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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-15086
SUN MICROSYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C>
DELAWARE 94-2805249
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2550 GARCIA AVENUE (415) 960-1300
MOUNTAIN VIEW, CA 94043-1100 (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING AREA CODE)
INCLUDING ZIP CODE)
</TABLE>
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK
COMMON SHARE PURCHASE RIGHTS
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of September 7, 1994, was approximately $2,082,000,000 based
upon the last sale price reported for such date on the NASDAQ National Market
System. For purposes of this disclosure, shares of Common Stock held by persons
who hold more than 5% of the outstanding shares of Common Stock and shares held
by officers and directors of the Registrant have been excluded because such
persons may be deemed to be affiliates. This determination is not necessarily
conclusive.
The number of shares of the Registrant's Common Stock outstanding as of
September 7, 1994 was 94,793,483.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Annual Report to Stockholders for the fiscal year ended June
30, 1994 are incorporated by reference into Items 1, 5, 6, 7, 8 and 14 hereof.
Parts of the Proxy Statement for the 1994 Annual Meeting of Stockholders
are incorporated by reference into Items 10, 11, 12 and 13 hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Sun Microsystems, Inc. ("Sun" or the "Company") is a leading supplier of
enterprise computing products that feature networked workstations and servers
that store, process and distribute information. The Company's computer systems
are used for many demanding commercial and technical applications. Sun has
differentiated itself from its competitors by its commitment to the distributed
computing model and the UNIX operating system, its rapid innovation and its open
systems architecture. The Company's objective is to be a leading provider of
open technologies for general purpose distributed computing.
The Sun implementations of its hardware and software products conform with
the Scalable Processor Architecture ("SPARC") Compliance Definition ("SCD")
standard established by SPARC International, Inc. The SCD currently includes the
SPARC microprocessor (based on RISC technology originally developed by Sun but
now widely licensed); the UNIX operating system (originally developed by
American Telephone and Telegraph Company ("AT&T")) as implemented and extended
as the Solaris software environment including UNIX; OpenWindows (including
X11/NeWS, OpenFonts and the OPEN LOOK graphical user interface); and ONC/NFS,
Sun's open systems distributed computing environment and distributed computing
file system.
Sun, which operates in a single industry segment, conducts its business
through several operating entities and divisions organized around the Company's
principal areas of added value. The individual businesses generally operate
independently within their charter, but with the common strategic vision of
being a leading force in the open systems information technology marketplace.
Sun believes this organizational structure allows it to more efficiently focus
on its customers and the products, channels and markets necessary to serve them.
As of July 1, 1994, Sun's primary operating businesses are Sun Microsystems
Computer Company ("SMCC"), SunSoft, Inc. ("SunSoft"), SPARC Technology Business
("STB"), SunService and SunExpress, Inc. ("SunExpress"). SMCC, a division and
principal operating business of the Company, is responsible for designing,
manufacturing, selling and supporting the workstations and servers incorporating
SPARC microprocessor technology and other key technologies used in enterprise
computing. These workstations and servers are offered with the Solaris software
environment, licensed by SMCC from SunSoft. SunSoft develops, markets, supplies
and supports Solaris, the leading UNIX system software environment. SunSoft
offers the Solaris operating environment primarily through OEM resellers,
including SMCC. SunSoft also offers integrated solutions for network computing
environments, professional software developers, enterprise management and PC
desktop integration. Through its business units, SunSoft supplies to the
Company's installed base and to other vendors value-added hardware and software
based on the SCD and other UNIX interface standards. STB designs and develops
high performance SPARC microprocessors as well as enabling
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Sun, the Sun Logo, Sun Microsystems, SunExpress, SunSoft, SunService, Catalyst,
NFS, ONC, ONC+, OpenFonts, OpenWindows, Solaris, SunLink, SunOX, PC-NFS,
SolarNet, SunPC, SunSoft Workshop, Solstice, Wabi, DOS Windows, JumpStart and
X11/NeWS are trademarks, registered trademarks or service marks of Sun
Microsystems, Inc. All SPARC trademarks, including SuperSPARC and the SCD
Compliant logo, are trademarks or registered trademarks of SPARC International,
Inc. SPARCserver, SPARCclassic, SPARCstation, SPARCcenter, SPARCstorage and
microSPARC are licensed exclusively to Sun Microsystems, Inc. Products bearing
SPARC trademarks are based upon an architecture developed by Sun Microsystems,
Inc. UNIX is a registered trademark in the United States and other countries,
exclusively licensed through X/Open Company, Ltd. OPEN LOOK and NetWare are
registered trademarks of Novell, Inc. Interactive is a trademark of Interactive
Systems Corporation. Legato Networker is a registered trademark of Legato
Systems, Inc. PowerPC is a trademark of International Business Machines
Corporation. Macintosh is a registered trademark of Apple Computer, Inc. MS-DOS
is a registered trademark of Microsoft Corporation. All other product or service
names mentioned herein are trademarks of their respective owners.
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technologies such as chipsets and circuit boards for SMCC and third-party
customers. SunService is a leading service organization for Solaris and SPARC
platforms, providing worldwide post-sale service and support to end users of Sun
products. SunExpress offers easy ordering and quick delivery of accessories,
spare parts, options, software and third party products to end users of SPARC
systems and Solaris software. SunExpress' goal is to be a leading worldwide
supplier of aftermarket products for the SPARC and Solaris computing
environments by offering competitive prices and the highest quality services to
customers using innovative direct marketing technology.
The combination of Sun's hardware and software implementations have
attracted a large number of software vendors to port their applications to Sun
platforms, including an increasing number of vendors of commercial applications.
The availability of such third-party software contributes to the Company's
leadership position in enterprise computing as well as the increasing size of
Sun's installed base and the success of its developer assistance programs.
The Company actively works with or belongs to industry-wide standardization
organizations such as X/Open Company (Ltd.), SPARC International, Inc., the
Object Management Group, the Open Software Foundation, UniForum, American
National Standards Institute ("ANSI"), ASC X3 and the IEEE, the X Consortium,
ECMA and the International Organization for Standardization. The Company also
promotes cross industry standardization initiatives such as COSE and SPEC 1170.
PRODUCTS
Sun believes that customers are increasingly demanding computer systems
that do not limit them to any one vendor's proprietary technology. To respond to
customer needs, Sun has been a proponent of the open systems strategy based on
industry standards such as POSIX, X/OPEN and the SCD. The benefits to users and
software developers of systems, whose vendors adhere to these industry
standards, are that their products offer compatibility, interoperability,
portability, upgradeability and scaleability. Sun's open systems architecture
protects existing customer investments while providing customers with new,
innovative technology to allow them to be competitive in their own market.
Sun has developed and generally licenses to third parties the SPARC
microprocessor architecture, numerous ASIC components and the Solaris software
environment and certain of the components of that environment, including the ONC
networking products, NFS file system software (the standard for sharing files
across heterogeneous systems), SunOS (the Sun implementation of the UNIX
operating system) and its OpenWindows environment.
SYSTEMS
SMCC, as the business responsible for the development of Sun's integrated
computing systems, focuses on continuing to improve the features, functionality,
quality, competitiveness and price/performance of the Company's systems. Sun's
workstations span the range from low-cost X-terminals to high-performance color
graphics systems. Its multiprocessing servers can provide various resources,
including filesharing, system administration and database and network
management. As a filesharing resource, a server enables users to access data
distributed across multiple storage devices and networks.
The current desktop workstation line includes the low-end SPARCclassic X,
the low-end color SPARCclassic, the entry level SPARCstation 5, the
high-performance SPARCstation 10 series, and the high performance SPARCstation
20 series of MP-ready uniprocessor and multiprocessor systems.
The SPARCclassic X computer is the only X-terminal to feature a low-cost,
plug-and-play upgrade to a SPARC workstation, so that users can continue to
maximize their current investment as their computing needs evolve.
The SPARCclassic is a low priced, fully configured color workstation. Based
on the 50 Mhz microSPARC processor, this compact desktop system is designed to
satisfy users who demand a low-cost color system that still offers high
performance and networking.
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The SPARCstation 5, introduced in March 1994, is the Company's entry level,
accelerated graphics workstation and is the industry's lowest priced 24-bit
color system. Based on the microSPARC II processor, it allows up to two internal
3.5 inch disks and an internal CD ROM.
The SPARCstation 10 series, with multiprocessing capabilities, is built
around the super-scalar SuperSPARC chip. Its modular design provides an easy,
cost-effective upgrade path to higher performance microprocessors. The
SPARCstation 10 series, providing up to 512 megabytes of main memory, is
designed for users who require fast application performance and the benefits of
multiprocessing.
The SPARCstation 20 series, introduced in March 1994, represents Sun's line
of highest performance workstations and offers a combination of high-end
workstation performance and functionality at a low price. Available in both
uniprocessor and multiprocessor versions, the SPARCstation 20 line achieves
higher performance from the use of 50 MHz (in entry level systems) and 60MHz (in
higher performance versions) SuperSPARC processors, as well as high performance
motherboards and ASICs. Designed for users needing more specialized graphics
power, the SPARCstation 20, available in six versions, features a broad
complement of graphics computing capabilities, such as 24-bit color and built-in
imaging acceleration.
The Company offers a wide range of servers from the SPARCclassic server, a
low-cost entry server for small workgroups, to the SPARCcenter 2000, a high-end,
enterprise-wide computing solution. Midrange servers include the SPARCserver 20
and the SPARCserver 1000. These servers are balanced, high-performance
multipurpose platforms that are designed for fast input-output and distributed
computing. They can also function as computational servers for technical
applications such as simulation and analysis for electrical and mechanical CAD.
These systems offer a range of main memory and hard disk storage configurations,
as well as ease of expandability. The SPARCserver 20, introduced in March 1994,
is a competitively priced RISC-based multiprocessing UNIX server with a modular
design that provides workgroup users with an easy upgrade path to future
processor technologies. The SPARCserver 1000 is a powerful, scalable, versatile,
upgradeable and affordable departmental UNIX server in an extremely compact
package. The SPARCcenter 2000 is Sun's high-end server for the data center and
the enterprise. Based on up to 20 60MHZ SPARC microprocessors, the SPARCcenter
2000 delivers competitive results in NFS file server performance, system
computational performance and multi-user throughput. In March 1994, Sun
introduced the SPARCstorage Array Model 100 Series, a new storage subsystem
utilizing RAID technology, Sun's affordable, high availability disk storage
subsystem.
SYSTEM SOFTWARE
The system software environment is a critical component of enterprise
computing. SunSoft continues to focus on developing Solaris (an open
client-server UNIX system software environment for SPARC, Intel and other volume
platforms) as the Company believes it derives competitive advantage from its
over ten years experience with operating system software. With the integration
in late fiscal 1994 of the businesses which formerly comprised SunTechnology
Enterprises, SunSoft became the single entity within Sun focused on delivering
software solutions for the enterprise, rightsizing and network computing. Its
independent business units and their associated products are as follows:
Solaris Products -- Solaris Products is responsible for the development and
marketing of all desktop, workgroup and enterprise server Solaris software
environment products for SPARC, x86, Pentium and PowerPC platforms. Solaris is
the industry's leading 32-bit UNIX software environment for enterprise-wide
distributed computing environments. The Solaris software environment offers
connectivity and interoperability among hardware platforms from other vendors,
ease of application development and availability of over 9,000 products from
third-party software and hardware developers. Solaris Products also includes the
newly formed INTERACTIVE group, overseeing development and marketing of
INTERACTIVE UNIX operating system products.
Networking Products -- Networking products are central to Sun's open
systems architecture. These products provide networking capabilities that make
distributed resources easily accessible by workstations, servers and other
computing devices on a network. This business provides products that integrate
heterogeneous corporate, department, local and remote network resources into
company-wide information systems. The
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business is committed to continued leadership in marketing and evolving open
industry networking standards and technologies including emerging areas such as
the Internet. Products include ONC+/NFS on all platforms including Solaris, DCE
for Solaris, the SunLink family of WAN and connectivity products and SolarNet,
PC-NFS and NetWare compatibility for integrating PCs into enterprise networks.
Developer Products -- Developer Products designs and markets productivity
tools for professional software developers and is a worldwide volume leader of
programming tools for UNIX. It provides a powerful, comprehensive software
development environment to enable the development of next-generation, network-
based, client/server applications. Products include SunSoft WorkShop for C, C++,
FORTRAN and Ada, integrated suites of tools for individuals and teams of
software developers that support the rapid development of single and
mutithreaded applications, and software developer kits for developers of Solaris
applications.
Enterprise Management Products -- Enterprise Management Products provides
solutions for managing Global 2000 enterprise network computing environments and
assists these organizations in reducing the total cost of administering their
Information Technology resources. The product line features SunNet Manager, the
industry's leading network management platform, Solstice, SunSoft's
next-generation enterprise management platform, and a complete line of system
administration and management tools, including JumpStart and Legato Networker.
PC Desktop Integration Products -- PC Desktop Integration Products is
dedicated to giving UNIX users the power to run productivity applications
written for non-UNIX environments, including MS-DOS, DOS Windows and Macintosh.
Products include Wabi, SunPC, the Macintosh Application Environment and Merge,
which enable UNIX users to leverage their investment in other platforms.
SALES, DISTRIBUTION AND MARKETING
Each of the Company's businesses has responsibility for sales, distribution
and marketing of its products. SMCC distributes its products through the
channels described below, as well as through SunExpress. SunSoft offers
off-the-shelf software products on an OEM basis to hardware manufacturers,
including SMCC. Sun also supplies follow-on and peripheral products to its end
user installed base through SMCC, independent distributors and resellers and
SunExpress. SunExpress, whose offerings support the strategies of Sun and its
constituent businesses, is chartered with providing an efficient telemarketing
channel for delivery of nonsystem products based on the SPARC architecture and
other UNIX products. STB provides high performance microprocessors to both SMCC
and third party customers.
SMCC sells to and supports its customers worldwide through a combination of
direct and indirect channels and maintains a presence in major commercial and
technical markets. Distribution channels include: a direct sales force selling
to named accounts and numerous indirect channels, including commercial systems
integrators (CSIs) who sell large commercial projects requiring substantial
analysis, design, development and implementation; master resellers (MRs) who
supply product and provide product marketing and technical support services to
SMCC's numerous smaller Value Added Resellers (VARs); OEMs who integrate the
Company's products with other hardware and software; VARs who provide added
value in the form of software packages, proprietary software development,
high-end networking integration, training, installation and support; and
independent distributors who primarily cover markets in which Sun does not have
a direct presence. Over time, the Company expects that systems revenues from
these indirect channels will continue to increase in proportion to direct
channel revenues. Sales to or through C. Itoh Technoscience Co. Ltd., Fujitsu,
Ltd. and Toshiba Corporation together represent a significant portion of Sun's
revenues in Japan. The growth and management of these reseller channels is
important to the future revenues and profitability of the Company.
SMCC's direct systems sales force serves business enterprises, educational
institutions, software vendors, governments, and other strategic accounts. The
Company has approximately 80 sales offices in the United States and
approximately 65 sales offices in 26 other countries. In addition, it uses
independent distributors in approximately 100 countries, sometimes in concert
with other resellers and direct sales operations.
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Revenues from outside the United States, including those from end users,
resellers and distributors, constituted approximately 51%, 49% and 50% of net
revenues in fiscal 1994, 1993 and 1992, respectively. Direct sales made in
countries outside of the United States are generally priced in local currencies
and are, therefore, subject to currency exchange fluctuations. The net impact of
currency fluctuations on net revenues and operating results cannot be precisely
measured as the Company's product mix and pricing change over time in various
markets, partially in response to currency movements. To minimize currency
exposure gains and losses, the Company borrows funds in local currencies,
utilizes forward exchange contracts and foreign currency options, and promotes
natural hedges by purchasing components in local currencies whenever feasible.
Sun's sales to overseas customers are made under export licenses that must be
obtained from the United States Department of Commerce. Protectionist trade
legislation in either the United States or other countries, such as a change in
the current tariff structures, export compliance laws or other trade policies,
could adversely affect Sun's ability to sell or to manufacture in international
markets. See Note 6 of Notes to Consolidated Financial Statements incorporated
by reference for additional information concerning sales to foreign customers
and industry segments.
The Company's marketing activities include advertising in technical
computer publications and the business press, periodic direct mailings to
customers and prospects and attendance at trade shows. Sun maintains a customer
resource program, Sunergy, that includes live interactive satellite broadcasts
and provides electronic access to newsletters and technical information. Sun
also sponsors a series of seminars to specific resellers, university customers,
end users and government customers and prospects designed to familiarize
attendees with the capabilities of the Sun product line.
The Company's Catalyst support program promotes the development and support
of third-party application software and hardware packages for the Solaris
software environment for systems based on SPARC and x86. Currently, more than
9,000 software and hardware products are available for the Solaris software
environment to address many of the requirements of engineering, scientific,
technical and commercial users. Sun has made significant strides in the past two
years in working with independent software vendors to aggressively transition
software applications from the original Solaris operating environment to the
Solaris 2 platform. Of the more than 9,000 products available, more than 3,000
are ported to the SPARC Solaris 2.X environment and more than 400 to the Solaris
x86 environment. Supported application areas include EDA, Mechanical Design,
AEC, CASE, earth resources, industrial automation, database and document image
management. Supported markets include electronics, computers, aerospace,
automotive, finance, telecommunications, government and education. In addition
to marketing through third-party suppliers, the Company lists Catalyst packages
in a reference catalog for its customers, demonstrates Catalyst packages at its
sales offices and at regional and national trade shows and distributes Catalyst
promotional literature through its sales offices. Sun believes a continued
increase in the number of integrated commercial and technical solutions will be
important in achieving significant sales of its systems to commercial users and
in maintaining its commitment to the technical sector.
Sun's order backlog at June 30, 1994 was approximately $338 million, as
compared with approximately $160 million at June 30, 1993. The backlog level at
June 30, 1994 reflects strong demand for the Company's most recently introduced
products, the SPARCstation 5 and the SPARCstation 20. The lower June 30, 1993
backlog level was impacted to some extent by generally weaker economies in
several of the Company's international markets. Backlog only includes orders for
which a delivery schedule within six months has been specified by the customer.
Because of the possibility of customer order delays, changes in delivery
schedules or cancellation of orders, Sun's backlog at any particular date may
not be indicative of actual net revenues for any succeeding period.
CUSTOMER SERVICE AND SUPPORT
The Company's service organization, SunService, is focused on providing
customers with a full range of post-sale support. The field support organization
includes software and hardware engineers who, along with third-party service
providers, deliver a full range of system support. The customer education
organization provides technical software, maintenance, system administration and
end-user courses.
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The Company offers a warranty for parts and labor on its systems, generally
for one year from date of sale. SunService maintains and services the products
on a contractual basis after the initial product warranty has expired. Warranty
and post-warranty services are provided from its 130 direct sales offices and 22
solutions centers in the United States and overseas. Investments in field
personnel and spare parts to meet the service requirements of the growing
installed base are being supplemented by partnerships with third-party service
providers. These organizations provide installation and support services under
contract with Sun, thereby facilitating an expansion of geographical coverage
while reducing the Company's investment in fixed resources. Generally, large
resellers and distributors will provide installation, customer training,
customer service and support for products they sell.
PRODUCT DEVELOPMENT
The Company's research and product development programs are intended to
sustain and enhance its competitive position by incorporating the latest
worldwide advances in hardware, software, microprocessor, graphics, networking
and data communications technologies. Sun's product development efforts,
conducted within each of its businesses, are currently focused on increasing the
price/performance of its systems, improving its system software platforms and
developing advanced workstation architectures, application-specific integrated
circuits and software for networking and distributed computing, including the
high-performance implementation of existing standards and the development of new
technology standards where none exist. Sun works closely with third parties and
also licenses from them development software that is ported to run on its
hardware products.
Sun conducts research and development worldwide through facilities in the
United States, Canada, France, Japan and Ireland. Research and development
expenses were approximately $455 million, $445 million and $382 million in
fiscal 1994, 1993 and 1992, respectively. In recent years, Sun's research and
development efforts have focused increasingly on Solaris software and SPARC
CPUs. Sun believes that in the future software will provide significant
competitive differentiation. Sun currently devotes substantial resources to the
development of workgroup software, networking and data communications, video,
graphics, object technology and the software development environment.
MANUFACTURING AND SUPPLY
The Company's manufacturing operations consist primarily of printed circuit
board assembly and final assembly, test and quality control of materials and
components. Sun has manufacturing facilities in California and Scotland and
distribution facilities in the Netherlands and Japan. The Company has continued
its efforts to simplify its manufacturing process by reducing the diversity of
its system configurations, increasing the standardization of components across
product types and establishing local sources of supply in major geographies.
Sun uses many standard parts and components in its products and believes
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, those components are available only from single sources.
In particular, Sun is dependent on Sony Corporation for certain monitors
and on Fujitsu Limited (Fujitsu) and Texas Instruments Incorporated (TI) for
certain implementations of SPARC microprocessors. Certain custom silicon parts
are designed by and produced on a contractual basis for Sun. The process of
substituting a new producer of such parts could adversely affect Sun's operating
results. Certain other components, especially memory integrated circuits such as
DRAMs and VRAMs, have from time to time been subject to industrywide shortages.
During the fourth quarter of fiscal 1994, the Company experienced supply
constraints on certain memory devices and expects such constraints to continue
into fiscal 1995. In addition, suppliers of certain components, including color
monitors and custom silicon parts, require long lead times. Accordingly, it can
be difficult to plan inventory levels of components to consistently meet Sun's
manufacturing requirements. The Company is increasingly dependent on the ability
of its suppliers to develop and deliver advanced components required for the
timely introduction of new products. The production of
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sufficient quantities of advanced components on a timely basis entails both
design risk and manufacturing risk. The Company has experienced some component
shortages in the past that have adversely affected operating results and have
caused delays in new product introductions and shipments. Accordingly, the
inability to secure enough components to build products, including new products,
in the quantities and configurations required, or to produce, test and deliver
sufficient products to meet demand in a timely manner, would adversely affect
the Company's operating results.
The computer systems offered by Sun generally are the result of both
hardware and software development, so that delays in software development can
delay the Company's ability to ship new hardware products. In addition, adoption
of a new release of an operating system, such as the Solaris 2 software
environment, typically requires effort on the part of the customer as well as
software porting by software vendors providing applications. As a result, the
timing of conversion to a new release is inherently unpredictable. Moreover,
delays in adoption of a new release of an operating system by customers can
limit the acceptability of hardware products tied to that release. In either
situation, the future operating results of the Company could be adversely
affected.
COMPETITION
The market for the Company's products is intensely competitive and subject
to continuous, rapid technological change, short product life cycles and
frequent product performance improvements and price reductions. Due to the
breadth of Sun's product line and the scalability of client/server computing,
the Company competes in many areas of the computer market across a broad
spectrum of customers. The requirements of those customers and the basis of
competition varies widely depending on the market area and types of users.
Sun's traditional customer base is in the technical and scientific markets
where it competes primarily with Hewlett-Packard Company (HP), Digital Equipment
Corporation (DEC) and Silicon Graphics, Inc. (SGI). Competition in this segment
is based primarily on system performance, price/performance, availability of
application software, robustness of the software development environment, system
expandability and upgradability, adherence to standards, graphics features and
performance and product quality and reliability.
Since 1992, Sun has been making significant inroads into commercial markets
both with large enterprises who are downsizing and distributing their computer
resources, as well as with smaller companies who are upsizing their networks. In
downsizing opportunities, Sun's competition tends to come from International
Business Machines (IBM) and HP, as well as other mini and mainframe computer
suppliers such as Unisys and Data General. In these situations, competition is
based on price/performance, capabilities and stability of the systems software,
product quality and reliability, ease of system operation and administration,
service and support, applications and middleware availability, database
performance, global marketing and distribution capabilities, and corporate
reputation and name recognition.
In upsizing opportunities and sales for the commercial desktop, competition
tends to come from personal computer manufacturers such as Apple Computer, Inc.
and Compaq Computer Corporation. The competition for these opportunities is
heavily biased toward price, availability of application software, ease of use,
software development tools, networking capabilities and product delivery. Sun
has also encouraged the proliferation of its SPARC technology as a standard in
the computer marketplace by licensing much of the technology and promoting open
interfaces to the Solaris operating environment, as well as by offering
microprocessors and enabling technologies to third party customers. As a result,
several licensees also offer SPARC/Solaris based products that compete directly
with Sun's products primarily in this area.
The Company expects that the markets for its products and technology, as
well as its competitors within such markets, will continue to change as the
rightsizing trend shifts customer buying patterns to distributed systems
employing multiple platform networks. Raw microprocessor performance is a highly
visible element of the competitive landscape and Sun expects to see continued
performance improvements in microprocessor technology and products introduced by
Intel Corporation and Motorola, Inc. Such products, coupled with enhanced
operating systems software from Microsoft Corporation and other competitors, are
expected to continue to provide competitive pressure throughout the Company's
product range. While many factors affect
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a customer's buying decision, Sun's future operating results will depend, in
part, on its ability to compete in these technologies.
PATENTS AND LICENSES
Sun currently holds a number of U.S. and foreign patents relating to
various aspects of its products and technology. While the Company believes that
patent protection is important, it also believes that patents are of less
competitive significance than such factors as innovative skills and
technological expertise.
As is common in the computer industry, the Company has from time to time
been notified that it may be infringing certain patents and other intellectual
property rights of others, although no material litigation has arisen out of any
of these claims. Several pending claims are in various stages of evaluation. The
Company is evaluating the desirability of entering into licensing agreements in
certain of these cases. Based on industry practice, the Company believes that in
most cases any necessary licenses or other rights could be obtained on
commercially reasonable terms. However, no assurance can be given that licenses
can be obtained on acceptable terms or that litigation will not occur. The
failure to obtain necessary licenses or other rights, or litigation arising out
of such claims, could have a material adverse effect on the Company's
operations.
Sun has entered into separate patent exchange agreements with IBM, Cray
Research, Inc. (Cray) and Fujitsu. Under each agreement, the parties grant to
each other non-exclusive, worldwide rights to patents in their respective patent
portfolios. These agreements cover patents issued or applied for during certain
limited periods as specified in the agreements. The agreements with Cray and
Fujitsu are royalty free. The agreement with IBM requires Sun to make annual
payments through July 1995. These payments have not been and are not expected to
be material to Sun's financial position.
In March 1990, Texas Instruments Incorporated (TI) alleged that a
substantial number of the Company's products infringe certain of TI's patents.
Based on its discussions with TI, the Company believes that it will be able to
negotiate a license agreement with TI, if necessary, and that the outcome of
this matter will not have a material adverse effect on Sun's financial position.
EMPLOYEES
As of June 30, 1994, Sun employed approximately 13,300 people. The
Company's future operating results will depend on its ability to continue to
broaden and develop senior management and to attract and retain skilled
employees, and on the ability of its management and key employees to manage
growth successfully through the enhancement of management information systems
and financial controls. None of Sun's employees are represented by a labor union
in the United States.
ITEM 2. PROPERTIES
Sun conducts its worldwide operations using a combination of leased and
owned facilities. The Company believes that, while it currently has sufficient
facilities to conduct its operations during fiscal 1995, it will continue to
lease and acquire owned facilities throughout the world as its business
requires. Properties owned by the Company consist of an approximately 260,000
square foot facility on approximately 10 acres in Palo Alto, California; an
approximately 227,000 square foot facility on approximately 30 acres in
Linlithgow, Scotland; an approximately 30,000 square foot facility on
approximately 2.5 acres in Bagshot, England; and approximately 90 acres in
Newark, California. In addition, Sun is committed to purchase in the first half
of fiscal 1995 an approximately 439,000 square foot facility on approximately 27
acres in Menlo Park, California, which is currently leased by the Company. The
facility will be occupied beginning in the first quarter of fiscal 1995. Sun
leases approximately 165 sales and service offices throughout the world
aggregating about 2.1 million square feet. Sun also leases approximately 3
million square feet for its research and development and manufacturing
facilities, primarily in Milpitas, Sunnyvale and Mountain View, California and
Chelmsford, Massachusetts. In addition, Sun leases approximately 28 acres in
Menlo Park, California with
8
<PAGE> 10
approximately 596,000 square feet under construction with an estimated
completion date of the second quarter of fiscal 1997.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of September 7, 1994:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Scott G. McNealy 39 Chairman of the Board of Directors,
President and Chief Executive Officer, Sun
Microsystems, Inc.
Kenneth M. Alvares 50 Vice President, Human Resources, Sun
Microsystems, Inc.
Richard B. Barker 44 Vice President and Corporate Treasurer, Sun
Microsystems, Inc.
Patrick J. Deagman 46 Vice President, Finance, Information
Resources and Operations, SunSoft, Inc.
Lawrence W. Hambly 48 President, SunService
Masood A. Jabbar 44 Vice President, Chief Financial Officer Sun
Microsystems Computer Company
William N. Joy 39 Vice President, Research and Development;
Sun Microsystems, Inc.
Michael E. Lehman 44 Vice President, Chief Financial Officer Sun
Microsystems, Inc.
William G. Marr 47 Vice President, North American and
Australian Field Operations, Sun
Microsystems Computer Company
Michael H. Morris 46 Vice President, General Counsel and
Corporate Secretary, Sun Microsystems,
Inc.
Rajesh H. Parekh 41 Vice President, Engineering, Sun
Microsystems Computer Company
William J. Raduchel 48 Vice President, Corporate Planning and
Development and Chief Information Officer,
Sun Microsystems, Inc.
George Reyes 40 Vice President, Corporate Controller, Sun
Microsystems, Inc.
Joseph P. Roebuck 58 Vice President, Worldwide Field Operations,
Sun Microsystems Computer Company
J. Phillip Samper 60 President, Sun Microsystems Computer Company
Eric E. Schmidt 39 Vice President, Chief Technology Officer,
Sun Microsystems, Inc.
John C. Shoemaker 51 Vice President, Worldwide Operations, Sun
Microsystems Computer Company
Chester J. Silvestri 45 President, SPARC Technology Business
Dorothy A. Terrell 49 President, SunExpress, Inc.
Kevin J.F. Walsh 52 Vice President, Finance and Planning,
Worldwide Operations, Sun Microsystems
Computer Company
Edward J. Zander 47 President, SunSoft, Inc.
</TABLE>
Mr. McNealy is a founder of the Company and has served as Chairman of the
Board of Directors, President and Chief Executive Officer since December 1984,
as President and Chief Operating Officer from February 1984 to December 1984 and
as Vice President of Operations from February 1982 to February 1984. Mr. McNealy
has served as a director of the Company since the incorporation of Sun in
February 1982.
Mr. Alvares has served as Vice President, Human Resources of the Company
since June 1992. From 1990 to June 1992, he served as Vice President, Human
Resources, Nichols Institute. He held various positions at Frito-Lay, Inc. from
1984 to 1990, including Vice President of Personnel from 1987 to 1990.
10
<PAGE> 12
Mr. Barker has served as Vice President and Corporate Treasurer since
October 1992. From July 1992 to October 1992, he served as Vice President,
European Corporate Functions of the Company. From January 1990 to June 1992, he
served as Vice President, European Finance and from January 1986 to December
1989, he served as Director, European Finance for the Company.
Mr. Deagman has served as Vice President, Finance, Information Resources
and Operations of SunSoft, Inc. since July 1993. From July 1991 to June 1993, he
served as Director, Finance, Information Resources and Operations of SunSoft,
Inc. From October 1990 to June 1991, he served as Director, Worldwide
Operations, Finance and Business Planning. Prior to joining Sun, from November
1988 to September 1990, Mr. Deagman served as Vice President and Chief Financial
Officer of Xerox Imaging Systems, a subsidiary of Xerox Corporation.
Mr. Hambly has served as President, SunService, a division of the Company,
since July 1993. From July 1991 to July 1993, he served as Vice President,
Marketing of Sun Microsystems Computer Company (formerly Sun Microsystems
Computer Corporation). From July 1988 to July 1991, he served as President of
Sun Microsystems Federal, Inc. From April 1983 to July 1988, he served in
various sales management capacities at the Company, most recently as Vice
President, Western Area Sales.
Mr. Jabbar has served as Vice President, Finance and Chief Financial
Officer of Sun Microsystems Computer Company since June 1994. From July 1992
until June 1994, Mr. Jabbar served as Vice President, Finance and Planning,
Worldwide Field Operations of Sun Microsystems Computer Company. From June 1991
to June 1992, he served as Vice President, Finance and Administration, United
States Field Operations for Sun Microsystems Computer Company and from October
1990 to June 1991, he served as Director, Finance and Administration, United
States Field Operations for the Company. From October 1989 to October 1990, he
served as Director of United States Field Marketing for the Company. From April
1988 to October 1989, he served as United States Sales and Service Controller
for the Company. From December 1986 to April 1988 he served as United States and
Intercontinental Sales Controller for the Company.
Mr. Joy has served as Vice President, Research and Development of the
Company since August 1983.
Mr. Lehman has served as Vice President and Chief Financial Officer since
February 1994. From June 1990 until February 1994, Mr. Lehman served as Vice
President and Corporate Controller of the Company. From September 1989 to June
1990, he served as Director of Finance and Administration of Sun Microsystems of
California, Ltd., one of the Company's Hong Kong subsidiaries. He served as
Assistant Corporate Controller of the Company from September 1988 to August 1989
and as External Reporting Manager from August 1987 to August 1988.
Mr. Marr has served as Vice President, North American and Australian Field
and Operations of Sun Microsystems Computer Company since April 1992. From July
1991 to April 1992, he served as Vice President and General Manager of SunPics,
currently a business of Sun Microsystems Computer Company. From July 1990 to
June 1991 he served as Vice President of Purchasing for the Company and from
December 1987 to June 1990, he served as Central Area Sales Vice President for
the Company.
Mr. Morris has served as Vice President, General Counsel and Corporate
Secretary of the Company since October 1987. From July 1986 to October 1987, he
was General Counsel and Secretary of U.S. Telecenters Corporation.
Mr. Parekh has served as Vice President, Engineering for Sun Microsystems
Computer Company since July 1993. From September 1992 to July 1993, he served as
Vice President, Advanced Workstations and Graphics for Sun Microsystems Computer
Company. Prior to joining the Company, from September 1982 to May 1992, he
served in various positions, including Vice President and General Manager,
Personal Systems and Corporate Vice President Advanced Technology for Silicon
Graphics, Inc. ("SGI"). From May 1992 to September 1992, he was employed by SGI
as an independent consultant.
Mr. Raduchel has served as Vice President, Corporate Planning and
Development and as Chief Information Officer of the Company since July 1991. In
addition, from July 1991 to June 1992, he served as Vice President, Human
Resources (acting). From June 1989 to July 1991, he served as Vice President and
11
<PAGE> 13
Chief Financial Officer of the Company; he was also acting Chief Information
Officer of the Company from November 1990 to July 1991. From October 1988 to
June 1989, he served as Vice President, Corporate Planning and Development. From
1985 to 1988, he served as Vice President of Document Systems in the Strategic
Business Office of Xerox Corporation.
Mr. Reyes has served as Corporate Controller of the Company since April
1994. From April 1992 to March 1994, Mr. Reyes served as Audit Director for the
Company. From April 1991 to April 1992, he was Director of Finance for the
Company's ICON operations. From June 1989 to April 1991, he served as Assistant
Controller. From July 1988 to June 1989, Mr. Reyes was the Controller of the
Company's General Systems Group. From March 1988 to June 1988, Mr. Reyes served
as the Company's Marketing Controller.
Mr. Roebuck has served as Vice President, Worldwide Field Operations of Sun
Microsystems Computer Company since April 1992. From November 1988 to April
1992, he served as Vice President, United States Field Operations, Sun
Microsystems Computer Company and from January 1986 to November 1988, he served
as Vice President of Sales for the Company.
Mr. Samper joined Sun in February 1994 as President, Sun Microsystems
Computer Company. Prior to that time, from August 1992 to February 1994, Mr.
Samper served as a General Partner of Sterling Partners, L.P. From February 1991
to August 1992, he was a private investor and consultant. From June 1990 to
February 1991, Mr. Samper served as President and Chief Executive Officer of
Kinder-Care Learning Centers, Inc., a child care center operating company. Prior
to that, he served Eastman Kodak for 28 years, most recently as Vice Chairman
and Executive Officer from 1986 to 1989. From October 1991 to February 1994, Mr.
Samper also served as a director on the Company's Board of Directors.
Mr. Schmidt has served as Chief Technology Officer of the Company since
February 1994. From July 1991 to February 1994, Mr. Schmidt served as President
of Sun Technology Enterprises, Inc., formerly a subsidiary of the Company. From
July 1988 to July 1991, he served as Vice President of the Company's General
Systems Group. From May 1985 to July 1988, he served as Vice President and
General Manager, Software Products Division for the Company.
Mr. Shoemaker has served as Vice President, Worldwide Operations of Sun
Microsystems Computer Company since July 1993. From June 1992 to July 1993 he
served as Vice President, U.S. Operations of Sun Microsystems Computer Company.
From May 1990 to February 1993, he also served as Vice President, Finance and
Planning, Worldwide Operations (on an acting basis since July 1992). He served
as Vice President (Acting), Materials, Worldwide Operations from October 1991 to
June 1992. From March 1989 to March 1990, he served as Senior Vice President,
Electronic Printing Worldwide Marketing, Xerox Corporation. From December 1986
to March 1989, he served as Vice President and General Manager, Document Systems
Business, Xerox Corporation.
Mr. Silvestri has served as President, SPARC Technology Business since
February 1994. From August 1992 to February 1994, Mr. Silvestri served as Vice
President, SPARC Sales. Prior to joining Sun, from December 1986 to August 1992,
he served as Vice President and General Manager, Technology Products for MIPS
Computer Systems, Inc., later acquired by SGI.
Ms. Terrell has served as President of SunExpress, Inc. since August 1991.
She held various positions at Digital Equipment Corporation from 1976 to 1991,
including Group Manager, Application Specific Interconnect and Packaging in
1991, Manufacturing Manager from 1988 to 1991 and Resource Development Manager,
Corporate Manufacturing from 1987 to 1988.
Mr. Walsh has served as Vice President, Finance and Planning, Worldwide
Operations for Sun Microsystems Computer Company since February 1993. From
February 1993 to February 1994, Mr. Walsh also served as Corporate Controller
for Sun Microsystems Computer Company. Prior to joining the Company, from June
1990 to January 1993, he served as Chief Operating Officer of Spatial Technology
Inc. From 1985 to May 1990, he served as Vice President, Finance for
Schlumberger Technologies, Inc.
Mr. Zander has served as President of SunSoft, Inc. since July 1991. From
October 1987 to July 1991, he served as Vice President of Corporate Marketing of
the Company.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to page
28 and the inside back cover of Sun's 1994 Annual Report to Stockholders. At
September 7, 1994 there were 4,738 stockholders of record.
The following is a summary of all sales of the Company's Common Stock by
the Company's executive officers who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, during the fiscal quarter ended June 30, 1994:
<TABLE>
<CAPTION>
NUMBER OF
OFFICER DATE PRICE SHARES SOLD
------- ------- -------- -----------
<S> <C> <C> <C>
Melia, Kevin...................... 4/26/94 $22.50 814
Reyes, George..................... 5/31/94 $20.8125 1,600
Wozniak, Curt..................... 5/27/94 $21.065 20,000
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information included under the caption "Historical Financial Review" on page 10
of Sun's 1994 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to pages
11 through 14 of Sun's 1994 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to pages
15 through 27 of Sun's 1994 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
13
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is incorporated by reference
from "Election of Directors" in Sun's 1994 Proxy Statement for the Company's
1994 Annual Meeting of Stockholders. Current executive officers of the
Registrant found under the caption "Executive Officers of the Registrant" in
Part I hereof is also incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in Sun's 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section entitled "Information Concerning Solicitation and Voting -- Record Date
and Share Ownership" and "Security Ownership of Management" in Sun's 1994 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections entitled "Executive Compensation -- Summary Compensation Table",
"Certain Transactions With Management" and "Employment Contracts and
Change-In-Control Arrangements" in Sun's 1994 Proxy Statement.
14
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements that are incorporated herein by reference to
the following in Sun's 1994 Annual Report to Stockholders:
Consolidated Statements of Income for each of the three years in
the period ended June 30, 1994 (page 15).
Consolidated Balance Sheets at June 30, 1994 and 1993 (page 16).
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1994 (page 17).
Consolidated Statement of Stockholders' Equity for each of the
three years in the period ended June 30, 1994 (page 18).
Notes to Consolidated Financial Statements (pages 19 through 26).
Report of Ernst & Young LLP, Independent Auditors (page 27).
The Company's 1994 Annual Report to Stockholders is not deemed filed as
part of this report except for those parts specifically incorporated
herein by reference.
2. Financial statement schedules:
<TABLE>
<CAPTION>
PAGE SCHEDULE TITLE
---- --------- -----
<S> <C> <C>
S-1 I Marketable Securities -- Other Investments
S-2 II Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties
S-5 VIII Valuation and Qualifying Accounts
S-6 IX Short-Term Borrowings
</TABLE>
All other schedules have been omitted since the required information is
not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements, including the notes
thereto.
3. EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
3.1(2) Amended and Restated Certificate of Incorporation of Registrant.
3.2(10) Bylaws of Registrant, as amended.
3.3(9) Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant.
4.1(6) Indenture between Registrant and Harris Trust and Savings Bank,
Trustee, covering $135,000,000 of 6 3/8% Debentures (including form
of Debenture) due October 15, 1999.
4.3(10) First Amended and Restated Common Shares Rights Agreement dated
December 14, 1990, between Registrant and The First National Bank
of Boston.
4.4(12) Amendment dated as of October 28, 1991 to the First Amended and
Restated Common Shares Rights Agreement dated December 14, 1990.
4.5(13) Second Amendment dated as of August 5, 1992 to the First Amended
and Restated Common Shares Rights Agreement dated December 14,
1990.
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
10.1(1) Technology Transfer Agreement dated February 27, 1982, for the
purchase by the Registrant of certain technology for cash, and
related Assumption Agreement dated February 27, 1982.
10.3(1) Form of Founders' Restricted Stock Purchase Agreement.
10.8(1) Registration Rights Agreement dated as of November 26, 1984.
10.8A(1) Amendment to Registration Rights Agreement.
10.9(3) Registrant's 1982 Stock Option Plan, as amended, and representative
forms of Stock Option Agreement.
10.10(3) Registrant's Restricted Stock Plan, as amended, and representative
form of Stock Purchase Agreement.
10.11(11) Registrant's 1984 Employee Stock Purchase Plan, as amended.
10.21(1) License Agreement dated July 26, 1983, by and between Registrant
and The Regents of the University of California.
10.22(1) Software Agreement effective as of April 1, 1982 by and between
Registrant and American Telephone and Telegraph Company, and
Supplemental Agreement dated effective as of May 28, 1983.
10.48(3) Registrant's 1987 Stock Option Plan and representative form of
Stock Option Agreement.
10.50(5) Amended and Restated Term Loan Agreement dated June 7, 1989 between
the Registrant, The First National Bank of Boston, Security Pacific
National Bank and The First National Bank of Boston, as agent for
the banks.
10.51(5) First Amendment to Amended and Restated Term Loan Agreement dated
September 22, 1989.
10.56(5) Building Loan Agreement dated May 11, 1989, between Sun
Microsystems Properties, Inc. and the Toyo Trust and Banking
Company, Limited, New York Branch and the related Promissory Note;
First Deed of Trust, Assignment of Leases, Rents and Other Income
and Security Agreement; Guaranty of Payment; Guaranty of Completion
(Sun Microsystems Properties, Inc.); Guaranty of Completion (Sun
Microsystems, Inc.); Shortfall Agreement and Indemnity.
10.57(5) Note and Warrant Purchase Agreement dated September 26, 1989,
between the Registrant, The Ohio National Life Insurance Company,
Principal Mutual Life Insurance Company, Pruco Life Insurance
Company, The Prudential Life Insurance Company of America,
Prudential Property and Casualty Insurance Company and Teachers
Insurance and Annuity Association of America and related Common
Stock Purchase Warrant.
10.59(6) Second Amendment to Amended and Restated Term Loan Agreement dated
as of October 26, 1989.
10.60(7) Note and Warrant Purchase Agreement dated December 15, 1989,
between the Registrant and Metropolitan Life Insurance Company and
related Common Stock Purchase Warrant.
10.61(7) Note and Warrant Purchase Agreement dated December 15, 1989,
between the Registrant and Allstate Life Insurance Company, Modern
Woodmen of America, The Ohio National Life Insurance Company, The
Western and Southern Life Insurance Company, Western-Southern Life
Insurance Company and Keystone Provident Life Insurance Company and
related Common Stock Purchase Warrant.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
10.62(8) Credit Agreement dated as of April 4, 1990, between the Registrant;
Citibank N.A.; Bank of America National Trust and Savings
Association; The First National Bank of Boston; Barclays Bank PLC;
Security Pacific National Bank; Morgan Guaranty Trust Company of
New York; Morgan Bank (Delaware); Algemene Bank Nederland N.V.; The
Fuji Bank, Limited; Mitsui Taiyo Kobe Bank, Limited; and the Bank
of California, N.A.
10.63(8) Third Amendment to Amended and Restated Term Loan Agreement dated
as of April 3, 1990.
10.64(9) Registrant's 1988 Directors' Stock Option Plan and representative
form of Stock Option Agreement.
10.65(11) Registrant's 1990 Employee Stock Purchase Plan.
10.66(11) Registrant's 1990 Long-Term Equity Incentive Plan and
representative form of agreement.
10.68(11) First Amendment to Credit Agreement dated as of June 25, 1991.
10.69(11) Fourth Amendment to Amended and Restated Term Loan Agreement dated
June 27, 1991.
10.73(11) Representative form of letter dated June 25, 1991 between the
Registrant and the insurance companies who are parties to the Note
and Warrant Purchase Agreements dated September 26, 1986 and
December 15, 1989.
10.74(11) Software Distribution Agreement dated January 28, 1991 by and
between the Registrant and UNIX System Laboratories, Inc.
10.75(14) Promissory Notes from Kenneth Alvares to the Registrant dated June
10, 1992 and July 13, 1992.
10.77(16) Lease Agreement between BNP Leasing Corporation and Registrant,
effective as of September 25, 1992.
10.79(16) Amendments to Note and Warrant Purchase Agreement dated May 26,
1993.
10.80 Promissory note from Chester Silvestri to the Registrant dated
December 30, 1992.
10.81 Notice of Exercise and Irrevocable Subscription Agreement dated
July 26, 1994 between Lawrence W. Hambly and the Registrant.
10.82 Revolving Credit Agreement dated June 1, 1994, between the
Registrant; Citicorp USA, Inc.; Bank of America National Trust and
Savings Association; ABN AMRO Bank N.V; The First National Bank of
Boston; Barclays Bank PLC; Morgan Guaranty Trust Company of New
York; The Fuji Bank Limited, San Francisco Agency; The Bank of
California, N.A.; The Sakura Bank, Limited, San Francisco Agency;
Banque Nationale de Paris; Bayerische Vereinsbank AG, Los Angeles
Agency; The Industrial Bank of Japan, Limited, San Francisco
Agency; Swiss Bank Corporation.
10.83 Receivables Purchase Agreement dated as of August 5, 1994 among the
Registrant, SunExpress, Inc., Sun Microsystems Federal, Inc.,
SunSoft, Inc., J.P. Morgan Delaware and Morgan Guaranty Trust
Company of New York.
11.0 Statement of computation of earnings per share.
13.0 1994 Annual Report to Stockholders (to be deemed filed only to the
extent required by the instructions to exhibits for reports on Form
10-K).
22.0 Subsidiaries of Registrant.
23.1 Consent of Independent Auditors.
24.0 Power of Attorney (see page 20).
27.0 Financial Data Schedule.
</TABLE>
17
<PAGE> 19
- - - ---------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-2897), which became effective March 4, 1986.
(2) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1987.
(3) Incorporated by reference to Exhibits 19.1, 19.3 or 19.4, filed as Exhibits
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 25, 1987.
(4) Incorporated by reference to an exhibit filed as an exhibit to the
Registrant's Report on Form 8-K filed on January 11, 1988.
(5) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989.
(6) Incorporated by reference to Exhibits 19.0 and 19.3 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 29, 1989.
(7) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 29, 1989.
(8) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March
30, 1990.
(9) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990.
(10) Incorporated by reference to Exhibits 3.1 and 4.1 filed as exhibits to the
Registrant's Report on Form 8-K filed on December 28, 1990.
(11) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991.
(12) Incorporated by reference to Exhibit 4.0 filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
27, 1991.
(13) Incorporated by reference to Exhibit 3 filed as an exhibit to the
Registrant's Form 8 Amendment No. 3 to Registration Statement on Form 8-A
filed on September 16, 1992.
(14) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992.
(15) Incorporated by reference to Exhibit 19.0 filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
25, 1992.
(16) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUN MICROSYSTEMS, INC.
Registrant
September 27, 1994
By: /s/ MICHAEL E. LEHMAN
------------------------------------
Michael E. Lehman
Vice President and Chief Financial
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott G. McNealy and Michael E. Lehman jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the Chief
Executive Officer, the Chief Financial Officer and Corporate Controller and a
majority of the Board of Directors, on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SCOTT G. McNEALY Chairman of the Board of September 27, 1994
- - - ------------------------------------------------ Directors, President and
(Scott G. McNealy) Chief Executive Officer
(Principal Executive
Officer)
/s/ MICHAEL E. LEHMAN Vice President and Chief September 27, 1994
- - - ------------------------------------------------ Financial Officer
(Michael E. Lehman) (Principal Financial
Officer)
/s/ GEORGE REYES Vice President and September 27, 1994
- - - ------------------------------------------------ Corporate Controller
(George Reyes) (Principal Accounting
Officer)
/s/ L. JOHN DOERR Director September 27, 1994
- - - ------------------------------------------------
(L. John Doerr)
/s/ WILLIAM RANDOLPH HEARST III Director September 27, 1994
- - - ------------------------------------------------
(William Randolph Hearst III)
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT L. LONG Director September 27, 1994
- - - ------------------------------------------------
(Robert L. Long)
/s/ M. KENNETH OSHMAN Director September 27, 1994
- - - ------------------------------------------------
(M. Kenneth Oshman)
/s/ A. MICHAEL SPENCE Director September 27, 1994
- - - ------------------------------------------------
(A. Michael Spence)
</TABLE>
20
<PAGE> 22
SCHEDULE I
SUN MICROSYSTEMS, INC.
MARKETABLE SECURITIES -- OTHER INVESTMENTS
YEAR ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
NAME OF ISSUER/ NUMBER OF
TITLE OF EACH ISSUE SHARES AMOUNT(1)
------------------- --------- ---------
<S> <C> <C>
Auction Market Preferred Stock.................................. 55,959 $271,543
Municipal Obligations........................................... 162,318
Commercial Paper................................................ 11,427
Tax-exempt Commercial Paper..................................... 3,591
--------
$448,879
========
</TABLE>
- - - ---------------
(1) Stated at cost, which approximates market. No individual security or group
of securities of an issuer exceeds 2% of total assets of the Company.
S-1
<PAGE> 23
SCHEDULE II
SUN MICROSYSTEMS, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING AMOUNTS END OF
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED PERIOD
-------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Year Ended June 30, 1994:
Kenneth Alvares:
Interest-free note receivable secured by
stock due in 1997......................... $300 $ -- $ -- $300
Interest-free note receivable secured by
real property due in 1997................. $375 $ -- $ -- $375
---- ----- ----- ----
$675 $ -- $ -- $675
==== ===== ===== ====
Mel Friedman:
8.57% notes receivable secured by real
property due in 1994...................... $150 $ -- $ -- $150
==== ===== ===== ====
Chester Silvestri:
Interest-free unsecured note receivable due
in 1995................................... $120 $ -- $ -- $120
==== ===== ===== ====
</TABLE>
S-2
<PAGE> 24
SCHEDULE II
(CONTINUED)
SUN MICROSYSTEMS, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING AMOUNTS END OF
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED PERIOD
-------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Year Ended June 30, 1993:
Kenneth Alvares:
Interest-free note receivable secured by
stock due in 1997......................... $300 $ -- $ -- $300
Interest-free note receivable secured by
real property due in 1997................. $ -- $375 $ -- $375
---- ---- ---- ----
$300 $375 $ -- $675
==== ==== ==== ====
Mel Friedman:
8.57% notes receivable secured by real
property due in 1994...................... $300 $ -- $150 $150
==== ==== ==== ====
Jessie Mobley:
9.38% notes receivable secured by real
property due in 1994...................... $200 $ -- $200 $ --
==== ==== ==== ====
Dennis M. Ohryn:
8.25% notes receivable secured by real
property due in 1992...................... $200 $ -- $200 $ --
8.38% note receivable secured by real
property due in 1992...................... 30 -- 30 --
8.99% note receivable secured by real
property due in 1993...................... 70 -- 70 --
---- ---- ---- ----
$300 $ -- $300 $ --
==== ==== ==== ====
</TABLE>
S-3
<PAGE> 25
SCHEDULE II
(CONTINUED)
SUN MICROSYSTEMS, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING AMOUNTS END OF
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED PERIOD
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended June 30, 1992:
Kenneth Alvares:
Interest-free note receivable secured by stock
due in 1997................................ $ -- $300 $ -- $300
==== ==== ==== ====
Mel Friedman:
8.57% notes receivable secured by real
property due in 1994....................... $300 $ -- $ -- $300
==== ==== ==== ====
Leonard B. Hughes:
8.25% notes receivable secured by real
property due in 1992....................... $176 $ -- $176 $ --
==== ==== ==== ====
Jessie Mobley:
9.38% notes receivable secured by real
property due in 1994....................... $200 $ -- $ -- $200
==== ==== ==== ====
Dennis M. Ohryn:
8.25% notes receivable secured by real
property due in 1992....................... $200 $ -- $ -- $200
8.38% note receivable secured by real property
due in 1992................................ 30 -- -- 30
8.99% note receivable secured by real property
due in 1993................................ 70 -- -- 70
---- ---- ---- ----
$300 $ -- $ -- $300
==== ==== ==== ====
Edward J. Zander:
8.62% note receivable secured by real property
due in 1993................................ $174 $ -- $174 $ --
==== ==== ==== ====
</TABLE>
S-4
<PAGE> 26
SCHEDULE VIII
SUN MICROSYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTION/ END OF
DESCRIPTION OF PERIOD EXPENSES WRITEOFF PERIOD
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1992:
Accounts receivable allowances............. $58,985 $ 71,380 $ 81,668 $48,697
======= ======== ========= =======
Year ended June 30, 1993:
Accounts receivable allowances............. $48,697 $ 89,027 $ 86,262 $51,462
======= ======== ========= =======
Year ended June 30, 1994:
Accounts receivable allowances............. $51,462 $167,281 $138,898 $79,845
======= ======== ========= =======
</TABLE>
S-5
<PAGE> 27
SCHEDULE IX
SUN MICROSYSTEMS, INC.
SHORT-TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWING PERIOD RATE PERIOD PERIOD(A) PERIOD(B)
--------------------- ---------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1992:
Payable to others for borrowings...... $91,284 7.6% $ 91,284 $48,007 8.0%
======= === ======== ======= ===
Year ended June 30, 1993:
Payable to others for borrowings...... $90,890 5.4% $140,451 $94,595 6.5%
======= === ======== ======= ===
Year ended June 30, 1994:
Payable to others for borrowings...... $78,687 3.0% $ 90,890 $55,415 7.6%
======= === ======== ======= ===
</TABLE>
- - - ---------------
(A) Calculated on average monthly borrowings
(B) Calculated by dividing interest on short-term borrowings during the year by
average short-term borrowings
S-6
<PAGE> 1
EXHIBIT 10.80
Sun Microsystems, Inc.
2550 Garcia Avenue
Mountain View, CA 94043-1100
415 960-1300
PROMISSORY NOTE
$120,000.00 Mountain View, California
December 30, 1992
In installments as stated in the Note, for value received, Chester
Silvestri and Irene Silvestri (hereinafter collectively referred to as
"Borrower") hereby promise to pay to Sun Microsystems, Inc., a Delaware
corporation ("Lender") or order, at its offices at 2550 Garcia Avenue, Mountain
View, California, or at such other place as Lender may from time to time
designate in writing, the principal sum of One Hundred Twenty Thousand Dollars
($120,000.00) on the following terms:
1. PAYMENT: The principal due pursuant to this Note shall be paid in full on
or before July 30, 1994 in lawful money of the United States. This Note
shall bear no interest; however, Borrower acknowledges that the federal,
state and local tax authorities may impute interest and that any tax(es) on
such imputed interest shall be the sole obligation of Borrower. This Note
may be prepaid at any time.
2. DEFAULT AND ACCELERATION:
A. Full Acceleration: Unless otherwise prohibited by law, upon the
occurrence of any of the following events, the Holder of this Note
shall have the option, without demand or notice, to declare the entire
balance of principal of this Note to be immediately due and payable:
(i) Borrower defaults in the payment of principal when due pursuant to
the terms hereof or defaults in the performance of any obligation
of Borrower or other agreement (including any amendment,
modification or extension thereof) which may hereafter be executed
by Borrower for the purpose of securing this Note;
(ii) Thirty (30) days after (a) Lender is notified that Chester
Silvestri is terminating his employment with Lender, or (b)
Lender terminates Chester Silvestri's employment for cause.
For purposes of this Note, the term "cause" shall mean Chester Silvestri's
misfeasance, malfeasance or misconduct, dishonesty or gross negligence in
connection with his employment or such other conduct that reflects
adversely upon the Lender.
B. Partial Acceleration:
(i) In the event that Chester Silvestri dies or is disabled for a
period of more than six months, principal due hereunder shall be
accelerated and (50%) fifty percent of the principal shall be paid
in twelve (12) equal monthly installments, (i) with the first such
monthly payment due, in the event of his death, on the date ninety
(90) days after his death, and, in the event of his disability, on
the date which is six (6) months from the date that Chester
Silvestri becomes disabled, and (ii) the successive monthly
payments being due each month thereafter on the first day of each
such month. The remaining fifty percent (50%) of the principal
shall be due in a balloon payment on the first day of the
thirteenth month following the date of the first payment made
pursuant to this accelerated payment schedule. NOTWITHSTANDING THE
FOREGOING, IN NO EVENT SHALL THE FOREGOING PAYMENT SCHEDULE EXTEND
THE DUE DATE OF THIS NOTE BEYOND JULY 30, 1994 AT WHICH TIME ANY
UNPAID BALANCE SHALL BE DUE AND PAYABLE IN FULL.
-1-
<PAGE> 2
3. ATTORNEY'S FEES: In the event of any default hereunder, Borrower hereby
promises to pay all costs of collection, including reasonable attorney's
fees incurred by Lender hereof on account of such collection, whether or not
suit is filed hereon.
4. WAIVER: The waiver by Lender hereof of any breach of or default under any
terms, covenant or condition contained herein or in any of the agreements
referred to above shall not be deemed to be a waiver of such term, covenant
or condition or any subsequent breach of or default under the same or any
other such term, covenant or condition.
5. NO USURY: Borrower hereby represents and warrants that at no time shall the
proceeds of the indebtedness evidenced hereby be used "primarily for
personal, family, or household purposes" as that term is defined and used in
Article XV of the California Constitution (as amended from time to time).
6. GENERAL PROVISIONS: This Note shall be goverened by and construed in
accordance with the laws of the State of California. The makers, guarantors
and endorsers of this Note hereby severally waive presentment for payment,
protest and demand, notice of notice of protest, demand and dishonor and
nonpayment of this Note, and consent that Lender may extend the time for
payment or otherwise modify the terms of payment or any part of the whole of
the debt evidenced by this Note, at the request of any person liable hereon,
and such consent shall not alter nor diminish the liability of any person.
Borrower hereby waives the defense of the statute of limitations in any
action of this Note to the extent permitted by law. The terms of this
Promissory Note constitute the entire agreement and understanding between
the parties and supersede all previous communications, representations or
agreements, whether written or oral, with respect to the subject matter
hereof.
AS BORROWER:
/s/ CHESTER SILVESTRI
------------------------------------
/s/ IRENE N. SILVESTRI
------------------------------------
-2-
<PAGE> 1
EXHIBIT 10.81
SUN MICROSYSTEMS, INC.
STOCK OPTION EXERCISE NOTICE
AND IRREVOCABLE SUBSCRIPTION AGREEMENT
ATTN: STOCK ADMINISTRATOR
LADIES AND GENTLEMEN:
I, Larry Hambly, irrevocably elect to exercise my option to purchase an
aggregate of 16,000 shares of common stock at an exercise price of $18.00 per
share (the "Shares") of Sun Microsystems, Inc. (the "Company") under and
pursuant to the Nonstatutory Stock Option Agreement(s) attached as Exhibit A
hereto and incorporated herein by this reference (the "Option Agreements")
granted to me by the Company pursuant to the Company's 1982 Incentive Stock
Option Plan, 1987 Stock Option Plan, 1988 Directors' Stock Option Plan and/or
1990 Long#Term Equity Incentive Plan.
I agree to make full payment of the option exercise price for the Shares
within the fifteen day period following the date on which the Company's General
Counsel notifies me, together with the other directors and/or executive officers
of the Company subject to Section 16 of the Securities Exchange Act of 1934,
that the trading window governed by the Company's insider trading policy is
open. I further agree that payment of the exercise price shall be (1) in cash,
(2) by tender of stock of the Company having a fair market value not less than
the option exercise price and held by me for at least six (6) months prior to
the their tender, or (3) by such other consideration as may have been approved
by the Board of Directors of the Company at the time these options were granted
as specified in the applicable Option Agreement. In addition, I will make
adequate provision for federal and state income tax withholding obligations of
the Company, if any, which arise by virtue of my exercise, in whole or in part,
of these options.
I represent and agree that the Shares are being acquired by me in
accordance with and subject to the terms, provisions and conditions of the
Option Agreements, to all of which I hereby expressly assent. In addition, I
acknowledge that my obligations hereunder are secured pursuant to the terms of
that certain Security Agreement executed simultaneously herewith. These
agreements shall bind and inure to the benefit of my heirs, legal
representatives, successors and assigns.
I UNDERSTAND THAT THIS EXERCISE NOTICE AND IRREVOCABLE SUBSCRIPTION
AGREEMENT MAY NOT BE REVOKED, ALTERED, AMENDED OR TERMINATED. I FURTHER
ACKNOWLEDGE THAT THE MARKET VALUE OF THE SHARES RECEIVED ON EXERCISE OF THE
OPTIONS MAY DECREASE IN VALUE, AND REGARDLESS OF ANY SUCH DECREASE I WILL BE
LIABLE UNDER ALL CIRCUMSTANCES FOR PAYMENT OF THE FULL EXERCISE PRICE, WITHOUT
EXCEPTION. I HAVE ALSO BEEN
<PAGE> 2
ADVISED TO CONSULT MY TAX ADVISOR CONCERNING THE EXERCISE OF THE SUBJECT OPTIONS
AND THE ADVISABILITY OF ENTERING INTO ANY TAX OR OTHER ELECTIONS IN CONNECTION
THEREWITH.
My address of record is:
100 Mt. Hamilton Avenue
Los Altos, CA 94022
and my Social Security Number is:
###-##-####
Very truly yours,
/s/ LAWRENCE W. HAMBLY
The undersigned, being the spouse of the optionee exercising the options
set forth above, does hereby acknowledge that the undersigned has read and is
familiar with the provisions of the above Stock Option Exercise Notice and
Irrevocable Subscription Agreement and the Option Agreements, and the
undersigned hereby agrees to such Agreements and joins in them to the extent, if
any, that the agreement and joinder of the undersigned may be necessary.
Date: July 26, 1994
Receipt of the above is hereby
acknowledged.
By: /s/ ANNE B. HAMBLY
Dated: July 26, 1994
2
<PAGE> 3
Exercise of Stock Options
EXHIBIT A
SECURITY AGREEMENT
This Security Agreement is made as of July 26, 1994 between Sun
Microsystems, Inc., a Delaware corporation (the "Pledgee"), Larry Hambly and
Anne B. Hambly (collectively, "Pledgor") and the Secretary of the Pledgee
("Pledgeholder").
RECITALS
Pursuant to Pledgor's election to enter into that certain Stock Option
Exercise and Irrevocable Subscription Agreement (the "Subscription Agreement"),
between Pledgor and Pledgee, and Pledgor's election to pay for such shares
pursuant to the terms of such Subscription Agreement, Pledgor has purchased
16,000 shares of Pledgee's Common Stock (the "Shares") at a price of 18.00 per
share, for a total purchase price of $288,000.00 ("Purchase Price").
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of Shares to Pledgor under the Subscription Agreement, Pledgor,
pursuant to the Commercial Code of the State of Delaware, hereby pledges all of
such Shares (herein sometimes referred to as the "Collateral") represented by
certificate number(s)
- - - ---------, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Pledgeholder, who shall hold said certificate
subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Purchase Price, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Subscription Agreement, and the Pledgeholder shall not encumber or dispose of
such Shares except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter into
this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the Purchase Price secured
hereby, together with interest thereon, at the time and in the manner provided
in the Subscription Agreement.
(b) Encumbrances. The Shares are free of all other encumbrances, defenses
and liens, and Pledgor will not further encumber the Shares without the prior
written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock becomes
margin-listed by the Federal Reserve Board subsequent to the execution of this
Security Agreement, and Pledgee is classified as a "lender" within the meaning
of the regulations under Part 207 of Title 12 of the Code of Federal Regulations
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Subscription Agreement or providing any additional collateral
as may be necessary to comply with such regulations.
<PAGE> 4
Exercise of Stock Options
3. Voting Rights. During the term of this pledge and so long as all
payments are made as they become due under the terms of the Subscription
Agreement, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes declared or made
in the capital structure of Pledgee, all new, substituted and additional shares
or other securities issued by reason of any such change shall be delivered to
and held by the Pledgee under the terms of this Security Agreement in the same
manner as the Shares originally pledged hereunder. In the event of substitution
of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and
execute such documents as are reasonable so as to provide for the substitution
of such Collateral and, upon such substitution, references to "Shares" in this
Security Agreement shall include the substituted shares of capital stock of
Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term of this pledge,
subscription warrants or other rights or options shall be issued in connection
with the pledged Shares, such rights, warrants and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor and issued with respect to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Subscription
Agreement and this Security in the event:
(a) Payment of Purchase Price shall be delinquent for a period of 10 days
or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Subscription Agreement or contained in this Security Agreement for a period of
10 days after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate full payment of Pledgor's obligations pursuant to the
Subscription Agreement upon notice to Pledgor, and Pledgee shall thereafter be
entitled to pursue his remedies under the Delaware Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge the pledged Shares held
by Pledgeholder hereunder upon full payment by Pledgor pursuant to the terms of
the Subscription Agreement.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes
2
<PAGE> 5
Exercise of Stock Options
an assignment for the benefit of creditors, the entire amount due under the
Subscription Agreement shall become immediately due and payable, and Pledgee may
proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<TABLE>
<S> <C>
"PLEDGOR" /s/ LAWRENCE W. HAMBLY
/s/ ANNE B. HAMBLY
Address:
"PLEDGEE" SUN MICROSYSTEMS, INC.
a Delaware corporation
By: /s/ MICHAEL H. MORRIS
Title: Vice President, General Counsel
& Corporate Secretary
"PLEDGEHOLDER" /s/ MICHAEL H. MORRIS
Corporate Secretary
</TABLE>
3
<PAGE> 1
EXHIBIT 10.82
U.S. $150,000,000
CREDIT AGREEMENT
Dated as of June 1, 1994, among
SUN MICROSYSTEMS, INC.
as Borrower
and
THE LENDERS NAMED HEREIN
as Lenders
and
CITICORP USA, INC.
as Agent
<PAGE> 2
Table of Contents
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . 1
SECTION 1.02. Computation of Time Periods . . . . . . . . . . 11
SECTION 1.03. Accounting Terms . . . . . . . . . . . . . . . 11
ARTICLE II
AMOUNTS AND TERMS OF ADVANCES
SECTION 2.01. The A Advances . . . . . . . . . . . . . . . . 11
SECTION 2.02. Making the A Advances . . . . . . . . . . . . . 12
SECTION 2.03. The B Advances . . . . . . . . . . . . . . . . 13
SECTION 2.04. Fees . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.05. Reduction of the Commitments . . . . . . . . . 17
SECTION 2.06. Repayment of A Advances . . . . . . . . . . . . 17
SECTION 2.07. Interest on A Advances . . . . . . . . . . . . 17
SECTION 2.08. Notes . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.09. Interest Rate Determination . . . . . . . . . . 18
SECTION 2.10. Sharing of Payments, Etc . . . . . . . . . . . 19
SECTION 2.11. Prepayments of A Advances . . . . . . . . . . . 19
SECTION 2.12. Increased Costs . . . . . . . . . . . . . . . . 20
SECTION 2.13. Illegality . . . . . . . . . . . . . . . . . . 21
SECTION 2.14. Payments and Computations . . . . . . . . . . . 21
SECTION 2.15. Taxes . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Condition Precedent to Initial Advances . . . . 24
SECTION 3.02. Conditions Precedent to Each A
Borrowing . . . . . . . . . . .. . . . . . . . 25
SECTION 3.03. Conditions Precedent to Each B
Borrowing . . . . . . . . . . . . . . . . . . 26
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the
Borrower . . . . . . . . . . . . . . . . . . 26
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants . . . . . . . . . . . . . 30
SECTION 5.02. Negative Covenants . . . . . . . . . . . . . . 36
i
<PAGE> 3
Page
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . 42
SECTION 6.02. Mandatory Prepayment; Event of Early
Termination . . . . . . . . . . . . . . . . . . 44
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action . . . . . . . . . . . 45
SECTION 7.02. Agent's Reliance, Etc . . . . . . . . . . . . . 45
SECTION 7.03. CUSA and Affiliates . . . . . . . . . . . . . . 46
SECTION 7.04. Lender Credit Decision . . . . . . . . . . . . 46
SECTION 7.05. Indemnification . . . . . . . . . . . . . . . . 46
SECTION 7.06. Successor Agent . . . . . . . . . . . . . . . . 47
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. . . . . . . . . . . . . . . . 47
SECTION 8.02. Notices, Payments, Etc. . . . . . . . . . . . . 48
SECTION 8.03. No Waiver; Remedies . . . . . . . . . . . . . . 48
SECTION 8.04. Costs and Expenses . . . . . . . . . . . . . . 49
SECTION 8.05. Right of Set-off . . . . . . . . . . . . . . . 50
SECTION 8.06. Binding Effect . . . . . . . . . . . . . . . . 51
SECTION 8.07. Assignments and Participations . . . . . . . . 51
SECTION 8.08. Governing Law . . . . . . . . . . . . . . . . . 54
SECTION 8.09. Headings . . . . . . . . . . . . . . . . . . . 54
SECTION 8.10. Execution in Counterparts . . . . . . . . . . . 54
SECTION 8.11. Confidentiality . . . . . . . . . . . . . . . . 54
SECTION 8.12. Termination . . . . . . . . . . . . . . . . . . 55
SCHEDULE I . . . . . . . . . . . . . . . . . . . . . . . . . . 58
EXHIBITS
EXHIBIT A-l FORM OF A NOTE
EXHIBIT A-2 FORM OF B NOTE
EXHIBIT B-1 NOTICE OF A BORROWING
EXHIBIT B-2 NOTICE OF B BORROWING
EXHIBIT C ASSIGNMENT AND ACCEPTANCE
EXHIBIT D OPINION OF WILSON, SONSINI, GOODRICH & ROSATI
EXHIBIT E COVENANT COMPLIANCE CERTIFICATE
EXHIBIT F LIENS
EXHIBIT G SUBSIDIARIES
EXHIBIT H RESPONSIBLE OFFICERS
ii
<PAGE> 4
CREDIT AGREEMENT
Dated as of June 1, 1994
SUN MICROSYSTEMS, INC., a Delaware corporation (the "Borrower"), the Lenders
listed on the signature pages hereof, and CITICORP USA, INC., a Delaware
corporation ("CUSA"), as agent (the "Agent") for the Lenders hereunder, agree
as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A Advance" means an advance by a Lender to the Borrower as part of an A
Borrowing and refers to an Alternate Base Rate Advance or a Eurodollar Rate
Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A Advances of the
same Type made by each of the Lenders pursuant to Section 2.01.
"A Note" means a promissory note of the Borrower payable to the order of any
Lender, in substantially the form of Exhibit A-1 hereto, evidencing the
aggregate indebtedness of the Borrower to such Lender resulting from the A
Advances made by such Lender.
"Adjusted EBIT" means, for any accounting period, net income (or net loss)
plus the amounts (if any) which, in the determination of net income (or net
loss) for such period, have been deducted for (a) gross interest expense, (b)
income tax expense and (c) rent expense under leases of real and personal
property (excluding, however, from the determination of such rent expense,
taxes and normal and customary operating expenses passed on to the Borrower for
reimbursement pursuant to the terms of such real property leases whether
denominated under such leases as "rent", "additional rent" or otherwise, but
only to the extent that such operating expenses are actually incurred and
passed through to the Borrower), in each case determined in accordance with
generally accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.01(e).
"Advance" means an A Advance or a B Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person.
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"Alternate Base Rate" means, for any period (including a period consisting
of a single day), a fluctuating interest rate per annum as shall be in effect
from time to time which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly by Citibank in New York, New
York, from time to time, as Citibank's base rate; or
(b) 1/2 of one percent per annum above the latest three-week moving
average of secondary market morning offering rates in the United States for
three-month certificates of deposit of major United States money market
banks, such three-week moving average being determined weekly on each Monday
(or, if any such date is not a Business Day, on the next succeeding Business
Day) for the three-week period ending on the previous Friday by the Agent on
the basis of such rates reported by certificate of deposit dealers to and
published by the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations for such rates
received by the Agent from three New York certificate of deposit dealers of
recognized standing selected by the Agent, in either case adjusted to the
nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to
the next higher 1/4 of one percent; or
(c) for any day, 1/2 of one percent per annum above the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by it.
"Alternate Base Rate Advance" means an A Advance which bears interest as
provided in Section 2.07(a).
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of an Alternate Base Rate Advance,
and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a B Advance, the office of such Lender notified by
such Lender to the Agent as its Applicable Lending Office with respect to such
B Advance.
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee reasonably acceptable to the Agent and reasonably
consented to by the Borrower, in substantially the form of Exhibit C hereto.
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"B Advance" means an advance by a Lender to the Borrower as part of a B
Borrowing resulting from the auction bidding procedure described in Section
2.03.
"B Borrowing" means a borrowing consisting of B Advances made at or about
the same time by each of the Lenders whose offer to make one or more B Advances
as part of such borrowing has been accepted by the Borrower under the auction
bidding procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower payable to the order of any
Lender, in substantially the form of Exhibit A-2 hereto, evidencing the
indebtedness of the Borrower to such Lender resulting from a B Advance made by
such Lender.
"B Reduction" has the meaning specified in Section 2.01.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year other than a Saturday, Sunday or
other day on which banks are not required or authorized to close in New York
City or San Francisco, California and, if the applicable Business Day relates
to any Eurodollar Rate Advances, on which dealings are carried on in the
London, England interbank market.
"Change of Control Event" means the occurrence of the following: (i) any
corporation or Person, or a group of related corporations or Persons, shall
acquire (a) beneficial ownership in excess of 50% of the outstanding Voting
Stock of the Borrower or (b) all or substantially all of the assets of the
Borrower, or (ii) a majority of the Board of Directors of the Borrower is, at
any time, composed of persons other than (a) persons who were members of such
Board on the date of this Agreement, (b) successors to such persons elected or
nominated in the ordinary course of business, and (c) any person who has served
as a member of such Board for at least the prior 12 months.
"Citibank" means Citibank, N.A., a national banking association.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.
"Commitment" has the meaning specified in Section 2.01.
"consolidated" refers to the consolidation of the accounts of the Borrower
and its Subsidiaries in accordance with generally accepted accounting
principles, including principles of consolidation, consistent with those
applied in the preparation of the consolidated financial statements referred to
in Section 4.01(e).
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"Consolidated Tangible Net Worth" means the excess of consolidated total
assets over consolidated total liabilities, consolidated total assets and
consolidated total liabilities each to be determined on a consolidated basis
for the Borrower in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the financial statements
referred to in Section 4.01(e), excluding, however, from the determination of
consolidated total assets (i) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents, patent
applications, licenses and rights in any thereof, and other similar
intangibles, (ii) all unamortized debt discount and expense, (iii) asset,
liability, contingency and other appropriate reserves, including reserves for
depreciation and for deferred income taxes, (iv) treasury stock, (v) any
write-up in the book value of any asset resulting from a revaluation thereof
subsequent to June 30, 1993, (vi) the book value of investments in Persons that
are not Subsidiaries (unless the same are readily marketable), and (vii) any
items not included in clauses (i) through (vi) above which are treated as
intangibles in conformity with generally accepted accounting principles.
"Debt" of any Person means (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other similar instruments,
(iii) obligations to pay the deferred purchase price of property or services
(excluding ordinary trade payables incurred in the ordinary course of
business), (iv) obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) all obligations of such Person to purchase
securities (or other property) which arise out of or in connection with the
sale of the same or substantially similar securities or property, (vi) any
reimbursement obligations of such Person to the issuer of a letter of credit or
similar instrument, (vii) all indebtedness or obligations of others secured by
a lien on any asset of such Person, whether or not such indebtedness or
obligations are assumed by such Person (to the extent of the value of the
asset), (viii) any reimbursement obligation of such Person or other arrangement
of whatever nature having the effect of assuring or holding harmless any other
Person against loss with respect to any real property owned by such other
Person, including, without limitation, assuring or guaranteeing that such other
Person shall receive a specified amount in connection with the conveyance of
such real property, (ix) obligations under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (viii) above, and (x) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA. Notwithstanding any
provision herein to the contrary, no obligations of any Person (whether such
obligations be direct or indirect, contingent or otherwise) under the
Receivables Purchase Agreement or any similar agreement or arrangement shall be
"Debt"
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for purposes of this Agreement; provided that the foregoing exclusion shall not
apply to obligations of any such Person pursuant to the indemnity or
reimbursement provisions contained in the Receivables Purchase Agreement
(including, without limitation, indemnities for breaches of representations and
warranties, and those set forth in Article VIII, Section 9.03(b) and Section
10.06 thereof) or any similar agreement or arrangement and to fees and expenses
payable pursuant to the Receivables Purchase Agreement or any similar agreement
or arrangement to the extent that any such obligations are required to be
recorded as liabilities on such Person's balance sheet under generally accepted
accounting principles.
"Default" means any event which, with the passage of time or the giving of
notice or both, would (if not cured within any applicable cure period)
constitute an Event of Default.
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender, or such other office of such Lender as such Lender may from
time to time specify to the Borrower and the Agent.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment, or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means any Person who for purposes of Title IV of ERISA is
a member of the Borrower's controlled group, or under common control with the
Borrower, within the meaning of Section 414 of the Code, and the regulations
promulgated and rulings issued thereunder.
"ERISA Termination Event" means (i) a Reportable Event described in Section
4043 of ERISA and the regulations promulgated thereunder (other than a
Reportable Event not subject to the provision for thirty (30) day notice to the
Pension Benefit Guaranty Corporation under such regulations), or (ii) the
withdrawal of the Borrower or any Subsidiary from a Plan during a
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plan year in which it was a "substantial employer" as defined in Section
4001(a) (2) of ERISA, or (iii) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041
of ERISA or (iv) the institution of proceedings to terminate a Plan by the
Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (v) any
other event or condition which would constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Eurodollar Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to the Borrower and the Agent.
"Eurodollar Margin" means, on any day, with respect to any Eurodollar Rate
Advance made or outstanding on such day, an interest rate per annum equal at
all times to (i) .25% for each day during a Level I Period; (ii) .25% for each
day during a Level II Period; (iii) .275% for each day during a Level III
Period; (iv) .30 for each day during a Level IV Period; and (v) .50 for each
day during a Level V Period.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar Rate
Advance comprising part of the same A Borrowing, an interest rate per annum
determined by the Agent to be (a) the arithmetic mean (rounded upward to the
nearest whole multiple of 1/16 of 1% per annum, if such arithmetic mean is not
such a multiple) of the rates notified to the Agent at which deposits in U.S.
dollars are offered by the principal office of each of the Eurodollar Reference
Banks in London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to the respective Eurodollar Reference
Bank's (or its Affiliate's) Eurodollar Rate Advance comprising part of such A
Borrowing and for a period equal to such Interest Period, divided by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage (as
defined below) for such Interest Period. The "Eurodollar Rate Reserve
Percentage" for the Interest Period for each Eurodollar Rate Advance comprising
part of the same A Borrowing means the reserve percentage applicable two
Business Days before the first day of such Interest Period under regulations
issued from time to time by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve requirement
(including, but not limited to, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in New
York City with deposits exceeding
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One Billion Dollars with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Rate Advances is determined) having a term equal to such Interest
Period.
"Eurodollar Rate Advance" means an A Advance which bears interest as
provided in Section 2.07(b).
"Eurodollar Reference Banks" means the principal London offices of Citibank,
Bank of America National Trust and Savings Association and ABN AMRO Bank N.V.
and each such other bank as may be approved pursuant to Section 8.07(i).
"Events of Default" has the meaning specified in Section 6.01.
"Excess Interest in Receivables" means the extent to which (i) any ownership
interest, security interest or other interest of any third party in the
accounts receivable of the Borrower and its Subsidiaries, exceeds (ii) the
aggregate amount advanced by such third party in respect of the purchase of
such interest (net of amounts received by such third party from the collection
of such accounts receivable).
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fixed Charges" means, for any accounting period, the sum, without
duplication, of (i) gross interest expense during such period, plus (ii)
scheduled amortization of principal in respect of all Debt during such period
(but excluding any required principal payment in respect of any obligation that
is a "bullet" payment, i.e., the entire amount thereof is due in full at
maturity without any amortizing payments prior to said maturity), plus (iii)
amortization of debt discount (but excluding from this clause (iii) and clause
(i) above noncash amortization of debt discount if the maturity of the
obligation so discounted is no earlier than December 31, 1998 pursuant to the
terms and conditions of the instruments and agreements creating such debt
discount), plus (iv) rent expense under leases of real and personal property
during such period (excluding, however, from the determination of such rent
expense, taxes and normal and customary operating expenses passed on to the
Borrower for reimbursement pursuant to the terms of such real property
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leases whether denominated under such leases as "rent", "additional rent" or
otherwise, but only to the extent that such operating expenses are actually
incurred and passed through to the Borrower).
"Interest Period" means, for each A Advance comprising part of the same A
Borrowing, the period commencing on the date of such A Advance and ending on
the last day of the period selected by the Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be (a) 30, 60, 90 or
180 days in the case of an Alternate Base Rate Advance, and (b) 1, 2, 3 or 6
months in the case of a Eurodollar Rate Advance, in each case as the Borrower
may, upon notice received by the Agent in accordance with Section 2.02, select;
provided, however, that:
(i) the Borrower may not select any Interest Period which ends after the
then existing Termination Date;
(ii) Interest Periods commencing on the same date for A Advances comprising
part of the same A Borrowing shall be of the same duration; and
(iii) whenever the last day of any Interest Period would otherwise occur on a
day other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, provided, in the case of
any Interest Period for a Eurodollar Rate Advance, that if such extension would
cause the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"Lenders" means the lenders listed on the signature pages hereof and each
assignee that shall become a party hereto pursuant to Sections 8.07(a) or (b).
"Level I Period" means a period of time, which may consist of a single day,
during which the long-term senior unsecured debt of the Borrower is rated: (i)
A- or better by S&P or (ii) A3 or better by Moody's.
"Level II Period" means a period of time other than a Level I Period, which
may consist of a single day, during which the long-term senior unsecured debt
of the Borrower is rated: (i) BBB+ by S&P or (ii) Baa1 by Moody's.
"Level III Period" means a period of time other than a Level I Period or a
Level II Period, which may consist of a single day, during which the long-term
senior unsecured debt of the Borrower is rated: (i) BBB by S&P or (ii) Baa2 by
Moody's.
"Level IV Period" means a period of time other than a Level I Period, a
Level II Period or a Level III Period, which may consist of a single day,
during which the long-term senior unsecured debt of the Borrower is rated: (i)
BBB- by S&P, or (ii) Baa3 by Moody's.
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"Level V Period" means a period of time other than a Level I Period, a Level
II Period, a Level III Period or a Level IV Period, which may consist of a
single day, during which the long-term senior unsecured debt of the Borrower is
(i) rated lower than BBB- by S&P and rated lower than Baa3 by Moody's (or rated
lower than the level indicated for either S&P or Moody's if unrated by the
other), or (ii) unrated by both S&P and Moody's for whatever reason.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction). Customary bankers' rights of
set-off arising by operation of law or by contract in connection with working
capital facilities, lines of credit, term loans and letter of credit facilities
and other contractual arrangements entered into with banks in the ordinary
course of business are not "Liens" for the purposes of this Agreement.
"Majority Lenders" means at any time Lenders holding at least 51% of the
then aggregate unpaid principal amount of the A Advances then outstanding or,
if no such principal amount is then outstanding, then either (i) if the
Commitments have not been terminated or there are no B Advances outstanding,
Lenders having at least 51% of the Commitments, or (ii) if the Commitments have
been terminated and there are B Advances outstanding, Lenders holding at least
51% of the then aggregate unpaid principal amount of the B Advances then
outstanding.
"Moody's" means Moody's Investors Service, Inc., or its successors.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section 2.02(a).
"Notice of B Borrowing" has the meaning specified in Section 2.03(a).
"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture
or other entity, or a government or any political subdivision or agency
thereof.
"Plan" means at any time an employee pension benefit plan which is covered
under Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Borrower or any
Subsidiary for employees of the Borrower or any Subsidiary or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which the Borrower or
any Subsidiary is then
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making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Receivables Purchase Agreement" means that certain Receivables Purchase
Agreement dated as of June 27, 1991, as amended by that certain Amendment to
Receivables Purchase Agreement dated May 29, 1992, among the Borrower, the
Subsidiary Sellers as identified and defined therein, the Purchasers as
identified and defined therein and J.P. Morgan Delaware, as agent, as in effect
on the date hereof (a copy of which has been furnished to each Lender listed on
the signature pages hereof pursuant to Section 3.01), without giving effect to
any subsequent amendments or waivers (other than any such amendments or waivers
which add new Subsidiary Sellers as parties to such agreement or which remove
any Subsidiary Seller as a party), unless such amendment or waiver has been
consented to by the Majority Lenders.
"Register" has the meaning specified in Section 8.07(c).
"Responsible Financial Officer" means the chief financial officer, the
controller, the treasurer or any assistant treasurer of the Borrower.
"Responsible Officer" means the individuals occupying the executive offices
of the Borrower described in Exhibit H hereto and any successors to the offices
held by the individuals identified therein, and the individuals occupying any
other executive offices of the Borrower which at any time have the authority,
functions and responsibilities as the offices described in Exhibit H.
"Restricted Subsidiary" means, at any point in time, any Subsidiary having
total assets of $100,000 or more as of the end of its most recent fiscal year
or annual gross revenues of $1,000,000 or more during its most recent fiscal
year.
"S&P" means Standard and Poor's Ratings Group, or its successors.
"Subsidiary" means any corporation of which the Borrower and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares as
have more than 50% of the ordinary voting power for the election of directors.
"Termination Date" means June 1, 1997 or the earlier date of termination in
whole of the Commitments pursuant to Section 2.05 or 6.01.
"Transfer" means, with respect to any asset, to sell, lease, transfer or
otherwise dispose of such asset.
"Voting Stock" of any Person means any shares of stock of such Person whose
holders are entitled under ordinary
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circumstances to vote for the election of directors of such Person
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"wholly owned Subsidiary" means any Subsidiary all of the outstanding
capital stock (other than directors' qualifying shares and shares issued to
satisfy local ownership requirements) of which is owned, directly or
indirectly, by the Borrower.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(e).
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make A Advances to the Borrower from
time to time on any Business Day during the period from the date hereof until
the Termination Date in an aggregate amount not to exceed at any time the
amount set forth opposite such Lender's name on the signature pages hereof or,
if such Lender has entered into any Assignment and Acceptance, set forth for
such Lender in the Register maintained by the Agent pursuant to Section
8.07(c), as such amount may be reduced pursuant to Section 2.05 (such Lender's
"Commitment"), provided that the aggregate amount of the Commitments of the
Lenders shall be deemed used from time to time to the extent of the aggregate
amount of the B Advances then outstanding and such deemed use of the aggregate
amount of the Commitments shall be applied to the Lenders ratably according to
their respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate
amount not less than $15,000,000 or an integral multiple of $1,000,000 in
excess thereof (or, with respect to an A Borrowing comprised of Alternate Base
Rate Advances, such lesser amount as shall equal the then unborrowed amount of
the aggregate Commitments), and shall consist of A Advances of the same Type
made on the same day by the Lenders ratably according to their respective
Commitments. Within the limits of each Lender's Commitment, the Borrower may
from time to time borrow, prepay pursuant to Section 2.11(b) and reborrow under
this Section 2.01.
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SECTION 2.02. Making the A Advances. (a) Each A Borrowing shall be made on
notice, given not later than 11:00 A.M. (New York City time) on (x) the date of
a proposed A Borrowing comprised of Alternate Base Rate Advances, and (y) the
third Business Day prior to the date of a proposed A Borrowing comprised of
Eurodollar Rate Advances, by the Borrower to the Agent, which shall give to
each Lender prompt notice thereof (and in any event not later than the same
day) by telecopier, telex or cable. Each such notice of an A Borrowing (a
"Notice of A Borrowing") shall be by telecopier, telex or cable, confirmed
immediately in writing, in substantially the form of Exhibit B-1 hereto,
specifying therein the requested (i) date of such A Borrowing, (ii) Type of A
Advances comprising such A Borrowing, (iii) aggregate amount of such A
Borrowing, and (iv) Interest Period for each such A Advance. Each Lender
shall, before 12:00 Noon (New York City time) on the date of such A Borrowing,
make available for the account of its Applicable Lending Office to the Agent at
its address referred to in Section 8.02(b), in same day funds, such Lender's
ratable portion of such A Borrowing. After the Agent's receipt of such funds
and upon fulfillment of the applicable conditions set forth in Article III, the
Agent will make such funds available to the Borrower at the Agent's aforesaid
address.
(b) Each Notice of A Borrowing shall be irrevocable and binding on the
Borrower. In the case of any A Borrowing which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrower shall indemnify each Lender against any loss, cost or expense incurred
by such Lender as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the A Advance to be made by such Lender as part of such A
Borrowing when such A Advance, as a result of such failure, is not made on such
date.
(c) Unless the Agent shall have received notice from a Lender prior to the
date of any A Borrowing that such Lender will not make available to the Agent
such Lender's ratable portion of such A Borrowing, the Agent may assume that
such Lender has made such portion available to the Agent on the date of such A
Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Agent, such Lender and the
Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to A Advances comprising such A Borrowing and (ii) in
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the case of such Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute
such Lender's A Advance as part of such A Borrowing for purposes of this
Agreement, and the interest payable thereon shall be allocated such that the
Agent shall receive (from a combination of the sum, if any, paid to the Agent
by such Lender pursuant to clause (ii) of the preceding sentence and any
interest payment made by the Borrower) an amount equal to interest on such A
Advance at the interest rate applicable thereto from the date the corresponding
amount was made available by the Agent to the Borrower as contemplated by this
Section 2.02(c) to and including the date such amount is repaid to the Agent by
such Lender, and such Lender shall receive the balance of the interest payments
made by the Borrower with respect to such Advance in accordance with the
provisions of this Agreement.
(d) The failure of any Lender to make the A Advance to be made by it as
part of any A Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the A
Advance to be made by such other Lender on the date of any A Borrowing.
SECTION 2.03. The B Advances. (a) Each Lender severally agrees that the
Borrower may make B Borrowings under this Section 2.03 from time to time on any
Business Day during the period from the date hereof until the date occurring 30
days prior to the Termination Date in the manner set forth below; provided
that, following the making of each B Borrowing, the aggregate amount of the
Advances then outstanding shall not exceed the aggregate amount of the
Commitments of the Lenders (computed without regard to any B Reduction).
(i) The Borrower may request a B Borrowing under this Section 2.03 by
delivering to the Agent, by telecopier, telex or cable, confirmed immediately
in writing, a notice of a B Borrowing (a "Notice of B Borrowing"), in
substantially the form of Exhibit B-2 hereto, specifying the date and aggregate
amount of the proposed B Borrowing, the maturity date for repayment of each B
Advance to be made as part of such B Borrowing (which maturity date (x) may not
be earlier than the date occurring 7 days after the date of such B Borrowing or
later than 180 days after the date of such B Borrowing or the Termination Date,
whichever occurs first, if the Borrower shall specify in the Notice of B
Borrowing that the rates of interest to be offered by the Lenders shall be
fixed rates per annum, or (y) shall be 1, 2, 3, 4, 5 or 6 months after the date
of such B Borrowing (but in no event later than the Termination Date) if the
Borrower shall instead specify in the Notice of B Borrowing the basis to be
used by the Lenders in determining the rates of interest to be offered by
them), the interest payment date or dates relating thereto, whether the
proposed B Borrowing shall bear interest at a fixed or fluctuating rate per
annum and, if a fluctuating rate is so specified, the basis to be used by the
Lenders in determining the
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rate of interest to be offered by them, and any other terms to be applicable to
such B Borrowing, not later than 11:00 A.M. (New York City time) (A) at least
one Business Day prior to the date of the proposed B Borrowing, if the Borrower
shall specify in the Notice of B Borrowing that the rates of interest to be
offered by the Lenders shall be fixed rates per annum and (B) at least four
Business Days prior to the date of the proposed B Borrowing, if the Borrower
shall instead specify in the Notice of B Borrowing the basis to be used by the
Lenders in determining the rates of interest to be offered by them. The Agent
shall in turn promptly notify each Lender of each request for a B Borrowing
received by it from the Borrower by sending such Lender a copy of the related
Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more B Advances to the Borrower as part of
such proposed B Borrowing at a rate or rates of interest specified by such
Lender in its sole discretion, by notifying the Agent (which shall give prompt
notice thereof to the Borrower) before 10:00 A.M. (New York City time) (A) on
the date of such proposed B Borrowing, in the case of a Notice of B Borrowing
delivered pursuant to clause (A) of paragraph (i) above and (B) three Business
Days before the date of such proposed B Borrowing, in the case of a Notice of B
Borrowing delivered pursuant to clause (B) of paragraph (i) above, of the
minimum amount and maximum amount of each B Advance which such Lender would be
willing to make as part of such proposed B Borrowing (which amounts may,
subject to the proviso to the first sentence of this Section 2.03(a), exceed
such Lender's Commitment), the rate or rates of interest therefor and such
Lender's Applicable Lending Office with respect to such B Advance; provided
that if the Agent in its capacity as a Lender shall, in its sole discretion,
elect to make any such offer, it shall notify the Borrower of such offer before
9:00 A.M. (New York City time) on the date on which notice of such election is
to be given to the Agent by the other Lenders. If any Lender shall elect not
to make such an offer, such Lender shall so notify the Agent, before 10:00 A.M.
(New York City time) on the date on which notice of such election is to be
given to the Agent by the other Lenders, and such Lender shall not be obligated
to, and shall not, make any B Advance as part of such B Borrowing; provided
that the failure by any Lender to give such notice shall not cause such Lender
to be obligated to make any B Advance as part of such proposed B Borrowing.
(iii) The Borrower shall, in turn, (A) before 11:00 A.M. (New York City time)
on the date of such proposed B Borrowing, in the case of a Notice of B
Borrowing delivered pursuant to clause (A) of paragraph (i) above and (B)
before 12:00 Noon (New York City time) three Business Days before the date of
such proposed B Borrowing, in the case of a Notice of B Borrowing delivered
pursuant to clause (B) of paragraph (i) above, either
(x) cancel such B Borrowing by giving the Agent notice to that effect, or
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<PAGE> 18
(y) accept one or more of the offers made by any Lender or Lenders
pursuant to paragraph (ii) above, in its sole discretion, by giving notice to
the Agent of the amount of each B Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the maximum amount,
notified to the Borrower by the Agent on behalf of such Lender for such B
Advance pursuant to paragraph (ii) above) to be made by each Lender as part of
such B Borrowing, and reject any remaining offers made by Lenders pursuant to
paragraph (ii) above by giving the Agent notice to that effect; provided that
acceptance of offers may only be made on the basis of ascending interest rates
specified by the Lenders pursuant to paragraph (ii) above.
(iv) If the Borrower notifies the Agent that such B Borrowing is cancelled
pursuant to paragraph (iii)(x) above, the Agent shall give prompt notice
thereof to the Lenders and such B Borrowing shall not be made.
(v) If offers are made by two or more Lenders with the same specified rate of
interest for a greater aggregate principal amount than the amount in respect of
which offers are accepted for any B Borrowing, the principal amount of B
Advances in respect of which such offers are accepted shall be allocated by the
Agent among such Lenders as nearly as possible (in such multiples of $1,000,000
as the Agent may deem appropriate) in proportion to the aggregate principal
amount of such offers. Determinations by the Agent of the amounts of B
Advances shall be conclusive in the absence of manifest error.
(vi) If the Borrower accepts one or more of the offers made by any Lender or
Lenders pursuant to paragraph (iii)(y) above, the Agent shall in turn promptly
notify (A) each Lender that has made an offer as described in paragraph (ii)
above, of the date and aggregate amount of such B Borrowing and whether or not
any offer or offers made by such Lender pursuant to paragraph (ii) above have
been accepted by the Borrower, and (B) each Lender that is to make a B Advance
as part of such B Borrowing, of the amount of each B Advance to be made by such
Lender as part of such B Borrowing. Each Lender that is to make a B Advance as
part of such B Borrowing shall, before 12:00 noon (New York City time) on the
date of such B Borrowing specified in the notice received from the Agent
pursuant to clause (A) of the preceding sentence, make available for the
account of its Applicable Lending Office to the Agent at its address referred
to in Section 8.02(b) such Lender's portion of such B Borrowing, in same day
funds. Upon satisfaction of the applicable conditions set forth in Article III
and after receipt by the Agent of such funds, the Agent will make such funds
available to the Borrower at the Agent's aforesaid address. Promptly after
each B Borrowing the Agent will notify each Lender of the amount of the B
Borrowing, the consequent B Reduction and the dates upon which such B Reduction
commenced and will terminate.
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(b) Each B Borrowing shall be in an aggregate amount not less than
$15,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each B Borrowing, the Borrower shall be in compliance
with the limitation set forth in the proviso to the first sentence of
subsection (a) above.
(c) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
or prepay pursuant to subsection (d) below, and reborrow under this Section
2.03, provided that a B Borrowing shall not be made within two Business Days of
the date of any other B Borrowing.
(d) The Borrower shall repay to the Agent for the account of each Lender
which has made a B Advance, or each other holder of a B Note, on the maturity
date of each B Advance (such maturity date being that specified by the Borrower
for repayment of such B Advance in the related Notice of B Borrowing delivered
pursuant to subsection (a)(i) above), the then unpaid principal amount of such
B Advance. The Borrower shall have no right to prepay any principal amount of
any B Advance unless, and then only on the terms, specified by the Borrower for
such B Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above, and provided that the Borrower shall be obligated to
reimburse each Lender whose B Advance has been prepaid by the Borrower in
respect thereof pursuant to Section 8.04(b).
(e) The Borrower shall pay interest on the unpaid principal amount of each
B Advance from the date of such B Advance to the date the principal amount of
such B Advance is repaid in full, at the rate of interest for such B Advance
specified by the Lender making such B Advance in its notice with respect
thereto delivered pursuant to subsection (a)(ii) above, payable on the maturity
date specified by the Borrower for such B Advance and on each other interest
payment date or dates specified by the Borrower for such B Advance in the
related Notice of B Borrowing delivered pursuant to subsection (a)(i) above;
provided, however, that if the maturity date of the B Advances comprising a B
Borrowing is more than 90 days after the date of such B Borrowing, then
interest shall be payable on each day which occurs at intervals of 90 days
after the date of such B Borrowing; provided, further, that any amount of
principal which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times (i) from such due date to the applicable maturity
date, to 2% per annum above the interest rate otherwise payable with respect to
such B Advance hereunder, and (ii) from and after the applicable maturity date,
to 2% per annum above the Alternate Base Rate in effect from time to time.
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SECTION 2.04. Fees.
(a) Facility Fee. The Borrower agrees to pay to the Agent, for the account
of each Lender, a facility fee on the daily average amount of such Lender's
Commitment (including both the portion thereof that is used and the portion
thereof that is unused) from the date hereof in the case of each Lender listed
on the signature pages hereof and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender until the Termination Date, payable in arrears on the last
day of each March, June, September and December during the term of such
Lender's Commitment, commencing June 30, 1994, and on the Termination Date, at
the rate of (i) .125% per annum during each Level I Period, (ii) .15% per annum
during each Level II Period, (iii) .175% per annum during each Level III
Period, (iv) .20% per annum during each Level IV Period and (v) .25% per annum
during each Level V Period.
(b) Agent's Fees. The Borrower agrees to pay to the Agent certain fees for
its role hereunder and in connection with the execution and delivery hereof in
the amounts and at the times described in one or more letter agreements between
the Borrower and the Agent dated on or about the date hereof, as the same may
be amended, modified, supplemented or replaced from time to time by the mutual
agreement of the Borrower and the Agent. In addition to the foregoing fees, the
Borrower shall pay to the Agent an auction fee of $2,500 in respect of and at
the time each Notice of B Borrowing is delivered to the Agent. All such fees
shall be for the sole account and benefit of the Agent.
SECTION 2.05. Reduction of the Commitments. The Borrower shall have the
right, upon at least three Business Days' notice to the Agent, to terminate in
whole or reduce ratably in part the unused portions of the respective
Commitments of the Lenders, provided that the aggregate amount of the
Commitments of the Lenders shall not be reduced to an amount which is less than
the aggregate principal amount of the B Advances then outstanding and provided,
further, that each partial reduction shall be in the aggregate amount of
$25,000,000 or an integral multiple of $1,000,000 in excess thereof.
SECTION 2.06. Repayment of A Advances. The Borrower shall repay the
principal amount of each A Advance made by each Lender on the last day of the
Interest Period for such A Advance.
SECTION 2.07. Interest on A Advances. The Borrower shall pay interest on
the unpaid principal amount of each A Advance made by each Lender from the date
of such A Advance until such principal amount shall be paid in full, at the
following rates per annum and at the following times:
(a) Alternate Base Rate Advances. If such A Advance is an Alternate Base
Rate Advance, a rate per annum equal at all times to the Alternate Base Rate in
effect from time to time,
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payable quarterly on the last day of each March, June, September, and December
and on the date such Alternate Base Rate Advance shall be paid in full;
provided that any amount of principal or interest which is not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear interest,
from the date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to 2% per annum above
the Alternate Base Rate in effect from time to time.
(b) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate
Advance, a rate per annum equal at all times during the Interest Period for
such A Advance to the sum of the Eurodollar Rate for such Interest Period plus
the applicable Eurodollar Margin, payable on the last day of such Interest
Period and, if such Interest Period is longer than three (3) months, at
intervals of three (3) months after the first day thereof; provided that any
amount of principal or interest which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the date on
which such amount is due until such amount is paid in full, payable on demand,
at a rate per annum equal at all times (i) from such due date to the last day
of the applicable Interest Period, to 2% per annum above the interest rate
otherwise payable with respect to such A Advance hereunder, and (ii) from and
after the last day of the applicable Interest Period, to 2% per annum above the
Alternate Base Rate in effect from time to time.
SECTION 2.08. Notes. The obligation of the Borrower to repay the A
Advances made to the Borrower by each Lender hereunder shall be further
evidenced by an A Note in favor of such Lender in the form and substance of
Exhibit A-1 attached hereto. The obligation of the Borrower to repay the B
Advances made to the Borrower by any Lender shall be evidenced by a B Note in
favor of such Lender in the form and substance of Exhibit A-2 attached hereto.
SECTION 2.09. Interest Rate Determination. (a) The Agent shall give prompt
notice to the Borrower and the Lenders of the applicable interest rate
determined by the Agent for purposes of Section 2.07(a) or (b).
(b) If the Majority Lenders shall, at least one Business Day before the date
of any requested A Borrowing comprised of Eurodollar Rate Advances, notify the
Agent that the Eurodollar Rate for Eurodollar Rate Advances comprising such A
Borrowing will not adequately reflect the cost to such Majority Lenders of
making, funding or maintaining their respective Eurodollar Rate Advances for
such A Borrowing, the Agent shall forthwith so notify the Borrower and the
Lenders, whereupon the right of the Borrower to select Eurodollar Rate Advances
for such A Borrowing or any subsequent A Borrowing shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist, and each A Advance
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comprising such A Borrowing shall be an Alternate Base Rate Advance.
SECTION 2.10. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Section 2.12 or 2.15) in excess of its ratable share of payments on
account of the A Advances obtained by all the Lenders, such Lender shall
forthwith purchase from the other Lenders such participations in the A Advances
made by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them, provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such
recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section 2.10
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.11. Prepayments of A Advances. (a) The Borrower shall have no
right to prepay any principal amount of any A Advances other than as provided
in subsection (b) below.
(b) The Borrower may, upon at least two Business Days' notice, or in the
case of A Borrowings comprised of Alternate Base Rate Advances notice given not
later than 11:00 A.M. (New York City time) one Business Day prior to the
proposed date of prepayment, to the Agent stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding principal amounts of the A Advances
comprising part of the same A Borrowing in whole or ratably in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid; provided, however, that (x) each partial prepayment shall be in an
aggregate principal amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (y) in the case of any such prepayment of a
Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the
Lenders in respect thereof pursuant to Section 8.04(b).
(c) Except as provided in Section 2.03(d), the Borrower shall have no right
to prepay any principal amount of any B Advance.
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SECTION 2.12. Increased Costs. (a) If, after the date hereof, due to
either (i) the introduction of or any change (other than any change by way of
imposition or increase of reserve requirements, in the case of Eurodollar Rate
Advances, included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon
written demand by such Lender (with a copy of such demand to the Agent), which
demand must be made no later than the date that is one year after the date on
which the Commitments have been terminated and all sums owing hereunder have
been paid in full, pay to the Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to the Borrower
and the Agent by such Lender, shall be conclusive and binding for all purposes,
absent manifest error. It shall be assumed, for the purpose of computing
amounts to be paid by the Borrower to CUSA pursuant to this Section 2.12(a),
that the making, funding or maintaining by CUSA of any Advance hereunder has
been by Citibank.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects the amount of capital to be
maintained by such Lender or any corporation controlling such Lender and that
the amount of such capital is increased by or based upon the existence of such
Lender's commitment to lend hereunder and other commitments of this type, then,
upon written demand by such Lender (with a copy of such demand to the Agent),
which demand must be made no later than the date that is one year after the
date on which the Commitments have been terminated and all sums owing hereunder
have been paid in full, the Borrower shall immediately pay to the Agent for the
account of such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender or such corporation in
the light of such circumstances, to the extent that such Lender reasonably
determines such increase in capital is allocable to the existence of such
Lender's commitment to lend hereunder. A certificate as to such amounts
submitted to the Borrower and the Agent by such Lender shall be conclusive and
binding for all purposes, absent manifest error. It shall be assumed, for the
purpose of computing amounts to be paid by the Borrower to CUSA pursuant to
this Section 2.12(b), that the making, funding or maintaining by CUSA of any
Advance hereunder has been by Citibank.
(c) Each Lender agrees that if the Borrower is required to make any
payments to such Lender upon demand therefor pursuant to Sections 2.12(a) or
(b) such Lender shall use reasonable efforts to select an alternative
Applicable Lending
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Office which would avoid the need thereafter for making such demand; provided,
however, that no Lender shall be obligated to select an alternative Applicable
Lending Office if such Lender determines in its reasonable discretion that (i)
as a result of such selection such Lender would be in violation of any
applicable law, regulation, treaty or directive of any central bank or other
governmental authority, or (ii) such selection would be otherwise
disadvantageous to such Lender.
SECTION 2.13. Illegality. (a) Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is
unlawful, for any Lender or its Eurodollar Lending Office to perform its
obligations hereunder to make Eurodollar Rate Advances or to fund or maintain
Eurodollar Rate Advances hereunder, (i) the obligation of the Lenders to make
Eurodollar Rate Advances shall be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist and (ii) the Borrower shall forthwith prepay in full all
Eurodollar Rate Advances of all Lenders then outstanding, together with
interest accrued thereon.
(b) Each Lender agrees that if it determines, or if a central bank or other
governmental authority asserts, that it is unlawful for such Lender to make,
fund or maintain Eurodollar Rate Advances hereunder, such Lender shall use
reasonable efforts to select an alternative Eurodollar Lending Office to
perform its obligations hereunder to make, fund or maintain Eurodollar Rate
Advances; provided, however, that no Lender shall be obligated to select an
alternative Eurodollar Lending Office if such Lender determines in its
reasonable discretion that (i) as a result of such selection such Lender would
be in violation of any applicable law, regulation, treaty or directive of any
central bank or other governmental authority, or (ii) such selection would be
otherwise disadvantageous to such Lender.
SECTION 2.14. Payments and Computations. (a) The Borrower shall make each
payment hereunder and under the Notes not later than 11:00 A.M. (New York City
time) on the day when due in U.S. dollars to the Agent at its address referred
to in Section 8.02(b) in same day funds. The Agent will promptly thereafter
cause to be distributed like funds relating to the payment of principal or
interest or facility fees ratably (other than amounts payable pursuant to
Section 2.03, 2.12 or 2.15) to the Lenders for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Lender to such Lender for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording
of the information contained therein in the Register pursuant to Section
8.07(d), from and after the effective date specified in such Assignment and
Acceptance, the Agent shall make all payments hereunder and
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under the Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under any Note
held by such Lender, to charge from time to time against (i) any or all of the
Borrower's accounts with such Lender or (ii) in the event any such payment is
not made to CUSA when due, any or all of the Borrower's accounts with Citibank
or any other Affiliate of CUSA (and the Borrower hereby authorizes Citibank and
each such Affiliate to permit such charge), any amount so due.
(c) All computations of interest based on the Alternate Base Rate shall be
made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate or the
Federal Funds Rate and of interest on B Advances prior to the maturity date
applicable thereto and of facility fees shall be made by the Agent on the basis
of a year of 360 days, in each case for the actual number of days (including
the first day but excluding the last day) occurring in the period for which
such interest or fees are payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder and under the Notes shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, if such extension would cause payment of interest on
or principal of Eurodollar Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(e) Unless the Agent shall have received notice from the Borrower prior to
the date on which any payment is due to the Lenders hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date and the Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment in full to the
Agent, each Lender shall repay to the Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from
the date such amount is distributed to such Lender until the date such Lender
repays such amount to the Agent, at the Federal Funds Rate.
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SECTION 2.15. Taxes. (a) All payments by the Borrower hereunder shall be
made without set-off or counterclaim and free and clear of and without
deduction on account of restrictions or conditions of any nature now or
hereafter imposed or levied by the United States or any political subdivision
thereof, except as specifically provided to the contrary in Section 2.15(b),
unless the Borrower is required by law to make such deductions. If any such
obligation is imposed upon the Borrower with respect to any amount payable by
it hereunder, it will pay to each affected Lender, on the date on which such
amount becomes due and payable hereunder, such additional amount as shall be
necessary to enable such Lender to receive the same net amount which it would
have received on such due date had no such obligation been imposed upon the
Borrower.
(b) Each payment to be made by the Borrower hereunder to any Lender shall
be made free and clear of and without deduction or withholding for or on
account of any tax imposed by any governmental or taxing authority of or in the
United States unless the Borrower is required to make such a payment subject to
the deduction or withholding of such tax, in which case the Borrower will pay
to each affected Lender, on the date on which such amount becomes due and
payable hereunder, such additional amount as shall be necessary to enable such
Lender to receive the same net amount which it would have received on such due
date had no such obligation been imposed upon the Borrower; provided, however,
that the Borrower shall not be required to pay any additional amount on account
of any tax of, or imposed by, the United States, pursuant to this Section
2.15(b), to any Lender and shall be entitled to deduct and withhold such tax if
such Lender (i) shall have failed to submit a valid United States Internal
Revenue Service Form 1001 or any successor form thereto ("Form 1001") relating
to such Lender and entitling it to a complete exemption from deduction or
withholding on all amounts to be received by such Lender, including fees,
pursuant to this Agreement, or a valid United States Internal Revenue Service
Form 4224 or any successor form thereto ("Form 4224") relating to such Lender
and entitling it to receive all amounts, including fees, pursuant to this
Agreement, without deduction or withholding, or a statement conforming to the
requirements of United States Treasury Regulation 1.1441-5(b), or (ii) shall
have failed to submit such form or other statement which it is required to
deliver pursuant to Section 2.15(c) hereof.
(c) Prior to the date of the initial Borrowing in the case of each Lender
listed on the signature pages hereof, and on the date of the Assignment and
Acceptance pursuant to which it became a Lender in the case of each other
Lender, each Lender agrees that it will deliver to the Borrower either (i) a
statement, in duplicate, conforming to the requirements of United States
Treasury Regulation Section 1.1441-5(b), or (ii) if it is not incorporated
under the laws of the United States or a state thereof, two duly completed
copies of Form 1001 or 4224, or successor applicable forms, as the case may be,
certifying that such Lender is entitled to receive payments under this
Agreement
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without deduction or withholding of any United States federal income taxes.
Subject to any change in applicable laws or regulations, each Lender which
delivers to the Borrower a Form 1001 or 4224, or successor applicable forms,
pursuant to the provisions of this Section 2.15(c), further undertakes to
deliver to the Borrower, upon request by the Borrower, two further copies of
said Form 1001 or 4224, or successor applicable forms, on or before the date
that any such form expires or becomes obsolete certifying that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.15 shall survive the termination of this Agreement, the
termination of the Commitments and the payment in full of the Notes.
(e) Each Lender agrees that if the Borrower is required to increase any
amounts payable to such Lender under Sections 2.15(a) or 2.15(b), such Lender
shall use reasonable efforts to select an alternative Applicable Lending Office
which would not result in such increased payment by the Borrower to such
Lender; provided, however, that no Lender shall be obligated to select an
alternative Applicable Lending Office if such Lender determines in its
reasonable discretion that (i) as a result of such selection such Lender would
be in violation of any applicable law, regulation, treaty or directive of any
central bank or other governmental authority, or (ii) such selection would be
otherwise disadvantageous to such Lender.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Condition Precedent to Initial Advances. The effectiveness
of the Commitment of each Lender is subject to the condition precedent that the
Agent shall have received the following, in form and substance satisfactory to
the Agent and (except for the Notes) in sufficient copies for each Lender:
(a) The Notes payable to the order of the Lenders, respectively.
(b) This Agreement executed by the Borrower, the Agent and each of the
Lenders.
(c) Certified copies of the resolutions of the Board of Directors of the
Borrower approving this Agreement and the Notes and of all documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes.
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(d) A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying the names and true signatures of the officers of the
Borrower authorized to sign this Agreement and the Notes and the other
documents to be delivered hereunder.
(e) A favorable opinion of Wilson, Sonsini, Goodrich & Rosati, special
counsel for the Borrower, substantially in the form attached hereto as Exhibit
D, , and covering such other matters as any Lender through the Agent may
reasonably request.
(f) Evidence that the obligations of the lenders and agent (including
commitments to make advances thereunder) under that certain Credit Agreement
dated as of October 9, 1992 among the Borrower, the lenders thereunder and
CUSA, as agent for the lenders thereunder, as amended, have been terminated and
all unpaid principal and interest thereunder and all other amounts then payable
by the Borrower thereunder have been paid in full (or will be paid in full by
application of the proceeds of the initial Borrowing hereunder).
(g) A copy of the Receivables Purchase Agreement as in effect on June 27,
1991, and that certain Amendment to Receivables Purchase Agreement dated May
29, 1992, together with a certificate of the Secretary or an Assistant
Secretary of the Borrower which shall include a statement that the Receivables
Purchase Agreement has not been further amended, modified or supplemented in
any respect.
(h) A favorable opinion of Steefel, Levitt & Weiss, counsel for the Agent.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of
each Lender to make an A Advance on the occasion of each A Borrowing (including
the initial A Borrowing) shall be subject to the further conditions precedent
that (i) the Agent shall have received the written confirmatory Notice of A
Borrowing with respect thereto and (ii) on the date of such A Borrowing (a) the
following statements shall be true (and each of the giving of the applicable
Notice of A Borrowing and the acceptance by the Borrower of the proceeds of
such A Borrowing shall constitute a representation and warranty by the Borrower
that on the date of such A Borrowing such statements are true):
(1) The representations and warranties contained in Section 4.01 are
correct on and as of the date of such A Borrowing, before and after giving
effect to such A Borrowing and to the application of the proceeds therefrom,
as though made on and as of such date (except to the extent such
representations or warranties specifically relate to an earlier date, in
which case they shall be true and correct as of such date),
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(2) No Default or Event of Default has occurred and is continuing, or
would result from such A Borrowing or from the application of the proceeds
therefrom, and
(3) The aggregate amount of such A Borrowing and all other Borrowings to
be made on the same day hereunder is within the aggregate amount of the
unused Commitments of the Lenders, and
(b) if the Agent or any Lender has any reason to believe that any of the
conditions set forth in this Section 3.02 shall not be satisfied on the date of
such A Borrowing, then the Agent shall have received such other approvals,
opinions or documents as the Agent or such Lender through the Agent may
reasonably request.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of
each Lender which is to make a B Advance on the occasion of a B Borrowing
(including the initial B Borrowing) to make such B Advance as part of such B
Borrowing shall be subject to the further conditions precedent that (i) the
Agent shall have received the written confirmatory Notice of B Borrowing with
respect thereto, and (ii) on the date of such B Borrowing the following
statements shall be true (and each of the giving of the applicable Notice of B
Borrowing and the acceptance by the Borrower of the proceeds of such B
Borrowing shall constitute a representation and warranty by the Borrower that
on the date of such B Borrowing such statements are true):
(a) The representations and warranties contained in Section 4.01 are
correct on and as of the date of such B Borrowing, before and after giving
effect to such B Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date (except to the extent such representations
or warranties specifically relate to an earlier date, in which case they shall
be true and correct as of such date),
(b) No Default or Event of Default has occurred and is continuing, or
would result from such B Borrowing or from the application of the proceeds
therefrom, and
(c) The aggregate amount of such B Borrowing and all other Borrowings to
be made on the same day hereunder is within the aggregate amount of the unused
Commitments of the Lenders.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the
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jurisdiction indicated at the beginning of this Agreement. Each Subsidiary is
duly organized and validly existing under the laws of the jurisdiction in which
it is incorporated and is in good standing under the laws of such jurisdiction
except where the failure to so be in good standing (i) in the case of
Restricted Subsidiaries, is remedied within a reasonable time period after a
Responsible Officer has knowledge of any such failure, and (ii) such failure
will not have a material adverse effect on the business, financial condition,
assets, properties or operations of the Borrower or the Borrower and its
Subsidiaries taken as a whole. The Borrower and each Restricted Subsidiary has
the corporate power to own its respective property and to carry on its
respective business as now being conducted.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene (i)
the Borrower's charter or by-laws or (ii) any law or contractual restriction
binding on or affecting the Borrower.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Borrower of this Agreement or
the Notes.
(d) This Agreement is, and the Notes when delivered hereunder will be,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally.
(e) The audited consolidated balance sheet of the Borrower as at June 30,
1993, and the related consolidated audited statements of income and
stockholders' equity of the Borrower for the fiscal year then ended, copies of
which have been furnished to each Lender, fairly present in all material
respects the consolidated financial condition of the Borrower as at such date
and the consolidated results of the operations of the Borrower for the period
ended on such date, all in accordance with generally accepted accounting
principles consistently applied except as noted therein, and since June 30,
1993, there has been no material adverse change in the business, financial
condition, assets, properties or operations of the Borrower or the Borrower and
its Subsidiaries taken as a whole.
(f) Except as disclosed to the Agent and the Lenders in that certain
letter dated May 27, 1994 from the Borrower to the Agent, there is no pending
or, to the knowledge of any Responsible Officer of the Borrower, threatened
action or proceeding affecting the Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which (i) is reasonably likely to
be adversely determined and such adverse
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determination would likely have a material adverse effect on the business,
financial condition, assets, properties or operations of the Borrower or the
Borrower and its Subsidiaries taken as a whole, or (ii) purports to affect the
legality, validity or enforceability of this Agreement or any Note.
(g) The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.
(h) The Borrower and each of its Restricted Subsidiaries has met its
minimum funding requirements under ERISA with respect to all of its Plans and
has not incurred any material liability to the Pension Benefit Guaranty
Corporation under ERISA in connection with any such Plan. No ERISA Termination
Event has occurred and is continuing with respect to any Plan.
(i) The Borrower is not an "investment company" or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
(j) Except as disclosed to the Agent and the Lenders in that certain
letter dated May 27, 1994 from the Borrower to the Agent, the Borrower and its
Restricted Subsidiaries, to the best knowledge of the Responsible Officers,
have obtained the right to use all patents, trademarks, service-marks, trade
names, copyrights, licenses and other rights, free from burdensome
restrictions, or could obtain the same on terms and conditions not materially
adverse to the Borrower and its Restricted Subsidiaries and their operations
taken as a whole, that are necessary for the operation of their respective
businesses as presently conducted and for the operation of businesses described
to the Lenders in writing as proposed to be conducted.
(k) The Borrower has and each of its Subsidiaries has good and
indefeasible title to all material properties, assets and rights of every type
and nature now purported to be owned by it (other than properties and assets
disposed of in the ordinary course of business), subject to no Lien of any kind
except Liens permitted by Section 5.02(a). All leases material to the conduct
of the respective businesses of the Borrower and its Subsidiaries as currently
conducted are valid and subsisting and are in full force and effect.
(l) The Borrower has and each of its Restricted Subsidiaries has filed all
Federal, State and other tax returns which, to the best knowledge of the
Borrower, are required to be filed, and each has paid all taxes as shown on
such returns and on all assessments received by it to the extent that such
taxes have become due, except such taxes as are being contested in good
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faith by appropriate proceedings and for which adequate reserves have been
established in accordance with generally accepted accounting principles and
except where (i) nonpayment thereof will not have a material adverse effect on
the business, financial condition, assets, properties or operations of the
Borrower or of the Borrower and its Subsidiaries taken as a whole, and (ii)
either (A) the aggregate unpaid amount thereof is less than $1,000,000, or (B)
the unpaid amount thereof shall be paid in full promptly upon the Borrower or
the Restricted Subsidiary owing the same obtaining knowledge of the delinquency
thereof, together with any penalties payable as a result of such delinquency.
(m) Neither the Borrower nor any of its Subsidiaries is a party to any
contract or agreement or subject to any charter or other corporate restriction
which materially and adversely affects the business, financial condition,
assets, properties or operations of the Borrower or the Borrower and its
Subsidiaries taken as a whole. Neither the execution nor delivery of this
Agreement or the Notes, nor fulfillment of nor compliance with the terms and
provisions hereof or thereof will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien upon any of the
properties or assets of the Borrower or any of its Restricted Subsidiaries
pursuant to, the charter or by-laws of the Borrower or any of its Restricted
Subsidiaries, any award of any arbitrator or any agreement (including any
agreement with stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Borrower or any of its Restricted
Subsidiaries is subject.
(n) The documents, certificates and written statements furnished by any
Responsible Officer to the Agent or any Lender pursuant to any provision of
this Agreement or any other agreement, document or instrument delivered to the
Agent or any Lender pursuant hereto or in connection herewith, taken together
with all such other documents, certificates and written statements, do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements made therein, taken together, in light of the
circumstances under which they were made, not misleading. It is recognized by
the Agent and the Lenders that projections and forecasts provided by or on
behalf of the Borrower, although reflecting the Borrower's good faith
projections or forecasts based on methods and data which the Borrower believes
to be reasonable and accurate, are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may (and are likely to) differ from the projected or forecasted
results.
(o) Listed on Exhibit G attached hereto are all of the Subsidiaries of the
Borrower as of the date of this Agreement, identifying which of the
Subsidiaries constitute Restricted Subsidiaries as of the date of this
Agreement. All of the issued
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and outstanding shares (other than shares of any foreign Subsidiary required by
applicable local law to be issued to directors of such foreign Subsidiary or
shares of foreign Subsidiaries issued to Persons to satisfy local ownership
requirements imposed by applicable local law) of the capital stock of each
Subsidiary owned by the Borrower or any Subsidiary are duly issued and
outstanding, fully paid and non-assessable and are free and clear of any Lien.
(p) In the ordinary course of its business, the Borrower conducts an
ongoing review of the effect of Environmental Laws on the business, operations
and properties of the Borrower and its Subsidiaries, in the course of which it
identifies and evaluates associated liabilities and costs (including, without
limitation, any capital or operating expenditures required for clean-up or
closure of its properties, any capital or operating expenditures required to
achieve or maintain compliance with environmental protection standards imposed
by law or as a condition of any license, permit or contract, any related
constraints on operating activities, including any periodic or permanent
shutdown of any facility or reduction in the level of or change in the nature
of operations conducted thereat and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On
the basis of this review, the Borrower has reasonably concluded that
Environmental Laws are not likely to have a material adverse effect on the
business, financial condition, assets, properties or operations of the Borrower
or the Borrower and its Subsidiaries taken as a whole.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any amount payable
hereunder or under any Note shall remain unpaid or any Lender shall have any
Commitment hereunder, the Borrower will, unless the Majority Lenders shall
otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries
to comply, in all material respects with all applicable laws, rules,
regulations and orders of any governmental authority, the noncompliance with
which would materially adversely affect the business, financial condition,
assets, properties or operations of the Borrower or the Borrower and its
Subsidiaries taken as a whole.
(b) Payment of Taxes and Claims. Pay, and cause each of its Restricted
Subsidiaries to pay, all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or profits before any penalty accrues thereon or
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immediately upon any determination that any interest is due thereon, and all
claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or may become a Lien upon any of its properties or assets; provided that no
such tax, assessment, charge or claim need be paid if it is being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted and if such accrual or other appropriate provision, if any, as shall
be required by generally accepted accounting principles shall have been made
therefor; provided, further, that the Borrower shall not be deemed to have
breached this Section 5.01(b) on account of the failure to pay any such tax,
assessment, charge or claim if (i) nonpayment thereof will not have a material
adverse effect on the business, financial condition, assets, properties or
operations of the Borrower or the Borrower and its Restricted Subsidiaries
taken as a whole, and (ii) either (A) the aggregate unpaid amount thereof is
less than $1,000,000, or (B) the unpaid amount thereof shall be paid in full
promptly upon the Borrower or the Restricted Subsidiary owing the same
obtaining knowledge of the delinquency thereof, together with any penalties
payable as a result of such delinquency.
(c) Maintenance of Properties; Insurance; Books and Records. Maintain or
cause to be maintained, and cause each of its Restricted Subsidiaries to
maintain or cause to be maintained: (i) to the extent consistent with good
business practices, in good repair, working order and condition all properties
material to the continued conduct of the business of the Borrower and its
Subsidiaries taken as a whole, and from time to time will make or cause to be
made all necessary repairs, renewals and replacements thereof; (ii) with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Restricted
Subsidiaries against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar business
and similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations ("Industry
Standards"), provided that the Borrower and its Restricted Subsidiaries may
self insure to the extent, and only to the extent, consistent with Industry
Standards; and (iii) proper books of record and account in accordance with
generally accepted accounting principles consistently applied.
(d) Corporate Existence, etc. At all times preserve and keep in full
force and effect its corporate existence, and corporate rights and franchises
material to its business, and those of each of its Restricted Subsidiaries,
except as otherwise specifically permitted by Sections 5.02(b), 5.02(d)or
5.02(e), and will qualify, and cause each of its Restricted Subsidiaries to
qualify, to do business in any jurisdiction where the failure to do so (i) is
remedied within a reasonable time period after a Responsible Officer has
knowledge of any such failure, and (ii) will not have a material adverse effect
on the business,
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financial condition, assets, properties or operations of the Borrower or the
Borrower and its Subsidiaries taken as a whole, provided that the corporate
existence of any Subsidiary may be terminated if, in the good faith judgment of
the Board of Directors of the Borrower, such termination is in the best
interests of the Borrower and is not disadvantageous to the Lenders.
(e) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Borrower, the unaudited consolidated balance sheet of the Borrower as of the end
of such quarter and consolidated unaudited statements of income, stockholders'
equity and cash flow of the Borrower for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
comparative form figures for the corresponding period in the preceding fiscal
year, in the case of such statements of income, stockholders' equity and cash
flow, and figures at the end of the preceding fiscal year in the case of such
balance sheet, all in reasonable detail, in accordance with generally accepted
accounting principles consistently applied (except as noted therein and subject
to normal year-end adjustments), and certified in a manner reasonably acceptable
to the Majority Lenders by a Responsible Financial Officer of the Borrower;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, the consolidated balance sheet of the
Borrower as of the end of such fiscal year and consolidated statements of
income, stockholders' equity and cash flow of the Borrower for the period
commencing at the end of the previous fiscal year and ending with the end of
such fiscal year, setting forth in comparative form figures for the preceding
fiscal year, all in reasonable detail, in accordance with generally accepted
accounting principles consistently applied (except as noted therein), and
certified in a manner reasonably acceptable to the Majority Lenders by
independent public accountants of recognized national standing reasonably
acceptable to the Majority Lenders;
(iii) together with the financial statements furnished in accordance
with subdivisions (i) and (ii) of this Section 5.01(e) except as noted with
respect to clause (d) hereof, a certificate of a Responsible Financial Officer
of the Borrower in the form of Exhibit E attached hereto (a) representing and
warranting that no Event of Default or Default has occurred and is continuing
(or, if such an Event of Default or Default has occurred, stating the nature
thereof and the action which the Borrower proposes to take with respect
thereto), (b) setting forth a schedule containing the information and
calculations with respect to
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the Borrower's compliance with Sections 5.01(h), 5.01(i) and 5.02(h), (c)
stating that the representations and warranties contained in Section 4.01 are
true and correct on and as of the date of such certificate as though made on
and as of such date (except to the extent such representations or warranties
specifically relate to an earlier date, in which case they shall be true and
correct as of such date), and (d) only as to the financial statements
furnished in accordance with subdivision (ii) of this Section 5.01(e),
setting forth all changes, if any, to Exhibit G since the date of the
previous certificate furnished to the Lenders hereunder; provided that the
Borrower may, if no Advance is outstanding and no other amount payable
hereunder or under the Notes is then unpaid, elect not to submit the
statement otherwise required pursuant to the foregoing clause (c) so long as
such statement is made at least once each calendar year;
(iv) as soon as possible and in any event within five days after a
Responsible Officer or a Responsible Financial Officer knows or has reason to
know of the occurrence of any Default that is not an Event of Default
(provided, with respect to any such Default, at the time of such Default any
Advance is outstanding or any other amount payable hereunder or under the Notes
shall remain unpaid) and any Event of Default, a statement of a Responsible
Financial Officer of the Borrower setting forth details of such Event of
Default or Default and the action which the Borrower has taken and proposes to
take with respect thereto;
(v) promptly after the same are sent, copies of all financial
statements and reports which the Borrower sends to its shareholders generally;
and promptly after the same are filed, copies of all final registration
statements on Form S-1, S-2, S-3 or S-4 (without exhibits unless specifically
requested) or their successor forms relating to offerings of debt or equity by
the Borrower and copies of all reports on Form 10-K, Form 10-Q and Form 8-K or
their successor forms (without exhibits unless specifically requested) which the
Borrower may make to, or file with, the Securities and Exchange Commission or
any successor or similar governmental entity;
(vi) as soon as practicable and in any event (a) within 30 days after
any Responsible Officer or any Responsible Financial Officer knows or has reason
to know that any ERISA Termination Event described in clause (i) of the
definition of ERISA Termination Event with respect to any Plan has occurred and
(b) within 10 days after any Responsible Officer or any Responsible Financial
Officer knows or has reason to know that any other ERISA Termination Event with
respect to any Plan has occurred, a statement of a Responsible Financial Officer
of the Borrower describing such ERISA Termination Event and the action, if any,
which
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the Borrower or such ERISA Affiliate proposes to take with respect thereto;
(vii) promptly upon receipt thereof, a copy of each other summary
report in its final form submitted to the Borrower or any Restricted Subsidiary
for delivery to, or which is actually delivered to, the Board of Directors of
the Borrower by independent accountants in connection with any annual, interim
or special audit made by them of the books of the Borrower or any Restricted
Subsidiary;
(viii) promptly after a Responsible Officer or a Responsible Financial
Officer knows or has reason to know thereof, notice of all actions, suits and
proceedings before any court or governmental authority or instrumentality
affecting the Borrower or any of its Subsidiaries of the type described in
Section 4.01(f), and promptly after any material adverse development or change
in the status of any such continuing action, suit or proceeding, notice of such
development or change;
(ix) promptly after a Responsible Officer or a Responsible Financial
Officer knows or has reason to know thereof, notice of any violation of any
Environmental Law that is reported or reportable by the Borrower or any of its
Subsidiaries to any federal, state or local environmental agency that could be
reasonably expected to have a material adverse effect on the business,
financial condition, assets, properties or operations of the Borrower or the
Borrower and its Subsidiaries taken as a whole;
(x) (a) promptly after any termination of the Commitment (as such term
is defined in the Receivables Purchase Agreement) pursuant to Section 6.01 of
the Receivables Purchase Agreement as a result of a Termination Event (as such
term is defined in the Receivables Purchase Agreement), notice of such
termination; (b) promptly after any change in the Collection Agent pursuant to
Sections 9.01 and 9.04 of the Receivables Purchase Agreement (other than
designation of a Collection Agent affiliated with the Borrower), notice of such
change; (c) at least three (3) Business Days prior to the effectiveness of any
consent by the Borrower to any sale by a Purchaser (as such term is defined in
the Receivables Purchase Agreement) of any of the Purchaser's rights or
obligations under the Receivables Purchase Agreement pursuant to Section
10.08(c) of the Receivables Purchase Agreement, notice of such proposed sale or
assignment; (d) promptly after the execution and delivery thereof, copies of
all amendments to the Receivables Purchase Agreement, whether or not the
consent thereto of the Lenders is required hereunder; and (e) notice of events
comparable to those described in the immediately preceding clauses (a), (b),
(c) and (d) under any other agreement or
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arrangement similar to the Receivables Purchase Agreement or the transactions
provided for therein; and
(xi) such other information respecting the condition or operations,
financial or otherwise (including, without limitation, information pertaining
to any change in accounting principles adopted by the Borrower or any of its
domestic Subsidiaries (or any of its foreign Subsidiaries if such change in
accounting principles would have a material effect on the financial condition,
operating performance or cash flow of the Borrower and its Subsidiaries taken
as a whole) during any fiscal year of the Borrower and the effect thereof on
the financial condition, operating performance or cash flow of the Borrower and
its Subsidiaries taken as a whole), of the Borrower or any of its Subsidiaries
as any Lender through the Agent may from time to time reasonably request.
(f) Inspection of Property. Permit any employee of, or independent
financial, legal, environmental or other professional consultant or advisor
(other than a Person that is or is affiliated with a direct competitor of the
Borrower) retained by, the Agent or any of the Lenders or any agents or
representatives thereof, at the Agent's or such Lender's expense, to visit and
inspect any of the properties of the Borrower and its Subsidiaries, to examine
the corporate books and financial records of the Borrower and its Subsidiaries
and make copies thereof or extracts therefrom (except that the Borrower, as to
any information certified by the Borrower as constituting trade secrets or
other proprietary information of a non-financial nature, in a certificate
delivered to the Agent or Lender who has requested copies or extracts of such
information, may in its discretion refuse to allow such copies or extracts to
be made) and to discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Borrower or its independent
public accountants (and by this provision the Borrower authorizes such
accountants to discuss with any Person so designated the affairs, finances and
accounts of the Borrower and its Subsidiaries, whether or not the Borrower is
present), all at such reasonable times and as often as the Agent or any Lender
may reasonably request, in each case as to matters reasonably related to this
Agreement or the transactions contemplated hereby or the interests of the Agent
or the Lenders hereunder.
(g) Use of Proceeds. The proceeds of all Advances shall be used for
general corporate purposes, including, without limitation, the retirement of
Debt. Notwithstanding any other term or provision set forth in this Agreement,
no portion of any Advance may be used to initiate or participate in the
acquisition of a controlling interest in the Voting Stock or assets of any
corporation unless such acquisition is made with the consent of such
corporation and does not otherwise violate the terms and provisions of this
Agreement.
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(h) Debt to Consolidated Tangible Net Worth Ratio. Maintain a ratio of
(A) consolidated Debt of the Borrower, to (B) Consolidated Tangible Net Worth
of not more than .45 to 1.00.
(i) Fixed Charge Ratio. Maintain (i) as of the last day of the first
fiscal quarter of each fiscal year of the Borrower a ratio of (A) Adjusted EBIT
of the Borrower determined on a consolidated basis for the twelve (12) month
period ending on such date, to (B) consolidated Fixed Charges of the Borrower
for the twelve (12) month period ending on such date, of not less than 1.25 to
1.00; and (ii) as of the last day of the second, third and fourth fiscal
quarters of each fiscal year of the Borrower a ratio of (A) Adjusted EBIT of
the Borrower for the twelve (12) month period ending on such date, to (B)
consolidated Fixed Charges of the Borrower for the twelve (12) month period
ending on such date, of not less than 1.50 to 1.00, in each case determined on
a consolidated basis.
SECTION 5.02. Negative Covenants. So long as any amount payable hereunder
or under any Note shall remain unpaid or any Lender shall have any Commitment
hereunder, the Borrower will not, without the written consent of the Majority
Lenders:
(a) Liens, Excess Interest in Receivables, Etc. (i) Create, assume or
suffer to exist, or permit any Subsidiary to create, assume or suffer to exist,
any Lien upon any of its property or assets, whether now owned or hereafter
acquired , or any Excess Interest in Receivables, except
(A) Liens for taxes not yet due or which are being actively contested in
good faith by appropriate proceedings,
(B) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances of credit, and
which do not in the aggregate materially detract from the value of its
property or assets or materially impair the use of such property or assets
in the operation of its business,
(C) Liens existing on the property or assets of the Borrower or any
Subsidiary on the date of this Agreement and set forth on Exhibit F,
(D) Liens on property or assets of a Subsidiary to secure obligations of
such Subsidiary to the Borrower or a wholly owned Subsidiary,
(E) any Lien created to secure the purchase price or cost of
construction, or to secure Debt incurred to pay the purchase price or cost
of construction, of any property acquired by the Borrower or any Subsidiary
after the date hereof or any improvements to real
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property constructed by or for the account of the Borrower or any Subsidiary
after the date hereof, provided that (x) any such Lien shall be confined
solely to the item or items of property so acquired or constructed (and any
theretofore unimproved real property on which such improvements are located),
and (y) any such Lien shall be created concurrently with or within twelve
months following the acquisition of such property or the completion of
construction of improvements thereon,
(F) Liens (other than Liens on any Excess Interest in Receivables)
created in Pool Accounts (as defined in the Receivables Purchase Agreement)
pursuant to and in accordance with the terms of the Receivables Purchase
Agreement or in other accounts receivable of the Borrower under any similar
agreement or arrangement permitted hereunder,
(G) Liens existing on property including the proceeds thereof and
accessions thereto acquired by the Borrower or any Subsidiary (including
Liens on assets of any corporation at the time it becomes a Subsidiary,
unless such Lien was created in contemplation of such corporation becoming a
Subsidiary),
(H) Liens which constitute rights of set-off of a customary nature or
bankers' Liens with respect to amounts on deposit, whether arising by
operation of law or by contract, in connection with arrangements entered
into with banks in the ordinary course of business, including rights of
set-off created pursuant to or by virtue of this Agreement and the Notes,
(I) leases or subleases and license and sublicenses granted to others in
the ordinary course of the Borrower's or any Subsidiary's business not
interfering in any material respect with the business of the Borrower and
its Subsidiaries taken as a whole, and any interest or title of a lessor or
licensor under any lease or license,
(J) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 6.01(i), and Liens to
secure appeal bonds, supersedeas bonds and other similar Liens arising in
connection with court proceedings (including, without limitation, surety
bonds and letters of credit) or any other instrument serving a similar
purpose; provided, however, that the total amount secured by Liens described
in this subsection (J) may not exceed at any time 5% of Consolidated
Tangible Net Worth (plus Liens so described that are permitted in accordance
with Section 5.02(a)(ii) below),
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(K) easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances
affecting real property not interfering in any material respect with the
ordinary conduct of the business of the Borrower and its Subsidiaries taken
as a whole,
(L) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods, and
(M) any Lien renewing, extending, or refunding any Lien permitted under
clauses (A) through (L), inclusive, of this Section 5.02(a), provided that
the principal amount secured is not increased and that such Lien is not
extended to other property (other than pursuant to its original terms).
(ii) Notwithstanding the provisions contained in subdivision (i) of this
Section 5.02(a), in addition to the permitted Liens described above, the
Borrower and its Subsidiaries, or any of them, may create, assume or suffer
to exist other Liens and Excess Interest in Receivables if, after giving
effect thereto and to the retirement of any Debt which is concurrently being
retired, the aggregate of (A) the total amount of Debt then secured by such
Liens, and (B) the total amount of Excess Interest in Receivables then
existing, does not exceed 10% of Consolidated Tangible Net Worth; provided,
however, if the aggregate of (A) the total amount of Debt then secured by
such Liens, and (B) the total amount of Excess Interest in Receivables then
existing, exceeds 10% of Consolidated Tangible Net Worth, no Event of
Default shall occur hereunder provided the Borrower simultaneously therewith
makes or causes to be made effective provision whereby the indebtedness
evidenced by this Agreement and the Notes will be secured by such Liens
(pursuant to documentation in form and substance reasonably satisfactory to
the Agent and the Majority Lenders) equally and ratably with any and all
other Debt thereby secured so long as such other Debt shall be so secured.
(b) Merger and Consolidation. Merge into or consolidate with or into a
corporation, or permit any Subsidiary to do so, except that (i) any Subsidiary
may merge or consolidate with any other Subsidiary and any Subsidiary may merge
into the Borrower, (ii) the Borrower may merge or consolidate with any other
corporation provided that (A) either (1) the Borrower shall be the continuing
or surviving corporation, or (2) the successor corporation shall be a solvent
corporation organized under the laws of any State of the United States of
America with a financial condition at least equal to that of the Borrower at
the time of such merger or consolidation, and such corporation shall
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expressly assume in writing all of the obligations of the Borrower under this
Agreement and under the Notes, including all covenants herein and therein
contained which assumption shall not otherwise violate any term, condition or
provision of this Agreement or the Notes, and such successor shall be
substituted for the Borrower with the same effect as if it had been named
herein as a party hereto, and (B) immediately after giving effect to such
merger or consolidation, no Default or Event of Default shall have occurred,
(iii) a Subsidiary may merge into or consolidate with a corporation in
connection with such corporation becoming a Subsidiary or being combined with
any existing Subsidiary, and (iv) provided that the disposition of such
Subsidiary is not otherwise prohibited under the terms of this Agreement
(including pursuant to Section 5.02(d)(ii) below), any Subsidiary may merge
into or consolidate with a corporation, if after giving effect to such merger
or consolidation, neither such Subsidiary nor such corporation is a Subsidiary.
(c) Change in Nature of Business. Make, or permit any Subsidiary to make,
any material change in the nature of its business as carried on at the date
hereof; provided, however, that the Borrower and its Subsidiaries may enter
into businesses which are appropriate extensions of or are reasonably related
or incidental to the current businesses of the Borrower and its Subsidiaries.
(d) Maintenance of Ownership of Subsidiaries. Sell or otherwise dispose
of any shares of capital stock of any Subsidiary or permit any Subsidiary to
issue, sell or otherwise dispose of any shares of its capital stock or the
capital stock of any other Subsidiary, except
(i) to the Borrower or another Subsidiary;
(ii) that all shares of stock of any Subsidiary at the time owned by the
Borrower or any Subsidiary may be sold as an entirety for a consideration
which represents the fair value (as determined in good faith by the Board of
Directors of the Borrower) at the time of sale of the shares of stock so
sold, provided that after giving effect to the sale thereof the sum of (A)
the total assets of all Subsidiaries whose stock is so sold pursuant to this
clause (ii) after the date of this Agreement, plus (B) the total assets of
all Subsidiaries that have been merged into or consolidated with a
corporation pursuant to clause (iv) of Section 5.02(b) after the date of this
Agreement, does not exceed 15% of the consolidated total assets of the
Borrower;
(iii) shares of stock of any Subsidiary may be sold if, after giving effect
to such sale, such Subsidiary shall continue to be a Subsidiary; and
(iv) shares of stock of any foreign Subsidiary may be issued to directors of
such foreign Subsidiary to satisfy director ownership requirements imposed by
applicable local
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law and shares of stock of foreign Subsidiaries may be issued to Persons to
the extent necessary to satisfy local ownership requirements imposed by
applicable local law.
(e) Sales, Etc. of Assets. Transfer, or permit any Subsidiary to
Transfer any assets, if after giving effect to such Transfer the sum of (1) the
total assets as to which there has been a Transfer not permitted by clauses (i)
or (ii) of this Section 5.02(e) after the date of this Agreement, plus (2) the
total assets of all Subsidiaries whose stock is sold pursuant to clause (ii) of
Section 5.02(d) after the date of this Agreement, plus (3) the total assets of
all Subsidiaries that have been merged into or consolidated with a corporation
pursuant to clause (iv) of Section 5.02(b) after the date of this Agreement,
would exceed 20% of the consolidated total assets of the Borrower, except that:
(i) any Subsidiary may Transfer any of its assets to the Borrower or to
another Subsidiary and the Borrower may Transfer assets to a wholly-owned
Subsidiary that had been transferred to the Borrower from a Subsidiary after
the date of this Agreement; and
(ii) the provisions of this Section 5.02(e) shall not apply to (A) any
Transfer made in the ordinary course of business, (B) any Transfer of
obsolete assets, (C) any Transfer by the Borrower or any Subsidiary of assets
(but not of all or substantially all of its assets) if such Transfer is made
pursuant to a plan to replace the assets subject to such Transfer and such
replacement occurs no later than six (6) months after the Transfer (or, if
replacement is not reasonable by such date, binding commitments to construct
and/or acquire replacement assets shall have been entered into no later than
six (6) months after the Transfer and such replacement shall occur within a
reasonable period of time, which shall in no event exceed eighteen (18)
months), or (D) the sale of notes, leases and accounts receivable pursuant to
and in accordance with the terms of the Receivables Purchase Agreement or any
similar agreement or arrangement permitted under Section 5.02(f) by Sun
Microsystems Federal, Inc., Sun Microsystems Finance, Inc., SunSoft, Inc.,
Sun Technology Enterprises, Inc., SunExpress, Inc. or any other Subsidiary
which is or becomes a party to the Receivables Purchase Agreement or any such
other agreement or arrangement.
(f) Sale of Receivables. Sell with recourse, or discount or otherwise
sell for less than the face value thereof, or sell with or without recourse for
consideration other than cash, or permit any Subsidiary to sell with recourse,
or discount or otherwise sell for less than the face value thereof, or sell
with or without recourse for consideration other than cash, any of its notes or
accounts receivable; provided, that the foregoing restrictions shall not apply
to (i) any license or sale of products or services in the ordinary course of
business where
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payment for such transactions is made by credit card, provided that the fees
and discounts incurred by the Borrower or the Subsidiary in connection
therewith shall not exceed the normal and customary fees and discounts incurred
for general credit card transactions through major credit card issuers, (ii)
the delivery and endorsement to banks in the ordinary course of business by the
Borrower or any of its Subsidiaries of promissory notes received in payment of
trade receivables, where delivery and endorsement are made prior to the date of
maturity of such promissory notes, and the retention by said banks of normal
and customary fees and discounts therefor, provided such practice is usual and
customary in the country where such activity occurs, and (iii) any sale of
notes or accounts receivable (or interests therein) so long as (A) the Borrower
or the Subsidiary selling such notes or accounts receives, at the time of the
sale, cash consideration of at least (x) with respect to sales under the
Receivables Purchase Agreement, the amount determined in accordance with the
provisions thereof, and (y) with respect to all other sales, 90% of the
aggregate face amount of the notes or accounts receivable (or portions thereof)
so sold, and (B) after giving effect to such sale, the outstanding face amount
which remains owing from the respective trade debtors under all such notes or
accounts receivable sold does not exceed at any time an amount equal to the
greater of (1) $250,000,000 or (2) 15% of Consolidated Tangible Net Worth.
(g) Amendment of Receivables Purchase Agreement. Agree to (i) any amendment
to the Receivables Purchase Agreement that amends Section 5.09 of the
Receivables Purchase Agreement or the definition of "Permitted Subordinated
Interest" (as such term is defined in the Receivables Purchase Agreement) in a
manner which would impair the ability of the Borrower and its Subsidiaries
pursuant to such Section (as written without giving effect to such amendment)
to sell, assign or otherwise dispose of, or create or suffer to exist, any
Permitted Subordinated Interest with respect to their interests in any Pool
Assets (as such term is defined in the Receivables Purchase Agreement) and the
proceeds thereof; provided, however, that the foregoing shall in no way limit
the application of the definition of "Receivables Purchase Agreement" as set
forth in Section 1.01, or (ii) enter into any other agreement pertaining to the
sale of accounts receivable of the Borrower unless such other agreement permits
the Borrower to grant to the Lenders a security interest in the Borrower's
accounts receivable on terms no less favorable to the Lenders than those
contained in the Receivables Purchase Agreement.
(h) Subsidiary Debt. Permit any Subsidiary organized under the laws of
any State of the United States of America to create, incur, assume or suffer to
exist any Debt if, after giving effect thereto and to the concurrent repayment
of any other Debt, the aggregate Debt of all such Subsidiaries will exceed
$120,000,000.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay (i) any principal of any Advance when
the same becomes due and payable; or (ii) any interest on any Advance or any
fees payable hereunder within five (5) Business Days after the same becomes
due; or (iii) any other amounts payable hereunder within thirty (30) days of
the date of invoice or written demand therefor; or
(b) any representation or warranty made by the Borrower herein or by the
Borrower (or any of its officers) in connection with this Agreement shall prove
to have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant or
agreement contained in Sections 5.01(h),5.01(i), 5.02(b), 5.02(c), 5.02(d),
5.02(e), 5.02(g) or 5.02(h); or
(d) the Borrower shall fail to perform or observe any term, covenant or
agreement contained in this Agreement (other than those covered by the other
clauses of this Section 6.01) on its part to be performed or observed if the
failure to perform or observe such other term, covenant or agreement shall
remain unremedied for 30 days after written notice thereof shall have been
given to the Borrower by the Agent at the request of any Lender; or
(e) (i) the Borrower or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt which is outstanding in a
principal amount of at least $10,000,000 in the aggregate (but excluding Debt
outstanding hereunder) of the Borrower or such Subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument; but only if the effect of such failure to pay, event
or condition is to accelerate the maturity of such Debt; or any such Debt shall
be declared by the creditor to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), redeemed, purchased
or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall
be required to be made, in each case prior to the stated maturity thereof; or
(ii) any event shall occur or condition shall exist under any
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agreement or instrument relating to any Debt of the Borrower or any of its
Subsidiaries outstanding in a principal amount in excess of $50,000,000 in the
aggregate and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to permit the acceleration by the creditor of, the maturity of
such Debt; or
(f) the Borrower or any of its Subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of thirty (30) consecutive days, or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property) shall
occur; or the Borrower or any of its Subsidiaries shall take any corporate
action to authorize any of the actions set forth above in this subsection (f);
or
(g) any order, judgment or decree is entered in any proceedings against
the Borrower or any Restricted Subsidiary decreeing the dissolution of the
Borrower or such Restricted Subsidiary and such order, judgment or decree
remains unstayed and in effect for more than sixty (60) consecutive days; or
(h) any order, judgment or decree is entered in any proceedings against
the Borrower or any Restricted Subsidiary decreeing a split-up of the Borrower
or such Restricted Subsidiary which requires the divestiture of assets
representing a substantial part, or the divestiture of the stock of a
Restricted Subsidiary whose assets represent a substantial part, of the
consolidated assets of the Borrower (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of assets, or
stock of a Restricted Subsidiary, which shall have contributed a substantial
part of the consolidated net income of the Borrower (determined in accordance
with generally accepted accounting principles) for any of the three fiscal
years then most recently ended, and such order, judgment or decree remains
unstayed and in effect for more than sixty (60) consecutive days; or
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(i) a final judgment or order for the payment of money in an amount (not
covered by insurance) which exceeds $10,000,000 shall be rendered against the
Borrower or any of its Subsidiaries and, prior to the payment in full of the
amount thereof, either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order, or (ii) there shall be any period of
thirty (30) consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(j) any ERISA Termination Event that the Lenders determine in good faith
might constitute grounds for the termination of any Plan or for the appointment
by the appropriate United States district court of a trustee to administer any
Plan shall have occurred and be continuing for thirty (30) days after written
notice shall have been given to the Borrower by the Agent, or any Plan shall be
terminated, or a trustee shall be appointed by an appropriate United States
district court to administer any Plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any Plan or to appoint a
trustee to administer any Plan;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the Majority Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Majority Lenders, by notice to the Borrower, declare the
Advances, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Advances, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrower; provided, however, that if
an Event of Default specified in Section 6.01(f) shall occur or in the event of
an actual or deemed entry of an order for relief with respect to the Borrower
or any of its subsidiaries under the Federal Bankruptcy Code, (A) the
obligation of each Lender to make Advances shall automatically be terminated
and (B) the Advances, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
SECTION 6.02. Mandatory Prepayment; Event of Early Termination.
Notwithstanding anything to the contrary contained herein, in the event that a
Change of Control Event shall occur with respect to the Borrower, the Agent (i)
shall at the request, or may with the consent, of the Majority Lenders, by
notice to the Borrower, declare the obligation of each Lender to make Advances
to be terminated, whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the Majority Lenders, by notice to
the Borrower, declare the Advances, all interest thereon and all other amounts
payable under this Agreement to be forthwith due and payable,
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whereupon the Advances, all such interest and all such amounts shall become and
be forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the amounts payable hereunder and
under the Notes), the Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Lenders, and such instructions shall be binding
upon all Lenders and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or applicable law. The Agent
agrees to give to each Lender prompt notice of each notice given to it by the
Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may
treat the payee of any Note as the holder thereof until the Agent receives and
accepts an Assignment and Acceptance entered into by the Lender which is the
payee of such Note, as assignor, and an assignee, as provided in Section 8.07;
(ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement; (iv) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of the
Borrower or to inspect the property (including the books and records) of the
Borrower; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect of this Agreement by acting
upon
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any notice, consent, certificate or other instrument or writing (which may be
by telecopier, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 7.03. CUSA and Affiliates. With respect to its Commitment and the
Advances made by it and the Notes issued to it, CUSA shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same
as though it were not the Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include CUSA in its individual capacity.
CUSA and its Affiliates may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with, the
Borrower, any of its Subsidiaries and any Person who may do business with or
own securities of the Borrower or any such Subsidiary, all as if CUSA were not
the Agent and without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the Agent
(to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts outstanding under the A Notes then held by each of
them (or if no A Advances are at the time outstanding or if any A Notes are
held by Persons which are not Lenders, ratably according to the respective
amounts of their Commitments), from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Agent under this Agreement, provided that no Lender shall be liable for any
portion of such claims, liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees, court
costs and all other reasonable litigation expenses, including, but not limited
to, expert witness fees, document copying expenses, exhibit preparation,
courier expenses, postage, and communication expenses) incurred by the Agent in
connection with the
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preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Agent is not reimbursed for such expenses by the
Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Majority Lenders shall have the right to appoint a successor
Agent, which successor Agent shall (if no Event of Default then exists) be
subject to the approval of the Borrower not to be unreasonably withheld. If no
successor Agent shall have been so appointed by the Majority Lenders, and shall
have accepted such appointment, within twenty (20) days after the retiring
Agent's giving of notice of resignation, then the Borrower may appoint a
successor Agent, which successor Agent shall be subject to the approval of the
Majority Lenders not to be unreasonably withheld. If no successor Agent shall
have been so appointed by the Borrower, and shall have accepted such
appointment, within thirty (30) days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent which shall be a commercial bank organized under the
laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $300,000,000 or an Affiliate thereof.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article VII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Lenders and the Borrower, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or
consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) waive any of the conditions specified in Section 3.01, 3.02 or
3.03, (b) increase the Commitments of the Lenders or subject the Lenders to any
additional obligations, (c) reduce the principal of, or interest on, the
Advances or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of
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<PAGE> 51
principal of, or interest on, the Advances or any fees or other amounts payable
hereunder, (e) change the percentage of the Commitments or the number of
Lenders which shall be required for the Lenders or any of them to take any
action hereunder, or (f) amend this Section 8.01; and provided, further, that
no amendment, waiver or consent shall, unless in writing and signed by the
Agent in addition to the Lenders required above to take such action, affect the
rights or duties of the Agent under this Agreement.
SECTION 8.02. Notices, Payments, Etc. (a) All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the Borrower, at its address
at 2550 Garcia Avenue PAL 1-211, Mountain View, California 94043, Attention:
Treasurer, with a copy to the attention of General Counsel at the same address
(but with the following mail stop substituted: PAL 1-521); if to any Lender
specified on Schedule I, at its Domestic Lending Office specified opposite its
name on Schedule I hereto; if to any other Lender, at its Domestic Lending
Office specified in the Assignment and Acceptance pursuant to which it became a
Lender; and if to the Agent, at its address c/o Citicorp North America, Inc. at
Citicorp Center, One Sansome Street, Suite 2710, San Francisco, California
94104, Attention: J. Kevin Nater; or, as to the Borrower or the Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the Agent.
All such notices and communications shall, (i) when telecopied, telegraphed,
telexed or cabled, be effective when telecopied, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively, (ii) when sent by an overnight (next day) courier service, be
effective on the Business Day after the date when delivered to such service,
and (iii) when mailed, be effective on the fifth Business Day after the date
deposited in the mails, except that notices and communications to the Agent
pursuant to Article II or VII shall not be effective until received by the
Agent, and any notice of default which is given to the Borrower only by means
of telecopier shall not be effective until such telecopy is received by the
Borrower.
(b) All payments made or funds delivered to the Agent hereunder shall be
made or delivered to the Agent at its Domestic Lending Office or at such other
address as the Agent may designate from time to time in a written notice to the
other parties.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or
the Agent to exercise, and no delay in exercising, any right hereunder or under
any Note shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or
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<PAGE> 52
the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on
written demand all reasonable costs and expenses incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment and syndication of this Agreement, the Notes and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent with
respect thereto and with respect to advising the Agent as to its rights and
responsibilities under this Agreement. The Borrower further agrees to pay on
written demand all reasonable costs and expenses, if any (including, without
limitation, reasonable counsel fees, court costs, and all other reasonable
litigation expenses, including, but not limited to, expert witness fees,
document copying expenses, exhibit preparation, courier expenses, postage,
communication expenses and other expenses, specifically including reasonable
allocated costs of in-house counsel), incurred by the Agent and the Lenders in
connection with the enforcement (whether through negotiations, legal
proceedings or otherwise) of this Agreement, the Notes and the other documents
to be delivered hereunder, including, without limitation, reasonable counsel
fees and expenses in connection with the enforcement of rights under this
Section 8.04(a). In addition, the Borrower shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Notes and the other documents to
be delivered hereunder, and agrees to save the Agent and each Lender harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes.
(b) If any payment of principal of any Eurodollar Rate Advance or B
Advance is made other than on the last day of the Interest Period for such A
Advance or the applicable maturity date for such B Advance, as the case may be,
as a result of a payment pursuant to Section 2.13 or acceleration of the
maturity of the Advances pursuant to Section 6.01 or for any other reason, the
Borrower shall, upon written demand by any Lender (with a copy of such demand
to the Agent), pay to the Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or expenses
which it may reasonably incur as a result of such payment, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by any Lender to fund or maintain such Advance. Upon the
Borrower's written request, any Lender demanding compensation under this
Section 8.04(b) shall furnish to the Borrower a summary statement as to the
method of calculation of any such losses, costs or expenses.
(c) The Borrower agrees to indemnify, protect, defend and hold harmless
the Agent and each Lender and each of their
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<PAGE> 53
Affiliates and their respective officers, directors, employees, agents,
advisors and representatives (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities, obligations, penalties,
actions, judgments, suits, costs, disbursements and expenses (including,
without limitation, reasonable fees and expenses of counsel, including but not
limited to court costs and all other reasonable litigation expenses including,
but not limited to, expert witness fees, document copying expenses, exhibit
preparation, courier expenses, postage, and communication expenses) that may be
incurred by or asserted against any Indemnified Party, in each case arising out
of or in connection with or by reason of, or in connection with the preparation
for a defense of, any investigation, litigation, proceeding or settlement
arising out of, related to or in connection with (i) this Agreement or the
transactions contemplated by this Agreement or the use of any proceeds of the
Advances, (ii) the Advances, the Borrowings or the Commitments, (iii) the
failure of the Borrower or any of its Subsidiaries to comply fully with any and
all Environmental Laws applicable to it, or (iv) any acquisition or proposed
acquisition by the Borrower or any of its Subsidiaries of all or any portion of
the stock or substantially all of the assets of any Person (including, without
limitation, the Borrower), whether or not an Indemnified Party is a party
thereto and whether or not the transactions contemplated hereby are
consummated, except to the extent such claims, damages, losses, liabilities,
obligations, penalties, actions, judgments, suits, costs, disbursements and
expenses are found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct
of such Indemnified Party. If an Indemnified Party settles, compromises or
accepts a default judgment on any claim, demand or cause of action for which it
is otherwise entitled to indemnification by the Borrower hereunder without the
Borrower's prior written consent, which consent shall not be unreasonably
withheld or delayed, the Borrower shall be relieved of the obligation hereunder
to indemnify and hold harmless such Indemnified Party with respect to such
settlement, compromise or default judgment. If an Indemnified Party appeals
any judgment or award for which it is otherwise entitled to indemnification by
the Borrower without the Borrower's prior written consent, which consent shall
not be unreasonably withheld or delayed, Borrower shall be relieved of the
obligation hereunder to indemnify and hold harmless such Indemnified Party with
respect to any incremental claim, damage, loss, liability, obligation, penalty,
action, judgment, suit, cost, disbursement or expense arising out of such
appeal.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 8.04 shall survive the termination of this Agreement, the
termination of the Commitments and the payment in full of the Notes.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and
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(ii) the making of the request or the granting of the consent specified by
Section 6.01 to authorize the Agent to declare the Advances and all other
amounts payable under this Agreement to be forthwith due and payable pursuant
to the provisions of Section 6.01, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
any Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 8.05 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which
such Lender may have. The Borrower hereby authorizes CUSA, in accordance with
the provisions of this Section 8.05, to so set-off and apply any and all such
deposits held and other indebtedness owing by Citibank or any other Affiliate
of CUSA to or for the credit or the account of the Borrower and hereby
authorizes Citibank and each such Affiliate to permit such set-off and
application by CUSA.
SECTION 8.06. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower and the Agent and when the Agent
shall have been notified by each Lender that such Lender has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent and each Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may assign
to one or more banks or other financial institutions all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment and the A Advances owing to it and the A Note or
Notes held by it); provided, however, that (i) each such assignment shall be of
a constant, and not a varying, percentage of all rights and obligations under
this Agreement (other than any B Advances or B Notes), (ii) the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 and shall
be an integral multiple of $1,000,000, (iii) each such assignment shall be to
an assignee reasonably acceptable to the Agent and consented to by the
Borrower, which consent shall not be unreasonably withheld; provided, however,
that the consent of the Borrower shall not be
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required with respect to any such assignment by CUSA to Citibank or any other
Affiliate of CUSA of any Advance made by CUSA or any such assignment by any
other Lender to an Affiliate of such Lender of any Advance made by such Lender,
and (iv) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any A Note or Notes subject to such assignment and a
processing and recordation fee of $2,500. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
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(c) The Agent shall maintain at its address referred to in Section 8.02(a)
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the A Advances owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee acceptable to the Agent and reasonably
consented to by the Borrower together with any A Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit C hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrower.
(e) Each Lender may assign to one or more banks or other entities any B
Note or Notes held by it.
(f) A Lender may at any time grant participations to one or more banks or
other entities in or to all or any part of its rights and obligations under
this Agreement or any Borrowings hereunder without the consent of the Borrower
or the Agent; provided, however, that (i) the Borrower and the Agent shall be
entitled to continue to deal solely with the granting Lender regarding notices,
payments, payment instructions and any other matters arising pursuant to this
Agreement; (ii) the granting Lender's obligations under this Agreement shall
remain unchanged and the granting Lender shall remain solely responsible for
the performance thereof, and (iii) the granting Lender shall remain the holder
of its Note(s) for all purposes under this Agreement. Any agreement pursuant
to which any Lender may grant such a participating interest shall provide that
such Lender shall retain the sole right and responsibility to enforce the
obligations of the Borrower hereunder, including, without limitation, the right
to approve any amendment, modification or waiver of any provision of this
Agreement; provided that such participation agreement may provide that such
Lender will not agree, without the consent of the participant, to any
modification, amendment or waiver of any provision of this Agreement described
in clauses (b), (c) or (d) of Section 8.01, or to the release of any Lien that
may at any time be created to secure any obligations owing to the Agent and/or
the Lenders hereunder or under the Note.
(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant
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to this Section 8.07, disclose to the assignee or participant or proposed
assignee or participant, any information relating to the Borrower furnished to
such Lender by or on behalf of the Borrower; provided that, prior to any such
disclosure, the assignee or participant or proposed assignee or participant
shall agree, pursuant to Section 8.11, to preserve the confidentiality of any
confidential information relating to the Borrower received by it from such
Lender.
(h) Notwithstanding anything else contained herein, each Lender may
assign, as collateral or otherwise, any of its rights (including, without
limitation, rights to payments of principal or interest) under this Agreement
to any Federal Reserve Bank without notice to or the consent of the Borrower or
the Agent and without any requirement that the assignee assume any obligations
of such Lender hereunder.
(i) If any Eurodollar Reference Bank or its Lender Affiliate assigns its
Notes to an unaffiliated institution, the Agent shall, in consultation with the
Borrower and with the consent of the Majority Lenders, appoint another bank to
act as a Eurodollar Reference Bank hereunder, and pending such appointment, the
Eurodollar Rate shall be determined on the basis of the remaining Eurodollar
Reference Bank(s).
SECTION 8.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
SECTION 8.09. Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 8.10. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
SECTION 8.11. Confidentiality. In accordance with normal procedures
regarding proprietary information supplied by customers, each of the Lenders
agrees to keep confidential and to cause its employees, agents and
representatives to keep confidential information relating to the Borrower or
any Subsidiary received pursuant to or in connection with this Credit Agreement
and the transactions contemplated hereby, provided that nothing herein shall be
construed to prevent the Agent or any Lender from disclosing such information
(i) upon the order of any court or administrative agency, (ii) upon the request
or demand of any regulatory agency or authority having jurisdiction over the
Agent or such Lender, (iii) which has been publicly disclosed, (iv) which has
been lawfully obtained by any of the Lenders from a Person other than the
Borrower or any Subsidiary, the Agent or any other Lender, or (v) to any
participant in or
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assignee of, or prospective participant in or assignee of, all or any part of
the rights and obligations of such Agent or such Lender under this Agreement or
any Advances hereunder (provided that such participant or assignee, or
prospective participant or assignee, agrees to comply with the confidentiality
requirements set forth in this Section 8.11).
SECTION 8.12. Termination. Except as otherwise provided in this Agreement
and the Notes and the other agreements and instruments executed pursuant
hereto, all rights and obligations hereunder and thereunder shall terminate
when all amounts payable under this Agreement, the Notes and such other
agreements shall have been paid in full and no Lender shall have any Commitment
hereunder; provided, however, that notwithstanding the foregoing the Borrower
shall remain liable for all of its obligations hereunder and thereunder to
indemnify or reimburse the Agent and the Lenders, including, without
limitation, pursuant to the provisions of Sections 2.12, 2.15 and 8.04 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
SUN MICROSYSTEMS, INC.
By: ______________________________
Name: ________________________
Title: _______________________
CITICORP USA, INC., as Agent
By: ______________________________
Vice President
Commitment Lenders
$15,000,000 CITICORP USA, INC.
By: _______________________________
Title: Vice President
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$11,250,000 BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
By: _________________________________
Title: __________________________
$11,250,000 ABN AMRO BANK N.V
SAN FRANCISCO INTERNATIONA BRANCH
By: _________________________________
Title: __________________________
By: _________________________________
Title: __________________________
$11,250,000 THE FIRST NATIONAL BANK OF BOSTON
By: _________________________________
Title: __________________________
By: _________________________________
Title: __________________________
$11,250,000 BARCLAYS BANK PLC
By: _________________________________
Title: __________________________
$11,250,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________________
Title: ___________________________
$11,250,000 THE FUJI BANK, LIMITED,
SAN FRANCISCO AGENCY
By: _________________________________
Title: __________________________
$11,250,000 THE BANK OF CALIFORNIA, N.A.
By: _________________________________
Title: __________________________
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$11,250,000 THE SAKURA BANK, LIMITED,
SAN FRANCISCO AGENCY
By: _________________________________
Title: __________________________
$11,250,000 BANQUE NATIONALE DE PARIS
By: _________________________________
Title: __________________________
$11,250,000 BAYERISCHE VEREINSBANK AG,
LOS ANGELES AGENCY
By: _________________________________
Title: __________________________
By: _________________________________
Title: __________________________
$11,250,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED, SAN FRANCISCO AGENCY
By: _________________________________
Title: __________________________
$11,250,000 SWISS BANK CORPORATION
By: _________________________________
Title: __________________________
____________
$150,000,000 Total of the Commitments
[2394.AGRE]E19883
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EXHIBIT A-l
FORM OF A NOTE
U.S.$___________ Dated: _______, 19__
FOR VALUE RECEIVED, the undersigned, SUN MICROSYSTEMS, INC., a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
_______________________ (the "Lender") for the account of its Applicable
Lending Office (as defined in the Credit Agreement referred to below) the
principal amount of each A Advance (as defined in the Credit Agreement) made by
the Lender to the Borrower pursuant to the Credit Agreement on the last day of
the Interest Period (as defined in the Credit Agreement) for such A Advance and
otherwise in accordance with the provisions of the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal
amount of each A Advance from the date of such A Advance until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Citicorp USA, Inc., as Agent, at its account with
Citibank, N.A., 399 Park Avenue, New York, New York 10043, in same day funds,
or at such other address or account as the Agent may designate from time to
time in a written notice to the Borrower. Each A Advance made by the Lender to
the Borrower pursuant to the Credit Agreement, and all payments made on account
of principal thereof, shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto which is part of this
Promissory Note; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This Promissory Note is one of the A Notes referred to in, and
is entitled to the benefits of, the Credit Agreement dated as of June 1, 1994
(the "Credit Agreement"), among the Borrower, the Lender and certain other
lenders parties thereto, and Citicorp USA, Inc., as Agent for the Lender and
such other lenders. The Credit Agreement, among other things, (i) provides for
the making of the A Advances by the Lender to the Borrower from time to time in
an aggregate amount not to exceed at any time outstanding the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
each such A Advance being further evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.
A-1-1
<PAGE> 62
The Borrower hereby waives presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder hereof shall operate as a waiver of
such rights.
This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of California.
SUN MICROSYSTEMS, INC., a Delaware corporation
By:___________________________________________
Name:_________________________________________
Title:________________________________________
A-1-2
<PAGE> 63
A NOTE GRID
A-1-3
<PAGE> 64
EXHIBIT A-2
FORM OF B NOTE
Dated: _________, 19__
FOR VALUE RECEIVED, the undersigned, SUN MICROSYSTEMS, INC., a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
_______________ (the "Lender") for the account of its Applicable Lending Office
(as defined in the Credit Agreement referred to below), the principal amount of
each B Advance (as defined in the Credit Agreement) made by the Lender to the
Borrower pursuant to the Credit Agreement on the maturity date of such B
Advance as is specified in the related Notice of B Borrowing (as defined in the
Credit Agreement) delivered by the Borrower pursuant to Section 2.03(a)(i) of
the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal
amount of each B Advance from the date of such Advance until such principal
amount is paid in full, at such interest rates and payable at such times as are
specified pursuant to the provisions of Section 2.03 thereof.
Both principal and interest are payable in lawful money of the
United States of America to Citicorp USA, Inc., as Agent, at its account with
Citibank, N.A., as Agent, at 399 Park Avenue, New York, New York 10043, in same
day funds, or at such other address or account as the Agent may designate from
time to time in a written notice to the Borrower. Each B Advance made by the
Lender to the Borrower pursuant to the Credit Agreement, and all payments made
on account of the principal hereof shall be recorded by the Lender and, prior
to any transfer hereof, endorsed on the grid attached hereto which is part of
this Promissory Note; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This Promissory Note is one of the B Notes referred to in, and
is entitled to the benefits of, the Credit Agreement dated as of June 1, 1994
(the "Credit Agreement"), among the Borrower, the Lender and certain other
lenders parties thereto, and Citicorp USA, Inc., as Agent for the Lender and
such other lenders. The Credit Agreement, among other things, (i) provides for
the making of B Advances by the Lender, in its sole discretion, to the Borrower
from time to time pursuant to the provisions of the Credit Agreement, the
indebtedness of the Borrower resulting from each such B Advance being further
evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated
events. The Borrower shall have no right to
A-2-1
<PAGE> 65
prepay any principal amount hereof except upon the terms and conditions
specified pursuant to the Credit Agreement.
The Borrower hereby waives presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder hereof shall operate as a waiver of
such rights.
This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of California.
SUN MICROSYSTEMS, INC., a Delaware corporation
By:___________________________________________
Name:_________________________________________
Title:________________________________________
A-2-2
<PAGE> 66
B NOTE GRID
A-2-3
<PAGE> 67
EXHIBIT B-1
NOTICE OF A BORROWING
Citicorp USA, Inc., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Citicorp Center
One Sansome Street, Suite 2710 [Date]
San Francisco, California 94104
Attention: _____________________
Gentlemen:
The undersigned, Sun Microsystems, Inc., refers to the Credit
Agreement, dated as of June 1, 1994 (the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the undersigned, certain
Lenders parties thereto and Citicorp USA, Inc., as Agent for said Lenders, and
hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit
Agreement that the undersigned hereby requests an A Borrowing under the Credit
Agreement, and in that connection sets forth below the information relating to
such A Borrowing (the "Proposed A Borrowing") as required by Section 2.02(a) of
the Credit Agreement:
(i) The Business Day of the Proposed A Borrowing is __________,
19__.
(ii) The Type of A Advances comprising the Proposed A Borrowing is
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed A Borrowing is
$_______________.
(iv) The Interest Period for each A Advance made as part of the
Proposed A Borrowing is [____ days] [____ month[s]].
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed A
Borrowing:
(A) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed A Borrowing and to
the application of the proceeds therefrom, as though made on and as of such
date (except to the extent such representations or warranties specifically
relate to
B-1-1
<PAGE> 68
an earlier date, in which case they shall be true and correct as of such date);
(B) no Default or Event of Default has occurred and is continuing,
or would result from such Proposed A Borrowing or from the application of the
proceeds therefrom; and
(C) the aggregate amount of the Proposed A Borrowing and all other
Borrowings to be made on the same day under the Credit Agreement is within the
aggregate amount of the unused Commitments of the Lenders.
Very truly yours,
SUN MICROSYSTEMS, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
B-1-2
<PAGE> 69
EXHIBIT B-2
NOTICE OF B BORROWING
Citicorp USA, Inc., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Citicorp Center
One Sansome Street, Suite 2710 [Date]
San Francisco, California 94104
Attention: _______________________
Gentlemen:
The undersigned, Sun Microsystems, Inc., refers to the Credit
Agreement, dated June 1, 1994 (the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the undersigned, certain
Lenders parties thereto and Citicorp USA, Inc., as Agent for said Lenders, and
hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that
the undersigned hereby requests a B Borrowing under the Credit Agreement, and
in that connection sets forth the terms on which such B Borrowing (the
"Proposed B Borrowing") is requested to be made:
<TABLE>
<S> <C> <C>
(A) Date of B Borrowing _________________________
(B) Amount of B Borrowing _________________________
(C) Maturity Date _________________________
(D) Interest Rate Basis _________________________
(E) Interest Payment Date(s) _________________________
(F) _______________________ _________________________
(G) _______________________ _________________________
(H) _______________________ _________________________
</TABLE>
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed B
Borrowing:
(a) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed B Borrowing and to
the application of the proceeds therefrom, as though made on and as of such
date (except to the extent such representations or warranties specifically
relate to an earlier date, in which case they shall be true and correct as of
such date);
B-2-1
<PAGE> 70
(b) no Default or Event of Default has occurred and is continuing,
or would result from the Proposed B Borrowing or from the application of the
proceeds therefrom; and
(c) the aggregate amount of the Proposed B Borrowing and all other
Borrowings to be made on the same day under the Credit Agreement is within the
aggregate amount of the unused Commitments of the Lenders.
The undersigned hereby confirms that the Proposed B Borrowing
is to be made available to it in accordance with Section 2.03(a)(vi) of the
Credit Agreement.
Very truly yours,
SUN MICROSYSTEMS, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
B-2-2
<PAGE> 71
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated __________ ___, 19__
Reference is made to the Credit Agreement dated as of June 1,
1994 (the "Credit Agreement") among Sun Microsystems, Inc., a Delaware
corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement)
and Citicorp USA, Inc., as Agent for the Lenders (the "Agent"). Terms defined
in the Credit Agreement are used herein with the same meaning.
_______________ (the "Assignor") and _______________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, that
interest in and to all of the Assignor's rights and obligations under the
Credit Agreement as of the date hereof (other than in respect of B Advances)
which represents the percentage interest specified on Schedule 1 of all
outstanding rights and obligations under the Credit Agreement (other than in
respect of B Advances), including, without limitation, such interest in the
Assignor's Commitment and the A Advances owing to the Assignor. After giving
effect to such sale and assignment, the Assignee's Commitment and the amount of
the A Advances owing to the Assignee will be as set forth in Section 2 of
Schedule 1.
2. The Assignor (i) represents and warrants as of the
Effective Date (as defined below) that it is the legal and beneficial owner of
the interest being assigned by it hereunder and that such interest is free and
clear of any liens or encumbrances; (ii) makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant
thereto; and (iv) except as stated in clause (i) of this Paragraph 2, makes no
representation or warranty of any kind relating to the Borrower or the Credit
Agreement.
3. The Assignee (i) confirms that it has received a copy
of the Credit Agreement, together with copies of the financial statements
referred to in Section 4.01 thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance; (ii) agrees that it will,
C-1
<PAGE> 72
independently and without reliance upon the Agent, the Assignor or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under the
Credit Agreement as are delegated to the Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; (iv) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Credit Agreement are required to be performed by it as a Lender;
and (v) specifies as its Domestic Lending Office (and address for notices) and
Eurodollar Lending Office the offices set forth beneath its name on the
signature pages hereof. [Note: the following sentence is included only if the
Assignee is organized under the laws of a jurisdiction outside the United
States: The Assignee attaches the forms prescribed by the Internal Revenue
Service of the United States certifying as to the Assignee's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to the Assignee under the Credit Agreement
or such other documents as are necessary to indicate that all such payments are
subject to such taxes at a rate reduced by an applicable tax treaty] [Note:
the following sentence is included if the Assignee is organized under the laws
of a jurisdiction within the United States: The Assignee attaches a statement
conforming to the requirements of United States Treasury Regulation
1.1441-5(b)].
4. Following the execution of this Assignment and
Acceptance by the Assignor and the Assignee, it will be delivered to the Agent
for acceptance and recording by the Agent. The effective date of this
Assignment and Acceptance shall be the date of acceptance thereof by the Agent,
unless otherwise specified on Schedule 1 hereto (the "Effective Date").
5. Upon such acceptance and recording by the Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall,
to the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from
and after the Effective Date the Agent shall make all payments under the Credit
Agreement in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment and other fees
with respect thereto) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement for periods
prior to the Effective Date directly between themselves.
C-2
<PAGE> 73
7. This Assignment and Acceptance shall be governed by,
and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective officers thereunto
duly authorized, as of the date first above written, such execution being made
on Schedule 1 hereto.
C-3
<PAGE> 74
EXHIBIT C
Schedule 1
to
Assignment and Acceptance
Dated _______, 19__
Section 1.
Percentage Interest: _________%
Section 2.
Assignee's Commitment: $_________
Aggregate Outstanding Principal
Amount of A Advances owing to the
Assignee: $_________
Assignor's Retained Commitment: $_________
Section 3.
Effective Date: _____, 19__
[NAME OF ASSIGNOR]
By:______________________________
Title:___________________________
[NAME OF ASSIGNEE]
By: _____________________________
Title:
Domestic Lending Office (and address
for notices):
[Address]
Eurodollar Lending Office
[Address]
Consented to this ___ day
of ________________, 19__
C-4
<PAGE> 75
SUN MICROSYSTEMS, INC.,
By: __________________________
Name: ________________________
Title: _______________________
Accepted this _______ day
of ________________, 19__
CITICORP USA, INC.
By:____________________________
Vice President
C-5
<PAGE> 76
EXHIBIT E
COVENANT COMPLIANCE CERTIFICATE
Citicorp USA, Inc. as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Citicorp Center
One Sansome Street, Suite 2710
San Francisco, California 94111
Attention: _______________________
Gentlemen:
I, the undersigned, the _________________________ of Sun
Microsystems, Inc., do hereby certify, represent and warrant that:
1. This Certificate is furnished pursuant to Section 5.01(e)(iii)
of that certain Credit Agreement dated as of June 1, 1994 (the "Credit
Agreement", the terms defined therein being used herein as therein defined)
among Sun Microsystems, Inc. (the "Borrower"), certain Lenders parties thereto
and Citicorp USA, Inc., as Agent for such Lenders.
2. Schedule 1 attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants of the
Credit Agreement, all of which data and computations are complete, true and
correct.
3. No Default or Event of Default under the Credit Agreement has
occurred and is continuing.
4. The representations and warranties set forth in Section 4.01
of the Credit Agreement are true and correct as of the date hereof as though
made on and as of the date hereof (except to the extent such representations or
warranties specifically relate to an earlier date, in which case they shall be
true and correct as of such date).
5. Schedule 2 attached hereto describes all changes in Exhibit G
to the Credit Agreement that have not been reflected on previous certificates
furnished pursuant to Section 5.01(e)(iii) of the Credit Agreement. [This
Paragraph 5 is given only annually, with year-end financial statements.]
E-1
<PAGE> 77
Executed this ____ day of _____________, 19__.
____________________________________
Name:_______________________________
Title:______________________________
E-2
<PAGE> 78
Schedule 1
To
Compliance Certificate
For the _________ Ended ____________, 19_
I. SECTION 5.01(h): Debt to Consolidated Tangible Net Worth
A. Total Debt: $___________
B. Consolidated total assets: $___________
C. Consolidated total liabilities: $___________
D. Intangibles and other exclusions
(if any):
$___________
E. Consolidated Tangible Net Worth
(B - C - D):
$___________
F. Ratio of A to E: ____ to 1.00
G. Maximum ratio: .45 to 1.00
II. SECTION 5.01(i): Fixed Charge Ratio
A. Adjusted EBIT for previous 12 months: $___________
B. Fixed Charges for previous 12 months: $___________
C. Ratio of A to B: ___ to 1.00
D. Minimum ratio: 1.25 to 1.00*
.50 to 1.00**
III. SECTION 5.02(h): Subsidiary Debt
A. U.S. Subsidiary Debt: $___________
B. Maximum U.S. Subsidiary Debt: $120,000,000
* applicable to the twelve month period ending on the last day of the
first fiscal quarter of any fiscal year of the Borrower
** applicable to the twelve month periods ending on the last day of
the second, third or fourth fiscal quarters of any fiscal year of the
Borrower
E-3
<PAGE> 79
Schedule 2
Set forth below are all changes in the information contained in
Exhibit G to the Credit Agreement that have not been reflected on a previous
Schedule 2:
[List all changes; if there are none, so indicate]
E-4
<PAGE> 80
EXHIBIT F
LIENS
1. The First Deed of Trust, Assignment of Leases, Rents and Other Income and
Security Agreement dated as of May 11, 1989 in the amount of $40,000,000
covering the real property located at San Antonio Road, Palo Alto, California (
the "Palo Alto Property") among Sun Microsystems Properties, Inc. ("Grantor"),
Chicago Title Insurance Company ("Trustee"), and The Toyo Trust and Banking
Company, Limited, New York Branch ("Beneficiary").
2. UCC-1 Financing Statement dated May 11, 1989 under which Grantor grants to
Beneficiary a security interest in all personal property which is owned by
Grantor and located at the Palo Alto Property.
2
<PAGE> 81
EXHIBIT G
SUN MICROSYSTEMS, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
DATE PLACE OF
NAME INCORPORATED INCORPORATION
- - - ------------------------------------------------------------- --------------- ------------
<S> <C> <C>
Sun Microsystems of California, Inc. April 1982 California
Solaris Corporation April 1983 California *
Sun Microsystems Ltd December 1984 U.K.
Sun Microsystems Europe, Inc. March 1984 California
Sun Microsystems GmbH April 1984 Germany
Sun Microsystems France, S.A. September 1984 France
Sun Microsystems Federal, Inc. October 1984 California
Sun Microsystems (Barbados), Ltd. December 1984 Barbados
Sun Microsystems of Canada, Inc. February 1985 Canada
Nihon Sun Microsystems K.K. March 1986 Japan
Sun Microsystems Nederland B.V. June 1986 netherlands
Sun Microsystems Oy October 1990 Finland
Sun Microsystems Australia Pty. Ltd. July 1986 Australia
Sun Microsystems (Schweiz) A.G. June 1987 Switzerland
Sun Microsystems of California, (Hong Kong) Ltd. June 1987 Hong Kong
Sun Microsystems Italia S. p.A. July 1987 Italy
Sun Microsystems of California (Services), Ltd. July 1987 Hong Kong
Sun Microsystems AB September 1987 Sweden
Sitka Corporation March 1988 California
Sun Microsystems (NZ) Ltd. December 1988 New Zealand
Sun Microsystems Holdings Ltd November 1988 Wales
Sun Microsystems Iberica S.A. January 1989 Spain
Sun Microsystems Ireland, Ltd. March 1993 Ireland *
Sun Microsystems Scotland Ltd January 1989 U.K.
Sun Microsystems Benelux B.V. February 1989 Netherlands
Unisol Corporation February 1989 Japan
Sun Microsystems Properties, Inc. March 1989 California
sun Microsystems Europe Properties, Ltd. June 1992 California
Sun Microsystems Technology Pty. Ltd. May 1989 Australia
Sun Microsystems Finance, Inc. August 1989 California
Sun Acquisitions, Inc. September 1990 California
Sun Microsystems Laboratories, Inc. February 1991 California
Sun Technology Enterprises, Inc. February 1991 California
SunExpress, Inc. March 1991 California
SunExpress International, Inc. August 1992 California
SunSoft, Inc. March 1991 California
SunSoft International, Inc. June 1993 California
SunSoft Subsidiary, Inc. July 1987 Delaware
Sun Microsystems Computer Corporation March 1991 California
Sun Microsystems Intercontinental Operations April 1992 California
Sun Microsystems Management Services April 1992 California
Sun Microsystems do Brasil Industria e Comercio Ltda. February 1991 Brazil
Sun Microsystems de Mexico, S.A. de C.V. January 1992 Mexico
Sun Microsystems de Venezuela, S.A. May 1992 Venezuela
Sun Microsystems Belgium January 1991 Belgium
Sun Microsystems International B.V. June 1991 Netherlands
Sun Microsystems Scotland B.V. June 1991 Scotland
Sun Microsystems Korea Ltd. December 1990 Korea
Sutherland, Sproull & Associates, Inc. March 1991 California *
First Person, Inc. July 1992 California
Sun Microsystems Distributions International Inc. December 1991 California
</TABLE>
* non -- Restricted Subsidiary
<PAGE> 82
EXHIBIT H
RESPONSIBLE OFFICERS
<TABLE>
<CAPTION>
NAME OF PERSON OCCUPYING
EXECUTIVE OFFICE OFFICE AT CLOSING
- - - ------------------------------------------------- ------------------------------
<S> <C>
President-CEO Scott McNealy
V.P., Chief Financial Officer Michael Lehman
V.P., Chief Technical Officer Bill Joy
V.P., General Counsel & Secretary Michael H. Morris
V.P., Treasurer Richard Barker
V.P. Corporate Planning & Development William Raduchel
</TABLE>
3
<PAGE> 1
EXHIBIT 10.83
EXECUTED COPY
RECEIVABLES PURCHASE AGREEMENT
dated as of August 5, 1994
among
SUN MICROSYSTEMS, INC.
and
THE SUBSIDIARY SELLERS LISTED HEREIN,
as Sellers
The PURCHASERS Listed Herein
and
J. P. MORGAN DELAWARE
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms . . . . . . . . . . . . . . 1
Section 1.02. Accounting Terms and Determinations . . . 16
Section 1.03. UCC Terms . . . . . . . . . . . . . . . . 16
ARTICLE II
PURCHASES AND SALES
Section 2.01. Agreement to Purchase . . . . . . . . . . 17
Section 2.02. Sales Procedures. . . . . . . . . . . . . 17
Section 2.03. Participation Percentage. . . . . . . . . 18
Section 2.04. Discount Calculations . . . . . . . . . . 18
Section 2.05. Loss Reserve. . . . . . . . . . . . . . . 20
Section 2.06. Settlement Statement. . . . . . . . . . . 20
Section 2.07. Commitment Fees; Termination or
Reduction of Commitment. . . . . . . . . 20
Section 2.08. Failure to Sell . . . . . . . . . . . . . 21
Section 2.09. Payments. . . . . . . . . . . . . . . . . 21
Section 2.10. Rate Basis. . . . . . . . . . . . . . . . 21
Section 2.11. No Recourse; Seller Liability . . . . . . 21
Section 2.12. No Assumption of Obligations. . . . . . . 22
Section 2.13. Repurchase of Pool Participation. . . . . 22
Section 2.14. Additional State Income Taxes . . . . . . 22
ARTICLE III
CONDITIONS TO PURCHASES
Section 3.01. All Purchase Dates. . . . . . . . . . . . 23
Section 3.02. First Purchase Date . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Corporate Existence and Power . . . . . . 24
Section 4.02. Corporate and Governmental
Authorization; Contravention. . . . . . . 25
Section 4.03. Binding Effect. . . . . . . . . . . . . . 25
Section 4.04. Perfection. . . . . . . . . . . . . . . . 25
Section 4.05. Accuracy of Information . . . . . . . . . 25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
COVENANTS
Section 5.01. Maintenance of Records. . . . . . . . . . 26
Section 5.02. Protection of Participating Interests
of Purchasers. . . . . .. . . . . . . . . 26
Section 5.03. Performance of Contracts. . . . . . . . . 27
Section 5.04. Furnishing of Account Information;
Inspection of Records. . . . . . . . . . 27
Section 5.05. Maintenance of Qualification
and Credit Policies. . . . . . . . . . . 29
Section 5.06. Modification of Accounts. . . . . . . . . 29
Section 5.07. Supplemental Opinions of Counsel. . . . . 29
Section 5.08. Maintenance of Ownership. . . . . . . . . 30
Section 5.09. No Disposition. . . . . . . . . . . . . . 30
Section 5.10. File Search Reports . . . . . . . . . . . 30
Section 5.11. Financial Information . . . . . . . . . . 30
Section 5.12. Conduct of Business and Maintenance
of Existence. . . . . . . . . . . . . . . 32
Section 5.13. Minimum Tangible Net Worth. . . . . . . . 33
Section 5.14. Consolidations, Mergers and Sales
of Assets . . . . . . . . . . . . . . . . 33
Section 5.15. Use of Proceeds . . . . . . . . . . . . . 33
ARTICLE VI
TERMINATION OF COMMITMENT
Section 6.01. Termination Events. . . . . . . . . . . . 34
Section 6.02. Notice of Parent. . . . . . . . . . . . . 36
ARTICLE VII
THE AGENT
Section 7.01. Appointment and Authorization . . . . . . 36
Section 7.02. Agent and Affiliates. . . . . . . . . . . 37
Section 7.03. Action by Agent . . . . . . . . . . . . . 37
Section 7.04. Consultation with Experts . . . . . . . . 37
Section 7.05. Liability of Agent. . . . . . . . . . . . 37
Section 7.06. Indemnification . . . . . . . . . . . . . 38
Section 7.07. Credit Decision . . . . . . . . . . . . . 38
Section 7.08. Successor Agent . . . . . . . . . . . . . 38
Section 7.09. Agent's Fees. . . . . . . . . . . . . . . 38
ARTICLE VIII
SELLERS' INDEMNITIES
Section 8.01. Breach of Warranty or Agreement . . . . . 39
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 8.02. Tax Indemnification . . . . . . . . . . . 40
Section 8.03. Increased Cost and Reduced Return . . . . 40
Section 8.04. Notice to Parent. . . . . . . . . . . . . 42
Section 8.05. Expenses Included . . . . . . . . . . . . 42
ARTICLE IX
ADMINISTRATION, SERVICING AND
COLLECTION OF POOL ACCOUNTS
Section 9.01. Appointment of Collection Agent . . . . . 42
Section 9.02. Collection of Pool Accounts . . . . . . . 43
Section 9.03. Rebates, Refunds, Credits and Other
Adjustments. . . . . . . . . . . . . . . 43
Section 9.04. Change of Collection Agent. . . . . . . . 44
Section 9.05. Remittance of Collections; Reinvestment . 45
Section 9.06. Holding of Proceeds Pending
Settlements . . . . . . . . . . . . . . . 49
Section 9.07. Servicing Fee . . . . . . . . . . . . . . 49
Section 9.08. Compensation of Successor
Collection Agent. . . . . . . . . . . . . 49
Section 9.09. Termination of Collection Agency. . . . . 49
Section 9.10. Responsibilities of Agent and
Purchasers. . . . . . . . . . . . . . . . 50
Section 9.11. Lockboxes . . . . . . . . . . . . . . . . 50
ARTICLE X
MISCELLANEOUS
Section 10.01. Term of Agreement. . . . . . . . . . . . 51
Section 10.02. No Waivers . . . . . . . . . . . . . . . 51
Section 10.03. Notices. . . . . . . . . . . . . . . . . 51
Section 10.04. Counterparts; Effectiveness. . . . . . . 51
Section 10.05. Amendments . . . . . . . . . . . . . . . 52
Section 10.06. Expenses; Documentary Taxes;
Litigation Indemnity . . . . . . . . . . 52
Section 10.07. Governing Law; Submission to
Jurisdiction; Waiver of
Jury Trial . . . . . . . . . . . . . . . 53
Section 10.08. Successors and Assigns;
Participations; Novation . . . . . . . . 53
Section 10.09. Confidentiality. . . . . . . . . . . . . 55
Section 10.10. Termination by Seller. . . . . . . . . . 56
Section 10.11. Effect on 1991 Agreement . . . . . . . . 56
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XI
GUARANTY
Section 11.01. The Guaranty . . . . . . . . . . . . . . 56
Section 11.02. Guaranty Unconditional . . . . . . . . . 56
Section 11.03. Discharge only upon Payment in
Full; Reinstatement in Certain
Circumstances. . . . . . . . . . . . . . 57
Section 11.04. Waiver by the Parent . . . . . . . . . . 58
Section 11.05. Subrogation. . . . . . . . . . . . . . . 58
EXHIBITS
Exhibit A - Form of Assignment
Exhibit B - Form of Perfection Certificate
Schedule 4(A) - Description of Collateral
Schedule 5 - Schedule of Filings
Exhibit C-1 - Form of Opinion of Wilson, Sonsini, Goodrich
& Rosati, Counsel for the Sellers
Exhibit C-2 - Form of Opinion of Counsel for the Agent
Exhibit D-1 - Government Contracts
Exhibit D-2 - Form of Government Contract Assignment
Exhibit D-3 - Form of Notice of Assignment
Exhibit E - Certain Obligors
Exhibit F - Lockbox Banks, Lockbox Account
Numbers and Lockboxes
Exhibit G - Form of Lockbox Letter
</TABLE>
<PAGE> 6
RECEIVABLES PURCHASE AGREEMENT
AGREEMENT dated as of August 5, 1994 among SUN MICROSYSTEMS,
INC., the SUBSIDIARY SELLERS listed on the signature pages hereof, the
PURCHASERS listed on the signature pages hereof and J.P. MORGAN DELAWARE, as
Agent.
RECITALS
WHEREAS, each Seller in the ordinary course of its business
generates trade and/or retail or consumer receivables resulting from the sale
of goods or services to its customers;
WHEREAS, the Sellers may from time to time sell to the
Purchasers undivided percentage ownership interests in such receivables
pursuant to and in accordance with the terms hereof;
WHEREAS, the Purchasers may from time to time purchase from the
Sellers undivided percentage ownership interests in such receivables pursuant
to and in accordance with the terms hereof; and
WHEREAS, the Purchasers may in the future decide to sell,
assign or otherwise dispose of undivided interests in their ownership interests
pursuant to and in accordance with the terms hereof.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. The following terms, as used
herein, have the following meanings:
"Account" means any right of a Seller to payment in Dollars for
goods which have been sold, licensed, leased or otherwise disposed of, or for
services which have been or are to be rendered, by or on behalf of such Seller.
Each such right evidenced by or arising under a separate Contract (including a
separate invoice) shall constitute a separate Account.
"Accounting Period" means each fiscal month of the Sellers
during the term of this Agreement.
<PAGE> 7
"Affiliate" means with reference to the Parent (or, if such
term is used with reference to any other Person, such other Person) (the
"Controlled Person") (i) any Person that directly, or indirectly through one or
more intermediaries, controls the Controlled Person (a "Controlling Person") or
(ii) any Person (other than the Controlled Person or a Subsidiary of the
Controlled Person or, in the case of any Subsidiary of the Parent, the Parent)
which is controlled by or is under common control with a Controlling Person.
As used herein, the term "control" means possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means J.P. Morgan Delaware, in its capacity as agent
for the Purchasers hereunder, and its successors in such capacity.
"Agreement" means this Receivables Purchase Agreement, as the
same may be amended from time to time.
"Applicable Discount Rate" has the meaning set forth in
Section 2.04.
"Applicable Margin" has the meaning set forth in Section 2.04.
"Assignment" means an instrument of assignment creating a
Participating Interest, substantially in the form of Exhibit A hereto.
"Average Prime Rate" means, with respect to any Discount
Period, the sum of the Prime Rates in effect on each day from and including the
first day of such Discount Period to but not including the last day thereof,
divided by the number of such days.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Business Day" means a day (i) other than a Saturday, Sunday or
other day on which commercial banks in New York City or Wilmington, Delaware or
San Francisco, California are authorized by law to close and (ii) on which
commercial banks are open for international business (including dealings in
Dollar deposits) in London.
"Collection Agent" means the Person from time to time appointed
as Collection Agent pursuant to Section 9.01.
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<PAGE> 8
"Collections" means all amounts received in payment of any
amount owed by the related Obligor in respect of any Pool Account or applied to
any amount owed in respect of any Pool Account. Collections shall include all
amounts payable by the Sellers pursuant to Section 9.03.
"Commitment" means the amount of $125,000,000, or the several
agreements of the Purchasers to purchase Participating Interests in Pool
Accounts from time to time hereunder, as the context may require.
"Commitment Percentage" means, as to any Purchaser, the
percentage equivalent of a fraction the numerator of which is the "Committed
Amount" set forth opposite its name on the signature pages hereof and the
denominator of which is $125,000,000.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of the
Parent in its consolidated financial statements if such statements were
prepared as of such date.
"Consolidated Tangible Net Worth" means the excess of
consolidated total assets over consolidated total liabilities, consolidated
total assets and consolidated total liabilities each to be determined on a
consolidated basis for the Parent in accordance with generally accepted
accounting principles, excluding, however, from the determination of
consolidated total assets (i) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents, patent
applications, licenses and rights in any thereof, and other similar
intangibles, (ii) all unamortized debt discount and expense, (iii) asset,
liability, contingency and other appropriate reserves, including reserves for
depreciation and for deferred income taxes, (iv) treasury stock, (v) any
write-up in the book value of any asset resulting from a revaluation thereof
subsequent to June 30, 1993, (vi) the book value of investments in Persons that
are not Subsidiaries (unless the same are readily marketable), and (vii) any
items not included in clauses (i) through (vi) above which are treated as
intangibles in conformity with generally accepted accounting principles.
"Contract" means an agreement between the related Seller and
the Obligor on an Account or, in the case of an Account arising on open account
terms, the invoice evidencing such Account, in either case pursuant to which
such Obligor shall be obligated to make payments in the amounts and at the
times set forth therein.
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<PAGE> 9
"Credit Agreement" means the Credit Agreement dated as of June
1, 1994 among the Parent, the banks listed on the signature pages thereof and
Citicorp USA Inc., as agent for such banks, a true and correct copy of which as
in effect on the date hereof has heretofore been furnished to each Purchaser by
the Parent, as amended by First Amendment to Credit Agreement thereto dated as
of August 5, 1994 and as the same may be further amended from time to time.
"Current Purchase Price" has the meaning set forth in
Section 2.02.
"Debt" of any Person means (i) indebtedness for borrowed money,
(ii) obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of property
or services (excluding ordinary trade payables incurred in the ordinary course
of business), (iv) obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) all obligations of such Person to purchase
securities (or other property) which arise out of or in connection with the
sale of the same or substantially similar securities or property, (vi) any
reimbursement obligations of such Person to the issuer of a letter of credit or
similar instrument, (vii) all indebtedness or obligations of others secured by
a Lien on any asset of such Person, whether or not such indebtedness or
obligations are assumed by such Person (to the extent of the value of the
asset), (viii) any reimbursement obligation of such Person or other arrangement
of whatever nature having the effect of assuring or holding harmless any other
Person against loss with respect to any real property owned by such other
Person, including, without limitation, assuring or guaranteeing that such other
Person shall receive a specified amount in connection with the conveyance of
such real property, (ix) obligations under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (viii) above, and (x) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.
"Defaulted Account" means at any time an Account (i) under
which any amount remains unpaid for more than 90 days after the date for
payment stated in the related invoice, (ii) as to which the related Obligor is
at such time the subject of bankruptcy, insolvency or similar proceedings or
(iii) as to which a reserve for bad debt has been specifically provided or on
which an estimated or actual bad debt has been incurred or which has become
4
<PAGE> 10
uncollectible as a consequence of a circumstance or event relating to the
creditworthiness of the related Obligor, in each case as determined in
accordance with the related Seller's usual practice.
"Determination Date" means each Business Day from and including
the first Purchase Date to and including the Termination Date.
"Discount" means at any date an amount accruing (or accrued) in
respect of the Unrecovered Purchase Price for each day from and including the
first day of each Discount Period to but not including the last day thereof (or
such date) at the Applicable Discount Rate.
"Discount Period" means, (i) in respect of the portion of the
Unrecovered Purchase Price outstanding on the first day of any Settlement
Period (after giving effect to any purchases and/or settlements on such date),
the period from the first day of such Settlement Period to and including the
first day of the next succeeding Settlement Period and (ii) in respect of the
portion of the Unrecovered Purchase Price attributable to any purchase during
any Settlement Period, the period from and including the related Purchase Date
to and including the first day of the next succeeding Settlement Period.
"Discount Reserve" means, at any date, an amount equal to the
sum of (i) accrued Discount at such date plus (ii) an amount equal to the
product of (x) the Unrecovered Purchase Price at such date times (y) the Prime
Rate + 1% at such date times (z) a fraction the numerator of which is the
number of days in the Estimated Liquidation Period and the denominator of which
is 360.
"Dollars" means lawful currency of the United States.
"Effective Date" means the date on which this Agreement becomes
effective in accordance with Section 10.04.
"Eligible Account" means at any time an Account arising in the
ordinary course of business of the related Seller:
(a) which complies with all applicable legal requirements,
including, without limitation, all laws, rules, regulations and orders of any
governmental or judicial authority relating to truth in lending, billing
practices, fair credit reporting, equal credit opportunity, debt collection
practices and consumer debtor protection,
5
<PAGE> 11
(b) which constitutes an "account" as defined in the Uniform
Commercial Code as in effect in the jurisdiction whose law governs the
perfection of the Purchasers' ownership interests therein,
(c) which, together with the related Contract, constitutes a
legal, valid and binding irrevocable payment obligation of the related Obligor
in accordance with its terms, subject to no dispute, claim for offset,
counterclaim or other defense (except to the extent that the amount of such
dispute, offset or counterclaim has theretofore been subtracted from the Unpaid
Balance of such Account in the calculation of the Net Eligible Account
Balance),
(d) which is payable in the United States in Dollars,
(e) as to which the related Obligor, or a guarantor providing
a full and unconditional guaranty in respect of such account, is a Qualifying
Obligor and, if such Account arises under a Government Contract, such
Government Contract is a Qualifying Government Contract; provided that this
clause (e) need not be met as to any Account payment of which is supported by a
letter of credit, bank guarantee or similar arrangement,
(f) as to which an invoice has been issued and which is
payable by the related Obligor not later than 60 days after the date of such
invoice,
(g) which is not a Defaulted Account, and
(h) as to which the Seller has good and marketable title, free
and clear of any Title Defect (other than the Participating Interests and any
Permitted Subordinated Interest).
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products,
6
<PAGE> 12
chemicals or industrial, toxic or hazardous substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Parent and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Parent, are treated
as a single employer under Section 414 of the Internal Revenue Code.
"Estimated Liquidation Period" means, at any Determination
Date, the period from and including such Determination Date to but not
including the Settlement Date which follows such Determination Date by at least
35 days (or such greater number of days as the Agent may specify by notice to
the Parent, the Collection Agent (if other than the Parent) and the Purchasers
as more accurately representing the weighted average life of the Pool Accounts
at such time).
"Facility Office" means, as to each Purchaser, its office,
branch or affiliate located at its address set forth on the signature pages
hereof, or such other office, branch or affiliate of such Purchaser as it may
hereafter designate as its Facility Office by notice to the Parent and the
Agent.
"Government Contract" means a Contract in respect of which the
related Obligor is a federal governmental entity or agency.
"Indemnitee" has the meaning set forth in Section 8.01.
"Ineligible Account" has the meaning set forth in
Section 5.04(a).
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"License Account" means at any date any Account or portion of
an Account in respect of licenses by any Seller of intellectual property rights
of such Seller.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any
7
<PAGE> 13
jurisdiction). Customary bankers' rights of set-off arising by operation
of law or by contract in connection with working capital facilities,
lines of credit, term loans and letter of credit facilities and other
contractual arrangements entered into with banks in the ordinary course of
business are not "Liens" for the purposes of this Agreement.
"Lockbox" means a post office box or other mailing location
identified on Exhibit F hereto maintained by a Lockbox Bank pursuant to a
Lockbox Letter for the purpose of receiving payments made by the Obligors for
subsequent deposit into a related Lockbox Account, or such other post office
box or mailing location as the Parent may identify as such to the Agent from
time to time.
"Lockbox Account" means a demand deposit account maintained
with a Lockbox Bank pursuant to a Lockbox Letter for the purpose of depositing
payments made by the Obligors.
"Lockbox Bank" means a bank identified on Exhibit F hereto or
such other bank as the Parent may identify as such to the Agent from time to
time.
"Lockbox Letter" means a letter relating to a Lockbox Account
which is in compliance with Section 9.11 hereof and in substantially the form
attached hereto as Exhibit G or otherwise in form and substance satisfactory to
the Agent, which has been executed and delivered by the Parent to a Lockbox
Bank.
"Lockbox Transfer Letter" means a letter from the Agent to a
Lockbox Bank substantially in the form of Annex I to Exhibit G hereto.
"Loss Ratio" means at any date the percentage obtained by
dividing (i) the sum (or difference) of (x) gross bad debt write-offs and (y)
the net increase (or decrease) in bad debt reserves by (ii) the sum (or
difference) of (x) the gross cash receipts and (y) the net increase (or
decrease) in the cash-in-advance accounts, in each case for Pool Accounts and
for the period of twelve consecutive Accounting Periods most recently ended on
or prior to such date.
"Loss Reserve" means an amount determined in accordance with
Section 2.05.
"Loss Reserve Percentage" means at any date the greater of (i)
10% or (ii) a percentage equal to five times the Loss Ratio as at the last day
of the Accounting Period most recently ended twelve or more Business Days prior
to such date.
8
<PAGE> 14
"Majority Purchasers" means Purchasers having Commitment
Percentages aggregating at least 66 2/3%.
"Material Debt" means any Debt of the Parent or a Subsidiary of
the Parent which is outstanding in a principal amount of at least $25,000,000
in the aggregate.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $25,000,000.
"Multiemployer Plan" means at any time an employee
pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to
which any member of the ERISA Group is then making or accruing an obligation
to make contributions or has within the preceding five plan years made
contributions, including for these purposes any Person which ceased to be a
member of the ERISA Group during such five year period. "Net Eligible Account
Balance" means (i) the sum of the aggregate Unpaid Balances of all Eligible
Accounts minus (ii) (x) the amount by which total License Accounts otherwise
included in Eligible Accounts as estimated on the most recent Settlement
Statement exceeded $30,000,000 and (y) the amount by which total Service
Accounts otherwise included in Eligible Accounts as estimated on the most recent
Settlement Statement exceeded $30,000,000.
"Net Reinvestment Gain" has the meaning set forth in
Section 9.05.
"Net Reinvestment Loss" has the meaning set forth in
Section 9.05.
"1991 Receivables Purchase Agreement" means the Receivables
Purchase Agreement dated as of June 27, 1991 among the Parent, the Subsidiary
Sellers listed on the signature pages thereof, the Purchasers listed on the
signature pages thereof and J.P. Morgan Delaware, as Agent, as amended.
"New Purchaser" has the meaning set forth in Section 10.08.
"Notice of Sale" has the meaning set forth in Section 2.02.
"Obligor" means the Person obligated under any Pool Account or
any related Contract, and "related Obligor" means, when used with respect to
any Contract or any Pool Account, the Obligor thereunder.
9
<PAGE> 15
"Parent" means Sun Microsystems, Inc., a Delaware corporation,
and its successors.
"Participant" has the meaning set forth in Section 10.08(b).
"Participating Interest" means an undivided percentage
ownership interest of a Purchaser, to the extent of its Commitment Percentage,
in and to the Pool Participation.
"Participation Percentage" means at any time the applicable
percentage most recently determined by the Collection Agent pursuant to
Section 2.03.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Subordinated Interest" means any lien on or other
security interest in the Sellers' Residual Interest that is expressly made
subordinate to the rights of the Purchasers and the obligations of the Sellers
and the Parent under this Agreement, as it may from time to time be amended,
renewed, extended, increased or refinanced (for purposes of this definition,
the "Agreement"), pursuant to a written agreement whereby the holder of such
interest agrees to provisions no less favorable to the Purchasers than the
following:
(i) acknowledging the rights of (x) the parties hereunder to
renew, extend, increase, modify, amend, accelerate, compromise, supplement,
terminate, exchange, waive or release in whole or in part any of the rights or
obligations of the parties hereunder (including any increase in the amount of
the Participation Percentage, Unrecovered Purchase Price or Applicable Discount
Rate) or with respect to the Pool Assets, and to reduce, diminish or otherwise
amend in any respect the Sellers' Residual Interest and (y) the Purchasers and
the Agent to exercise or refrain from exercising any and all rights, remedies
and powers granted by or in connection with this Agreement or any other
agreements relating hereto (including termination of the Collection Agent and
appointment of a substitute Collection Agent) and otherwise to take any action
with or with respect to the Parent, the Sellers, the Collection Agent and the
Pool Assets, all at such times and from time to time and in such manner as the
Purchasers and the Agent may in their sole discretion determine, and all
without notice to or consent from any holder of such Permitted Subordinated
Interest;
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<PAGE> 16
(ii) acknowledging that any action taken pursuant to clause (i)
above or any change in the Sellers' Residual Interest by operation of the terms
of this Agreement may have the effect of reducing, diminishing, impairing or
otherwise altering the Permitted Subordinated Interest, and that any such
reduction, diminution, impairment or alteration shall, without notice or
consent, be binding on each holder of the Permitted Subordinated Interest; and
(iii) subordinating all right of enforcement and satisfaction of
the Permitted Subordinated Interest to payment of the Participating Interests
and all other amounts owing to the Purchasers hereunder, and agreeing that,
until such Participating Interests shall have been satisfied in full and the
Commitment shall have been terminated, the holder of such Permitted
Subordinated Interest will not exercise or attempt to exercise any rights,
remedies or powers or to take any other action with respect to the Permitted
Subordinated Interest against the Parent, the Sellers, the Collection Agent or
the Pool Assets.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"Pool Account" means all Accounts other than each Account that
has been designated as an Ineligible Account (as defined in Section 5.04(a)) in
accordance with Section 5.04(a); provided that on and after the Termination
Date, the term "Pool Account" shall refer only to those accounts which were
Pool Accounts as of the Termination Date.
"Pool Assets" means all of the following, whether now owned or
hereafter acquired or coming into existence, wherever located: (i) all Pool
Accounts outstanding at the opening of business on the related Determination
Date, (ii) all rights of ownership with respect thereto, including without
limitation any direct or indirect security therefor or guaranty thereof, any
repossessed, returned or rejected goods relating thereto held by the Seller,
any related
11
<PAGE> 17
insurance or letter of credit and any other form of direct or
indirect recourse in respect thereof, (iii) all Collections, (iv) all Records
and (v) all proceeds of the foregoing.
"Pool Participation" means an undivided ownership interest to
the extent of the Participation Percentage determined from time to time in and
to the Pool Assets.
"Potential Termination Event" means any condition or event
which with the giving of notice or lapse of time or both would, unless cured or
waived, become a Termination Event.
"Prime Rate" means the rate of interest publicly announced by
J.P. Morgan Delaware in Wilmington, Delaware from time to time as its "prime
rate".
"Purchase Date" means each date on which the Purchasers
purchase initial or incremental Participating Interests, as designated by the
Parent in a Notice of Sale.
"Purchaser" means each financial institution listed on the
signature pages hereof, and its successors and permitted assigns, and
"Purchasers" means all of the foregoing.
"Purchasers' Collection Amount" means the amount of Unrecovered
Purchase Price plus the Discount with respect thereto.
"Qualifying Government Contract" means (i) any Government
Contract under which the aggregate amounts payable by the related Obligor do
not exceed $5,000,000 and (ii) any other Government Contract (A) which is set
forth in Exhibit D-1 hereto (or in a supplement to Exhibit D-1 delivered by the
Parent to the Purchasers with respect to such Government Contract at least 15
days prior to any purchase and sale hereunder as to which Pool Accounts arising
thereunder are to be treated as Eligible Accounts) and (B) as to which the
related Seller shall have delivered to the Agent a duly executed instrument of
assignment substantially in the form of Exhibit D-2 and a duly completed (but
unacknowledged) notice of assignment substantially in the form of Exhibit D-3,
in each case with such modifications as may be necessary or advisable in order
to comply with any law applicable to transactions with the related Obligor.
"Qualifying Obligor" means an Obligor which (i) is not the
Parent or any of the Parent's Subsidiaries or Affiliates, (ii) has not, within
the three year period ending on the date of determination, been the related
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<PAGE> 18
Obligor on any Account which constituted a Defaulted Account by reason of
clause (ii) or (iii) of the definition thereof, (iii) is located in the United
States and (iv) has not been designated by notice to the Parent from the Agent
at the request of the Majority Purchasers (which request shall be made upon a
good faith determination that such Obligor is or may be insufficiently
creditworthy at such time) as an unacceptable Obligor for purposes of this
Agreement; provided that the aggregate Unpaid Balance of Pool Accounts included
in the calculation of any Net Eligible Account Balance as to which any one
Obligor (or a Subsidiary or Affiliate of such Obligor) is the related Obligor
shall be limited (in inverse chronological order) to the extent necessary so as
not to exceed (x) 10% of the Net Eligible Account Balance, as to any Obligor
set forth in Part 1 of Exhibit E hereto or (y) 5% of the Net Eligible Account
Balance, as to any Obligor set forth in Part 2 of Exhibit E hereto, so long as
the Agent has not given the Parent notice that, in the reasonable judgment of
the Majority Purchasers, there has been a material adverse change in the
creditworthiness of any such Obligor, or (z) 3% of the Net Eligible Account
Balance, in the case of any other Obligor. Exhibit E may be amended or
supplemented from time to time with the consent (after good faith consideration
of any proposals for any such amendment or supplement made by the Parent) of
the Majority Purchasers.
"Records" means all Contracts and other documents, books,
records and other information (including without limitation tapes, discs, punch
cards and related property and rights) of the Sellers maintained by the Sellers
with respect to Pool Accounts and the related Obligors.
"Reference Bank" means Morgan Guaranty Trust Company of New
York, and any additional or substitute Reference Bank or Banks appointed by the
Parent and the Agent with the consent of Majority Purchasers.
"Regulatory Change" has the meaning set forth in Section 8.03.
"Reinvestment Period" means the period from and including the
first Purchase Date to but not including the Termination Date.
"Responsible Financial Officer" means the chief financial
officer, the controller, the treasurer or any assistant treasurer of the
Parent.
"Responsible Officer" means the individuals occupying the
executive offices of the president - chief executive officer, vice president -
chief financial officer, vice president - chief technical officer, vice
president -
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<PAGE> 19
general counsel and secretary, vice president - treasurer, and vice
president - corporate planning and development of the Parent and any successors
to such offices, and the individuals occupying any other executive offices of
the Parent which at any time have the authority, functions and responsibilities
as such offices.
"Seller" means each of the Parent and the Subsidiary Sellers;
and "related Seller" means, with reference to any Pool Account, the Seller
originating such Pool Account.
"Sellers' Residual Interest" means (i) an undivided ownership
interest to the extent of a percentage equal to 100% minus the Participation
Percentage determined from time to time in and to the Pool Assets and (ii)
amounts (if any) to be paid to the Sellers pursuant to Sections 9.05 and 10.01.
"Service Account" means at any date any Account or portion of
any Account that arose for performance of services not yet rendered.
"Settlement Date" means the twelfth Business Day (or, in the
case of January and July, the seventeenth Business Day) following the last day
of each Accounting Period (or such other day of the month as to which the
Parent and the Agent may from time to time agree).
"Settlement Period" means (i) initially, the period from and
including the first Purchase Date to and excluding the first Settlement Date,
and (ii) thereafter, each period from and including each Settlement Date to and
excluding the next succeeding Settlement Date.
"Settlement Statement" means a monthly settlement statement
prepared by the Collection Agent in form and substance reasonably satisfactory
to the Purchasers.
"Special Account" means Account No. 230-47-534 at J.P. Morgan
Delaware, an account in the name of Agent.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Parent (or, if
such term is used with reference to any other Person, by such other Person).
"Subsidiary Seller" means each of the Persons listed as a
"Subsidiary Seller" of the Parent listed on the signature pages hereof, and
their respective successors.
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"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated at least A-1 by Standard & Poor's Corporation and P-1 by Moody's
Investors Service, Inc., (iii) time deposits with, including certificates of
deposit issued by, any office located in the United States of any bank or trust
company which is organized under the laws of the United States or any state
thereof and has capital, surplus and undivided profits aggregating at least
$250,000,000 or (iv) repurchase agreements with respect to securities described
in clause (i) above entered into with an office of a bank or trust company
meeting the criteria specified in clause (iii) above, provided in each case
that such Investment matures within one year from the date of acquisition
thereof.
"Termination Date" means the earlier of (a) August 5, 1997 and
(b) the date on which the Commitment shall have been terminated pursuant to
Section 2.07 or 6.01.
"Termination Event" has the meaning set forth in Section 6.01.
"Title Defect" means, as to any asset of any Person, any lien,
encumbrance, security interest or other right, claim or charge (other than
unasserted banker's rights of offset) with respect to such asset which may be
asserted by any other Person.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits (excluding any accrued but unpaid contributions), all determined
as of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including
its fifty States and the District of Columbia, but excluding its territories
and possessions.
"Unpaid Balance" means, in relation to any Account at any date,
all amounts posted by the related Seller in its records in accordance with its
customary accounting procedures as being payable by the related Obligor under
such Account at such date (net of any discount, rebate, refund, credit or other
adjustment reflected as being available to or for the benefit of the related
Obligor under such Account at such date).
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"Unrecovered Purchase Price" means, at any date, the excess, if
any, of (i) the sum of all Current Purchase Prices paid to the Parent for the
account of the Sellers on or prior to such date for the Participating Interests
over (ii) the aggregate amount received by the Agent and applied with respect
thereto on or prior to such date pursuant to Section 9.05.
"Unused Commitment" means, at any date, the excess, if any, of
the Commitment over the Unrecovered Purchase Price at such date.
"Utilization Limit" means, at any date, an amount equal to the
least of the following amounts: (i) the Commitment at such date and (ii) an
amount such that, if the Unrecovered Purchase Price equalled such amount, the
Participation Percentage at such date would equal 100%.
SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by the
Parent's independent public accountants) with the audited consolidated
financial statements of the Parent and its Consolidated Subsidiaries filed with
the Parent's Report on Form 10-K filed with the Securities and Exchange
Commission for fiscal year 1993 or, if later, the most recent such statements
delivered to the Purchasers pursuant to Section 5.11; provided that, if the
Parent notifies the Agent that the Parent wishes to amend any covenant in
Article V to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant (or if the Agent
notifies the Parent that the Majority Purchasers wish to amend Article V for
such purpose), then the Parent's compliance with such covenant shall be
determined on the basis of generally accepted accounting principles in effect
immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Parent and the Majority
Purchasers.
SECTION 1.03. UCC Terms. Terms not otherwise defined herein
which are defined in the Uniform Commercial Code as in effect on the date
hereof in the State of New York shall, unless the context otherwise requires,
have the meanings set forth therein.
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ARTICLE II
PURCHASES AND SALES
SECTION 2.01. Agreement to Purchase. Upon the basis of the
Sellers' representations and warranties contained in Article IV and pursuant to
Section 3.01 hereof and subject to the terms and conditions of this Agreement,
the Sellers may at their option sell to the Purchasers, and each Purchaser
severally agrees to purchase from the Sellers, on any Purchase Date during the
period from the Effective Date to but not including the Termination Date,
initial and incremental Participating Interests to the extent that, after
giving effect to such purchase and to any contemporaneous settlement pursuant
to Section 2.06, such Purchaser's Commitment Percentage of the Unrecovered
Purchase Price does not exceed its Commitment Percentage of the Commitment.
Notwithstanding the foregoing, on the initial Purchase Date, the Purchasers
shall make such purchase from the Sellers and from the Purchasers under and as
defined in the 1991 Receivables Purchase Agreement by directing to the Agent
under the 1991 Receivables Purchase Agreement such portion of the Current
Purchase Price paid hereunder as will, together with other amounts provided by
the Sellers, be sufficient to pay to the Purchasers under and as defined in the
1991 Receivables Purchase Agreement all Unrecovered Purchase Price and Accrued
Discount thereunder, in each case, as defined therein, with any balance of the
Current Purchase Price paid hereunder to be paid to the Sellers hereunder.
SECTION 2.02. Sales Procedures. (a) The Parent shall
designate each Purchase Date by at least three Business Days' notice to the
Agent (a "Notice of Sale"), setting forth:
(i) the proposed Purchase Date, which shall be a Business Day, and
(ii) the aggregate amount to be paid by the Purchasers on such
Purchase Date for the initial or incremental Participating Interests to be sold
on such Purchase Date (the "Current Purchase Price"), which shall be an
aggregate amount of $10,000,000 or any larger multiple of $1,000,000 (except
that any such sale may be for a Current Purchase Price equal to the maximum
amount permitted to be sold in compliance with Sections 2.01 and 3.01(d)).
(b) As soon as practicable after receipt of a Notice of Sale,
the Agent shall notify each Purchaser of the contents thereof and of such
Purchaser's ratable share of the Current Purchase Price. Upon receipt of a
Notice of
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Sale by the Agent, such Notice of Sale shall not be revocable by the
Parent or any Seller.
(c) Not later than 12:00 noon (Wilmington, Delaware time) on
each Purchase Date, each Purchaser shall make available its ratable share of
the Current Purchase Price, in Dollars in immediately available funds, at the
office of the Agent referred to in Section 10.03. Unless the Agent determines
that any applicable condition specified in Article III has not been satisfied
or expressly waived, the Agent will make the funds so received from the
Purchasers promptly available to the Parent for the account of the Sellers.
SECTION 2.03. Participation Percentage. The Participation
Percentage for each day, applicable for purposes of computations under this
Agreement on such day (and for all purposes of this Agreement until
determination of a new Participation Percentage on the next succeeding
Determination Date, if any), shall be an amount for each Determination Date
determined in accordance with the following formula (rounded to four decimal
places):
PP = UPP + DR + LR
-------------
NEAB
PP = Participation Percentage
UPP = Unrecovered Purchase Price at such
Determination Date (giving effect
to any purchase and/or settlement
on such date)
DR = Discount Reserve at such Determination
Date
LR = Loss Reserve at such Determination Date
NEAB = Net Eligible Account Balance at such
Determination Date
provided that the Participation Percentage shall not, in any event, exceed
100%; provided further that the Participation Percentage shall be for each day
after the Termination Date until (x) the date on which the Purchasers'
Collection Amount is zero and all other amounts payable hereunder to the Agent
and the Purchasers have been paid in full, as calculated on the Termination
Date, and (y) thereafter, zero.
SECTION 2.04. Discount Calculations. (a) The Agent shall
determine the Applicable Discount Rate for each Discount Period and shall
promptly notify the Parent, the Collection Agent and each Purchaser of each
Applicable Discount Rate so determined by it.
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Subject to subsection (b) below, the "Applicable Discount Rate"
for any Discount Period is the sum of the Applicable Margin plus the applicable
Adjusted London Interbank Offered Rate.
The "Applicable Margin" for any Discount Period is 1.40%.
The "Adjusted London Interbank Offered Rate" applicable to any
Discount Period is a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage as of the first day of such Discount Period.
The "London Interbank Offered Rate" applicable to any Discount
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in Dollars are
offered to each of the Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Business Days before the first day
of such Discount Period in an amount approximately equal to the Commitment
Percentage of such Reference Bank of the Unrecovered Purchase Price as of the
first day of such Discount Period and for a period of time comparable to such
Discount Period.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
London Interbank Offered Rate is determined or any category of extensions of
credit or other assets which includes extensions of credit by a non-United
States office of any Purchaser to United States residents).
(b) If prior to the first day of any Discount Period:
(i) the Agent is advised by the Reference Banks that deposits
in Dollars (in the applicable amounts) are not being offered to the Reference
Banks in the London interbank market for such Discount Period; or
(ii) any Purchaser shall notify the Agent that, as a result of a
Regulatory Change, it is unlawful or impossible for such Purchaser to fund its
Participating
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Interest in the London interbank market for such Discount Period;
the Agent shall forthwith give notice thereof to the Parent, the Collection
Agent and the Purchasers, and the Applicable Discount Rate for such Discount
Period shall be the Average Prime Rate plus 1% for such Discount Period.
SECTION 2.05. Loss Reserve. The Loss Reserve for each day,
applicable for purposes of computations under this Agreement on such day (and
for all purposes of this Agreement until determination of a new Loss Reserve on
the next succeeding Determination Date, if any), shall be an amount for each
Determination Date determined in accordance with the following formula:
( (UPP + DR) )
LR = LRP X ( -------------)
( (1 - LRP) )
LR = Loss Reserve at such Determination
Date
UPP = Unrecovered Purchase Price at such
Determination Date
LRP = Loss Reserve Percentage at such
Determination Date
DR = Discount Reserve at such Determination
Date
SECTION 2.06. Settlement Statement. At least three Business
Days prior to each Settlement Date, the Collection Agent shall deliver
to the Agent a duly completed Settlement Statement. Such Settlement
Statement shall be accompanied by such information as the Agent or any
Purchaser may reasonably request for the purpose of effecting an
accounting and settlement hereunder on such Settlement Date. SECTION
2.07. Commitment Fees; Termination or Reduction of Commitment. (a)
The Sellers shall pay commitment fees to the Agent for the account of
the Purchasers ratably in proportion to their Commitment Percentages in
arrears on each March 31, June 30, September 30 and December 31 prior
to the Termination Date and on the Termination Date. Such commitment
fees shall accrue for each day from and including the Effective Date
to but excluding the Termination Date at the rate of .175 of 1% per
annum on the Unused Commitment.
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(b) The Parent may, upon at least three Business Days' notice
to the Agent, terminate at any time, or reduce from time to time by an amount
of $10,000,000 or any larger multiple thereof, the amount of the Commitment.
SECTION 2.08. Failure to Sell. If for any reason sales are
not consummated on a Purchase Date after notice has been given to the
Purchasers in accordance with Section 2.02(b), other than any such sale which
is not consummated because a Purchaser has failed to make available its ratable
share of the Current Purchase Price despite the satisfaction of all applicable
conditions specified in Article III, the Sellers shall reimburse each Purchaser
on demand for any resulting loss or expense incurred by it (or by any existing
or prospective participant in its Participating Interest), including (without
limitation) any loss incurred in obtaining, liquidating or employing deposits
from third parties in order to fund its Participating Interest, provided that
such Purchaser shall have delivered to the Parent a certificate prepared in
good faith and setting forth in reasonable detail its calculation of the amount
of such loss or expense, which certificate shall be conclusive in the absence
of manifest error. In determining such amount, such Purchaser may use any
reasonable averaging and attribution methods.
SECTION 2.09. Payments. Each payment to be made to the Agent
hereunder shall be made not later than 12:00 Noon (Wilmington, Delaware time)
on the required payment date in Dollars in immediately available funds at the
office of the Agent referred to in Section 10.03. The Agent will promptly
distribute to each Purchaser in like funds its ratable share of each such
payment received by the Agent for the account of the Purchasers. Overdue
payments shall bear interest, payable on demand, accruing from the date payment
thereof was due to the date of payment thereof, at a rate per annum for each
day equal to the sum of 2% plus the Prime Rate for such day.
SECTION 2.10. Rate Basis. Discount and commitment fees
hereunder shall be computed on the basis of the actual number of days elapsed
or to elapse (including the first day but excluding the last day of any
relevant period) in a year of 360 days.
SECTION 2.11. No Recourse; Seller Liability. Each sale of
Participating Interests hereunder shall be made without recourse to the Sellers
(including the Parent under Article XI). Each such sale shall be made pursuant
to and in reliance upon the warranties and agreements on the part of the
Sellers contained in this Agreement. All obligations of the Sellers or any of
them contained in this Agreement shall be the joint and several obligation of
each Seller.
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Each Seller other than the Parent hereby irrevocably appoints the
Parent as its agent hereunder and authorizes the Parent to take such action as
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Parent by the terms hereof, together with all such powers as
are reasonably incidental thereto. Each such Seller shall be bound by any
action taken by the Parent as its agent hereunder.
SECTION 2.12. No Assumption of Obligations. No obligation or
liability to any Obligor under any Account or Contract is assumed by the Agent
or any Purchaser hereunder or under any Assignment and any such assumption is
hereby expressly disclaimed.
SECTION 2.13. Repurchase of Pool Participation. If the Parent
shall have requested, the Parent may on any Settlement Date after the
Termination Date repurchase the Purchasers' aggregate Pool Participation at
such date at a price equal to the Purchasers' Collection Amount at such date;
provided that the Purchasers' Collection Amount at such date is not more than
the lesser of (x) $10,000,000 or (y) an amount equal to 10% of the largest
Purchasers' Collection Amount outstanding at any time under this Agreement.
Such repurchase shall be without recourse, representation or warranty except as
to the absence of encumbrances created by the Purchasers. On or after such
repurchase, the Purchasers shall, at the Parent's expense and upon the Parent's
payment therefor, take all actions reasonably requested by the Parent to fully
effectuate such repurchase.
SECTION 2.14. Additional State Income Taxes. If any tax, fee
or similar charge measured by net income or profits is imposed on or with
respect to any payment for the account of any Purchaser provided for in this
Agreement by any State or political subdivision thereof (other than a
jurisdiction in which such Purchaser's principal executive office or Facility
Office is located), the Sellers shall cooperate with the Purchasers to mitigate
the effect of such tax, fee or similar charge. If the Purchaser determines
that, notwithstanding any such action, the result of any of the foregoing is to
increase the cost to such Purchaser of purchasing its Participating Interest or
to reduce the amount of any sum received or receivable by such Purchaser under
this Agreement, by an amount deemed by such Purchaser in good faith to be
material, then, upon 30 days written notice from the Agent (with the consent of
all the Purchasers) to the Parent, the Commitment shall terminate.
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ARTICLE III
CONDITIONS TO PURCHASES
The obligation of each Purchaser to purchase an initial or
incremental Participating Interest on any Purchase Date is subject to the
satisfaction of such of the following conditions as shall not have been
expressly waived in writing by the Agent with the consent of the Majority
Purchasers:
SECTION 3.01. All Purchase Dates. In the case of each
Purchase Date:
(a) receipt by the Agent of a Notice of Sale as required by
Section 2.02;
(b) the fact that, immediately before and after giving effect
to the purchases and sales on such Purchase Date, no Termination Event and no
Potential Termination Event shall have occurred and be continuing;
(c) the fact that the representations and warranties of the
Sellers contained in Article IV of this Agreement shall be true and correct on
and as of such Purchase Date; and
(d) the fact that, immediately after giving effect to the
purchases and sales on such Purchase Date, the Unrecovered Purchase Price shall
not exceed the Utilization Limit.
Each Notice of Sale hereunder shall be deemed to be a representation and
warranty by the Sellers as of the related Purchase Date as to the facts
specified in clauses (b), (c) and (d) of this Section.
SECTION 3.02. First Purchase Date. In the case of the first
Purchase Date, receipt by the Agent of:
(a) for the account of each Purchaser, a duly executed
Assignment in the form of Exhibit A hereto dated on or before such Purchase
Date;
(b) an opinion of Wilson, Sonsini, Goodrich & Rosati, counsel
for the Sellers, substantially in the form of Exhibit C-1 hereto and covering
such additional matters relating to the transactions contemplated hereby as the
Majority Purchasers may reasonably request;
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<PAGE> 29
(c) an opinion of Davis Polk & Wardwell, special counsel for
the Agent, substantially in the form of Exhibit C-2 hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Majority Purchasers may reasonably request;
(d) a perfection certificate, substantially in the form of
Exhibit B, duly completed and having annexed thereto all schedules and exhibits
contemplated thereby, signed by the chief financial officer and the chief legal
officer of the Parent;
(e) the arrangement fee described in the fee letter with
J.P. Morgan Delaware dated the Effective Date;
(f) payment in full of all amounts payable under the 1991
Receivables Purchase Agreement;
(g) a Settlement Statement for the Accounting Period ended
not less than 12 Business Days prior to the initial Purchase Date; and
(h) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Sellers, the corporate authority for
and the validity of this Agreement and the Assignments, and any other matters
relevant hereto, all in form and substance satisfactory to the Agent.
The documents referred to in this Section shall be delivered to the Agent no
later than the first Purchase Date. The opinions and certificate referred to
in clauses (b), (c) and (d) above shall be dated the first Purchase Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Sellers represent and warrant that:
SECTION 4.01. Corporate Existence and Power. Each Seller is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted. Each Seller is duly qualified as a
foreign corporation and is licensed and in good standing in each jurisdiction
where qualification or licensing is required by the nature of its business or
the character and location of its property, business or customers and in which
the failure
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so to qualify or be licensed, as the case may be, in the aggregate,
could reasonably be expected to have a material adverse effect on the business,
financial position or results of operations of the Parent and its consolidated
Subsidiaries taken as a whole.
SECTION 4.02. Corporate and Governmental Authorization;
Contravention. The execution, delivery and performance by each Seller of this
Agreement and the Assignments are within such Seller's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official
(except as contemplated by Section 4.04) and do not contravene in any material
respect any provision of applicable law or regulation, or contravene, or
constitute a default under, the certificate of incorporation or by-laws of such
Seller or of any judgment, injunction, order, decree, Debt agreement or
instrument or any other material agreement or instrument binding upon the
Parent or any of its Subsidiaries or result in the creation or imposition of
any lien, pledge, charge, security interest or encumbrance of any kind (except
the security interests created hereunder) on any asset of the Parent or any of
its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a
valid and binding agreement of each Seller enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by equitable principles of
general applicability. Each Assignment, when executed and delivered in
accordance with this Agreement, will constitute a valid and effective
assignment of the Participating Interest identified therein.
SECTION 4.04. Perfection. On or prior to each Purchase Date,
all financing statements and other documents required to be recorded or filed
in order to perfect and protect the Participating Interests against all
creditors of and purchasers from each Seller will have been duly filed in each
filing office necessary for such purpose and all filing fees and taxes, if any,
payable in connection with such filings will have been paid in full.
SECTION 4.05. Accuracy of Information. All information
heretofore furnished by any Seller in writing to the Agent or any Purchaser for
purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by any
Seller in writing to the Agent or any Purchaser will be, true and accurate in
all material respects or based on reasonable estimates on the date as of which
such information is stated or certified.
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ARTICLE V
COVENANTS
The Sellers agree with the Agent and the Purchasers that,
unless compliance is expressly waived in accordance with Section 10.05 hereof:
SECTION 5.01. Maintenance of Records. (a) Subject to Section
9.04(a), the Sellers shall maintain all such Records as may be necessary or
advisable for the administration, servicing and collection of all Pool Accounts
(including, without limitation, duplicate records and/or system redundancy so
as to enable the reconstruction of essential records in the event of any
reasonably foreseeable casualty) .
(b) Subject to Section 9.04(a), the Sellers shall hold in
trust for the Purchasers all Records, and shall maintain and mark the
appropriate Records as necessary to indicate that the Purchasers have an
interest in the Pool Accounts.
SECTION 5.02. Protection of Participating Interests of
Purchasers. (a) The Sellers shall, from time to time, do and perform any and
all acts and execute any and all documents (including, without limitation, the
execution, amendment or supplementation of any financing statements and
continuation statements for filing under the provisions of the Uniform
Commercial Code of any applicable jurisdiction and of any documents appropriate
for filing under the provisions of applicable law to perfect and protect the
Participating Interests in any jurisdiction in which the Uniform Commercial
Code is not in effect, the execution, amendment or supplementation of any
instrument of transfer, the giving of notice of the Participating Interests to
any Obligor and the making of notations in the Records) as may be necessary, or
as may be reasonably requested by the Agent, in order to effect the purposes of
this Agreement and the sale of Participating Interests hereunder and to protect
the Participating Interests against all Persons whomsoever; provided that
nothing in this Section 5.02(a) shall prohibit the granting of any Permitted
Subordinated Interest.
(b) No Seller shall change its name, identity or corporate
structure (within the meaning of section 9-402(7) of any applicable enactment
of the Uniform Commercial Code) unless the Parent shall have (i) given the
Agent at least 30 days' prior notice thereof and (ii) delivered an opinion of
counsel with respect thereto in accordance with Section 5.07.
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(c) No Seller shall relocate its chief executive office unless
the Parent shall have (i) given the Agent at least 30 days' prior notice
thereof and (ii) in the case of any relocation of such chief executive office
to a place outside of the State of California, delivered an opinion of counsel
with respect thereto in accordance with Section 5.07.
(d) Each Seller shall at all times maintain its chief
executive office within a jurisdiction in the United States (i) other than the
States of Florida, Maryland, Minnesota and Tennessee and (ii) in which article
9 of the Uniform Commercial Code (1972 or later revision) is in effect.
(e) To the fullest extent permitted by applicable law, the
Agent shall be permitted to sign and file financing and continuation statements
with respect to the Participating Interests and amendments thereto without any
Seller's execution thereof. The Agent will promptly send to the Parent copies
of any such documents so signed and filed; provided that no failure by the
Agent to send such copies to the Parent shall affect the validity or
effectiveness of any such document.
SECTION 5.03. Performance of Contracts. Each Seller shall at
all times observe and perform, or cause to be observed and performed, all
contractual undertakings and other legal obligations owed by it to each Obligor
that is the related Obligor on a Pool Account (except for such immaterial
failures to perform that could not, in the aggregate, reasonably be expected to
affect, and do not affect, the obligations of such Obligor), and, subject to
Section 5.06, shall do nothing to impair the rights of the Purchasers in and to
the Pool Accounts; provided that nothing in this Section 5.03 shall prohibit
the granting of any Permitted Subordinated Interest.
SECTION 5.04. Furnishing of Account Information; Inspection of
Records. (a) Each Seller shall maintain for each Determination Date a list of
Accounts of such Seller which are not included in the calculation of the Net
Eligible Account Balance by virtue of the fact that they are not Eligible
Accounts (such accounts for any Determination Date, the "Ineligible Accounts").
On each Settlement Date, each Seller, or the Collection Agent on behalf of each
Seller, shall prepare and make available a list identifying the Obligor and
Unpaid Balance for each Pool Account as of the last day of the Accounting
Period then most recently ended, a calculation of the Net Reinvestment Gain or
Net Reinvestment Loss then payable, and an estimate of the Unpaid Balances of
License Accounts and Service Accounts, and shall furnish to the Agent and each
Purchaser a summary
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statement of such information in form acceptable to the
Purchasers and, within three Business Days after any request therefor, a copy
of the listing of Pool Accounts, and the related Obligors and Unpaid Balances.
(b) Each Seller shall furnish to the Agent and each Purchaser,
within five Business Days after the Termination Date and on each Settlement
Date thereafter and within eight Business Days after written request therefor
by the Agent at the request of either Purchaser (based upon a good faith
concern for protection of such Purchaser's interests hereunder), a written
report, signed by the chief financial officer or a treasurer or assistant
treasurer of such Seller, containing, with respect to each Participating
Interest (itemized for each Obligor), (x) a list of all Pool Accounts, together
with, for each Pool Account, the Unpaid Balance thereof and all Collections,
charge-offs, write-offs, discounts or other adjustments with respect thereto
since the date of the last such report delivered to such Purchaser pursuant to
this clause (b), an aging of all Pool Accounts and such other information as
the Agent or any Purchaser may reasonably request, all as of the last day of
the Accounting Period then most recently ended (or, if after a written request,
as of the third Business Day after the date of such request); and (y) an
analysis and explanation of significant variances, if any, between actual
Collections by each Seller of Pool Accounts during the Accounting Period then
most recently ended and historical collections experience of such Seller.
(c) The Collection Agent is, and shall at all times remain,
capable of determining on each Determination Date the Participation Percentage
for such Determination Date. To mitigate the administrative cost to the
Collection Agent of performing its duties under this Agreement, the parties
acknowledge that the Collection Agent need not determine the Participation
Percentage for any Determination Date, provided that (x) at the opening of
business on (i) each Purchase Date, (ii) the Termination Date (and each
Business Day thereafter) and (iii) any Business Day on which the Unrecovered
Purchase Price shall exceed the Utilization Limit (using, in determining such
Participation Percentage, the Net Eligible Account Balance as of the close of
business of the immediately preceding Determination Date), (y) on each
Settlement Date, as of the last day of the Accounting Period then most recently
ended, and (z) on the eighth Business Day after a written request from the
Purchaser or the Agent, as of the opening of business of the Determination Date
occurring three Business Days after such request, the Collection Agent shall
determine the Participation Percentage for such day and promptly notify the
Parent, the Agent and each Purchaser thereof.
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(d) Each Seller shall furnish to the Agent and each Purchaser
from time to time such additional information with respect to the Pool Accounts
as the Agent or any Purchaser may reasonably request.
(e) Each Seller shall permit representatives of the Agent or
any Purchaser from time to time during its normal business hours and upon
reasonable notice to inspect, audit and make copies of any and all Records.
SECTION 5.05. Maintenance of Qualification and Credit
Policies. Each Seller shall maintain all of its rights, powers and privileges
material to its ability to conduct business in all jurisdictions in which any
Obligor on any Pool Account of such Seller is located, on which may be
conditioned the ability of the Seller to commence or maintain legal proceedings
against such an Obligor in the courts of such jurisdiction, except, in the case
of any jurisdiction in which Obligors of an immaterial amount of the Pool
Accounts are located that may be satisfied or obtained without significant
penalty at the time any such legal proceeding is sought to be commenced or
maintained. No Seller shall change in any material respect its credit
extension and administration policies and procedures from those heretofore
described to the Purchasers in any manner that could adversely affect the
rights of the Purchasers hereunder. No Seller shall change its current
practices with respect to the recognition of estimated or actual loss on Pool
Accounts in any manner which would materially affect the incidence of Defaulted
Accounts.
SECTION 5.06. Modification of Accounts. No Seller shall
modify the terms of any Pool Account without the prior written consent of the
Majority Purchasers; provided that, while acting as Collection Agent, the
Parent may modify the terms of any Pool Account in accordance with Sections
9.01, 9.02 and 9.03.
SECTION 5.07. Supplemental Opinions of Counsel. Not more than
six months nor less than 15 days prior to each date on which any Seller
proposes to take any action contemplated by Section 5.02(b) or (c), the Parent
shall, to the extent required by such Sections, at its cost and expense, cause
to be delivered to the Purchasers an opinion of counsel (which may be an
opinion of in-house counsel), satisfactory to the Agent, to the effect that all
financing statements and amendments or supplements thereto, continuation
statements and other documents required to be recorded or filed in order to
perfect the Participating Interests, for a period, specified in such opinion,
against all creditors of and purchasers from any Seller have been filed in each
filing office necessary for such purpose and
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that all filing fees and taxes, if any, payable in connection with such filings
have been paid in full.
SECTION 5.08. Maintenance of Ownership. Except as a result of
any transaction consummated in accordance with the proviso of Section 5.14, the
Parent shall at all times retain direct or indirect ownership, free and clear
of any Title Defect, of all outstanding shares of capital stock (except
directors' qualifying shares) of each other Seller.
SECTION 5.09. No Disposition. No Seller shall sell, assign or
otherwise dispose of, or create or suffer to exist any Title Defect (other than
the Participating Interests and any Permitted Subordinated Interest) with
respect to, its interest in any Pool Account and the proceeds thereof.
SECTION 5.10. File Search Reports. Not later than 60 days
after Effective Date, the Parent shall furnish to the Agent file search reports
from the Uniform Commercial Code filing officer in each of the relevant
jurisdictions confirming the filing of the financing statements required in
connection with this Agreement.
SECTION 5.11. Financial Information. The Parent will deliver
to each of the Purchasers:
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Parent, a consolidated balance sheet of the
Parent and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, stockholders' equity and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on in a manner acceptable to
the Securities and Exchange Commission by Ernst & Young or other independent
public accountants of nationally recognized standing;
(b) as soon as available and in any event within 45 days after
the end of each of the first three fiscal quarters of each fiscal year of the
Parent, the unaudited consolidated balance sheet of the Parent and its
Consolidated Subsidiaries as of the end of such quarter, and consolidated
unaudited statements of income and cash flow of the Parent and its Consolidated
Subsidiaries for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, setting forth in comparative form the
figures for the corresponding portion in the immediately preceding fiscal year,
in the case of such statements of income and cash flow, and figures for the
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preceding fiscal year in the case of such balance sheet, all certified (subject
to normal year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency by a Responsible Financial
Officer of the Parent;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of a
Responsible Financial Officer of the Parent (i) stating whether any Termination
Event or Potential Termination Event existed on the date of such financial
statements and, if any Termination Event or Potential Termination Event then
exists, stating the nature thereof and the action which the Parent is taking or
proposes to take with respect thereto and (ii) setting forth in reasonable
detail the calculations required to establish whether the Parent was in
compliance with the requirements of Section 5.13 on the date of such financial
statements;
(d) within five days after any Responsible Officer or
Responsible Financial Officer obtains knowledge of any Termination Event or
Potential Termination Event, if such Termination Event or Potential Termination
Event is then continuing, a certificate of a Responsible Financial Officer of
the Parent setting forth the details thereof and the action which the Parent is
taking or proposes to take with respect thereto;
(e) promptly upon the mailing thereof to the shareholders of
the Parent generally, copies of all financial statements, reports and proxy
statements so mailed;
(f) promptly after the filing thereof, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and
8-K (or their equivalents) (other than the exhibits thereto unless requested by
any Purchaser) which the Parent shall have then filed with the Securities and
Exchange Commission;
(g) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the
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PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a
copy of such notice; (iv) applies for a waiver of the minimum funding standard
under Section 412 of the Internal Revenue Code, a copy of such application; (v)
gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a
copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any payment or contribution of more than
$500,000 to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond
or other security, a certificate of the chief financial officer or the chief
accounting officer of the Parent setting forth details as to such occurrence
and action, if any, which the Parent or applicable member of the ERISA Group is
required or proposes to take; and
(h) from time to time such additional information regarding
the consolidated financial position or business of the Parent and its
Subsidiaries as the Agent, at the request of any Purchaser, may reasonably
request.
SECTION 5.12. Conduct of Business and Maintenance of
Existence. The Parent shall not make, nor permit any Subsidiary to make, any
material change in the nature of its business as carried on at the date hereof;
provided, however, that the Parent and its Subsidiaries may enter into
businesses which are appropriate extensions of or are reasonably related or
incidental to the current businesses of the Parent and its Subsidiaries. The
Parent shall at all times preserve and keep in full force and effect its
corporate existence, and rights and franchises material to its business, and
those of each Seller, except as otherwise specifically permitted by Sections
5.08 and 5.14, and will qualify, and cause each of its Subsidiaries to qualify,
to do business in any jurisdiction where the failure to do so would have a
material adverse effect on the business, condition (financial or other),
assets, properties, operations or prospects of the Parent or the Parent and its
Subsidiaries taken as a whole.
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SECTION 5.13. Minimum Tangible Net Worth. Consolidated
Tangible Net Worth will at no time be less than $1,000,000,000.
SECTION 5.14. Consolidations, Mergers and Sales of Assets.
Neither the Parent nor any other Seller will (i) consolidate or merge with or
into any other Person or (ii) sell, lease or otherwise transfer, directly or
indirectly (in a single transaction or series of transactions), all or
substantially all of its assets to any other Person, provided that (i) any
Seller (other than the Parent) may merge or consolidate with, or transfer all
or substantially all of its assets to, any other Subsidiary of the Parent and
any Seller may merge into, or transfer all or substantially all of its assets
to, the Parent, (ii) the Parent may merge or consolidate with any other
corporation provided that either (1) the Parent shall be the continuing or
surviving corporation, or (2) the successor corporation shall be a solvent
corporation organized under the laws of any State of the United States of
America with a financial condition at least equal to that of the Parent at the
time of such merger or consolidation, and such corporation shall expressly
assume in writing all of the obligations of the Parent under this Agreement,
including all covenants herein contained, and such successor shall be
substituted for the Parent with the same effect as if it had been named herein
as a party hereto, and (iii) a Seller may merge into or consolidate with a
corporation in connection with such corporation becoming a Subsidiary of the
Parent or being combined with any existing Subsidiary of the Parent; provided
further that in the case of any of (i), (ii) and (iii), (x) measures
satisfactory to the Agent have been implemented so as to assure that the
Accounts and the collections thereon will not be commingled with any other
accounts receivable and the collections thereon, (y) immediately after and
giving effect to such transaction, no Termination Event or Potential
Termination Event shall have occurred and be continuing, and (z) such
transaction shall not result in a material adverse change in the nature or
credit quality of the Pool Accounts, as reasonably determined by the Agent.
SECTION 5.15. Use of Proceeds. The proceeds of the purchases
of Participating Interests and the reinvestment of the Collections thereof will
be used by the Sellers for general corporate purposes. None of such proceeds
will be used in violation of any applicable law or regulation.
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ARTICLE VI
TERMINATION OF COMMITMENT
SECTION 6.01. Termination Events. If any of the following
events (herein called "Termination Events") shall have occurred and be
continuing:
(a) the Sellers shall fail (i) on any Settlement Date, to make
any payment reflected in the related Settlement Statement as being payable on
such Settlement Date or (ii) to make any other payment hereunder within five
days of the due date thereof;
(b) any Seller shall fail to observe or perform any covenant
contained in Section 5.06, 5.09 or 5.14, or the Parent shall fail to observe or
perform any covenant contained in Section 5.08 or 5.13 inclusive;
(c) any Seller shall default in the performance of any
agreement or undertaking hereunder (other than those covered by clause (a) or
(b) above) and such default shall continue for 30 days after written notice
thereof has been given to the Parent by the Agent at the request of any
Purchaser;
(d) any representation, warranty, certification or statement
made by any Seller in this Agreement or in any certificate or other document
delivered pursuant to this Agreement shall prove to have been incorrect in any
material respect when made (or deemed made);
(e) the Parent or any Subsidiary shall fail to make any
payment of principal or interest in respect of any Material Debt when due or
within any applicable grace period;
(f) an Event of Default under Section 6.01(a), (f), (g) or (h)
or with respect to Section 5.01(a), (b), (c), (h) or (i) or 5.02(h) of the
Credit Agreement (or in each case any successor provision thereto) shall have
occurred and be continuing; or any event or condition shall occur which results
in the acceleration of the maturity of any Material Debt or any event or
condition shall occur and be continuing which enables (with the giving of
notice of acceleration, if required) the holder of such Debt or any Person
acting on such holder's behalf to accelerate the maturity thereof;
(g) the Loss Ratio as determined at any date shall
exceed 4%;
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(h) the Participation Percentage as determined on any date
shall exceed 100% (determined for purposes of this Section 6.01(h) without
regard to the proviso to Section 2.03);
(i) the Parent or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(j) an involuntary case or other proceeding shall be
commenced against the Parent or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for
a period of 60 days; or an order for relief shall be entered against the Parent
or any Subsidiary under the federal bankruptcy laws as now or hereafter in
effect;
(k) any member of the ERISA Group shall fail to pay when
due an amount or amounts aggregating in excess of $5,000,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any member
of the ERISA Group, any plan administrator or any combination of the foregoing;
or the PBGC shall institute proceedings under Title IV of ERISA to terminate,
to impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a Plan; or a condition shall exist by reason of which
the PBGC would be entitled to obtain a decree adjudicating that any Material
Plan must be terminated; or there shall occur a complete or partial withdrawal
from, or a default, within the meaning of Section 4210( c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could cause one or more
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members of the ERISA Group to incur a current payment obligation in excess of
$10,000,000;
(l) a judgment or order for the payment of money in excess
of $10,000,000 shall be rendered against the Parent or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed for a period of 30
days; or
(m) (i) any corporation or Person, or a group of related
corporations or Persons, shall acquire (a) beneficial ownership in excess of
50% of the outstanding common stock of the Parent or (b) all or substantially
all of the assets of the Parent, or (ii) a majority of the Board of Directors
of the Parent is, at any time, composed of persons other than (a) persons who
were members of such Board on the date of this Agreement, (b) successors to
such persons elected or nominated in the ordinary course of business, and (c)
any person who has served as a member of such Board for at least the prior 12
months;
then, and in any such event,
(x) if such event is a Termination Event specified in clause
(i) or (j) above with respect to any Seller, automatically the Commitment shall
terminate, without any notice to any Seller or any other action by the Agent or
any Purchaser, and
(y) if such an event is any other Termination Event, the Agent
shall, if so instructed by the Majority Purchasers, by notice to the Parent
declare the Commitment terminated in which event the Commitment shall thereupon
terminate.
SECTION 6.02. Notice to Parent. The Agent shall give notice
to the Parent under Section 6.01(c) promptly upon being requested to do so by
any Purchaser and shall thereupon notify all Purchasers thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Purchaser
irrevocably appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement as are delegated to
the Agent by the terms hereof, together with all such powers as are reasonably
incidental thereto.
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SECTION 7.02. Agent and Affiliates. J.P. Morgan Delaware
shall have the same rights and powers under this Agreement as any other
Purchaser and may exercise or refrain from exercising the same as though it
were not the Agent, and J.P. Morgan Delaware and its Affiliates may accept
deposits from, lend money to, and generally engage in any kind of business with
the Parent or any Subsidiary or Affiliate of the Parent as if it were not the
Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Termination Event, except as expressly provided in Article
VI. Any action taken by the Agent with the consent or at the request of the
Majority Purchasers shall be binding upon all Purchasers.
SECTION 7.04. Consultation with Experts. The Agent may
consult with legal counsel (who may be counsel for a Seller), independent
public accountants and other experts selected by it and shall not be liable to
the Purchasers for any action taken or omitted to be taken by it in good faith
in accordance with the advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any
of its directors, officers, agents, or employees shall be liable to any
Purchaser for any action taken or not taken by it in connection herewith (i)
with the consent or at the request of the Majority Purchasers or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible
for or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this Agreement or any
purchase hereunder; (ii) the performance or observance of any of the covenants
or agreements of any Seller; (iii) the satisfaction of any condition specified
in Article III, except receipt of items required to be delivered to the Agent;
or (iv) the validity, effectiveness or genuineness of this Agreement, the
Assignments, the Pool Accounts and related Contracts or any other instrument or
writing furnished in connection herewith. The Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex, telecopy,
electronic facsimile transmission or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
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SECTION 7.06. Indemnification. Each Purchaser shall, ratably
in accordance with its Commitment Percentage, indemnify the Agent (to the
extent not reimbursed by the Sellers) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from the Agent's gross negligence or willful misconduct)
that the Agent may suffer or incur in connection with this Agreement or any
action taken or omitted by the Agent hereunder.
SECTION 7.07. Credit Decision. Each Purchaser acknowledges
that it has, independently and without reliance upon the Agent or any other
Purchaser, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Purchaser also acknowledges that it will, independently and
without reliance upon the Agent or any other Purchaser, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action under this
Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Purchasers and the Parent. Upon
any such resignation, the Parent shall have the right, with the consent of the
Majority Purchasers (which consent shall not be unreasonably withheld), to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Parent and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may
appoint a successor Agent, which shall be a commercial bank organized under the
laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $100,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
SECTION 7.09. Agent's Fees. The Parent shall pay to the Agent
for its own account arrangement and administrative fees as previously agreed
between them.
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ARTICLE VIII
SELLERS' INDEMNITIES
SECTION 8.01. Breach of Warranty or Agreement. The Sellers
agree to indemnify the Agent, the Collection Agent (if other than the Parent)
and each Purchaser (an "Indemnitee"), and to hold each Indemnitee harmless
against, any loss, cost, expense, damage or liability arising out of or
resulting from the inaccuracy when made of any representation or warranty made
by any Seller in this Agreement or in writing pursuant hereto (including,
without limitation, any information set forth in any document delivered by any
Seller pursuant hereto), from the failure by any Seller to observe or perform
any agreement or undertaking made by it in this Agreement or pursuant hereto;
provided that no Indemnitee shall have the right to be indemnified hereunder
for its own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Sellers shall indemnify
and hold each Indemnitee harmless against (i) all costs, expenses and
liabilities arising out of or resulting from any Pool Account or related
Contract not complying with applicable law, including, without limitation, all
laws, rules, regulations and orders of any governmental or judicial authority
relating to truth in lending, billing practices, fair credit reporting, equal
credit opportunity, debt collection practices and consumer debtor protection,
(ii) all costs, expenses, losses, claims and liabilities arising out of or
resulting from any action of the Parent in its capacity as Collection Agent in
violation of applicable law or otherwise in contravention of the legal rights
of any Obligor, (iii) all losses attributable to any inaccuracy in a Net
Eligible Account Balance at any time determined hereunder, whether or not such
inaccuracy would constitute a breach of the warranties set forth in Section
4.05 or was otherwise within the ability of any Seller to prevent, (iv) all
losses (including losses by reason of an Obligor's failure to pay) attributable
to any failure or alleged failure to vest and maintain vested in the Purchasers
a perfected undivided percentage ownership interest (to the extent of their
respective Commitment Percentages) in each and every right, title and interest
included or purported to be included in the Pool Participation, free of any
Title Defect (other than any Permitted Subordinated Interest) asserted by any
Person claiming by, through or under any Seller or any Affiliate of any Seller
(including without limitation any such consequence of the commencement of
bankruptcy, insolvency or similar proceedings with respect to any Seller or any
Affiliate of any Seller), (v) all costs, expenses, losses, claims and
liabilities arising out of or resulting from the manufacture, sale, use or
ownership of goods or receipt of services which at any time are or
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shall have
been the subject of any Pool Account or related Contract and (vi) any
obligation or liability of any Seller or any Affiliate of any Seller to any
Obligor which any court of competent jurisdiction may determine has been
assumed by any Indemnitee. The representations, warranties and indemnities of
the Sellers hereunder shall be continuing and shall inure to the benefit of all
Indemnitees without regard to any investigation by or knowledge on the part of
any Indemnitee.
SECTION 8.02. Tax Indemnification. The Sellers agree to pay,
and to indemnify, defend and hold harmless each Indemnitee from and against,
any taxes which may at any time be asserted in respect of this transaction or
the subject matter hereof (including, without limitation, any sales, gross
receipts, general corporation, personal property, privilege or license taxes,
but not including any taxes imposed upon such Indemnitee with respect to its
net income or profits arising out of the transactions contemplated hereby),
whether arising by reason of the acts to be performed by the Sellers hereunder
or imposed against a Seller, an Affiliate of any Seller, an Indemnitee, the
property involved or otherwise.
SECTION 8.03. Increased Cost and Reduced Return. (a) If
after the date hereof, the adoption of any applicable law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
any Purchaser (or its Facility Office) with any request or directive of
general applicability (whether or not having the force of law) of any such
authority, central bank or comparable agency (a "Regulatory Change"):
(i) shall subject any Purchaser (or its Facility Office) to
any tax, duty or other charge with respect to its Participating Interest or its
obligations hereunder (other than any franchise tax or any tax imposed on the
overall net income of such Purchaser or its Facility Office), or shall change
the basis of taxation of payments to any Purchaser (or its Facility Office) of
any amounts payable under this Agreement (other than any change in any
franchise tax or any tax imposed on the overall net income of such Purchaser or
its Facility Office); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit, insurance assessment or similar requirement (including,
without limitation, any such requirement imposed by the Board of Governors of
the Federal Reserve System, but excluding any such
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requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended by,
any Purchaser (or its Facility Office) or shall impose on any Purchaser (or its
Facility Office) or on the London interbank market any other condition
affecting its Participating Interest or its obligations hereunder;
and the result of any of the foregoing is to increase the cost to such
Purchaser (or its Facility Office) of purchasing or holding its Participating
Interest, or to reduce the amount of any sum received or receivable by such
Purchaser (or its Facility Office) under this Agreement, by an amount deemed by
such Purchaser in good faith to be material, then, within 15 days after demand
by such Purchaser upon the Parent (with a copy to the Agent), the Sellers shall
pay to such Purchaser such additional amount or amounts as will compensate such
Purchaser for such increased cost or reduction.
(b) If after the date hereof, any Purchaser shall have
determined that the adoption of any applicable law, rule or regulation of
general applicability regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Purchaser (or its Facility Office)
with any request or directive of general applicability regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Purchaser's capital as a consequence of its obligations
hereunder to a level below that which such Purchaser could have achieved
hereunder but for such adoption, change or compliance (taking into
consideration such Purchaser's policies with respect to capital adequacy) by an
amount deemed in good faith by such Purchaser to be material, then from time to
time, within 15 days after demand by such Purchaser upon the Parent (with a
copy to the Agent), the Sellers shall pay to such Purchaser such additional
amount or amounts as will compensate such Purchaser for such reduction.
(c) Each Purchaser will promptly notify the Parent and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Purchaser to compensation pursuant to this Section.
Notwithstanding the foregoing subsections (a) and (b) of this Section, the
Parent shall only be obligated to compensate any Purchaser for any amount
arising or accruing during (x) any time or period commencing not more than six
months prior to the date on which such Purchaser notifies
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the Agent and the Parent that it proposes to demand such compensation
and identifies to the Agent and the Parent the statute, regulation or other
basis upon which the claimed compensation is or will be based and (y) any time
or period during which, because of the retroactive application of such statute,
regulation or other basis, such Purchaser did not know that such amount would
arise or accrue.
SECTION 8.04. Notice to Parent. Each Purchaser will promptly
notify the Parent and the Agent of any event of which it has knowledge,
occurring after the date hereof, which will entitle such Purchaser to
compensation pursuant to this Article and will designate a different Facility
Office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the good faith judgment of such Purchaser,
be otherwise disadvantageous to such Purchaser. Any claim for compensation
under this Article VIII shall be accompanied by a certificate prepared in good
faith by the relevant Purchaser and signed by a responsible officer setting
forth in reasonable detail its calculation of the additional amount or amounts
to be paid to it hereunder. Such certificate shall be conclusive in the
absence of manifest error. In determining such amount, such Purchaser may use
any reasonable averaging and attribution methods.
SECTION 8.05. Expenses Included. Indemnification under this
Article shall include, without limitation, reasonable counsel fees and expenses
and other out-of-pocket expenses, including expenses of investigation, to the
extent incurred in connection with the matter or transaction giving rise to a
claim for indemnification hereunder.
ARTICLE IX
ADMINISTRATION, SERVICING AND
COLLECTION OF POOL ACCOUNTS
SECTION 9.01. Appointment of Collection Agent. The
administration, servicing and collection of the Pool Accounts shall be the
responsibility of the Person from time to time appointed as Collection Agent
pursuant to this Section. Until such time, if any, following (i) the
occurrence of a Termination Event or (ii) the occurrence and continuance of a
Potential Termination Event for 5 Business Days after written notice thereof
has been given to the Parent by the Agent at the request of any Purchaser, as
the Agent acting upon the instructions of the Majority Purchasers shall notify
the Parent of the appointment of a substitute Collection Agent, the Parent is
hereby appointed as, and hereby agrees to perform the duties and obligations
of, the Collection Agent in accordance with this Agreement.
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With the consent of the Majority Purchasers, the Agent may at any time and
from time to time following (i) the occurrence of a Termination Event or (ii)
the occurrence and continuance of a Potential Termination Event for 5 Business
Days after written notice thereof has been given to the Parent by the Agent at
the request of any Purchaser, appoint a substitute Collection Agent (which may
be, but need not be, the Agent or a Purchaser or an Affiliate of any of the
foregoing) to perform such administrative, servicing and collection functions.
The Sellers and each Purchaser, to the extent of their respective interests (if
any) in the Pool Accounts, hereby authorize the Collection Agent to exercise as
their agent the rights and powers conferred upon the Collection Agent in this
Agreement.
SECTION 9.02. Collection of Pool Accounts. The Collection
Agent shall endeavor, in accordance with all applicable laws and regulations
and with reasonable care and diligence (and so long as the Collection Agent is
the Parent, each Seller shall (with respect to Pool Accounts of such Seller)
cause the Collection Agent to endeavor), to collect or cause to be collected
from the Obligor under each Pool Account, as and when due, all amounts payable
thereunder; and the Collection Agent may take or permit to be taken such action
with respect thereto as it may deem advisable, including resale of any
repossessed, returned or rejected goods and rescheduling through extension or
otherwise of payments due under any Pool Account if reasonable business
judgment indicates such rescheduling would enhance collection results. The
Collection Agent shall comply (and so long as the Collection Agent is the
Parent, each Seller shall cause the Collection Agent to comply) with all
applicable legal requirements in the performance of its administrative,
servicing and collection functions hereunder. In the event of a default under
any Pool Account, the Collection Agent shall be entitled to sue thereon in the
name of the related Seller; provided that the Collection Agent shall be
entitled to sue thereon as agent of the Purchasers if and only if the Agent,
acting upon the instructions of the Majority Purchasers, consents thereto in
writing. Payments from Obligors shall be applied to Pool Accounts or portions
thereof as specified by the related Obligor or, in the absence of such
specification, first to the Pool Accounts of such Obligor in the chronological
order in which the Pool Accounts of such Obligor arose and second to any other
Accounts of such Obligor.
SECTION 9.03. Rebates, Refunds, Credits and Other Adjustments.
(a) The Sellers may grant, or permit to be granted to the Obligor under any
Pool Account, any rebate, refund, credit or other adjustment which such Seller
in good faith believes is justified. In the event any rebate, refund, credit
or other adjustment is granted to the Obligor
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under any Pool Account, the
Sellers shall pay to the Collection Agent, on the date on which such adjustment
is granted, an amount equal to the amount of such adjustment. For the purposes
of this Section, "adjustment" shall not include (i) charge-offs or write-offs
of Pool Accounts for uncollectibility or (ii) any discount or other adjustment
reflected in the Unpaid Balance of a Pool Account utilized in the calculation
of each Net Eligible Account Balance in which such Pool Account is included as
an Eligible Account.
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under any Pool Account, the Sellers shall pay to the Collection Agent,on the
date on which such adjustment is granted, an amount equal to the amount
of such adjustment. For the purposes of this Section, "adjustment" shall not
include (i) charge-offs or write-offs of Pool Accounts for uncollectibility or
(ii) any discount or other adjustment reflected in the Unpaid Balance of a Pool
Account utilized in the calculation of each Net Eligible Account Balance in
which such Pool Account is included as an Eligible Account.
(b) The Parent shall pay to the Collection Agent (and each
Seller shall cause the Parent to make such payment) an amount equal to the
Unpaid Balance of any Pool Account included in the calculation of the Net
Eligible Account Balance on any Determination Date if such Pool Account was not
an Eligible Account on such Determination Date. Each such payment shall be
made within three Business Days of the date on which the state of facts giving
rise to the payment obligation under the preceding sentence becomes known to
the Parent.
SECTION 9.04. Change of Collection Agent. If at any time a
substitute Collection Agent for the Parent shall be appointed pursuant to
Section 9.01:
(a) The Sellers shall deliver to the Collection Agent, and the
Collection Agent shall hold in trust for the Sellers and the Purchasers, all
such Records as the Collection Agent or the Agent may reasonably request to
enforce the rights or protect the interests of the Purchasers hereunder or in
the Pool Participation.
(b) The Sellers shall, as promptly as practicable thereafter,
cause to be transmitted and delivered directly to the Collection Agent,
forthwith upon receipt and in the exact form received, cash, checks, drafts
and other instruments for the payment of money (properly endorsed, where
required, for collection) which may be received by it as payment on account or
otherwise in respect of any Pool Account. Each Seller hereby grants the
Collection Agent an irrevocable power of attorney, with full power of
substitution, coupled with an interest, to take in the name of such Seller all
steps necessary or advisable to endorse, negotiate or otherwise realize on any
instrument or other writing in connection with any Pool Account.
(c) The Agent shall be entitled to notify any or all of the
Obligors to make payment directly to the Collection Agent of amounts payable in
respect of any Pool Account. Upon request of the Agent, each related Seller
shall so notify such Obligors. Without limiting the generality of the
foregoing, the Agent shall, if so
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instructed by the Majority Purchasers,
deliver to the Obligor under any Qualifying Government Contract, the related
notice of assignment furnished by the related Seller directing that all
payments under such Qualifying Government Contract be made to the Collection
Agent.
SECTION 9.05. Remittance of Collections; Reinvestment. (a)
On each Business Day during the Reinvestment Period, the Collection Agent shall
(i) subject to subsection (c) below, reinvest, until the next succeeding
Settlement Date, the Participation Percentage of Collections received since the
next preceding Determination Date, for the account of the Purchasers, in
accordance with the Participation Percentage determined pursuant to Section
2.03 as of the opening of business of the next succeeding Determination Date by
paying the Participation Percentage of Collections to the Parent for the
account of the Sellers and (ii) pay the remainder of Collections to the Parent
for the account of the Sellers; provided that, the amount referred to in clause
(i) above shall be set aside and held in trust for the Purchasers to the extent
that the Unrecovered Purchase Price minus any amounts so held in trust at such
date exceeds the Utilization Limit at such date, and shall be so held in trust
for the Purchasers until the earlier of (A) the next succeeding Determination
Date (if any) when such monies may be reinvested as set forth above without
causing the Unrecovered Purchase Price minus any amounts so held in trust
(after giving effect to such reinvestment) to exceed the Utilization Limit, on
which date such monies shall be so reinvested or (B) the next succeeding
Settlement Date falling at least three Business Days after such date, on which
date such monies shall be remitted to the Agent for application in accordance
with subsection (c) or (d) below.
(b) On each Business Day on or after the Termination Date
(unless such day is a Settlement Date), the Collection Agent shall set aside
and hold in trust from Collections received since the preceding Business Day:
(i) for the Collection Agent any accrued and unpaid servicing
fee payable by the Parent; and
(ii) for the Purchasers the Participation Percentage of such
Collections.
(c) on each Settlement Date prior to the Termination Date, the
Collection Agent shall remit or cause to be remitted to:
(i) the Collection Agent the servicing fee then payable by the
Purchasers under Section 9.07 or 9.08; and
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(ii) the Agent (and so long as the Collection Agent is the Parent,
each Seller shall cause to be remitted to the Agent) the lesser of (x) the
Purchasers' Collection Amount and (y) the Participation Percentage of
Collections received on or after the next preceding Settlement Date; provided
that the portion thereof in excess of Discount (and only such amount) shall
continue to be reinvested in accordance with subsection (a) above; provided,
further, that the amount remitted pursuant to this clause (ii) shall be reduced
by the portion of the servicing fee then payable by the Purchasers and remitted
to the Collection Agent pursuant to the preceding clause (i); provided,
further, any such amount so remitted to the Collection Agent shall be treated
as a remittance to the Agent to be applied in reduction of the Purchasers'
Collection Amount.
On each Settlement Date on or after the Termination Date, the Collection Agent
shall remit or cause to be remitted from the amounts set aside and held in
trust pursuant to subsection (b) above to
(1) the Collection Agent the servicing fee then payable under
Section 9.07 or 9.08; and
(2) the Agent (and so long as the Collection Agent is the Parent, each
Seller shall cause to be remitted to the Agent) the amount set aside and held
in trust for the Purchasers in accordance with subsection (b) above, and the
Agent shall apply the same to the Purchasers' Collection Amount, and when the
Purchasers' Collection Amount has been reduced to zero, to any other amounts
payable hereunder to the Agent and the Purchasers, with any remainder being
returned to the Parent for the several accounts of the Sellers; provided that
the amounts remitted the Agent pursuant to this clause (2) shall be reduced by
the portion of the servicing fee then payable by the Purchasers and remitted to
the Collection Agent pursuant to the preceding clause (1); provided, further,
that any such amount so remitted to the Collection Agent shall be treated as a
remittance to the Agent to be applied to the Purchasers' Collection Amount.
(d) The Collection Agent shall promptly remit to the Parent
for the respective accounts of the Sellers all Collections not required to be
set aside and held in trust for the Collection Agent or the Purchasers in
accordance with subsections (a) or (b) above and all other collections on
Accounts which do not constitute Collections.
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(e) The Purchasers and the Sellers agree that any
reinvestment for the Purchasers' account shall be made at discount rates,
priced on a basis comparable to that of the Applicable Discount Rate, that
prevail at the time of reinvestment, and in amounts proportionate to the rate
at which Collections are actually so reinvested. The parties accordingly agree
that, on each Settlement Date, the Parent shall pay to the Purchasers, ratably,
any Net Reinvestment Gain, and the Purchasers, ratably, shall pay to the Parent
any Net Reinvestment Loss.
As used in this Section:
"Actual Reinvestment Proceeds" means for any Weekly Period the
product of:
(i) the aggregate amount of Deemed Collections during
such period multiplied by a fraction, determined at the close of business on
the last Business Day of the preceding Weekly Period, equal to (x) the
Purchasers' Collection Amount at such time divided by (y) the Net Eligible
Account Balance at such time;
multiplied by
(ii) the Reinvestment Discount Rate for such Weekly Period
multiplied by seven and divided by 360.
"Average Collection Period" for an Accounting Period is equal
to the Average Net Eligible Account Balance for the Accounting Period divided
by aggregate Collections for the Accounting Period times 30.
"Deemed Collections" means, for any Weekly Period, (i) if
Seller can calculate the amount of actual Collections for such Weekly Period,
such amount, or (ii) otherwise, the amount of actual collections on all
Accounts of such Seller, multiplied by (x) the aggregate Unpaid Balances of
Pool Accounts of such Seller as of the close of business on the last Business
Day of the preceding Weekly Period divided by (y) the aggregate Unpaid Balances
of all Accounts of such Seller as of the close of business on the last Business
Day of the preceding Weekly Period.
"Expected Collections" means for any Weekly Period an amount
equal to (i) the Net Eligible Account Balance on the last Business Day of the
preceding Weekly Period divided by the Average Collection Period indicated on
the most recent Settlement Statement multiplied by (ii) seven.
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"Expected Reinvestment Proceeds" means for any Weekly Period
the product of:
(i) the aggregate amount of Expected Collections
during such period multiplied by a fraction, determined at the close of
business on the last Business Day of the preceding Weekly Period, equal to (x)
the Purchasers' Collection Amount time divided by (y) the Net Eligible Account
Balance at such time;
multiplied by
(ii) the weighted average Applicable Discount Rate during
such Weekly Period (expressed as a rate per annum) multiplied by seven and
divided by 360.
"Net Reinvestment Gain" means the amount (if any) by which the
aggregate Actual Reinvestment Proceeds for all Weekly Periods ended during the
related Accounting Period exceeds the aggregate Expected Reinvestment Proceeds
for such period.
"Net Reinvestment Loss" means the amount (if any) by which the
aggregate Expected Reinvestment Proceeds for all Weekly Periods ended during
the related Accounting Period exceeds the aggregate Actual Reinvestment
Proceeds for such period.
"Reinvestment Discount Rate" means for any Weekly Period the
average daily Applicable Discount Rate, estimated by the Agent and expressed as
a rate per annum, for each day during such Weekly Period, determined on a basis
comparable to that on which such Applicable Discount Rate was initially
determined but as though such Applicable Discount Rate were established on such
day.
"Weekly Period" means each period of seven days beginning on a
Monday.
(f) If and for so long as any of Participation Percentage
of Collections are not reinvested pursuant to subsection (a) above and this
Agreement has not terminated pursuant to Section 10.01, the Collection Agent
shall set aside and hold in trust for the Purchasers such Collections and shall
remit to the Agent for distribution to the Purchasers any such amounts not
reinvested on the next Settlement Date and shall, until such date, invest such
amounts in Temporary Cash Investments as directed by the Agent for the account
of the Purchasers.
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SECTION 9.06. Holding of Proceeds Pending Settlements. If at
any time the Agent, acting pursuant to the instructions of Majority Purchasers,
shall so require by notice to the Collection Agent, then the Participation
Percentage of Collections shall be deposited into and collected in the Special
Account as promptly as is practicable and in any event within 10 days of
initial receipt by the Collection Agent. The Agent alone (to the exclusion of
the Collection Agent and the Sellers but subject to instructions from the
Majority Purchasers) shall have exclusive power to authorize debits to the
Special Account. The Agent shall invest amounts held from time to time in the
Special Account in the Temporary Cash Investments designated by the Parent, and
any investment income shall be treated as additional Collections. The Agent
shall cause all amounts deposited into and collected in the Special Account to
be applied in accordance with Section 9.05 (as if the Agent were the Collection
Agent).
SECTION 9.07. Servicing Fee. The Collection Agent's
compensation for performing its responsibility as the Collection Agent
hereunder shall be equal for each day to the quotient of (A) the product of (1)
1%, expressed as a decimal, and (2) the Unpaid Balances of all Pool Accounts on
such day, divided by (B) 360. The Collection Agent's compensation shall be
payable on each Settlement Date for the most recently ended Accounting Period
to the Collection Agent by the Parent and by the Purchasers, ratably based on
the average Unrecovered Purchase Price, in the case of the Purchasers for such
Accounting Period, with the balance paid by the Sellers.
SECTION 9.08. Compensation of Successor Collection Agent. In
the event a substitute Collection Agent is appointed in accordance with Section
9.01, the servicing fee provided for in Section 9.07 shall be payable to such
substitute Collection Agent rather than the Parent, the Sellers shall be
obligated to pay all reasonable expenses incurred in effecting the transfer of
such functions to such substitute Collection Agent, and any accrued and unpaid
servicing fee payable by the Parent may be withheld by the Collection Agent
from any amount otherwise payable for the account of the Sellers pursuant to
Section 9.05.
SECTION 9.09. Termination of Collection Agency. The rights
and powers granted to the Collection Agent appointed from time to time under
this Agreement shall be irrevocable by the Sellers and the Purchasers (subject
to Section 9.01) during the term of this Agreement. Upon termination of this
Agreement in accordance with Section 10.01, such appointment shall terminate
without further action by any party to this Agreement. Upon such
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termination, the Collection Agent if other than the Parent shall return
to the Sellers all Records held by it, and such Collection Agent, the Agent and
each Purchaser shall do such further acts and things, and execute such further
documents and instruments, at the request and expense of the Sellers, as may be
reasonably required to evidence such termination.
SECTION 9.10. Responsibilities of Agent and Purchasers. For so long
as the Parent is acting as the Collection Agent, neither the Agent nor any
Purchaser shall have any obligation to the Sellers to take any action or
commence any proceeding to realize upon any Pool Account or to enforce any of
its rights or remedies with respect thereto. Thereafter, the Purchasers,
severally in proportion to their Commitment Percentages, shall to the extent
required by law be responsible to the Sellers for the performance of such
functions in a commercially reasonable manner, and shall furnish or cause to be
furnished to the Sellers such information as the Parent may reasonably request,
including such information as the Sellers need to perform their duties
hereunder.
SECTION 9.11. Lockboxes. Each Seller hereby agrees (i) to
instruct all Obligors to cause all Collections to be mailed directly to a
Lockbox; (ii) to use its best efforts to ensure that no funds other than
collections on Accounts are mailed to Lockboxes or deposited into related
Lockbox Accounts; (iii) to make or cause the Collection Agent to make the
necessary bookkeeping entries to reflect Collections on the Records; (iv) to
apply or cause the Collection Agent to apply all such Collections as provided
in this Agreement; and (v) not to rescind, or amend or modify in any material
respect, any term of any Lockbox without the prior written consent of the Agent
to such amendment or modification. Each Seller hereby irrevocably authorizes
the Agent, during the continuance of any Potential Termination Event or
Termination Event, to date and deliver a Lockbox Transfer Letter to each
Lockbox Bank and that the Seller shall cooperate fully with the Agent in
effecting any such transfer of control. The Sellers agree to deliver to the
Agent executed and countersigned Lockbox Letters within 45 days of the first
Purchase Date. The Collection Agent shall apply all Collections and all other
collections on Accounts deposited into Lockbox Accounts as provided in Section
9.05 and on and after delivery of a Lockbox Transfer Letter the Agent shall
apply all such Collections and all other collections on Accounts deposited into
Lockbox Accounts as provided in Section 9.05 (as if the Agent were the
Collection Agent).
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ARTICLE X
MISCELLANEOUS
SECTION 10.01. Term of Agreement. This Agreement shall
terminate at the earliest time when both (i) the Termination Date shall have
occurred and (ii) the Purchasers' Collection Amount shall have been reduced to
zero and all other amounts payable hereunder by the Sellers have been paid in
full; provided that the provisions of Article VIII and this Article X shall
survive termination of this Agreement. Any Collections received after such
termination and other collections received on Accounts on or prior to or after
such termination and not required to be applied to reduce the Purchasers'
Collection Amount to zero shall, upon such termination, be remitted to the
Parent for the account of the Sellers.
SECTION 10.02. No Waivers. No failure or delay on the part of
the Agent or any Purchaser in exercising any power, right or remedy under this
Agreement or any Assignment shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude any
other or further exercise thereof or the exercise of any other power, right or
remedy. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 10.03. Notices. All communications and notices
pursuant hereto to any party shall be in writing (including bank wire, telex,
telecopy, electronic facsimile transmission or similar writing) and shall be
given to any party at its address or telex number set forth on the signature
pages hereof or at such other address or telex number as such party may
hereafter specify for the purpose of notice to the Parent and the Agent. Each
such notice or other communication shall be effective (i) if given by telex,
when such telex is transmitted to the telex number specified in this Section
and the appropriate answerback is received, (ii) if given by mail, 72 hours
after such communication is deposited in the mails with first class postage
prepaid, (iii) if given by telecopy or electronic facsimile transmission, when
such notice is transmitted to the number specified in this Section and the
sender confirms by telephone at the appropriate number the receipt of such
notice or (iv) if given by any other means, when received at the address
specified in this Section.
SECTION 10.04. Counterparts; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when the
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Agent shall have received counterparts hereof signed by all of the parties
hereto.
SECTION 10.05. Amendments. Any provision of this Agreement
may be amended or waived if, but only if, such amendment is in writing and is
signed by the Sellers and the Majority Purchasers (and, if the rights or duties
of the Agent are affected thereby, by the Agent); provided that no such
amendment or waiver shall, unless signed by all the Purchasers, (i) increase or
decrease the Commitment Percentage of any Purchaser or subject any Purchaser to
any additional obligation, (ii) reduce (directly or indirectly) or change the
calculation of the Participation Percentage, the Discount Rate, the Unrecovered
Purchase Price or the accrued Discount or any other amount payable to the
Purchasers hereunder, (iii) postpone the date fixed for any payment of any
amount due to the Purchasers hereunder or the Termination Date, or (iv) change
the percentage of the Commitment Percentages or the number of Purchasers
required for the Purchasers or any of them to take any action under this
Section or any other provision of this Agreement.
SECTION 10.06. Expenses; Documentary Taxes; Litigation
Indemnity. (a) The Sellers shall pay (i) all reasonable out-of-pocket
expenses of the Agent, including reasonable fees and disbursements of Davis
Polk & Wardwell, in connection with the preparation of this Agreement, any
waiver or consent hereunder or any amendment hereof or any default or alleged
default hereunder or in connection with the perfection against all third
parties of the Participating Interests and (ii) all reasonable out-of-pocket
expenses incurred by the Agent or any Purchaser, including fees and
disbursements of counsel, in connection with the enforcement of this Agreement.
The Sellers shall indemnify the Agent and each Purchaser against any transfer
taxes, documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the
Assignments.
(b) The Sellers agree to indemnify each Purchaser and hold
each Purchaser harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, the
reasonable fees and disbursements of counsel for any Purchaser (including
reasonable allocated costs of in-house counsel) in connection with any
investigative, administrative or judicial proceeding, whether or not such
Purchaser shall be designated a party thereto) which (i) may be incurred by
such Purchaser (or by the Agent in connection with its actions as Agent
hereunder), relating to or arising out of this Agreement and (ii) would not
have been imposed on, incurred by or asserted against the Purchasers (or Agent)
but for its having entered into this Agreement; provided
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that no Purchaser shall have the right to be indemnified hereunder for its
own gross negligence or willful misconduct.
SECTION 10.07. Governing Law; Submission to Jurisdiction;
Waiver of Jury Trial. This Agreement and each Assignment shall be governed by
and construed in accordance with the laws of the State of New York (without
regard to any choice of law provisions thereof). Each Seller hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. Each Seller
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum. Each of the Sellers, the
Agent and the Purchasers hereby irrevocably waives any and all right to trial
by jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
SECTION 10.08. Successors and Assigns; Participations;
Novation. (a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
no Seller may assign or transfer any of its rights or obligations under this
Agreement without the consent of all Purchasers.
(b) Any Purchaser may at any time sell to one or more Persons
(each a "Participant") participating interests in its Participating Interest,
its Commitment Percentage of the Commitment hereunder or any other interest of
such Purchaser hereunder. In the event of any such sale by a Purchaser of a
participating interest to a Participant, such Purchaser's obligations under
this Agreement shall remain unchanged, such Purchaser shall remain solely
responsible for the performance thereof, such Purchaser shall remain the holder
of its Participating Interest for all purposes under this Agreement, and the
Sellers and the Agent shall continue to deal solely and directly with such
Purchaser in connection with such Purchaser's rights and obligations under this
Agreement. Any agreement pursuant to which any Purchaser may grant such a
participating interest shall provide that such Purchaser shall retain the sole
right and responsibility to enforce the obligations of the Sellers hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such
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participation agreement may provide that such Purchaser will not agree to any
modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii) or (iv) of Section 10.05 without the consent of the Participant.
Subject to the provisions of subsection (f) of this Section, each Purchaser
shall be entitled to obtain (on behalf of the Participants) the benefits of
Article VIII with respect to all participations in the Participating Interest
of such Purchaser.
(c) Any Purchaser may at any time sell to one or more Persons
(each a "New Purchaser") all, or a proportionate part of all, of its rights and
obligations under this Agreement, and such New Purchaser shall assume all such
rights and obligations, pursuant to an instrument executed by such New
Purchaser and such transferor Purchaser. Upon (i) such execution of such an
instrument, (ii) delivery by the transferor Purchaser of an executed copy
thereof, together with notice that the payment referred to in clause (iii)
shall have been made, to the Parent, the Agent and each Purchaser and (iii)
payment by such New Purchaser to such transferor of an amount equal to the
purchase price agreed between such transferor Purchaser and such New Purchaser,
such New Purchaser shall for all purposes be a Purchaser party to this
Agreement and shall have all the rights and obligations of a Purchaser under
this Agreement to the same extent as if it were an original party hereto with a
Committed Amount as set forth in such instrument of assumption, and the
transferor Purchaser shall surrender such rights and be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any Seller, any Purchaser or the Agent shall be required. Upon the
consummation of any transfer to a New Purchaser pursuant to this paragraph (c),
the transferor Purchaser, the Agent and the Sellers shall make appropriate
arrangements so that, if required, a new Assignment is issued to such New
Purchaser.
(d) The Sellers authorize each Purchaser to disclose to any
Participant or New Purchaser (each a "Transferee") and any prospective
Transferee any and all information in such Purchaser's possession concerning
the Sellers or the Pool Accounts which has been delivered to such Purchaser by
them pursuant to this Agreement or which has been delivered to such Purchaser
by them in connection with such Purchaser's credit evaluation prior to entering
into this Agreement.
(e) If pursuant to paragraph (c) of this Section any interest
in this Agreement or the Participating Interests is transferred to any New
Purchaser which is organized under the laws of any jurisdiction other than the
United States of America or any State thereof, the
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<PAGE> 61
transferor Purchaser shall cause such New Purchaser, concurrently with
the effectiveness of such transfer, (i) to represent to the transferor
Purchaser (for the benefit of the transferor Purchaser, the Agent and the
Sellers) that under applicable law and treaties no taxes will be required to be
withheld by the Agent, the Sellers or the transferor Purchaser with respect to
any payments to be made to such New Purchaser in respect of the Pool Accounts
and (ii) to furnish to the transferor Purchaser, the Agent and the Sellers such
forms and/or statements in accordance with applicable laws and regulations as
may be necessary to verify such exemption from United States federal
withholding tax under United States laws and regulations as in effect on the
date of such transfer.
(f) No Transferee (including for this purpose a different
Facility Office of a Purchaser) shall be entitled to receive any greater
payment under Article VIII than the transferor Purchaser would have been
entitled to receive with respect to the rights assigned, unless such assignment
is made by reason of the provisions of Section 8.04 requiring such Purchaser to
designate a different Facility Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
SECTION 10.09. Confidentiality. Each Purchaser and the Agent
represent that they will maintain the confidentiality of, and will not use for
any purpose other than for exercising, protecting and enforcing their
respective rights and interests under this Agreement and the Assignments and in
respect of the Participating Interests, any written or oral information,
provided under this Agreement by or on behalf of the Sellers that has been
identified by its source as confidential (hereinafter collectively called
"Confidential Information"), subject to the Agent's and each Purchaser's (i)
obligation to disclose any such Confidential Information pursuant to a request
or order under applicable laws and regulations or pursuant to a subpoena or
other legal process, (ii) right to disclose any such Confidential Information
to its bank examiners, affiliates, auditors, counsel and other professional
advisors and to other Purchasers, (iii) right to disclose any relevant such
Confidential Information in connection with any litigation or dispute involving
the Purchasers and any Seller or any of their Subsidiaries and Affiliates, or
any Obligor with respect to any Pool Account and (iv) right to provide such
information to Participants or New Purchasers and prospective Participants and
New Purchasers if (x) such Person agrees in writing to maintain the
confidentiality of such information on terms substantially similar to those of
this Section 10.09 as if it were a "Purchaser" party hereto and (ii) the Parent
receives copies
55
<PAGE> 62
of such written agreement prior to the release of such information.
Notwithstanding the foregoing, any such information supplied to a Purchaser or
a Participant under this Agreement shall cease to be Confidential Information
if it is or becomes known to such Purchaser or Participant by other than
unauthorized disclosure, or if it becomes a matter of public knowledge.
SECTION 10.10. Termination by Seller. Any Seller, other than
the Parent, may by notice to the Agent terminate this Agreement as to itself,
provided that such termination shall not be effective as to any Accounts of
such Seller then outstanding or thereafter arising unless and until measures
satisfactory to the Agent are implemented so as to assure that such Accounts
and the collections thereon will not be commingled with the Accounts of the
other Sellers and the collections thereon. At such time as the termination
becomes effective as aforesaid, the Accounts of such Seller will no longer be
purchased and sold pursuant hereto.
SECTION 10.11. Effect on 1991 Agreement. Upon the first
Purchase Date hereunder, the 1991 Agreement will be terminated and of no
further force and effect, except that expense and indemnity provisions
contained in Article VIII and Section 10.06 thereof, and in Article XI in
respect of such provisions, shall survive.
ARTICLE XI
GUARANTY
The obligations of the Sellers hereunder are joint and several.
In furtherance and not in limitation of the foregoing, the Parent hereby agrees
as follows:
SECTION 11.01. The Guaranty. The Parent hereby
unconditionally guarantees the full and punctual performance of all obligations
of each Subsidiary Seller and (if the Collection Agent is a Subsidiary of the
Parent) the Collection Agent under this Agreement. The Subsidiary Sellers and
the Collection Agent, so long as it is a Subsidiary of the Parent, are referred
to in this Article as the "Guaranteed Parties". Upon failure by any Guaranteed
Party to perform any such obligation (including the payment of all amounts),
the Parent shall forthwith on demand perform such obligation not so performed
(including by payment of any amount not so paid) at the place and in the manner
specified in this Agreement.
SECTION 11.02. Guaranty Unconditional. The obligations of the
Parent hereunder shall be unconditional
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<PAGE> 63
and absolute and, without limiting the generality of the foregoing,
shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of any Guaranteed Party under this
Agreement, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to this
Agreement;
(iii) any release, non-perfection or invalidity of any direct or
indirect security for any obligation of any Guaranteed Party under this
Agreement;
(iv) any change in the corporate existence, structure or ownership
of any Guaranteed Party, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting any Guaranteed Party or its assets or any
resulting release or discharge of any obligation of any Guaranteed Party
contained in this Agreement;
(v) the existence of any claim, set-off or other rights which
the Parent may have at any time against any Guaranteed Party, the Agent, any
Purchaser or any other Person, whether in connection herewith or any unrelated
transactions, provided that nothing herein shall prevent the assertion of any
such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against any
Guaranteed Party for any reason of this Agreement, or any provision of
applicable law or regulation purporting to prohibit the payment by any
Guaranteed Party of any amount payable by it under this Agreement; or
(vii) any other act or omission to act or delay of any kind by any
Guaranteed Party, the Agent, any Purchaser or any other Person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of the Parent's obligations
hereunder.
SECTION 11.03. Discharge only upon Payment in Full;
Reinstatement in Certain Circumstances. The Parent's obligations hereunder
shall remain in full force and effect until the Commitment shall have
terminated and all obligations due and amounts payable by the Parent and each
Guaranteed Party under this Agreement shall have been paid in full. If at any
time any payment of any amount payable by any Guaranteed Party under this
Agreement is rescinded or
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<PAGE> 64
must be otherwise restored or returned upon the insolvency, bankruptcy
or reorganization of any Guaranteed Party or otherwise, the Parent's
obligations hereunder with respect to such payment shall be reinstated at such
time as though such payment had been due but not made at such time.
SECTION 11.04. Waiver by the Parent. The Parent irrevocably
waives acceptance hereof, presentment, demand, protest and any notice not
provided for herein, as well as any requirement that at any time any action be
taken by any Person against any Guaranteed Party or any other Person.
SECTION 11.05. Subrogation. The Parent irrevocably waives any
and all rights to which it may be entitled, by operation of law or otherwise,
upon making any payment hereunder to be subrogated to the rights of the payee
against a Guaranteed Party with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by a Guaranteed Party in respect thereof.
58
<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date and year first above written.
SUN MICROSYSTEMS, INC.
By /s/ Michael E. Lehman
Title: Vice President,
Chief Financial Officer
910 San Antonio Road
Palo Alto, CA 94306
Telephone number:
Telex number:
SUBSIDIARY SELLERS:
SUNEXPRESS, INC.
By /s/ Michael E. Lehman
Title: Chief Financial Officer
2 Elizabeth Drive
Chelmsford, MA 01824
Telephone number:
Telex number:
SUN MICROSYSTEMS FEDERAL, INC.
By /s/ Michael E. Lehman
Title: Chief Financial Officer
2650 Park Tower Drive
Suite 500
Vienna, VA 22180
Telephone number:
Telex number:
<PAGE> 66
SUNSOFT, INC.
By /s/ Michael E. Lehman
Title: Chief Financial Officer
2550 Garcia Avenue
Mountain View, CA 94043
Telephone number:
Telex number:
PURCHASERS:
Committed
Amount
$87,500,000 J.P. MORGAN DELAWARE
By /s/ Philip S. Detjens
Title: Vice President
902 North Market Street
Wilmington, Delaware 19801
Telephone number:
Telex number:
$37,500,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ David T. Ellis
Title: Vice President
c/o MORGAN CHRISTIANA CORP.
Euro-Loan Servicing Unit
Wilmington, Delaware 19801
Telephone number:
Telex number:
____________
$125,000,000
AGENT:
J.P. MORGAN DELAWARE,
as Agent
By /s/ Philip S. Detjens
Title: Vice President
902 Market Street
Wilmington, Delaware 19801
Telephone number:
Telex No:
<PAGE> 67
EXHIBIT A
ASSIGNMENT
For value received, in accordance with the Receivables Purchase
Agreement dated as of August 5, 1994 (as the same may be amended from time to
time, the "Agreement") among the undersigned, the Purchasers named therein and
J.P. Morgan Delaware, as Agent, the undersigned do hereby sell, assign and
transfer unto [Name of Purchaser] an undivided percentage ownership interest,
to the extent of ______% , in and to the Pool Participation (as defined in the
Agreement).
This Assignment is made without recourse to the undersigned,
and upon the warranties and agreements on the part of the undersigned contained
in the Agreement. This Assignment is to be governed by and construed in
accordance with the Agreement and the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned, through their duly
authorized officers, have caused this Assignment to be duly executed this __
day of August, 1994.
SUN MICROSYSTEMS, INC.
By ______________________
Title:
[CORPORATE SEAL]
Witness: _______________
<PAGE> 68
SUNEXPRESS, INC.
By ______________________
Title:
[CORPORATE SEAL]
Witness: _______________
SUN MICROSYSTEMS FEDERAL, INC.
By ______________________
Title:
[CORPORATE SEAL]
Witness: _______________
SUNSOFT, INC.
By ______________________
Title:
[CORPORATE SEAL]
Witness: _______________
2
<PAGE> 69
EXHIBIT B
PERFECTION CERTIFICATE
The undersigned, the chief executive officer and chief legal
officer of SUN MICROSYSTEMS, INC., a Delaware corporation (the "Parent"),
hereby certify with reference to the Receivables Purchase Agreement dated as of
August 5, 1994 among the Parent and the other Sellers listed therein, the
Purchasers listed therein and J.P. Morgan Delaware, as Agent (terms defined
therein being used herein as therein defined), to the Agent and each Purchaser
as follows:
1. Locations. (a) The chief executive offices of the Sellers
are located at the following respective addresses:
<TABLE>
<S> <C> <C> <C>
Mailing
Name Address County State
</TABLE>
(b) The following are all the locations where any Seller
maintains any Records:
<TABLE>
<S> <C> <C> <C>
Mailing
Name Address County State
</TABLE>
(c) The following are all the locations of inventory:
<TABLE>
<S> <C> <C> <C>
Mailing
Name Address County State
</TABLE>
2. Other Names. The following is a list of all names
(including trade names or similar appellations) used by any
Seller or any of their respective divisions or other
business units:
<TABLE>
<S> <C>
Corporate Trade
Name Names
</TABLE>
<PAGE> 70
3. File Search Reports. Attached hereto as Schedule 3(A) is a
true copy of a file search report from the Uniform Commercial Code
filing officer in each jurisdiction identified in paragraph 1 above
with respect to each related name set forth in paragraph 2 above.
Attached hereto as Schedule 3(B) is a true copy of each financing
statement or other filing identified in such file search reports.
4. UCC Filings Against Seller. A financing statement on Form
UCC-1 in substantially the form of Schedule 4(A) hereto duly signed
by each Seller has been duly filed in the Uniform Commercial Code
filing office in each jurisdiction identified with respect to such
Seller in paragraph 1 hereof.
5. Schedule of Filings. Attached hereto as Schedule 5 is a
schedule setting forth filing information with respect to
the filings described in paragraph 4 above.
6. Filing Fees. All filing fees and taxes payable in
connection with the filings described in paragraph 4 above
have been paid.
IN WITNESS WHEREOF, we have hereunto set our hands this__ day
ofAugust, 1994.
___________________________
Title:
___________________________
Title:
2
<PAGE> 71
SCHEDULE 4(A)
Description of Collateral
Box:
Accounts, chattel paper, contract rights and general
intangibles, and related inventory, equipment and documents, now owned or
hereafter acquired. See Exhibit A.
Exhibit A:
The collateral subject to the security interest includes the
following (and an undivided interest in debtor's right, title and interest in
the following), whether now owned or hereafter at any time acquired or coming
into existence, wherever located:
1. Rights to payment for goods which have been or are to be
sold, leased or otherwise disposed of, or for services
rendered or to be rendered, including the licensing of
intellectual property rights.
2. All rights of ownership with respect thereto, including
without limitation any direct or indirect security therefor
or guaranty thereof, any repossessed, returned or rejected
goods relating thereto, any related insurance or letter of
credit and any other form of direct or indirect recourse in
respect thereof.
3. All contracts, agreements and invoices and other documents,
books, records and other information (including without
limitation computer programs, tapes, discs, punch cards,
data processing software and related property and rights)
relating to the foregoing.
4. All collections and other proceeds of any of the foregoing.
<PAGE> 72
SCHEDULE 5
SCHEDULE OF FILINGS
<TABLE>
<S> <C> <C> <C>
Debtor Filing Officer File Number Date of Filing
</TABLE>
_____
*Indicate lapse date, if other than fifth anniversary.
<PAGE> 73
EXHIBIT C-1
OPINION OF
WILSON, SONSINI, GOODRICH & ROSATI,
COUNSEL FOR THE SELLERS
August __, 1994
To the Purchasers and the Agent
Referred to Below
c/o J.P. Morgan Delaware,
as Agent
902 Market Street
Wilmington, Delaware 19801
Dear Sirs:
We have acted as special counsel to Sun Microsystems, Inc., a
Delaware corporation, SunExpress, Inc., a California corporation, Sun
Microsystems Federal, Inc., a California corporation and SunSoft, Inc., a
California corporation, (each, a "Seller"; and together, the "Sellers", with
Sun Microsystems, Inc. sometimes hereinafter referred to as the "Parent") in
connection with the Receivables Purchase Agreement, dated as of August 5, 1994
(the "Agreement"), among the Sellers, the Purchasers listed on the signature
pages thereof (the "Purchasers") and J.P. Morgan Delaware, as Agent for the
Purchasers (the "Agent"). Capitalized terms used herein and defined in the
Agreement have the respective meanings given them in the Agreement, unless
otherwise defined herein. This opinion is delivered to you pursuant to Section
3.02(b) of the Agreement.
In connection with the opinions rendered herein, we have
reviewed the following documents:
(a) the Agreement;
(b) separate UCC-1 Financing Statements executed by each
Seller for filing with the Office of the Secretary of State of California (the
"California Financing Statements");
(c) separate Assignments, dated as of August __, 1994,
executed by each Seller;
(d) a perfection certificate, dated as of August __, 1994,
substantially in the form of Exhibit B to the Receivables Purchase Agreement
(the "Perfection Certificate"), executed by the chief financial officer and
chief legal officer of Sun;
<PAGE> 74
(e) [list good standing certificates, tax status
certificates and other similar documents, as well as telegram or telephonic
bringdowns, obtained in conjunction with the closing];
(f) the other documents delivered to you at the closing by the Sellers; and
(g) such other documents, instruments and agreements as we
have deemed advisable or necessary in connection with the opinion.
In addition, we have made such legal and factual examinations
and inquiries as we have deemed advisable or necessary for the purpose of
rendering this opinion. The documents listed as items (a) through (d) above
are referred to herein collectively as the "Transaction Documents."
With your permission and without verification by us, we have
assumed the following for the purpose of rendering the opinions set forth
herein:
A. All signatures on the Transaction Documents and the other
instruments we have received for review are genuine, all natural persons who
are signatories have the legal capacity to execute and deliver said documents,
all documents and instruments submitted to us as originals are authentic and
complete, all documents and instruments submitted as copies conform to the
original and are complete and accurate, none of the aforesaid documents has
been subsequently modified or terminated and one of the rights or obligations
under said documents have been waived or released.
B. Each Transaction Document has been duly authorized, executed and
delivered by each Purchaser and the Agent and each other document or instrument
submitted to us for review has been duly authorized, executed and delivered by
each party thereto. Each Transaction Document to which a Purchaser or the
Agent is a party is the legal, valid and binding obligation of such party,
enforceable as to each such party, in accordance with its terms. All
signatories to the Transaction Documents executing such documents on behalf of
the Purchasers and the Agent have been duly authorized and each of the
Purchasers and the Agent is duly organized and validly existing and has the
power and authority (corporate or otherwise) to execute, deliver and perform
such documents.
2
<PAGE> 75
C. Except to the extent expressly covered by our opinion set forth in
paragraph 2 below, the execution, delivery and performance of the Transaction
Documents or any other documents executed in connection with the Transaction
Documents does not violate any restriction, rule, regulation, law, statute,
contract or agreement binding upon the parties thereto.
D. With respect to our opinion set forth in Paragraph 6 below, the
description of the Pool Assets (other than "accounts" as such term is defined
in the California Uniform Commercial Code) contained in the California
Financing Statements is sufficient, as a factual matter, to enable a subsequent
purchaser of such property to identify such Pool Assets (or interests therein)
encumbered or deemed encumbered by the Transaction Documents.
E. The Perfection Certificate correctly indicates (i) the chief
executive office of each Seller and (ii) the location of all records that
relate to the Pool Assets. The Sellers have not at any time conducted business
under any other name, other than as set forth in the Perfection Certificate.
F. With respect to our opinion set forth in Paragraph 5 below, that
each Purchaser is a "bona fide purchaser" who purchases its undivided interest
in the Pool Assets for good value and without notice of an adverse claim.
G. All parties to the Purchase Agreement (other than the Sellers) have
filed all required franchise and income tax returns, if any, and paid all
required taxes, if any, under the California Revenue and Taxation Code.
H. With respect to matters of fact (as distinguished from matters of
law), we also have relied upon and assumed that the representations of the
Sellers and the other parties set forth in the Transaction Documents and any
other certificates, instruments or agreements executed in connection therewith
or delivered to us are true, correct, complete and not misleading.
As used in this opinion, the expression "to our knowledge,"
"known to us" or words to similar effect with
reference to matters of fact means that during the course of
our representation of the Sellers in connection with the
Transaction Documents no information has come to the attention
3
<PAGE> 76
of the attorneys of our firm involved in this engagement which would
give them actual knowledge of the existence or absence of such facts; however,
except to the extent expressly set forth above, we have made no independent
investigation to determine the existence or absence of such facts, and any
limited inquiry undertaken by us during the preparation of this opinion should
not be regarded as such an investigation. No inference as to our knowledge of
the existence or absence of such facts should be drawn from the fact of our
representation of the Sellers. In rendering the opinion set forth in paragraph
3 below, we have not made any independent investigation of court records to
determine whether any actions have been filed.
Based on the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we advise you that
we are of the opinion that:
1. The Parent is a corporation duly incorporated and validly existing
as a corporation in good standing under the laws of the State of Delaware, and
has all corporate powers required to conduct its business as now conducted.
The Parent is duly qualified to do business as a foreign corporation and is in
good standing in each of the State of California and the Commonwealth of
Massachusetts. Each of the Subsidiary Sellers is a corporation duly
incorporated and validly existing as a corporation in good standing under the
laws of the State of California, and has all corporate powers required to
conduct its business as now conducted. Each of the Subsidiary Sellers is duly
qualified to do business as a foreign corporation and is in good standing in
the Commonwealth of Massachusetts.
2. The execution, delivery and performance by each Seller of the
Transaction Documents to which it is a party in accordance with their terms are
within each Seller's corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of or filing
with, any United States federal, California or Delaware governmental body,
agency or official (except as contemplated by the Transaction Documents), and
do not contravene, or constitute a default under, the (i) charter or the
by-laws of any Seller, (ii) any Reviewed Agreement, (iii) to our knowledge, any
provision of applicable law, regulation, injunction, order or decree binding
upon the Sellers or (iv) as a result of any provision contained in the Reviewed
Agreements, result in the creation or imposition of any lien, pledge, charge,
4
<PAGE> 77
security interest or encumbrance on any asset of the Sellers.
3. To our knowledge, there is no action, suit or proceeding pending or
overtly threatened in writing against any Seller or before any court or
arbitrator or any governmental body, agency or official, except as disclosed in
the Parent's filings with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, which could reasonably be expected
to materially and adversely affect the ability of the Sellers to perform their
respective obligations under the Transaction Documents or which challenge the
validity or enforceability of any Transaction Document or seeks to prevent the
consummation of any of the transactions contemplated thereby.
4. The Agreement constitutes a valid and binding agreement of each
Seller.
5. The Agreement and the Assignments are sufficient to effect
valid transfers to the Purchasers of undivided interests to Sellers' right,
title and interest in and to the Pool Assets to the extent of their respective
Participating Interests, subject to the effect of (i) provisions of the
California Uniform Commercial Code, including Sections 9201 and 1201(37)
thereof, which provide that, subject to certain exceptions which we believe are
inapplicable to the transactions contemplated by the Transaction Documents, the
interest of a purchaser of "accounts" (as such term is defined in the
California Uniform Commercial Code) in such "accounts" is a security interest
subject to Division 9 of the California Uniform Commercial Code and (ii)
applicable laws (including, without limitation, the California Uniform
Commercial Code) under which the purported sale of undivided interests in all
or a portion of the Pool Assets may be recharacterized as loans made by the
Purchasers secured by a security interest in the Participating Interests to the
extent of the purported transfer, instead of a valid transfer of Seller's
right, title and interest in the Participating Interests.
6. Each California Financing Statement is in adequate and legally
sufficient form to perfect a security interest (to the extent the Agreement and
Assignments are construed as creating such a security interest in favor of the
Agent for the benefit of the Purchasers) in favor of the Agent for the benefit
of the Purchasers in the right, title and interest of each Seller in the Pool
Participation to the extent the assets included in
5
<PAGE> 78
Pool Participation and the Pool Assets are described in such financing
statement, and the Pool Assets are located in the State of California and such
assets are of a type for which perfection under Division 9 of the California
Uniform Commercial Code may occur by the filing of a UCC-1 financing statement
with the Secretary of State of the State of California. In this regard, we
advise you that, with certain exceptions (none of which we believe are relevant
to the Participation Percentage or the assets of the type likely to be included
in the Pool Assets), the only office for the filing of UCC-1 financing
statements in the State of California is the Office of the Secretary of State,
except that a fixture filing with the County Recorder of each county in the
State of California in which any collateral that is a fixture is located also
must be made in order to perfect a security interest in collateral consisting
of fixtures (as such term is defined in the California Uniform Commercial
Code). We also call your attention to the necessity of filing continuation
statements and modification statements from time to time (for which we assume
no responsibility) in order to preserve the perfection of the security
interest, and the requirement or advisability of a supplemental filing in order
to perfect and maintain the priority of a security interest in certain after
acquired collateral, or to correct any filing which has become seriously
misleading, and upon the happening of certain other events (including, without
limitation, additional advances not pursuant to a commitment, a change in the
secured party's or the debtor's name, identity or corporate structure, a change
in their respective places of business, or a transfer of the secured party's
interest).
Notwithstanding any other provision hereof, the opinions
hereinabove expressed are subject to the following exceptions, qualifications,
limitations and assumptions:
We are admitted to practice law in the State of California and express
no opinion as to any matter relating to laws of any jurisdiction other than the
laws of the State of California, the General Corporation Law of the State of
Delaware and the federal laws of the United States as such are in effect on the
date hereof. The Agreement and Assignments provide that they are to be
governed by and construed in accordance with the laws of the State of New York.
We understand that you are relying on the advice of your special counsel,
Davis, Polk & Wardwell, with respect to all matters
6
<PAGE> 79
of New York law, and we have made no independent examination of the
laws of such jurisdiction. Our opinions set forth in paragraphs 4, 5 and 6 are
given as if the Agreement and the Assignments and the transactions contemplated
thereby are governed by and construed in accordance with the internal
substantive laws of the State of California. Our opinions as to the General
Corporation Law of the State of Delaware are based solely on our review of the
official statutes of the State of Delaware. In addition, we express no opinion
as to whether a California court would uphold the selection of the laws of the
State of New York to govern the provisions of the Agreement and the
Assignments.
We express no opinion with respect to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors or secured parties.
We express no opinion with respect to the application of the general
principles of equity (regardless of whether such remedy is considered
in a proceeding in equity or at law), including, but not limited to,
(i) the possible unavailability of specific performance, injunctive
relief or any other equitable remedy, and (ii) concepts of materiality,
reasonableness, good faith and fair dealing. We express no opinion
with respect to the enforceability of the second or fourth sentence of
Section 10.07 of the Agreement.
We express no opinion with respect to the effect of laws and
judicial decisions (i) which exonerate a surety, if the creditor materially
alters the original obligation of the principal without the consent of the
surety, if the lender exercises remedies for default that impair the
subrogation rights of the surety against the principal, or otherwise takes
action which materially prejudices the surety, without obtaining consent of the
surety, (ii) relating to waivers or subordination by a surety of its
subrogation rights against the principal, its contribution rights, or other
common law and statutory protections of a surety, (iii) which limit the
liability of the surety to be no greater than the liability of the principal,
(iv) which exonerate a surety if a guaranty is not given for fair consideration
or reasonably equivalent value, (v) which permit a trustee in bankruptcy to
avoid payments made by a principal to a credit or holding insider guarantees of
the principal's obligations and (vi) which estop a creditor from enforcing the
7
<PAGE> 80
obligations of a surety if the creditor fails to perfect or protect its rights
in collateral.
Except as set forth in Paragraphs 5 and 6 above, we express no
opinion as to (i) the effect of the purported transfer under the Transaction
Documents to the Purchasers of the Pool Participation, (ii) any security
interest in the Pool Participation or any Pool Assets (or the perfection or
ability to realize thereon), or (iii) as to any action by or in respect of or
filing with any governmental body, agency or official required to perfect such
purported transfer or to create, perfect or realize upon any security interest
in the Pool Participation or Pool Assets.
With respect to our opinions set forth in Paragraphs 5 and 6 above, we
express no opinion as to the effect of the rights of related Obligors, if any,
against any Seller, relating to the transactions pursuant to which the Pool
Assets have arisen or otherwise, on the rights of the Purchasers and the Agent
in the Pool Assets assigned pursuant to the Transaction Documents or the
protection afforded the Agent and Purchasers by the filing of the California
Financing Statements.
We express no opinion as to the effect, if any, of the usury laws of
any jurisdiction other than the laws of the State of California. With respect
to the application of the usury laws of the State of California, we have
assumed (without any independent verification by us) that the Agent and each of
the Purchasers is a member of an "exempted class of persons" as such term is
used in Section 1 of Article XV of the California Constitution.
We express no opinion as to the applicability to, or effect upon, the
obligations of Sellers under any of the Transaction Documents or the
assignments of interests in Pool Assets, of Section 544, 547 or 548 of the
United States Bankruptcy Code, California Civil Code Sections 3439 et seq. or
any other federal or state law relating to fraudulent transfers, conveyances
and obligations, and preferences or of provisions of the law of the state of
organization of any of the Seller's restricting dividends, loans or other
distributions by a corporation to or for the benefit of its stockholders.
We express no opinion with respect to the effect of California Civil
Code Section 1717 and other applicable statutes and judicial decisions
8
<PAGE> 81
which provide, among other things, that attorneys' fees must be
reasonable and may be granted only to a prevailing party and that a contractual
provision for attorneys' fees is deemed to extend to both parties
(notwithstanding that such provision by its express terms benefits only one
party).
We express no opinion with respect to the effect of California Civil
Code Section 1698 and similar statutes and federal laws and judicial decisions
(i) providing that oral modifications to a contract or waivers of contractual
provisions may be enforceable, if the modification was performed,
notwithstanding any express provision in the agreement that the agreement may
only be modified or an obligation thereunder waived in writing, or (ii)
creating an implied agreement from trade practices or course of conduct.
We express no opinion as to the effect of statutory and judicial
decisions which limit enforcement of an exculpatory or indemnity provision, or
realization upon any security provided therefor, (including, without
limitation, limitations on the enforcement of provisions which encompass
indemnification or exculpation with respect to (a) the negligence or willful
misconduct of the party seeking relief or of persons for whom said party is
legally responsible, (b) violations of law, or (c) matters found to be contrary
to statute or public policy). We express no opinion as to the effect of
judicial decisions and statutory law restricting enforcement of certain
covenants, acceleration of the repayment date of indebtedness and the
availability of specific performance or any other remedy of a lender, if the
violation of a covenant is not material, if the value of the collateral is not
impaired, if the debtor's ability to repay is not impaired, if enforcement of
the covenant or acceleration of the debtor's obligations would be unreasonable,
if the action is not undertaken in good faith under the then existing
circumstances or is otherwise contrary to applicable laws or judicial
precedent, or if a loan document purports to give a lender the right to make a
conclusive determination in its sole discretion.
We express no opinion with respect to the effect of judicial decisions
and statutes which may render unenforceable contractual provisions (i) waiving
broadly or vaguely stated rights, statutory protections, unknown future rights,
rights of redemption, trial by jury or other common law
9
<PAGE> 82
protections of a borrower, (ii) providing that rights or remedies are
not exclusive, but that every right or remedy is cumulative and may be
exercised in addition to or with any other right or remedy, (iii) providing
that the election of a particular remedy does not preclude recourse to another
remedy or (iv) providing that a lender may exercise its remedies without notice
to the borrower or a surety.
We express no opinion as to the effect of laws and judicial decisions
impliedly incorporating the covenant of good faith and fair dealing into loan
documents and other contracts and limiting the lender's right to take action,
unless it is shown that such action is reasonably necessary for the protection
of the lender or the collateral.
We express no opinion with respect to the effect of California Civil
Code Section 1670.5 and comparable laws and judicial decisions concerning the
enforceability of contractual provisions which are unconscionable at the time
the contract was made.
We express no opinion with respect to the effect of judicial decisions
and statutes limiting the enforceability of provisions requiring payment of
additional consideration or a higher rate of interest upon late payment,
particularly in cases where the additional amount bears no reasonable relation
to the damage suffered by the lender or is otherwise held to be a penalty (see
e.g., Lazzarechi Inv. Co. v. San Francisco Federal Savings and Loan Assoc. 22
Cal. 3d 303 (1971) and Hellbaum v. Lytton Savings & Loan Association 274 Cal.
App. 2nd 456 (1969)).
We express no opinion with respect to the effect of (i) the compliance
or non-compliance of a Purchaser or the Agent with any federal, state or other
law applicable to it, or (ii) the legal or regulatory status or the nature of
the business of any Purchaser.
We express no opinion with respect to the effect of the
unenforceability of any Transaction Document under the laws of any
jurisdiction, other than the State of California.
We express no opinion with respect to the state of the Sellers' rights
in or title to any item included in the Pool Assets.
10
<PAGE> 83
We express no opinion with respect to the effect of California Uniform
Commercial Code provisions relating to changes in a borrower's or lender's
name, identity, corporate structure, or location or to financing statements
that become seriously misleading.
We express no opinion with respect to any matter or Pool Assets
governed by, any compliance or non-compliance with, or any other application
of, that body of federal law administered by the Patent and Trademark Office or
the Copyright Office of the United States, and the rules and regulations
relating thereto, or any other law or judicial decisions relating to patents,
copyrights, trademarks, applications of the same, or any other intellectual
property right.
We express no opinion with respect to the state of the Sellers' rights
in or title to any Pool Assets, the priority of any security interest in any
Pool Assets over any other interest therein, or the ability of any Purchaser to
realize upon any particular Pool Assets in which any other person (other than
the Sellers) has an interest.
We express no opinion with respect to the enforceability of any
provision of the Transaction Documents which purports to impose on the
Purchasers or the Agent a standard for care of the Pool Assets and other
property in its possession not consistent with California law, which may impose
a duty of reasonable commercial care.
We express no opinion with respect to any matter concerning perfection
or continuation of a security interest in, or the ability of the Purchasers or
the Agent to realize upon, any (i) Pool Assets located, or deemed located, in
any jurisdiction other than the State of California and (ii) Pool Assets moved
(or deemed moved) outside of the State of California at any time.
We express no opinion with respect to any matter concerning perfection
or continuation of a security interest in, or the ability of the Purchasers or
the Agent to realize upon, any pool Assets (or the interest of any party with
respect thereto) (i) governed by laws other than solely those of the State of
California, (ii) described in or subject to the provisions of California
Uniform Commercial Code Section 9104 or 9302, (iii) which are consigned goods
or in the possession of the
11
<PAGE> 84
issuer of a negotiable document therefor as
contemplated by California Uniform Commercial Code Section 9304, (iv) which are
instruments within the meaning of the California Uniform Commercial Code
Section 9304, (v) consisting of cash, cash equivalents, deposit and deposit
accounts, insurance policies, indemnity agreements, chattel paper or documents
(as such term is defined in the California Uniform Commercial Code), (vi) which
are accounts due from or claims against the United States, or any state or
other governmental authority, (vii) which are certificated or uncertificated
securities, subject to Division 8 of the California Uniform Commercial Code or
other property in which a perfected security interest may be created only by
possession, (viii) which are proceeds of any other Pool Assets, including,
without limitation, insurance proceeds, (ix) which are subject to a statute,
regulation or treaty which provides for a state, national or international
registration or evidenced by a state, national or international certificate or
a document of title or similar instrument, or (x) which are repossessed,
returned or rejected goods relating to Pool Accounts or a guaranty of a Pool
Account.
We call to your attention that the security interest of the Agent for
the benefit of the Purchasers consisting of proceeds is limited to the extent
set forth in Section 9306 of the California Uniform Commercial Code.
We advise you that the Agent's and Purchasers' rights in the Pool
Assets are subject to California Uniform Commercial Code Sections 9501 et seq.
Our opinion in paragraph 2 above that the execution, delivery
and performance by each Seller of the Transaction Documents to which it is a
party do not contravene, or constitute a default under, any applicable law,
regulation, judgment, injunction, order or decree is intended to express our
opinion that the execution, delivery and performance by each such Seller of the
Transaction Documents to which it is a party are neither prohibited by, nor
subject such Seller to a fine, penalty or similar sanction that would be
materially adverse to the Parent and its subsidiaries, taken as a whole, under,
any law or regulation of the State of California, federal law or the Delaware
General Corporation Law or, to our knowledge, any judgment, injunction, order
or decree of any California or federal governmental entity, body or court, in
each case, that a lawyer in the State of California exercising customary
professional diligence
12
<PAGE> 85
would reasonably recognize to be directly applicable to
the transactions contemplated by the Transaction Documents.
Our opinion set forth in paragraph 1 above as to due
incorporation, valid existence and good standing is based solely on the
certificates referenced in Paragraph (e) above (copies of which have been
furnished to you), and, to the extent available, telephonic or telegram
confirmations of the matters set forth therein.
This opinion is rendered based on the facts and circumstances,
together with applicable law, existing on the date of this opinion, and
express no opinion as to the effect on the Transaction Documents and the
rights of the Purchasers under any statute, rule, regulation or other law
enacted, of any court decision rendered, or of the conduct of any person,
which occurs after the date of this opinion. Moreover, we assume no
obligation to advise you or any other person of any change, whether factual or
legal, or whether or not material, that may hereafter arise or be brought to
our attention after the date hereof.
This opinion is intended solely for your benefit in connection
with the transactions contemplated by the Transaction Documents. This opinion
may not be relied upon by you for any other purpose or relied upon or furnished
to any other person without our prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
13
<PAGE> 86
EXHIBIT A
REVIEWED AGREEMENTS*
1. Credit Agreement dated June 1, 1994, between Sun Microsystems, Inc.,
Bank of America National Trust and Savings Association, ABN Amro Bank N.V. San
Francisco International Branch, The First National Bank of Boston, Barclays
Bank PLC, Morgan Guaranty Trust Company of New York, The Fuji Bank, Limited,
San Francisco Agency, the Bank of California, N.A., The Sakura Bank, Limited,
San Francisco Agency, Banque Nationale de Paris, Bayerische Vereinsbank AG, Los
Angeles Agency, The Industrial Bank of Japan, Limited, San Francisco Agency,
Swiss Bank Corporation, and Citicorp USA, Inc. as agent for the banks, as
amended by First Amendment to Credit Agreement, dated as of July __, 1994.
2. Bill of Sale and Agreement, dated February 27, 1982, by VLSI Systems,
Inc., a California corporation, and Andreas Bechtolsheim, and Sun
Workstation, Inc., a California corporation, and the related Assumption
Agreement, dated February 27, 1982, by Sun Workstation, Inc., a
California corporation.
3. License Agreement, dated July 26, 1983, by and between The Regents of
the University of California and Sun Microsystems, Inc., a California
corporation.
4. American Telephone & Telegraph (AT&T) Agreements:
A. Software Agreement dated April 24, 1986 between the Company and
AT&T Information Systems Inc.
B. Sublicensing Agreement dated August 7, 1986 between the Company
and AT&T Information Systems Inc.
C. Substitution Agreement dated March 2, 1987 between the Company
and AT&T Information Systems Inc.
5. Building Loan Agreement, dated May 11, 1989, between Sun Microsystems
Properties, Inc. and the Toyo Trust and Banking Company, Limited, New York
Branch and the following related documents of even date therewith: Promissory
Note; First Deed of Trust, Assignment of Leases, Rents and Other Income and
Security Agreement; Guaranty of Payment; Guaranty of Completion (Sun
Microsystems, Inc.); Shortfall Agreement and Indemnity.
6. Common Shares Rights Agreement, dated May 15, 1989, between the Company
and The First National Bank of Boston, as Rights Agent, as amended by First
Amended and
<PAGE> 87
Restated Common Shares Rights Agreement, dated December 14, 1989,
between the Company and Rights Agent, as amended by Amendment, dated October
28, 1992 to the First Amended and Restated Common Shares Rights Agreement
between the Company and Rights Agent and as amended by Second Amendment, dated
December 14, 1992, to the First Amended and Restated Shares Rights Agreement
between the Company and Rights Agent.
7. Note and Warrant Purchase Agreements:
A. Note and Warrant Purchase Agreements, dated September 26, 1989,
among the Company and certain purchasers listed on the Purchaser Schedule
attached thereto ("Purchasers") providing for the issuance by the Company of
$126,000,000 principal amount of 10.55% Senior Notes due September 26, 1996, as
amended by Form or Letter dated June 25, 1991 between the Company and
Purchasers regarding the Note and Warrant Purchase Agreements, and as further
amended by Amendments, dated May 26, 1993, to the Note and Warrant Purchase
Agreements between the Company and purchasers identified therein.
B. Note and Warrant Purchase Agreements, dated December 15, 1989,
among the Company and certain purchasers listed on the Purchaser Schedule
attached thereto ("Purchasers") providing for the issuance by the Company of
$41,000,000 principal amount of 10.55% Senior Notes due September 26, 1996, as
amended by Form of Letter dated June 25, 1991 between the Company and
Purchasers regarding the Note and Warrant Purchase Agreements, and as further
amended by Amendments, dated May 26, 1993, to the Note and Warrant Purchase
Agreements between the Company and purchasers identified therein.
C. Note and Warrant Purchase Agreement, dated December 15, 1989,
between the Company and Metropolitan Life Insurance Company ("Purchaser")
providing for the issuance by the Company of $25,000,000 principal amount of
10.55% Senior Notes due September 26, 1996, as amended by Form of Letter dated
June 25, 1991 between the Company and Purchasers regarding the Note and Warrant
Purchase Agreements, and as further amended by Amendments, dated May 26, 1993,
to the Note and Warrant Purchase Agreements between the Company and purchasers
identified therein.
8. Letter from Texas Instruments to the Company, dated March 14, 1990.
2
<PAGE> 88
9. Lease Agreements, dated September 25, 1992, between the Company and BNP
Leasing Corporation; and the following related documents of even date
therewith: Purchase Agreements, dated September 25, 1992, between the
Company and BNP Leasing Corporation, Memoranda of Agreements,
Environmental Indemnity Agreement, Estoppel Letters.
10. Software License and Distribution Agreement, dated as of January 1,
1994 by and between the Company and UNIX System Laboratories, Inc.
11. Sun Microsystems, Inc. 1992 Incentive Option Plan (as amended and
restated on November 7, 1991).
12. Sun Microsystems, Inc. 1987 Stock Option Plan (as amended and restated
on November 7, 1991).
13. Sun Microsystems, Inc. 1988 Directors' Stock Option Plan (as adopted by
the Board of Directors on January 4, 1988 and amended as of March 1,
1992 and August 11, 1993).
14. Sun Microsystems, Inc. 1990 Long-Term Equity Incentive Plan (as amended
and restated as of November 7, 1992).
15. Sun Microsystems, Inc. 1990 Employee Stock Purchase Plan (as amended
and restated as of November 7, 1991).
16. Sun Microsystems, Inc. Restricted Stock Plan (as amended and restated
on November 1991).
_______________
* Reference herein to "Company" or "Sun Microsystems, Inc." with respect
to agreements entered into on or prior to June 1987 mean Sun Microsystems,
Inc., a California corporation, and after such date, Sun Microsystems, Inc., a
Delaware corporation.
3
<PAGE> 89
EXHIBIT C-2
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
[Closing Date]
To the Purchasers and the Agent
Referred to Below
c/o J.P. Morgan Delaware
902 Market Street
Wilmington, Delaware 19801
Dear Sirs:
We have participated in the preparation of the Receivables
Purchase Agreement (the "Receivables Purchase Agreement") dated as of August 5,
1994, among Sun Microsystems, Inc., a Delaware corporation (the "Parent"), the
Subsidiary Sellers listed therein (together with the Parent, the "Sellers"),
the Purchasers listed on the signature pages thereof (the "Purchasers") and
J.P. Morgan Delaware, as Agent (the "Agent"), and have acted as special counsel
for the Agent for the purpose of rendering this opinion pursuant to Section
3.02(c) of the Receivables Purchase Agreement. Terms defined in the
Receivables Purchase Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Parent of the
Receivables Purchase Agreement and the Assignments are within its corporate
powers and have been duly authorized by all necessary corporate action.
2. The Receivables Purchase Agreement and the Assignments
constitute valid and binding agreements of each Seller, in each case
enforceable against such Seller in accordance with their respective terms,
subject to bankruptcy, fraudulent conveyance, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights and by
general equitable principles (regardless of whether the
<PAGE> 90
issue of enforceability
is considered in a proceeding in equity or at law).
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the federal
laws of the United States of America and the General Corporation Law of the
State of Delaware. Insofar as the foregoing opinion involves matters governed
by the laws of the State of California, we have relied, without independent
investigation, upon the opinion of Wilson, Sonsini, Goodrich & Rosati, a copy
of which has been delivered to you.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by or furnished to any other person without our prior written
consent.
Very truly yours,
2
<PAGE> 91
EXHIBIT D-1
GOVERNMENT CONTRACTS
<TABLE>
<S> <C> <C>
Contract
Obligor:
Number:
Description:
Payment terms:
Assignment:
__ Permitted
__ Restricted
__ No applicable provision
Offset rights:
__ Retained
__ Waived
__ No applicable provision
</TABLE>
[To be completed by Sellers.]
<PAGE> 92
EXHIBIT D-2
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer unto J.P. Morgan Delaware all monies due or to become due under
[identify Qualifying Government Contract].
IN WITNESS WHEREOF, the undersigned, through its duly
authorized officer, has caused this Agreement to be duly executed this __ day
of _______, 19__.
[RELATED SELLER]
By ______________________
Title:
[CORPORATE SEAL]
Witness: ____________________
<PAGE> 93
EXHIBIT D-3
NOTICE OF ASSIGNMENT
TO: ________________ [address to one of the parties specified in FAR
32.802(e)].
This has reference to Contract No. ________ dated ________,
entered into between [related Seller], [address], and ___________ [government
agency, name of office, and address], for ____________ [describe nature of the
contract.]
Moneys due or to become due under the contract described above
have been assigned to the undersigned under the provisions of the Assignment of
Claims Act of 1940, as amended, 31 U.S.C. Section 203, 41 U.S.C. Section 15.
A true copy of the instrument of assignment executed by the
Contractor on __________ [date], is attached to the original notice.
Payments due or to become due under this contract should be
made to the undersigned assignee.
Please return to the undersigned the three enclosed copies of
this notice with appropriate notations showing the date and hour of receipt,
and signed by the person acknowledging receipt on behalf of the addressee.
Very truly yours,
J.P. MORGAN DELAWARE
By _________________________
Title:
ACKNOWLEDGEMENT
Receipt is acknowledged of the above notice and of a copy of
the instrument of assignment. They were received at _____ (a.m.) (p.m.) on
________, 19__.
________________________
[signature and title]
<PAGE> 94
EXHIBIT E
CERTAIN OBLIGORS
<TABLE>
<S> <C>
PART 1: Obligors with up to 10% of the
Net Eligible Account Balance
AT&T
Boeing
General Electric
University of California
US West
PART 2: Obligors with up to 5% of the
Net Eligible Account Balance
American Express
Bell Atlantic
Bell Communications
Eastern Kodak
EDS
NYNEX
Salomon Brothers
Xerox
</TABLE>
<PAGE> 95
EXHIBIT F
Lockbox Banks, Lockbox Account
Numbers and Lockboxes
<TABLE>
<CAPTION>
Bank Bank Account Name Account Number Lockbox Address
<S> <C> <C> <C>
Bank of America-Concord Sun Microsystems Inc. - Lockbox 12332-56405 Dept 1489
1850 Gateway Blvd. Lockbox #1489 P.O. Box 61000
Concord, CA San Francisco, CA 94161
Bank of America-Concord Sun Microsystems Inc. - Lockbox 12332-56405 File #56340
1850 Gateway Blvd. Lockbox #56340 Los Angeles, CA 90074-3640
Concord, CA
Bank of America-Concord Sun Technology Enterprises Inc. 12331-13463 File #52558
1850 Gateway Blvd. Lockbox #55258 Los Angeles, CA 90074-2558
Concord, CA
Bank of America-Concord SunSoft, Inc. 12333-5653 File #72612
1850 Gateway Blvd. Lockbox #72612 San Francisco, CA 94160-2612
Concord, CA
Nationsbank Sun Microsystems, Inc. 008-49-778 Drawer CS198330
P.O. Box 4899 Lockbox #CS198330 Atlanta, GA 30384-8330
Atlanta, GA
Northern Trust Sun Express Inc. 30162545 P.O. Box 75654
50 S. La Salle St. Lockbox #75654 Chicago, IL 60675-5654
Chicago, IL 60675
Northern Trust Sun Microsystems, Inc. 30262545 P.O. Box 75640
50 S. La Salle St. Lockbox #75640 Chicago, IL 60675-5640
Chicago, IL 60675
Philadelphia National Bank Sun Microsystems, Inc. 0108-7021 P.O. Box 8500 (S-4020)
FC 98-2-1, Suite 4330 Lockbox #s-4020 Philadelphia, PA 19178-4020
707 Wilshire Blvd.
Los Angeles, CA 90071
</TABLE>
<PAGE> 96
EXHIBIT G
[Letterhead of Sun Microsystems, Inc.]
August __, 1994
[Name and Address of
Lockbox Bank]
Gentlemen:
Reference is made to the lockbox account no. __________ maintained
with you (the "Account") and the related lockbox. Pursuant to a Receivables
Purchase Agreement dated as of August 5, 1994 among us, certain of our
subsidiaries and J.P. Morgan Delaware, as Agent, we have assigned to the Agent,
for the benefit of the Purchasers (as defined in the Receivables Purchase
Agreement) one or more undivided percentage interests in certain of the
accounts, chattel paper, instruments or general intangibles (collectively,
"Receivables") with respect to which payments are or may hereafter be made to
the Account [and the related lockbox].
Except as otherwise provided in this letter agreement, payments to the
Account are to be processed in accordance with the standard procedures
currently in effect. All service charges and fees with respect to the Account
shall continue to be payable by us as under the arrangements currently in
effect.
Upon your receipt of a letter from the Agent substantially in the form of
Annex 1 hereto you are hereby instructed to comply with the terms thereof.
By executing this letter agreement, you irrevocably waive and agree not
to assert, claim or endeavor to exercise, irrevocably bar and estop yourself
from asserting, claiming or exercising, and acknowledge that you have not
heretofore received a notice, writ, order or any form of legal process from any
other party asserting, claiming or exercising, any right of set-off, banker's
lien or other purported form of claim with respect to the Account or any funds
from time to time therein. Except for your right to payment of your
<PAGE> 97
service charges and fees and to make deductions for returned items, you shall
have no rights in the Account or funds therein.
You may terminate this letter agreement by canceling the Account
maintained with you, which cancellation and termination shall become effective
only upon thirty days' prior written notice thereof from you to the Agent.
Incoming mail addressed to or wire transfers to the Account received after such
cancellation shall be forwarded in accordance with the Agent's instructions.
This letter agreement may also be terminated upon written notice to you by the
Agent stating that the Receivables Purchase Agreement pursuant to which this
letter agreement was obtained is no longer in effect. Except as otherwise
provided in this paragraph, this letter agreement may not be terminated or
amended without the prior written consent of the Agent. This letter agreement
may be executed in any number of counterparts, and by the parties hereto on
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
Please acknowledge your agreement to the terms set forth in this letter
agreement by signing the two copies of this letter agreement enclosed herewith
in the space provided below, sending one such signed copy to the Agent at its
address provided below and returning the other signed copy to us.
Very truly yours,
SUN MICROSYSTEMS, INC.
By:______________________
Name:____________________
Title:___________________
<PAGE> 98
[NAME OF LOCK-BOX/BANK]
By:______________________
Name:____________________
Title:___________________
Address for notice:
Attention:____________________
Telex No.:____________________
(Answerback:__________________)
Facsimile No.:________________
<PAGE> 99
ANNEX 1 TO EXHIBIT G
[LETTERHEAD OF J.P. MORGAN DELAWARE]
___________ 19,__
Re: Lockbox Transfer Letter
Gentlemen:
We hereby notify you that control of the post office box or other
mailing location located at _______________________ that receives payments made
to Sun Microsystems, Inc. or a subsidiary of Sun Microsystems, Inc. (the
"Lockbox") and the related lock-box account No. ________ maintained with you
(the "Lockbox Account") are hereby transferred to J.P. Morgan Delaware, as
Agent, 902 Market Street, Wilmington, Delaware 19801 (the "Agent").
You are hereby irrevocably instructed to make all payments to be made
by you out of or in connection with the Lockbox Account directly to J.P. Morgan
Delaware, for the account of the Agent, to account No. ________ or otherwise in
accordance with the instructions of the Agent.
You are hereby irrevocably instructed to disregard any and all previous
instructions or agreements, if any, given or made which are or may be
inconsistent with this letter, all of which are hereby superseded by this
letter.
You are also hereby notified that the Agent shall be irrevocably
entitled to exercise any and all rights in respect of or in connection with the
Lockbox Account, including, without limitation, the right to specify when
payments are to be made out of or in connection with the Lockbox Account. The
funds deposited into the Lockbox Account will not be subject to deduction,
set-off, banker's lien or any other right in favor of any person other than the
Agent.
Please agree to the terms of, and acknowledge receipt of, this notice
by signing in the space provided below on a copy
<PAGE> 100
hereof sent herewith and send one signed copy to the Agent, at its
address referred to above, Attention of Structured Finance Group.
Very truly yours,
J.P. MORGAN DELAWARE
By:____________________
____________________
name
____________________
title
Agreed and acknowledged:
[Lockbox Bank]
By:_____________________
Title:
<PAGE> 1
EXHIBIT 11
SUN MICROSYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRIMARY
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net income $195,824 $156,726 $173,313
Weighted average common shares
outstanding 95,207 102,329 98,218
Common equivalent shares attributable to
the following:
Stock options and warrants 1,557 2,796 3,422
-------- -------- --------
Total common and common equivalent shares
outstanding 96,764 105,125 101,640
======== ======== ========
Net income per common and common
equivalent share $ 2.02 $ 1.49 $ 1.71
======== ======== ========
</TABLE>
<PAGE> 2
EXHIBIT 11
(CONTINUED)
SUN MICROSYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FULLY DILUTED
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net income $195,824 $156,726 $173,313
Adjustment for interest assuming conversion
of 5 1/4% subordinated debentures, net
of taxes (1) - 2,324 6,911
-------- -------- --------
Adjusted net income $195,824 $159,050 $180,224
======== ======== ========
Weighted average common shares
outstanding 95,207 102,329 98,218
Common equivalent shares attributable to
the following:
Stock options and warrants 1,621 3,037 3,576
Conversion of 5 1/4% subordinated
debentures - 1,830 5,400
-------- -------- --------
Total common and common equivalent shares
outstanding 96,764 107,196 107,194
======== ======== ========
Net income per common and common
equivalent share $ 2.02 $ 1.48 $ 1.68
======== ======== ========
</TABLE>
(1) The adjustment to common equivalent shares recorded reflects only the
period during which the debentures were actually outstanding.
<PAGE> 1
HISTORICAL FINANCIAL REVIEW EXHIBIT 13.0
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------------------------------------------------
(In millions, except 1994 1993 1992 1991 1990 1989
per share amounts) Dollars % Dollars % Dollars % Dollars % Dollars % Dollars %
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $4,690 100.0 $4,309 100.0 $3,589 100.0 $3,221 100.0 $2,466 100.0 $1,765 100.0
Costs and expenses:
Cost of sales 2,753 58.7 2,518 58.4 1,963 54.7 1,758 54.6 1,399 56.7 1,010 57.2
Research and
development 455 9.7 445 10.3 382 10.6 356 11.1 302 12.2 234 13.3
Selling, general and
administrative 1,205 25.7 1,105 25.7 983 27.4 812 25.2 588 23.9 433 24.5
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total costs and
expenses 4,413 94.1 4,068 94.4 3,328 92.7 2,926 90.9 2,289 92.8 1,677 95.0
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating income 277 5.9 241 5.6 261 7.3 295 9.1 177 7.2 88 5.0
Interest income
(expense), net 6 0.1 (2) -- (6) (0.2) (11) (0.3) (23) (0.9) (10) (0.6)
Litigation settlement -- -- (15) (0.4)
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income before
income taxes 283 6.0 224 5.2 255 7.1 284 8.8 154 6.3 78 4.4
Provision for
income taxes 87 1.8 67 1.6 82 2.3 94 2.9 43 1.8 17 1.0
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net income $ 196 4.2 $ 157 3.6 $ 173 4.8 $ 190 5.9 $ 111 4.5 $ 61 3.4
Net income per
share $ 2.02 $ 1.49 $ 1.71 $ 1.85 $ 1.21 $ 0.76
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Weighted average
common and common-
equivalent
shares outstanding 97 105 102 103 94 85
====== ====== ====== ====== ====== ======
</TABLE>
OPERATING AND CAPITALIZATION DATA
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total assets (millions) $ 2,898 $ 2,768 $ 2,672 $ 2,326 $ 1,779 $ 1,269
Long-term debt and other
obligations (millions) $ 122 $ 178 $ 348 $ 401 $ 359 $ 145
Current ratio 2.0 2.4 2.6 2.5 2.6 1.9
Long-term debt
to equity ratio 0.075 0.11 0.23 0.33 0.39 0.22
Return on average equity 12% 10% 13% 18% 14% 12%
Return on average capital 12% 9% 10% 13% 11% 9%
Return on average assets 7% 6% 7% 9% 7% 6%
Effective income tax rate 33.0% 30.0% 32.0% 33.0% 28.0% 22.0%
Average shares and
equivalents (thousands) 96,764 105,125 101,640 103,067 94,369 85,161
Book value per
outstanding share $ 17.35 $ 16.09 $ 14.85 $ 12.58 $ 10.01 $ 7.88
Revenue units 259,500 255,600 206,200 179,600 118,300 80,700
======== ======== ======== ======== ======== ========
10
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth items from Sun's Consolidated Statement
of Income as percentages of net revenues:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of sales 58.7 58.4 54.7
----- ----- -----
Gross margin 41.3 41.6 45.3
Research and development 9.7 10.3 10.6
Selling, general and administrative 25.7 25.7 27.4
----- ----- -----
Operating income 5.9 5.6 7.3
Interest income (expense), net 0.1 -- (0.2)
Settlement of litigation -- (0.4) --
----- ----- -----
Income before income taxes 6.0 5.2 7.1
Provision for income taxes 1.8 1.6 2.3
----- ----- -----
Net income 4.2% 3.6% 4.8%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Sun continues to introduce higher performance desktop workstations as well as
reduce prices to improve price point and price/performance competitiveness.
Component cost reductions, operating efficiencies and increased shipments of
higher performance desktop and server products have, to date, significantly
offset the effects of repricing actions. Future operating results will depend
on additional component cost reductions, further operating efficiencies and the
mix of systems, software and other products, which in turn depend in part on
the Company's ability to generate higher system, service and software license
volumes.
A significant and increasing share of revenue is being generated from
products that operate exclusively in the Solaris 2 software environment. More
than half a million Solaris 2 licenses have been distributed to date, and over
3,000 applications are now ported and available from independent software
vendors. Sun's ability to maintain this growth will depend, in part, on the
continued acceptance and migration of customers to Solaris 2, as well as the
efforts of independent software vendors to develop new, and port existing,
application software.
Management believes the Company has entered fiscal 1995 in strong financial
condition and with a very competitive offering of products, led by the
introduction of two new desktop systems in late fiscal 1994, the SPARCstation 5
and SPARCstation 20. Although demand for these new products was strong, the
Company experienced supply constraints on certain memory devices in the fourth
quarter. These constraints are expected to continue into fiscal 1995. While the
Company believes it effectively managed these constraints in the fourth
quarter, future operating results could be impacted depending on the
availability and cost of memory components during fiscal 1995. (See "Future
Operating Results.")
NET REVENUES
Net revenues increased $381.3 million, or 9%, to $4,689.9 million in fiscal
1994, compared with an increase of $719.7 million, or 20%, in fiscal 1993.
Increases in net revenues in fiscal 1994 were primarily driven by higher
revenue from memory, storage options and accessories shipped to both installed
base customers and to new customers purchasing more richly configured systems.
Total unit shipments of systems in fiscal 1994 grew slightly when compared with
fiscal 1993. This unit increase resulted primarily from increases in desktop
and server system shipments in fiscal 1994, which were offset by reductions in
shipments of upgrade units, as more customers opted for the price/performance
advantages of new systems. System unit shipments in fiscal 1994 were favorably
impacted by the introduction of the SPARCstation 5 and SPARCstation 20, each of
which individually shipped more units in its first quarter of introduction than
any other workstation in the Company's history. Fiscal 1994 service revenues
remained relatively unchanged as a percentage of net revenues when compared
with fiscal 1993.
11
<PAGE> 3
The increase in net revenues in fiscal 1993 over fiscal 1992 was primarily
attributable to increased unit shipments of new systems combined with higher
revenue from peripherals and other hardware.
The impact of currency fluctuations on net revenues and operating results
cannot be precisely measured, because the Company's product mix and pricing
change over time in various markets, partially in response to currency
movements. Further, the Company's international structure and transaction
activity provide a degree of natural hedge where fluctuations in a particular
currency result in financial effects that mitigate or tend to offset each other
on a consolidated basis. Any remaining material currency exposure is managed
through an established hedging program, the objective of which is to minimize
the impact of currency fluctuations on results of operations. Compared with
fiscal 1993, the dollar strengthened against most major European currencies but
weakened against the Japanese yen. Management has estimated that the net impact
of currency fluctuations, while slightly unfavorable in fiscal 1994, was not
significant in any of the fiscal years in the three-year period ending June 30,
1994.
In fiscal 1994 and 1993, domestic net revenues grew 4% and 27%, respectively,
while international net revenues (including U.S. exports) grew 14% and 13%,
respectively. European net revenues in fiscal 1994 increased 9%, primarily due
to the recent strengthening of certain Northern European economies. Net
revenues in the Rest of World (primarily Japan) increased by 20% in fiscal
1994, primarily due to the expanding client-server computer markets in Japan,
Asia, Latin America and other regions. International operations represented 51%
of total net revenues in fiscal 1994, as compared with 49% and 50% in fiscal
1993 and 1992, respectively.
GROSS MARGIN
Gross margin remained relatively unchanged at 41.3% of net revenues for fiscal
1994, compared with 41.6% for fiscal 1993. Repricing actions, the introduction
of low price-point desktop systems, and higher revenues from lower margin
peripherals and other hardware resulted in downward gross margin pressure
during fiscal 1994. The impact of these factors was somewhat offset by
favorable gross margin impacts from increases in shipments of higher
performance desktop and server systems with accompanying higher margins,
reductions in lower margin upgrade revenues and reductions in component costs.
Repricing actions may continue to be initiated in the future to increase
shipment volumes for desktop systems, which could result in downward pressure
on gross margin. This margin pressure could be mitigated with increased
software licensing, server and high performance desktop volumes, as well as
component cost reductions and operating efficiencies generated by higher unit
volumes.
The decline in gross margin for fiscal 1993 when compared with fiscal 1992
resulted primarily from the shift to lower priced desktop systems, start-up
costs related to the introduction of the SPARCstation 10 family of products and
price reductions on other products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased $9.3 million, or 2%, in fiscal 1994
to $454.7 million compared with an increase of $63.7 million, or 17%, in fiscal
1993. As a percentage of net revenues, research and development expenses were
9.7%, 10.3% and 10.6% in fiscal 1994, 1993 and 1992, respectively. Research and
development spending continued at a substantial level throughout the fiscal
1992 to 1994 period, as the Company invested in specific projects in support of
new product introductions. The decline in spending in fiscal 1994 as a
percentage of net revenues was primarily attributable to the timing of specific
expenses as well as increased concentration of efforts on more cost-effective
projects. Sun continues to believe that the market for its products is
characterized by rapid rates of technological advancement for hardware and
software products, as well as microprocessor technologies. To maintain its
competitive position in the industry, the Company expects to continue to invest
significant resources in new hardware, software and microprocessor product
development, as well as in enhancements to existing products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $100.9 million, or 9%,
in fiscal 1994 to $1,205.4 million compared with an increase of $120.9 million,
or 12%, in fiscal 1993. As a percentage of net revenues, these expenses were
25.7% in both fiscal 1994 and 1993, and 27.4% in fiscal 1992. The fiscal 1994
dollar increase primarily reflects investments for additional sales staff and
related incentives, increased incentive compensation based on the achievement
of specified performance goals and incremental investments for strategic
marketing and advertising programs. The increase in fiscal 1993 was primarily
for additional sales staff and related incentives, additional marketing staff
and increased occupancy costs related to international expansion.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $6.1 million in fiscal 1994 from $1.5 million
of expense in fiscal 1993 and $6.2 million of expense in fiscal 1992. The
increase in net interest income for fiscal 1994 was primarily the result of
reduced interest expense on short-term borrowings and long-term debt as a
result of scheduled debt repayments. The decrease in interest expense for
fiscal 1993 compared with fiscal 1992 was primarily due to the elimination of
certain interest expense as a result of the conversion of the Company's
subordinated debentures in November 1992, as well as interest savings from
scheduled debt repayments.
12
<PAGE> 4
SETTLEMENT OF LITIGATION
Fiscal 1993 earnings included a charge of $15 million in connection with the
settlement of two securities class action lawsuits brought against the Company
and certain of its current and former officers by purchasers of the Company's
stock and debentures. (See Note 7 to the Consolidated Financial Statements.)
INCOME TAXES
The effective tax rate for fiscal 1994 was 33% before a one-time credit of
$5.9 million resulting from the Omnibus Reconciliation Act of 1993. For fiscal
1993 and 1992 the effective income tax rates were 30% and 32%, respectively.
The increase in fiscal 1994 over fiscal 1993 occurred primarily because of the
increase in the U.S. statutory rate and the increase in income before taxes
without corresponding proportionate changes in tax benefits. The decrease in
fiscal 1993 over fiscal 1992 was primarily due to lower taxes on foreign
earnings, partially offset by decreased benefits from research and development
tax credits as well as from the Company's foreign sales corporation.
FUTURE OPERATING RESULTS
Sun operates in an industry marked by rapidly changing technology and
increasing competition. The Company expects that the markets for its products
and technology, as well as its competitors within such markets, will continue
to change as the rightsizing trend shifts customer buying patterns to
distributed systems employing solutions from multiple vendors. In addition,
improvements in hardware and operating system software products introduced, or
to be introduced, by competing companies are expected to improve the
characteristics of certain networked personal computer solutions. These
developments are expected to provide competitive pressure, particularly at the
low end of the Company's product range, where customers are more price
sensitive and the systems environment is less complex. Therefore, the Company's
future operating results will depend to a considerable extent on its ability to
rapidly and continuously develop, introduce and deliver in quantity competitive
new hardware, software and service products, as well as new microprocessor
technologies, that offer its customers enhanced performance at competitive
prices. (See "Gross Margin.")
The development of new, high-performance computer products is a complex and
uncertain process requiring high levels of innovation from both the Company's
designers and those of its suppliers, as well as accurate anticipation of
customer requirements and technological trends. Once a hardware product is
developed, the Company must rapidly bring it into volume manufacturing, a
process that requires accurate forecasting of both volumes and configurations,
among other things, in order to achieve acceptable yields and costs. The
Company is increasingly dependent on the ability of its suppliers to design,
manufacture and deliver advanced components required for the timely
introduction of new products. The failure of any of these suppliers to deliver
components on time or in sufficient quantities could result in a significant
adverse impact on the Company's operating results. (See "Results of
Operations.") The inability to secure enough components to build products,
including new products, in the quantities and configurations required, or to
produce, test and deliver sufficient products to meet demand in a timely
manner, would adversely affect the Company's net revenues and operating
results. The production and introduction of new or enhanced products also
requires the Company to make advanced payments, if necessary, under contracts
with certain suppliers. In addition, in order to secure components for
development of new products, the Company frequently enters into non-cancelable
purchase commitments with vendors early in the design process. Due to the
variability of material requirement specifications during the design process,
the Company must closely manage material purchase commitments and their
respective delivery schedules. The Company must also manage the transition from
older, displaced products in order to minimize disruptions in customer ordering
patterns and excessive levels of older product inventory and to ensure that
adequate supplies of new products can be delivered to meet customer demand. The
ability of the Company to match supply and demand is further complicated by the
need to take pricing actions, which may result in the Company not being able to
correctly anticipate the demand for the mix of products following those pricing
actions. Because the Company is continuously engaged in this product
development and transition process, its operating results may be subject to
considerable fluctuation, particularly when measured on a quarterly basis.
Generally, the computer systems sold by Sun are the result of both hardware and
software development, so that delays in software development can delay the
ability of the Company to ship new hardware products. In addition, adoption of
a new release of an operating system, such as the Solaris 2 software
environment, typically requires effort on the part of the customer as well as
software porting by software vendors providing applications. As a result, the
timing of conversion to a new release is inherently unpredictable. Moreover,
delays in adoption of a new release of an operating system by customers and
software developers can limit the acceptance of hardware products tied to that
release. Such delays could adversely affect the future operating results of the
Company.
13
<PAGE> 5
The Company's operating results will also be affected by the volume, mix and
timing of orders received during a period and by conditions both in the
computer industry and in the general economy, such as recessionary periods,
political instability, changes in trade policies and fluctuations in interest
or currency exchange rates. The Company's customer order backlog at June 30,
1994 was $338 million compared with $160 million and $350 million at June 30,
1993 and 1992, respectively. Backlog levels vary with demand, product
availability and the Company's delivery lead times, and are subject to
decreases as a result of customer order delays, changes or cancellations. As
such, backlog levels may not be a reliable indicator of future operating
results. As delivery lead times continue to decrease, the Company must generate
a higher percentage of revenue from new order bookings in the same fiscal
period. The backlog level at June 30, 1994 reflects strong demand for the
Company's newly introduced products, the SPARCstation 5 and the SPARCstation
20. The lower June 30, 1993 backlog level was impacted to some extent by
generally weaker economies in several of the Company's international markets.
Seasonality also affects the Company's operating results, particularly in the
first quarter of each fiscal year. In addition, the Company's operating
expenses are increasing as the Company continues to expand its operations, and
future operating results will be adversely affected if revenues do not increase
accordingly. The Company expects to continue efforts to achieve additional
operating efficiencies through the continual review and improvement of
business processes and cycle times. In connection with these efforts, the
Company is continuously engaged in the process of managing the mix and level of
its workforce.
LIQUIDITY AND CAPITAL RESOURCES
Sun's cash portfolio (cash, cash equivalents and short-term investments)
decreased $255.9 million, or 22%, to $882.8 million at June 30, 1994, primarily
due to the completion in November 1993 of the planned repurchase of
approximately 10 million shares of the Company's common stock. In addition, Sun
paid approximately $80 million pursuant to an agreement with Novell, Inc. in
fiscal 1994 that, among other things, eliminated substantially all of the
Company's royalty obligations for UNIX licensing and released Sun from
distribution and licensing restrictions for most of its UNIX operating system
products. Accounts receivable increased $225.9 million, or 36%, to $853.0
million at June 30, 1994, due primarily to a 30% increase in net revenues in
the month of June 1994 compared with the corresponding period in 1993.
Inventories increased $38.7 million, or 15%, to $294.9 million at the end of
fiscal 1994, primarily due to a build-up in finished goods to meet increased
customer demand and to enable rapid response to shifts in product mix
requirements. Accounts payable increased to $363.8 million at the end of
fiscal 1994 due to significant inventory receipts in the last weeks of the year
in support of new product introductions and increased customer demand.
During fiscal 1994, operating activities generated $355.7 million in cash
compared with $336.2 million in fiscal 1993, primarily as the result of higher
earnings in fiscal 1994. The Company's investing activities used $467.4 million
of cash in fiscal 1994, an increase of $286.6 million from the $180.8 million
used in fiscal 1993. The increase resulted primarily from the Company investing
proportionately more of the fiscal 1994 net operating cash flow in short-term
investments and less in cash equivalents.
In June 1993, the Board of Directors approved a plan to repurchase up to 10
million shares of the Company's common stock. Repurchases under this program
were completed in November 1993 at a total cost of approximately $265 million.
At June 30, 1994, the Company's primary sources of liquidity consisted of cash,
cash equivalents and short-term investments of $882.8 million; uncommitted
lines of credit available to the Company's international subsidiaries totalling
approximately $455 million, of which approximately $376 million was available;
and a revolving credit facility with banks aggregating $150 million, all of
which was available subject to compliance with certain covenants. In the first
half of fiscal 1995, the Company will acquire for cash approximately $80
million in property, plant and equipment as part of the development of new
operating facilities. The Company believes that the liquidity provided by
existing cash and short-term investment balances and the borrowing arrangements
described above will be sufficient to meet the Company's capital requirements
for fiscal 1995. However, the Company believes the level of financial resources
is a significant competitive factor in its industry and may choose at any time
to raise additional capital through debt or equity financings to strengthen its
financial position, facilitate growth and provide the Company with additional
flexibility to take advantage of business opportunities that may arise.
14
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
(In thousands, except per share amounts) 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues $4,689,892 $4,308,606 $3,588,885
Costs and expenses:
Cost of sales 2,752,518 2,518,312 1,962,622
Research and development 454,665 445,356 381,637
Selling, general and administrative 1,205,442 1,104,498 983,573
---------- ---------- ----------
Total costs and expenses 4,412,625 4,068,166 3,327,832
---------- ---------- ----------
Operating income 277,267 240,440 261,053
Interest income 27,894 33,327 38,997
Interest expense (21,782) (34,873) (45,178)
Settlement of litigation -- (15,000) --
---------- ---------- ----------
Income before income taxes 283,379 223,894 254,872
Provision for income taxes 87,555 67,168 81,559
---------- ---------- ----------
Net income $ 195,824 $ 156,726 $ 173,313
---------- ---------- ----------
Net income per common and common-equivalent share $ 2.02 $ 1.49 $ 1.71
Common and common-equivalent shares used in the
calculation of net income per share 96,764 105,125 101,640
========== ========== ==========
</TABLE>
See accompanying notes.
15
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-----------------------------
(In thousands, except per share amounts) 1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 433,937 $ 828,839
Short-term investments 448,879 309,873
Accounts receivable, net of allowances of $79,845 in 1994
and $51,462 in 1993 853,031 627,174
Inventories 294,948 256,275
Deferred tax assets 103,428 121,874
Other current assets 170,870 128,311
---------- ----------
Total current assets 2,305,093 2,272,346
Property, plant and equipment:
Machinery and equipment 672,962 560,660
Furniture and fixtures 49,512 54,629
Leasehold improvements 53,364 59,096
Land and buildings 101,430 100,653
---------- ----------
877,268 775,038
Accumulated depreciation and amortization (517,020) (426,656)
---------- ----------
Net property, plant and equipment 360,248 348,382
Other assets, net 232,651 146,901
---------- ----------
$2,897,992 $2,767,629
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 78,687 $ 90,890
Accounts payable 363,828 270,440
Accrued payroll-related liabilities 159,017 127,156
Accrued liabilities and other 341,891 266,108
Deferred service revenues 72,085 61,120
Income taxes payable 93,930 92,930
Current portion of long-term debt 38,400 38,400
---------- ----------
Total current liabilities 1,147,838 947,044
Long-term debt and other obligations 121,831 177,802
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.00067 par value, 300,000,000 shares authorized;
issued: 106,394,200 shares in 1994 and 106,444,744 shares in 1993 72 72
Additional paid-in capital 1,066,571 1,053,806
Retained earnings 879,135 705,965
Treasury stock, at cost: 12,542,875 shares in 1994
and 4,332,705 shares in 1993 (329,245) (119,052)
Currency translation adjustment 11,790 1,992
---------- ----------
Total stockholders' equity 1,628,323 1,642,783
---------- ----------
$2,897,992 $2,767,629
========== ==========
</TABLE>
See accompanying notes.
16
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
Increase (decrease) in cash and cash equivalents ----------------------------------------------------
(In thousands) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 195,824 $ 156,726 $ 173,313
Adjustments to reconcile net
income to operating cash flows:
Depreciation and amortization 248,247 232,354 215,450
Other non-cash items 14,210 26,945 29,007
Net (increase) decrease in operating assets (299,733) (183,046) 44,861
Net increase in operating liabilities 197,196 103,221 45,188
----------- ----------- -----------
Net cash provided from operating activities 355,744 336,200 507,819
----------- ----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (213,229) (196,475) (185,577)
Acquisition of other assets (115,199) (47,307) (23,911)
Acquisition of short-term investments (2,799,408) (2,056,641) (2,311,812)
Maturities of short-term investments 2,660,402 2,119,597 2,152,433
----------- ----------- -----------
Net cash used by investing activities (467,434) (180,826) (368,867)
----------- ----------- -----------
Cash flow from financing activities:
Issuance of stock, net of employee repurchases 19,243 42,986 27,899
Acquisition of treasury stock (294,427) (214,883) --
Proceeds from employee stock purchase plans 42,298 38,460 41,829
(Reduction) proceeds of short-term borrowings, net (12,203) (394) 18,250
Reduction of long-term borrowings and other (38,123) (40,013) (519)
----------- ----------- -----------
Net cash (used by) provided from financing activities (283,212) (173,844) 87,459
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (394,902) (18,470) 226,411
----------- ----------- -----------
Cash and cash equivalents, beginning of year 828,839 847,309 620,898
----------- ----------- -----------
Cash and cash equivalents, end of year $ 433,937 $ 828,839 $ 847,309
----------- ----------- -----------
Schedule of non-cash financing activities:
Conversion of convertible subordinated debentures $ -- $ 114,890 $ --
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 20,788 $ 33,015 $ 37,261
Income taxes $ 63,267 $ 15,859 $ 84,159
=========== =========== ===========
</TABLE>
See accompanying notes.
17
<PAGE> 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three years ended
June 30, 1994 Currency Total
(In thousands, Common Stock Additional Retained Treasury Stock Translation Stockholders'
except share amounts) Shares Amount Paid-in Capital Earnings Shares Amount Adjustment Equity
- - - ------------------------- ----------- ------ --------------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1991 101,408,840 $68 $ 904,966 $486,001 (5,048,999) $(180,449) $ 1,965 $1,212,551
Issuance of stock, net of
employee repurchases (216,504) -- (133) (68,812) 3,858,258 137,892 -- 68,947
Net income -- -- -- 173,313 -- -- -- 173,313
Tax benefit and other -- -- 24,033 -- -- -- 6,238 30,271
----------- --- ---------- -------- ----------- --------- ------- ----------
Balances at June 30, 1992 101,192,336 68 928,866 590,502 (1,190,741) (42,557) 8,203 1,485,082
Issuance of stock, net of
employee repurchases 2,470,126 2 44,293 (24,362) 2,178,592 63,770 -- 83,703
Treasury stock purchased -- -- -- -- (7,935,874) (214,883) -- (214,883)
Conversion of convertible
subordinated debentures 2,782,282 2 57,171 (16,901) 2,615,318 74,618 -- 114,890
Net income -- -- -- 156,726 -- -- -- 156,726
Tax benefit and other -- -- 23,476 -- -- -- (6,211) 17,265
----------- --- ---------- -------- ----------- --------- ------- ----------
Balances at June 30, 1993 106,444,744 72 1,053,806 705,965 (4,332,705) (119,052) 1,992 1,642,783
Issuance of stock, net of
employee repurchases (50,544) -- 377 (22,654) 3,026,633 84,234 -- 61,957
Treasury stock purchased -- -- -- -- (11,236,803) (294,427) -- (294,427)
Net income -- -- -- 195,824 -- -- -- 195,824
Tax benefit and other -- -- 12,388 -- -- -- 9,798 22,186
----------- --- ---------- -------- ----------- --------- ------- ----------
Balances at June 30, 1994 106,394,200 $72 $1,066,571 $879,135 (12,542,875) $(329,245) $11,790 $1,628,323
=========== === ========== ======== =========== ========= ======= ==========
</TABLE>
See accompanying notes.
18
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sun Microsystems,
Inc. ("Sun" or "the Company"), and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist primarily of highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less at date of acquisition.
Short-term investments consist primarily of auction market preferred stock,
commercial paper and tax-exempt securities with original maturities beyond
three months and less than twelve months.
Presently, the Company carries all cash equivalents and short-term investments
at cost, which approximates fair value. Gains and losses are included in
investment income in the period they are realized. The cost of all securities
sold is based on the specific identification method.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (FAS 115) "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal years
beginning after December 15, 1993. Under FAS 115, debt securities that the
Company has both the positive intent and ability to hold to maturity are
carried at amortized cost. Debt securities that the Company does not have the
positive intent and ability to hold to maturity and all marketable equity
securities are classified as either available-for-sale or trading and are
carried at fair value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried as a separate component of
stockholders' equity. Unrealized holding gains and losses on securities
classified as trading are reported in earnings.
The Company will begin application of FAS 115 in the first quarter of fiscal
1995. Application of the new rules will result in an estimated decrease of
approximately $1.2 million to stockholders' equity as of July 1, 1994,
representing the recognition in stockholders' equity of unrealized
depreciation, net of tax effect, for the Company's investments in debt and
equity securities determined to be available-for-sale, currently carried at
cost.
ACCOUNTS RECEIVABLE
In June 1991, the Company entered into a three-year agreement to sell, on a
revolving basis and with limited recourse, an undivided percentage ownership in
a designated pool of accounts receivable, up to a maximum of $100 million. The
transaction is fully funded at June 30, 1994. The Company maintains an
allowance for doubtful accounts based on the collectibility of all trade
accounts receivable, including those sold with recourse. The purchaser has a
perfected security interest in the Company's domestic accounts receivable. In
August 1994, the Company renewed the agreement for an additional three years,
and increased the amount that can be sold to a maximum of $125 million.
INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
June 30,
-----------------------------
(In thousands) 1994 1993
-------- --------
<S> <C> <C>
Raw materials $129,784 $134,633
Work in process 35,798 34,974
Finished goods 129,366 86,668
-------- --------
Total $294,948 $256,275
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
principally on the straight-line method over the shorter of the estimated
useful lives of the assets (ranging from one to 25 years) or the applicable
lease term.
19
<PAGE> 11
OTHER ASSETS
Included in other assets are purchased technology rights and other intangibles
as well as spare parts, which are being amortized over their estimated useful
lives ranging from six months to seven years.
CURRENCY TRANSLATION
Sun translates the assets and liabilities of international subsidiaries into
dollars at the rates of exchange in effect at the end of the period. Revenues
and expenses are translated using rates that approximate those in effect during
the period. Gains and losses from currency translation are included in
stockholders' equity in the consolidated balance sheets. Currency transaction
gains or losses, which are included in the results of operations, are
immaterial for all periods presented.
OTHER FINANCIAL INSTRUMENTS
The Company enters into forward exchange contracts and purchases currency
options to hedge certain assets and liabilities denominated in foreign
currencies and to hedge certain anticipated but not yet committed transactions.
At June 30, 1994 and 1993, the Company had forward exchange contracts and
purchased currency options, all having maturities of less than three months, to
exchange various foreign currencies (principally yen, pounds sterling and
deutschmarks) for U.S. dollars in the gross amount of $717 million and $388
million, respectively. Market value gains and losses on forward exchange
contracts are recognized as offsets to the exchange gains or losses on the
hedged transactions. Deferred gains and losses from hedging anticipated
transactions are recognized in earnings when the transactions occur.
The Company has entered into interest rate swap agreements, which expire in
1995, that effectively convert $100 million of variable rate short-term
investments to a fixed rate of return. Interest rate differential to be
received or paid is recognized over the life of the agreement as an adjustment
to interest income.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on the interest rate swaps and forward exchange contracts, but
the Company does not anticipate nonperformance by any of these counterparties.
The approximate fair value of these outstanding instruments at June 30, 1994
based on pricing models using current market rates were: currency forward
contracts, $1.4 million ($4.7 million at June 30, 1993); interest rate swaps,
negative $1.3 million; and currency options, $4.5 million.
REVENUE RECOGNITION
Sun generally recognizes revenues from hardware and software sales at the time
of shipment. Service revenues are recognized ratably over the contractual
period or as the services are provided.
NET INCOME PER COMMON AND COMMON-EQUIVALENT SHARE
Net income per common and common-equivalent share is computed using the
weighted average number of common and dilutive common-equivalent shares
outstanding. Dilutive common-equivalent shares consist of the incremental
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method). The 6 3/8% convertible subordinated debentures, which
were redeemed in fiscal 1993, were not previously considered common stock
equivalents. Fully diluted earnings per share has not been presented because
the additional dilution effect is immaterial.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments and trade receivables. The
Company places its investments with high-credit-quality financial institutions
and, by policy, limits the amount of credit exposure to any one financial
institution and any one type of investment. The Company's receivables are
derived primarily from sales of hardware and software products and services to
customers in diversified industries as well as to a network of resellers. The
Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary but
generally requires no collateral. In fiscal 1994, the Company provided
approximately $20 million for doubtful accounts ($8 million and $12 million in
1993 and 1992, respectively).
2. BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt consists of the following:
June 30,
------------------------
(In thousands) 1994 1993
-------- --------
<S> <C> <C>
10.55% senior notes $114,642 $152,694
10.18% mortgage loan 40,000 40,000
-------- --------
154,642 192,694
-------- --------
Less portion due within one year 38,400 38,400
-------- --------
Long-term debt $116,242 $154,294
======== ========
</TABLE>
20
<PAGE> 12
In September and December 1989, the Company signed agreements with a group of
insurance companies and received $192 million from the sale of 10.55% senior
notes due September 1996 and warrants to purchase 1,294,180 shares of Sun's
common stock at $24.80 per share, after, and subject to, further antidilution
adjustments. The warrants are currently exercisable and expire in September
1996. The notes are carried net of the fair value of the warrants, which is
being amortized on a straight-line basis over the term of the notes. Principal
is payable annually in five equal installments, the first of which was paid in
September 1992, with interest payable semiannually. As of June 30, 1994, the
fair value of the notes was $123.2 million, based on current interest rates.
Under the agreements, Sun is required to maintain various financial ratios and
is restricted in its ability to pay cash dividends. The Company was in
compliance with all covenants at June 30, 1994.
The $40 million mortgage loan is secured by real property and a building.
Principal is due to the bank at maturity on May 18, 1999, with interest payable
semiannually, in arrears. The loan agreement provides for interest at a
floating LIBOR rate. However, the bank has an interest rate swap agreement with
a third party that results in the Company paying a fixed interest rate of
10.18%. The interest rate swap agreement matures with the loan agreement. As
of June 30, 1994, the fair value of the floating rate loan remained at par. The
interest rate swap had a negative fair value of $3.7 million, based on current
interest rates.
Long-term debt maturities are $38.4 million during each of the next three years
and $40 million in 1999. In June 1994 the Company negotiated a new $150
million unsecured revolving Credit Agreement with an international group of
twelve banks. The agreement expires on June 1, 1997. Any borrowings under this
agreement bear interest at a floating rate based on prime, certificates of
deposit or Eurodollar rates, at the Company's option. Under the agreement, Sun
is required to maintain various financial ratios. Sun was in compliance with
all covenants at June 30, 1994. There were no borrowings under this facility at
June 30, 1994.
At June 30, 1994, Sun's international subsidiaries had uncommitted lines of
credit aggregating approximately $455 million, of which approximately $79
million (which approximates fair value) had been drawn. The average interest
rate at June 30, 1994 on these borrowings was 3.0%.
3. INCOME TAXES
Income before income taxes and provision for income taxes consist of the
following:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
(In thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes:
United States $ 48,736 $129,784 $206,331
Foreign 234,643 94,110 48,541
-------- -------- --------
Total income before
income taxes $283,379 $223,894 $254,872
======== ======== ========
Provision for income taxes:
Current:
United States federal $ 27,835 $ 37,723 $ 35,637
State 4,420 6,159 11,273
Foreign 59,445 37,901 27,210
-------- -------- --------
Total current 91,700 81,783 74,120
Deferred:
United States federal (5,122) (13,507) 12,105
State 5,477 2,515 1,300
Foreign (4,500) (3,623) (5,966)
-------- -------- --------
Total deferred (4,145) (14,615) 7,439
-------- -------- --------
Provision for
income taxes $ 87,555 $ 67,168 $ 81,559
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
(In thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Inventory valuation and
reserves $ 40,745 $ 33,527 $ 37,612
Reserves and
other accrued expenses 48,155 42,483 31,234
Net undistributed profits of
subsidiaries and foreign
loss carryforwards -- 27,127 36,376
Fixed asset basis differences 30,309 23,085 22,784
Compensation not currently
deductible 24,122 18,878 12,503
Research and development
credit carryover 16,119 -- --
Other 14,279 11,455 11,951
-------- -------- --------
Gross deferred tax assets 173,729 156,555 152,460
Valuation allowance -- (6,274) (10,248)
-------- -------- --------
Deferred tax assets 173,729 150,281 142,212
Deferred tax liabilities :
Net undistributed profits
of subsidiaries (21,690) -- --
Other (5,146) (7,533) (14,079)
-------- -------- --------
Deferred tax liabilities (26,836) (7,533) (14,079)
-------- -------- --------
Net deferred tax assets $146,893 $142,748 $128,133
======== ======== ========
</TABLE>
21
<PAGE> 13
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The
sources and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------
(In thousands) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Expected tax at 35% for 1994,
34% for 1993 and 1992 $99,183 $76,124 $86,656
State income taxes,
net of federal tax benefit 6,350 5,725 8,298
Research and development
tax credits (4,250) -- (6,674)
Foreign Sales Corporation (2,302) (2,921) (7,797)
Foreign earnings taxed at
higher (lower) rates -- (550) 2,711
Tax advantaged investments (5,502) (5,957) (5,344)
Utilization of foreign losses (5,579) (3,974) 229
Other (345) (1,279) 3,480
------- ------- -------
Provision for income taxes $87,555 $67,168 $81,559
======= ======= =======
</TABLE>
The current federal and state provisions do not reflect the tax savings
resulting from deductions associated with the Company's various stock option
plans. These savings (in thousands) were $6,455, $18,451 and $18,000 in fiscal
1994, 1993 and 1992, respectively, and were credited to stockholders' equity.
4. COMMITMENTS
The Company leases certain facilities and equipment under noncancelable
operating leases. The future minimum annual lease payments are approximately
$90 million, $67 million, $57 million, $44 million and $35 million for fiscal
years 1995, 1996, 1997, 1998 and 1999, respectively, and approximately $61
million in total for years following fiscal 1999. In connection with certain
of its facilities leases, the Company has residual value guarantees of
approximately $114 million at the end of the respective lease terms in fiscal
1999. Rent expense under noncancelable operating leases was $102 million in
fiscal 1994 and $98 million in both fiscal 1993 and 1992. The Company has
commitments to acquire, for cash, approximately $80 million of property, plant
and equipment in fiscal 1995.
5. STOCKHOLDERS' EQUITY
COMMON STOCK
In April 1989, the Company's Board of Directors approved a plan, as amended, to
protect stockholders' rights in the event of a proposed takeover of the
Company. Under the plan, the Board of Directors declared a dividend
distribution of a common share purchase right (a "Right") on each share of the
Company's common stock (a "Common Share") outstanding on May 26, 1989 and each
Common Share issued thereafter (subject to certain limitations). Upon becoming
exercisable, each Right will entitle its holder to purchase one Common Share at
an exercise price of $100, subject to adjustment. The Rights are not
exercisable or transferable apart from the Common Shares unless certain events
occur, including a public announcement that a person or group (an "Acquiring
Person") has acquired or obtained the right to acquire 10% or more of the
outstanding Common Shares or until the commencement or announcement of an
intention to make a tender or exchange offer for 30% or more of the outstanding
Common Shares. Unless the Rights are redeemed, in the event that an Acquiring
Person acquires 10% or more of the outstanding Common Shares (other than
pursuant to a tender offer deemed fair by the Company's Board of Directors),
each Right not held by the Acquiring Person will entitle the holder to purchase
for the exercise price that number of Common Shares having a market value equal
to two times the exercise price. In the event that (i) the Company is acquired
in a merger or other business combination in which the Company is not the
surviving corporation or in which the Common Shares are exchanged for stock or
assets of another entity or (ii) 50% or more of the Company's consolidated
assets or earning power are sold, each Right not held by an Acquiring Person
will entitle the holder to purchase for the exercise price that number of
shares of common stock of the acquiring company having a market value equal to
two times the exercise price. The Rights are redeemable, in whole but not in
part, at the Company's option, at $0.01 per Right at any time prior to becoming
exercisable and in certain other circumstances. The Rights expire on May 25,
1999.
22
<PAGE> 14
STOCK OPTION AND INCENTIVE PLANS
The Company's 1990 Long-Term Equity Incentive Plan ("1990 Incentive Plan") and
other employee stock option plans provide the Board of Directors broad
discretion in creating employee equity incentives and authorize it to grant
incentive and nonstatutory stock options as well as certain other awards. In
addition, these plans provide for issuance to eligible employees of incentive
and nonstatutory stock options to purchase common stock at or below fair market
value at date of grant. Options expire up to ten years from the date of grant
or up to three months following termination of employment or service on the
Board, whichever occurs earlier, and are exercisable at specified times prior
to such expiration. Under the 1990 Incentive Plan, common stock may also be
issued pursuant to stock purchase agreements that grant Sun certain rights to
repurchase the shares at their original issue price in the event that the
employment of the employee is terminated prior to certain predetermined vesting
dates. The above described plans provide that shares of common stock may be
sold at less than fair market value, which results in compensation expense to
Sun equal to the difference between the fair market value on the date of grant
and the purchase price. This expense, which has been immaterial, is recognized
over the vesting period of the shares. Sun's 1988 Directors' Stock Option Plan
provides for the automatic grant of stock options to non- employee directors at
each annual meeting of stockholders and on the date each such person becomes a
director. These options are granted at fair market value on the date of grant
and have a term of five years.
Information with respect to stock option and stock purchase rights activity is
as follows:
<TABLE>
<CAPTION>
Outstanding Options/Rights
-----------------------------------------------
Shares
(In thousands, Available Number
except per share amounts) for Grant of Shares Price per Share
--------- --------- ----------------
<S> <C> <C> <C>
Balances at June 30, 1991 8,393 12,468 $0.00067-$37.00
Grants (1,611) 1,611 $22.875-$34.125
Exercises -- (1,985) $0.01-$33.00
Cancellations 159 (813) $0.01-$33.00
------ ------ ----------------
Balances at June 30, 1992 6,941 11,281 $0.00067-$37.00
Grants (2,552) 2,552 $0.00067-$34.375
Exercises -- (2,962) $0.00067-$34.125
Cancellations 286 (541) $8.00-$34.125
------ ------ ----------------
Balances at June 30, 1993 4,675 10,330 $0.00067-$37.00
Additional shares reserved 200 -- --
Grants (5,165) 5,165 $0.00067-$27.625
Exercises -- (1,141) $0.00067-$28.625
Cancellations 833 (930) $0.01-$34.375
------ ------ ----------------
Balances at June 30, 1994 543 13,424 $0.00067-$37.00
====== ====== ================
</TABLE>
At June 30, 1994 options to purchase approximately 4,692,000 shares were
exercisable at prices from $0.00067 to $37.00 with an aggregate exercise price
of $108,094,000 (4,119,000 shares at an aggregate price of $88,253,000 at June
30, 1993). At June 30, 1994, the Company retains repurchase rights to 58,500
shares issued pursuant to stock purchase agreements. Pursuant to the Restricted
Stock Plan, which expired in fiscal 1992, the Company retains repurchase rights
to approximately 266,000 shares.
EMPLOYEE STOCK PURCHASE PLANS
To provide employees with an opportunity to purchase common stock of Sun
through payroll deductions, Sun established the 1990 Employee Stock Purchase
Plan. Under this plan, Sun's employees, subject to certain restrictions, may
purchase shares of common stock at the lesser of 85% of fair market value at
either the date of enrollment or the date of purchase. Pursuant to this plan,
and the Company's 1984 Employee Stock Purchase Plan (which terminated in August
1992), the Company issued approximately 1,875,000, 1,749,000 and 1,836,000
shares of common stock in fiscal 1994, 1993 and 1992, respectively. At June 30,
1994, approximately 2,273,000 shares remain available for future issuance.
COMMON STOCK REPURCHASE PROGRAMS
In December 1990, the Board of Directors approved systematic common stock
repurchase programs related to each of the 1990 Incentive Plan and 1990
Employee Stock Purchase Plan. In fiscal 1994, the Company repurchased 1,396,803
shares at a cost of approximately $34,355,000 under these programs (275,874
shares at a cost of approximately $7,495,000 in 1993).
In June 1992, the Board of Directors approved a plan to repurchase up to 7.5
million shares of the Company's common stock during fiscal 1993. Repurchases
under this program were completed in May 1993 at a cost of approximately
$202,675,000. In June 1993, the Board of Directors approved a plan to
repurchase up to 10 million shares of the Company's common stock. Repurchases
under this program were completed in November 1993 at a total cost of
approximately $264,786,000.
When treasury shares are reissued, any excess of the average acquisition cost
of the shares over the proceeds from reissuance is charged to retained
earnings.
23
<PAGE> 15
6. INDUSTRY SEGMENT, GEOGRAPHIC AND
CUSTOMER INFORMATION
Sun, which operates in a single industry segment, designs, manufactures,
markets and services client-server computing solutions that feature networked
workstations and servers. No customer accounted for 10% or more of net revenues
in fiscal 1994, 1993 or 1992. Operations of Sun's overseas subsidiaries consist
of sales, service, distribution and manufacturing.
Rest of World consists primarily of Japan. Intercompany transfers between
geographic areas are accounted for at prices that approximate arm's length
transactions. In addition, United States export sales approximated 3.3%, 2.5%
and 1.1% of net revenues during fiscal 1994, 1993 and 1992, respectively.
Information regarding geographic areas at June 30, 1994, 1993 and 1992, and for
each of the years then ended, is as follows:
<TABLE>
<CAPTION>
Geographic Area
----------------------------------------
United Rest of
(In thousands) States Europe World Eliminations Total
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
June 30, 1994 and for the year then ended:
Sales to unaffiliated customers $2,483,166 $1,171,177 $1,035,549 $ -- $4,689,892
Intercompany transfers 968,675 809,331 43,392 (1,821,398) --
---------- ---------- ---------- ----------- ----------
Net revenues $3,451,841 $1,980,508 $1,078,941 $(1,821,398) $4,689,892
========== ========== ========== =========== ==========
Operating income $ 45,788 $ 157,123 $ 64,339 $ 10,017 $ 277,267
========== ========== ========== =========== ==========
Identifiable assets $2,831,238 $ 964,373 $ 522,355 $(1,419,974) $2,897,992
========== ========== ========== =========== ==========
Liabilities $1,408,070 $ 736,445 $ 432,280 $(1,307,126) $1,269,669
========== ========== ========== =========== ==========
June 30, 1993 and for the year then ended:
Sales to unaffiliated customers $2,320,998 $1,099,315 $ 888,293 $ -- $4,308,606
Intercompany transfers 1,162,671 878,516 24,277 (2,065,464) --
---------- ---------- ---------- ----------- ----------
Net revenues $3,483,669 $1,977,831 $ 912,570 $(2,065,464) $4,308,606
========== ========== ========== =========== ==========
Operating income $ 113,543 $ 41,123 $ 43,747 $ 42,027 $ 240,440
========== ========== ========== =========== ==========
Identifiable assets $2,723,847 $ 775,022 $ 412,067 $(1,143,307) $2,767,629
========== ========== ========== =========== ==========
Liabilities $1,096,486 $ 693,555 $ 355,217 $(1,020,412) $1,124,846
========== ========== ========== =========== ==========
June 30, 1992 and for the year then ended:
Sales to unaffiliated customers $1,783,097 $1,007,406 $ 798,382 $ -- $3,588,885
Intercompany transfers 1,744,141 140,873 11,269 (1,896,283) --
---------- ---------- ---------- ----------- ----------
Net revenues $3,527,238 $1,148,279 $ 809,651 $(1,896,283) $3,588,885
========== ========== ========== =========== ==========
Operating income $ 194,130 $ 14,354 $ 10,564 $ 42,005 $ 261,053
========== ========== ========== =========== ==========
Identifiable assets $2,554,909 $ 413,103 $ 331,988 $ (628,374) $2,671,626
========== ========== ========== =========== ==========
Liabilities $1,005,613 $ 346,002 $ 283,264 $ (448,335) $1,186,544
========== ========== ========== =========== ==========
</TABLE>
24
<PAGE> 16
7. CONTINGENCIES
In March 1990, Sun received a letter from Texas Instruments Incorporated ("TI")
alleging that a substantial number of Sun's products infringe certain of TI's
patents. Based on initial discussions with TI, Sun believes that it will be
able to negotiate a license agreement with TI and that the outcome of this
matter will not have a material adverse impact on Sun's financial position.
In the normal course of business, the Company receives and makes inquiries with
regard to other possible patent infringement. Where deemed advisable, the
Company may seek or extend licenses or negotiate settlements.
In February 1993, the Company agreed to settle two class action lawsuits
brought by stockholders against the Company and certain of its officers and
former officers in the United States District Court for the Northern District
of California relating to the results of operations for the fourth quarter of
fiscal 1989 and the first quarter of fiscal 1991. In May and June of 1993, the
court approved the settlement of these lawsuits. The combined settlement amount
of these claims was $30 million, of which half was covered by insurance. The
case relating to the fourth quarter of 1989 was settled for $25 million and
the case relating to the first quarter of fiscal 1991 was settled for $5
million. The Company recorded a charge to earnings for its second quarter ended
December 27, 1992 of $15 million, or $.10 per share, for its portion of the
aggregate settlement.
In May 1993, the Company agreed to settle two derivative complaints brought by
stockholders against certain current and former officers and directors of the
Company in the United States District Court for the Northern District of
California relating to, among other things, claims of misconduct in connection
with the litigation referenced in the preceding paragraph and the settlements
thereof and claims of insider trading. The terms of the settlement of these
lawsuits, as approved by the court, include certain changes made by Sun in its
internal insider trading policies and the payment by Sun of $1.45 million in
fees and expenses to the derivative plaintiff's attorneys.
25
<PAGE> 17
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Fiscal 1994 Quarter Ended
--------------------------------------------------------------------
June 30 March 27 December 26 September 26
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $1,402,736 $1,195,997 $1,130,678 $960,481
Gross margin 561,293 511,700 471,873 392,508
Operating income 111,418 84,757 65,552 15,540
Net income 77,913 57,481 43,824 16,606
Net income per share $ 0.82 $ 0.60 $ 0.46 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1993 Quarter Ended
--------------------------------------------------------------------
June 30 March 28 December 27 September 25
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $1,260,516 $1,141,342 $1,050,809 $855,939
Gross margin 532,393 458,653 431,614 367,634
Operating income 108,196 71,758 51,615 8,871
Net income 76,137 51,663 24,095 4,831
Net income per share $ 0.72 $ 0.47 $ 0.23 $ 0.05
</TABLE>
26
<PAGE> 18
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
SUN MICROSYSTEMS, INC.
We have audited the accompanying consolidated balance sheets of Sun
Microsystems, Inc., as of June 30, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sun Microsystems,
Inc., at June 30, 1994 and 1993, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
July 20, 1994
27
<PAGE> 19
CORPORATE INFORMATION
BOARD OF DIRECTORS
SCOTT G. MCNEALY
Chairman of the Board of Directors, President
and Chief Executive Officer, Sun Microsystems, Inc.
L. JOHN DOERR
General Partner, Kleiner Perkins Caufield & Byers
WILLIAM RANDOLPH HEARST III
Editor and Publisher, San Francisco Examiner
ROBERT L. LONG
Management Consultant
M. KENNETH OSHMAN
Chairman, President and Chief Executive Officer, Echelon Corporation
A. MICHAEL SPENCE
Dean, Graduate School of Business,
Stanford University
OFFICERS
SCOTT G. MCNEALY
Chairman of the Board of Directors, President
and Chief Executive Officer, Sun Microsystems, Inc.
KENNETH M. ALVARES
Vice President, Human Resources,
Sun Microsystems, Inc.
RICHARD B. BARKER
Vice President and Corporate Treasurer,
Sun Microsystems, Inc.
PATRICK J. DEAGMAN
Vice President, Finance, Information Resources
and Operations, SunSoft, Inc.
LAWRENCE W. HAMBLY
President, SunService
MASOOD A. JABBAR
Vice President, Finance and Chief Financial Officer,
Sun Microsystems Computer Company
WILLIAM N. JOY
Vice President, Research and Development,
Sun Microsystems, Inc.
MICHAEL E. LEHMAN
Vice President, Chief Financial Officer,
Sun Microsystems, Inc.
WILLIAM G. MARR
Vice President, North American and
Australian Field Operations,
Sun Microsystems Computer Company
MICHAEL H. MORRIS
Vice President, General Counsel and
Corporate Secretary, Sun Microsystems, Inc.
RAJESH H. PAREKH
Vice President, Engineering,
Sun Microsystems Computer Company
WILLIAM J. RADUCHEL
Vice President, Corporate Planning and Development and Chief Information
Officer, Sun Microsystems, Inc.
GEORGE REYES
Vice President, Corporate Controller,
Sun Microsystems, Inc.
JOSEPH P. ROEBUCK
Vice President, Worldwide Field Operations,
Sun Microsystems Computer Company
J. PHILLIP SAMPER
President, Sun Microsystems Computer Company
ERIC E. SCHMIDT
Vice President, Chief Technology Officer,
Sun Microsystems, Inc.
JOHN C. SHOEMAKER
Vice President, Worldwide Operations,
Sun Microsystems Computer Company
CHESTER J. SILVESTRI
President, SPARC Technology Business
DOROTHY A. TERRELL
President, SunExpress, Inc.
KEVIN J. F. WALSH
Vice President, Finance and Planning,
Worldwide Operations, Sun Microsystems Computer Company
EDWARD J. ZANDER
President, SunSoft, Inc.
STOCK TRADING
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK ($) TRADING VOLUME
(Shares in
High Low Close thousands)
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Fiscal year ended June 30, 1994:
First quarter 31.25 24.63 26.38 1,509
Second quarter 29.00 21.13 28.63 1,456
Third quarter 31.38 24.00 27.50 1,323
Fourth quarter 27.75 18.25 20.63 1,377
Fiscal year ended June 30, 1993:
First quarter 32.50 24.63 30.75 1,397
Second quarter 36.13 26.38 32.00 1,687
Third quarter 41.00 27.50 28.63 1,840
Fourth quarter 32.63 25.00 29.63 1,618
</TABLE>
28
<PAGE> 20
ABOUT SUN
MANUFACTURING
2 countries
International R&D
6 countries
INTERNATIONAL SALES, SERVICE
AND SUPPORT
Approximately 29 countries
INTERNATIONAL DISTRIBUTORS
Approximately 100 countries
STOCK SYMBOL:
SUNW
STOCK MARKET:
The Company's stock trades on the NASDAQ
National Market System
INFORMATION REQUESTS
For annual reports and Form 10-K (available without charge), questions about
Sun operations, recent results or historical performance, please contact:
Investor Relations, Sun Microsystems Inc.
2550 Garcia Avenue, Mail Stop PAL1-207
Mountain View, CA 94043
Phone: (415) 336-6299 or (800) 801-SUNW
Fax: (415) 336-0646
To receive faxed information such as earnings announcements, press releases,
historical financial results and product data sheets, please call:
(800) FAX-SUNW
If you have questions concerning stock certificates, change of address,
consolidation of accounts, transfer of ownership or other stock account
matters, please contact Sun's stock transfer agent:
Bank of Boston, Shareholder Services
Box 644, Mail Stop 45-02-09
Boston, MA 02102-0644
Phone: (617) 575-2900
Sun has not declared cash dividends and presently intends to continue this
policy. Sun's principalcredit agreements restrict the payment of cashdividends
without the consent of its lenders.
(C)1994 Sun Microsystems, Inc. All Rights Reserved. Sun, Sun Microsystems,
SunSoft, SunService, SunExpress, the logos for these respective companies,
Solaris, SunNet Manager, NFS, The Network Is The Computer and Voyager are
trademarks, registered trademarks or service marks of Sun Microsystems, Inc.
All SPARC trademarks, including SuperSPARC and the SCD Compliant logo, are
trademarks or registered trademarks of SPARC International, Inc. SPARCstation,
SPARCstorage, SPARCserver, SPARCcenter, UltraSPARC and microSPARC are licensed
exclusively to Sun Microsystems, Inc. Products bearing SPARC trademarks are
based upon an architecture developed by Sun Microsystems, Inc. UNIX is a
registered trademark in the United States and other countries, exclusively
licensed through X/Open Company, Ltd. All other product or service names
mentioned herein are trademarks of their respective owners.
[Picture]
Using the popular Mosaic network browsing tool, readers can view an
interactive version of this annual report on the Internet.
SUN ON THE INTERNET
An electronic, interactive version of this annual report is available on the
Internet, using NCSA Mosaic.* Related subject matter is linked through
hypertext, which allows the reader to peruse thematic material simply by
pointing and clicking the mouse button on the computer. Sun's "home page," an
electronic storefront, allows users to browse through everything from product
information to technical white papers. There are approximately 40,000 accesses
of the Sun pages each day.
According to many observers, the Internet is the closest equivalent to the
"information highway" about which so much is being written. From its
beginnings, Sun has relied on the Internet as a key information tool at the same
time that Sun technology has played a prominent role in the development of the
Internet. Sun has underwritten many important development projects related to
the Internet and has been a pioneer in establishing the "net" as a free
research database resource. Sun's extensive work -- past, present and future --
in realizing the promise of this information highway reflects the Company's
commitment to open, global networking.
To locate Sun's home page through Mosaic, use the URL (uniform resource
locator) http://www.sun.com.
* Mosaic was developed by the National Center for Supercomputing Applications
(NCSA), located at the University of Illinois at Urbana-Champaign.
<PAGE> 1
EXHIBIT 22
SUN MICROSYSTEMS, INC.
SUBSIDIARIES
First Person, Inc.
Nihon Sun Microsystems, K.K.
Nihon SunSoft, K.K.
Solaris Corporation
Sun Microsystems (Barbados) Ltd.
Sun Microsystems (Schweiz) A.G.
Sun Microsystems AB
Sun Microsystems Australia Pty Ltd.
Sun Microsystems Belgium
Sun Microsystems Benelux B.V.
Sun Microsystems Distributions International, Inc.
Sun Microsystems Europe, Inc.
Sun Microsystems Europe Properties, Inc.
Sun Microsystems Europe Properties, Ltd.
Sun Microsystems Federal, Inc.
Sun Microsystems France S.A.
Sun Microsystems GmbH
Sun Microsystems Holdings Limited
Sun Microsystems Iberica S.A.
Sun Microsystems Intercontinental Operations
Sun Microsystems International B.V.
Sun Microsystems Ireland Limited
Sun Microsystems Italia S.p.A.
Sun Microsystems Korea, Ltd.
Sun Microsystems Limited
Sun Microsystems Management Services Corporation
Sun Microsystems Nederland B.V.
Sun Microsystems (NZ) Ltd.
Sun Microsystems Oy
Sun Microsystems Properties, Inc.
Sun Microsystems Scotland B.V.
Sun Microsystems Scotland Ltd.
Sun Microsystems Technology Pty., Ltd.
Sun Microsystems de Mexico, S.A. de C.V.
Sun Microsystems de Venezuela, S.A.
Sun Microsystems do Brasil Industria e Comercio Ltda.
Sun Microsystems of California (Services) Ltd.
Sun Microsystems of California, Inc.
Sun Microsystems of California, Ltd. (Hong Kong)
Sun Microsystems of Canada Inc.
SunExpress, Inc.
SunExpress International, Inc.
SunSoft, Inc.
SunSoft International, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sun Microsystems, Inc. of our report dated July 20, 1994, included in the
1994 Annual Report to Stockholders of Sun Microsystems, Inc.
Our audits also included the financial statement schedules of Sun Microsystems,
Inc. listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-1 No. 33-3315 and Forms S-8 Nos. 33-9293, 33-11154,
33-15271, 33-18602, 33-25860, 33-28505, 33-33344, 33-38220 and 33-51129)
pertaining to the 1982 Incentive Stock Option Plan, the Restricted Stock Plan,
the 1984 Employee Stock Purchase Plan, as amended, the 1987 Stock Option Plan,
the 1988 Directors' Stock Option Plan, the 1989 French Stock Option Plan, the
1990 Employee Stock Purchase Plan and the 1990 Long-Term Equity Incentive Plan
of Sun Microsystems, Inc. and in the related Prospectuses of our report dated
July 20, 1994, with respect to the consolidated financial statements
incorporated herein by reference and our report included in the preceding
paragraph with respect to the financial statement schedules included in this
Annual Report (Form 10-K) of Sun Microsystems, Inc.
ERNST & YOUNG LLP
Palo Alto, California
September 27, 1994
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