Apple Meeting Tackles Stock Options Scandal

Apple Inc. CEO Steve Jobs defended the company's handling of its stock options-backdating scandal Thursday and suggested a former employee's accusations about his role in the matter were wrong.

Even as the iPod and Macintosh maker's stock climbed to an all-time high, attendees at Apple's shareholder's meeting in Cupertino, Calif., were not yet ready to relegate the company's options backdating practices to the past.

Jobs was asked to clarify what happened and investors were asked to endorse a shareholder proposal meant to prevent a similar scandal in the future.

The options-related measure, which Apple opposed, failed, according to the company's preliminary tally. Other shareholder proposals on the agenda that involved compensation reforms also did not pass.

Meanwhile, Jobs, with his typical flair for showmanship, elicited laughs and applause during the meeting despite rankling questions.

Cupertino-based Apple was one of the most prominent of more than 200 companies that came under scrutiny last year for backdating options -- the practice of pegging a grant to an earlier date to achieve a better stock price and potentially higher profits for the recipient. If not disclosed properly, taxes could be underpaid and income overstated.

Apple took an $84 million charge after it acknowledged in December it had backdated some options between 1997 and 2002. The company said Jobs knew of the backdating but was unaware of the accounting implications.

But the issue flared again last month when one of the two former Apple employees charged by the Securities and Exchange Commission in the case alleged that he had warned Jobs of the accounting issues. Fred Anderson, former chief financial officer, said he was misled into believing that the grants were approved by the board.

The scandal has hung over Apple for the past year and on Thursday, it remained a hot issue.

"Options backdating is a cancer that has been eating at this company," attorney Con Hitchcock said as he presented the anti-backdating shareholder proposal on behalf of an investor group.

"There's a real paradox here -- that a company that is so smart and so pioneering with its products can be so clueless in these compensation policies," he said.

When Jobs was asked by another shareholder -- Brandon Rees, a representative of the AFL-CIO -- about what he knew, Apple's iconic co-founder calmly laid out a rough timeline of events that had already been reported in public filings and company statements. He then read the SEC's remarks about Apple's "swift" and "extraordinary" cooperation.

"Unless you think there's a conspiracy involving the SEC, too, I don't know what to say," Jobs said.

As for Anderson's allegations, made on the same day the former CFO settled the case with the SEC and agreed to pay about $3.5 million in fines, Jobs had little to say.

"I've worked with Fred for a long time," Jobs said. "But I thought his comments were a little wrong."

The entire board, which includes former Vice President Al Gore, was re-elected Thursday despite a recommendation from the influential proxy advisory firm, Institutional Shareholder Services, that investors withhold their support based on the directors' "secretiveness" and "lack of candor" in the options imbroglio.

Two shareholder proposals calling for improved environmental programs at Apple were withdrawn, following Jobs' announcement last week detailing how the company plans to be "A Greener Apple" by removing some toxic chemicals from its products by the end of 2008.

But advocates from Greenpeace and the Computer Takeback Campaign say more can be done. They challenged Apple to lead the industry.

Jobs said he would answer some of those questions after further research, but he also criticized the advocacy groups for basing their environmental scorecards more on statements of principle rather than quantifiable fact. He suggested they rework their measurement criteria and hire scientists to figure out how to eliminate harmful materials.

Shares of Apple reached another record high Thursday and closed at $107.34, up 46 cents.