, will not be available for subsequent awards under the Director Plan. Either authorized and unissued shares of Common Stock or treasury shares will be issued under the Director Plan.

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Grants Of Stock Options.   Each newly elected or appointed non-employee director receives an initial grant of an option to purchase 30,000 shares of common stock (an “Initial Option”). Each non-employee director is also granted an option to purchase 10,000 shares of common stock on the fourth anniversary of the non-employee director’s initial election or appointment to the Board and on each subsequent anniversary thereafter (each, an “Annual Option”). The exercise price of each option is the closing sales price for the common stock on the date of grant. Initial Options vest and become exercisable in equal annual installments on each of the first through third anniversaries of the date of grant. Annual Options are fully vested and immediately exercisable on their date of grant.

No Repricing.   In no case (except due to an adjustment to reflect a stock split or similar event or any repricing that might be approved by shareholders) would any adjustment be made to a stock option under the Director Plan (by amendment, cancellation and regrant, exchange or other means) that would constitute a repricing of the per-share exercise of the option.

Termination of Service.   In general, if a non-employee director ceases to be a member of the Board, the director’s options will be exercisable by the director for a period of 90 days, to the extent vested at the time of termination of service. If a non-employee director’s service on the Board terminates by reason of the director’s death, the director’s vested options will remain outstanding and the director’s beneficiary may exercise the options at any time through the third anniversary of the director’s death. If a non-employee director is removed from the Board for “cause” (as determined by the Board in accordance with the Company’s by-laws), all of the director’s options, whether or not vested, will immediately be forfeited.

Adjustments; Corporate Transactions.   As is customary in incentive plans of this nature, the share limit and the number and kind of shares available under the Director Plan and any outstanding awards, as well as the exercise prices of awards are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the shareholders. Generally, and subject to limited exceptions set forth in the Director Plan, if the Company dissolves or undergoes certain corporate transactions such as a merger, business combination, or other reorganization, or a sale of substantially all of its assets, all options then outstanding under the plan will terminate or be terminated in such circumstances, unless the plan administrator provides for the assumption, substitution or other continuation of the option.

Administration.   The Board of Directors administers the Director Plan and has authority to adopt rules and regulations that it considers necessary or appropriate to carry out the purposes of the Director Plan and to interpret and construe the provisions of the Director Plan.

Amendment and Termination.   The Board will have authority to amend or terminate the Director Plan at any time. However, the Board may not, without shareholder approval, increase the number of shares available for issuance.

Term.   If shareholders approve the Director Plan proposal, the Director Plan will expire on May 10, 2012. No further stock options will be awarded under the Director Plan after that date.

Federal Income Tax Consequences.   The federal income tax consequences of issuing and exercising stock options under the Director Plan may be summarized as follows. The grant of a stock option has no immediate federal income tax effect. The director will not recognize taxable income and the Company will not receive a tax deduction. When the director exercises the option, the director will recognize ordinary income and the Company will receive a tax deduction, in each case measured by the difference between the exercise price and the fair market value of the shares on the date of exercise. When the director sells shares obtained from exercising a stock option, any gain or loss will be taxed as a capital gain or loss (long-term or short-term, depending on how long the shares have been held).

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Specific Benefits

None of the Company’s executive officers (including any of the Named Executive Officers) will be eligible to receive award grants under the Director Plan. If shareholders approve the Director Plan proposal, the number of stock options that will be allocated, based on the following assumptions, to five of the Company’s six non-employee directors as a group (one of the Company’s non-employee directors has declined to receive any grants under the Director Plan) pursuant to the formulaic Annual Option grants is 250,000 (10,000 x 5 x 5) stock options. This represents the aggregate number of shares that would be subject to the Annual Option grants under the Director Plan for calendar years 2008 through 2012 (the 5 remaining years in the term of the plan if shareholders approve the Director Plan proposal), assuming, among other future variables, that there are no new eligible directors, there continue to be six eligible directors seated and there are no changes to the awards granted under the Director Plan. The actual number of shares that will be subject to stock options for initial grants to new directors under the Director Plan is not determinable.

As of March 20, 2007, the fair market value of a share of Company common stock was $91.48.

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Aggregate Past Grants Under the 1997 Director Stock Plan

The following table sets forth information with respect to the stock options previously granted under the Director Plan as of March 1, 2007.

As of March 1, 2007, awards covering 1,320,000 shares of the Company’s common stock had been granted under the Plan. The following table shows information regarding the distribution of those awards among the persons and groups identified below, option exercises and restricted stock vesting prior to and option and unvested restricted stock holdings as of that date.

(1)          Granted in 1997 upon joining the Company’s Board of Directors.

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Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation of the Board of Directors

The Board unanimously recommends that shareholders vote FOR the amendments to the 1997 Director Stock Option Plan.

PROPOSAL NO. 5
Ratification of Appointment of Independent Registered Public Accounting Firm

The Audit Committee has appointed KPMG LLP, the Company’s independent registered public accounting firm, to audit the Company’s consolidated financial statements for fiscal year 2007. KPMG LLP has served as the Company’s independent registered public accounting firm since fiscal year 1997. At the Annual Meeting, the shareholders are being asked to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2007. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection. Even if this appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interest of the Company and its shareholders. Representatives of KPMG LLP will be present at the Annual Meeting and will have the opportunity to respond to appropriate questions and to make a statement if they so desire.

Fees Paid To Auditors

The following table sets forth the fees accrued or paid to the Company’s independent registered public accounting firm, KPMG LLP, during fiscal years 2006 and 2005.

Audit and Non-Audit Fees

(1)          Audit fees relate to professional services rendered in connection with the audit of the Company’s annual financial statements and internal control over financial reporting, quarterly review of financial statements included in the Company’s Forms 10-Q, and audit services provided in connection with other statutory and regulatory filings. Fiscal year 2006 also includes fees incurred in connection with the Special Committee of the Company’s Board of Directors’ investigation into stock option practices, no such fees were incurred during 2005.

(2)          Audit-related fees primarily relate to professional services for the audits of employee benefit plans.

(3)          2006 tax fees include $728,600 for professional services rendered in connection with tax compliance and preparation relating to the Company’s expatriate program, tax audits and international tax compliance; and $91,900 for international tax consulting and planning services. The Company does not engage KPMG LLP to perform personal tax services for its executive officers.

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Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm

Prior to the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”), the Company adopted an auditor independence policy that banned its auditors from performing non-financial consulting services, such as information technology consulting and internal audit services. This auditor independence policy also mandates that the audit and non-audit services and related budget be approved by the Audit Committee in advance, and that the Audit Committee be provided with quarterly reporting on actual spending. In accordance with this policy, all services to be performed by KPMG LLP were pre-approved by the Audit Committee.

Subsequent to the enactment of the Act, the Audit Committee met with KPMG LLP to further understand the provisions of that Act as it relates to auditor independence. KPMG LLP previously rotated the lead audit partner in fiscal year 2005, rotated other partners in 2006, and will rotate additional partners as appropriate in compliance with the Act. The Audit Committee will continue to monitor the activities undertaken by KPMG LLP to comply with the Act.

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation of the Board of Directors

The Board unanimously recommends that shareholders vote FOR ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm.

PROPOSAL NO. 6
Shareholder Proposal Regarding Option Dating Policy

The Company has been advised that the Amalgamated Bank LongView Collective Investment Fund, 15 Union Square, New York, New York 10003-3378, a beneficial owner of approximately 308,135 shares of the Company’s common stock, with co-sponsor Connecticut Retirement Plans and Trust Funds, 55 Elm Street, Hartford, Connecticut 06106-1773, a beneficial owner of approximately 488,615 shares of the Company’s common stock, intends to submit the following proposal at the meeting:

RESOLVED:  The shareholders of Apple Computer, Inc. (“Apple”) request that the board of directors adopt a policy under which the board shall award any standard stock options that are granted to senior executives at an exercise price equal to an average of the opening and closing prices of the underlying stock on the date that the option is granted (the “grant date”), with any grant dates in a given fiscal year to be established and disclosed in advance; after a fiscal year has begun, Apple may select another grant date when hiring outside executives, provided that any such grant date is not coordinated with the release of material non-public information that has been disclosed or will be disclosed within 30 days of any such grant date.

SUPPORTING STATEMENT

Apple is one of several dozen companies as to which questions have arisen about the timing and backdating of stock options. At various points between 1997 and 2001, Apple granted options when the stock price was at a low point and shortly before the stock price rose significantly.

In August 2006 Apple announced that an internal review had found “irregularities” in its option granting practices and that it would restate financial results for periods from 2003 to 2006.

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Backdating often consists of selecting or recording a grant date that occurred before the grant was actually determined, so as to take advantage of the stock price on the earlier date being lower than on the determination date. As a result, options are actually “in the money” on the date the grant was determined. Such backdating can have significant tax and economic consequences for a company, whose results may have to be restated.

Related practices include “springloading” or “bullet dodging,” in which a company coordinates a grant date with the release of material non-public information that could have a positive or negative impact on the stock price.

In our view, corporate efforts to game the timing of options can distort a core purpose of options, which is to motivate executives to improve long-term performance for the benefit of all shareholders. We thus deem it important for Apple to have a policy that standard stock options are awarded “at the money,” using grant dates that are selected and disclosed in advance, e.g., 45 days after the end of the fiscal year.

This policy would provide flexibility to make awards when hiring outside executives, provided that Apple does not coordinate such grant dates with the release of material non-public information. This policy would not affect awards of options that tie the exercise price to future performance levels (e.g., premium-priced options).

In our view, managers’ interests cannot be aligned with shareholders’ interests if managers are allowed to benefit in ways that shareholders cannot.

WE URGE YOU TO VOTE FOR THIS RESOLUTION.

Apple’s Statement in Opposition to Proposal No. 6

The Board of Directors recommends a vote AGAINST Proposal No. 6.

Apple’s Board of Directors recognizes that option grant practices are a timely and important issue among today’s public companies and their shareholders. However, the policy suggested by the proponent does not apply to Apple’s current equity compensation practices, and the Board believes the policy is not necessary for the protection of shareholders, could have unintended negative consequences for Apple and its shareholders, and would hinder the Board’s ability to attract and retain the caliber of talented senior executives who have been instrumental in delivering the dramatic increase in shareholder value experienced by Apple investors in recent years.

The proposal does not apply to Apple’s current equity compensation practices. Apple has not granted stock options to any senior executives since 2003, relying instead on restricted stock units to provide long term incentive compensation. Restricted stock units differ fundamentally from stock options. When a restricted stock unit grant vests, shares of Apple common stock are automatically issued to the senior executive, net of tax withholdings. Because restricted stock units have no exercise price, their ultimate value to the executive is not affected by the price of Apple’s common stock on the grant date, and thus the concepts of “backdating,” “springloading,” and “bullet dodging” that the proponent seeks to preclude are not applicable. Selecting grant dates for a given fiscal year in advance, as the proponent suggests, would in itself have no impact on the ultimate value or motivational attributes of such awards.

Even if Apple decides to grant stock options to senior executives in the future, the Board believes that the proponent’s restrictive approach is not necessary to protect the interests of Apple shareholders. Since 2002, Apple has made significant changes to its stock option granting practices in response to evolving legal, regulatory, and accounting requirements. The Company has implemented improvements to procedures, processes, and systems to provide additional safeguards and greater internal control over the stock option granting and administration function in compliance with the Sarbanes-Oxley Act and evolving accounting guidance. In 2006, Apple’s historical option grant practices were the subject of an exhaustive

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internal review and independent investigation conducted by a Special Committee of outside directors, with the assistance of independent counsel and forensic accountants. The investigative team spent over 26,500 person-hours searching more than one million physical and electronic documents and interviewing more than 40 current and former directors, officers, employees, and advisors. Significantly, the internal review and the independent investigation discovered no option grants made after 2002 that required accounting adjustments.

If Apple did grant stock options to senior executives in the future, the Board believes that implementation of the proposal could have the unintended consequence of removing or reducing the incentive for executives to increase shareholder value in the short term. Stock option grants are intended to provide an incentive to manage the Company from the perspective of a shareholder with an equity stake in the business, because executives benefit from option grants only if the underlying stock price appreciates after the options are granted. The Board is concerned that setting grant dates in advance could provide a perverse incentive for executives to focus on those dates and defer actions that could increase the value of the Company’s stock value in the short term in order to benefit from a lower grant price. The proposal could thus lead to more gaming of the system, instead of addressing the concerns presented by the proponent.

The Board is also concerned that implementation of the proposal could also put Apple at a competitive disadvantage in retaining the best executive talent. Apple’s Compensation Committee, consisting entirely of independent directors, spends a significant amount of time and effort researching, developing, and adopting well thought-out equity compensation programs for Apple’s executives. These recently reviewed and updated executive compensation policies give Apple flexibility in attracting and retaining executive talent and are designed to provide competitive compensation relative to the marketplace. The Board believes that attracting and retaining such talent  is crucial to the Company’s ability to continue to deliver increases in shareholder value.  Implementation of the proposed policy would significantly constrain the discretion of the Compensation Committee and the Board with respect to any executive option grants going forward. For example, the proposed policy would preclude ad hoc option grants to reward an executive for his or her extraordinary service. It would also preclude retention grants for an executive who is contemplating leaving Apple and is considered crucial to the future success of Apple’s business. The Board believes that very few, if any, of Apple’s peer companies impose limitations similar to those set forth in the proposal on the grant date and exercise price of stock options for executives.

For all of these reasons, the Board believes it is in the best interests of Apple shareholders to retain the flexibility to compensate executive management with the terms that the Board believes to be most appropriate for attracting and retaining top caliber talent.

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation of the Board of Directors

The Board unanimously recommends a vote AGAINST the Shareholder Proposal Regarding Option Dating Policy.

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PROPOSAL NO. 7
Shareholder Proposal Regarding Pay for Performance Standard

The Company has been advised that the International Brotherhood of Teamsters General Fund, 25 Louisiana Avenue, N.W., Washington, D.C. 20001, a beneficial owner of approximately 33,200 shares of the Company’s common stock, intends to submit the following proposal at the meeting:

RESOLVED:  That the shareholders of Apple (“Company”) request that the Board of Directors’ Executive Compensation Committee establish a pay-for-superior-performance standard in the Company’s executive compensation plan for senior executives (“Plan”), by incorporating the following principles into the Plan:

1.     The annual incentive or bonus component of the Plan should utilize defined financial performance criteria that can be benchmarked against a disclosed peer group of companies, and provide that an annual bonus is awarded only when the Company’s performance exceeds its peers’ median or mean performance on the selected financial criteria;

2.     The long-term compensation component of the Plan should utilize defined financial and/or stock price performance criteria that can be benchmarked against a disclosed peer group of companies. Options, restricted shares, or other equity on non-equity compensation used in the Plan should be structured so that compensation is received only when the Company’s performance exceeds its peers’ median or mean performance on the selected financial and stock price performance criteria; and,

3.     Plan disclosure should be sufficient to allow shareholders to determine and monitor the pay and performance correlation established in the Plan.

SUPPORTING STATEMENT

We feel it is imperative that compensation plans for senior executives be designed and implemented to promote long-term corporate value.

We believe common compensation practices contribute to excessive executive compensation. Compensation committees typically target senior executive total compensation at the median level of a selected peer group, then design any annual and long-term incentive plan performance criteria and benchmarks to deliver a significant portion of the total compensation target regardless of the Company’s performance. High total compensation targets combined with less than rigorous performance benchmarks yield a pattern of superior-pay-for-average-performance. The problem is exacerbated when companies include annual bonus payments among earnings used to calculate Supplemental Executive Retirement Plan (SERP) benefit levels, guaranteeing excessive levels of lifetime income through inflated pension payments.

The Corporate Library determined several causes for concern with the Company’s compensation practices. In March 2003, the board awarded CEO Jobs 10 million restricted shares of the Company’s common stock that vested in full on the third anniversary of the grant date. The market value of the restricted shares at the end of fiscal year 2005 was $532 million. In December 1999, Mr. Jobs was given a special executive bonus in the form of an aircraft with a total cost to the Company of approximately $90,000,000 for past services as the Company’s interim CEO.

We believe the Company’s Plan fails to promote pay-for-superior-performance principles. Our Proposal offers a straightforward solution:  The Compensation Committee should establish and disclose financial and stock price performance criteria and set peer group-related performance benchmarks that permit awards or payouts in annual and long-term incentive compensation plans only when the Company’s performance exceeds the median of its peer group. A senior executive compensation plan based on sound pay-for-superior-performance principles will help moderate excessive executive compensation and create

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competitive compensation incentives that will focus senior executives on building sustainable long-term value.

We urge shareholders to vote FOR this proposal.

Apple’s Statement in Opposition to Proposal No. 7

The Board of Directors recommends a vote AGAINST Proposal No. 7.

The Board and the Compensation Committee (the “Committee”) support the concept of performance-based compensation arrangements as an important component of executive compensation. The Board believes performance-based compensation arrangements provide important incentives for superior performance by executives. As discussed in this Proxy Statement, Apple’s shareholders have already approved, and Apple currently maintains, cash incentive compensation and long-term equity compensation programs that are based on performance criteria. A significant portion (generally more than 75 percent) of an executive’s total compensation is variable and at risk and tied to the financial performance of the Company.

Motivating executives through performance goals is not the only purpose of compensation arrangements. Among other objectives, Apple’s compensation arrangements must attract and retain high caliber executives in an extremely competitive marketplace. Successful recruitment and retention of talented executives requires not only rewarding executives for the goals they have achieved, but also adequately compensating them for the services they perform.

After careful consideration, the Board believes that restricting the Committee’s choice of compensation alternatives as the shareholder’s proposal suggests would unduly constrain the Committee’s ability to respond to market trends and to tailor compensation incentives to the Company’s business goals. By seeking to limit the Committee’s flexibility in regard to designing and implementing compensation programs in ways it deems appropriate, the proposal would put Apple at a competitive disadvantage and would hinder the Company’s ability to attract, retain, and motivate executive talent in a competitive employment environment. Therefore, the Board does not believe the proposal is in the best interests of Apple or its shareholders.

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation

The Board unanimously recommends a vote AGAINST the Shareholder Proposal Regarding Pay for Performance Standard.

PROPOSAL NO. 8

Shareholder Proposal Regarding Environmental Report

The Company has been advised that Trillium Asset Management Corporation, 711 Atlantic Avenue, Boston, Massachusetts 02111-2809, a beneficial owner of approximately 200 shares of the Company’s common stock, intends to submit the following proposal at the meeting:

RESOLVED:  Shareholders request that the Board publish a report within six months of the 2007 annual meeting, at reasonable cost and omitting confidential information, on the feasibility of adopting a policy of becoming a leader in the use of safe materials, by eliminating persistent and bioaccumulative toxic chemicals, and all types of brominated flame retardants (BFRs) and polyvinyl chloride (PVC) plastics, in all Apple products, including an expeditious timetable to end the use of all BFRs and PVC.

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SUPPORTING STATEMENT

We believe that Apple wants to be perceived as the clear marketplace leader in smart design of computers and related digital products, but certain competitors may be getting ahead of our company in the deployment of safer materials; for instance, Apple competitor Dell has committed to eliminate the use of all brominated flame retardants and PVC by 2009, while Apple has only stated its intent to work over an indefinite period to eliminate these substances.

Additional action is consistent with Apple’s stated policies. For instance, excerpts from company policies state:

“Apple recognizes its responsibility as a global citizen and is continually striving to reduce the environmental impact of the work we do and the products we create…

“Apple takes pride in its history of innovation and thoughtful design. . .Building world-class products includes considering the materials that go into their creation…

“Our continued goal is to reduce or eliminate environmentally harmful substances from our products and processes…

“Apple is also committed to protecting the health and safety of our employees, customers, and the global community… and

“Where laws and regulations do not provide adequate controls, we [Apple] will adopt our own standards to protect human health and the environment.”

Yet, according to AppleInsider.com, Apple was forced to halt sales of certain products, including the iSight, eMac and certain AirPort Base Stations for several months in Europe because they did not comply with the European Union’s Restriction of Hazardous Substances (RoHS) directive applicable to electronic products.

Over 100 countries have signed the Stockholm Convention calling for phaseout of certain persistent organic pollutants. Some substances like PVC can lead to the generation of persistent organic pollutants (e.g. dioxins) when burned. PVC is highly polluting in its production and disposal, contains biologically available contaminants such as phthalates and heavy metals and can generate hydrogen chloride gas.

New scientific evidence has revealed the hazards of BFRs used in circuit boards among other components that have been found in home and office environments. It has been shown that TBBPA (a type of BFR) induced neurotoxicity and immunotoxicity. The presence of TBBPA or other bromine containing chemicals in electronics products have potential to form additional toxic chemicals dispersed to the environment when smelted or burned in open air.

Toxic substances in products represent serious potential liability to our company in the form of environmental clean up and tort litigation.

The innovative use of safer, longer lasting materials is consistent with Apple’s goal of capturing a larger share of the computer market.

Apple’s Statement in Opposition to Proposal No. 8

The Board of Directors recommends a vote AGAINST Proposal No. 8.

The Board believes that Apple’s current policies and practices concerning the use of safe materials in the Company’s products address the concerns in the proposal. As such, the Board believes the report and review called for by the proponent would not result in any additional benefit to Apple’s shareholders and instead would be costly, time-intensive, and duplicative of many of our existing policies, initiatives, and efforts.

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Apple recognizes the need for environmentally responsible production and has a record of restricting harmful substances that goes back over a decade. Apple’s policies and rigorous substance restrictions ensure that Apple and its products meet the requirements of consumers and regulators in all countries where the Company’s products are sold. Apple and its products are compliant with the European Union’s directive on the Restriction of Hazardous Substances (RoHS) everywhere its products are sold. In fact, Apple met many of the RoHS restrictions long before the July 1, 2006 deadline and was fully compliant by that date.

PVC is already among the many substances restricted from use in Apple’s products, packaging and manufacturing processes. Apple is committed to phasing out PVC altogether and is actively investigating alternative materials that are more environmentally friendly. In addition, Apple banned the use of certain BFRs, years before mandatory restrictions on such substances were introduced by the RoHS directive referenced by the proponent, and some of which are currently permitted under the RoHS directive. As with PVC, Apple is actively researching materials with better environmental features to replace other BFRs still used as an industry standard.

In addition to protecting the environment, Apple is also committed to protecting the health and safety of its employees, customers, and the global community. Apple recognizes that by integrating sound environmental, health, and safety management practices into all aspects of the Company’s business, Apple can offer technologically innovative products and services while conserving and enhancing resources for future generations.

The Company has taken steps to ensure that information on its environmental policies, including examples of substances that are banned or restricted in the Company’s products and manufacturing processes, is readily available through apple.com/environment. As such, we believe Apple’s current methods provide beneficial and cost effective disclosure to the Company’s shareholders of the same information the proponent calls for in the proposal, and the Company remains focused on finding sound alternatives to achieve environmentally responsible production.

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation of the Board of Directors

The Board unanimously recommends a vote AGAINST the Shareholder Proposal Regarding Environmental Report.

PROPOSAL NO. 9
Shareholder Proposal Regarding Equity Retention Policy

The Company has been advised that the AFSCME Employees Pension Plan, 1625 L Street, N.W., Washington, D.C. 20036, a beneficial owner of approximately 5,618 shares of the Company’s common stock, intends to submit the following proposal at the meeting:

Resolved, that shareholders of Apple Computer, Inc. (“Apple”) urge the Compensation Committee of the Board of Directors (the “Committee”) to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs during their employment, and to report to shareholders regarding the policy before Apple’s 2008 annual meeting of shareholders. The Committee should define “significant” (and provide for exceptions in extraordinary circumstances) by taking into account the needs and constraints of Apple and its senior executives; however, the shareholders recommend that the Committee not adopt a percentage lower than 75% of net after tax shares. The policy

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should address the permissibility of transactions such as hedging transactions which are not sales but reduce the risk of loss to the executive.

SUPPORTING STATEMENT

Equity-based compensation makes up a substantial portion of senior executive compensation at Apple. In fiscal years 2000 and 2002, Chairman and CEO Steven Jobs was granted 27,500,000 stock options with a grant-date estimated value (assuming 5% stock price appreciation) greater than $634 million. In March 2003, Mr. Jobs voluntarily cancelled all of these options, which were underwater at the time, and the Board approved a new restricted stock award of 5,000,000 shares valued at $74,750,000. In 2001, COO Timothy Cook was granted 1,000,000 stock options, with a grant-date estimated value (assuming 5% appreciation) of $10,573,291; in 2004 he a received a restricted stock award of 600,000 shares valued at $7,650,000.

Apple claims that equity-based compensation promotes alignment between executive and shareholder interests. Unfortunately, Apple’s generous equity compensation programs have yet to translate into meaningful levels of stock ownership. Apple’s most recent proxy statement disclosed that Mr. Jobs only owns four shares that are not part of his restricted stock holdings. In fiscal years 2003 through 2005, Mr. Cook exercised 3,900,000 options, realizing over $38.7 million in profits; yet he owns just 12,597 shares outright. We believe that the alignment benefits touted by Apple are not being fully realized.

Requiring senior executives to hold a significant portion of shares obtained through compensation plans would focus them on Apple’s long-term success and would help align their interests with those of Apple’s shareholders. A 2002 report by a commission of The Conference Board endorsed the idea of such a requirement, stating that the long-term focus promoted thereby “may help prevent companies from artificially propping up stock prices over the short-term to cash out options and making other potentially negative short-term decisions.”

As long-term shareholders, we believe it’s critical for compensation programs to incentivize executives to manage for companies’ long-term interests. The recent backdating scandal has, we think, reminded investors of the dangers of a short-term mentality in which executives extract value through equity-based compensation, and then cash out before the effects of their mismanagement become apparent to other shareholders.

We urge shareholders to vote for this proposal.

Apple’s Statement in Opposition to Proposal No. 9

The Board of Directors recommends a vote AGAINST Proposal No. 9.

Apple’s Board of Directors and Compensation Committee has considered the proposal by the AFSCME Employees Pension Plan and has concluded that the proposal is not in the best interests of the Company’s shareholders.

The Board believes that the Company’s compensation policies for its executive officers have been essential to its ability to attract and retain talented executives and in motivating them to build long-term value for our shareholders. The Board also believes that the Company’s equity compensation policies have been critical to its competitive success and an important element in the extraordinary growth and financial success of the Company over the past several years. The suggestion that management’s interests are not aligned with the Company’s shareholders is not supported by the facts.

Apple has not granted stock options to its senior executives since 2003. Grants of restricted stock units, in and of themselves, provide Apple’s executives with an incentive to manage the Company from the perspective of a shareholder with an equity stake in the business. Apple’s senior executives typically receive

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grants that vest over three or four years subject to continued employment, so that executives realize the full rewards of each grant only after three or four years of service to the Company. The potential future value of options granted prior to 2003 and restricted stock units held by executives is tied to the long term appreciation of the Company’s stock price, which benefits all shareholders.

Although the purpose of restricted stock units is, in part, to provide executives with the opportunity to increase their equity stakes in the Company, restricted stock units are also intended as incentive compensation. In fact, Apple’s Chief Executive Officer effectively receives no cash compensation, either through an annual salary or bonuses, and is compensated through the value of his Apple shareholdings. In many cases, Apple’s executives’ interests in their vested options or restricted stock units make up a high proportion of their net worth and such executives may legitimately need diversification in their portfolios. Requiring them to retain a high percentage of the shares awarded them through equity compensation plans could actually have the perverse effect of motivating senior executives to leave the company in order to realize the value of their compensation. Accordingly, the Board does not believe that it is necessary or appropriate for purposes of aligning the interests of the shareholders and the executives to place restrictions on an executives’ ability to realize gains on vested equity.

The Compensation Committee spends a significant amount of time and effort researching, developing and adopting well thought-out equity compensation programs for the Company’s executives, including consultation with an independent third-party compensation expert. The Board believes that most of Apple’s peer companies do not impose limitations similar to those set forth in the proposal on the sale of shares acquired on exercise of stock options or otherwise. As a result, the Board believes that requiring the Company’s executives to hold a certain percentage of the stock obtained through compensation plans would make it more difficult to attract, recruit, motivate and retain the quality of executive talent the Company needs to maintain its record of successful growth. The Board believes it is in the best interests of our shareholders for the Board to retain the flexibility to compensate executive management with the terms that we believe to be most appropriate for attracting and retaining top caliber talent.

Vote Required

The affirmative vote of (i) a majority of the shares “represented and voting” and (ii) a majority of the quorum will be required to approve this Proposal.

Recommendation of the Board of Directors

The Board unanimously recommends a vote AGAINST the Shareholder Proposal Regarding Equity Retention Policy.

PROPOSAL NO. 10
Shareholder Proposal Regarding Electronic Waste Take Back and Recycling

The Company has been advised that the Educational Foundation of America, a beneficial owner of approximately 1,900 shares of the Company’s common stock, represented by As You Sow, 311 California Street, Suite 510, San Francisco, California 94014, intends to submit the following proposal at the meeting:

ELECTRONIC WASTE TAKE BACK AND RECYCLING

WHEREAS Apple Computer emphasizes a commitment to environmental leadership. Yet the technical innovation responsible for leadership in designing and marketing products has not extended to developing adequate end-of-life programs.

The National Safety Council has reported that only 11% of discarded computers are recycled, compared with 28% of overall municipal solid waste. Electronic waste constitutes 2% to 5% of the US municipal solid waste stream and is growing rapidly.

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