Apple (AAPL)

Bonus Plans—Executive Officers

In April 2005, the Company’s shareholders approved the Apple Computer, Inc. Performance Bonus Plan (“Performance Bonus Plan”). Prior to its approval, the Company did not have a cash bonus plan for its executive officers and despite the successful achievement of the Company’s business goals, the total cash paid to its executive officers was approximately 35% below the median level paid by comparable companies. The Committee’s outside compensation consultant concluded that the infrequent grant of options and/or restricted stock units did not make up for the below market median total cash compensation paid to executive officers. Concerned that executive compensation was not competitively structured to attract, retain and reward executive

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officers whose contributions are critical to the long-term success of the Company, the Committee revamped its pay-for-performance philosophy at the beginning of fiscal 2005 and adopted the Performance Bonus Plan, subject to shareholder approval. Executive officers and key employees are eligible to participate in the Performance Bonus Plan. The participants are chosen solely at the discretion of the Committee at the beginning of each fiscal year and are eligible to receive awards based upon the attainment and certification of certain performance criteria established by the Committee.

With the implementation of the Performance Bonus Plan, a greater percentage of an executive’s compensation is tied to Company performance and is at risk if the performance targets are not met. If the performance metrics are met, the total cash component (salary and bonus) is targeted at the 75^th percentile relative to the market but if the performance targets are not met, there is no bonus payout.

For fiscal 2005, all executive officers, excluding the CEO, were chosen to participate in the Performance Bonus Plan. The Committee granted target awards to each executive officer (excluding the CEO) based on revenue and operating margin goals. For fiscal 2005, the Company concluded its best year in Apple’s history, exceeding the performance goals established by the Committee. Each of the Company’s named executive officers received the maximum award payout equal to 100% of their base salary. These 2005 fiscal year bonuses qualified as deductible “performance-based” compensation under Internal Revenue Code Section 162(m).

Bonus Plans—Executive Officers

        The Company does not currently have a cash bonus plan for its executive officers. Executive officers and members of the Board are not eligible to participate in either the VP and Director Bonus Plan or the Discretionary Bonus Plan. In fiscal 2004, only two executive officers received a bonus; Ron Johnson, Senior Vice President Retail, received a bonus for exceptional performance and Dr. Tevanian, Senior Vice President and Chief Software Technology Officer, received a bonus related to a patent award.

        Despite the successful achievement of the Company's business goals, the total cash paid to its executive officers was approximately 35% below the median level paid by comparable companies due to the absence of a bonus plan. The Committee's outside compensation consultant concluded that the infrequent grant of options and/or restricted stock units did not make up for the below market median total cash compensation paid to executive officers. Concerned that executive compensation was not competitively structured to attract, retain and reward executive officers whose contributions are critical to the long-term success of the Company, the Committee revamped its pay-for-performance philosophy and, in consultation with compensation advisors, adopted the Apple Computer, Inc. Performance Bonus Plan, subject to shareholder approval. If approved by shareholders, starting in fiscal year 2005, executive officers will be eligible to receive a cash bonus if the Company meets certain specified performance metrics. For more information, please see Proposal No. 1: Approval of the Apple Computer, Inc. Performance Bonus Plan. With the implementation of the Performance Bonus Plan, a greater percentage of an executive's compensation will be tied to Company performance and is at risk if the performance targets are not met. If the performance metrics are met, the total cash component (salary and bonus) is targeted at the 75^th percentile but if the performance targets are not met, there will be no bonus payout.