SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
SUN MICROSYSTEMS, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
REGISTRANT
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- ----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- ----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- ----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ----------------------------------------------------------------------------
(3) Filing party:
- ----------------------------------------------------------------------------
(4) Date filed:
- ---------------------------------------
(A) Set forth the amount on which the filing fee is calculated and state how it
was determined.-------------------------------------
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SUN MICROSYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 1, 1995
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting of Stockholders of Sun
Microsystems, Inc. ("Company"), a Delaware corporation, will be held at the
Company's Menlo Park offices at 11 Network Circle (Building 11, Crossroads
Conference Room, #2150), Willow Road at Bayfront Expressway, Menlo Park,
California on Wednesday, November 1, 1995, at 9:00 a.m., for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the Company's 1990 Employee Stock Purchase
Plan in order to increase the number of shares of Common Stock
reserved for issuance thereunder by 3,900,000 shares to an aggregate
of 11,450,000 shares.
3. To approve an amendment to the 1990 Long-Term Equity Incentive Plan
in order to increase the number of shares of Common Stock reserved
for issuance thereunder by 12,100,000 shares to an aggregate of
25,350,000 shares.
4. To approve the Company's Section 162(m) Performance-Based Executive
Bonus Plan.
5. To transact such other business as may properly come before the
meeting and any adjournment(s) thereof.
Only stockholders of record at the close of business on September 5, 1995 are
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person, even though he or she has returned a Proxy.
Michael H. Morris,
Secretary
Mountain View, California
September 20, 1995
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
SUN MICROSYSTEMS, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Sun Microsystems, Inc.
("Company") for use at the 1995 Annual Meeting of Stockholders ("Annual
Meeting") to be held Wednesday, November 1, 1995, at 9:00 a.m., local time, and
at any adjournment(s) or postponement(s) thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Company's offices at 11 Network Circle
(Building 11, Crossroads Conference Room, #2150), Willow Road at Bayfront
Expressway, Menlo Park, California (see map on back cover). The Company's
principal executive offices are located at 2550 Garcia Avenue, Mountain View,
California 94043 and its telephone number is (415) 960-1300. These proxy
solicitation materials were mailed on or about September 20, 1995, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on September 5, 1995 (the
"Record Date"), are entitled to notice of and to vote at the meeting. At such
Record Date, 94,976,613 shares of the Company's Common Stock, $0.00067 par
value, were outstanding. The closing sales price for the Company's Common Stock
on the Record Date, as reported by the Nasdaq National Market, was $59.875 per
share. The Company was aware of the following beneficial owners of more than 5%
of its Common Stock as of the Record Date:
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OF CLASS
---------------- ----------- -----------
FMR Corp.(1) .................... 12,323,868 12.98%
Devonshire Street
Boston, MA 02109-3614
Lazard Freres & Co.(2) .......... 5,185,120 5.46%
One Rockefeller Plaza
New York, N.Y. 10020
- --------------------
(1) Based on information obtained from a Schedule 13G filed with the Securities
and Exchange Commission dated February 10, 1995. Represents shares
beneficially owned by (i) FMR Corp. through its wholly-owned subsidiaries
Fidelity Management & Research Company, a registered investment advisor
("Fidelity") and Fidelity Management Trust Company, a "bank" under the
Securities Exchange Act of 1934 ("FMTC"); (ii) certain investment companies
for which Fidelity serves as an investment advisor (the "Funds"); (iii)
certain institutional accounts for which FMTC serves as an investment
manager (the "Institutional Accounts"); (iv) Fidelity America Special
Situations Trust ("FASST") for which Fidelity serves as investment
sub-advisor; (v) Fidelity Investment Services Limited ("FIL") serving as
investment advisor to FASST; and (vi) Edward C. Johnson 3d, as Chairman of
FMR Corp. and through certain members of his family by virtue of their
controlling interest as a group of the voting stock of FMR Corp. Fidelity,
FMTC and FIL each is the beneficial owner of 10,799,900 shares, 1,446,068
shares and 78,300 shares (including 400 shares owned by FASST),
respectively, or 11.37%, 1.52% and 0.08%, respectively, of the outstanding
shares of Common Stock as of the date above. Mr. Johnson and FMR Corp.,
through its control of Fidelity, each has sole dispositive power of
10,799,500 shares owned by the Funds. FIL, FMR Corp., through its control of
Fidelity, and FASST each has sole power to vote and dispose of the 400
shares held by FASST. Mr. Johnson and FMR Corp., through its control of
FMTC, has sole dispositive power over 1,446,068 shares and sole power to
vote or direct voting of 1,010,968 shares and no power to vote or direct
voting of 435,100 shares owned by the Institutional Accounts. Neither FMR
Corp. nor Mr. Johnson has the sole power to vote or direct the voting of the
shares owned directly by the Funds, which power resides with the Funds'
Boards of Trustees. Fidelity carries out the voting of the shares under
written guidelines established by Funds' Boards of Trustees.
(2) Based on information obtained from a Schedule 13G filed with the Securities
and Exchange Commission dated February 15, 1995. Lazard Freres & Co. is a
registered investment advisor. Includes sole voting power with respect to
4,055,910 shares and sole dispositive power with respect to 5,173,920
shares.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
1
<PAGE>
VOTING AND SOLICITATION
On all matters other than the election of directors, each share has one vote.
See "Election of Directors--Vote Required." See also "Amendment to 1990 Employee
Stock Purchase Plan--Vote Required", "Amendment to 1990 Long-Term Equity
Incentive Plan--Vote Required" and "Approval of Section 162(m) Performance-Based
Executive Bonus Plan--Vote Required."
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Skinner & Co. to aid in the solicitation of proxies
from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co. a fee not to exceed $5,000 for its
services and will reimburse Skinner & Co. for certain out of pocket expenses
estimated to be not more than $10,000. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Proxies may be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented by
such stockholders at the Company's 1996 Annual Meeting of Stockholders must be
received by the Company no later than May 23, 1996, in order to be considered
for possible inclusion in the proxy statement and form of proxy relating to that
meeting.
PROPOSAL I
ELECTION OF DIRECTORS
GENERAL
A board of seven directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's seven nominees named below, all of whom are currently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting (neither of
which events is expected), the proxies will be voted for such nominee as shall
be designated by the current Board of Directors to fill the vacancy. In the
event that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of the
nominees listed below as possible and, in such event, the specific nominees to
be voted for will be determined by the proxy holders.
VOTE REQUIRED
Every stockholder voting for the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors (seven) to be elected multiplied by the number of shares held by
such stockholder on the Record Date or may distribute the stockholder's votes on
the same principle among as many candidates as the stockholder thinks fit,
provided that votes cannot be cast for more than seven candidates. However, no
stockholder shall be entitled to cumulate votes unless such candidate's name has
been placed in nomination prior to the voting and the stockholder, or any other
stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes.
A quorum comprising the holders of the majority of the outstanding shares of
Common Stock on the Record Date must be present or represented by proxy for the
transaction of business at the Annual Meeting. If a quorum is present, the seven
nominees receiving the highest number of votes will be elected to the Board of
Directors, whether or not such number of votes represents a majority of the
votes cast. Votes withheld and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum but have no other effect under
Delaware law in the election of directors.
The term of office of each person elected as a director will continue until
the next Annual Meeting or until his or her successor has been elected and
qualified.
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW.
2
<PAGE>
<TABLE>
NOMINEES
The names of the nominees, their ages at the Record Date and certain other
information about them are set forth below.
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ------------------ ---- ------------------------------------------------- --------------
<S> <C> <C> <C>
Scott G. McNealy ... 40 Chairman of the Board of Directors, President and
Chief Executive Officer, Sun Microsystems, Inc. 1982
L. John Doerr ....... 44 General Partner, Kleiner Perkins Caufield &
Byers, a venture capital investment firm 1982
Judith L. Estrin ... 40 President, Chief Executive Officer and
Director, Precept Software, Inc., a networking
software company 1995
Robert J. Fisher ... 41 Executive Vice President, Chief Financial
Officer and Director, The Gap, Inc.,
a retail clothing company 1995
Robert L. Long ..... 58 Independent Management Consultant 1988
M. Kenneth Oshman ... 55 Chairman of the Board of Directors, President and
Chief Executive Officer, Echelon Corporation, a
provider of control network technologies 1988
A. Michael Spence ... 51 Dean, Graduate School of Business,
Stanford University 1990
</TABLE>
Except as set forth below, each of the nominees has been engaged in his or
her principal occupation set forth above during the past five years. There is no
family relationship between any director and any executive officer of the
Company.
Mr. Doerr is also a director of Intuit, Inc., Macromedia, Inc., Netscape
Communications Corporation and Shiva Corporation.
Ms. Estrin was appointed to the Company's Board of Directors on August 9,
1995. She has served as the President and Chief Executive Officer of Precept
Software, Inc. since March 1995. From September 1994 to March 1995, Ms. Estrin
was a Computer Industry Consultant. From October 1993 to September 1994, Ms.
Estrin was the Chief Executive Officer of Network Computing Devices, Inc.
("NCD"), a supplier of X-terminals and PC-to-UNIX connectivity software. From
July 1988 to October 1993, Ms. Estrin served as the Executive Vice President of
NCD. Ms. Estrin is also on the Board of Directors of Federal Express Corporation
and Rockwell International, Inc.
Mr. Fisher was appointed to the Company's Board of Directors on August 9,
1995. He has served as Executive Vice President and Chief Financial Officer of
The Gap, Inc. (the "Gap") since July 1993. From August 1992 to July 1993 he
served as Executive Vice President and Chief Operating Officer of the Gap. Prior
to such time, since 1980, Mr. Fisher was employed in various management
positions in the Gap's finance, inventory management and merchandising
divisions, including (from August 1989 to August 1992) President of Banana
Republic, a division of the Gap. Mr. Fisher was elected to the Gap's Board of
Directors in 1990.
Mr. Long retired from Eastman Kodak Company ("Kodak") in December 1991 and is
currently an independent management consultant. Mr. Long was Director of
Corporate Planning of Kodak from July 1986 to December 1991 and was elected a
Corporate Vice President in 1985 and a Senior Vice President in 1989.
Mr. Oshman is also a director of Stratacom, Inc.
Mr. Spence has served as Dean of the Graduate School of Business, Stanford
University, since July 1990. Prior to that, he served as Dean of the Faculty of
Arts and Sciences, Harvard University, for six years. Mr. Spence is also a
director of General Mills, Inc., Bank of America Corporation and VeriFone, Inc.
3
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of eight meetings during the fiscal year
ended June 30, 1995. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating Committee.
The Audit Committee currently consists of Messrs. Long (Chairman) and Spence
and held six meetings during the fiscal year ended June 30, 1995. The Audit
Committee recommends engagement of the Company's independent auditors and is
primarily responsible for approving the services performed by the Company's
independent auditors and for reviewing and evaluating the Company's accounting
policies and its system of internal accounting controls. During the entire
fiscal year ended June 30, 1995, the Compensation Committee consisted of Messrs.
Doerr (Chairman), Oshman and one former director, Mr. William Hearst III, who
resigned from the Board on July 1, 1995, and held five meetings during such
time. The Compensation Committee reviews and approves the Company's executive
compensation policies and, on certain occasions, administers the Company's
employee stock option and stock purchase plans. See "Report of Compensation
Committee of the Board on Executive Compensation." The Nominating Committee
currently consists of Messrs. Oshman (Chairman), McNealy and Doerr and held no
meetings during the fiscal year ended June 30, 1995. The Nominating Committee
reviews and makes recommendations regarding candidates for service on the Board
of Directors. The Nominating Committee will consider nominees recommended by
stockholders. Any such recommendations should be submitted in writing to the
President or Secretary of the Company at the Company's principal executive
offices.
During the fiscal year ended June 30, 1995, each incumbent director attended
at least 75% of the aggregate number of meetings of the Board of Directors and
meetings of the committees of the Board on which he or she served, with the
exception of Mr. Spence, who attended nine out of an aggregate of fourteen Board
and Audit Committee meetings, or approximately 64% of such meetings.
DIRECTOR COMPENSATION
The Company pays fees of $1,750 per month to each of its nonemployee
directors. In addition, the chairman of each committee of the Board of Directors
is paid $1,500 for each meeting of his committee which he attends.
Additionally, the nonemployee directors of the Company participate under the
Company's 1988 Directors' Stock Option Plan (the "Directors' Option Plan"), as
adopted by the Board of Directors and approved by the stockholders in October
1988, which provides for the grant of nonstatutory stock options to nonemployee
directors. Under the Directors' Option Plan, each nonemployee director who is a
partner, officer or director of an entity having an equity investment in the
Company is automatically granted a nonstatutory stock option to purchase 5,000
shares of Common Stock of the Company on the date on which such person becomes a
director. Each nonemployee director who is not, on the date of his or her
appointment to the Board, affiliated with an entity having an equity investment
in the Company, is automatically granted an option to purchase 20,000 shares of
Common Stock on the date on which such person becomes a director of the Company.
Thereafter, each nonemployee director is automatically granted a nonstatutory
stock option to purchase 5,000 shares of Common Stock of the Company on the date
of each Annual Meeting of Stockholders at which each such nonemployee director
is re-elected to serve on the Board of Directors, provided that, on such date,
he or she has served on the Board of Directors for at least six months. The
Directors' Option Plan provides that the exercise price of the options granted
thereunder shall be equal to the fair market value of the Common Stock on the
date of grant of the option. Options granted pursuant to the Directors' Option
Plan have a term of five years and are exercisable cumulatively to the extent of
25% of the shares subject to the option on each of the first four anniversaries
of the date of grant. Options granted pursuant to the Directors' Option Plan may
be exercised only while the optionee is a director of the Company or within six
months after termination of service as a director due to death or within ninety
days after the optionee ceases to serve as a director of the Company for any
other reason. During the last fiscal year, each of Messrs. Doerr, Long, Oshman,
Spence and one former director, Mr. Hearst, was granted an option to purchase
5,000 shares of the Company's Common Stock at an exercise price of $32.875 per
share. Additionally, during the last year fiscal year, Mr. Spence exercised an
option for 20,000 shares at an exercise price of $21.50 per share for a net
realized value of $199,376 and Mr. Long exercised an option for 3,000 shares at
an exercise price of $22.875 for a net realized value of $67,875.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Doerr and Oshman.
The Company has no interlocking relationships or other transactions involving
any of its Compensation Committee members that are required to be reported by
the Securities and Exchange Commission rules and no current or former officer of
the Company serves on its Compensation Committee.
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of the Record Date, by each director, by each of the executive
officers named in the Summary Compensation Table, and by all directors and
executive officers as a group:
APPROXIMATE
NUMBER OF SHARES PERCENTAGE
NAME BENEFICIALLY OWNED OWNED
- ------------------------------------------------- ------------------ -----------
Scott G. McNealy (1) ............................. 2,258,259 2.37%
Lawrence W. Hambly (2) ........................... 60,782 *
William J. Raduchel (3) .......................... 20,559 *
Joseph P. Roebuck (4) ............................ 106,996 *
Edward J. Zander (5) ............................. 73,865 *
L. John Doerr (6) ................................ 83,697 *
Judith L. Estrin ................................. 0 *
Robert J. Fisher ................................. 1,800 *
Robert L. Long (7) ............................... 11,250 *
M. Kenneth Oshman (8) ............................ 136,250 *
A. Michael Spence (9) ............................ 11,350 *
All current directors and executive officers as a
group (26 persons) (10) ......................... 3,203,447 3.34%
- ----------
* Less than 1%
(1) Includes 506,467 shares issuable upon exercise of options held by Mr.
McNealy exercisable at or within 60 days of September 5, 1995.
(2) Includes 12,901 shares issuable upon exercise of options held by Mr. Hambly
exercisable at or within 60 days of September 5, 1995.
(3) Includes 18,411 shares issuable upon exercise of options held by Mr.
Raduchel exercisable at or within 60 days of September 5, 1995.
(4) Includes 66,842 shares issuable upon exercise of options held by Mr.
Roebuck exercisable at or within 60 days of September 5, 1995.
(5) Includes 52,600 shares issuable upon exercise of options held by Mr. Zander
exercisable at or within 60 days of September 5, 1995.
(6) Includes 16,250 shares issuable upon exercise of options held by Mr. Doerr
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 5, 1995.
(7) Includes 8,250 shares issuable upon exercise of options held by Mr. Long
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 5, 1995.
(8) Includes 16,250 shares issuable upon exercise of options held by Mr. Oshman
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 5, 1995. Includes 90,000 shares held by
OS Ventures. Mr. Oshman is the managing general partner of OS Ventures and
has shared power to vote or control the disposition of such shares.
Excludes 6,000 shares held by Mr. Oshman as trustee of a trust in which he
claims no beneficial ownership.
(9) Includes 11,250 shares issuable upon exercise of options held by Mr. Spence
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 5, 1995.
(10) Includes 1,008,495 shares issuable upon exercise of options held by
directors and executive officers exercisable at or within 60 days of
September 5, 1995. Excludes certain shares as described in footnote (8)
above.
5
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer and as to each
of the other four most highly compensated executive officers whose salary plus
bonus exceeded $100,000 during the last fiscal year, information concerning all
compensation paid for services to the Company in all capacities during the last
three fiscal years:
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------- ---------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RESTRICTED ALL OTHER
ANNUAL STOCK SECURITIES LTIP COMPEN-
NAME AND COMPEN- AWARD(S) UNDERLYING PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) SATION ($) ($)(2)(3) OPTIONS (#) ($)(4) ($)(5)
- --------------------------- ------ ---------- ------------ ---------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott G. McNealy ...........1995 $600,000 $2,400,000 $ -- $ -- 150,000 $ -- $2,000
Chairman of the Board, 1994 400,000 815,280 -- -- 112,500 124,835 1,200
President and Chief 1993 400,000 251,304 -- -- 60,000 -- 1,200
Executive Officer, Sun
Microsystems, Inc.
Lawrence W. Hambly .........1995 352,618 350,000 -- -- 50,000 -- 2,000
President, SunService 1994 309,774 163,056 -- -- 73,750 34,673 1,200
Division, a division of 1993 299,999 94,239 -- -- 20,000 -- 1,200
Sun Microsystems, Inc.
William J. Raduchel ........1995 349,769 350,000 -- -- 60,000 -- 2,000
Vice President, Corporate 1994 334,885 170,699 -- -- 68,750 23,115 1,200
Planning and Development 1993 325,000 102,092 -- -- 20,000 -- 1,200
and Chief Information
Officer, Sun Microsystems,
Inc.
Joseph P. Roebuck ..........1995 351,738 429,910 -- -- 12,000 -- 2,000
Vice President, Worldwide 1994 335,000 170,699 -- -- 41,000 21,966 1,200
Field Operations, Sun 1993 338,961 199,233 -- -- 20,000 -- 1,200
Microsystems Computer
Company, a division of
Sun Microsystems, Inc.
Edward J. Zander ...........1995 450,000 450,000 -- -- 60,000 -- 2,000
President, Sun Microsystems 1994 393,596 202,158 -- 257,493 159,000 57,788 1,200
Computer Company 1993 325,000 102,092 -- 614,987 40,000 -- 1,200
<FN>
- ----------
(1) Amounts stated include bonus amounts earned in fiscal 1995 by the executive
officers and paid in fiscal 1996.
(2) The value of a restricted stock award is determined by (i) multiplying the
number of shares subject to such award by the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the date of grant
of such award and (ii) subtracting any consideration paid.
(3) As of June 30, 1995, (i) Mr. Hambly held 2,500 shares of restricted Common
Stock having an aggregate value of $121,248, which shares are subject to the
Company's Repurchase Option, which expires as to all of such shares on
February 7, 1996, and (ii) Mr. Zander held 20,000 shares of restricted
Common Stock having an aggregate value of $969,987, which shares are subject
to the Company's Repurchase Option, which expires as to 5,000 of such shares
on August 16, 1996, as to 10,000 of such shares on September 24, 1997 and as
to the remaining 5,000 shares on February 16, 1999. For purposes hereof, the
aggregate value of shares of restricted Common Stock held by an executive
officer is calculated based on the closing price of the Company's Common
Stock as reported on June 30, 1995 on the Nasdaq National Market, less any
consideration paid. Additionally, for purposes hereof, the Company's
"Repurchase Option," referenced above, refers to the option of the Company
to repurchase such shares of the restricted Common Stock at the original
purchase price paid by the executive officer upon
6
<PAGE>
termination of such officer's employment prior to the applicable vesting
dates. All of the above executive officers will receive the same dividends
on all shares of restricted Common Stock as received by all other
stockholders of the Company; however, the Company has never paid and does
not currently anticipate paying any cash dividends in the foreseeable
future.
(4) Amounts stated reflect the earned payment of certain "EPS Growth Awards"
granted in November 1991 by the Company to certain key employees, including
executive officers. These EPS Growth Awards are payable in cash only and are
valued based on the Company achieving certain financial results over the
course of two performance periods (the two and one-half year period that
began on the date of grant and ended June 30, 1994 and the three year period
thereafter ending June 30, 1997). The EPS Growth Awards vested 50% on June
30, 1994 and vest the remaining 50% on June 30, 1997, subject to the
recipient's continued employment with the Company.
(5) Amounts stated reflect contributions made by the Company to such executive
officer's account under the Company's 401(k) Plan.
</FN>
</TABLE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended June 30, 1995 to the executive
officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
(A) (B) (C) (D) (E)
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS FOR OPTION TERM(1)
OPTIONS GRANTED TO EXERCISE -------------------------
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#)(2) FISCAL YEAR ($/SH)(3)(4) DATE 5% ($) 10% ($)
- ------------------- ------------ -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Scott G. McNealy .. 150,000 4.2% $33.375 02/15/05 $3,148,404 $7,978,673
Lawrence W. Hambly 50,000 1.4 33.375 02/15/05 1,049,468 2,659,558
William J. Raduchel 60,000 1.7 33.375 02/15/05 1,259,361 3,191,469
Joseph P. Roebuck . 12,000 0.3 33.375 02/15/05 251,872 638,294
Edward J. Zander .. 60,000 1.7 33.375 02/15/05 1,259,361 3,191,469
<FN>
- ----------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not represent an estimate by the
Company of future stock price growth.
(2) All stock options granted in fiscal 1995 have ten year terms and become
exercisable with respect to 20% of the shares covered thereby on August 1,
1996 and 20% on each anniversary date thereafter, with full vesting
occurring on August 1, 2000. See also "--Employment Contracts and
Change-In-Control Agreements" for provisions regarding acceleration of the
vesting for certain officers in certain circumstances.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by reference to the closing price
reported on the Nasdaq National Market on the last trading day prior to the
date of grant.
(4) The exercise price and tax withholding obligations may be paid in cash and,
subject to certain conditions or restrictions, by delivery of already owned
shares, pursuant to a subscription agreement or pursuant to a cashless
exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, certain information regarding the exercise
of stock options during the fiscal year ended June 30, 1995 and the value of
options held at fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
NAME ON EXERCISE (#) VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
($)(1)
- ------------------- --------------- ----------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Scott G. McNealy .. 50,000 $1,020,000 431,593/434,307 $13,085,387/$10,283,022
Lawrence W. Hambly 21,000 188,500 26,372/123,038 635,991/ 2,574,306
William J. Raduchel 46,328 881,924 8,750/128,667 254,297/ 2,633,457
Joseph P. Roebuck . 60,000 1,366,250 43,344/103,054 1,217,277/ 2,705,949
Edward J. Zander .. 20,000 176,250 53,485/214,508 1,208,044/ 4,427,968
<FN>
- ----------
(1) Market value of underlying securities at exercise date or fiscal year end,
as the case may be, minus the exercise price.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of the Company's
executive officers named in the Summary Compensation Table above. The Company
has, however, entered into change-in-control agreements with each of the named
executive officers. Pursuant to these agreements, each such officer is eligible
to receive, in the event that his or her employment is terminated following a
change-in-control of the Company, other than for just cause (as defined), death,
disability (as defined), retirement or resignation other than for good reason
(as defined), an amount equal to two and one-half times his or her annual
compensation (or, in the case of Mr. McNealy, an amount equal to three times his
annual compensation), continuation of health benefits and group term life
insurance for twenty-four months thereafter and accelerated vesting of all
options held. For purposes hereof, "annual compensation" means wages, salary and
incentive compensation for the calendar year coinciding with or immediately
preceding the year in which the above-described severance payment becomes
payable. In addition, pursuant to the terms of these agreements, a
change-in-control includes (i) a merger or acquisition of the Company resulting
in a 50% or greater change in the total voting power of the Company immediately
following such transaction, or (ii) certain changes in the majority composition
of the Board of Directors during a thirty-six month period, not initiated by the
Board.
CERTAIN TRANSACTIONS WITH MANAGEMENT
In June and July 1992, Mr. Alvares received two interest-free loans from the
Company in the amounts of $300,000 and $375,000, with principal payable in full
in June 1997 and July 1997, respectively. The largest aggregate amount
outstanding under these loans during the last fiscal year ended June 30, 1995
was $675,000. In December 1994, Mr. Alvares repaid to the Company $150,000 of
the principal amount due under the June 1992 loan. At fiscal year end, $150,000
of the June 1992 loan and the entire principal amount of the July 1992 loan were
outstanding. The foregoing loans were made to Mr. Alvares in order to finance
the purchase of his residence.
In December 1992, Chester Silvestri, who became an executive officer of the
Company in fiscal 1994, received an interest free loan from the Company in the
amount of $120,000, with principal payable in full in July 1995. The largest
amount outstanding under this loan during the last fiscal year was $120,000.
This loan was made to Mr. Silvestri to finance the purchase of his residence.
The total principal amount of this loan was repaid in full in August 1995.
8
<PAGE>
In July 1994, Lawrence Hambly, an executive officer of the Company, received
a loan from the Company in the principal amount of $23,397. The promissory note
bore simple interest at the LIBOR rate of 4.50%. The note was issued in
connection with certain tax obligations incurred as a result of the exercise of
a nonstatutory stock option. In addition, Mr. Hambly entered into a Notice of
Exercise and Irrevocable Subscription Agreement (the "Subscription Agreement")
pursuant to which Mr. Hambly exercised a nonstatutory stock option to purchase
16,000 shares of Common Stock at $18.00 per share. Pursuant to this arrangement,
Mr. Hambly irrevocably agreed to pay the aggregate purchase price of $288,000
within a period of time, not exceeding 15 days from such date that Mr. Hambly
may sell shares of the Company's Common Stock free of the Company's relevant
trading restrictions applicable to officers. In September 1994, Mr. Hambly paid
to the Company a total of $200,000, representing the $23,397 principal amount of
the note and a portion of the amount due under the Subscription Agreement. Mr.
Hambly paid all amounts due under the Subscription Agreement in October 1994.
In October 1990, the Company entered into individual change-in-control
agreements with each of its corporate executive officers, in addition to the
executive officers named in the Summary Compensation Table, containing
substantially the same terms as the change-in-control agreements described under
the heading "Employment Contracts and Change-In-Control Arrangements."
The Company also adopted the Executive Change of Control Severance Plan
("Severance Plan") in June 1990. The Severance Plan covers, among others, all
executive officers who have not otherwise entered into an agreement with the
Company, as described above, and provides that in the event that any such
officer is terminated within one year after the date of any change-in-control,
other than for just cause (as defined), death, voluntary retirement at or after
age 65, total or permanent disability or voluntary resignation, such officer is
entitled to one and one-half times his or her annual compensation and the
continuation of health benefits and group term life insurance for twenty-four
months.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers (as defined in Rule 16a-1(f)), directors, and persons who own more than
ten percent of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by SEC regulations to furnish the
Company with copies of all Section16(a) forms they file. Based solely on its
review of the copies of such forms received by it and written representations
from certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that all filing requirements applicable to
its officers, directors and 10% stockholders were complied with during the
fiscal year ended June 30, 1995, except that George Reyes, an officer of the
Company, filed one Form 5 related to one exempt transaction after the applicable
deadline.
REPORT OF COMPENSATION COMMITTEE
OF THE BOARD ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of the Company,
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to compensation paid to such executive officers
for the fiscal year ended June 30, 1995. The information contained in the report
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, except to the extent that
the Company specifically incorporates it by reference into such filing.
COMPENSATION PHILOSOPHY
The Company's philosophy in setting its compensation policies for executive
officers is to maximize stockholder value over time. The Compensation Committee
sets the Company's compensation policies applicable to the executive officers,
including the Chief Executive Officer, and evaluates the performance of such
officers. The Compensation Committee strongly believes that executive
compensation should be directly linked to continuous improvements in corporate
performance and increases in stockholder value. In this regard, the Compensation
Committee has adopted the following guidelines for compensation decisions:
o Provide a competitive total compensation package that enables the Company
to attract and retain key executive talent.
9
<PAGE>
o Align all pay programs with the Company's annual and long-term business
strategies and objectives.
o Provide variable compensation opportunities that are directly linked to
the performance of the Company and that link executive reward to
stockholder return.
COMPONENTS OF EXECUTIVE COMPENSATION
The Compensation Committee focuses primarily on the following three
components in forming the total compensation package for its executive
officers:
o Base Salary
o Annual Incentive Bonus
o Long-Term Incentives
BASE SALARY
The Committee intends to compensate its executive officers, including the
Chief Executive Officer, competitively within the industry. In order to evaluate
the Company's competitive posture in the industry, the Compensation Committee
reviews and analyzes the compensation packages, including base salary levels,
offered by other high technology companies, specifically reviewing companies
comprising the S&P Computer Systems Index as shown in the Performance Graph
below. In addition, the Committee, together with the Board of Directors, will
also subjectively evaluate the level of performance of each executive officer,
including Mr. McNealy, in order to determine current and future appropriate base
pay levels. For the Chief Executive Officer, the Company targets the lower-end
of the base salary range determined by its aforementioned competitive analysis,
giving more significant emphasis to annual bonus and longer-term incentives for
Mr. McNealy's total compensation package. In this regard, over the last two
fiscal years, the Committee has tied a substantial portion of Mr. McNealy's
compensation to his annual bonus. This focus has allowed the Committee to
directly compensate Mr. McNealy for corporate performance, while ultimately
paying Mr. McNealy competitively by industry standards. See "--Annual Incentive
Bonus" below. In fiscal 1995, the Committee raised Mr. McNealy's base salary in
a more significant manner than in the two previous fiscal years in order to take
into account recent increases in the Chief Executive Officer base salary range
determined by its competitive compensation analysis, although still paying Mr.
McNealy a base salary at the lower end of this range. With respect to the other
corporate executive officers of the Company, the Committee targets the higher
end of the industry competitive base salary range, linking a lesser (yet still
significant) portion of these executives' total compensation to annual bonus.
See "Annual Incentive Bonus" below. The Committee also emphasizes longer-term
compensation incentives for these executives as it believes that these
longer-term incentives help motivate the executives to better achieve the
Company's corporate performance goals, thereby more directly contributing to
stockholder value. Consistent with this philosophy, over the last three fiscal
years, the Committee did not significantly adjust the base pay levels of its
other corporate executive officers, except that in fiscal 1995, the Committee
adjusted certain executives' base salaries to take into account the competitive
range increases applicable to such officers. These competitive increases help
the Company to accomplish its employee motivation and retention goals.
ANNUAL INCENTIVE BONUS
During fiscal 1995, the executive officers of the Company were eligible for a
target annual incentive bonus, calculated by the Committee as a percentage of
the officers' base salary. All corporate executive officers, other than Mr.
McNealy, were eligible for a target bonus of 50% of their base salary. As stated
above, the Committee has determined that it is in the stockholders' best
interest to tie a significant portion of Mr. McNealy's total compensation to the
Company's performance. In this regard, the Committee has determined that Mr.
McNealy was eligible for a target bonus of 200% of his base salary. During the
last fiscal year, bonuses awarded to the executive officers, including Mr.
McNealy, were calculated based on the achievement by the Company of earnings per
share ("EPS") and revenue goals. At the beginning of the fiscal year, the
Committee approved certain EPS and revenue targets. These EPS and revenue
targets are competitively sensitive to the Company as they correlate between the
Company's business plan and its actual fiscal 1995 performance. The Committee
did, however, focus on setting targets consistent with the Company's overall
long-term goal of increasing its EPS by a compound annual rate of 15%. At year
end, the Committee calculated a bonus multiplier (the "Year-End Multiplier")
based on a comparison of the Company's actual EPS and revenue performance for
fiscal year 1995 with the relevant targets for fiscal 1995. This multiplier can
10
<PAGE>
range from zero to a maximum multiplier of two. At June 30, 1995, the Committee
calculated a Year-End Multiplier of two. Therefore, Mr. McNealy's annual bonus
of $2,400,000 reflects his targeted bonus amount multiplied by the Year-End
Multiplier. Elements of the Company's financial performance during fiscal 1995
that directly affected Mr. McNealy's bonus calculation included revenue growth
of 25.8% over fiscal year 1994 and EPS growth of 78.7% over fiscal 1994.
With respect to determining executive compensation in fiscal 1996, the
Committee intends to focus on maintaining base salary levels for all corporate
executive officers, including the Chief Executive Officer, at approximately
their fiscal 1995 levels, while continuing its objective performance-based bonus
plan, measuring the Company's revenue and EPS performance against confidential
targets. In fiscal 1996, the Committee has determined that Mr. McNealy will
again be eligible for a target bonus equal to 200% of his base salary and that
the other corporate executive officers will be eligible for target bonuses equal
to 55% of their base salaries. These bonus amounts will be increased or
decreased based on satisfaction of the corporate performance measures determined
by the Committee as outlined herein. The Committee believes that this increase
in the target bonus amounts for corporate executive officers will even more
closely align executive compensation with corporate performance. In addition,
the Committee has established certain corporate performance goals based on
business, operations and management objectives, which goals shall be measured
objectively in accordance with a scoring system assigned by the Committee
correlating to the successful completion of each goal. Finally, the Committee
intends to implement objective customer quality and satisfaction performance
measures into the bonus calculations. The Committee has also approved, for
submission to the stockholders, a Section 162(m) Performance-Based Executive
Bonus Plan aimed at maximizing the deductibility to the Company of the bonuses
paid to executive officers under Section 162(m) of the Internal Revenue Code of
1986, as amended. For a further description, see "--Discussion of Compensation
in Excess of $1 Million Per Year" and "Proposal IV--Approval of Section 162(m)
Performance-Based Executive Bonus Plan."
LONG-TERM INCENTIVES
OPTIONS AND RESTRICTED STOCK. The Committee provides the Company's executive
officers with long-term incentive compensation through grants of stock options
and, in rare cases, restricted stock. The Committee is responsible for
determining the individuals to whom grants should be made, the timing of grants,
the exercise price per share and the number of shares subject to each option or
restricted stock award. Other than stock options and restricted stock, as
discussed below, the Committee made no other long-term performance awards during
the last fiscal year. Long-term incentive awards are granted based on individual
or corporate performance as determined subjectively by the Committee.
The Committee believes that stock options provide the Company's executive
officers with the opportunity to purchase and maintain an equity interest in the
Company and to share in the appreciation of the value of the stock. The
Committee believes that stock options directly motivate an executive to maximize
long-term stockholder value. The options also utilize vesting periods in order
to encourage key employees to continue in the employ of the Company. All options
to executive officers to date have been granted at the fair market value of the
Company's Common Stock on the date of the grant. The Committee considers the
grant of each option subjectively, considering factors such as the individual
performance of executive officers and competitive compensation packages in the
industry. Mr. McNealy's option grants are also determined subjectively by the
Committee. In August 1995, the Company amended its 1990 Long-Term Equity
Incentive Plan to include certain restrictions on the Company's flexibility in
granting options, specifically related to exercise price. For information
regarding these amendments, see "Proposal III--Amendment to 1990 Long-Term
Equity Incentive Plan--Recent Amendments."
The Committee also makes restricted stock awards which can be similarly
beneficial to executives as the value of the award increases with an increasing
stock price. The use of restricted stock has been primarily limited within the
last three fiscal years to specific cases in which a newly hired senior
executive receives a grant in order to replace vested benefits and/or an equity
position at a prior employer, to award an executive officer for extraordinary
performance or to aid in retention. In August 1995, the Company amended its 1990
Long-Term Equity Incentive Plan to include in its terms restrictions on the
vesting of restricted stock. For information regarding these amendments, see
"Proposal III--Amendment to 1990 Long-Term Equity Incentive Plan--Recent
Amendments." For information regarding the valuation and vesting of these
restricted stock awards, see "Summary Compensation Table."
DEFERRED COMPENSATION PLAN. In June 1995, the Committee approved another
component of the Company's executive compensation program, the Non-Qualified
Deferred Compensation Plan (the "Deferred Plan"). The
11
<PAGE>
Deferred Plan is a voluntary, non-tax qualified, deferred compensation plan
available to Board members, executive officers and vice presidents of the
Company and enables such individuals to save for retirement. Under the Deferred
Plan, participants are entitled to defer compensation until retirement, death,
other termination of employment or other specified dates. Dollars deferred by
participants are credited quarterly with interest equal to the current U.S.
Treasury Bill rate plus one percent. The purpose of this Deferred Plan is to
encourage participants to remain in the employ of the Company as benefits of the
Deferred Plan increase over time.
DISCUSSION OF COMPENSATION IN EXCESS OF $1 MILLION PER YEAR
The Committee has considered the implications of Section 162(m) of the
Internal Revenue Code of 1986, as amended, enacted under the Revenue
Reconciliation Act of 1993. This Section precludes a public corporation from
taking a tax deduction for individual compensation in excess of $1 million for
its Chief Executive Officer or any of its four other highest-paid officers. The
Section also provides for certain exemptions to this limitation, specifically
compensation that is performance based within the meaning of Section 162(m).
In order to qualify compensation derived by executive officers from stock
options as performance-based compensation, as contemplated by the Internal
Revenue Service, certain amendments to the 1990 Long-Term Equity Incentive Plan
were submitted to and approved by the requisite stockholders at the Company's
1994 Annual Meeting of Stockholders.
With respect to other forms of compensation granted by this Committee to such
executive officers, the Committee has determined to seek to qualify under
Section 162(m) certain performance-based bonus payments to executive officers
designated by the Committee. In this regard, the Committee has approved the
Section 162(m) Performance-Based Executive Bonus Plan for submission to
stockholders for the purpose of qualifying bonus payments to executives under
Section 162(m), thereby preserving the deductibility of such payments. The
Committee, however, reserves the right to award compensation to its executives
in the future that may not qualify under Section 162(m) as deductible
compensation. The Committee will, however, continue to consider all elements of
the cost to the Company of providing such compensation, including the potential
impact of Section 162(m).
SUMMARY
The Compensation Committee believes that its executive compensation
philosophy of paying its executive officers well by means of competitive base
salaries and annual bonus and long-term incentives, as described in this report,
serves the interests of the Company and the Company's stockholders.
L. JOHN DOERR
M. KENNETH OSHMAN
WILLIAM HEARST III (UNTIL JUNE 30, 1995)
12
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in the
cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of the S&P 500 Index and the S&P Computer Systems Index for
the period commencing July 1, 1990 and ending on June 30, 1995. The information
contained in the performance graph shall not be deemed "soliciting material" or
to be "filed" with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SUNW
CUMULATIVE TOTAL RETURN
--------------------------------------------------------
6/90 6/91 6/92 6/93 6/94 6/95
Sun Microsystem Inc 100 82 77 87 61 143
S&P 500 100 107 122 138 140 177
S&P Computer Systems 100 85 85 58 62 103
* $100 invested on 06/30/90 in the Company's stock or applicable index--assuming
reinvestment of dividends. Fiscal year endings shown above on June 30.
13
<PAGE>
PROPOSAL II
AMENDMENT TO 1990 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
At the Annual Meeting, the stockholders are being asked to approve an
amendment to the Company's 1990 Employee Stock Purchase Plan ("1990 Purchase
Plan") in order to increase the number of shares reserved for issuance
thereunder by 3,900,000 shares to 11,450,000 shares of Common Stock. The 1990
Purchase Plan was approved by the Board of Directors on October 16, 1990,
approved by the stockholders on December 19, 1990 and 6,300,000 shares were
reserved for issuance thereunder. The number of shares reserved for issuance
under the 1990 Purchase Plan was increased to 7,550,000 shares on November 2,
1994 at the 1994 Annual Meeting of Stockholders.
As of September 5, 1995, there were 1,319,990 shares available for future
issuance under the 1990 Purchase Plan (exclusive of the increase in shares
subject to stockholder approval at this Annual Meeting). The Board of Directors
believes that increasing the number of shares available for issuance under the
1990 Purchase Plan will provide the Company with equity award opportunities to
attract, retain and motivate the best available talent for the successful
conduct of its business. The Company believes that the number of remaining
shares available for issuance under the 1990 Purchase Plan will be insufficient
to accomplish these purposes. The Company anticipates that this increase in
shares reserved under the 1990 Purchase Plan should meet the Company's retention
and motivation goals through approximately the next two to three years.
SUMMARY OF THE 1990 PURCHASE PLAN
The essential features of the 1990 Purchase Plan are outlined below.
PURPOSE
The purpose of the 1990 Purchase Plan is to provide employees of the Company
and its designated subsidiaries who participate in the 1990 Purchase Plan with
an opportunity to purchase Common Stock of the Company through accumulated
payroll deductions and to provide the Company with the ability to attract,
retain and motivate the best available people for the successful conduct of its
business.
ADMINISTRATION
The 1990 Purchase Plan is administered by the Board of Directors or a
committee appointed by the Board (for the purposes of this plan description,
"Board" shall mean either the Board or a committee appointed by the Board). The
provisions of the 1990 Purchase Plan may be amended by the Board from time to
time, at its sole discretion and subject to compliance with all applicable
federal and state laws. The 1990 Purchase Plan gives the Board the authority to
determine the duration of exercise periods within Offering Periods and the
duration of Offering Periods (as herein defined). In addition, the 1990 Purchase
Plan gives the Board the authority to set the maximum percentage of eligible
compensation which a participant may contribute to all employee stock purchase
plans of the Company. All questions of interpretation or application of the 1990
Purchase Plan are determined in the sole discretion of the Board, and its
decisions are final and binding upon all participants. Members of the Board who
are eligible employees are permitted to participate in the 1990 Purchase Plan
but may not vote on any matter affecting the administration of the 1990 Purchase
Plan or the grant of any option pursuant to the 1990 Purchase Plan. No member of
the Board who is eligible to participate in the 1990 Purchase Plan may be a
member of the committee appointed to administer the 1990 Purchase Plan. No
charges for administrative or other costs may be made against the payroll
deductions of a participant in the 1990 Purchase Plan. Members of the Board
receive no additional compensation for their services in connection with the
administration of the 1990 Purchase Plan, other than the Chairman of the
Compensation Committee, who receives $1,500 for each meeting of such committee
that he attends, see "Proposal I--Election of Directors--Director Compensation."
ELIGIBILITY
Any person who is employed by the Company (or by any of its majority-owned
subsidiaries designated from time to time by the Board of Directors) for at
least 20 hours per week and more than five months in a calendar year is eligible
to participate in the 1990 Purchase Plan. For purposes of the 1990 Purchase
Plan, the employment relationship shall be treated as continuing intact while
the individual is on sick leave or other paid leave of absence approved by the
Company; provided that where the period of such leave exceeds 90 days and the
individual's right
14
<PAGE>
to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the 91st day of
such leave. With respect to unpaid leaves of absence approved by the Company,
for purposes of the 1990 Purchase Plan the employment relationship shall be
treated as continuing intact while the individual is on unpaid leave for a
period not to exceed 30 days and shall be deemed to be terminated on the 31st
day of such unpaid leave (provided that such individual's right to reemployment
is not guaranteed by statute or by contract). As of September 5, 1995,
approximately 14,500 employees were eligible to participate in the 1990 Purchase
Plan, of whom 5,994 were participating.
OFFERING PERIODS
The 1990 Purchase Plan is implemented by consecutive offering periods
("Offering Periods") of such duration as the Board shall determine, provided
that in no event shall an Offering Period exceed 27 months. The Offering Periods
are currently six months in duration beginning on May 1 and November 1 of each
year. The Board has the power to alter the duration of Offering Periods without
stockholder approval if such change is announced at least 15 days prior to the
scheduled beginning of the first Offering Period to be affected.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the 1990 Purchase Plan by
delivering to the Company subscription agreements authorizing payroll
deductions. An employee who becomes eligible to participate in the 1990 Purchase
Plan after the commencement of an Offering Period may not participate in the
1990 Purchase Plan until the commencement of the next Offering Period. No
employee shall be granted an option under the 1990 Purchase Plan (i) if,
immediately after the grant, such employees would own stock and/or hold
outstanding options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
subsidiary of the Company, or (ii) which permits his or her rights to purchase
stock in any calendar year under all employee stock purchase plans of the
Company and its subsidiaries to exceed $25,000 worth of stock.
PURCHASE PRICE
The purchase price per share at which shares are sold under the 1990 Purchase
Plan is the lower of 85% of the fair market value of a share of Common Stock on
the first day of the Offering Period or 85% of the fair market value of a share
of Common Stock on the Exercise Date. The "Exercise Date" is the last day of
each Offering Period. The fair market value of the Common Stock on a given date
shall be determined by the Board of Directors based upon the reported closing
sales price on the Nasdaq National Market on the day of such determination.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The contributions used to purchase shares are accumulated by payroll
deductions during the Offering Period. Unless the Board determines otherwise, a
participant's deductions under all employee stock purchase plans of the Company
may not exceed a total of 10% of the participant's eligible compensation, which
is currently defined in the 1990 Purchase Plan to include regular straight time
gross earnings, variable compensation for field sales personnel, certain
incentive bonuses, payments for overtime, shift premium, lead pay and automobile
allowances, but excluding other compensation. A participant may discontinue his
or her participation in the 1990 Purchase Plan at any time or may change the
rate of payroll deductions effective as of the next Offering Period.
All payroll deductions are credited to the participant's account under the
1990 Purchase Plan; no interest accrues on the payroll deductions. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose.
PURCHASE OF STOCK; EXERCISE OF OPTION
At the beginning of each Offering Period, by executing a subscription
agreement to participate in the 1990 Purchase Plan, each employee is in effect
granted an option to purchase shares of Common Stock. The maximum number of
shares placed under option to a participant in an Offering Period is determined
by dividing the compensation that such participant has had withheld during the
Offering Period by 85% of the fair market value of the Common Stock at the
beginning of the Offering Period or on the applicable Exercise Date, whichever
is lower; provided that such number shall not exceed a maximum number of shares
set by the Board with respect to the Offering Period. Notwithstanding the
foregoing, a participant's payroll deductions may be decreased to 0% by the
Company at such time during any Offering Period that is scheduled to end during
the then current calendar year ("Current Offering Period") if the aggregate of
all payroll deductions that were previously used to purchase stock
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under the 1990 Purchase Plan and all employee stock purchase plans of the
Company in a prior Offering Period that ended during the then current calendar
year plus all payroll deductions accumulated with respect to the Current
Offering Period equals $21,250. Payroll deductions shall recommence in the first
Offering Period that is scheduled to end in a subsequent calendar year.
WITHDRAWAL; LEAVES OF ABSENCE
A participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the 1990 Purchase Plan at any time prior to the close of an Offering
Period by giving written notice to the Company. All of the participant's payroll
deductions credited to his or her account will be paid to such participant as
promptly as practicable after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement
during the open enrollment period preceding the commencement of a subsequent
Offering Period.
A participant's withdrawal from an Offering Period will not have any effect
upon his or her eligibility to participate in any similar plan that may
hereafter be adopted by the Company or in succeeding Offering Periods, provided
that a participant may elect to participate in a succeeding Offering Period only
during the open enrollment period for such Offering Period.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the 1990 Purchase Plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned to such participant or, in the case of death of the
participant, to the person or persons entitled thereto as specified by the
participant in the subscription agreement. In the event that a prior participant
is rehired at the Company, that participant will be eligible to re-enroll in a
new Offering Period under the 1990 Purchase Plan.
CAPITAL CHANGES
In the event any change is made in the capitalization of the Company, such as
a stock split or a stock dividend, that results in an increase or decrease in
the number of shares of Common Stock outstanding without receipt of
consideration by the Company, appropriate adjustments will be made by the
Company in the number of shares subject to purchase and in the purchase price
per share, subject to any required action by the stockholders of the Company.
The Board may also make provisions for adjusting the number of shares subject to
the 1990 Purchase Plan and the purchase price per share in the event the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions in the shares of the Company's outstanding Common
Stock.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
1990 Purchase Plan shall be assumed or an equivalent option shall be substituted
by such successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole discretion
and in lieu of such assumption or substitution, to shorten the Offering Period
then in progress by setting a new Exercise Date ("New Exercise Date"). If the
Board shortens the Offering Period then in progress in lieu of assumption or
substitution, the Board shall notify each participant in writing, at least 10
days prior to the New Exercise Date, that the Exercise Date for his or her
option has been changed to the New Exercise Date and that his or her option will
be exercised automatically on the New Exercise Date, unless prior to such date
he or she has withdrawn from the Offering Period.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend or terminate the 1990 Purchase Plan, except
that such termination shall not affect options previously granted. No amendment
may make any change in an option granted prior thereto that adversely affects
the rights of any participant.
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To the extent necessary to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, or under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor rule or provision or any
other applicable law or regulation, the Company shall obtain stockholder
approval in such a manner and to such a degree as is required thereby.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The 1990 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares. Upon disposition of
the shares, the participant will be subject to tax, the amount of which will
depend upon the holding period. If the shares are disposed of by the participant
at least two years after the date of option grant (the beginning of the Offering
Period) and at least one year after the date of option exercise (the date on
which the shares were purchased by the participant), the lesser of (a) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price, or (b) the excess of the fair market value of the
shares at the time the option was granted over the purchase price (which
purchase price will be computed as of the grant date) will be treated as
ordinary income, and any further gain will be treated as capital gain. If the
shares are disposed of before the expiration of these holding periods, the
excess of the fair market value of the shares measured generally as of the
Exercise Date over the purchase price will be treated as ordinary income, and
any further gain (or loss) will be treated as capital gain (or loss). Different
rules for measuring ordinary income may apply to participants who are subject to
Section 16 of the Exchange Act. The Company is not entitled to a deduction for
amounts treated as ordinary income to a participant except to the extent of
ordinary income recognized by participants upon disposition of shares within two
years from the date of grant and one year from the date of option exercise.
The foregoing is only a summary of the effect of United States federal income
taxation upon the participant and the Company with respect to shares purchased
under the 1990 Purchase Plan. This summary does not discuss the tax consequences
of a participant's death or provisions of the income tax laws of any
municipality, state or country outside of the United States in which the
participant may reside.
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PARTICIPATION IN THE 1990 PURCHASE PLAN
Participation in the 1990 Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination of the
level of payroll deductions. Accordingly, future purchases under the 1990
Purchase Plan are not determinable. The last Exercise Date under the 1990
Purchase Plan was April 30, 1995. The following table sets forth certain
information regarding shares purchased under the 1990 Purchase Plan during
fiscal 1995 by each of the Company's most highly compensated officers named in
the Summary Compensation Table, all current executive officers as a group and
all other employees who participated in the 1990 Purchase Plan as a group
(non-employee directors are not eligible to participate under the 1990 Purchase
Plan):
AMENDED PLAN BENEFITS
1990 PURCHASE PLAN
AGGREGATE DOLLAR
NAME OF INDIVIDUAL AGGREGATE NUMBER OF VALUES AT
OR IDENTITY OF GROUP SHARES PURCHASED EXERCISE DATES
($)(1)(2)
- ---------------------------------------- ------------------- ------------------
Scott G. McNealy ........................ 988 $ 16,218
Chairman of the Board,
President and Chief Executive Officer,
Sun Microsystems, Inc.
Lawrence W. Hambly ...................... 755 7,276
President, SunService Division,
a division of Sun Microsystems, Inc.
William J. Raduchel ..................... -- --
Vice President,
Corporate Planning and Development
and Chief Information Officer,
Sun Microsystems, Inc.
Joseph P. Roebuck ....................... 1,093 11,448
Vice President,
Worldwide Field Operations,
Sun Microsystems Computer Company,
a division of Sun Microsystems, Inc.
Edward J. Zander ........................ 1,024 16,361
President,
Sun Microsystems Computer Company
All current executive officers as a
group ................................... 14,506 182,143
All other employees as a group .......... 2,203,557 24,300,529
- ----------
(1) Market value of shares on date of purchase, minus the purchase price under
the 1990 Purchase Plan.
(2) Exercise Dates during fiscal 1995 occurred on August 31, 1994 and April 30,
1995.
REQUIRED VOTE AND RECOMMENDATION
The amendment of the 1990 Purchase Plan requires the affirmative vote of the
holders of not less than a majority of the Common Stock represented in person or
by proxy and entitled to vote at the Annual Meeting ("Votes Cast") under
Delaware Law. Votes that are cast against the proposal will be counted for
purposes of determining (i) the presence or absence of a quorum for the
transaction of business and (ii) the total number of Votes Cast with respect to
the proposal. An abstention will have the same effect as a vote against this
Proposal II. A broker non-vote will be counted for purposes of determining
whether a quorum is present, but will not be counted as a Vote Cast.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1990 EMPLOYEE STOCK
PURCHASE PLAN.
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PROPOSAL III
AMENDMENT TO 1990 LONG-TERM EQUITY INCENTIVE PLAN
GENERAL
At the Annual Meeting, the stockholders are being asked to approve an
amendment to the Company's 1990 Long-Term Equity Incentive Plan ("1990 Incentive
Plan"), in order to increase the number of shares reserved for issuance
thereunder by 12,100,000 shares to 25,350,000 shares of Common Stock. The 1990
Incentive Plan was adopted by the Board of Directors on October 16, 1990,
approved by the stockholders on December 19, 1990 and 9,900,000 shares were
reserved for issuance thereunder. On November 2, 1994, the number of shares
reserved for issuance under 1990 Incentive Plan was increased to 13,250,000
shares at the 1994 Annual Meeting of Stockholders.
At September 5, 1995, 1,029,074 shares of Common Stock were available for
issuance under the 1990 Incentive Plan (exclusive of the increase in shares
subject to stockholder approval at this Annual Meeting). In addition, options to
purchase 9,902,224 shares were outstanding and 2,072,302 shares of Common Stock
had been purchased pursuant to the exercise of options granted under the 1990
Incentive Plan at an average exercise price per share of $27.66. Additionally,
as of September 5, 1995, 266,400 restricted shares of Common Stock have been
issued and sold ("Stock Purchase Rights"), at purchase prices of $0.00067 or
$0.01 per share, of which 145,598 shares were outstanding.
The 1990 Incentive Plan authorizes the Board of Directors, or its committee,
to grant incentive and nonstatutory stock options as well as Stock Purchase
Rights, stock appreciation rights (in connection with options) and long-term
performance awards. The provisions of these options, rights and awards are
outlined below. The 1990 Incentive Plan is structured to allow the Board of
Directors or its committee broad discretion in creating employee equity
incentives in order to assist the Company in attracting, retaining and
motivating the best available talent for the successful conduct of its business.
The Board of Directors believes the remaining shares under the 1990 Incentive
Plan are insufficient to accomplish these purposes. Therefore, the Board is
proposing the increase to the shares reserved under the 1990 Incentive Plan
discussed herein and anticipates this increase will meet the Board's hiring and
retention goals over approximately the next three years.
RECENT AMENDMENTS TO THE 1990 INCENTIVE PLAN
In August 1995, the Company amended its 1990 Incentive Plan in order to
implement certain restrictions on the Board's (or its committee's, as the case
may be) ability to grant options and Stock Purchase Rights. These restrictions
are as follows: (i) all non-statutory stock options (NSOs) and incentive stock
options (ISOs) granted under the 1990 Incentive Plan must be issued at an
exercise price greater than or equal to the fair market value of the Company's
Common Stock on the date of grant of such options; provided, however, that NSOs
may be granted at an exercise price less than such fair market value (but no
less than 85% of fair market value) if such discounted exercise price is
expressly granted by the Board or its committee, as the case may be, to an
optionee in lieu of a reasonable amount of salary or compensation; (ii) all
Stock Purchase Rights (shares of restricted stock) granted under the 1990
Incentive Plan must be granted subject to the Company's right to repurchase such
shares, which repurchase right shall expire as to not more than 50% of the
shares subject to the Stock Purchase Right at a date not earlier than 2 1/2
years from the date of grant and as to the remaining shares (at least 50% of the
total shares granted) on a date not earlier than 5 years from the date of grant;
and (iii) the Board or its committee, as the case may be, shall have no
discretionary authority to allow vesting restrictions on these Stock Purchase
Rights to lapse earlier than the vesting restrictions applicable thereto.
Notwithstanding these restrictions, the Company has reserved a number of shares
equal to 3% of the total number of shares reserved for issuance under the 1990
Incentive Plan at any one time (such total number of shares to include the
proposed increase in shares subject to stockholder approval at this Annual
Meeting and any further increase approved by the stockholders) which may be
granted by the Board or its committee, as the case may be, free of such
restrictions as outlined above (the "Special Reserve"). These amendments were
adopted by the Company in connection with discussions between the Company and
certain of its stockholders. The Company believes that these amendments will
more closely align the interests of its stockholders with the interests of
management and its employee compensation programs.
SUMMARY OF THE 1990 INCENTIVE PLAN
The essential features of the 1990 Incentive Plan are outlined below.
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PURPOSE
The purpose of the 1990 Incentive Plan is to provide an additional incentive
to eligible employees and consultants whose present and potential contributions
are important to the continued success of the Company, to afford them an
opportunity to acquire a proprietary interest in the Company and to enable the
Company to enlist and retain in its employ the best available talent for the
successful conduct of its business.
ELIGIBILITY
Officers, consultants and other employees of the Company and its subsidiaries
and affiliates whom the Board deems to have the potential to contribute to the
future success of the Company shall be eligible to receive awards under the 1990
Incentive Plan. As of the Record Date, there were approximately 14,500 employees
and approximately 1,250 consultants eligible to receive awards under the 1990
Plan.
ADMINISTRATION
The 1990 Incentive Plan is administered by the Board of Directors or a
committee appointed by the Board (for the purposes of this plan description,
"Board" shall mean either the Board or a committee appointed by the Board). All
questions of interpretation or application of the 1990 Incentive Plan are
determined in the sole discretion of the Board or its committee, and its
decisions are final and binding upon all participants. Members of the Board who
are eligible employees are permitted to participate in the 1990 Incentive Plan,
but may not vote on any matter affecting the administration of the 1990
Incentive Plan or the grant of any option or other award pursuant to the 1990
Incentive Plan. No member of the Board who is eligible to participate in the
1990 Incentive Plan may be a member of the committee appointed to administer the
1990 Incentive Plan. Members of the Board receive no additional compensation for
their services in connection with the administration of the 1990 Incentive Plan,
other than the Chairman of the Compensation Committee, who receives $1,500 for
each meeting of such committee that he attends. See "Election of
Directors--Director Compensation."
STOCK OPTIONS
The 1990 Incentive Plan permits the granting of non-transferable stock
options that either are intended to qualify as ISOs or are not intended to so
qualify and are NSOs.
Except for NSOs granted by the Board under the Company's Special Reserve, the
option exercise price for each share covered by an option must be equal to or
greater than the fair market value of a share of Common Stock on the date of
grant of such option. However an NSO granted by the Board to an employee in lieu
of reasonable salary or compensation may be granted at an exercise price less
than the fair market value of the Company's Common Stock on the date of grant
(but no less than 85% of such fair market value). Provided, further, that in the
case of an ISO, the price shall be in no event less than 100% of the fair market
value of a share of Common Stock at the time such option is granted.
Notwithstanding the paragraph above, the Board may grant NSOs at exercise
prices less than the fair market value of the Company's Common Stock on the date
of grant subject to the Company's Special Reserve. To date, the Company has not
granted stock options at exercise prices less than fair market value on the date
of grant.
The term of each option will be fixed by the Board but may not exceed ten
years from the date of grant in the case of ISOs. The Board will determine the
time or times each option may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the Board.
The exercise price of options granted under the 1990 Incentive Plan,
including applicable withholding, must be paid in full by cash, check,
promissory note, Common Stock with a fair market value on the exercise date
equal to the aggregate exercise price of the options or delivery of an
irrevocable subscription agreement. The Board has authorized as payment the
delivery of a properly executed exercise notice and irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price. The Board may also authorize payment by any
combination of the foregoing methods.
Under the 1990 Incentive Plan, in the event of termination of an optionee's
employment or consultancy for any reason, including retirement, an option may
thereafter be exercised (to the extent it was exercisable on the date of
termination) within such time period as is determined by the Board (which shall
be no more than 90 days in the case of an ISO), subject to the stated term of
the option. If the Board has determined that an employee was discharged for just
cause, such employee shall have no further rights under the 1990 Incentive Plan.
If an optionee's employment
20
<PAGE>
or consultancy is terminated by reason of the optionee's death, the option will
be exercisable for such period following death as is determined by the Board
subject to the stated term of the option.
The granting of stock options under the 1990 Incentive Plan by the Board is
subjective and is dependent upon, among other things, an employee's individual
performance. Therefore, future option grants to executive officers or employees
under the 1990 Incentive Plan are not determinable. See "--Participation in the
1990 Incentive Plan." In August 1994, the 1990 Incentive Plan was amended (which
amendment was approved by the stockholders on November 2, 1994 at the 1994
Annual Meeting) in order to limit the number of shares subject to an option that
may be granted to any employee in any one fiscal year to 150,000 shares. In
addition, an employee may also receive a one-time grant of up to 200,000 shares
upon acceptance of employment with the Company.
STOCK APPRECIATION RIGHTS
The Board may also grant non-transferable Stock Appreciation Rights ("SARs")
in conjunction with related options, entitling the holder upon exercise to
receive an amount in any combination of cash or Common Stock (as determined by
the Board) equal in value to the excess of the fair market value of the shares
covered by such SAR on the date of exercise over the aggregate exercise price of
the related option for such shares. The exercise of an SAR will result in
cancellation of the related option or, conversely the exercise of the related
option will result in cancellation of the SAR. No SARs had been granted under
the 1990 Incentive Plan as of September 5, 1995.
STOCK PURCHASE RIGHTS
The Board may grant participants Stock Purchase Rights to purchase stock
either alone, in addition to, or in tandem with other awards under the 1990
Incentive Plan and/or cash awards made outside of the 1990 Incentive Plan (at a
price of not more than $0.00067 per share, the par value of the Company's Common
Stock, in the case of participants who are subject to Section 16(b) of the
Exchange Act) for limited periods of up to 60 days under such terms, conditions
and restrictions as the Board may apply. Other than Stock Purchase Rights
granted under the Special Reserve, the stock so purchased will be subject to the
Company's repurchase option exercisable upon the voluntary or involuntary
termination of employment of the employee. The repurchase option applicable to
shares of stock so granted (other than shares granted under the Special Reserve)
shall lapse as to not more than 50% of the shares subject to the Stock Purchase
Right on a date not earlier than 2 1/2 years from the date of grant and as to
the remaining shares on a date not earlier than 5 years from the date of grant.
Stock Purchase Rights granted from the Special Reserve shall be subject to such
vesting restrictions as determined in the discretion of the Board.
The granting of Stock Purchase Rights under the 1990 Incentive Plan by the
Board is subjective and is tied to an employee's individual performance. Such
rights are most commonly granted to new key employees and, less frequently, to
executive officers to reward extraordinary performance or to aid in retention.
See "Report of Compensation Committee of the Board on Executive Compensation."
Therefore, future grants of Stock Purchase Rights to any employee under the 1990
Incentive Plan are not determinable.
LONG-TERM PERFORMANCE AWARDS
The Board may also grant long-term performance awards under the 1990
Incentive Plan ("Long-Term Performance Awards"). Such awards are bonus awards
that shall be payable in cash or Common Stock and shall be based on the Company,
subsidiary and/or individual performance factors or upon such other criteria as
the Board may deem appropriate. Performance factors may vary from participant to
participant, group to group, and period to period.
No Long-Term Performance Awards were granted to any employee during the last
fiscal year.
DEFERRALS UNDER THE PLAN
The Board may also permit participants to elect to defer receipt of
benefits under the 1990 Incentive Plan or make automatic deferrals. The Board
may also provide and determine the amount of any deemed earnings for amounts
deferred under the 1990 Incentive Plan.
ADJUSTMENTS FOR STOCK DIVIDENDS, MERGERS AND OTHER EVENTS
The Board is authorized to make appropriate adjustments in connection with
outstanding awards under the 1990 Incentive Plan to reflect stock dividends,
stock splits and similar events. In the event of a merger, liquidation or
similar event, the Board in its discretion may provide for substitution or
adjustment in, or may accelerate or adjust, such awards.
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AMENDMENT AND TERMINATION
The Board may amend, alter or discontinue the 1990 Incentive Plan at any
time, but such amendment, alteration or discontinuation shall not adversely
affect any stock options, SARs, Stock Purchase Rights, or Long-Term Performance
Awards then outstanding under the 1990 Incentive Plan, without the participant's
consent. Subject to the specific terms of the 1990 Incentive Plan described
above, the Board may accelerate any award or option or waive any conditions or
restrictions pertaining to such award or option at any time.
In addition, to the extent necessary to comply with Rule 16b-3 under the
Exchange Act or Section 422A of the Code (or any other applicable law or
regulation), the Company shall obtain stockholder approval of any 1990 Incentive
Plan amendment in such a manner and to such a degree as is required.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is only a brief summary of the effect of federal income
taxation upon the recipient and the Company under the 1990 Incentive Plan based
upon the Code. This summary does not purport to be complete and does not discuss
the income tax laws of any municipality, state or country outside of the United
States in which an optionee may reside.
STOCK OPTIONS
If an option granted under the 1990 Incentive Plan is an ISO, the optionee
will recognize no income upon grant of the ISO and will incur no tax liability
due to the exercise unless the optionee is subject to the alternative minimum
tax. The Company will not be allowed a deduction for federal income tax purposes
as a result of the exercise of an ISO regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares at least two
years after grant of the ISO and one year after exercise by the optionee, any
gain (or loss) will be treated as long-term capital gain (or loss). If these
holding periods are not satisfied, the optionee will recognize ordinary income
equal to the difference between the exercise price and the lower of the fair
market value of the stock at the date of the option exercise or the sale price
of the stock. A different rule for measuring ordinary income upon such premature
disposition may apply if the optionee is subject to Section 16 of the Exchange
Act. The Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Any gain (or loss) recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as capital gain (or loss).
All options that do not qualify as ISOs are taxed as NSOs. An optionee will
not recognize any taxable income at the time he or she is granted an NSO.
However, upon the exercise of an NSO, the optionee will recognize ordinary
income measured by the excess of the then fair market value of the shares over
the option price. In certain circumstances, where the shares are subject to a
substantial risk of forfeiture when acquired or where the optionee is subject to
Section 16 of the Exchange Act, the date of taxation may be deferred unless the
optionee files an election with the Internal Revenue Service under Section 83(b)
of the Code. The income recognized by an optionee who is also an employee of the
Company will be subject to tax withholding by the Company by payment in cash or
out of the current earnings paid to the optionee. Upon resale of such shares by
the optionee, any difference between the sales price and the exercise price, to
the extent not recognized as ordinary income as provided above, will be treated
as capital gain (or loss). The Company will be entitled to a tax deduction in
the same amount as the ordinary income recognized by the optionee with respect
to shares acquired upon exercise of an NSO.
STOCK APPRECIATION RIGHTS
A recipient will not recognize any taxable income in connection with the
grant of an SAR in connection with a stock option. On exercise of an SAR, the
recipient will generally recognize ordinary income in the year of exercise in an
amount equal to the difference between the exercise price (if any) of the SAR
and the fair market value of the SAR (computed with reference to the Common
Stock of the Company) at the time of exercise. If the recipient is an employee,
such amount will be subject to withholding by the Company. As a general rule,
the Company will be entitled to a tax deduction in the amount and at the time
the recipient recognizes ordinary income with respect to the SAR.
If the recipient receives shares of Common Stock of the Company upon exercise
of an SAR, the tax consequences on purchase and sale of such shares will be the
same as those discussed above for NSOs.
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STOCK PURCHASE RIGHTS
Stock Purchase Rights will generally be subject to the tax consequences
discussed above for NSOs.
LONG-TERM PERFORMANCE AWARDS
A recipient generally will not recognize any taxable income in connection
with the grant of a Long-Term Performance Award. At the time the performance
award vests (unless a Section 83(b) election is timely filed at the time of
grant), the recipient will generally recognize ordinary income in an amount
equal to the fair market value of the award (computed with reference to the
Common Stock of the Company) at the time of vesting. The recipient will be
subject to the tax consequences discussed above for NSOs. If the recipient is an
employee, any amount included in income will be subject to withholding by the
Company. As a general rule, the Company will be entitled to a tax deduction in
the amount and at the time the recipient recognizes ordinary income with respect
to the Long-Term Performance Award included as ordinary income by the recipient.
CAPITAL GAINS
Under current law, the tax rate on net capital gain (net long-term capital
gain minus short-term capital loss) is capped at 28%. In addition, capital
losses are allowed in full against capital gains plus $3,000 of other income.
PARTICIPATION IN THE 1990 INCENTIVE PLAN
The grant of options, SARs, Stock Purchase Rights, stock bonus awards and
Long-Term Performance Awards under the 1990 Incentive Plan to employees,
including the executive officers named in the Summary Compensation Table (the
"Named Officers"), is subject to the discretion of the Board. As of the date of
this proxy statement, there has been no determination by the Board with respect
to future awards under the 1990 Incentive Plan. Accordingly, future awards are
not determinable. Non-employee directors are not eligible to participate in the
1990 Incentive Plan. No SARs, stock bonus awards or Long-Term Performance Awards
were granted during the last fiscal year. No Named Officers were granted Stock
Purchase Rights during the last fiscal year. During the last fiscal year all
current executive officers as a group were granted Stock Purchase Rights to
purchase an aggregate of 19,800 shares of Common Stock at $0.00067 per share and
all other employees as a group were granted Stock Purchase Rights to purchase an
aggregate of 28,600 shares of Common Stock at $0.01 per share. The following
table sets forth information with respect to the grant of options to the Named
Officers, to all current executive officers as a group and to all other
employees as a group during the last fiscal year:
AMENDED PLAN BENEFITS
1990 INCENTIVE PLAN
WEIGHTED AVERAGE
EXERCISE
NAME OF INDIVIDUAL SECURITIES UNDERLYING PRICE PER SHARE
OPTIONS GRANTED (#) ($/SH)
- ---------------------------------------- --------------------- -----------------
Scott G. McNealy ........................ 150,000 $33.375
Chairman of the Board,
President and Chief Executive Officer,
Sun Microsystems, Inc.
Lawrence W. Hambly ...................... 50,000 33.375
President, SunService Division,
a division of Sun Microsystems, Inc.
William J. Raduchel ..................... 60,000 33.375
Vice President,
Corporate Planning and Development
and Chief Information Officer,
Sun Microsystems, Inc.
Joseph P. Roebuck ....................... 12,000 33.375
Vice President,
Worldwide Field Operations,
Sun Microsystems Computer Company,
a division of Sun Microsystems, Inc.
Edward J. Zander ........................ 60,000 33.375
President,
Sun Microsystems Computer Company
All current executive officers as a
group ................................... 812,500 33.910
All other employees as a group .......... 2,767,370 34.693
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REQUIRED VOTE AND RECOMMENDATION
The amendment to the 1990 Incentive Plan, as described above, requires the
affirmative vote of the holders of not less than a majority of the Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting
("Votes Cast") under Delaware Law. Votes that are cast against the proposal will
be counted only for purposes of determining (i) the presence or absence of a
quorum for the transaction of business and (ii) the total number of Votes Cast
with respect to the proposal. An abstention will have the same effect as a vote
against this Proposal III. A broker non-vote will be counted for purposes of
determining whether a quorum is present, but will not be counted as a Vote Cast.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1990 LONG-TERM EQUITY
INCENTIVE PLAN.
PROPOSAL IV
APPROVAL OF SECTION 162(M)
PERFORMANCE-BASED EXECUTIVE BONUS PLAN
HISTORY
In 1993, the Internal Revenue Code (the "Code") was amended to add Section
162(m). Section 162(m) precludes the Company from taking a tax deduction for
individual compensation in excess of $1 million to each of the Company's highest
paid executives. There are, however, certain exceptions to this limitation,
specifically for compensation that is performance-based within the meaning of
Section 162(m) and approved by the stockholders.
In August 1995, the Compensation Committee of the Board of Directors approved
the adoption of the Company's Section 162(m) Performance-Based Bonus Plan (the
"Bonus Plan"). In order to qualify the Bonus Plan under new Section 162(m) of
the Code and maximize the deductibility by the Company of bonus payments made to
executive officers, the Board of Directors and its Compensation Committee
directed that the Bonus Plan be submitted to the stockholders of the Company for
their approval at the 1995 Annual Meeting.
A summary of the essential features of the Bonus Plan is as follows:
PURPOSE
The purpose of this Bonus Plan is to motivate executives to achieve the
Company's financial, operational and management performance objectives and to
reward them when those objectives are met. Bonuses under the Bonus Plan are
based on objective criteria. The Company maintains and will continue to maintain
a similar bonus plan for other employees of the Company, which will remain
unchanged.
ADMINISTRATION BY THE COMMITTEE
The Bonus Plan will be administered by a committee (the "Committee")
consisting of at least two members of the Board, all of which members qualify as
"outside directors" within the meaning of Section 162(m) of the Code.
COVERED INDIVIDUALS
Participants in the Bonus Plan are chosen solely at the discretion of the
Committee. All corporate executive officers of the Company are eligible to
participate in the Bonus Plan (currently ten individuals). No person is
automatically entitled to participate in the Bonus Plan in any plan year.
AMOUNT AND PAYMENT OF BONUS
Prior to the beginning of the applicable fiscal year (or prior to such other
date as may be permitted under Code Section 162(m)), the Committee determines a
dollar-denominated target award opportunity for each participant based on the
participant's salary and level of responsibility and approves corporate,
financial and business performance measures for such fiscal year, consistent
with the Company's annual business plan. The Committee shall base its
performance measures and targets on one or more of various financial metrics,
including earnings per share, revenue, operating income, profitability and
return on assets (including return on assets before interest and taxes,
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asset turns and inventory turns). In addition, the Committee may also base
certain performance measures on customer quality and satisfaction indices and
metrics; market share criteria; product development, introduction and volume
criteria; internal operational criteria and management objectives.
A participant's bonus payment is determined based on the Company's
achievement of the above performance measures for the fiscal year. Annual bonus
payments are made in cash as soon as practicable following determination of the
amount of the bonus, provided that, at the discretion of the Committee, a
participant may, subject to such terms and conditions as the Committee may
determine, elect to defer all or any part of any bonus by complying with such
procedures as the Committee may prescribe. No bonus amount in excess of
$5,000,000 will be paid to any participant in any fiscal year. The Committee
shall certify in writing that all performance goals are met prior to the payment
of any bonus amounts under the Plan.
The Committee approved the performance measures applicable to the designated
individuals for fiscal 1996 at its meeting held in August 1995.
ESTIMATE OF BENEFITS
Due to the fact the performance criteria under the Bonus Plan relate to
measurements that are only determinable at the end of fiscal year 1996, the
amounts that will be paid or would have been paid pursuant to the Bonus Plan had
it been in effect during the last fiscal year are not currently determinable.
AMENDMENT AND TERMINATION
The Committee may terminate the Bonus Plan, in whole or in part, and may
amend the Bonus Plan from time to time. Plan amendments will require stockholder
approval only if required under Section 162(m) of the Code.
FEDERAL INCOME TAX CONSEQUENCES
Under present federal income tax law, participants will realize ordinary
income equal to the amount of the award received in the year of receipt. The
Company will receive a deduction for the amount constituting ordinary income to
the participant, provided that the Bonus Plan satisfies the requirements of Code
Section 162(m), which limits the deductibility of non-performance related
compensation paid to certain corporate executives. It is the Company's intention
that the Bonus Plan be adopted and administered in a manner that maximizes the
deductibility of compensation for the Company under Section 162(m).
VOTE REQUIRED
The affirmative vote of the holders of not less than a majority of the Common
Stock represented in person or by proxy and entitled to vote at the Annual
Meeting ("Votes Cast") will be required to approve the adoption of the Bonus
Plan. Votes that are against the proposal will be counted only for purposes of
determining (i) the presence or absence of a quorum for the transaction of
business and (ii) the total number of Votes Cast with respect to the proposal.
An abstention will have the same effect as a vote against this Proposal IV. A
broker non-vote will be counted for purposes of determining whether a quorum is
present, but will not be counted as a Vote Cast.
MANAGEMENT RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE SECTION 162(M)
PERFORMANCE-BASED EXECUTIVE BONUS PLAN.
NOTICE OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young, LLP, independent auditors,
to audit the consolidated financial statements for the fiscal year ending June
30, 1996. Ernst & Young, LLP has served as the Company's independent auditors
since 1982. Notwithstanding the selection, the Board, in its discretion, may
direct appointment of new independent auditors at any time during the year, if
the Board feels that such a change would be in the best interests of the Company
and its stockholders. Representatives of Ernst & Young, LLP are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
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OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: September 20, 1995
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MAP SHOWING ROUTE TO SUN MICROSYSTEMS, INC. MENLO PARK CAMPUS
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PICKUP: "P2"
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IMAGE: "SUN MICRO MAP"
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SUN MICROSYSTEMS, INC.
1995 ANNUAL MEETING OF SHAREHOLDERS
The undersigned stockholder of Sun Microsystems, Inc., a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated September 20, 1995, and hereby
appoints Scott G. McNealy and Michael H. Morris or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 1995 Annual Meeting
of Stockholders of Sun Microsystems, Inc. to be held on Wednesday, November 1,
1995 at 9:00 a.m., local time, at the Company's Menlo Park offices at 11 Network
Circle (Building 11, Crossroads Conference Room, #2150), Willow Road at Bayfront
Expressway, Menlo Park, California, and at any adjournment(s) or postponement(s)
thereof,and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE. SEE REVERSE SIDE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS IN
DICATED, WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED
BELOW, FOR THE AMENDMENT TO THE 1990 EMPLOYEE STOCK PURCHASE PLAN, FOR THE
AMENDMENT TO THE 1990 LONG-TERM EQUITY INCENTIVE PLAN, FOR THE APPROVAL OF THE
SECTION 162(m) PERFORMANCE-BASED EXECUTIVE BONUS PLAN, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. ELECTION OF DIRECTORS:
Nominees: Scott G. McNealy; L. John Doerr; Judith L. Estrin; Robert J. Fisher;
Robert L. Long; M. Kenneth Oshman; A. Michael Spence.
FOR / / WITHHELD / /
FROM ALL
NOMINEES
/ /
--------------------------------------
For all nominees except withhold authority
from nominees written on line above
2. AMENDMENT TO THE 1990 EMPLOYEE STOCK PURCHASE PLAN:
Proposal to approve the amendment to the 1990 Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 3,900,000 shares, from 7,550,000 shares to 11,450,000 shares;
/ / FOR / / AGAINST / / ABSTAIN
3. AMENDMENT TO THE 1990 LONG-TERM EQUITY INCENTIVE PLAN:
Proposal to approve the amendment to the 1990 Long-Term Equity Incentive
Plan in order to increase the number of shares of Common Stock reserved for
issuance thereunder by 12,100,000 shares, from 13,250,000 shares to 25,350,000
shares;
/ / FOR / / AGAINST / / ABSTAIN
4. APPROVAL OF EXECUTIVE BONUS PLAN:
Proposal to approve the Section 162(m) Performance-Based Executive Bonus
Plan;
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meet ing or any adjournment or adjournments thereof.
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary ca pacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
Signature: _________________________ Date __________________________
Signature: _________________________ Date __________________________
<PAGE>
SUN MICROSYSTEMS, INC.
1990 EMPLOYEE STOCK PURCHASE PLAN
(Last amended August 9, 1995)
The following constitute the provisions of the 1990 Employee Stock Purchase
Plan of Sun Microsystems, Inc.
1. Purpose. The purpose of the Plan is to provide Employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an Employee Stock Purchase Plan" under
Section 423 of the Code. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a Committee designated by the Board to
administer the Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be exercised by the Board
and any references herein to the Committee shall be construed as references to
the Board.
(d) "Common Stock" shall mean the Common Stock, $0.00067 par value (as
adjusted from time to time), of the Company.
(e) "Company" shall mean Sun Microsystems, Inc., a Delaware corporation.
(f) "Compensation", unless otherwise determined by the Committee, shall
mean regular straight time gross earnings, variable compensation for field
sales personnel, certain incentive bonuses, payments for overtime, shift
premium, lead pay and automobile allowances, but shall exclude other
compensation.
(g) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Committee from time to time in its sole discretion as eligible
to participate in the Plan.
(h) "Employee" shall mean any individual whose customary employment with
the Company or any Designated Subsidiary is at least 20 hours per week and more
than five months in any calendar year. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company; provided that
where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
(i) "Enrollment Date" shall mean the first day of each Offering Period.
(j) "Exercise Date" shall mean the last day of each Exercise Period.
(k) "Exercise Period" shall mean a period commencing on an Enrollment
Date or on the day after an Exercise Date and which is of such duration as the
Committee shall determine.
<PAGE>
(l) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(i) the last reported sale of the Common Stock of the Company on
the NASDAQ National Market System or, if no such reported sale takes place on
any such day, the average of the closing bid and asked prices, or
(ii) if such Common Stock shall then be listed on a national
securities exchange, the last reported sale price or, if no such reported sale
takes place on any such day, the average of the closing bid and asked prices on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or
(iii) if such Common Stock shall not be quoted on such National
Market System nor listed or admitted to trading on a national securities
exchange, then the average of the closing bid and asked prices, as reported by
The Wall Street Journal for the over-the-counter market, or
(iv) if none of the foregoing is applicable, then the fair market
value of a share of Common Stock shall be determined by the Committee in its
discretion.
(m) "Offering Period" shall mean the period beginning with the date an
option is granted under the Plan and ending with the date determined by the
Committee. During the term of the Plan, the duration of each Offering Period
shall be determined from time to time by the Committee, provided that no
Offering Period may exceed 27 months in duration. If determined by the
Committee, an Offering Period may include one or more Exercise Periods.
(n) "Plan" shall mean this 1990 Employee Stock Purchase Plan.
(o) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(p) "Reserves" shall mean the number of shares of Common Stock covered
by each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or by a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or by a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges and
the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the total number of shares reserved and available for issuance
pursuant to the Plan shall be 11,450,000. The shares may be either authorized
but unissued or reacquired Common Stock.
4. Eligibility.
(a) Any Employee as defined in Section 2 who shall be employed by the
Company on a given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent or more
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<PAGE>
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary of the Company, or (ii) which permits his or her
rights to purchase stock in any calendar year under all employee stock purchase
plans of the Company and its Subsidiaries to exceed $25,000 worth of stock
(determined at the Fair Market Value of the shares at the time such option is
granted).
5. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods, each consisting of such number of Exercise Periods as the Committee
shall determine, and shall continue until terminated in accordance with Section
20 hereof. The first Offering Period shall commence on a date to be determined
by the Committee. The Committee shall have the power to change the duration of
Offering Periods and Exercise Periods with respect to future offerings without
stockholder approval if such change is announced at least 15 days prior to the
scheduled beginning of the first Offering Period and Exercise Period to be
affected.
6. Participation.
(a) An eligible Employee may become a participant in any Offering Period
under the Plan only by completing a subscription agreement authorizing payroll
deductions in form and substance satisfactory to the Committee and filing it
with the Company during the open enrollment period prior to the applicable
Enrollment Date, unless a later time for filing the subscription agreement is
set by the Committee for all eligible Employees with respect to a given Offering
Period.
(b) Payroll deductions for a participant shall commence on the first
payday following the Enrollment Date and shall continue until terminated by the
participant as provided in Section 11.
7. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made (under this Plan and all
employee stock purchase plans of the Company) on each payday during the Offering
Period in an amount not exceeding a total of 10% (or such other percentage as
the Committee may determine) of the Compensation which he or she receives on
each payday during the Offering Period, and the aggregate of such payroll
deductions (under this Plan and all employee stock purchase plans of the
Company) during the Offering Period shall not exceed a total of 10% (or such
other percentage as the Committee may determine) of the participant's
Compensation during said Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 11. A participant's subscription agreement shall remain
in effect for successive Offering Periods unless terminated as provided in
Section 11. To increase or decrease the rate of payroll deductions (within the
limitations of Section 7(a)), (i) with respect to the next Offering Period, a
participant must complete and file with the Company during the open enrollment
period prior to the Enrollment Date for such Offering Period, or (ii) with
respect to the next Exercise Period within the same Offering Period, a
participant must complete and file with the Company prior to the commencement
of the new Exercise Period within such Offering Period, a new subscription
agreement authorizing a change in payroll deduction rate. Except in the case of
authorized leaves of absence (which shall be governed by Section 11(c) below),
such change in rate shall be effective at the beginning of the next Offering
Period or Exercise Period, as the case may be, following the Company's receipt
of the new subscription agreement.
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(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 4(b) herein, a participant's
payroll deductions may be decreased to 0% by the Company at such time during any
Exercise Period which is scheduled to end during the current calendar year (the
"Current Exercise Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan (and any other employee
stock purchase plans of the Company) in a prior Exercise Period which ended
during the current calendar year plus all payroll deductions accumulated with
respect to the Current Exercise Period equals $21,250. Payroll deductions shall
recommence at the rate provided in such participant's subscription agreement at
the beginning of the first Exercise Period which is scheduled to end in a
subsequent calendar year, unless terminated by the participant as provided in
Section 11.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of by the participant, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefit attributable to sale or
early disposition by the participant of Common Stock under the Plan.
8. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible participant in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the applicable
Purchase Price) up to the number of shares of the Company's Common Stock
determined by dividing such participant's payroll deductions accumulated prior
to or on such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
a participant be permitted to purchase during any Offering Period more than the
number of shares determined to be the maximum permissible number (the Option
Cap") by the Committee with respect to the Offering Period prior to the
Enrollment Date. In the event that the Committee does not establish an Option
Cap prior to the Enrollment Date, the Option Cap shall be the number of shares
determined by dividing $100,000 by the Fair Market Value of a share of the
Company's Common Stock on the Enrollment Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 4(b), 7(d)
and 13 hereof. Exercise of the option shall occur as provided in Section 9,
unless the participant has withdrawn pursuant to Section 11, and such option
shall expire on the last day of the Offering Period.
9. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 11 below, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased. Any payroll deductions
remaining in a participant's account after an Exercise Date shall be retained in
the participant's account until the next Exercise Date within such Offering
Period, unless an over-subscription exists (as defined in Section 13(a)) or the
Offering Period has terminated with such Exercise Date, in which event such
amount shall be returned to the participant. During a participant's lifetime, a
participant's option to purchase shares hereunder is exercisable only by him or
her.
10. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of either
4
<PAGE>
a certificate representing the shares purchased upon exercise of his or her
option or other evidence of purchase.
11. Withdrawal; Termination of Employment.
(a) A participant may withdraw all (but not less than all) the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time prior to the close of an Exercise Period
by giving written notice to the Company in form and substance satisfactory to
the Committee. Such notice shall state whether the participant is withdrawing
only from the applicable Exercise Period or entirely from the Offering Period.
All of the participant's payroll deductions credited to his or her account will
be paid to such participant as promptly as practicable after receipt of notice
of withdrawal and such participant's option for the current Offering Period or
Exercise Period (as specified in the notice) will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offering Period or Exercise Period, as applicable. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement during the open enrollment period
preceding the commencement of a subsequent Offering Period. If a participant
withdraws from an Exercise Period, payroll deductions will not resume at the
beginning of any succeeding Exercise Period within the same Offering Period
unless written notice is delivered to the Company in form and substance
satisfactory to the Committee within the open enrollment period preceding the
commencement of the Exercise Period directing the Company to resume payroll
deductions.
(b) Upon a participant's ceasing to be an Employee for any reason or
upon termination of a participant's employment relationship (as described in
Section 2(g)), the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option will be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15, and such participant's option will
be automatically terminated.
(c) In the event a participant fails to remain an Employee of the
Company for at least 20 hours per week during an Offering Period in which the
Employee is a participant, he or she will be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to his or her account will be
returned to such participant and such participant's option terminated; provided
that (i) if an Employee shall take an unpaid leave of absence approved by the
Company in accordance with Section 2(g) of this Plan of more than 30 days during
an Offering Period in which the Employee is a participant, he or she will be
deemed to have withdrawn from the applicable Exercise Period on the 31st day of
such leave, and (ii) if an Employee shall take a paid leave of absence approved
by the Company in accordance with Section 2(g) of this Plan of more than 90 days
during an Offering Period in which the Employee is a participant, he or she will
be deemed to have withdrawn from the applicable Exercise Period on the earlier
of (aa) the 91st day if the Employee is paid for the entire 90 day leave, or
(bb) the last day upon which the Employee is paid provided he or she is paid for
at least 30 days. On the date upon which the Employee shall be deemed to have
withdrawn from the applicable Exercise Period, the payroll deductions credited
to his or her account will be returned to him or her, but he or she shall
continue to be a participant in the applicable Offering Period during such
authorized leave of absence until and unless such authorized leave of absence
terminates without his or her returning to his or her employment with the
Company.
(d) A participant's withdrawal from an Exercise Period (but not from the
Offering Period) will not have any effect upon his or her ability to participate
in subsequent Exercise Periods during the same Offering Period. However, a
participant's withdrawal from an Offering Period
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makes him or her ineligible for future participation in that Offering Period.
Withdrawal from an Exercise Period or from an Offering Period will not have any
effect upon a participant's eligibility to participate in a succeeding Offering
Period of the Plan or in any similar plan which may hereafter be adopted by the
Company, provided that a participant may elect to participate in a succeeding
Offering Period only during the open enrollment period for such Offering Period
and may not participate concurrently in more than one Offering Period.
(e) Notwithstanding the foregoing, unless otherwise determined by the
Committee, if the Fair Market Value on the Enrollment Date of an Offering Period
in which a participant is enrolled (the "Current Offering Period") is greater
than the Fair Market Value on the Enrollment Date of a succeeding Offering
Period (the "Succeeding Offering Period"), the participant's enrollment in the
Current Offering Period automatically will be terminated immediately following
the exercise of his or her option under the Current Offering Period on the
Exercise Date that occurs immediately prior to the Enrollment Date of the
Succeeding Offering Period, and the participant automatically will be enrolled
in the Succeeding Offering Period, unless the participant elects to remain in
the former Offering Period by delivery to the Company of a written notice in
form and substance satisfactory to the Committee.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan, as set forth in Section 3
hereof, is subject to adjustment upon changes in capitalization of the Company
as provided in Section 19. If, on a given Exercise Date, the number of shares
with respect to which options are to be exercised exceeds the number of shares
then available under the Plan (an "over-subscription"), the Committee shall make
a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant.
14. Administration. The Plan shall be administered by the Board or a
Committee of members of the Board appointed by the Board, as necessary to
comply with the applicable restrictions of Rule 16b-3, if any. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its Committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the option.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly
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designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw from an
Offering Period in accordance with Section 11.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate funds from such payroll deductions.
18. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the Reserves, as well as the price
per share of Common Stock covered by each outstanding option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Exercise Period and the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Committee. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Committee determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period (and, if applicable, the Exercise
Period) then in progress by setting a new Exercise Date (the "New Exercise
Date"). If the Committee shortens the Offering Period (and the Exercise Period,
if applicable) then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Committee shall notify each participant
in writing, at least 10 days prior to the New Exercise Date, that the Exercise
Date for his or her option has been changed to the New Exercise Date and that
his or her option will be exercised automatically on the New Exercise
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Date, unless prior to such date he or she has withdrawn from the Offering Period
or the Exercise Period as provided in Section 11. For purposes of this
paragraph, an option granted under the Plan shall be deemed to be assumed if,
following the sale of assets or merger, the option confers the right to
purchase, for each share of stock subject to the option immediately prior to the
sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the
Committee may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the sale of assets or merger.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
20. Amendment or Termination.
(a) The Board may at any time and for any reason amend or terminate the
Plan. Except as provided in Section 19, no such termination can affect options
previously granted, provided that the Plan (and any Offering Period thereunder)
may be terminated by the Board on any Exercise Date if the Board determines that
the termination of the Plan is in the best interests of the Company and its
stockholders. Except as provided in Section 19, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary and desirable to comply with Rule 16b-3
under the Securities Exchange Act of 1934, as amended, or Section 423 of the
Code (or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain stockholder approval in such a manner and
to such a degree as is required thereby.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Committee shall be entitled to change the Offering Periods, establish the
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, permit payroll withholding in excess of the amount designated by
a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the
Committee determines in its sole discretion advisable which are consistent with
the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
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22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law of the United States or other country or jurisdiction,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or quotation
system upon which the shares may then be listed or quoted, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company.
It shall continue in effect for a term of 20 years unless sooner terminated
under Section 20.
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SUN MICROSYSTEMS, INC.
1990 LONG-TERM EQUITY INCENTIVE PLAN
(Last amended on August 9, 1995)
1. Purpose of the Plan. The purpose of the Sun Microsystems, Inc. 1990
Long-Term Equity Incentive Plan is to enable Sun Microsystems, Inc. to provide
an incentive to eligible employees, consultants and Officers whose present and
potential contributions are important to the continued success of the Company,
to afford them an opportunity to acquire a proprietary interest in the Company,
and to enable the Company to enlist and retain in its employ the best available
talent for the successful conduct of its business. It is intended that this
purpose will be effected through the granting of (a) stock options, (b) stock
purchase rights, (c) stock appreciation rights, and (d) long-term performance
awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Committee or Committees referred to in Section
5 of the Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be exercised by the
Board.
(d) "Common Stock" means the Common Stock, $0.00067 par value (as
adjusted from time to time), of the Company.
(e) "Company" means Sun Microsystems, Inc., a corporation organized
under the laws of the state of Delaware, or any successor corporation.
(f) "Director" means a member of the Board.
(g) "Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) the last reported sale price of the Common Stock of the Company
on the NASDAQ National Market System or, if no such reported sale takes place on
any such day, the average of the closing bid and asked prices, or
(ii) if such Common Stock shall then be listed on a national
securities exchange, the last reported sale price or, if no such reported sale
takes place on any such day, the average of the closing bid and asked prices on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or
(iii) if such Common Stock shall not be quoted on such National
Market System nor listed or admitted to trading on a national securities
exchange, then the average of the closing bid and asked prices, as reported by
The Wall Street Journal for the over-the-counter market, or
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(iv) if none of the foregoing is applicable, then the Fair Market
Value of a share of Common Stock shall be determined by the Board in its
discretion.
(j) "Incentive Stock Option" means an Option intended to be and
designated as an Incentive Stock Option" within the meaning of Section 422 of
the Code.
(k) "Long-Term Performance Award" means an award under Section 10 below.
A Long-Term Performance Award shall permit the recipient to receive a cash or
stock bonus (as determined by the Committee) upon satisfaction of such
performance factors as are set out in the recipient's individual grant.
Long-Term Performance Awards will be based upon the achievement of Company,
Subsidiary and/or individual performance factors or upon such other criteria as
the Committee may deem appropriate.
(l) "Nonstatutory Stock Option" means any Option that is not an
Incentive Stock Option.
(m) "Officer" means an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(n) "Option" means any option to purchase shares of Common Stock granted
pursuant to Section 7 below.
(o) "Outside Director" means a Director who is not an employee of the
Company.
(p) "Plan" means this 1990 Long-Term Equity Incentive Plan, as
hereinafter amended from time to time.
(q) "Restricted Stock" means shares of Common Stock acquired pursuant to
a grant of Stock Purchase Rights under Section 9 below.
(r) "Right" means and includes Stock Appreciation Rights and Stock
Purchase Rights granted pursuant to the Plan.
(s) "Special Reserve" means a number of shares reserved and available
for issuance under the terms of the Plan equal to 3% of the total shares
reserved under the Plan as determined by and set forth under Section 4 below as
such section may be amended from time to time in accordance with the terms of
this Plan.
(t) "Stock Appreciation Right" means an award made pursuant to Section 8
below, which right permits the recipient to receive an amount of Common Stock or
cash equal in value to the difference between the Fair Market Value of Common
Stock on the date of grant of the Option and the Fair Market Value of Common
Stock on the date of exercise of the Stock Appreciation Right.
(u) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to a restricted stock purchase agreement entered into between the
Company and the purchaser under Section 9 below.
(v) "Subsidiary" means a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or by a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or by a Subsidiary.
In addition, the term "Rule 16b-3", the term "Performance Period" and the
terms "Tax Date" and "Insiders" shall have meanings set forth in Section 5(a),
Section 10 and Section 11, respectively.
3. Eligible Participants. Any Officer, consultant, or other employee of the
Company or of a Subsidiary whom the Committee deems to have the potential to
contribute to the future success
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of the Company shall be eligible to receive awards under the Plan; provided,
however, that any Options intended to qualify as Incentive Stock Options shall
be granted only to employees of the Company or its Subsidiaries.
4. Stock Subject to the Plan. Subject to Sections 12 and 13, the total
number of shares of Common Stock reserved and available for distribution
pursuant to the Plan shall be 25,350,000 shares. Subject to Sections 12 and 13
below, if any shares of Common Stock that have been optioned under an Option
cease to be subject to such Option (other than through exercise of the Option),
or if any Right, Option or Long-Term Performance Award granted hereunder is
forfeited or any such award otherwise terminates prior to the issuance to the
participant of Common Stock, the shares (if any) that were reserved for issuance
pursuant to such Right, Option or Long-Term Performance Award shall again be
available for distribution in connection with future awards or Option grants
under the Plan; provided, however, that shares of Common Stock that have
actually been issued under the Plan, whether upon exercise of an Option or Right
or in satisfaction of a Long-Term Performance Award, shall not in any event be
returned to the Plan and shall not become available for future distribution
under the Plan.
5. Administration.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3
promulgated under the Exchange Act or any successor rule thereto, as in effect
at the time that discretion is being exercised with respect to the Plan (Rule
16b-3"), and by the legal requirements relating to the administration of stock
plans such as the Plan, if any, of applicable securities laws, Delaware
corporate law and the Code (collectively, the "Applicable Laws"), the Plan may
(but need not) be administered by different administrative bodies with respect
to (A) Directors who are not employees, (B) Directors who are employees, (C)
Officers who are not Directors and (D) Employees who are neither Directors nor
Officers.
(ii) Administration with respect to Directors and Officers. With
respect to grants of Options, Rights and Long-Term Performance Awards to
eligible participants who are Officers or Directors of the Company, the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary grant or award plan, or (B) a Committee designated
by the Board to administer the Plan, which Committee shall be constituted (I) in
such a manner as to permit the Plan to comply with Rule 16b-3 as it applies to a
plan intended to qualify thereunder as a discretionary grant or award plan and
(II) in such a manner as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With respect to
grants of Options to eligible participants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(iv) General. Once a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 5(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary grant or
award plan.
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<PAGE>
(b) Authority. A Committee, if there be one, shall have full power to
implement and carry out the Plan, subject to the general purposes, terms, and
conditions of the Plan and to the direction of the Board (including the
specific duties delegated by the Board to such Committee), which power shall
include, but not be limited to, the following:
(i) to select the Officers, consultants and other employees of the
Company and/or its Subsidiaries to whom Options, Rights and/or Long-Term
Performance Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Options, Rights and/or
Long-Term Performance Awards, or any combination thereof, are granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option or other
award and/or the shares of Common Stock relating thereto, based in each case on
such factors as the Committee shall determine, in its sole discretion);
(vi) to determine whether and under what circumstances an Option
may be settled in cash or Restricted Stock under Section 7(j) instead of Common
Stock;
(vii) to determine the form of payment that will be acceptable
consideration for exercise of an Option or Right granted under the Plan;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of any
deemed earnings on any deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option or Right;
(x) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Rights.
The Committee shall have the authority to construe and interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan.
6. Duration of the Plan. The Plan shall remain in effect until terminated
by the Board under the terms of the Plan, provided that in no event may
Incentive Stock Options be granted under the Plan later than October 15, 2000,
10 years from the date the Plan was adopted by the Board.
7. Stock Options. The Committee, in its discretion, may grant Options to
eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a written Option agreement which shall expressly identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option, and be in
such form and contain such provisions as the Committee shall from time to time
deem appropriate. Without limiting the foregoing, the Committee may, at any
time, or from time to time, authorize the Company, with the consent of the
respective recipients, to issue new Options including Options in exchange for
the surrender and cancellation of any or all outstanding Options or Rights.
Option agreements shall contain the following terms and conditions:
4
<PAGE>
(a) Exercise Price; Number of Shares. The exercise price of the Option,
which shall be approved by the Committee, must be equal to or greater than the
Fair Market Value of the Common Stock at the time the Option is granted;
provided, however, that in the case of a Nonstatutory Stock Option, the price
may be less than (but no less than 85%) of the Fair Market Value of the Common
Stock on the date the Option is granted, if such Option is granted, in the
discretion of the Board or Committee, as the case may be, expressly in lieu of a
reasonable amount of salary or compensation due the recipient of the Option. In
addition, Nonstatutory Stock Options may be granted at an exercise price less
than Fair Market Value of the Common Stock at the time the Option is granted,
provided that such grant is out of and subject to the limitations of the
Special Reserve and, provided further, that in the case of an Insider, (as
defined in Section 11 hereof), the exercise price shall be no less than 50% of
the Fair Market Value of the Common Stock on the date the Option is granted.
The Option agreement shall specify the exercise price and the number of
shares of Common Stock to which it pertains.
(b) Waiting Period; Exercise Dates; Term. At the time an Option is
granted, the Committee will determine the terms and conditions to be satisfied
before shares may be purchased, including the dates on which shares subject to
the Option may first be purchased. The Committee may specify that an Option may
not be exercised until the completion of the waiting period specified at the
time of grant. (Any such period is referred to herein as the "waiting period.")
At the time an Option is granted, the Committee shall fix the period within
which such Option may be exercised, which shall not be less than the waiting
period, if any, nor, in the case of an Incentive Stock Option, more than 10
years from the date of grant.
(c) Form of Payment. The consideration to be paid for the shares of
Common Stock to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee (and, in the case of an Incentive
Stock Option, shall be determined at the time of grant) and may consist entirely
of (i) cash, (ii) certified or cashier's check, (iii) promissory note, (iv)
other shares of Common Stock (including, in the discretion of the Committee,
Restricted Stock) which (x) either have been owned by the optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the shares as to which said
Option shall be exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) delivery of an irrevocable subscription agreement for the shares which
obligates the option holder to take and pay for the shares not more than 12
months after the date of delivery of the subscription agreement or (vii) any
combination of the foregoing methods of payment.
(d) Effect of Termination of Employment or Death of Employee
Participants. In the event that an optionee during his or her lifetime ceases to
be an employee of the Company or of any Subsidiary for any reason, including
retirement, any Option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination of employment, shall expire
within such time period as is determined by the Committee; provided, however,
that in the case of an Incentive Stock Option the Option shall expire unless
exercised within a period of 90 days from the date on which the optionee ceased
to be an employee, but in no event after the expiration of the term of such
Option as set forth in the Option agreement. If in any case the Committee shall
determine that an employee shall have been discharged for Just Cause (as
defined below) such employee shall not thereafter have any rights under the Plan
or any Option that shall have been granted to him
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<PAGE>
or her under the Plan. For purposes of this Section, "Just Cause" means the
termination of employment of an employee shall have taken place as a result of
(i) willful breach or neglect of duty; (ii) failure or refusal to work or to
comply with the Company's rules, policies, and practices; (iii) dishonesty;
(iv) insubordination; (v) being under the influence of drugs (except to the
extent medically prescribed) or alcohol while on duty or on Company premises;
(vi) conduct endangering, or likely to endanger, the health or safety of another
employee; or (vii) conviction of a felony. In the event of the death of an
employee optionee, that portion of the Option which had become exercisable on
the date of death shall be exercisable by his or her personal representatives,
heirs, or legatees within six months or such time period as is determined by the
Committee (but in the case of an Incentive Stock Option, in no event after the
expiration of the term of such Option as set forth in the Option agreement.) In
the event of the death of an optionee within one month after termination of
employment or service, that portion of the Option which had become exercisable
on the date of termination shall be exercisable by his or her personal
representatives, heirs, or legatees within six months or such time period as is
determined by the Committee (but in the case of an Incentive Stock Option, in no
event after the expiration of the term of such Option as set forth in the Option
agreement.) In the event that an optionee ceases to be an employee of the
Company or of any Subsidiary for any reason, including death or retirement,
prior to the lapse of the waiting period, if any, his or her Option shall
terminate and be null and void.
(e) Leave of Absence. The employment relationship shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days (or not more than 30 days for
unpaid leave), unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing; or (iv) in the case of transfer between
locations of the Company or between the Company, its Subsidiaries or its
successor. In the case of any employee on an approved leave of absence, the
Committee may make such provisions respecting suspension of vesting of the
Option while on leave from the employ of the Company or a Subsidiary as it may
deem appropriate, except that in no event shall an Option be exercised after the
expiration of the term set forth in the Option agreement.
(f) Acceleration of Exercisability or Waiting Period. The Committee may
accelerate the earliest date on which outstanding Options (or any installments
thereof) are exercisable.
(g) Special Incentive Stock Option Provisions. In addition to the
foregoing, Options granted under the Plan which are intended to be Incentive
Stock Options under Section 422 of the Code shall be subject to the following
terms and conditions:
(i) Dollar Limitation. To the extent that the aggregate Fair Market
Value of the shares of Common Stock with respect to which Options designated as
Incentive Stock Options become exercisable for the first time by any individual
during any calendar year (under all plans of the Company) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of the
preceding sentence, (i) Options shall be taken into account in the order in
which they were granted and (ii) the Fair Market Value of the shares shall be
determined as of the time the Option with respect to such shares is granted.
(ii) 10% Stockholder. If any person to whom an Incentive Stock
Option is to be granted pursuant to the provisions of the Plan is, on the date
of grant, the owner of Common Stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined
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voting power of all classes of stock of the Company or of any Subsidiary, then
the following special provisions shall be applicable to the Incentive Stock
Option granted to such individual:
(A) The exercise price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of the Common Stock on the date of grant; and
(B) The Option shall not have a term in excess of five years
from the date of grant.
Except as modified by the preceding provisions of this Subsection 7(g)
and except as otherwise required by Section 422 of the Code, all of the
provisions of the Plan shall be applicable to the Incentive Stock Options
granted hereunder.
(h) Other Provisions. Each Option granted under the Plan may contain
such other terms, provisions, and conditions not inconsistent with the Plan as
may be determined by the Committee.
(i) Options to Consultants. Options granted to consultants shall not be
subject to Sections 7(b) and 7(d) of the Plan, but shall have such terms and
conditions pertaining to waiting period (if any), exercise date, and effect of
termination of the consulting relationship as the Committee shall determine in
each case.
(j) Buyout Provisions. The Committee may at any time offer to buy out,
for a payment in cash or Common Stock (including Restricted Stock), an Option
previously granted, based on such terms and conditions as the Committee shall
establish and communicate to the optionee at the time that such offer is made.
Any such offer made to an Officer or Director shall comply with the applicable
provisions of Rule 16b-3. This provision is intended only to clarify the powers
of the Committee and shall not in any way be deemed to create any rights on the
part of optionees to receive buyout offers or payments.
(k) Rule 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions, if any, as may be required by Rule 16b-3 to be in
the written Option agreement in order to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
(l) Limitations on Grants to Employees. Notwithstanding anything to the
contrary herein, the following limitations shall apply to grants of Options:
(i) No eligible participant shall be granted, in any fiscal year of
the Company, Options to purchase more than 150,000 shares.
(ii) In connection with his or her initial employment, an eligible
participant may be granted Options to purchase up to an additional 200,000
shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
(iv) If an Option is cancelled (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limit set forth in this paragraph 1. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
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8. Stock Appreciation Rights. Stock Appreciation Rights may be granted only
in connection with an Option, either concurrently with the grant of the Option
or at any time thereafter during the term of the Option. The following
provisions apply to such Stock Appreciation Rights.
(a) Exercise of Right. The Stock Appreciation Right shall entitle the
optionee to exercise the Right by surrendering to the Company unexercised a
portion of the underlying Option as to which Optionee has a right to exercise.
The Optionee shall receive in exchange from the Company an amount in cash or
Common Stock equal in value to the excess of (x) the Fair Market Value on the
date of exercise of the Right of the Common Stock covered by the surrendered
portion of the underlying Option over (y) the exercise price of the Common Stock
covered by the surrendered portion of the underlying Option, as determined in
accordance with Section 7(a) above. Notwithstanding the foregoing, the
Committee may place limits on the amount that may be paid upon exercise of a
Stock Appreciation Right; provided, however, that such limit shall not restrict
the exercisability of the underlying Option.
(b) Option Cancelled. When a Stock Appreciation Right is exercised, the
underlying Option, to the extent surrendered, shall no longer be exercisable.
(c) Exercisability Requirement. A Stock Appreciation Right shall be
exercisable only when and to the extent that the underlying Option is
exercisable and shall expire no later than the date on which the underlying
Option expires.
(d) In-the-Money Requirement. A Stock Appreciation Right may only be
exercised at a time when the Fair Market Value of the Common Stock covered by
the underlying Option exceeds the exercise price of the Common Stock covered by
the underlying Option.
(e) Incentive Stock Option Requirements. In the event that a Stock
Appreciation Right is granted that relates to an Incentive Stock Option, such
Right shall contain such additional or different terms as may be necessary under
applicable regulations to preserve treatment of the Incentive Stock Option as
such under Section 422 of the Code.
(f) Form of Payment. The Company's obligation arising upon the exercise
of a Stock Appreciation Right may be paid currently or on a deferred basis (with
such interest or earnings equivalent as may be determined by the Committee), and
may be paid in Common Stock or in cash, or in any combination of Common Stock
and cash, as the Committee in its sole discretion may determine. Shares of
Common Stock issued upon the exercise of a Stock Appreciation Right shall be
valued at the Fair Market Value of the Common Stock as of the date of exercise.
(g) Rule 16b-3. Stock Appreciation Rights granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain
such additional conditions or restrictions, if any, as may be required by Rule
16b-3 to be in the written Right agreement in order to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan transactions.
Such a person may only make an election to receive cash in full or partial
settlement of the Stock Appreciation Right or exercise a Stock Appreciation
Right during such time or times as are permitted by paragraph (e) of Rule 16b-3
or any successor provision.
9. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Committee determines that
it will offer Stock Purchase Rights under the Plan, it shall advise the offeree
in writing of the terms, conditions and restrictions related to the offer,
including
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the number of shares of Common Stock that such person shall be entitled to
purchase, the price to be paid, which price in the case of Insiders (as defined
in Section 11) shall not be more than $0.00067 per share (the par value of the
Company's Common Stock, as adjusted from time to time, and the minimum price
permitted by the Delaware General Corporation Law), and the time within which
such person must accept such offer, which shall in no event exceed 60 days from
the date the Stock Purchase Right was granted. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Committee. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. The Restricted Stock purchase agreement shall
grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or Disability). The purchase price for shares
repurchased pursuant to the Restricted Stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
as to not more than 50% of such shares at a date not earlier than 2-1/2 years
from the date of grant of the Restricted Stock and as to the remaining shares at
a date not earlier than 5 years from the date of grant of the Restricted Stock.
The Committee shall exercise its repurchase option in accordance with the above.
Notwithstanding the foregoing, with respect to Restricted Stock granted out of
and subject to the restrictions of the Special Reserve, the Committee may in its
discretion exercise its repurchase option and such repurchase option shall lapse
as to such shares at such a rate as the Committee may, in its discretion,
determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Committee in its sole discretion. In addition,
the provisions of Restricted Stock purchase agreements need not be the same
with respect to each purchaser.
10. Long-Term Performance Awards.
(a) Awards. Long-Term Performance Awards are cash or stock bonus awards
that may be granted either alone, in addition to or in tandem with other awards
granted under the Plan and/or awards made outside of the Plan. Long-Term
Performance Awards shall not require payment by the recipient of any
consideration for the Long-Term Performance Award or for the shares of Common
Stock covered by such award. The Committee shall determine the nature, length
and starting date of any performance period (the "Performance Period") for each
Long-Term Performance Award and shall determine the performance and/or
employment factors to be used in the determination of the value of Long-Term
Performance Awards and the extent to which such Long-Term Performance Awards
have been earned. Shares issued pursuant to a Long-Term Performance Award may be
made subject to various conditions, including vesting or forfeiture provisions.
Long-Term Performance Awards may vary from participant to participant and
between groups of participants and shall be based upon the achievement of
Company, Subsidiary and/or individual performance factors or upon such other
criteria as the Committee may deem appropriate. Performance Periods may overlap
and participants may participate simultaneously with respect to Long-Term
Performance Awards that are subject to different Performance Periods and
different performance factors and criteria. Long-Term Performance Awards shall
be confirmed by, and be subject to the terms of, a written Long-Term Performance
Award agreement.
(b) Value of Awards. At the beginning of each Performance Period, the
Committee may determine for each Long-Term Performance Award subject to such
Performance Period the range of dollar values and/or numbers of shares of Common
Stock to be issued to the participant at the end of the Performance Period if
and to the extent that the relevant measures of performance for
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such Long-Term Performance Award are met. Such dollar values or numbers of
shares of Common Stock may be fixed or may vary in accordance with such
performance or other criteria as may be determined by the Committee.
(c) Adjustment of Awards. Notwithstanding the provisions of Section 20
hereof, the Committee may, after the grant of Long-Term Performance Awards,
adjust the performance factors applicable to such Long-Term Performance Awards
to take into account changes in the law or in accounting or tax rules and to
make such adjustments as the Committee deems necessary or appropriate to reflect
the inclusion or exclusion of the impact of extraordinary or unusual items,
events or circumstances in order to avoid windfalls or hardships.
(d) Termination. Unless otherwise provided in the applicable Long-Term
Performance Award agreement, if a participant terminates his or her employment
or his or her consultancy during a Performance Period because of death or
Disability, the Committee may in its discretion provide for an earlier payment
in settlement of such award, which payment may be in such amount and under such
terms and conditions as the Committee deems appropriate.
Unless otherwise provided in the applicable Long-Term Performance
Award agreement, if a participant terminates employment or his or her
consultancy during a Performance Period for any reason other than death or
Disability, then such a participant shall not be entitled to any payment with
respect to the Long-Term Performance Award subject to such Performance Period,
unless the Committee shall otherwise determine in its discretion.
(e) Form of Payment. The earned portion of a Long-Term Performance Award
may be paid currently or on a deferred basis (with such interest or earnings
equivalent as may be determined by the Committee). Payment shall be made in the
form of cash or whole shares of Common Stock, including Restricted Stock, or a
combination thereof, either in a lump sum payment or in installments, all as
the Committee shall determine.
(f) Reservation of Shares. In the event that the Committee grants a
Long-Term Performance Award that is payable in cash or Common Stock, the
Committee may (but need not) reserve an appropriate number of shares of Common
Stock under the Plan at the time of grant of the Long-Term Performance Award. If
and to the extent that the full amount reserved is not actually paid in Common
Stock, the shares of Common Stock representing the portion of the reserve for
that Long-Term Performance Award that is not actually issued in satisfaction of
such Long-Term Performance Award shall again become available for award under
the Plan. If shares of Common Stock are not reserved by the Committee at the
time of grant, then (i) no shares shall be deducted from the number of shares
available for grant under the Plan at that time and (ii) at the time of payment
of the Long-Term Performance Award, only the number of shares actually issued to
the participant shall be so deducted. If there are not a sufficient number of
shares available under the Plan for issuance to a participant at the time of
payment of a Long-Term Performance Award, any shortfall shall be paid by the
Company in cash.
(g) Rule 16b-3. Grants of Long-Term Performance Awards to Directors and
Officers must comply with the applicable provisions of Rule 16b-3 and such
Long-Term Performance Awards shall contain such additional conditions or
restrictions, if any, as may be required by Rule 16b-3 to be in the written
agreement relating to such LongTerm Performance Awards in order to qualify for
the maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
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11. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Ability to Use Stock for Withholding. When a participant incurs tax
liability in connection with the exercise or vesting of any Option, Right or
Long-Term Performance Award, which tax liability is subject to tax withholding
under applicable tax laws, and the participant is obligated to pay the Company
an amount required to be withheld under applicable tax laws, the participant may
satisfy the withholding tax obligation by electing to have the Company withhold
from the shares to be issued that number of shares having a Fair Market Value
equal to the amount required to be withheld. The Fair Market Value of the shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
(b) Elections to Have Stock Withheld. All elections by participants to
have shares withheld for this purpose shall be made in writing in a form
acceptable to the Committee and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular shares as to which the election is made (unless otherwise permitted
by applicable tax regulations under the Code);
(iii) all elections shall be subject to the consent or disapproval
of the Committee; and
(iv) if the participant is an Officer or Director of the Company or
other person whose transactions in Common Stock are subject to Section 16(b) of
the Exchange Act (collectively "Insiders"), the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(c) Section 83(b) Election. In the event the election to have shares
withheld is made by a participant, no election is filed under Section 83(b) of
the Code and the Tax Date is deferred under Section 83 of the Code, the
participant shall receive the full number of shares with respect to which the
exercise occurs, but such participant shall be unconditionally obligated to
tender back to the Company the proper number of shares on the Tax Date.
12. Recapitalization. In the event that dividends are payable in Common
Stock or in the event there are splits, subdivisions, or combinations of shares
of Common Stock, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares of Common Stock deliverable in connection with any Option, Right or
LongTerm Performance Award theretofore granted shall be increased or decreased
proportionately, as the case may be, without change in the aggregate purchase
price (where applicable).
13. Reorganization. In case the Company is merged or consolidated with
another corporation and the Company is not the surviving corporation, or in case
the property or stock of the Company is acquired by another corporation, or in
case of separation, reorganization, or liquidation of the Company, the
Committee, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall, as to outstanding Options, Rights or Long-Term
Performance Awards either (a) make appropriate provision for the protection of
any such outstanding Options, Rights or Long-Term Performance Awards by the
assumption or substitution on an equitable basis of appropriate stock of the
Company or of the merged, consolidated, or otherwise reorganized corporation
which will be issuable in respect to the shares of Common Stock, provided that
in the case
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of Incentive Stock Options, such assumption or substitution comply with Section
424(a) of the Code, or (b) upon written notice to the participant, provide that
the Option or Right must be exercised within 30 days of the date of such notice
or it will be terminated. In any such case, the Committee may, in its
discretion, advance the lapse of vesting periods, waiting periods, and exercise
dates.
14. Employment or Consulting Relationship. Nothing in the Plan or any award
made hereunder shall interfere with or limit in any way the right of the Company
or of any Subsidiary to terminate any recipient's employment or consulting
relationship at any time, with or without cause, nor confer upon any recipient
any right to continue in the employ or service of the Company or any Subsidiary.
15. General Restriction. Each award shall be subject to the requirement
that, if, at any time, the Committee shall determine, in its discretion, that
the listing, quotation, registration, or qualification of the shares subject to
such award upon any securities exchange or quotation system or under any state
or federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, such award or
the issue or purchase of shares thereunder, such award may not be exercised in
whole or in part unless such listing, quotation, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Committee.
16. Rights as a Stockholder. The holder of an Option, Right or Long-Term
Performance Award shall have no rights as a stockholder with respect to any
shares covered by such Option, Right or Long-Term Performance Award until the
date of exercise. Once an Option, Right or Long-Term Performance Award is
exercised by the holder thereof, the participant shall have the rights
equivalent to those of a stockholder, and shall be a stockholder when his or her
holding is entered upon the records of the duly authorized transfer agent of the
Company. Except as otherwise expressly provided in the Plan, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
17. Nonassignability of Awards. No awards made hereunder, including
Options, Rights and Long-Term Performance Awards, shall be assignable or
transferable by the recipient other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder, and in no event shall such awards be assigned or transferred in a
manner that is inconsistent with the specific Plan provisions relating thereto.
The designation of a beneficiary by a participant does not constitute a
transfer. During the life of the recipient, an Option, Right or Long-Term
Performance Award shall be exercisable only by him or her or by a transferee
permitted by this Section 17.
18. Withholding Taxes. Whenever, under the Plan, shares are to be issued in
satisfaction of Options, Rights or Long-Term Performance Awards granted
hereunder, the Company shall have the right to require the recipient to remit to
the Company an amount sufficient to satisfy federal, state, and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever, under the Plan, payments are to be made
to participants in cash, such payments shall be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.
19. Nonexclusivity of the Plan. Neither the adoption or amendment of the
Plan by the Board, the submission of the Plan or any amendments thereto to the
stockholders of the Company for approval, nor any provision of the Plan shall be
construed as creating any limitations on the power of the Board or the Committee
to adopt and implement such additional compensation arrangements as it may deem
desirable, including, without limitation, the awarding of cash or the granting
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of stock options, stock appreciation rights, stock purchase rights or long-term
performance awards outside of the Plan, and such arrangements may be either
generally applicable to a class of employees or consultants or applicable only
in specified cases.
20. Amendment, Suspension, or Termination of the Plan. The Board may at any
time amend, alter, suspend, or terminate the Plan, but no amendment, alteration,
suspension, or termination shall be made which would impair the rights of any
grantee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or under Section 422 of the Code (or any other Applicable Law),
the Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as is required by such Applicable Law.
21. Effective Date of the Plan. The Plan shall become effective upon
approval of the Board and shall be subject to stockholder approval within 12
months of adoption by the Board. Options, Rights and Long-Term Performance
Awards may be granted and exercised under the Plan only after there has been
compliance with all applicable federal and state securities laws.
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SUN MICROSYSTEMS, INC.
SECTION 162(m) EXECUTIVE OFFICER
PERFORMANCE-BASED BONUS PLAN
(as adopted August 9, 1995)
1. PURPOSE
The purpose of this Plan is to motivate eligible executives to
achieve financial performance objectives of Sun Microsystems, Inc.
(the "Company") and to reward them when those objectives are met.
The Plan is designed to reinforce desired management behaviors, such
as leadership, teamwork, customer focus, planning and management.
The Plan is also designed to ensure that the annual bonus paid
hereunder to such executive officers of the Company is deductible
under Section 162(m) of the Internal Revenue Code of 1986, as
amended, and the regulations and interpretations promulgated
thereunder (the"Code").
2. COVERED INDIVIDUALS
The individuals entitled to bonus payments hereunder shall be
certain of the Company's executive officers as determined by the
Committee at the beginning of each fiscal year.
3. THE COMMITTEE
The Committee shall consist of at least two outside directors of the
Company that satisfy the requirements of Code Section 162(m). The
Committee shall have the sole discretion and authority to administer
and interpret the Plan in accordance with Code Section 162(m).
4. AMOUNT OF BONUS
Annual bonus payments are made in cash. The Committee shall
determine a dollar-denominated target award opportunity for each
participant based on the participant's salary and level of
responsibility. Prior to the beginning of the applicable fiscal year
(or prior to such other date as may be permitted under Code Section
162(m)), the Committee will approve corporate, financial and
business performance measures for such fiscal year consistent with
the Company's annual business plan. The Committee shall base its
performance measures and targets on one or more of various financial
metrics, including earnings per share, revenue, operating income,
profitability, return on assets (including return on assets before
interest and taxes, asset turns and inventory turns). In addition,
the Committee may also base certain performance measures on customer
quality and satisfaction indices and metrics; market share criteria;
product development, introduction and volume criteria; internal
operational criteria and management objectives. All of these
performance measures are designed to relate directly to value
creation, profitability and growth. For example, the target awards
and performance measures set for participants hereunder with respect
to FY96, shall be the same as those set forth in the Company's FY96
Executive Bonus Plan, applicable to other executive officers, not
otherwise covered hereunder. No bonus amount in excess of $5,000,000
will be paid to any executive officer participant in any fiscal
year. The Committee may also reduce an individual's maximum bonus
award calculated in accordance with the Committee's approved
performance criteria, as described above, in its sole discretion.
The bonus payable hereunder shall be in lieu of any bonus payable
under any other of the Company's Executive Bonus Plans.
<PAGE>
5. PAYMENT OF BOUNUS
The payment of a given year's bonus requires that the executive
officer be on the Company's payroll as of June 30 of the bonus year
(fiscal year end). The Committee may make exceptions to this
requirement in the case of retirement, death or disability, as
determined by the Committee in its sole discretion. No bonus shall
be paid unless and until the Committee certifies in writing that the
performance goals of this Plan are satisfied.
6. ELIGIBLE WAGES
Eligible wages to determine participant's salary (and therefore,
participant's target award) are equal to an employee's base salary
prorated by the number of days during which they earn that salary in
the applicable executive position. If participants receive an
increase during the year, this is prorated and included in their
eligible wages. Eligible wages do not include relocation allowances
and reimbursements, tuition reimbursements, car/transportation
allowances, expatriate allowances, disability payments, and other
bonuses paid during the fiscal year.
7. GENERAL
The establishment of the Plan shall not confer any legal rights upon
any employee or other person for a continuation of employment, nor
shall it interfere with the rights of the Company to discharge any
employee and treat him or her without regard to the effect which
that treatment might have upon him or her as a participant in the
Plan. The laws of the State of California will govern any legal
dispute involving the Plan.
8. AMENDMENT AND TERMINATION
The Committee reserves the right to amend or terminate this Plan at
any time with respect to future services of covered individuals.
Plan amendments will require stockholder approval only to the extent
required by applicable law.
