Apple (AAPL)

Discussion of the Increase in Aggregate Share Limit

Over the past decade, the Company’s investments in innovative design and engineering have resulted in the significant expansion of its product portfolio to include three major categories: Mac, iPhone, and music products. The Company has also expanded its distribution capabilities by opening over 280 of its own retail stores and substantially increasing third-party resale locations. The Company’s successful execution of its strategies has led to dramatic revenue and earnings growth. For example, in the five-year period from 2004 through 2009, the Company’s annual revenue grew from $8.3 billion to $36.5 billion, while its earnings grew from $276 million to $5.7 billion. The Company’s success has also resulted in a significant increase in shareholder value. Between the Company’s last request for an increase in shares under this plan on May 10, 2007 and December 4, 2009, the Company added over $80 billion in market capitalization, an increase of over 85%.

The Board believes the Company’s 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 high-quality employees it needs.

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 2003 Plan is the Company’s only active employee equity plan (other than its Employee Stock Purchase Plan), and the current number of shares remaining available for grant is expected to last until approximately the end of 2011. The Compensation Committee anticipates that the additional shares requested will enable the Company to fund the equity compensation program through the end of 2013, accommodating anticipated grants relating to the hiring, retention and promotion of employees and providing reasonable flexibility for acquisitions. The Company intends to limit the average annual number of options, restricted stock, and restricted stock units granted under the 2003 Plan during this period to approximately 2.25% of shares outstanding.

To protect shareholder interests, 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. Equity awards are granted at fair market value at the grant date, typically vest over four years, and may not be repriced without shareholder approval. The Company’s equity program currently uses RSUs, and the Company deducts two shares from the 2003 Plan authorization for every RSU granted.

The Board 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.

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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.