SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- - - ----- Act of 1934 [Fee Required] for the fiscal year ended June 30, 1995, or
- - - ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to
---------- ----------
Commission file number: 0-15086
SUN MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2805249
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(State of incorporation) (I.R.S. Employer Identification No.)
2550 Garcia Avenue
Mountain View, CA 94043-1100
(Address of principal executive offices, including zip code)
(415) 960-1300
(Registrant's telephone number, including area code)
----------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Common Share Purchase Rights
----------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of September 5, 1995, was approximately $5,555,000,000 based upon
the last sale price reported for such date on the NASDAQ National Market System.
For purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the Registrant have been excluded because such persons
may be deemed to be affiliates. This determination is not necessarily
conclusive.
The number of shares of the Registrant's Common Stock outstanding as of
September 5, 1995 was 94,976,613.
------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Annual Report to Stockholders for the fiscal year ended June 30,
1995 are incorporated by reference into Items 1, 5, 6, 7, 8 and 14 hereof.
Parts of the Proxy Statement for the 1995 Annual Meeting of Stockholders are
incorporated by reference into Items 10, 11, 12 and 13 hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
General
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Sun Microsystems, Inc. ("Sun" or the "Company") is a leading supplier of network
computing products including workstations, servers, software, microprocessors,
and a full range of services and support. Sun's products command a significant
share of a rapidly growing segment of the computer industry: networked
workstations and servers. The Company's products are used for many demanding
commercial and technical applications in various industries. Sun has
differentiated itself from its competitors by its commitment to the network
computing model and the UNIX operating system, its rapid innovation and its open
systems architecture. The Company's objective is to be the leading provider of
network computing products and technologies to enterprises worldwide.
Sun operates in a single industry segment and conducts its business through
principal operating entities and divisions organized around the Company's
principal areas of added value. The individual businesses generally operate
independently within their charters, but with the common corporate strategic
vision of being a leading force in network computing. Sun believes this
organizational structure allows it to more efficiently focus on its customers
and the products, channels and markets necessary to serve them. Sun's primary
operating businesses are as follows:
Sun Microsystems Computer Company ("SMCC") - SMCC, a principal operating
business of the Company, is responsible for designing, manufacturing, selling
and supporting workstations and servers incorporating the Scalable Processor
Architecture ("SPARC") for open network computing environments. These
workstations and servers are offered with the Solaris software environment,
licensed by SMCC from SunSoft, Inc.
SunService Division ("SunService")- A leading UNIX service organization,
SunService provides a wide range of global services for heterogeneous network
computing environments, including system support, education, information
technology (IT) consulting, systems integration, and system/network management.
SunSoft, Inc. ("SunSoft") - SunSoft develops, markets, supplies and supports
Solaris, a leading 32-bit UNIX operating system software environment for
enterprise-wide distributed computing environments on SPARC and other volume
platforms. SunSoft also offers software products for enterprise networking,
professional software development, network management and PC desktop
integration.
SPARC Technology Business - SPARC Technology Business designs and develops high
performance SPARC microprocessors, as well as enabling technologies, for SMCC
and third party customers.
SunExpress, Inc. ("SunExpress") - SunExpress, Sun's aftermarketing company,
offers easy ordering and quick delivery of accessories, spare parts, options,
software and third party products to Sun's installed base and other customers.
SunExpress offers competitive prices and high quality services to customers in
the aftermarket using innovative direct marketing techniques.
Sun's network computing model and its hardware and software implementations have
attracted a large number of software vendors to port their applications to Sun
platforms, including an increasing number of vendors of commercial applications.
The availability of such third-party software provides Sun and its customers
with competitive advantage and strengthens the Company's presence in network
computing.
- - - ---------------
Sun, the Sun Logo, Sun Microsystems, SunExpress, SunSoft, SunService, NFS, ONC+,
Solaris, Solstice, Netra, PC-NFS, SolarNet, SunNet Manager, SunSoft Workshop,
Sun FORTRAN, Sun Ada, SunPC, Wabi, Sunergy, and SunSpectrum are trademarks,
registered trademarks or servicemarks of Sun Microsystems, Inc. in the United
States and other countries. All SPARC trademarks, including the SCD Compliant
logo, are used under license and are trademarks or registered trademarks of
SPARC International, Inc. in the United States and other countries. Products
bearing SPARC trademarks are based upon an architecture developed by Sun
Microsystems, Inc. UNIX is a registered trademark in the United States and other
countries, exclusively licensed through X/Open Company Ltd.
<PAGE>
Products
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Sun believes that customers increasingly demand computer systems that do not
limit them to any one vendor's proprietary technology. To respond to customer
needs, Sun has been a proponent of the open systems strategy, based on industry
standards such as POSIX, X/OPEN and the SPARC Compliance Definition ("SCD").
This open systems strategy offers users and software developers the benefits of
compatibility, interoperability, portability, upgradeability and scalability in
products. Sun's open systems architecture protects existing customer investments
while providing customers with new, innovative technology to allow them to be
competitive in their own markets.
Systems
Sun's workstations span the range from low-cost X-terminals to high-performance
color graphics systems. Its multiprocessing servers can provide various
resources, including filesharing, system administration, and database and
network management. As a filesharing resource, a server enables users to access
data distributed across multiple storage devices and networks.
The current desktop workstation line includes the low-end SPARCXterminal 1, the
low-end color SPARCstation 4, the SPARCstation 5 and the high performance
SPARCstation 20 series of uniprocessor and multiprocessor systems.
The SPARCXterminal 1 computer is the only X-terminal to feature a low-cost,
plug-and-play upgrade to a SPARC workstation, so that users can continue to
maximize their current investment as their computing needs evolve.
The SPARCstation 4 is a low priced, fully configured color workstation. Based on
the 85 MHz microSPARC II processor, this compact desktop system is designed to
satisfy users who demand a low-cost color system that still offers high
performance, networking and flexibility.
The SPARCstation 5 is an accelerated graphics workstation and is one of the
industry's lowest priced 24-bit color systems. Based on the 110 MHz microSPARC
II processor, this workstation is designed for customers seeking expandability
and fast application performance.
The SPARCstation 20 series represents Sun's line of its highest performance
workstations and offers a combination of high-end workstation performance and
functionality at a competitive price. Available in both uniprocessor and
multiprocessor versions, the SPARCstation 20 line achieves higher performance
from the use of 50 MHz (in entry level systems) and 75MHz SuperSPARC processors
and 125 MHz HyperSPARC processors, as well as high performance motherboards and
ASICs. Designed for users needing more specialized graphics power, the
SPARCstation 20 features a broad complement of graphics computing capabilities,
such as 24-bit color and built-in imaging acceleration.
The Company offers a wide range of servers from the low-end SPARCserver 4 and
SPARCserver 5, two low-cost entry servers for small workgroups, to the
SPARCcenter 2000, a high-end, enterprise-wide multiprocessor server. Midrange
servers include the SPARCserver 20 and SPARCserver 1000. These servers are
balanced, high-performance multipurpose platforms that are designed for fast
input-output and distributed computing. They can also function as computational
servers for technical applications such as simulation and analysis for
electrical and mechanical CAD. These systems offer a range of main memory and
hard disk storage configurations, as well as ease of expandability. The
SPARCserver 20 is a competitively priced RISC-based multiprocessing UNIX server
with a modular design that provides workgroup users with an easy upgrade path to
future processor technologies. The SPARCserver 1000 is a powerful, scalable,
versatile, upgradeable and affordable departmental UNIX server in an extremely
compact package. The SPARCcenter 2000 is Sun's high-end server for the data
center and the enterprise. Based on up to twenty 60MHz SPARC microprocessors,
the SPARCcenter 2000 delivers competitive results in NFS file server
performance, system computational performance, and multi-user throughput. The
Company's Netra servers, a line of "turnkey" packaged servers which include
integrated hardware and software, offer specialized capabilities such as
providing system management or Internet functionality. Sun also offers the
SPARCstorage Array Model 100 Series, a storage subsystem utilizing RAID
technology, Sun's affordable, high availability disk storage subsystem.
<PAGE>
System Software
The system software environment is a key component of network computing. The
Company continues to focus on developing Solaris (an open client-server UNIX
system software environment now offered on SPARC and Intel platforms; Solaris
for the PowerPC platform is currently under development) as the Company believes
it derives competitive advantage from the stability resulting from its many
years of experience with operating system software. The Company's principal
software products are as follows:
Solaris - Solaris products include all desktop, workgroup and enterprise system
software products for SPARC and Intel platforms. The Solaris advanced operating
system offers connectivity and interoperability among hardware platforms from
other vendors, ease of application development and availability of over 10,000
products from third party software and hardware developers.
Enterprise Management Products - The Company's principal enterprise management
environment, Solstice, utilizes distributed computing technologies to scale and
manage global heterogeneous networks, such as those in telecommunications and
financial services companies. Solstice products decrease the complexity of
managing enterprise-wide networks while significantly lowering the total cost of
operation, giving companies the flexibility of distributed computing with the
control of centralized management. Solstice is one of the industry's leading
network management platforms and includes a next-generation enterprise
management platform, SunNet Manager and a complete line of system administration
and management tools.
Networking Products - Networking products are central to Sun's open systems
architecture. These products provide networking capabilities that make
distributed resources easily accessible by PC's, workstations, servers and other
computing devices on a single network. These products also integrate
heterogeneous global, department, local and remote network resources into
company-wide information systems. The Company is committed to developing
networking products that adhere to and promote open industry networking
standards and technologies in emerging areas such as the Internet. The Company's
networking products include the SolarNet family of PC-to-enterprise networking
solutions such as PC-NFSpro, PC-X and Netware compatability, ONC+/NFS networking
technologies which run on most major computing platforms, and DCE for Solaris.
The Company's fast growing line of software products for the Internet includes a
broad set of solutions spanning Internet access, security, and publishing for
the World Wide Web.
Developer Products - Developer products include programming tools for
professional software developers for UNIX, including Solaris, HP-UX and
UnixWare. These products provide a powerful, comprehensive software development
environment to enable the development of next-generation, network-based,
client/server applications. Specific products include SunSoft WorkShop for C,
Sun FORTRAN and Sun Ada, integrated suites of tools for individuals and teams of
software developers that support the rapid development of single and
mutithreaded applications, and software developer kits for developers of Solaris
applications.
PC Desktop Integration Products - Included in this line are the Solaris Desktop
integration products, which give UNIX users the power to run productivity
applications written for non-UNIX environments, including MS-DOS, DOS-Windows
and Macintosh. Products include SunPC, Merge, Wabi, and the Macintosh
Application Environment.
Sales, Distribution and Marketing
- - - ---------------------------------
Sun maintains a presence in most major markets and sells hardware, software and
services to its customers worldwide through a combination of direct and,
increasingly, indirect channels. The Company also offers off-the-shelf software
products on an OEM basis to other hardware manufacturers, as well as supplies
aftermarket and peripheral products to its end user installed base, both
directly and through independent distributors and resellers.
In general, the Company's systems sales force is compensated on a
channel-neutral basis to reduce potential channel conflict. Distribution
channels include:
- a direct sales force selling to selected end-user named accounts and
numerous indirect channels, including commercial systems integrators
who serve the market for large commercial projects requiring
substantial analysis, design, development, implementation and
support of custom solutions;
<PAGE>
- master resellers who supply product and provide product marketing
and technical support services to the Company's smaller Value Added
Resellers ("VARs");
- OEMs who integrate the Company's products with other hardware and
software;
- VARs who provide added value in the form of software packages,
proprietary software development, high-end networking integration,
vertical industry expertise, training, installation and support; and
- independent distributors who primarily cover markets in which Sun
does not have a direct presence.
Over time, the Company expects that systems revenues from the indirect
channels will continue to increase in proportion to direct channel revenues. The
growth and management of the reseller channels is important to the future
revenues and profitability of the Company.
The Company's direct systems sales force serves educational institutions,
software vendors, governments, businesses and other strategic accounts. The
Company has approximately 80 sales and service offices in the United States and
approximately 85 sales and service offices in 38 other countries. In addition,
it uses independent distributors in approximately 100 countries, sometimes in
concert with other resellers and direct sales operations.
Revenues from outside the United States, including those from end users,
resellers and distributors, constituted approximately 51% of net revenues in
both fiscal 1995 and 1994, respectively, and 49% of net revenues in fiscal 1993.
Direct sales made in countries outside of the United States are generally priced
in local currencies and are, therefore, subject to currency exchange
fluctuations. The net impact of currency fluctuations on net revenues and
operating results cannot be precisely measured as the Company's product mix and
pricing change over time in various markets, partially in response to currency
movements. To minimize currency exposure gains and losses, the Company borrows
funds in local currencies, enters into forward exchange contracts, purchases
foreign currency options and promotes natural hedges by purchasing components
and incurring expenses in local currencies whenever feasible. Sun's sales to
overseas customers are made under export licenses that must be obtained from the
United States Department of Commerce. Protectionist trade legislation in either
the United States or other countries, such as a change in the current tariff
structures, export compliance laws or other trade policies, could adversely
affect Sun's ability to sell or to manufacture in international markets. Sales
to or through C. Itoh Technoscience Co. Ltd., Fujitsu, Ltd. and Toshiba
Corporation together represent a significant portion of Sun's revenues in Japan.
See Note 7 of Notes to Consolidated Financial Statements incorporated by
reference for additional information concerning sales to foreign customers and
industry segments.
Seasonality affects the Company's revenues and operating results, particularly
in the first quarter of each fiscal year. In addition, the Company's operating
expenses are increasing as the Company continues to expand its operations, an
future operating results will be adversely affected if revenues do not in-
crease accordingly.
The Company's marketing activities include advertising in computer publications
and the business press, direct mailings to customers and prospects and
attendance at trade shows. Sun maintains a customer resource program, Sunergy,
which includes live interactive satellite broadcasts and provides electronic
access to newsletters and technical information. Sun also sponsors a series of
seminars to specific resellers, university customers, end users and government
customers and prospects designed to familiarize attendees with the capabilities
of the Sun product line.
Sun's order backlog at June 30, 1995 was approximately $323 million, relatively
unchanged as compared with approximately $338 million at June 30, 1994. Backlog
includes only orders for which a delivery schedule within six months has been
specified by the customer. Backlog levels vary with demand, product availability
and the Company's delivery lead times and are subject to significant decreases
as a result of customer order delays, changes or cancellations. As such, backlog
levels are not necessarily a reliable indicator of future operating results.
<PAGE>
Customer Service and Support
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The Company provides expertise in heterogeneous network computing through a full
range of global services, including system and software support, education, IT
consulting, systems integration and system/network management. Sun assists both
technical and commercial customers, supporting more than a half million systems
in 170 countries, training more than 50,000 people annually, and providing
consulting, integration and operations assistance to IT organizations worldwide.
In the system support arena, the field support team of 1,700 includes mostly
software support engineers in the solution centers and in field offices. This
field force is complemented by third-party service providers, delivering a full
range of system support. Investments in field personnel and spare parts to meet
the service requirements of the growing installed base are being supplemented by
partnerships with third-party service providers. These partners invest in
complementary support infrastructure thereby facilitating an expansion of
geographical coverage while reducing the Company's investment in fixed
resources.
The Company offers a warranty for parts and labor on its systems, generally for
one year from date of sale. The Company maintains and services the products
during the warranty period and on a contractual basis after the initial product
warranty has expired. Post-warranty support services are primarily offered
through a tiered support offering called SunSpectrum. SunSpectrum offers four
levels of differentiated support that are packaged as a single price for the
system: all hardware, peripherals and software. Warranty and post-warranty
services are provided from its over 170 field offices and 22 solutions centers
in the United States and overseas handling over 500,000 calls a year.
Sun also offers comprehensive skills migration consulting and courseware.
Consultants can perform needs analysis, skills assessment and migration,
curriculum design and course customization. Instructor-led courseware addresses
the educational needs of many customers including managers, operators,
developers, system administrators, and end-users. As an alternative to the
classroom, customers may select self-study training, including more than 50
interactive training products geared for all levels of knowledge. In the
professional services arena the Company provides services that help a customer
design their IT architecture, plan their migration, program manage several
turnkey solutions and manage and operate the network.
The Company is investing in providing mission critical support, multivendor
support and global contract support while expanding its direct support presence
in new emerging markets as well as completing its professional services
portfolio by further developing education and skills migration, IT consulting,
system integration and system and network management services.
Certain computer systems sold by Sun require a high level of service and support
to be provided to the customer, and consequently, the customer's acceptance of
such systems may be delayed in the event Sun does not provide a sufficient level
of service. Such delays in customer acceptance could adversely affect the future
operating results of the Company.
Product Development
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The Company's research and product development programs are intended to sustain
and enhance its competitive position by incorporating the latest worldwide
advances in hardware, software, graphics, networking and data communications
technologies. Sun's product development efforts, conducted within each of its
businesses, are currently focused on increasing the price/performance of its
systems, improving its system software platforms and developing advanced
workstation and server architectures, application-specific integrated circuits
and software for networking and distributed computing, including the
high-performance implementation of existing standards and the development of new
technology standards where none exist.
Sun conducts research and development worldwide principally through facilities
in the United States, France, and Japan. Research and development expenses were
approximately $520 million, $455 million and $445 million in fiscal 1995, 1994
and 1993, respectively. In recent years, Sun's research and development efforts
have focused increasingly on Solaris software and SPARC microprocessors,
including the current development of the next generation, UltraSPARC
microprocessor based on a 64-bit architecture (referred to hereafter as
UltraSPARC). Sun also believes that in the future, software will provide
significant competitive differentiation. Therefore, Sun currently devotes
substantial resources to the development of workgroup software, networking and
data communications, video, graphics, disk array, object technology and the
software development environment.
<PAGE>
The development of high performance computer products, in particular the
Company's current development of UltraSPARC, is a complex and uncertain process
requiring high levels of innovation from the Company's designers and suppliers,
as well as accurate anticipation of customer requirements and technological
trends. Sun's future operating results will depend to a considerable extent on
its ability to rapidly and continuously develop, introduce and deliver in
quantity new systems, software, and service products, as well as new
microprocessor technologies, that offer its customers enhanced performance at
competitive prices.
Manufacturing and Supply
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The Company's manufacturing operations consist primarily of printed circuit
board assembly and final assembly, test and quality control of systems materials
and components. Sun has manufacturing facilities in California and Scotland, and
distribution facilities in California, the Netherlands and Japan. The Company
has continued its efforts to simplify its manufacturing process by reducing the
diversity of system configurations offered to customers, increasing the
standardization of components across product types and establishing local
sources of supply in major geographies.
Sun uses many standard parts and components in its products and believes there
are a number of competent vendors for most parts and components. However, a
number of important components are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, those components are available only from single sources. In particular,
Sun is dependent on Sony Corporation for various monitors and on Fujitsu Limited
(Fujitsu) and Texas Instruments Incorporated for different implementations of
SPARC microprocessors. Certain custom silicon parts are designed by and produced
on a contractual basis for Sun. The process of substituting a new producer of
such parts could adversely affect Sun's operating results. Some suppliers of
certain components, including color monitors and custom silicon parts, require
long lead times such that it can be difficult for the Company to plan inventory
levels of components to consistently meet demand for Sun's products. Certain
other components, especially memory integrated circuits such as DRAMs and VRAMs,
have from time to time been subject to industrywide shortages. Future shortages
of components could negatively affect the Company's ability to match supply and
demand, and therefore could adversely impact the Company's future operating
results.
The Company is increasingly dependent on the ability of its suppliers to design,
manufacture and deliver advanced components required for the timely introduction
of new products. The failure of any of these suppliers to deliver components on
time or in sufficient quantities, or the failure of any of the Company's own
designers to develop advanced innovative products on a timely basis, could
result in a significant adverse impact on the Company's operating results.
The inability to secure enough components to build products, including new
products, in the quantities and configurations required, or to produce, test and
deliver sufficient products to meet demand in a timely manner, would adversely
affect the Company's net revenues and operating results.
To secure components for development, production and introduction of new
products, the Company frequently makes advanced payments to certain suppliers
and often enters into noncancelable purchase commitments with vendors early in
the design process. Due to the variability of material requirement
specifications during the design process, the Company must closely manage
material purchase commitments and respective delivery schedules. In the event of
a delay or flaw in the design process, the Company's operating results could be
adversely affected due to the Company's obligations to fulfill such
noncancelable purchase commitments. Once a hardware product is developed, the
Company must rapidly bring it to volume manufacturing, a process that requires
accurate forecasting of both volumes and configurations, among other things, in
order to achieve acceptable yields and costs. Upon introduction of new products,
the Company must also manage the transition from older, displaced products to
minimize disruptions in customer ordering patterns, reduce levels of older
product inventory, and ensure that adequate supplies of new products can be
delivered to meet customer demand. The ability of the Company to match supply
and demand is further complicated by the need to take pricing actions and the
variability of timing of customer orders. As a result, the Company's operating
results could be adversely affected if the Company is not able to correctly
anticipate the level of demand for the mix of products. Because the Company is
continuously engaged in this product development, introduction, and transition
process, its operating results may be subject to considerable fluctuation,
particularly when measured on a quarterly basis.
The computer systems offered by Sun generally are the result of both hardware
and software development, so that delays in software development can delay the
Company's ability to ship new hardware products. Adoption
<PAGE>
of a new release of an operating system may require effort on the part of the
customer as well as software porting by software vendors providing applications.
As a result, the timing of conversion to a new release is inherently
unpredictable. Moreover, delays in adoption of a new release of an operating
system by customers can limit the acceptability of hardware products tied to
that release. In either situation, the future operating results of the Company
could be adversely affected. Sun's systems based on UltraSPARC processors will
require completion of the next version of the Company's operating system,
Solaris 2.5, which is currently in the beta testing phase of development. To
minimize the aforementioned risks, the Company has expended significant effort
toward making Solaris 2.5 binary compatible with the applications currently
running on Solaris 2.x, so customers should not need to port these applications
to run on UltraSPARC-based systems.
Competition
- - - -----------
The market for the Company's products and services is intensely competitive and
subject to continuous, rapid technological change, short product life cycles and
frequent product performance improvements and price reductions. Due to the
breadth of Sun's product line and the scalability of its products and network
computing model, the Company competes in many segments of the computer market
across a broad spectrum of customers. The requirements of those customers and
the basis of competition varies widely depending on the market segment and types
of users.
Sun's traditional customer base is in the technical and scientific markets.
Competition in this segment is based primarily on system performance,
price/performance, availability and performance of application software,
robustness of the software development environment, system expandability and
upgradability, adherence to standards, graphics features and performance and
product quality and reliability. Increasingly, Sun is finding that its strengths
in technical markets, particularly software development, design automation and
decision support, along with its network computing focus are enabling expansion
into mission critical enterprise applications. Sun's competitors in the
technical and scientific markets are primarily Hewlett-Packard Company (HP),
Digital Equipment Corporation (DEC) and Silicon Graphics, Inc. (SGI). Personal
computer manufacturers, offering products based on microprocessors from Intel
Corporation (Intel) and software from Microsoft Corporation (Microsoft), have
recently increased the competition in these markets, as their system performance
and functionality begin to scale at lower price points.
Sun has been making inroads into commercial markets both with Global 1000
companies which are downsizing and distributing their computer resources, as
well as with smaller companies which are upsizing and increasing the
capabilities of their network computing systems. Traditionally, competition in
these markets has been based on price/performance, capabilities and stability of
the systems software, product quality and reliability, ease of system operation
and administration, service and support, availability and performance of
applications and middleware, database performance, global marketing and
distribution capabilities, and corporate reputation and name recognition.
Increasingly, companies which are downsizing their operations are focusing on
distributing their computing capabilities and adopting a model of network
computing. Companies which are upsizing typically are increasing their
experience in managing larger heterogeneous environments. As a result, in both
the upsizing and downsizing competitive scenarios, networking capabilities and
the ability to obtain all of the traditional security, stability and
administrative features of a central computing model in a networked environment
are significant factors that influence the buying decision and the relative
strength of the competition. In downsizing opportunities, Sun's competition
tends to come from International Business Machines (IBM), HP and DEC, as well as
other mini and mainframe computer suppliers. In upsizing opportunities,
competition tends to come from personal computer manufacturers such as Compaq
Computer Corporation and Apple Computer, Inc, in addition to the other
competitors previously mentioned.
Sun has also encouraged the proliferation of its SPARC technology as a standard
in the computer marketplace by licensing much of the technology and promoting
open interfaces to the Solaris operating environment, as well as by offering
microprocessors and enabling technologies to third party customers. As a result,
several licensees also offer SPARC/Solaris based products that compete directly
with Sun's products primarily in the desktop markets.
The Company expects that the markets for its products, technology and services
as well as its competitors within such markets, will continue to change as the
rightsizing trend shifts customer buying patterns to distributed systems
employing multiple platform networks. Competition in these markets will also
continue to intensify as Sun and its competitors aggressively position
themselves to benefit from this shifting of customer buying
<PAGE>
patterns and demand. The timing of introductions of new desktop and server
products by Sun's competitors may negatvely impact the future operating results
of the Company, particularly when occurring in periods leading up to the
Company's introductions of its own new or enhanced products. As raw
microprocessor performance is a highly visible element of the industry's
competitive landscape, Sun's future operating results will depend on the
Company's ability to rapidly and successfully complete the development and
integration of UltraSPARC into the Company's desktop and server lines. In
addition, Sun expects to see continued performance improvements in
microprocessor technology and products introduced by Intel and Motorola, Inc.
Such products, coupled with enhanced operating systems software from Microsoft
and other competitors, are expected to continue to provide competitive pressure
throughout the Company's product range. The Company expects this pressure to
intensify in fiscal 1996. While many other technical, service and support
capabilities affect a customer's buying decision, Sun's future operating results
will depend, in part, on its ability to compete in these technologies.
Patents and Licenses
- - - --------------------
Sun currently holds a number of U.S. and foreign patents relating to various
aspects of its products and technology. While the Company believes that patent
protection is important, it also believes that patents are of less competitive
significance than such factors as innovative skills and technological expertise.
As is common in the computer industry, the Company has from time to time been
notified that it may be infringing certain patents and other intellectual
property rights of others, although no material litigation has arisen out of any
of these claims. Several pending claims are in various stages of evaluation. The
Company is evaluating the desirability of entering into licensing agreements in
certain of these cases. Based on industry practice, the Company believes that in
most cases any necessary licenses or other rights could be obtained on
commercially reasonable terms. However, no assurance can be given that licenses
can be obtained on acceptable terms or that litigation will not occur. The
failure to obtain necessary licenses or other rights, or litigation arising out
of such claims, could have a material adverse effect on the Company's
operations.
Sun has entered into separate patent exchange agreements with IBM, Cray
Research, Inc. (Cray) and Fujitsu. Under each agreement, the parties grant to
each other non-exclusive, worldwide rights to patents in their respective patent
portfolios. These agreements cover patents issued or applied for during certain
limited periods as specified in the agreements. The agreements with Cray and
Fujitsu are royalty free. The agreement with IBM required Sun to make payments
through fiscal 1995. These payments have not been material to Sun's financial
position.
In March 1990, Texas Instruments Incorporated (TI) alleged that a substantial
number of the Company's products infringe certain of TI's patents. Based on its
discussions with TI, the Company believes that it will be able to negotiate a
license agreement with TI, if necessary, and that the outcome of this matter
will not have a material adverse effect on Sun's financial position or its
results of operations or cash flows in any given fiscal year. Such a negotiatied
license may or may not have a material adverse impact on Sun's results of
operations or cash flows in a given fiscal quarter depending upon various
factors including but not limited to the structure and amount of royalty
payments, offsetting consideration from TI, if any, and the allocation of
royalties between past and future product shipments, none of which can be
forecast with reasonable certainty at this time.
Employees
- - - ---------
As of June 30, 1995, Sun employed approximately 14,500 people. The Company's
future operating results will depend on its ability to continue to broaden and
develop senior management and to attract and retain skilled employees, and on
the ability of its management and key employees to manage growth successfully
through the enhancement of management information systems and financial
controls. The Company expects to continue to increase its number of employees to
support demand creation programs, service and support operations, and overall
projected growth. None of Sun's employees are represented by a labor union in
the United States.
ITEM 2. PROPERTIES
Sun conducts its worldwide operations using a combination of leased and owned
facilities. The Company believes that, while it currently has sufficient
facilities to conduct its operations during fiscal 1996, it will continue to
lease and acquire owned facilities throughout the world as its business
requires. Properties owned by the Company consist of an approximately 260,000
square foot facility on approximately 10 acres in Palo Alto, California; an
approximately 227,000 square foot facility on approximately 30 acres in
Linlithgow, Scotland; an
<PAGE>
approximately 30,000 square foot facility on approximately 2.5 acres in Bagshot,
England; and approximately 90 acres in Newark, California. In addition, in
fiscal 1995, Sun puchased a facility totaling approximately 439,000 square feet
on approximately 27 acres in Menlo Park, California. Sun also leases
approximately 28 acres in Menlo Park with approximately 596,000 square feet
under construction with an estimated completion date of the first quarter of
fiscal 1997. Sun leases approximately 170 sales and service offices throughout
the world aggregating about 2 million square feet. Sun also leases approximately
3 million square feet for its research and development and manufacturing
facilities, primarily in Milpitas, Sunnyvale and Mountain View, California and
Chelmsford, Massachusetts. Sun's California manufacturing plant, the majority of
its research and development facilities, its Corporate headquarters and other
critical business operations are located near major earthquake faults. Operating
results could be materially adversely impacted in the event of a major
earthquake.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive officers of
the Company as of September 5, 1995:
NAME AGE POSITION
- - - ------------------- --- ------------------------------------------------
Scott G. McNealy 40 Chairman of the Board of Directors, President
and Chief Executive Officer, Sun
Microsystems, Inc.
Kenneth M. Alvares 51 Vice President, Human Resources, Sun
Microsystems, Inc.
Patrick J. Deagman 47 Vice President, Finance, Information Resources
and Operations, SunSoft, Inc.
Lawrence W. Hambly 49 President, SunService Division
Masood A. Jabbar 45 Vice President, Chief Financial Officer
Sun Microsystems Computer Company
William N. Joy 40 Vice President, Research and Development;
Sun Microsystems, Inc.
Michael E. Lehman 45 Vice President, Chief Financial Officer
Sun Microsystems, Inc.
Michael H. Morris 47 Vice President, General Counsel and
Secretary, Sun Microsystems, Inc.
Rajesh H. Parekh 42 Vice President, Engineering, Sun Microsystems
Computer Company
Frank Pinto 50 Vice President, North American Field Operations,
Sun Microsystems Computer Company
William J. Raduchel 49 Vice President, Corporate Planning and
Development and Chief Information Officer,
Sun Microsystems, Inc.
George Reyes 41 Vice President, Corporate Controller,
Sun Microsystems, Inc.
Joseph P. Roebuck 59 Vice President, Worldwide Field Operations,
Sun Microsystems Computer Company
Janpieter T. Scheerder 46 President, SunSoft, Inc.
Eric E. Schmidt 40 Vice President, Chief Technology Officer,
Sun Microsystems, Inc.
John C. Shoemaker 52 Vice President, Worldwide Operations,
Sun Microsystems Computer Company
Chester J. Silvestri 46 President, SPARC Technology Business
<PAGE>
NAME AGE POSITION
- - - ------------------- --- ------------------------------------------------
Dorothy A. Terrell 50 President, SunExpress, Inc.
Kevin J.F. Walsh 53 Vice President, Finance and Planning,
Worldwide Operations, Sun Microsystems
Computer Company
Edward J. Zander 48 President, Sun Microsystems Computer Company
Mr. McNealy is a founder of the Company and has served as Chairman of
the Board of Directors, President and Chief Executive Officer since December
1984, as President and Chief Operating Officer from February 1984 to December
1984 and as Vice President of Operations from February 1982 to February 1984.
Mr. McNealy has served as a director of the Company since the incorporation of
Sun in February 1982.
Mr. Alvares has served as Vice President, Human Resources of the Company
since June 1992. From 1990 to June 1992, he served as Vice President, Human
Resources, Nichols Institute. He held various positions at Frito-Lay, Inc. from
1984 to 1990, including Vice President of Personnel from 1987 to 1990.
Mr. Deagman has served as Vice President, Finance, Information Resources
and Operations of SunSoft, Inc. since July 1993. From July 1991 to June 1993, he
served as Director, Finance, Information Resources and Operations of SunSoft,
Inc. From October 1990 to June 1991, he served as Director, Worldwide
Operations, Finance and Business Planning. Prior to joining Sun, from November
1988 to September 1990, Mr. Deagman served as Vice President and Chief Financial
Officer of Xerox Imaging Systems, a subsidiary of Xerox Corporation.
Mr. Hambly has served as President, SunService, a division of the
Company, since July 1993. From July 1991 to July 1993, he served as Vice
President, Marketing of Sun Microsystems Computer Company (formerly Sun
Microsystems Computer Corporation). From July 1988 to July 1991, he served as
President of Sun Microsystems Federal, Inc. From April 1983 to July 1988, he
served in various sales management capacities at the Company, most recently as
Vice President, Western Area Sales.
Mr. Jabbar has served as Vice President, Finance and Chief Financial
Officer of Sun Microsystems Computer Company since June 1994. From July 1992
until June 1994, Mr. Jabbar served as Vice President, Finance and Planning,
Worldwide Field Operations of Sun Microsystems Computer Company. From June 1991
to June 1992, he served as Vice President, Finance and Administration, United
States Field Operations for Sun Microsystems Computer Company and from October
1990 to June 1991, he served as Director, Finance and Administration, United
States Field Operations for the Company. From October 1989 to October 1990, he
served as Director of United States Field Marketing for the Company. From April
1988 to October 1989, he served as United States Sales and Service Controller
for the Company. From December 1986 to April 1988 he served as United States and
Intercontinental Sales Controller for the Company.
Mr. Joy has served as Vice President, Research and Development of the
Company since August 1983.
Mr. Lehman has served as Vice President and Chief Financial Officer
since February 1994. From June 1990 until February 1994, Mr. Lehman served as
Vice President and Corporate Controller of the Company. From September 1989 to
June 1990, he served as Director of Finance and Administration of Sun
Microsystems of California, Ltd., one of the Company's Hong Kong subsidiaries.
He served as Assistant Corporate Controller of the Company from September 1988
to August 1989 and as External Reporting Manager from August 1987 to August
1988.
Mr. Morris has served as Vice President, General Counsel and Secretary
of the Company since October 1987.
Mr. Parekh has served as Vice President, Engineering for Sun
Microsystems Computer Company since July 1993. From September 1992 to July 1993,
he served as Vice President, Advanced Workstations and Graphics for Sun
Microsystems Computer Company. Prior to joining the Company, from September 1982
to May 1992, he served in various positions, including Vice President and
General Manager, Personal Systems and Corporate Vice President Advanced
Technology for Silicon Graphics, Inc. ("SGI"). From May 1992 to September 1992,
he was employed by SGI as an independent consultant.
Mr. Pinto has served as Vice President, North American Field Operations
of Sun Microsystems Computer Company since July 1995. From January 1993 to June
1995, Mr. Pinto served as Vice President, Northeast Area for Sun Microsystems
Computer Company. From June 1989 to December 1992, he served as
<PAGE>
Metro Regional Director of the Company and from November 1988 to June 1989, he
served as the Company's District Manager, Northeast Major OEM District.
Mr. Raduchel has served as Vice President, Corporate Planning and
Development and as Chief Information Officer of the Company since July 1991. In
addition, from July 1991 to June 1992, he served as Vice President, Human
Resources (acting). From June 1989 to July 1991, he served as Vice President and
Chief Financial Officer of the Company; he was also acting Chief Information
Officer of the Company from November 1990 to July 1991. From October 1988 to
June 1989, he served as Vice President, Corporate Planning and Development. From
1985 to 1988, he served as Vice President of Document Systems in the Strategic
Business Office of Xerox Corporation.
Mr. Reyes has served as Corporate Controller of the Company since April
1994. From April 1992 to March 1994, Mr. Reyes served as Audit Director for the
Company. From April 1991 to April 1992, he was Director of Finance for the
Company's ICON operations. From June 1989 to April 1991, he served as Assistant
Controller. From July 1988 to June 1989, Mr. Reyes was the Controller of the
Company's General Systems Group. From March 1988 to June 1988, Mr. Reyes served
as the Company's Marketing Controller.
Mr. Roebuck has served as Vice President, Worldwide Field Operations of
Sun Microsystems Computer Company since April 1992. From November 1988 to April
1992, he served as Vice President, United States Field Operations, Sun
Microsystems Computer Company and from January 1986 to November 1988, he served
as Vice President of Sales for the Company.
Mr. Scheerder has served as President of SunSoft, Inc., since August
1995. From April 1995 to August 1995, he served as Vice President, Server
Products of Sun Microsystems Computer Company. From March 1992 to April 1995,
Mr. Scheerder served as Vice President, Solaris Products of SunSoft, Inc. From
August 1991 to March 1992, he was Director of Marketing and Programming of
SunSoft, Inc. and from February 1990 to August 1991, he was Vice President,
Industry Standard System Development at Data General.
Mr. Schmidt has served as Chief Technology Officer of the Company since
February 1994. From July 1991 to February 1994, Mr. Schmidt served as President
of Sun Technology Enterprises, Inc., formerly a subsidiary of the Company. From
July 1988 to July 1991, he served as Vice President of the Company's General
Systems Group. From May 1985 to July 1988, he served as Vice President and
General Manager, Software Products Division for the Company.
Mr. Shoemaker has served as Vice President, Worldwide Operations of Sun
Microsystems Computer Company since July 1993. From June 1992 to July 1993 he
served as Vice President, U.S. Operations of Sun Microsystems Computer Company.
From May 1990 to July 1993, he also served as Vice President, Finance and
Planning, Worldwide Operations (on an acting basis since July 1992). He served
as Vice President (Acting), Materials, Worldwide Operations from October 1991 to
June 1992. From March 1989 to March 1990, he served as Senior Vice President,
Electronic Printing Worldwide Marketing, Xerox Corporation. From December 1986
to March 1989, he served as Vice President and General Manager, Document Systems
Business, Xerox Corporation.
Mr. Silvestri has served as President, SPARC Technology Business since
February 1994. From August 1992 to February 1994, Mr. Silvestri served as Vice
President, SPARC Sales. Prior to joining Sun, from December 1986 to August 1992,
he served as Vice President and General Manager, Technology Products for MIPS
Computer Systems, Inc., later acquired by SGI.
Ms. Terrell has served as President of SunExpress, Inc. since August
1991. She held various positions at Digital Equipment Corporation from 1976 to
1991, including Group Manager, Application Specific Interconnect and Packaging
in 1991, Manufacturing Manager from 1988 to 1991 and Resource Development
Manager, Corporate Manufacturing from 1987 to 1988.
Mr. Walsh has served as Vice President, Finance and Planning, Worldwide
Operations for Sun Microsystems Computer Company since February 1993. From
February 1993 to February 1994, Mr. Walsh also served as Corporate Controller
for Sun Microsystems Computer Company. Prior to joining the Company, from June
1990 to January 1993, he served as Chief Operating Officer of Spatial Technology
Inc. From 1985 to May 1990, he served as Vice President, Finance for
Schlumberger Technologies, Inc.
Mr. Zander has served as President of Sun Microsystems Computer Company
since February 1995. From July 1991 to February 1995, Mr. Zander served as
President of SunSoft, Inc. From October 1987 to July 1991, he served as Vice
President of Corporate Marketing of the Company.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to
the inside back cover of Sun's 1995 Annual Report to Stockholders. At September
5, 1995 there were 3,828 stockholders of record.
The following is a summary of all sales of the Company's Common Stock by
the Company's directors and executive officers who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended, during the fiscal quarter ended
June 30, 1995*:
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Alvares, Kenneth 4/27/95 $38.939 24,600
4/27/95 $39.625 593
5/22/95 $46.0625 2,000
5/23/95 $47.125 500
5/23/95 $47.375 500
5/23/95 $48.00 500
5/23/95 $48.625 500
5/23/95 $48.875 500
5/24/95 $49.75 500
5/24/95 $50.00 500
Deagman, Patrick 5/9/95 $41.69 3,000
5/10/95 $43.25 323
Hambly, Larry 4/24/95 $38.00 2,500
4/26/95 $39.00 2,500
4/27/95 $40.0625 2,500
5/12/95 $44.00 5,000
Jabbar, Masood 5/11/95 $43.00 10,000
Joy, William 4/25/95 $38.00 30,000
Kannegaard, Jon** 5/26/95 $47.1875 6,700
5/31/95 $44.6758 9,600
Lehman, Michael 4/24/95 $38.0625 6,500
5/8/95 $40.9375 2,000
Marr, William** 5/3/95 $41.875 10,000
5/3/95 $41.50 17,000
5/17/95 $44.75 25,857
5/25/95 $48.875 8,821 (sold by spouse)
McNealy, Scott 5/2/95 $39.90 50,000
Morris, Michael 5/4/95 $41.94 3,470
Parekh, Rajesh 5/15/95 $44.00 2,279
Raduchel, William 4/21/95 $37.4375 2,500
5/15/95 $44.00 37,828
Reyes, George 4/21/95 $37.5625 6,375
4/21/95 $37.875 1,570
5/16/95 $44.6875 2,957
<PAGE>
Number of
Officer Date Price Shares Sold
------- ---- ----- -----------
Roebuck, Joseph 5/5/95 $41.50 25,000
5/5/95 $41.375 25,000
5/17/95 $45.125 4,000
5/18/95 $45.00 12,352
Silvestri, Chester 5/24/95 $49.9375 10,000
Schmidt, Eric 4/21/95 $37.50 5,000
4/28/95 $39.50 5,000
5/3/95 $41.375 5,000
5/15/95 $44.00 5,000
5/22/95 $46.75 10,000
5/26/95 $47.125 5,000
5/31/95 $44.75 5,000
5/31/95 $44.50 10,000
Shoemaker, John 4/21/95 $37.339 22,031
4/21/95 $37.589 15,000
4/21/95 $37.714 5,000
Terrell, Dorothy 4/21/95 $37.6875 14,000
4/26/95 $38.375 4,400
4/27/95 $39.0625 4,000
Zander, Edward 4/21/95 $37.6875 10,000
5/9/95 $43.125 10,000
5/25/95 $50.00 7,000
* Share sales, if any, by Janpieter Scheerder are not included herein as Mr.
Scheerder was appointed on August 15, 1995.
**former officer
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
the information included under the caption "Historical Financial Review" on
pages 15 and 16 of Sun's 1995 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
pages 18 through 22 of Sun's 1995 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
pages 23 through 36 of Sun's 1995 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is incorporated by
reference from "Election of Directors" in Sun's 1995 Proxy Statement for the
Company's 1995 Annual Meeting of Stockholders. Current executive officers of the
Registrant found under the caption "Executive Officers of the Registrant" in
Part I hereof is also incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
from the section entitled "Executive Compensation" in Sun's 1995 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference
from the section entitled "Information Concerning Solicitation and Voting -
Record Date and Outstanding Shares" and "Security Ownership of Management" in
Sun's 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the sections entitled "Executive Compensation - Summary Compensation
Table", "Certain Transactions With Management" and "Employment Contracts and
Change-In-Control Arrangements" in Sun's 1995 Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements that are incorporated herein by reference to
the following in Sun's 1995 Annual Report to Stockholders:
Consolidated Statements of Income for each of the three years in
the period ended June 30, 1995 (page 23).
Consolidated Balance Sheets at June 30, 1995 and 1994 (page 24).
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1995 (page 25).
Consolidated Statement of Stockholders' Equity for each of the
three years in the period ended June 30, 1995 (page 26).
Notes to Consolidated Financial Statements (pages 27 through 35).
Report of Ernst & Young LLP, Independent Auditors (page 36).
The Company's 1995 Annual Report to Stockholders is not deemed filed
as part of this report except for those parts specifically
incorporated herein by reference.
2. Financial statement schedule:
Page Schedule Title
---- -------- ---------------------------------
S-1 II Valuation and Qualifying Accounts
All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements, including the notes
thereto.
<PAGE>
3. Exhibits:
Exhibit
Number Description
------- -----------
3.1(2) Amended and Restated Certificate of Incorporation of
Registrant.
3.2(9) Bylaws of Registrant, as amended.
3.3(8) Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant.
4.1(5) Indenture between Registrant and Harris Trust and Savings
Bank, Trustee, covering $135,000,000 of 6 3/8% Debentures
(including form of Debenture) due October 15, 1999.
4.3(9) First Amended and Restated Common Shares Rights Agreement
dated December 14, 1990, between Registrant and The First
National Bank of Boston.
4.4(11) Amendment dated as of October 28, 1991 to the First
Amended and Restated Common Shares Rights Agreement dated
December 14, 1990.
4.5(12) Second Amendment dated as of August 5, 1992 to the First
Amended and Restated Common Shares Rights Agreement dated
December 14, 1990.
10.1(1) Technology Transfer Agreement dated February 27, 1982,
for the purchase by the Registrant of certain technology
for cash, and related Assumption Agreement dated February
27, 1982.
10.3(1) Form of Founders' Restricted Stock Purchase Agreement.
10.8(1) Registration Rights Agreement dated as of November 26,
1984.
10.8A(1) Amendment to Registration Rights Agreement.
10.9(3) Registrant's 1982 Stock Option Plan, as amended, and
representative forms of Stock Option Agreement.
10.10(3) Registrant's Restricted Stock Plan, as amended, and
representative form of Stock Purchase Agreement.
10.11(10) Registrant's 1984 Employee Stock Purchase Plan, as
amended.
10.21(1) License Agreement dated July 26, 1983, by and between
Registrant and The Regents of the University of
California.
10.22(1) Software Agreement effective as of April 1, 1982 by and
between Registrant and American Telephone and Telegraph
Company, and Supplemental Agreement dated effective as of
May 28, 1983.
10.48(3) Registrant's 1987 Stock Option Plan and representative
form of Stock Option Agreement.
10.50(4) Amended and Restated Term Loan Agreement dated June 7,
1989 between the Registrant, The First National Bank of
Boston, Security Pacific National Bank and The First
National Bank of Boston, as agent for the banks.
<PAGE>
Exhibit
Number Description
------- -----------
10.51(4) First Amendment to Amended and Restated Term Loan
Agreement dated September 22, 1989.
10.56(4) Building Loan Agreement dated May 11, 1989, between Sun
Microsystems Properties, Inc. and the Toyo Trust and
Banking Company, Limited, New York Branch and the related
Promissory Note; First Deed of Trust, Assignment of
Leases, Rents and Other Income and Security Agreement;
Guaranty of Payment; Guaranty of Completion (Sun
Microsystems Properties, Inc.); Guaranty of Completion
(Sun Microsystems, Inc.); Shortfall Agreement and
Indemnity.
10.57(4) Note and Warrant Purchase Agreement dated September 26,
1989, between the Registrant, The Ohio National Life
Insurance Company, Principal Mutual Life Insurance
Company, Pruco Life Insurance Company, The Prudential
Life Insurance Company of America, Prudential Property
and Casualty Insurance Company and Teachers Insurance and
Annuity Association of America and related Common Stock
Purchase Warrant.
10.59(5) Second Amendment to Amended and Restated Term Loan
Agreement dated as of October 26, 1989.
10.60(6) Note and Warrant Purchase Agreement dated December 15,
1989, between the Registrant and Metropolitan Life
Insurance Company and related Common Stock Purchase
Warrant.
10.61(6) Note and Warrant Purchase Agreement dated December 15,
1989, between the Registrant and Allstate Life Insurance
Company, Modern Woodmen of America, The Ohio National
Life Insurance Company, The Western and Southern Life
Insurance Company, Western-Southern Life Insurance
Company and Keystone Provident Life Insurance Company and
related Common Stock Purchase Warrant.
10.62(7) Credit Agreement dated as of April 4, 1990, between the
Registrant; Citibank N.A.; Bank of America National Trust
and Savings Association; The First National Bank of
Boston; Barclays Bank PLC; Security Pacific National
Bank; Morgan Guaranty Trust Company of New York; Morgan
Bank (Delaware); Algemene Bank Nederland N.V.; The Fuji
Bank, Limited; Mitsui Taiyo Kobe Bank, Limited; and the
Bank of California, N.A.
10.63(7) Third Amendment to Amended and Restated Term Loan
Agreement dated as of April 3, 1990.
10.64(8) Registrant's 1988 Directors' Stock Option Plan and
representative form of Stock Option Agreement.
10.65 Registrant's 1990 Employee Stock Purchase Plan, as
amended on August 9, 1995.
10.66 Registrant's 1990 Long-Term Equity Incentive Plan, as
amended on August 9, 1995.
<PAGE>
Exhibit
Number Description
------- -----------
10.66A(10) Representative form of agreement to Registrant's 1990
Long-Term Equity Incentive Plan.
10.68(10) First Amendment to Credit Agreement dated as of June 25,
1991.
10.69(10) Fourth Amendment to Amended and Restated Term Loan
Agreement dated June 27, 1991.
10.73(10) Representative form of letter dated June 25, 1991 between
the Registrant and the insurance companies who are
parties to the Note and Warrant Purchase Agreements dated
September 26, 1986 and December 15, 1989.
10.74(10) Software Distribution Agreement dated January 28, 1991 by
and between the Registrant and UNIX System Laboratories,
Inc.
10.75(13) Promissory Notes from Kenneth Alvares to the Registrant
dated June 10, 1992 and July 13, 1992.
10.77(14) Lease Agreement between BNP Leasing Corporation and
Registrant, effective as of September 25, 1992.
10.79(14) Amendments to Note and Warrant Purchase Agreement dated
May 26, 1993.
10.80(15) Promissory note from Chester Silvestri to the Registrant
dated December 30, 1992.
10.81(15) Notice of Exercise and Irrevocable Subscription Agreement
dated July 26, 1994 between Lawrence W. Hambly and the
Registrant.
10.82(15) Revolving Credit Agreement dated June 1, 1994, between
the Registrant; Citicorp USA, Inc.; Bank of America
National Trust and Savings Association; ABN AMRO Bank
N.V.; The First National Bank of Boston; Barclays Bank
PLC; Morgan Guaranty Trust Company of New York; The Fuji
Bank Limited, San Francisco Agency; The Bank of
California, N.A.; The Sakura Bank Limited, San Francisco
Agency; Banque Nationale de Paris; Bayerische Vereinsbank
AG, Los Angeles Agency; The Industrial Bank of Japan,
Limited, San Francisco Agency; Swiss Bank Corporation.
10.83(15) Receivables Purchase Agreement dated as of August 5, 1994
among the Registrant, SunExpress, Inc., Sun Microsystems
Federal, Inc., SunSoft Inc., J.P. Morgan Delaware and
Morgan Guaranty Trust Company of New York.
10.84 Registrant's Non-Qualified Deferred Compensation Plan
dated July 1, 1995
10.85 Registrant's Section 162(m) Executive Officer
Performance-Based Bonus Plan dated August 9, 1995
11.0 Statement of computation of earnings per share.
13.0 1995 Annual Report to Stockholders (to be deemed filed
only to the extent required by the instructions to
exhibits for reports on Form 10-K).
22.0 Subsidiaries of Registrant.
<PAGE>
Exhibit
Number Description
------- -----------
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.0 Power of Attorney (See page 22).
27.0 Financial Data Schedule.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-2897), which became effective March 4, 1986.
(2) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1987.
(3) Incorporated by reference to Exhibits 19.1, 19.3 or 19.4, filed as
Exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 25, 1987.
(4) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrants Annual Report on Form 10-K for the fiscal
year ended June 30, 1989.
(5) Incorporated by reference to Exhibits 19.0 and 19.3 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 29, 1989.
(6) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 29, 1989.
(7) Incorporated by reference to Exhibits 19.0 and 19.1 filed as exhibits to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1990.
(8) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1990.
(9) Incorporated by reference to Exhibits 3.1 and 4.1 filed as exhibits to
the Registrant's Report on Form 8-K filed on December 28, 1990.
(10) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991.
(11) Incorporated by reference to Exhibit 4.0 filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 27, 1991.
(12) Incorporated by reference to Exhibit 3 filed as an exhibit to the
Registrant's Form 8 Amendment No. 3 to Registration Statement on Form
8-A filed on September 16, 1992.
(13) Incorporated by reference to identically numbered exhibits filed as
exhibits to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992.
(14) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993.
(15) Incorporated by reference to identically numbered exhibits filed as
exhibits to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUN MICROSYSTEMS, INC.
Registrant
September 26, 1995
BY:
/s/ Michael E. Lehman
-----------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Scott G. McNealy and Michael E. Lehman jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, which include the Chief
Executive Officer, the Chief Financial Officer and Corporate Controller and a
majority of the Board of Directors, on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Scott G. McNealy Chairman of the Board of September 26, 1995
- - - ------------------------- Directors, President and
(Scott G. McNealy) Chief Executive Officer
(Principal Executive
Officer)
/s/ Michael E. Lehman Vice President and September 26, 1995
- - - ------------------------- Chief Financial Officer
(Michael E. Lehman) (Principal Financial Officer)
/s/ George Reyes Vice President and Corporate September 26, 1995
- - - ------------------------- Controller (Principal
(George Reyes) Accounting Officer)
/s/ L. John Doerr Director September 26, 1995
- - - -------------------------
(L. John Doerr)
/s/ Judith L. Estrin Director September 26, 1995
- - - -------------------------
(Judith L. Estrin)
/s/ Robert J. Fisher Director September 26, 1995
- - - -------------------------
(Robert J. Fisher)
/s/ Robert L. Long Director September 26, 1995
- - - -------------------------
(Robert L. Long)
/s/ M. Kenneth Oshman Director September 26, 1995
- - - -------------------------
(M. Kenneth Oshman)
/s/ A. Michael Spence Director September 26, 1995
- - - -------------------------
(A. Michael Spence)
<PAGE>
<TABLE>
SCHEDULE II
SUN MICROSYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deduction/ End of
Description of Period Expenses Writeoff Period
- - - ---------------------------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1993:
Accounts receivable allowances $48,697 $ 89,027 $ 86,262 $51,462
======= ======== ======== =======
Year ended June 30, 1994:
Accounts receivable allowances $51,462 $167,281 $138,898 $79,845
======= ======== ======== =======
Year ended June 30, 1995:
Accounts receivable allowances $79,845 $186,993 $167,231 $99,607
======= ======== ======== =======
</TABLE>
<PAGE>
EXHIBITS TO REPORT
------------------
ON FORM 10-K
------------
FOR YEAR ENDED JUNE 30, 1995
----------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- - - ------- ---------------------------------------------
10.65 1990 Employee Stock Purchase Plan, as amended
10.66 1990 Long-Term Equity Incentive Plan, as amended
10.84 Non-Qualified Deferred Compensation Plan
10.85 Section 162(m) Executive Officer Performance-Based
Bonus Plan
11.0 Statement of computation of earnings per share
13.0 1995 Annual Report to Stockholders
22.0 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.0 Financial Data Schedule
EXHIBIT 10.65
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
2
<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.
3
<PAGE>
(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
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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.
9
EXHIBIT 10.66
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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(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:
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(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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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.
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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.
13
EXHIBIT 10.84
[SUN MICROSYSTEMS LOGO]
================================================================================
SUN MICROSYTEMS, INC.
U.S.
NON-QUALIFIED DEFERRED
COMPENSATION PLAN
Effective July 1, 1995
================================================================================
<PAGE>
[SUN MICROSYSTEMS LOGO]
TABLE OF CONTENTS
-----------------
PAGE
1. Establishment and Purpose 3
2. Definitions 3
3. Eligibility 5
4. Election to Participate in Plan 6
5. Accounts 6
6. Deferral Increments and Growth 7
7. Interest Paid on Accounts 7
8. Term of Deferral 7
9. Statements 7
10. Form and Time of Payment of Accounts 8
11. Effect of Death of Participant 9
12. Withholding Taxes 9
13. Participant's Unsecured Rights 9
14. Non-Assignability of Interests 10
15. Limitation of Rights 10
16. Administration of the Plan 10
17. Amendment oR Termination of the Plan 10
18. Choice of Law and Claims Procedure 11
19. Execution and Signature 11
2
June 23, 1995
<PAGE>
[SUN MICROSYSTEMS LOGO]
1. ESTABLISHMENT AND PURPOSE:
-------------------------
The Plan, as adopted by the Board, became effective July 1, 1995. The Plan
provides Participants an opportunity to defer payment of a portion of:
* Employee salary and incentive bonus (for Sales Vice Presidents);
* Employee incentive/bonus awards; and
* Board of Directors fees
Deferred amounts will be credited with an interest return determined under
Section 7.
2. DEFINITIONS:
-----------
a. Account means a bookkeeping account established pursuant to Section
-------
5(a) for Compensation that is subject to a Participant's deferral
election.
b. Beneficiary means the person or persons designated by the Participant
-----------
or by the Plan under Section 11(b) to receive payment of the
Participant's Account in the event of his or her death.
c. Board means the Board of Directors of the Company, as constituted from
-----
time to time.
d. Committee means the Salary Deferral Committee, appointed by the Board
---------
from time to time.
e. Company means Sun Microsystems, Inc.
f. Compensation means;
i. The amount of the Eligible Employee's base salary paid by the
Company or one of its subsidiaries; and
ii. The amount paid by the Company or one of its subsidiaries to an
Eligible Employee as a bonus/incentive award approved by the
Committee as earnings that can be deferred under the Plan (some
incentive/bonus awards will not be eligible for deferral); and
iii. In the case of an Eligible Board Member, the amount of his or her
director's fees from the Company, which includes annual retainers
and meeting fees. Compensation does not include directors'
expense reimbursements.
3
<PAGE>
[SUN MICROSYSTEMS LOGO]
2. DEFINITIONS (Cont'd):
g. Election Period means:
---------------
i. For base pay and Board fees deferral, generally November of each
year; and
ii. For bonus/incentive deferral, generally the month prior to the
beginning of the Plan year, e.g., June for the corporate annual
incentive plan.
iii. In the case of employees who become Eligible Employees , or newly
elected Eligible Board Members, thirty (30) days commencing on
the date he or she becomes eligible to participate.
h. Eligible Board Member means a member of the Board of Directors.
---------------------
i. Eligible Employee means an officer of the Company or other common-law
------------------
employee of the Company or one of its subsidiaries who is designated
under Section 3.
j. Participant means an Eligible Board Member or an Eligible Employee who
-----------
has elected to defer compensation.
k. Plan means this Sun Microsystems, Inc. U. S. Non-Qualified Deferred
----
Compensation Plan, as amended from time to time.
l. Retirement Date means the first day of the month coinciding with or
----------------
next day following the Participant's termination of employment
following the earlier of his or her:
i. 65th birthday,
ii. 60th birthday if the Participant has 5 years of Service,
iii. 55th birthday if the Participant has 10 years of Service; or
iv. 20th year anniversary of Service.
m. Service means:
-------
i. Employment as a common-law employee of the Company or one of its
subsidiaries; or
ii. Period serving as elected Board Member.
A Participant's service shall be determined by the Committee in its
sole discretion.
4
<PAGE>
[SUN MICROSYSTEMS LOGO]
2. DEFINITIONS (Cont'd):
--------------------
n. Total Disability means that the Participant is unable to engage in any
----------------
substantial gainful activity by reason of a medically determinable
physical or mental impairment which may result in Participant's death,
or condition which lasts, or may last, a continuous period of not less
than twelve consecutive months. Total Disability shall be determined
by the Committee in its sole discretion.
o. Unforeseeable Emergency means a severe financial hardship to the
------------------------
Participant resulting from:
i. Sudden or unexpected illness or accident of either the
Participant or dependent of same, or
ii. Loss of the Participant's property due to casualty or other
extraordinary and unforeseeable circumstances beyond the control
of the Participant.
Hardship shall not constitute an unforeseeable Emergency under the
Plan to the extent that it is, or may be, relieved by:
i. Reimbursement or compensation, by insurance or otherwise;
ii. Liquidation of the Participant's assets to the extent that the
liquidation of such assets would not itself cause severe
financial hardship.
An Unforeseeable Emergency under the Plan does not include:
i. Sending a child to college; or
ii. Purchasing a home, per Rev. Proc. 95-64.
p. Year means a calendar year unless otherwise noted.
----
3. ELIGIBILITY:
-----------
Participation in the Plan is limited to Eligible Board Members, and
Eligible Employees, who are eligible to participate in the Plan if:
a. He or she is subject only to U.S. income taxes for the year in which
the deferral is effective; and
b. He or she is an officer, or his or her Position is approved as a Vice
President level, or higher; or
5
<PAGE>
[SUN MICROSYSTEMS LOGO]
3. ELIGIBILITY (Cont'd):
--------------------
c. He or she has expressly been designated as an Eligible Employee by the
Committee.
Participants shall be excluded from the Plan for a three year period after
a withdrawal described in Section 10(e).
4. ELECTION TO PARTICIPATE IN PLAN:
-------------------------------
a. Deferral Election. A Participant may elect to participate in the Plan
-----------------
by filing a written "Deferred Compensation Election Form" with the
Company during any Election Period. Such election applies to
applicable Compensation paid in payroll periods commencing after the
close of the Election Period. A new election must be made for each
Election Period. The Participant shall specify any amount greater than
or equal to the minimum deferral as described in Section 6(a). This
can be expressed as a fixed number or a formula.
b. Election Form. All deferral elections under this Section 4 shall be
--------------
made in a manner prescribed for this purpose by the Committee.
5. ACCOUNTS:
--------
a. Establishment of Account. The Company shall establish an Account for
-------------------------
each Participant who duly files a Deferred Compensation Election Form.
b. Credits to Account. A Participant's Account shall be credited with an
------------------
amount equal to the percentage of each Compensation payment which
would have been payable currently to the Participant but for the terms
of the Deferred Compensation Election Form. Deferred Compensation for
Participants who are Eligible Employees shall be credited to the
Participant's Account as soon as reasonably practicable after the
applicable payment date.
6
<PAGE>
[SUN MICROSYSTEMS LOGO]
6. DEFERRAL INCREMENTS AND GROWTH:
------------------------------
a. The minimum deferral per year will be determined by the Committee.
--------------------
b. The Participant who is an Eligible Employee may elect to defer (less
---------------
any withholding requirements)
i. Up to 100% of any eligible bonus/incentive award
ii. Up to 80% of base salary
c. The Participant who is an Eligible Board Member may elect to defer
----------------
(less any withholding requirements)
i. Up to 100% of their retainer fees (to be credited to the account
quarterly)
ii. Up to 100% of their meeting fees (to be credited to the account
quarterly)
7. INTEREST PAID ON ACCOUNTS:
-------------------------
The balance in each Account shall be credited quarterly to reflect
interest earned on the deferral in an amount determined by the committee.
Credited interest becomes part of the Account and is paid at the same
time, or times, as the rest of the Account.
8. TERM OF DEFERRAL:
----------------
The Participant may elect to defer compensation for two or more years,
subject to Section 10. The Participant may choose a common or different
deferral date for each deferral. Each deferral date must be elected during
each Election Period and may not be changed in a subsequent Election
Period.
9. STATEMENTS:
----------
Annually, and/or at intervals determined by the Committee, the Company
shall prepare and deliver to each Participant a statement listing the
amount credited to such Account as of the applicable date.
7
<PAGE>
[SUN MICROSYSTEMS LOGO]
10. FORM AND TIME OF PAYMENT OF ACCOUNTS:
------------------------------------
a. Distributions. To the extent that a Participant elects to defer
-------------
payment to his or her Retirement Date, the Participant can elect at
the time of deferral that the deferral be distributed in cash in:
i. A single lump sum; or
ii. A series of annual installments dispersed over a period of years,
not to exceed ten (10), per Participant's election at the time of
enrollment.
The dollar amount of installments to be paid from an Account shall be
determined by dividing the Account balance by the number of remaining
installments to be distributed from such Account.
If a Participant elects a deferral date prior to termination of employment
or terminates before his or her Retirement Date, the deferral will be paid
as soon as reasonably practicable in a lump sum after the earlier of
termination of employment or the deferral date.
b. Disability or Emergency. In the event of Participant's Total
-------------------------
Disability or unforeseeable Emergency, and upon application by such
Participant, the Committee may determine at its sole discretion that
payment of all, or part, of such participant's Account shall be made
in a different manner, or on an earlier date than the time or times
specified in Subsections (a), (b) or (c) above. Payments due to
Participant's Total Disability or Unforeseeable Emergency shall be
permitted only to the extent reasonably required to satisfy the
Participant's need.
c. Early Distribution Penalty. Upon application by a Participant, the
----------------------------
Committee may determine at its sole discretion that payments from such
Participant's Account shall be made in a different manner, or on an
earlier date than the time or times specified in Subsections (a), (b),
and (c) above. All distribution under Subsection (e) shall be reduced
by a penalty equal to 10 percent (10%) of the amount otherwise
distributable. The penalty is forfeited to the Company. A Participant
who receives a distribution under this Subsection (e) is prohibited
thereafter from making any additional deferral under the Plan for a
period of three years following early distribution.
8
<PAGE>
[SUN MICROSYSTEMS LOGO]
11. EFFECT OF DEATH OF PARTICIPANT:
------------------------------
a. Distributions. In the event of a Participant's death, the Account
-------------
balance, if any, shall be distributed to his or her Beneficiary. The
distribution shall be distributed to the Beneficiary in a single lump
sum, as soon as reasonably practicable after the Participant's death.
b. Beneficiary Designation. Upon enrollment in the Plan, each Participant
-----------------------
shall file a prescribed form with the Company naming a person or
persons as the Beneficiary who will receive distributions payable
under the Plan in the event of the Participant's death. If the
Participant does not name a Beneficiary, or if none of the named
Beneficiaries is living at the time payment is due, then the Benefi-
ciary shall be:
i. The spouse of the deceased Participant; or
ii. The living children of the deceased participant, in equal shares,
if no spouse of the Participant is living; or
iii. The estate of the Participant if neither spouse nor children of
Participant are living.
The Participant may change the designation of a Beneficiary at any time in
accordance with procedures established by the Committee. Designations of a
Beneficiary, or an amendment or revocation thereof, shall be effective
only if made in the prescribed manner and received by the Company prior to
the Participant's death.
12. WITHHOLDING TAXES:
-----------------
All distributions under the Plan shall be subject to reduction in order to
reflect withholding tax obligations imposed by law.
13. PARTICIPANT'S UNSECURED RIGHTS:
------------------------------
The Account of any Participant, and such Participant's right to receive
distributions from his or her Account, shall be considered an unsecured
claim against the general assists of the Company; such Accounts are
unfunded bookkeeping entries. The Company considers the Plan to be
unfunded for tax purposes and for purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended. No Participant shall
have an interest in, or make claim against, any specified asset of the
Company pursuant to the Plan.
9
<PAGE>
[SUN MICROSYSTEMS LOGO]
14. NON-ASSIGNABILITY OF INTERESTS:
------------------------------
The interest of a Participant under the Plan is not subject to option nor
assignable by either voluntary or involuntary assignment or by operation
of law, including with- out limitation to: bankruptcy, garnishment,
attachment or other creditor's process. Any act in violation of this
Section 14 shall make the Plan void.
15. LIMITATION OF RIGHTS:
--------------------
a. Bonuses. Nothing in this Plan shall be construed to give any Eligible
-------
Employee any right to be granted a bonus award.
b. Employment Rights. Neither the Plan nor deferral of any Compensation,
-----------------
nor any other action taken pursuant to the Plan, shall constitute, or
be evidence of, any agreement or understanding, express or implied,
that the Company or any of its subsidiaries will employ an Eligible
Employee for any period of time, in any position at any particular
rate of compensation. The Company and its subsid- iaries reserve the
right to terminate an Eligible Employee's Service at any time for any
reason, except as otherwise expressly provided in a written employment
agreement.
16. ADMINISTRATION OF THE PLAN:
--------------------------
The Plan shall be administered by the Committee. The Committee shall have
full power and authority to administer, interpret, establish procedures
for administering the Plan, prescribe forms, and take any and all
necessary actions in connection with the Plan. The committee's
interpretation and construction of the Plan shall be conclusive and
binding on all persons.
17. AMENDMENT OR TERMINATION OF THE PLAN:
------------------------------------
The Board may amend, suspend, or terminate the Plan at any time. In the
event of termination, the Accounts of Participants shall be paid at such
time and in such form as shall be determined pursuant to Section 10,
unless the Board prescribes an earlier time or different manner for the
payment of such Accounts.
10
<PAGE>
[SUN MICROSYSTEMS LOGO]
18. CHOICE OF LAW AND CLAIMS PROCEDURE:
----------------------------------
a. Choice of Law. The validity, interpretation, construction and
---------------
performance of the Plan shall be governed by the Employee Retirement
Income Security Act of 1974, and, to the extent that they are not
pre-empted, by the laws of the State of California, excluding
California's choice-of-law provisions.
b. Claims and Review Procedure. In accordance with the regulations of the
---------------------------
U.S. Secretary of Labor, the Committee shall:
i. Provide adequate notice in writing to any Participant or
Beneficiary whose claim for benefits under the Plan has been
denied. Specific reasons for such denial must be presented in a
clear and precise manner intended to be easily understood by such
Participant or Beneficiary, and
ii. Afford a reasonable opportunity for a full and fair review before
the Board to any Participant or Beneficiary whose claim for
benefits has been denied.
19. EXECUTION AND SIGNATURE:
-----------------------
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to affix the corporate name hereto:
-----------------------------------
CORPORATE NAME
BY
--------------------------------
AUTHORIZED COMPANY OFFICER
11
EXHIBIT 10.85
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 BONUS
----------------
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.
EXHIBIT 11
SUN MICROSYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
PRIMARY
- - - -------
YEARS ENDED
JUNE 30,
-----------------------------------
1995 1994 1993
---- ---- ----
Net income $355,842 $195,824 $156,726
Weighted average common shares
outstanding 95,716 95,207 102,329
Common equivalent shares attributable
to the following:
Stock options and warrants 2,709 1,557 2,796
Total common and common equivalent shares
outstanding 98,425 96,764 105,125
-------- -------- --------
Net income per common and common
equivalent share $ 3.61 $ 2.02 $ 1.49
======== ======== ========
<PAGE>
EXHIBIT 11
(continued)
SUN MICROSYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
FULLY DILUTED
- - - -------------
YEARS ENDED
JUNE 30,
-----------------------------------
1995 1994 1993
---- ---- ----
Net income $355,842 $195,824 $156,726
Adjustment for interest assuming conversion
of 5 1/4% subordinated debentures, net
of taxes (1) - - 2,324
-------- -------- --------
Adjusted net income $355,842 $195,824 $159,050
======== ======== ========
Weighted average common shares
outstanding 95,716 95,207 102,329
Common equivalent shares attributable to
the following:
Stock options and warrants 2,925 1,621 3,037
Conversion of 5 1/4% subordinated
debentures - - 1,830
-------- -------- --------
Total common and common equivalent shares
outstanding 98,641 96,828 107,196
======== ======== ========
Net income per common and common
equivalent share $ 3.61 $ 2.02 $ 1.48
======== ======== ========
(1) The adjustment to common equivalent shares recorded reflects only the period
during which the debentures were actually outstanding.
<TABLE>
Historical financial review
<CAPTION>
Summary Consolidated Statements of Income Years Ended June 30,
- - - ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
1995 1994 1993 1992 1991
Dollars % Dollars % Dollars % Dollars % Dollars %
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $5,902 100.0 $4,690 100.0 $4,309 100.0 $3,589 100.0 $3,221 100.0
-------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 3,399 57.6 2,753 58.7 2,518 58.4 1,963 54.7 1,758 54.6
Research and development 520 8.8 455 9.7 445 10.3 382 10.6 356 11.1
Selling, general and
administrative 1,483 25.1 1,205 25.7 1,105 25.7 983 27.4 812 25.2
-------------------------------------------------------------------------------------------------------
Total costs and expenses 5,402 91.5 4,413 94.1 4,068 94.4 3,328 92.7 2,926 90.9
-------------------------------------------------------------------------------------------------------
Operating income 500 8.5 277 5.9 241 5.6 261 7.3 295 9.1
Interest income (expense),
net 23 0.4 6 0.1 (2) -- (6) (0.2) (11) (0.3)
Litigation settlement -- -- -- -- (15) (0.4) -- -- -- --
-------------------------------------------------------------------------------------------------------
Income before income taxes 523 8.9 283 6.0 224 5.2 255 7.1 284 8.8
Provision for income taxes 167 2.9 87 1.8 67 1.6 82 2.3 94 2.9
-------------------------------------------------------------------------------------------------------
Net income $ 356 6.0 $196 4.2 $157 3.6 $173 4.8 $190 5.9
Net income per share $3.61 $2.02 $1.49 $1.71 $1.85
-------------------------------------------------------------------------------------------------------
Weighted average common
and common-equivalent
shares outstanding 98 97 105 102 103
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summary Consolidated Statements of Income (continued) Years Ended June 30,
- - - ------------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
1990 1989 1988 1987 1986 1985
Dollars % Dollars % Dollars % Dollars % Dollars % Dollars %
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $2,466 100.0 $1,765 100.0 $1,052 100.0 $538 100.0 $210 100.0 $115 100.0
-------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 1,399 56.7 1,010 57.2 551 52.3 273 50.7 102 48.5 62 53.5
Research and development 302 12.2 234 13.3 140 13.3 70 13.0 31 14.8 15 13.2
Selling, general and
administrative 588 23.9 433 24.5 250 23.8 127 23.6 57 27.3 24 20.9
-------------------------------------------------------------------------------------------------------
Total costs and expenses 2,289 92.8 1,677 95.0 941 89.4 470 87.3 190 90.6 101 87.6
-------------------------------------------------------------------------------------------------------
Operating income 177 7.2 88 5.0 111 10.6 68 12.7 20 9.4 14 12.4
Interest income (expense),
net (23) (0.9) (10) (0.6) -- (0.1) 1 0.2 -- 0.2 -- --
Litigation settlement -- -- -- -- -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------
Income before income taxes 154 6.3 78 4.4 111 10.5 69 12.9 20 9.6 14 12.4
Provision for income taxes 43 1.8 17 1.0 45 4.2 33 6.1 9 4.3 6 5.0
-------------------------------------------------------------------------------------------------------
Net income $ 111 4.5 $ 61 3.4 $ 66 6.3 $ 36 6.8 $ 11 5.3 $ 8 7.4
Net income per share $1.21 $ .76 $ .89 $ .55 $ .21 $ .18
-------------------------------------------------------------------------------------------------------
Weighted average common
and common-equivalent
shares outstanding 94 85 78 67 53 48
=======================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Operating and Capitalization Data
- - - ------------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30,
- - - ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets (millions) $ 3,545 $ 2,898 $ 2,768 $ 2,672 $ 2,326 $ 1,779 $ 1,269 $ 757 $ 524 $ 182 $ 84
---------------------------------------------------------------------------------------------------
Long-term debt and other
obligations (millions) $ 91 $ 122 $ 178 $ 348 $ 401 $ 359 $ 145 $ 127 $ 128 $ 7 $ 8
---------------------------------------------------------------------------------------------------
Current ratio 2.2 2.0 2.4 2.6 2.5 2.6 1.9 2.1 2.6 1.9 2.3
---------------------------------------------------------------------------------------------------
Long-term debt-to-equity ratio 0.039 0.075 0.11 0.23 0.33 0.39 0.22 0.34 0.53 0.04 0.13
---------------------------------------------------------------------------------------------------
Return on average equity 19% 12% 10% 13% 18% 14% 12% 22% 21% 14% 25%
---------------------------------------------------------------------------------------------------
Return on average capital 18% 12% 9% 10% 13% 11% 9% 15% 15% 13% 22%
---------------------------------------------------------------------------------------------------
Return on average assets 11% 7% 6% 7% 9% 7% 6% 10% 10% 8% 15%
---------------------------------------------------------------------------------------------------
Effective income tax rate 32.0% 33.0% 30.0% 32.0% 33.0% 28.0% 22.0% 40.0% 47.5% 44.6% 40.1%
---------------------------------------------------------------------------------------------------
Average shares and equivalents
(thousands) 98,425 96,764 105,125 101,640 103,067 94,369 85,161 77,880 67,348 53,240 47,532
---------------------------------------------------------------------------------------------------
Book value per outstanding share $ 21.55 $ 17.35 $ 16.09 $ 14.85 $ 12.58 $ 10.01 $ 7.88 $ 5.11 $ 3.58 $ 1.96 $ 1.08
===================================================================================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following table sets forth items from Sun's Consolidated Statement of Income
as percentages of net revenues:
YEARS ENDED JUNE 30,
- - - ----------------------------------------------------------------------------
1995 1994 1993
- - - ----------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0%
Cost of sales 57.6 58.7 58.4
- - - ----------------------------------------------------------------------------
Gross margin 42.4 41.3 41.6
Research and development 8.8 9.7 10.3
Selling, general and administrative 25.1 25.7 25.7
- - - ----------------------------------------------------------------------------
Operating income 8.5 5.9 5.6
Interest income, net 0.4 0.1 -
Settlement of litigation - - (0.4)
- - - ----------------------------------------------------------------------------
Income before income taxes 8.9 6.0 5.2
Provision for income taxes 2.9 1.8 1.6
- - - ----------------------------------------------------------------------------
Net income 6.0% 4.2% 3.6%
============================================================================
RESULTS OF OPERATIONS
NET REVENUES
Sun's net revenues increased $1,212 million, or 26%, to $5,902 million in fiscal
1995, compared with an increase of $381 million, or 9%, in fiscal 1994. The
increase in net revenues in fiscal 1995 was due in part to the strong demand
experienced by Sun throughout the fiscal year for its richly configured desktop
systems and high-performance servers, specifically the SPARCserver(TM) 1000,
SPARCstation(TM) 5, and SPARCstation 20 products. In addition, approximately
half of the increase in net revenues resulted from memory, storage options, and
accessories shipped to both new customers purchasing more richly configured
systems and to installed base customers. Total unit shipments in fiscal 1995
grew by 21% over fiscal 1994. Approximately half of the unit shipment growth
resulted from increased shipments of the SPARCstation 5 system. Revenues from
other Sun businesses, including service, aftermarketing, microprocessors, and
software, in total remained relatively unchanged as a percentage of net revenues
but increased significantly in absolute dollars during fiscal 1995. The increase
in net revenues in fiscal 1994 over fiscal 1993 was primarily attributable to
increases in workstation and server shipments and higher revenues from memory,
storage options, and accessories.
In fiscal 1995 and 1994, domestic net revenues grew 25% and 4%, respectively,
while international net revenues (including U.S. exports) grew 26% and 14%,
respectively. European net revenues increased 27% in fiscal 1995, primarily due
to the continued strengthening of computer markets in central and northern
Europe, principally Germany, the United Kingdom, and France. Net revenues in the
Rest of World (principally Japan) increased by 26% in fiscal 1995, primarily due
to the expanding network computing markets in Japan and Asia. International
operations represented 51% of total net revenues in fiscal 1995, as compared
with 51% and 49% in fiscal 1994 and 1993, respectively.
The impact of currency fluctuations on net revenues and operating results cannot
be precisely measured because the Company's product mix and pricing change over
time in various markets, partially in response to currency movements. Further,
the Company procures inventory and its international operations incur expenses
in local currencies, providing a degree of natural hedge of local currency
denominated revenues. As such, the financial effects of fluctuations in the
dollar values of foreign currencies frequently mitigate or tend to offset each
other on a consolidated basis. The Company generally manages currency exposure
through the use of simple, short-term forward exchange and currency option
contracts, the objective of which is to minimize the impact of currency
fluctuations on results of operations. See "Other Financial Instruments" in Note
1 of the "Notes to Consolidated Financial Statements" for more details. Compared
with fiscal 1994, the dollar weakened against most major European currencies and
the Japanese yen during fiscal 1995. Management has estimated that the net
impact of currency fluctuations, while slightly favorable in fiscal 1995, was
not significant in any of the fiscal years in the three-year period ended June
30, 1995.
GROSS MARGIN
Gross margin was 42.4% for fiscal 1995, compared with 41.3% and 41.6% for fiscal
1994 and 1993, respectively. Increased revenues from memory, storage options,
and accessories, and more richly configured, higher margin servers and desktop
systems accounted for over half the net increase in gross margin for fiscal
1995. The increase also resulted partly from the aggregate effect of revenue
increases in Sun's service business, as well as its aftermarketing,
microprocessor, and software businesses. Increased shipments of lower
price-point desktop systems partially offset the gross margin increase.
The factors described above resulted in a favorable impact on gross margin,
particularly in the latter half of the fiscal year. Because Sun operates in a
highly competitive industry characterized by increasingly aggressive pricing,
systems repricing actions may be initiated in the future, which would result in
downward pressure on gross margin. Future operating results will depend in part
on the Company's ability to mitigate this margin pressure by maintaining a
favorable mix of system, software, service, and other revenues and by achieving
component cost reductions and operating efficiencies.
Between fiscal 1994 and fiscal 1993, gross margin remained relatively unchanged.
Downward margin pressure resulting from repricing actions and the introduction
of low price-point desktop systems in fiscal 1994 offset favorable impacts from
increased shipments of higher performance desktop systems, reductions in
low-margin upgrade revenues, and reductions in component costs.
RESEARCH AND DEVELOPMENT
Research and development (R&D) expenses increased $65.2 million, or 14%, in
fiscal 1995 to $519.9 million, compared with an increase of $9.3 million, or 2%,
in fiscal 1994. As a percentage of net revenues, R&D expenses were 8.8%, 9.7%,
and 10.3% in fiscal 1995, 1994, and 1993, respectively. R&D spending continued
at a substantial level throughout the three-year period ended June 30, 1995, as
the Company invested in specific projects in support of new software and
hardware product introductions and continued development of the SPARC
microprocessor product line, including the UltraSPARC family of next-generation
processors based on a 64-bit architecture (referred to hereafter as UltraSPARC).
Approximately half of the dollar increase in R&D expenses in fiscal 1995
reflects increases in compensation based principally on the achievement of
specified performance goals. The decrease in R&D as a percentage of net revenues
is primarily due to the increase in revenues in fiscal 1995 and the timing of
specific expenses in fiscal 1994. Sun continues to believe that the market for
its products is characterized by rapid rates of technological advancement for
system and software products, as well as microprocessor technologies. To
maintain its competitive position in the industry, the Company expects to
continue to invest significant resources in new system, software, and
microprocessor development, as well as in enhancements to existing products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses increased $277.2 million, or
23%, in fiscal 1995 to $1,482.6 million compared with an increase of $100.9
million, or 9%, in fiscal 1994. As a percentage of net revenues, these expenses
were 25.1% in fiscal 1995 and 25.7% in both fiscal 1994 and 1993. Approximately
one quarter of the fiscal 1995 dollar increase reflects increases in
compensation based principally on the achievement of specified performance
goals. The dollar increase also reflects investments in various demand-creation
programs, including marketing and promotional activities for new software
products and increases in sales staff. The dollar increase in fiscal 1994
resulted primarily from additional sales staff and related incentives and
increased incentive compensation. The decrease as a percentage of net revenues
in fiscal 1995 reflects, in part, the increase in revenues and the Company's
ongoing efforts to reduce certain SG&A expenses over time through improvements
in business processes and cycle times. In fiscal 1996, the Company expects to
continue to invest in efforts to achieve additional operating efficiencies
through the continual review and improvement of business processes. In addition,
the Company expects to continue to hire personnel to drive its demand-creation
programs and service and support operations.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $22.9 million in fiscal 1995, compared with
$6.1 million in fiscal 1994 and interest expense of $1.5 million in fiscal 1993.
The growth in net interest income for fiscal 1995 was primarily the result of
higher earnings on a larger portfolio of invested cash during the year. The
increase in net interest income for fiscal 1994, and part of the increase in
fiscal 1995, was due to reduced interest expense on short-term borrowings and
long-term debt as a result of scheduled debt repayments. The Company enters into
interest rate swap agreements as part of its overall strategy of managing its
investments and financing arrangements. See "Other Financial Instruments" in
Note 1 of the "Notes to Consolidated Financial Statements" for additional
information.
SETTLEMENT OF LITIGATION
Fiscal 1993 earnings included a charge of $15 million in connection with the
settlement of two securities class-action lawsuits brought against the Company
and certain of its current and former officers by purchasers of the Company's
stock and debentures. See Note 8 in "Notes to Consolidated Financial Statements"
for additional information.
INCOME TAXES
The effective tax rate for fiscal 1995 was 32%. The effective tax rate for
fiscal 1994 was 33% before the one-time credit of $5.9 million resulting from
the Omnibus Reconciliation Act of 1993. The effective tax rate for fiscal 1993
was 30%. The decrease in fiscal 1995 compared with fiscal 1994 resulted from the
increase in earnings of foreign subsidiaries permanently invested in foreign
operations. The increase in fiscal 1994 over fiscal 1993 is primarily due to the
increase in the U.S. statutory rate and fluctuations in income before taxes
without corresponding proportionate changes in tax benefits.
FUTURE OPERATING RESULTS
Management believes the Company has entered fiscal 1996 in strong financial
condition and with a competitive offering of network computing products,
including systems, software, microprocessor technologies, and services. The
Company expects that the markets for its products and technologies, as well as
its competitors within such markets, will continue to change as the rightsizing
trend shifts customer buying patterns to distributed systems employing solutions
from multiple vendors. Competition in these markets will also continue to
intensify as Sun and its competitors, principally Hewlett-Packard, International
Business Machines, Digital Equipment Corporation, and Silicon Graphics,
aggressively position themselves to benefit from this shifting of customer
buying patterns and demand. In addition, the timing of introductions of new
desktop and server products by Sun's competitors may negatively impact the
future operating results of the Company, particularly when occurring in periods
leading up to the Company's introductions of its own new or enhanced products.
As the introductions of Sun's enhanced systems based on UltraSPARC processors
are planned to begin in mid-fiscal 1996, future operating results will depend to
a considerable extent on the Company's ability to closely manage the planned
product enhancements in order to minimize unfavorable patterns of customer
orders, to reduce levels of older inventory, and to ensure that adequate
supplies of new products can be delivered to meet customer demand. Future
operating results will therefore also depend on the Company's ability to rapidly
and successfully complete the development and integration of UltraSPARC into the
Company's desktop and server product lines.
Competition in the desktop and server markets is also increasing as a result of
enhancements in hardware and operating system software products introduced, or
to be introduced, by other competing companies such as Intel and Microsoft.
These developments are improving the characteristics of certain networked
personal computer solutions and have increased the competitive pressure,
particularly at the low end of the Company's desktop product range, where
customers are more price sensitive and the systems environment is less complex.
The Company expects this pressure to continue and intensify in fiscal 1996.
Sun operates in an industry characterized by increasing competition, rapidly
changing technology, and increasingly aggressive pricing. As a result, the
Company's future operating results will depend to a considerable extent on its
ability to rapidly and continuously develop, introduce, and deliver in quantity
new systems, software, and service products, as well as new microprocessor
technologies, that offer its customers enhanced performance at competitive
prices. The development of new high-performance computer products, in particular
the Company's current development of UltraSPARC, is a complex and uncertain
process requiring high levels of innovation from the Company's designers and
suppliers, as well as accurate anticipation of customer requirements and
technological trends. The Company is also increasingly dependent on the ability
of its suppliers to design, manufacture, and deliver advanced components
required for the timely introduction of new products. The failure of any of
these suppliers to deliver components on time or in sufficient quantities, or
the failure of any of the Company's own designers to develop advanced innovative
products on a timely basis, could result in a significant adverse impact on the
Company's operating results. The inability to secure enough components to build
products, including new products, in the quantities and configurations required,
or to produce, test, and deliver sufficient products to meet demand in a timely
manner, would adversely affect the Company's net revenues and operating results.
To secure components for development, production, and introduction of new
products, the Company frequently makes advanced payments to certain suppliers
and often enters into noncancelable purchase commitments with vendors early in
the design process. Due to the variability of material requirement
specifications during the design process, the Company must closely manage
material purchase commitments and respective delivery schedules. In the event of
a delay or flaw in the design process, the Company's operating results could be
adversely affected due to the Company's obligations to fulfill such
noncancelable purchase commitments. Once a hardware product is developed, the
Company must rapidly bring it to volume manufacturing, a process that requires
accurate forecasting of both volumes and configurations, among other things, in
order to achieve acceptable yields and costs. Upon introduction of new products,
the Company must also manage the transition from older, displaced products to
minimize disruptions in customer ordering patterns, reduce levels of older
product inventory, and ensure that adequate supplies of new products can be
delivered to meet customer demand. The ability of the Company to match supply
and demand is further complicated by the need to take pricing actions and the
variability of timing of customer orders. As a result, the Company's operating
results could be adversely affected if the Company is not able to correctly
anticipate the level of demand for the mix of products. Because the Company is
continuously engaged in this product development, introduction, and transition
process, its operating results may be subject to considerable fluctuation,
particularly when measured on a quarterly basis.
Generally, the computer systems sold by Sun are the result of both hardware and
software development, such that delays in software development can delay the
ability of the Company to ship new hardware products. In addition, adoption of a
new release of an operating system may require effort on the part of the
customer and porting by software vendors providing applications. As a result,
the timing of conversion to a new release is inherently unpredictable. Moreover,
delays by customers in adoption of a new release of an operating system can
limit the acceptability of hardware products tied to that release. Such delays
could adversely affect the future operating results of the Company. Sun's
systems based on UltraSPARC processors will require completion of the next
version of the Company's operating system, Solaris 2.5, which is currently in
the beta testing phase of development. In attempts to minimize the
aforementioned risks, the Company has expended significant effort toward making
Solaris 2.5 binary compatible with the applications currently running on Solaris
2.x, so customers should not need to port these applications to run on
UltraSPARC-based systems.
Certain computer systems sold by Sun require a high level of service and support
to be provided to the customer, and consequently, the customer's acceptance of
such systems may be delayed in the event Sun does not provide a sufficient level
of service. Such delays in customer acceptance could adversely affect the future
operating results of the Company.
The Company's operating results will also be affected by the volume, mix, and
timing of orders received during a period and by conditions in the computer
industry and in the general economy, such as recessionary periods, political
instability, changes in trade policies, and fluctuations in interest or currency
exchange rates. The Company's customer order backlog at June 30, 1995, was
approximately $323 million, relatively unchanged from $338 million at June 30,
1994. Backlog at June 30, 1993, was $160 million. Backlog includes only orders
for which a delivery schedule within six months has been specified by the
customer. Backlog levels vary with demand, product availability, and the
Company's delivery lead times, and are subject to significant decreases as a
result of customer order delays, changes, or cancellations. As such, backlog
levels are not necessarily a reliable indicator of future operating results. The
backlog level at June 30, 1994, increased over the level at June 30, 1993, as a
result of strong demand for newly introduced desktop products in the fourth
quarter of fiscal 1994.
Seasonality also affects the Company's operating results, particularly in the
first quarter of each fiscal year. In addition, the Company's operating expenses
are increasing as the Company continues to expand its operations, and future
operating results will be adversely affected if revenues do not increase
accordingly.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition strengthened as of the fiscal 1995 year end
when compared with fiscal 1994. Sun's cash portfolio (cash, cash equivalents,
and short-term investments) increased $345 million, or 39%, to $1,228 million at
June 30, 1995. The increase results primarily from the increased generation of
cash from operations in fiscal 1995.
During fiscal 1995, operating activities generated $637 million, compared with
$356 million in fiscal 1994, due in part to higher earnings in fiscal 1995.
Accounts receivable increased $189 million, or 22%, to $1,042 million, due
primarily to a 17% increase in net revenues in the fourth quarter of fiscal
1995, compared with the corresponding period of 1994. Accrued payroll-related
liabilities, accrued liabilities, and other increased $187 million, or 37%, in
part due to increases in compensation, sales, and marketing costs. Accounts
payable decreased $60 million, or 16%, due in part to the receipt of less
inventory in the last few weeks of fiscal 1995 than received in the comparable
period of fiscal 1994.
The Company's investing activities used $675 million of cash in fiscal 1995, an
increase of $208 million from the $467 million used in fiscal 1994. The increase
resulted primarily from the Company investing more of the fiscal 1995 net
operating cash flow in short-term investments and less in cash equivalents.
Additions to property, plant and equipment totaled $242 million, up $29 million,
or 14%, from fiscal 1994 additions, primarily due to the purchase and
development of new operating facilities. The Company plans to continue the
development of new operating facilities in fiscal 1996.
Approximately $18 million of cash was provided by financing activities in fiscal
1995, compared with $283 million used in fiscal 1994. This change is primarily
due to the completion in fiscal 1994 of the planned repurchase of 10 million
shares of the Company's common stock. This planned repurchase was approved by
the Board of Directors in June 1993 and was completed in November 1993, at a
cost of approximately $265 million. In June 1995, the Board of Directors
approved a plan to repurchase up to 12 million shares of the Company's common
stock. As of August 9, 1995, the Company had repurchased approximately 2.6
million shares of stock under this program, for a total of approximately $119
million.
At June 30, 1995, the Company's primary sources of liquidity consisted of cash,
cash equivalents, and short-term investments totaling $1,228 million;
uncommitted lines of credit available to the Company's international
subsidiaries totaling approximately $532 million, of which approximately $481
million was available; and a revolving credit facility with banks aggregating
$150 million, all of which was available subject to compliance with certain
covenants. The Company believes that the liquidity provided by existing cash and
short-term investment balances and the borrowing arrangements described above
will be sufficient to meet the Company's capital requirements for fiscal 1996.
However, because the Company believes the level of financial resources is a
significant competitive factor in its industry, it may choose at any time to
raise additional capital through debt or equity financings to strengthen its
financial position, facilitate growth, and provide the Company with additional
flexibility to take advantage of business opportunities that may arise.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- - - --------------------------------------------------------------------------------
Years Ended June 30,
- - - --------------------------------------------------------------------------------
(In thousands, except per share amounts) 1995 1994 1993
- - - --------------------------------------------------------------------------------
Net revenues $5,901,885 $4,689,892 $4,308,606
Costs and expenses:
Cost of sales 3,399,010 2,752,518 2,518,312
Research and development 519,885 454,665 445,356
Selling, general and administrative 1,482,634 1,205,442 1,104,498
- - - --------------------------------------------------------------------------------
Total costs and expenses 5,401,529 4,412,625 4,068,166
- - - --------------------------------------------------------------------------------
Operating income 500,356 277,267 240,440
Interest income 40,778 27,894 33,327
Interest expense (17,836) (21,782) (34,873)
Settlement of litigation -- -- (15,000)
- - - --------------------------------------------------------------------------------
Income before income taxes 523,298 283,379 223,894
Provision for income taxes 167,456 87,555 67,168
- - - --------------------------------------------------------------------------------
Net income $ 355,842 $ 195,824 $ 156,726
- - - --------------------------------------------------------------------------------
Net income per common and
common-equivalent share $ 3.61 $ 2.02 $ 1.49
Common and common-equivalent shares
used in the calculation of
net income per share 98,425 96,764 105,125
===============================================================================
See accompanying notes.
<PAGE>
CONSOLIDATED BALANCE SHEETS
- - - -------------------------------------------------------------------------------
June 30,
- - - -------------------------------------------------------------------------------
(In thousands, except share and per share amounts) 1995 1994
- - - -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 413,869 $ 433,937
Short-term investments 814,151 448,879
Accounts receivable, net of allowances
of $99,607 in 1995 and $79,845 in 1994 1,041,804 853,031
Inventories 319,672 294,948
Deferred tax assets 172,833 103,428
Other current assets 172,035 170,870
- - - -------------------------------------------------------------------------------
Total current assets 2,934,364 2,305,093
Property, plant and equipment:
Machinery and equipment 715,619 672,962
Furniture and fixtures 61,762 49,512
Leasehold improvements 79,791 53,364
Land and buildings 188,704 101,430
- - - -------------------------------------------------------------------------------
1,045,876 877,268
Accumulated depreciation and amortization (616,871) (517,020)
- - - -------------------------------------------------------------------------------
Net property, plant and equipment 429,005 360,248
Other assets, net 181,184 232,651
- - - -------------------------------------------------------------------------------
$3,544,553 $2,897,992
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 50,786 $ 78,687
Accounts payable 303,995 363,828
Accrued payroll-related liabilities 255,698 159,017
Accrued liabilities and other 432,627 341,891
Deferred service revenues 106,176 72,085
Income taxes payable 143,100 93,930
Current portion of long-term debt 38,400 38,400
- - - -------------------------------------------------------------------------------
Total current liabilities 1,330,782 1,147,838
Long-term debt and other obligations 91,176 121,831
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value,
10,000,000 shares authorized; -- --
no shares issued and outstanding
Common stock, $0.00067 par value,
300,000,000 shares authorized;
issued: 106,377,481 shares in 1995
and 106,394,200 shares in 1994 72 72
Additional paid-in capital 1,089,478 1,066,571
Retained earnings 1,205,483 879,135
Treasury stock, at cost: 7,863,079 shares
in 1995 and 12,542,875 shares in 1994 (206,067) (329,245)
Currency translation adjustment and other 33,629 11,790
- - - -------------------------------------------------------------------------------
Total stockholders equity 2,122,595 1,628,323
- - - -------------------------------------------------------------------------------
$3,544,553 $2,897,992
===============================================================================
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - --------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents Years Ended June 30,
- - - --------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- - - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 355,842 $ 195,824 $ 156,726
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization 240,626 248,247 232,354
Other non-cash items 23,319 14,210 26,945
Net increase in receivables (188,773) (225,857) (123,412)
Net increase in inventories (24,724) (38,673) (76,602)
Net (decrease) increase in accounts payable (59,833) 93,388 34,820
Net (increase) decrease in other current and
non-current assets (2,006) (35,203) 16,968
Net increase in other current and non-current liabilities 293,043 103,808 68,401
- - - --------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 637,494 355,744 336,200
- - - --------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property, plant and equipment (242,436) (213,229) (196,475)
Acquisition of other assets (68,089) (115,199) (47,307)
Acquisition of short-term investments (3,470,614) (2,799,408) (2,056,641)
Maturities of short-term investments 2,300,824 2,407,666 2,119,597
Sales of short-term investments 804,862 252,736 --
- - - --------------------------------------------------------------------------------------------------------
Net cash used by investing activities (675,453) (467,434) (180,826)
- - - --------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Issuance of stock, net of employee repurchases 79,613 19,243 42,986
Acquisition of treasury stock (36,107) (294,427) (214,883)
Proceeds from employee stock purchase plans 42,750 42,298 38,460
Reduction of short-term borrowings, net (27,901) (12,203) (394)
Reduction of long-term borrowings and other (40,464) (38,123) (40,013)
- - - ---------------------------------------------------------------------------------------------------------
Net cash (used by) provided from financing activities 17,891 (283,212) (173,844)
- - - --------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (20,068) (394,902) (18,470)
- - - --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 433,937 828,839 847,309
- - - --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 413,869 $ 433,937 $ 828,839
- - - --------------------------------------------------------------------------------------------------------
Schedule of non-cash financing activities:
Conversion of convertible
subordinated debentures $ -- $ -- $ 114,890
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 14,229 $ 20,788 $ 33,015
Income taxes $ 113,999 $ 63,267 $ 15,859
- - - --------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - - ------------------------------------------------------------------------------------------------------------------------------------
Additional Currency Total
Three years ended June 30, 1995 Common Stock Paid-in Retained Treasury Stock Translation Stockholders'
(In thousands, except per share amounts) Shares Amount Capital Earnings Shares Amount Adjustment Equity
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1992 101,192,336 $68 $928,866 $ 590,502 (1,190,741) $ (42,557) $ 8,203 $1,485,082
Issuance of stock, net of
employee repurchases 2,470,126 2 44,293 (24,362) 2,178,592 63,770 - 83,703
Treasury stock purchased - - - - (7,935,874) (214,883) - (214,883)
Conversion of convertible
subordinated debentures 2,782,282 2 57,171 (16,901) 2,615,318 74,618 - 114,890
Net income - - - 156,726 - - - 156,726
Tax benefit and other - - 23,476 - - - (6,211) 17,265
- - - -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993 106,444,744 72 1,053,806 705,965 (4,332,705) (119,052) 1,992 1,642,783
Issuance of stock, net of
employee repurchases (50,544) - 377 (22,654) 3,026,633 84,234 - 61,957
Treasury stock purchased - - - - (11,236,803) (294,427) - (294,427)
Net income - - - 195,824 - - - 195,824
Tax benefit and other - - 12,388 - - - 9,798 22,186
- - - -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 106,394,200 72 1,066,571 879,135 (12,542,875) (329,245) 11,790 1,628,323
Issuance of stock, net of
employee repurchases (16,719) - - (29,494) 5,797,535 159,285 - 129,791
Treasury stock purchased - - - - (1,117,739) (36,107) - (36,107)
Net income - - - 355,842 - - - 355,842
Tax benefit and other - - 22,907 - - - 21,839 44,746
- - - ----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 106,377,481 $72 $1,089,478 $1,205,483 (7,863,079) $ (206,067) $33,629 $ 2,122,595
==================================================================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sun Microsystems,
Inc. ("Sun" or "the Company"), and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated. Certain amounts for prior years
have been reclassified to conform to current year presentation.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents consist primarily of highly liquid investments with
insignificant interest rate risk and original maturities of three months or less
at date of acquisition.
Short-term investments consist primarily of auction market preferred stock, time
deposits, commercial paper, and tax-exempt securities with original maturities
beyond three months. Auction market preferred stock is traded at par and carries
a floating rate dividend that is paid and reset at intervals of 49 days or less,
through a bidding process that determines the yield.
Effective July 1,1994, the Company adopted Financial Accounting Standards Board
Statement No. 115 (FAS 115), "Accounting for Certain Investments in Debt and
Equity Securities". Under FAS 115, debt securities that the Company does not
have the positive intent and ability to hold to maturity and all marketable
equity securities are classified as either trading or available-for-sale and are
carried at fair value. All of the Company's cash equivalents and short-term
investments are classified as available-for-sale at June 30, 1995. Unrealized
holding gains and losses on available-for-sale securities are carried as a
separate component of stockholders' equity. FAS 115 has been adopted on a
prospective basis, and the financial statements of prior years have not been
restated. The cumulative effect of the accounting change was not material.
Gross realized gains and losses, computed on the specific identification method,
were not material in fiscal 1995. The change in net unrealized gain on
investments, net of income taxes, resulted in an immaterial increase to
stockholders' equity in fiscal 1995. The net unrealized gain included in
stockholders' equity at June 30, 1995 is not material.
ACCOUNTS RECEIVABLE
The Company has an agreement to sell, on a revolving basis with limited recourse
and up to a maximum of $125 million, an undivided percentage ownership in a
designated pool of accounts receivable. The transaction was fully funded at June
30, 1995. The Company maintains an allowance for doubtful accounts based on the
collectibility of all trade accounts receivable, including those sold. The
purchaser has a perfected security interest in the Company's domestic accounts
receivable. The three-year agreement expires in August 1997.
INVENTORIES
Inventories, stated at the lower of cost (first in, first out) or market,
consist of:
(In thousands) 1995 1994
- - - -------------------------------------------------------
Raw materials $170,337 $129,784
Work in process 32,356 35,798
Finished goods 116,979 129,366
- - - -------------------------------------------------------
Total $319,672 $294,948
=======================================================
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
principally on the straight-line method over the shorter of the estimated useful
lives of the assets (ranging from one to twenty-five years) or the applicable
lease term.
OTHER ASSETS
Included in other assets are purchased technology rights and other intangibles,
as well as spare parts that are amortized over their estimated useful lives
ranging from six months to seven years. The Company evaluates the recoverability
of intangibles on a quarterly basis.
CURRENCY TRANSLATION
Sun translates the assets and liabilities of international subsidiaries into
dollars at the rates of exchange in effect at the end of the period. Revenues
and expenses are translated using rates that approximate those in effect during
the period. Gains and losses from currency translation are included in
stockholders' equity in the consolidated balance sheets. Currency transaction
gains or losses, which are included in the results of operations, are immaterial
for all periods presented.
OTHER FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts and foreign currency
option contracts to hedge certain operational and balance sheet exposures from
changes in foreign currency exchange rates. Such exposures result from the
portion of the Company's operations, assets, and liabilities that are
denominated in currencies other than the U.S. dollar, including local currency
denominated assets and liabilities in U.S. dollar functional legal entities.
These transactions are entered into to hedge purchases, sales, and other normal
recurring transactions and accordingly are not speculative in nature. The
Company does not hold or issue financial instruments for trading purposes nor
does it hold or issue leveraged derivative financial instruments.
Forward foreign exchange contracts are generally utilized to hedge currency
fluctuation risk on transactions occurring in a given fiscal quarter. Market
value gains and losses on such contracts that result from fluctuations in
foreign exchange rates are recognized as offsets to the exchange gains or losses
on the hedged transactions. Amounts receivable and payable on forward foreign
exchange contracts are recorded as other current assets and accrued liabilities,
respectively, on a net basis. At June 30, 1995 and 1994, the Company had forward
foreign exchange contracts, all having maturities of less than four months, to
exchange principally yen, pounds sterling, and French francs for U.S. dollars in
the total gross notional amount of $406 million and $535 million, respectively.
Of these notional amounts, forward contracts to purchase foreign currency
represented $331 million and $363 million and forward contracts to sell foreign
currency represented $75 million and $172 million, at June 30, 1995 and 1994,
respectively.
The Company generally purchases simple foreign currency option contracts to
hedge certain anticipated, but not firmly committed, foreign currency
transactions related to the sale or purchase of product during the ensuing three
to five months. Gains on foreign currency option contracts are recognized as
offsets to the revenue or expense item being hedged. Option contracts that would
result in losses if exercised are allowed to expire. When the dollar strengthens
significantly against the foreign currencies, the decline in value of future
foreign currency cash flows is partially offset by the gains in the value of
purchased currency options designated as hedges. However, when the dollar
weakens, the increase in the value of future foreign currency cash flows is
reduced only by the premium paid to acquire the options. At June 30, 1995 and
1994, the Company had purchased currency option contracts, primarily in put
positions and all having maturities of less than two months, to exchange
principally deutsche marks, French francs, yen, and pounds sterling for U.S.
dollars in the gross notional amount of $83 million and $182 million,
respectively.
The Company enters into interest rate swap agreements to partially modify the
interest rate characteristics of its investments and financing arrangements. In
fiscal 1995, the Company entered into two interest rate swap agreements that
effectively resulted in the Company receiving fixed rates of return of 6.05% and
6.66% for payment of a variable rate based on the one-month LIBOR, which was
6.06% at June 30, 1995. Each swap agreement carries a notional amount of $38.4
million, representing the respective maturity of the 10.55% senior notes in each
of the next two fiscal years (see Note 3). The agreements expire in September
1995 and 1996, respectively. The Company has two additional interest rate swap
agreements that expire in July 1995 that effectively convert a total notional
amount of $100 million of short-term investments from a variable rate based on
the six month LIBOR to fixed rates of return of 4.35% and 4.31%, respectively.
The six month LIBOR was 6.75% at June 30, 1995. The interest rate differential
to be received or paid is recognized over the life of the agreement as an
adjustment to net interest income.
REVENUE RECOGNITION
Sun generally recognizes revenue from hardware and software sales at the time of
shipment. Service revenues are recognized ratably over the contractual period or
as the services are provided.
WARRANTY EXPENSE
The Company provides currently for the estimated costs that may be incurred
under warranties for product shipped.
NET INCOME PER COMMON AND COMMON-EQUIVALENT SHARE
Net income per common and common-equivalent share is computed using the weighted
average number of common and dilutive common-equivalent shares outstanding.
Dilutive common-equivalent shares consist of the incremental shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method). The 6-3/8% convertible subordinated debentures, which were redeemed in
fiscal 1993, were not previously considered common stock equivalents. Fully
diluted earnings per share has not been presented because the additional
dilution effect is immaterial.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments, foreign exchange, and interest
rate instruments as well as trade receivables. The counterparties to the
agreements relating to the Company's investments, foreign exchange, and interest
rate instruments consist of various major corporations and financial
institutions of high credit standing. The Company does not believe there is
significant risk of nonperformance by these counterparties because the Company
limits the amount of credit exposure to any one financial institution and any
one type of investment. The credit risk on receivables due from counterparties
related to forward foreign exchange and currency option contracts is immaterial
at June 30, 1995 and 1994. The Company's receivables are derived primarily from
sales of hardware and software products and services to customers in diversified
industries as well as to a network of resellers. The Company performs ongoing
credit evaluations of its customers financial condition and limits the amount of
credit extended when deemed necessary but generally requires no collateral. In
fiscal 1995, the Company provided approximately $12 million for doubtful
accounts ($20 million and $8 million in 1994 and 1993, respectively).
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The fair value of the Company's cash equivalents and
short-term investments is as follows:
At June 30, 1995
- - - --------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- - - --------------------------------------------------------------------------------
Auction market preferred stock $575,992 8 -- $576,000
Corporate and other non-government
debt 182,323 908 78 183,153
State and local government debt 124,632 431 1,084 123,979
U.S. government debt 37,167 475 151 37,491
- - - --------------------------------------------------------------------------------
Total $920,114 1,822 1,313 $920,623
================================================================================
The cost and estimated fair value of debt securities by contractual maturity are
as follows:
At June 30, 1995
- - - ------------------------------------------------------------
(In thousands) Estimated
Debt Securities Cost Fair Value
- - - ------------------------------------------------------------
Due in one year or less $183,791 $183,005
Due after one year
through three years 115,288 116,281
Due after three years 45,043 45,337
- - - ------------------------------------------------------------
Total $344,122 $344,623
============================================================
The fair value of the Company's borrowing arrangements and other financial
instruments is as follows:
At June 30, 1995
- - - ----------------------------------------------------------------------
Asset (liability)
Carrying Fair
(Dollars in thousands) Amount Value
- - - ----------------------------------------------------------------------
10.55% senior notes (76,452) (78,918)
10.18% mortgage loan
interest rate swap --- (4,485)
Forward foreign
exchange contracts (2,227) (2,227)
Foreign currency
option contracts --- 413
Other interest rate swap
agreeements, net --- (802)
At June 30, 1994
- - - ----------------------------------------------------------------------
Asset (liability)
Carrying Fair
(Dollars in thousands) Amount Value
- - - ----------------------------------------------------------------------
10.55% senior notes (114,642) (123,156)
10.18% mortgage loan
interest rate swap --- (3,727)
Forward foreign
exchange contracts 1,413 1,413
Foreign currency
option contracts --- 4,454
Other interest rate swap
agreements, net --- (1,284)
The respective carrying values of short-term borrowings and the 10.18% mortgage
loan approximate their respective fair values at June 30, 1995 and 1994.
The fair value of long-term debt is estimated based on current interest rates
available to the Company for debt instruments with similar terms, degree of
risk, and remaining maturities. The estimated fair value of forward foreign
exchange contracts is based on the estimated amount at which they could be
settled based on market exchange rates. The fair value of foreign currency
option contracts and interest rate swap agreements is obtained from dealer
quotes and represents the estimated amount the Company would receive or pay to
terminate the agreements.
3. BORROWING ARRANGEMENTS
Long-term debt consists of the following:
At June 30,
- - - ---------------------------------------------------------------
(In thousands) 1995 1994
- - - ---------------------------------------------------------------
10.55% senior notes $76,452 $114,642
10.18% mortgage loan 40,000 40,000
- - - ---------------------------------------------------------------
116,452 154,642
- - - ---------------------------------------------------------------
Less portion due within one year 38,400 38,400
- - - ---------------------------------------------------------------
Long-term debt $78,052 $116,242
===============================================================
In September and December 1989, the Company signed agreements with a group of
insurance companies and received $192 million from the sale of 10.55% senior
notes due September 1996 and warrants to purchase 1,294,180 shares of Sun's
common stock at an effective exercise price of $24.80 per share, after and
subject to, further antidilution adjustments. The warrants are currently
exercisable and expire in September 1996. The notes are carried net of the fair
value of the warrants, which is being amortized on a straight-line basis over
the term of the notes. Principal is payable annually in five equal installments,
the first of which was paid in September 1992, with interest payable
semiannually. Under the agreements, Sun is required to maintain various
financial ratios and is restricted in its ability to pay cash dividends. The
Company was in compliance with all covenants at June 30, 1995.
The $40 million mortgage loan is secured by real property and a building.
Principal is due to the bank at maturity on May 18, 1999, with interest payable
semiannually, in arrears. The loan agreement provides for interest at a floating
LIBOR rate. However, the bank has an interest rate swap agreement with a third
party that results in the Company paying a fixed interest rate of 10.18%. The
interest rate swap agreement matures with the loan agreement.
Long-term debt maturities are $38.4 million during each of the next two years
and $40 million in 1999.
In June 1994 the Company negotiated a $150 million unsecured revolving Credit
Agreement with an international group of 12 banks. The agreement expires on June
1, 1997. Any borrowings under this agreement bear interest at a floating rate
based on prime, certificates of deposit, or Eurodollar rates, at the Company's
option. Under the agreement, Sun is required to maintain various financial
ratios. Sun was in compliance with all covenants at June 30, 1995. There were no
borrowings under this facility at June 30, 1995.
At June 30, 1995, Sun's international subsidiaries had uncommitted lines of
credit aggregating approximately $532 million, of which approximately $51
million, denominated principally in yen, had been drawn. The average interest
rate at June 30, 1995 on these borrowings was 2.9%.
4. INCOME TAXES
Income before income taxes and provision for income taxes consist of the
following:
Year Ended June 30,
- - - ------------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- - - ------------------------------------------------------------------------------
Income before income taxes:
United States $249,569 $ 48,736 $129,784
Foreign 273,729 234,643 94,110
- - - ------------------------------------------------------------------------------
Total income before
income taxes $523,298 $283,379 $223,894
==============================================================================
Provision for income taxes:
Current:
United States federal $122,769 $27,835 $37,723
State 10,121 4,420 6,159
Foreign 57,395 59,445 37,901
- - - ------------------------------------------------------------------------------
Total Current 190,285 91,700 81,783
Deferred:
United States federal (17,129) (5,122) (13,507)
State 5,319 5,477 2,515
Foreign (11,019) (4,500) (3,623)
- - - ------------------------------------------------------------------------------
Total deferred
income taxes (22,829) (4,145) (14,615)
- - - ------------------------------------------------------------------------------
Provision for
income taxes $167,456 $87,555 $67,168
==============================================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
June 30,
- - - -----------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- - - -----------------------------------------------------------------------------
Deferred tax assets:
Inventory valuation $ 48,819 $ 40,745 $ 33,527
Reserves and other
accrued expenses 51,480 48,155 42,483
Net undistributed profits
of subsidiaries and foreign
loss carryforwards 0 0 27,127
Fixed asset basis differences 46,170 30,309 23,085
Compensation not
currently deductible 35,209 24,122 18,878
Research and Development
credit carryover 0 16,119 0
Other 13,680 14,279 11,455
- - - -----------------------------------------------------------------------------
Gross deferred tax assets 195,358 173,729 156,555
Valuation allowance 0 0 (6,274)
- - - -----------------------------------------------------------------------------
Deferred tax assets 195,358 173,729 150,281
Deferred tax liabilities:
Net undistributed profits
of subsidiaries (23,778) (21,690) 0
Other (1,858) (5,146) (7,533)
- - - -----------------------------------------------------------------------------
Gross deferred tax liabilities (25,636) (26,836) (7,533)
- - - -----------------------------------------------------------------------------
Net deferred tax assets $169,722 $146,893 $142,748
==============================================================================
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The sources and
tax effects of the differences are as follows:
Year Ended June 30,
- - - -------------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- - - -------------------------------------------------------------------------------
Expected tax at 35% for 1995
and 1994, 34% for 1993 $183,154 $99,183 $76,124
State income taxes, net of
federal tax benefit 10,036 6,350 5,725
Tax advantaged investments (7,437) (5,502) (5,957)
Utilization of foreign losses (861) (5,579) (3,974)
Foreign earnings permanently
reinvested in foreign operations (20,460) (3,500) 0
Other 3,024 (3,397) (4,750)
- - - -------------------------------------------------------------------------------
Provision for income taxes $167,456 $87,555 $67,168
===============================================================================
As of June 30, 1995, the Company has unrecognized deferred tax liabilities of
approximately $24 million related to cumulative net undistributed earnings of
foreign subsidiaries of approximately $76 million. These earnings are considered
to be permanently invested in operations outside the United States.
The current federal and state provisions do not reflect the tax savings
resulting from deductions associated with the Company's various stock option
plans. These savings (in thousands) were $20,837, $6,455, and $18,451 in fiscal
1995, 1994, and 1993, respectively, and were credited to stockholders' equity.
The Company's United States income tax returns for the fiscal years ended June
30, 1988 through 1992, are under examination, and the Internal Revenue Service
has proposed certain adjustments. Management believes that adequate amounts have
been provided for any adjustments that may ultimately result from these
examinations.
5. COMMITMENTS
The Company leases certain facilities and equipment under noncancelable
operating leases. The future minimum annual lease payments are approximately $86
million, $74 million, $56 million, $42 million, and $23 million for fiscal years
1996, 1997, 1998, 1999, and 2000, respectively, and approximately $48 million in
total for years following fiscal 2000. In connection with certain of its
facilities leases, the Company has residual value guarantees of approximately
$116 million at the end of the respective lease terms in fiscal 1999. Rent
expense under noncancelable operating leases was $82 million in fiscal 1995 and
$102 million and $98 million in fiscal 1994 and 1993, respectively.
6. STOCKHOLDERS EQUITY
COMMON STOCK
In April 1989, the Company's Board of Directors approved a plan, as amended, to
protect stockholders rights in the event of a proposed takeover of the Company.
Under the plan, the Board of Directors declared a dividend distribution of a
common share purchase right (a "Right") on each share of the Company's common
stock (a "Common Share") outstanding on May 26, 1989 and each Common Share
issued thereafter (subject to certain limitations). Upon becoming exercisable,
each Right will entitle its holder to purchase one Common Share at an exercise
price of $100, subject to adjustment. The Rights are not exercisable or
transferable apart from the Common Shares unless certain events occur, including
a public announcement that a person or group (an "Acquiring Person") has
acquired or obtained the right to acquire 10% or more (20% or more for an
Acquiring Person who has filed a Schedule 13G in accordance with the Securities
Act of 1934 ("13G Filer")) of the outstanding Common Shares or until the
commencement or announcement of an intention to make a tender or exchange offer
for 30% or more of the outstanding Common Shares. Unless the Rights are
redeemed, in the event that an Acquiring Person acquires 10% or more (20% or
more if the Acquiring Person is a 13G Filer) of the outstanding Common Shares
(other than pursuant to a tender offer deemed fair by the Companys Board of
Directors), each Right not held by the Acquiring Person will entitle the holder
to purchase for the exercise price that number of Common Shares having a market
value equal to two times the exercise price. In the event that (i) the Company
is acquired in a merger or other business combination in which the Company is
not the surviving corporation or in which the Common Shares are exchanged for
stock or assets of another entity, or (ii) 50% or more of the Company's
consolidated assets or earning power is sold, each Right not held by an
Acquiring Person will entitle the holder to purchase for the exercise price that
number of shares of common stock of the acquiring company having a market value
equal to two times the exercise price. The Rights are redeemable, in whole but
not in part, at the Company's option, at $0.01 per Right at any time prior to
becoming exercisable and in certain other circumstances. The Rights expire on
May 25, 1999.
STOCK OPTION AND INCENTIVE PLANS
The Company's 1990 Long-Term Equity Incentive Plan ("1990 Incentive Plan") and
other employee stock option plans provide the Board of Directors broad
discretion in creating employee equity incentives and authorize it to grant
incentive and nonstatutory stock options as well as certain other awards. In
addition, these plans provide for issuance to eligible employees of nonstatutory
stock options to purchase common stock at or below fair market value at the date
of grant subject to certain limitations set forth in the 1990 Incentive Plan.
Options expire up to ten years from the date of grant or up to three months
following termination of employment or service on the Board, whichever occurs
earlier, and are exercisable at specified times prior to such expiration. Under
the 1990 Incentive Plan, common stock may also be issued pursuant to stock
purchase agreements that grant Sun certain rights to repurchase the shares at
their original issue price in the event that the employment of the employee is
terminated prior to certain predetermined vesting dates. The above described
plans provide that shares of common stock may be sold at less than fair market
value, which results in compensation expense to Sun equal to the difference
between the fair market value on the date of grant and the purchase price. This
expense, which is immaterial, is recognized over the vesting period of the
shares. Sun's 1988 Directors' Stock Option Plan provides for the automatic grant
of stock options to nonemployee directors at each annual meeting of stockholders
and on the date each such person becomes a director. These options are granted
at fair market value on the date of grant and have a term of five years.
Information with respect to stock option and stock purchase rights activity is
as follows:
Outstanding Options/Rights
- - - -------------------------------------------------------------------------------
Shares
(In thousands, Available Number
except per share amounts) for Grant of Shares Price per Share
- - - -------------------------------------------------------------------------------
Balances at June 30, 1992 6,941 11,281 $0.00067-$37.00
Grants (2,552) 2,552 $0.00067-$34.375
Exercises -- (2,962) $0.00067-$34.125
Cancellations 286 (541) $8.00-$34.125
- - - -------------------------------------------------------------------------------
Balances at June 30, 1993 4,675 10,330 $0.00067-$37.00
Additional shares reserved 200 -- --
Grants (5,165) 5,165 $0.00067-$27.625
Exercises -- (1,141) $0.00067-$28.625
Cancellations 833 (930) $0.01-$34.375
- - - -------------------------------------------------------------------------------
Balances at June 30, 1994 543 13,424 $0.00067-$37.00
Additional shares reserved 3,350 -- --
Grants (3,593) 3,593 $0.00067-$49.125
Exercises -- (3,578) $0.00067-$34.125
Cancellations 871 (1,127) $16.75-$34.875
- - - -------------------------------------------------------------------------------
Balances at June 30, 1995 1,171 12,312 $0.01-$49.125
===============================================================================
At June 30, 1995, options to purchase approximately 2,864,000 shares were
exercisable at prices from $0.01 to $37.00 with an aggregate exercise price of
$70,532,000 (4,692,000 shares at an aggregate price of $108,094,000 at June 30,
1994).
At June 30, 1995, the Company retains repurchase rights to 150,000 shares issued
pursuant to stock purchase agreements and other stock plans.
EMPLOYEE STOCK PURCHASE PLANS
To provide employees with an opportunity to purchase common stock of Sun through
payroll deductions, Sun established the 1990 Employee Stock Purchase Plan. Under
this plan, Sun's employees, subject to certain restrictions, may purchase shares
of common stock at the lesser of 85% of fair market value at either the date of
enrollment or the date of purchase. Pursuant to this plan, and the Company's
1984 Employee Stock Purchase Plan (which terminated in August 1992), the Company
issued approximately 2,202,000, 1,875,000 and 1,749,000 shares of common stock
in fiscal 1995, 1994, and 1993, respectively. At June 30, 1995, approximately
1,321,000 shares remained available for future issuance.
COMMON STOCK REPURCHASE PROGRAMS
In December 1990, the Board of Directors approved a systematic common stock
repurchase program related to the 1990 Employee Stock Purchase Plan. In fiscal
1995, the Company repurchased 1,117,739 shares at a cost of approximately
$36,107,000 under this program (1,396,803 shares at a cost of approximately
$34,355,000 in 1994).
In June 1992, the Board of Directors approved a plan to repurchase up to 7.5
million shares of the Company's common stock during fiscal 1993. Repurchases
under this program were completed in May 1993 at a cost of approximately
$202,675,000. In June 1993, the Board of Directors approved a plan to repurchase
up to 10 million shares of the Company's common stock. Repurchases under this
program were completed in November 1993 at a total cost of approximately
$264,786,000. In June 1995, the Board of Directors approved a plan to repurchase
up to 12 million shares of the Company's common stock.
When treasury shares are reissued, any excess of the average acquisition cost of
the shares over the proceeds from reissuance is charged to retained earnings.
7. INDUSTRY SEGMENT, GEOGRAPHIC, AND CUSTOMER INFORMATION
Sun, which operates in a single industry segment, designs, manufactures,
markets, and services client-server computing solutions that feature networked
workstations and servers. No customer accounted for 10% or more of net revenues
in fiscal 1995, 1994, or 1993. Operations of Sun's overseas subsidiaries consist
of sales, service, distribution, and manufacturing.
Rest of World consists primarily of Japan. Intercompany transfers between
geographic areas are accounted for at prices that approximate arm's length
transactions. In addition, United States export sales approximated 3.6%, 3.3%,
and 2.5% of net revenues during fiscal 1995, 1994, and 1993, respectively.
Information regarding geographic areas at June 30, 1995, 1994, and 1993, and for
each of the years then ended, is as follows:
<TABLE>
<CAPTION>
Geographic Area
United Rest of
(In thousands) States Europe World Eliminations Total
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1995 and for the year then ended:
Sales to unaffiliated customers $3,136,328 $1,490,960 $1,274,597 $ -- $5,901,885
Intercompany transfers 945,264 1,189,536 54,048 (2,188,848) --
- - - -------------------------------------------------------------------------------------------------------------------------
Net revenues $4,081,592 $2,680,496 $1,328,645 $(2,188,848) $5,901,885
=========================================================================================================================
Operating income $ 242,078 $ 251,248 $ 26,756 $ (19,726) $ 500,356
=========================================================================================================================
Identifiable assets $3,573,509 $1,301,731 $ 593,802 $(1,924,489) $3,544,553
=========================================================================================================================
Liabilities $1,793,964 $ 934,427 $ 537,389 $(1,843,822) $1,421,958
=========================================================================================================================
June 30, 1994 and for the year then ended:
Sales to unaffiliated customers $2,483,166 $1,171,177 $1,035,549 $ -- $4,689,892
Intercompany transfers 968,675 809,331 43,392 (1,821,398) --
- - - -------------------------------------------------------------------------------------------------------------------------
Net revenues $3,451,841 $1,980,508 $1,078,941 $(1,821,398) $4,689,892
=========================================================================================================================
Operating income $ 45,788 $ 157,123 $ 64,339 $ 10,017 $ 277,267
=========================================================================================================================
Identifiable assets $2,831,238 $ 964,373 $ 522,355 $(1,419,974) $2,897,992
=========================================================================================================================
Liabilities $1,408,070 $ 736,445 $ 432,280 $(1,307,126) $1,269,669
=========================================================================================================================
June 30, 1993 and for the year then ended:
Sales to unaffiliated customers $2,320,998 $1,099,315 $ 888,293 $ -- $4,308,606
Intercompany transfers 1,162,671 878,516 24,277 (2,065,464) --
- - - -------------------------------------------------------------------------------------------------------------------------
Net revenues $3,483,669 $1,977,831 $ 912,570 $(2,065,464) $4,308,606
=========================================================================================================================
Operating income $ 113,543 $ 41,123 $ 43,747 $ 42,027 $ 240,440
=========================================================================================================================
Identifiable assets $2,723,847 $ 775,022 $ 412,067 $(1,143,307) $2,767,629
=========================================================================================================================
Liabilities $1,096,486 $ 693,555 $ 355,217 $(1,020,412) $1,124,846
=========================================================================================================================
</TABLE>
8. CONTINGENCIES
In March 1990, Sun received a letter from Texas Instruments Incorporated (TI)
alleging that a substantial number of Sun's products infringe certain of TI's
patents. Based on discussions with TI, Sun believes that it will be able to
negotiate a license agreement with TI and that the outcome of this matter will
not have a material adverse impact on Sun's financial position or its results of
operations or cash flows in any given fiscal year. Such a negotiated license may
or may not have a material adverse impact on Sun's results of operations or cash
flows in a given fiscal quarter depending upon various factors, including but
not limited to the structure and amount of royalty payments, offsetting
consideration from TI, if any, and the allocation of royalties between past and
future product shipments, none of which can be forecast with reasonable
certainty at this time.
In the normal course of business, the Company receives and makes inquiries with
regard to other possible patent infringements. Where deemed advisable, the
Company may seek or extend licenses or negotiate settlements.
In February 1993, the Company agreed to settle two class action lawsuits brought
by stockholders against the Company and certain of its officers and former
officers in the United States District Court for the Northern District of
California relating to the results of operations for the fourth quarter of
fiscal 1989 and the first quarter of fiscal 1991. In May and June of 1993, the
court approved the settlement of these lawsuits. The combined settlement amount
of these claims was $30 million, of which half was covered by insurance. The
case relating to the fourth quarter of 1989 was settled for $25 million and the
case relating to the first quarter of fiscal 1991 was settled for $5 million.
The Company recorded a charge to earnings for its second quarter ended December
27, 1992 of $15 million, or $.10 per share, for its portion of the aggregate
settlement.
In May 1993, the Company agreed to settle two derivative complaints brought by
stockholders against certain current and former officers and directors of the
Company in the United States District Court for the Northern District of
California relating to, among other things, claims of misconduct in connection
with the litigation referenced in the preceding paragraph and the settlements
thereof and claims of insider trading. The terms of the settlement of these
lawsuits, as approved by the court, include certain changes made by Sun in its
internal insider trading policies and the payment by Sun of $1.45 million in
fees and expenses to the derivative plaintiffs attorneys.
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Fiscal 1995 Quarter Ended
- - - -------------------------------------------------------------------------------
June 30 April 2 January 1 October 2
- - - -------------------------------------------------------------------------------
Net revenues $1,648,067 $1,505,030 $1,475,349 $1,273,439
Gross margin 727,684 649,894 613,236 512,061
Operating income 179,051 150,528 116,959 53,818
Net income 128,244 107,547 81,624 38,427
Net income per share $ 1.26 $ 1.09 $ 0.83 $ 0.40
===============================================================================
Fiscal 1994 Quarter Ended
- - - --------------------------------------------------------------------------------
June 30 March 27 December 26 September 26
- - - --------------------------------------------------------------------------------
Net revenues $1,402,736 $1,195,997 $1,130,678 $ 960,481
Gross margin 561,293 511,700 471,873 392,508
Operating income 111,418 84,757 65,552 15,540
Net income 77,913 57,481 43,824 16,606
Net income per share $ .82 $ .60 $ .46 $ .16
===============================================================================
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS SUN MICROSYSTEMS, INC.
We have audited the accompanying consolidated balance sheets of Sun
Microsystems, Inc., as of June 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Sun
Microsystems, Inc., at June 30, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Palo Alto, California
July 17, 1995
ABOUT YOUR INVESTMENT
STOCK SYMBOL
SUNW
STOCK MARKET
The Company's stock trades on the Nasdaq National Market
STOCK TRADING
The following table sets forth the high and low sales prices for each quarter
shown, as well as the closing sales prices on the last trading day of each such
quarter. In addition, the table shows the average trading volume for each
quarter listed.
- - - --------------------------------------------------------------------------------
Shares in
High Low Close thousands
-----------------------------------------------------------------
Fiscal year ended June 30, 1995
First quarter $30.25 $19.25 $29.38 1,420
Second quarter 37.63 27.13 35.50 1,687
Third quarter 37.00 29.88 34.75 1,555
Fourth quarter 51.38 33.88 48.50 1,506
Fiscal year ended June 30, 1994
First quarter 31.25 24.63 26.38 1,509
Second quarter 29.00 21.13 28.63 1,456
Third quarter 31.38 24.00 27.50 1,323
Fourth quarter 27.75 18.25 20.63 1,377
-----------------------------------------------------------------
*Prices represent prices between dealers and do not include retail
markups, markdowns and/or commissions.
- - - --------------------------------------------------------------------------------
STOCK OWNERSHIP PROFILE
As of June 30, 1995
4% officers and directors
21% individual investors
75% institutional investors
SUN ON THE INTERNET
Sun's home page on the Internet's World Wide Web provides access to a wide range
of information about the company, its products, and its services. An electronic
version of this Annual Report will be available on the Internet, and may be
viewed with ease using a graphical interface such as NCSA Mosaic, Netscape
Navigator, or HotJava. Hypertext links within the document enable the reader to
call up related subject matter through simple point-and-click selections.
To locate Sun's home page, enter the following address: http://www.sun.com.
ADDITIONAL INFORMATION REQUESTS
For Annual Reports and Forms 10-K (available without charge), questions about
Sun operations, recent results, or historical performance, please contact:
Investor Relations, Sun Microsystems Inc.
2550 Garcia Avenue, Mail Stop PAL1-207
Mountain View, California 94043 U.S.A.
Phone: (800) 801-SUNW (within the U.S.)
(415) 336-6299 (outside the U.S.)
Fax: (415) 336-0646
To receive faxed information such as earnings announcements, historical
financial results, and product datasheets, please call:
(800) FAX-SUNW (within the U.S.)
(201) 946-9049 (outside the U.S.)
If you have questions concerning stock certificates, change of address,
consolidation of accounts, transfer of ownership, or other stock account
matters, please contact Sun's stock transfer agent:
Bank of Boston, Shareholder Services
Box 644, Mail Stop 45-02-09
Boston, Massachusetts 02102-0644 U.S.A.
Phone: (617) 575-3120
Sun has never declared cash dividends and presently intends to continue this
policy. Sun's principal credit agreements limit the payment of cash dividends
without the consent of its lenders.
Corporate information/Sun worldwide
BOARD OF DIRECTORS
Scott G. Mcnealy
Chairman of the Board of Directors, President and
Chief Executive Officer, Sun Microsystems, Inc.
L. John Doerr
General Partner, Kleiner Perkins Caufield & Byers
Judith L. Estrin*
President, Chief Executive Officer and Director,
Precept Software, Inc.
Robert J. Fisher*
Executive Vice President, Chief Financial Officer and
Director, The Gap, Inc.
Robert L. Long
Management Consultant
M. Kenneth Oshman
Chairman, President and
Chief Executive Officer, Echelon Corporation
A. Michael Spence
Dean, Graduate School of Business,
Stanford University
OFFICERS
Scott G. McNealy
Chairman of the Board of Directors, President and
Chief Executive Officer, Sun Microsystems, Inc.
Kenneth M. Alvares
Vice President, Human Resources,
Sun Microsystems, Inc. and
Corporate Executive Officer
Lawrence W. Hambly
President, SunService Division and
Corporate Executive Officer
Michael E. Lehman
Vice President, Chief Financial Officer,
Sun Microsystems, Inc. and
Corporate Executive Officer
Michael H. Morris
Vice President, General Counsel and
Secretary, Sun Microsystems, Inc.
William J. Raduchel
Vice President, Corporate Planning
and Development and Chief Information Officer,
Sun Microsystems, Inc. and
Corporate Executive Officer
George Reyes
Vice President, Controller,
Sun Microsystems, Inc.
Janpieter T. Scheerder**
President, SunSoft, Inc. and
Corporate Executive Officer
Eric E. Schmidt
Vice President, Chief Technology Officer,
Sun Microsystems, Inc. and
Corporate Executive Officer
Chester J. Silvestri
President, SPARC Technology Business and
Corporate Executive Officer
Dorothy A. Terrell
President, SunExpress, Inc. and
Corporate Executive Officer
Edward J. Zander
President, Sun Microsystems
Computer Company and
Corporate Executive Officer
* Appointed August 9, 1995
** Appointed August 15, 1995
SUN WORLDWIDE
Manufacturing
2 countries
International Research & Development
6 countries
International Sales, Service and Support
38 countries
International Distributors
Nearly 150 countries
1995 Sun Microsystems, Inc. All rights reserved. Sun, Sun Microsystems, SunSoft,
SunService, SunExpress, the logos for these respective companies. Solaris,
Solstice, The Network Is The Computer, Netra, HotJava and SunSoft Visual
Workshop are trademarks, registered trademarks, or service marks of Sun
Microsystems, Inc. in the United States and other counties. All SPARC trademarks
are used under license and are trademarks or registered trademarks of SPARC
International, Inc. in the United States and other countries. Products bearing
SPARC trademarks are based upon an architecture developed by Sun Microsystems,
Inc. UNIX is a registered trademark in the United States and other countries,
exclusively licensed through X/Open Company, Ltd.
<PAGE>
<TABLE>
EXHIBIT 22
<CAPTION>
SUN MICROSYSTEMS, INC.
Subsidiaries
<S> <C>
Nihon Sun Microsystems, K.K. Sun Microsystems Management Services Corporation
Solaris Corporation Sun Microsystems Nederland B.V.
Sun Microsystems (Barbados) Ltd. Sun Microsystems (NZ) Ltd.
Sun Microsystems (Schweiz) A.G. Sun Microsystems Oy
Sun Microsystems AB Sun Microsystems Poland Sp.z.o.o.
Sun Microsystems Australia Pty Ltd. Sun Microsystems Properties, Inc.
Sun Microsystems Belgium Sun Microsystems Pte. Ltd..
Sun Microsystems Benelux B.V. Sun Microsystems Scotland B.V.
Sun Microsystems Distributions International, Inc. Sun Microsystems Scotland Ltd.
Sun Microsystems Europe Properties, Inc. Sun Microsystems Technology Pty., Ltd.
Sun Microsystems Europe Properties, Ltd. Sun Microsystems de Chile, S.A.
Sun Microsystems Federal, Inc. Sun Microsystems de Colombia, S.A.
Sun Microsystems France S.A. Sun Microsystems de Mexico, S.A. de C.V.
Sun Microsystems GmbH Sun Microsystems de Venezuela, S.A.
Sun Microsystems Holdings Limited Sun Microsystems do Brasil Industria e Comercio Ltda.
Sun Microsystems Hungary Computing Ltd. Sun Microsystems of California, Inc.
Sun Microsystems Iberica S.A. Sun Microsystems of California, Ltd.
Sun Microsystems Intercontinental Operations Sun Microsystems of Canada Inc.
Sun Microsystems International B.V. Sun Microsystems of China Ltd.
Sun Microsystems Ireland Limited SunExpress, Inc.
Sun Microsystems Italia S.p.A. SunExpress International, Inc.
Sun Microsystems Korea, Ltd. SunSoft, Inc.
Sun Microsystems Limited SunSoft International, Inc.
</TABLE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sun Microsystems, Inc. of our report dated July 17, 1995, included in the
1995 Annual Report to Stockholders of Sun Microsystems, Inc.
Our audits also included the financial statement schedule of Sun Microsystems,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth herein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-1 No. 33-3315 and Forms S-8 Nos. 33-9293, 33-11154, 33-15271, 33-18602,
33-25860, 33-28505, 33-33344, 33-38220, 33-51129, and 33-56577) pertaining to
the 1982 Incentive Stock Option Plan, the Restricted Stock Plan, the 1984
Employee Stock Purchase Plan, as amended, the 1987 Stock Option Plan, the 1988
Director's Stock Option Plan, the 1989 French Stock Option Plan, the 1990
Employee Stock Purchase Plan, and the 1990 Long-Term Equity Incentive Plan of
Sun Microsystems, Inc. and in the related Prospectuses of our report dated July
17, 1995, with respect to the consolidated financial statements incorporated
herein by reference and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report (Form
10-K) of Sun Microystems, Inc.
ERNST & YOUNG LLP
Palo Alto, California
September 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 413,869
<SECURITIES> 814,151
<RECEIVABLES> 1,041,804
<ALLOWANCES> 99,607
<INVENTORY> 319,672
<CURRENT-ASSETS> 2,934,364
<PP&E> 1,045,876
<DEPRECIATION> 616,871
<TOTAL-ASSETS> 3,544,553
<CURRENT-LIABILITIES> 1,330,782
<BONDS> 78,052
<COMMON> 72
0
0
<OTHER-SE> 2,122,523
<TOTAL-LIABILITY-AND-EQUITY> 3,544,553
<SALES> 5,901,885
<TOTAL-REVENUES> 5,901,885
<CGS> 3,399,010
<TOTAL-COSTS> 5,401,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,107
<INTEREST-EXPENSE> 17,836
<INCOME-PRETAX> 523,298
<INCOME-TAX> 167,456
<INCOME-CONTINUING> 355,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355,842
<EPS-PRIMARY> 3.61
<EPS-DILUTED> 3.61
</TABLE>
