SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__X__Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 29, 1996 or
_____Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 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
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2550 Garcia Avenue, Mountain View, CA 94043-1100
(Address of principal executive offices with zip code)
Registrant's telephone number, (415) 960-1300
including area code:
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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______
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES ____ NO______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at September 29, 1996
Common stock - $0.00067 par value 183,648,532
<PAGE>
INDEX
PAGE
----
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
PART II - OTHER INFORMATION
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8 - K 14
SIGNATURES 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 29, June 30,
1996 1996
------------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 460,745 $ 528,854
Short-term investments 203,210 460,743
Accounts receivable, net 1,295,429 1,206,612
Inventories 461,842 460,914
Deferred tax asset 186,531 177,554
Other current assets 245,078 199,059
------------ -----------
Total current assets 2,852,835 3,033,736
Property, plant and equipment, at cost 1,356,148 1,282,384
Accumulated depreciation and amortization (793,255) (748,535)
------------ -----------
562,893 533,849
Other assets, net 206,674 233,324
----------- -----------
$ 3,622,402 $ 3,800,909
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 44,923 $ 49,161
Accounts payable 345,139 325,067
Accrued liabilities 777,420 801,550
Other current liabilities 265,738 313,491
------------ ------------
Total current liabilities 1,433,220 1,489,269
Long-term debt and other obligations 68,944 60,154
Total stockholders' equity 2,120,238 2,251,486
------------ ------------
$3,622,402 $3,800,909
============ ============
See accompanying notes
3
<PAGE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three Months Ended,
-------------------------
September 29, October 1,
1996 1995
------------- ----------
Net revenues $1,859,019 $1,485,278
Cost and expenses:
Cost of sales 972,101 816,833
Research and development 186,268 144,085
Selling, general and administrative .. 524,666 411,416
---------- ----------
Total costs and expenses 1,683,035 1,372,334
Operating income 175,984 112,944
Interest income, net 5,472 11,609
---------- ----------
Income before income taxes 181,456 124,553
Provision for income taxes 58,066 39,857
---------- ----------
Net income $ 123,390 $ 84,696
========== ==========
Net income per common and
and common - equivalent
share $ 0.63 $ 0.42
========== ==========
Common and common-equivalent
shares used in the calculation
of net income per share 195,058 199,324
========== ==========
See accompanying notes.
4
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<CAPTION>
Three Months Ended
--------------------------
September 29, October 1,
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 123,390 $ 84,696
Adjustments to reconcile net income
to operating cash flows:
Depreciation, amortization and
other non-cash items 86,887 72,202
Tax benefit of options exercised 7,655 10,737
Net (increase) decrease in accounts receivable (88,817) 114,218
Net increase in inventories (928) (33,031)
Net increase in accounts payable 20,072 25,345
Net increase in other current
and non-current assets (35,988) (39,544)
Net decrease in other current
and non-current liabilities (44,119) (135,106)
----------- -----------
Net cash provided from operating activities 68,152 99,517
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (94,890) (75,900)
Acquisition of other assets (8,119) (25,754)
Acquisition of short-term investments (17,157) (695,886)
Maturities of short-term investments 270,196 1,146,591
----------- -----------
Net cash provided from investing activities 150,030 349,051
----------- -----------
Cash flow from financing activities:
Issuance of common stock 8,595 25,982
Acquisition of treasury stock (271,344) (455,032)
Proceeds from employee stock purchase plans 17,141 14,794
Reduction of short - term borrowings, net (4,238) (22,709)
Reduction of long - term borrowings and other (36,445) (39,857)
----------- -----------
Net cash used by financing activities (286,291) (476,822)
----------- -----------
Net decrease in cash and cash equivalents $ (68,109) $ (28,254)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,189 $ 5,388
Income taxes $ 46,524 $ 64,454
<FN>
See accompanying notes.
</FN>
</TABLE>
5
<PAGE>
SUN MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 from prior years have been reclassified to
conform to current year presentation.
While the quarterly financial information is unaudited, the financial
statements included in this report reflect all adjustments (consisting
of normal recurring accruals) that the Company considers necessary for
a fair presentation of the results of operations for the interim
periods covered and of the financial condition of the Company at the
date of the interim balance sheet. The results for the interim periods
are not necessarily indicative of the results for the entire year. The
information included in this report should be read in conjunction with
the 1996 Annual Report to Stockholders which is incorporated by
reference in the Company's 1996 Form 10-K.
INVENTORIES (in thousands)
September 29, 1996 June 30, 1996
------------------ -------------
Raw materials $276,801 $267,811
Work in process 59,722 58,337
Finished goods 125,319 134,766
-------- --------
$461,842 $460,914
======== ========
INCOME TAXES
The Company accounts for income taxes under the liability method of Statement of
Financial Accounting Standards No. 109. The provision for income taxes during
the interim periods considers anticipated annual income before taxes, earnings
of foreign subsidiaries permanently invested in foreign operations, and other
differences.
STOCK SPLIT
On August 8, 1996, the Company announced a two-for-one stock split (payable as a
stock dividend), subject to stockholder approval of an increase in the Company's
authorized shares of common stock. Subject to receiving such stockholder
approval, stockholders of record as of the close of the business on November 18,
1996, will be issued on December 10, 1996 one additional share of common stock
for each share of common stock held. The amounts presented for October 1, 1995,
June 30, 1996, and September 29, 1996 do not reflect the stock split.
6
<PAGE>
COMMON STOCK REPURCHASE
In July 1995, the Board of Directors approved a plan to repurchase approximately
24 million shares of the Company's common stock. Repurchases under this plan
were completed in August 1996 at a total cost of approximately $696 million of
which approximately 4.4 million shares were repurchased for $236 million in
first quarter of 1997. In addition, the Company's Board of Directors approved a
systematic repurchase program in August which will enable the Company to
systematically repurchase a portion of the shares it expects to issue under its
1990 Long-Term Equity Incentive Plan. Total repurchases under the Long-term
Equity Incentive Plan repurchase program will not exceed $450,000,000.
Approximately 440,000 shares and 180,000 shares were repurchased under the ESPP
systematic stock buyback program and Long-Term Equity Incentive Plan buyback
program, respectively.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following table sets forth items from the Condensed Consolidated Statements
of Income as a percentage of net revenues:
Three Months Ended,
-------------------
September 29, October 1,
1996 1995
---- ----
Net revenues 100.0% 100.0%
Cost of sales 52.3 55.0
----- -----
Gross margin 47.7 45.0
Research and development 10.0 9.7
Selling, general and administrative 28.2 27.7
----- -----
Operating income 9.5 7.6
Interest income, net .3 0.8
--- -----
Income before income taxes 9.8 8.4
Provision for income taxes 3.2 2.7
----- -----
Net income 6.6% 5.7%
===== =====
RESULTS OF OPERATIONS
Net revenues
Net revenues were $1.859 billion for the first quarter of fiscal 1997,
representing an increase of 25.2 % over the corresponding period of fiscal 1996.
Over two-thirds of the growth in revenues resulted from strong demand for richly
configured servers, and high-end desktop systems, and from memory, storage
options, and accessories shipped as part of system sales and as separate orders.
The remaining increase reflects growth in revenues from other Sun businesses,
including service, aftermarketing, microprocessors, and software.
Domestic net revenues increased by 25.8% while international net revenues
(including United States exports) grew 24.5% in the first quarter of fiscal 1997
compared with the corresponding period of fiscal 1996. European net revenues
increased 26.6% while net revenues in rest of world increased 22.4% in the first
quarter of fiscal 1997 when compared with the corresponding periods of fiscal
1996. These increases are due primarily to continued strengthening of the
markets in Japan, and the United Kingdom and the expanding markets in Korea and
Latin America.
Compared with the first quarter of fiscal 1996, the dollar in the first quarter
of fiscal 1997 has remained relatively consistent against most major European
currencies and strengthened significantly against the Japanese Yen.
8
<PAGE>
Management has estimated that the net impact of currency fluctuations on
operating results, while slightly unfavorable, was not significant in the
quarter ended September 29, 1996.
Gross margin
Gross margin was 47.7% for the first quarter of fiscal 1997, compared with 45%
for the corresponding period of fiscal 1996. The increase in the gross margin
reflects the effects of increased revenue generated from richly configured,
higher margin servers and memory storage options.
While the factors described above resulted in a favorable impact on gross margin
for the first quarter of fiscal 1997, systems and memory repricing actions are
likely to be initiated in the future, which could result in downward pressure on
gross margins. Sun's future operating results could be adversely affected if
such repricing actions were to occur and the Company is unable to mitigate the
margin pressure by maintaining a favorable mix of systems, software, service,
and other revenues and / or by achieving component cost reductions and operating
efficiencies.
Research and development
Research and development (R&D) expenses were $186.3 million in the first quarter
of fiscal 1997, compared with $144.1 million for the corresponding period of
fiscal 1996. As a percentage of net revenues, R&D expenses increased to 10% for
the first quarter of fiscal 1997 from 9.7% in the corresponding period of fiscal
1996. Approximately half of the dollar increase in the first quarter of fiscal
1997 over the corresponding period in fiscal 1996 reflects continued development
of UltraSPARC systems and further development of products acquired through the
acquisitions of Integrated Micro Products, plc and Cray Business Systems, a
division of Cray Research, Inc. The remaining increase in dollar amount of R&D
expenses is due primarily to increased compensation as a result increased
staffing.
Selling, general and administrative
Selling, general and administrative (SG&A) expenses were $524.7 million in the
first quarter of fiscal 1997 compared with $411.4 million for the same period of
fiscal 1996. As a percentage of net revenues, SG&A expenses increased to 28.2%
in the first quarter of fiscal 1997 from 27.7% in the corresponding period of
fiscal 1996. Approximately half of the dollar increase in 1997 is attributable
to increased marketing costs related to new product introductions and other
promotional programs, and an increase in sales headcount as compared to the
first quarter of fiscal 1996. The dollar increase also reflects investments
aimed at improving Sun's own business processes.
Interest income, net
Net interest income was $5.5 million for the first quarter of fiscal 1997,
compared with $11.6 million in net interest income for the corresponding period
in fiscal 1996. The decrease in 1997 is primarily the result of lower interest
earnings on a smaller portfolio of cash and short-term investments.
Income taxes
The Company's effective income tax rate for the first quarters of both fiscal
1997 and 1996 was 32%.
9
<PAGE>
FUTURE OPERATING RESULTS
This following section of the report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve risks and uncertainties so that actual
results may vary materially.
The future operating results discussed below represent specific risks which
could impact the financial condition and results over the next few quarters.
This information below should be read in conjunction with the Company's Form
10-K Annual Report to Stockholders for its fiscal year ended June 30, 1996
("1996 Form 10-K), as well as with the 1996 Annual Report to Stockholders which
is incorporated by reference into the Company's 1996 Form 10-K.
The market for Sun'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 the Company's product lines and the scalability of its products and
network computing model, Sun competes in many segments of the network computing
market across a broad spectrum of customers. The Company expects 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 network based systems which often employ solutions from multiple vendors.
Competition in these markets will also continue to intensify as Sun and its
competitors, principally Hewlett-Packard Corporation, International Business
Machines Corporation, Digital Equipment Corporation, and Silicon Graphics,
aggressively position themselves to benefit from this shifting of customer
buying patterns and demand. The Company is also facing competition from these
competitors, as well as other systems manufacturers, such as Compaq Computer
Corporation and Dell Computer Corporation, with respect to such competitors
products based on microprocessors from Intel Corporation coupled with Windows NT
operating system software from Microsoft Corporation. These products demonstrate
the viability of certain networked personal computer solutions and have
increased the competitive pressure, particularly in the Company's workstation
and lower-end server product lines. Finally, the timing of introductions of new
products and services by Sun's competitors may negatively impact the future
operating results of the Company, particularly when such introductions occur in
periods leading up to the Company's introduction of its own new enhanced
products. The Company expects this pressure to continue and intensify in fiscal
1997. While many other technical, service and support capabilities affect a
customer's buying decision, the Company's future operating results will depend,
in part, on its ability to compete with these technologies.
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,
such as the Company's recent 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. Once a hardware product is developed, the
Company must rapidly bring such products to volume manufacturing, a process that
requires accurate forecasting of volumes, mix of products and configurations,
among other things in order to achieve acceptable yields and costs.
Accordingly, with the introduction of the Company's enhanced server systems
introduced during fiscal 1996, future operating results will depend to a
considerable extent of the Company's ability to closely manage these product
introductions, as well as future product introductions , 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. The ability of the Company to match supply and demand is
further complicated by the Company's need to adjust prices to reflect changing
competitive market conditions as well as the variability and timing of customer
orders with respect to the Company's older products. As a result, the
10
<PAGE>
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 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.
Generally, the computer systems sold by Sun, such as the UltraSPARC products,
are the result of hardware and software development, such that delays in the
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 adopting 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.
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. Additionally, the Company plans to continue to evaluate and, when
appropriate, make acquisitions of complimentary technologies, products or
businesses. As part of this process, the Company will continue to evaluate the
changing value of its assets, and when necessary, make adjustments to them.
While the Company cannot predict what effect these various factors may have on
its financial results, the aggregate effect of these and other factors could
result in significant volatility in the Company's future performance and stock
price.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at September 29, 1996 decreased by approximately $179 million from
June 30, 1996, due principally to decreases in cash, cash equivalents and
short-term investments of $326 million and other long-term assets of $27
million, offset by increases in accounts receivable of $89 million, other
current assets of $46 million and property, plant and equipment-net of $29
million. Cash was principally used for the repurchase of 5 million shares of
common stock for $271 million, capital expenditures of $95 million, and
scheduled debt repayments of $40 million. Other long-term assets decreased
primarily due to amortization of capitalized software and intangible assets. The
increase in accounts receivable reflects a larger percentage of sales occurring
near the end of the quarter and the timing of cash receipts. Other current
assets increased due to the timing of payments for insurance and other taxes.
The increase in property, plant and equipment reflects capital additions to
support increased headcount, primarily in the Company's engineering, service and
marketing organizations.
11
<PAGE>
Total liabilities decreased $47 million from June 30, 1996, due principally to a
decrease in accrued liabilities of $24 million and other current liabilities of
$48 million, offset by an increase in accounts payable of $20 million. The net
decrease in accrued liabilities reflects payments of performance based
compensation, commissions, and income taxes, offset by an increase in marketing
and Employee Stock Participation Program liabilities. The other current
liabilities decrease primarily reflects the final payment related to the
Company's 10.55% senior notes due September 1996. The increase in accounts
payable reflects increased inventory receipts during the last three weeks of the
quarter as compared to the fourth quarter of fiscal 1996. The Company purchased
Phase II and Phase III of its campus located in Menlo Park, California for
approximately $116 million in October 1996.
At September 29, 1996, the Company's primary sources of liquidity consisted of
cash, cash equivalents and short-term investments of $664 million and a
revolving credit facility with banks aggregating $300 million, 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 through fiscal 1997. However, the Company
believes the level of financial resources is a significant competitive factor in
its industry and may choose at any time to raise additional capital through debt
or equity financing to strengthen its financial position, facilitate growth and
provide the Company with additional flexibility to take advantage of business
opportunities that may arise. The statements regarding the sufficiency of the
Company's capital resources are forward looking statements which involve risks
and uncertainties and actual results may vary materially as a result of factors
described above under "Future Operating Results," as well as factors described
under the Caption "Item 1 - Business" in the Company's 1996 Form 10-K.
12
<PAGE>
ITEM 5 - OTHER INFORMATION
SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER
The following is a summary of all sales of the Company's Common Stock by
the Company's executive officers and directors who are subject to Section 16 of
the Securities Exchange Act of 1934, as amended, during the fiscal quarter ended
September 29,1996:
OFFICER/ DATE PRICE NUMBER OF
DIRECTOR SHARES SOLD
============================================================================
Michael Lehman 8/8/96 $55.00 10,000
8/9/96 $56.00 5,000
8/9/96 $55.50 5,000
8/28/96 $56.5625 5,000
8/28/96 $57.00 1,000
Michael Morris 8/1/96 $55.315 8,000
8/5/96 $57.44 4,000
8/12/96 $54.94 3,200
Kenneth M. Oshman 8/22/96 $55.00 15,000
8/23/96 $55.00 10,000
8/23/96 $55.00 5,000
Frank Pinto 8/29/96 $56.34 11,000
William Raduchel 8/14/96 $55.5313 10,000
8/14/96 $55.325 10,000
8/14/96 $56.0728 39,500
George Reyes 8/28/96 $55.94 5,000
8/28/96 $56.125 4,000
Janpieter Scheerder 7/29/96 $52.94 4,000
8/2/96 $57.19 6,000
8/9/96 $55.815 6,600
8/12/96 $55.19 12,000
8/15/96 $55.503 12,000
8/29/96 $56.19 3,600
Eric Schmidt 8/29/96 $56.125 5,000
8/30/96 $54.375 5,000
Edward Zander 8/28/96 $56.0625 5,000
13
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
3.3 Registrant's Amended and Restated Certificate of
Incorporation (as amended to date)
10.87 Promissory Note between the Registrant and Alan E. Baratz
dated October 4, 1996.
10.88 Form of Idemnification Agreement
11.0 Statement re: Computation of Earnings Per Share
27.0 Financial data for the period ended September 29, 1996
b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 29,
1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN MICROSYSTEMS, INC.
BY
/s/ Michael E. Lehman
------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
/s/ George Reyes
--------------------
George Reyes
Vice President and Corporate Controller,
Chief Accounting Officer
Dated: November 13, 1996
15
<PAGE>
EXHIBITS TO REPORT
ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
16
<PAGE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share amounts)
FULLY DILUTED
Three Months Ended,
---------------------------
September 29, October 1,
1996 1995
-------- --------
Net income $123,390 $ 84,696
======== ========
Weighted average common
shares outstanding 183,557 189,896
Common - equivalent shares
attributable to stock options and warrants 12,106 9,780
--------- ---------
Total common and common -
equivalent shares outstanding 195,663 199,676
======= ========
Net income per common and
common - equivalent share $0.63 $ 0.42
===== =======
9/17/86
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
SUN MICROSYSTEMS, INC.
1. The name of the corporation is Sun Microsystems, Inc. (the
"Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, zip code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
4. (a) This corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock". The total number of shares
which this corporation shall have authority to issue is Eighty-Five Million
(85,000,000), of which Seventy-Five Million (75,000,000) shall be Common Stock
and Ten Million (10,000,000) shall be Preferred Stock. The aggregate par value
of all shares of Common Stock is $50,250 and the par value of each such share is
$.00067. The aggregate par value of all shares Preferred Stock is $10,000, and
the par value of each share is $.001.
(b) The shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of the Article 2, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
<PAGE>
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or date upon
or after which they shall be reedeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(vii) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights of priority, if any, of payment of shares of that series.
5. The name and mailing address of the incorporator are as follows:
Judith M. O'Brien
Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
-2-
<PAGE>
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the By-Laws of the Corporation.
8. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the By-Laws of the
Corporation.
9. The election of directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
10. At all elections of directors of the corporation, each holder of stock
or of any class or classes or of a series or series thereof shall be entitled to
as many votes as shall equal the number of votes which (except for this
provision as to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them as he may see fit.
11. Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
12. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
amendment nor repeal of this Article 12, nor the adoption of any provision of
this Certification of Incorporation inconsistent with this Article 12 in respect
of any matter occuring, or any cause of action, suit or claim that, but for this
Article 12, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
13. Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the By-Laws of the Corporation.
-3-
<PAGE>
14. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying,
under penalties of perjury, that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hand this 16th day of
September, 1986.
/s/ Judith M. O'Brien
-----------------------------
Judith M. O'Brien
164JOB-1275
09/15/86
-4-
<PAGE>
6-30-87
RESTATED CERTIFICATE OF INCORPORATION
OF
SUN MICROSYSTEMS, INC.
(Originally incorporated on September 17, 1986)
1. The name of the corporation is Sun Microsystems, Inc. (the
"Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Steet, in the City of
Willmington, County of New Castle, zip code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
4. (a) This Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock". The total number of shares
which this corporation shall have authority to issue is One Hundred Thirty-Five
Million (135,000,000), of which One Hundred Twenty-Five Million (125,000,000)
shall be Common Stock with a par value of $.00067 per share and Ten Million
(10,000,000) shall be Preferred Stock with a par value of $.001 per share.
(b) The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article 4, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(v) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be reedeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of that
series.
(vii) Any other relative or participating rights, preferences and
limitations of that series.
5. The name and mailing address of the incorporator are as follows:
Judith M. O'Brien
Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
<PAGE>
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the By-Laws of the Corporation.
8. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the By-laws of the
Corporation.
9. At all elections of directors of the Corporation, each holder of stock
or of any class or classes or of a series thereof shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of directors to be
elected, and he may cast all of such votes for a single candidate or may
distribute them among the number to be elected, or for any two or more of them
as he may see fit.
10. Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
11. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
amendment nor repeal of this Article 11, nor the adoption of any provision of
this Certification of Incorporation inconsistent with this Article 11, shall
eliminate or reduce the effect of this Article 11 in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article 11,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
12. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation. This Certificate of
Incorporation may not be amended to eliminate Section 9 hereof or to divide the
directors of the Corporation who are elected by the holders of Common Stock and
any Preferred Stock entitled to vote generally with the holders of Common Stock
in elections of directors, into two or three classes without the approval of
holders of seventy-five percent (75%) of the outstanding shares of the
Corporation entitled to vote thereon.
13. Elections for directors need not be by ballot unless a stockholder
demands election by ballot at the meeting and before the voting begins or unless
the By-laws so require.
I, THE UNDERSIGNED, this 23rd day of June, 1987, being the sole
incorporator of Sun Microsystems, Inc., do hereby certify that the Corporation
has not received any payment for any of its stock and that this Restated
Certificate of Incorporation has been adopted in accordance with the provisions
of Sections 241 and 245 of the General Corporation Law of the State of Delaware.
/s/ Judith M. O'Brien
-----------------------------------
Judith M. O'Brien
B-2
<PAGE>
CERTIFICATE OF MERGER
OF
SUN MICROSYSTEMS, INC.
A CALIFORNIA CORPORATION
INTO
SUN MICROSYSTEMS, INC.
The undersigned corporation does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger are as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Sun Microsystems, Inc. California
Sun Microsystems, Inc. Delaware
SECOND: That an Agreement and Plan of Merger (the "Merger Agreement")
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the requirements of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware and that the effective time of the
merger shall be noon eastern standard time on the day on which this Certificate
is filed with the Secretary of State of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is Sun
Microsystems, Inc., a Delaware corporation.
<PAGE>
FOURTH: That the Restated Certificate of Incorporation of Sun Microsystems,
Inc., a Delaware corporation, shall be the certificate of incorporation of the
surviving corporation.
FIFTH: That the executed Merger Agreement is on file at the principal place
of business of the surviving corporation. The address of said principal place of
business is 2550 Garcia Avenue, Mountain View, California 94043.
SIXTH: That a copy of the Merger Agreement will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
SEVENTH: That the authorized capital stock of Sun Microsystems, Inc., a
California corporation, is 125,000,000 shares of Common Stock, $.00067 par
value, and 10,000,000 shares of Preferred Stock, $.001 par value.
SUN MICROSYSTEMS, INC.
a Delaware corporation
By: /s/ Scott G. McNealy
--------------------------------------
Scott G. McNealy, President
ATTEST:
/s/ Robert G. Smith
- ---------------------------------------
Robert G. Smith, Assistant Secretary
2SUN:004
-2-
<PAGE>
12/7/89
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF
INCORPORATION OF
SUN MICROSYSTEMS, INC.
William J. Raduchel and Michael H. Morris certify that:
1. They are the Vice President, Chief Financial Officer and Vice
President, General Counsel and Corporate Secretary, respectively, of
Sun Microsystems, Inc., a Delaware corporation.
2. So much of Section (a) of Article 4 of the Restated Certificate of
Incorporation of this Corporation as now reads:
"This Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock". The total number
of shares which this corporation shall have authority to issue is
One Hundred Thirty Five Million (135,000,000), of which One
Hundred Twenty Five Million (125,000,000) shall be Common Stock
with a par value of $.00067 per share and Ten Million
(10,000,000) shall be Preferred Stock with a par value of $.001
per share."
is amended to read as follows:
"This Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock". The total number
of shares which this corporation shall have authority to issue is
Three Hundred Ten Million (310,000,000), of which Three Hundred
Million (300,000,000) shall be Common Stock with a par value of
.00067 per share and Ten Million (10,000,000) shall be Preferred
Stock with a par value of $.001 per share.
3. The foregoing Certificate of Amendment of the Restated Certificate of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing Certificate of Amendment of the Restated and Amended
Certificate of Incorporation has been duly approved by the required
vote of stockholders in accordance with Section 242 of the Delaware
Corporations Code. The total number of outstanding shares of Common
Stock of the corporation is 85,177,733. No shares voting in favor of
the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding Common Stock.
<PAGE>
We further declare under penalty of perjury under the laws of the State
of Delaware that the matters set forth in the foregoing certificate are
true and correct of our own knowledge.
Executed at Mountain View, California, this 6th day of December, 1989.
/s/ William J. Raduchel
------------------------------
William J. Raduchel
ATTEST:
/s/ Michael H. Morris
------------------------------
Michael H. Morris
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF
INCORPORATION OF
SUN MICROSYSTEMS, INC.
Michael E. Lehman and Michael H. Morris, certify that:
1. They are the Vice-President, Chief Financial Officer and Vice
President, General Counsel and Corporate Secretary, respectively, of Sun
Microsystems, Inc., a Delaware corporation.
2. So much of Section (a) of Article 4 of the Restated Certificate of
Incorportion of this Corporation as now reads.
"This Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock". The total number of
shares which this corporation shall have authority to issue is Three
Hundred Ten Million (310,000,000), of which Three Hundred Million
(300,000,000) shall be Common Stock with a par value of $.00067 per
share and Ten Million (10,000,000) shall be Preferred Stock with a par
value of $.001 per share."
is amended to read as follows:
"The Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock". The total number of
shares which this corporation shall have authority to issue is Nine
Hundred Fifty Million (950,000,000), of which Nine Hundred Forty
Million (940,000,000) shall be Common Stock with a par value of $.00067
per share and Ten Million (10,000,000) shall be Preferred Stock with a
par value of $.001 per share."
3. The foregoing Certificate of Amendment of the Restated Certificate of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing Certificate of Amendment of the Restated Certificate of
Incorporation has been duly approved by the required vote of stockholders in
accordance with Section 242 of the Delaware Corporations Code. The total number
of outstanding shares of Common Stock of the corporation is 183,648,532. No
shares of Preferred Stock are outstanding. The number of shares voting in favor
of the amendment equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding Common Stock.
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in the foregoing certificate are true and
correct of our own knowledge.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto
affixed and the Certificate of Amendment to be signed by Michael E. Lehman, its
Vice President, Chief Financial Officer and attested by Michael H. Morris, its
Vice President, General Counsel and Corporate Secreatary, this 13th day of
November, 1996.
SUN MICROSYSTEMS, INC.
[Corporate Seal] /s/ Michael E. Lehman
------------------------------
Michael E. Lehman
ATTEST: /s/ Michael H. Morris
------------------------------
Michael H. Morris
PROMISSORY NOTE SECURED BY DEED OF TRUST
$500,000.00 Mountain View, California
October 4, 1996
In installments as stated in this Note, for value received, Alan E. Baratz
and Raquel S. Baratz (collectively, "Borrower") hereby promise to pay to Sun
Microsystems, Inc., a Delaware corporation ("Lender"), or order, at its offices
at 2550 Garcia Avenue, Mountain View, California, or at such other place as
Lender may from time to time designate in writing, the principal sum of Five
Hundred Thousand Dollars ($500,000.00) with interest on the unpaid balance of
principal from the date of this Note until paid in full at the rate of 6.72%,
compounded annually, on the following terms:
1. Payment of Principal: The principal due pursuant to this Note shall be paid
in full on or before October 4, 2001.
2. Payment of Interest: Accrued interest on the then outstanding principal
balance shall be due and payable on October 4, 1997 and on the 4th day of
October each year thereafter until payment in full of the principal and
interest.
3. General: Principal and interest shall be payable in lawful money of the
United States. Interest shall be calculated on the basis of a 360-day year
consisting of 12 thirty day months. Each payment shall be applied first to
interest then due and the balance of said installment shall be applied to
the principal sum. This Note may be prepaid at anytime.
4. Security: This Note is secured by a deed of trust of even date herewith
made by Borrower, as trustor, to North American Title Company, as trustee,
for Lender, as beneficiary (the "Deed of Trust"), encumbering certain real
property commonly known as 11801 Francemont Drive, Los Altos Hills, Santa
Clara County, California (the "Property Security").
Default and Acceleration:
A. Full Acceleration: Unless otherwise prohibited by law, upon the
occurrence of any of the following events, the Holder of this Note
shall have the option, without demand or notice, to declare the entire
balance of principal of this Note to be immediately due and payable:
(i) Borrower defaults in the payment of principal when due
pursuant to the terms hereof or defaults in the performance
of any obligation of Borrower or other agreement (including
any amendment, modification or extension thereof) which may
hereafter be executed by Borrower for the purpose of securing
this Note;
(ii) Borrower, without prior written consent of Lender,
voluntarily or by operation of law sells, conveys, assigns,
or otherwise transfers, all or substantially all, or any
portion of, or interest in the Property Security.
(iii) Sixty days after (a) Lender is notified that Borrower is
terminating his employment with Lender, or (b) Lender
terminates Borrower's employment for cause, as defined below.
1
<PAGE>
B. Partial Acceleration:
(i) In the event that Borrower's employment is terminated by
Lender other than for cause or if Borrower dies or is
disabled for a period of more than six months, principal due
hereunder shall be accelerated and shall be paid fifty
percent (50%) of the principal in twelve (12) equal quarterly
installments, with the first such quarterly payment due on
the effective date of termination and the successive
quarterly payments being due each three months thereafter on
the same day of each such months (i.e., if termination is on
February 3, payments are due on each succeeding May 3, August
3, November 3 and February 3). The remaining fifty percent
(50%) of the principal shall be due in a balloon payment at
the end of the thirteenth quarter following the date hereof.
Notwithstanding the foregoing, in no event shall such a
termination or the foregoing payment schedule extend the due
date of this Note beyond October 4, 2001.
(ii) For purposes of this Note, the term "cause" shall mean
Borrower's misfeasance, malfeasance or misconduct, dishonesty
or gross negligence in connection with his employment.
4. Attorneys' Fees: In the event any default hereunder, Borrower hereby
promises to pay all costs of collection, including reasonable attorneys'
fees incurred by Lender hereof on account of such collection, whether or
not suit is filed hereon.
5. Waiver: The waiver by Lender hereof of any breach of or default under any
terms, covenant or condition contained herein or in any of the agreements
referred to above shall not be deemed to be a waiver of such term, covenant
or condition or any subsequent breach of or default under the same or any
other such term, covenant or condition.
6. General Provisions: This Note shall be governed by and construed in
accordance with the laws of the State of California. The makers, guarantors
and endorsers of this Note hereby severally waive presentment for payment,
protest and demand, notice of protest, demand and dishonor and nonpayment
of this Note, and consent that Lender may extend the time for payment or
otherwise modify the terms of payment or any part or the whole of the debt
evidenced by this Note, at the request of any person liable hereon, and
such consent shall not alter nor diminish the liability of any person.
Borrower hereby waives the defense of the statute of limitations in any
action on this Note to the extent permitted by law. The terms of this Note
constitute the entire agreement and understanding between the parties and
supersede all previous communications, representations or agreements,
whether written or oral, with respect to the subject matter hereof.
AS BORROWER:
/s/ ALAN A. BARATZ
___________________________
Alan E. Baratz
/s/ RAQUEL S. BARATZ
__________________________
Raquel S. Baratz
2
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this ____
day of _____________ 1987, by and between SUN MICROSYSTEMS, INC., a Delaware
corporation (the "Company"), and____________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals. such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director of the Company, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in
-1-
<PAGE>
good faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that Indemnitee's conduct
was unlawful.
(b) Proceedings By or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement, in each case to the extent actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or suit if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
of the State of Delaware or such other court shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Subsections (a) and (b) of this
Section 1 or the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by Indemnitee in connection therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referenced in Section 1(a) or (b) hereof (but not amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within twenty (20) days following delivery of
a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to President of the Company
at the
-2-
<PAGE>
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). Notice shall be deemed
received three business days after the date post-marked if sent by domestic
certified or registered mail, properly addressed; otherwise notice shall be
deemed received when such notice shall actually be received by the Company. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for
in Section 1 and this Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or By-laws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 12 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 2(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the
-3-
<PAGE>
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ his
counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's By-laws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be, ipso facto,
within the purview of Indemnitee's rights and Company's obligations, under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its By-laws, any
agreement, any vote of stockholders or disinterested Directors, the General
Corporation Law of the State of Delaware, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he may have ceased to serve in such capacity at
the time of any action, suit or other covered proceeding.
4. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
-4-
<PAGE>
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. Officer and Director Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
7. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fill to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 7. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit; or
(b) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this
-5-
<PAGE>
Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in such proceeding was not made in
good faith or was frivolous; or
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans: references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
11. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
12. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all
-6-
<PAGE>
court costs and expenses, including reasonable attorneys' fees, incurred by
Indemnitee with respect to such action, unless as a part of such action, the
court of competent jurisdiction determines that each of the material assertions
made by Indemnitee as a basis for such action were not made in good faith or
were frivolous. In the event of an action instituted by or in the name of the
Company under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
13. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
14. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
15. Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents entered into and to be performed
entirely within Delaware.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SUN MICROSYSTEMS, INC.
By:_____________________________________
Its:____________________________________
Address: 2550 Garcia Avenue
Mountain View, CA 94043
AGREED TO AND ACCEPTED:
INDEMNITEE:
__________________________________
(type name)
__________________________________
(signature)
__________________________________
__________________________________
(address)
-8-
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS PER SHARE
(unaudited)
(in thousands, except per share amounts)
PRIMARY
Three Months Ended,
-------------------
September 29, October 1,
1996 1995
---- ----
Net income $123,390 $ 84,696
======== ========
Weighted average common
shares outstanding 183,557 189,896
Common - equivalent shares
attributable to stock options and warrants 11,501 9,428
-------- --------
Total common and common -
equivalent shares outstanding 195,058 199,324
======== ========
Net income per common and
common - equivalent share $0.63 $ 0.42
===== =======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-29-1996
<CASH> 460,745
<SECURITIES> 203,210
<RECEIVABLES> 1,295,429
<ALLOWANCES> 126,754
<INVENTORY> 461,842
<CURRENT-ASSETS> 2,852,835
<PP&E> 562,893
<DEPRECIATION> 793,255
<TOTAL-ASSETS> 3,622,402
<CURRENT-LIABILITIES> 1,489,269
<BONDS> 40,000
<COMMON> 73
0
0
<OTHER-SE> 2,120,165
<TOTAL-LIABILITY-AND-EQUITY> 3,622,402
<SALES> 1,859,019
<TOTAL-REVENUES> 1,859,019
<CGS> 972,101
<TOTAL-COSTS> 1,683,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,857
<INTEREST-EXPENSE> 2,657
<INCOME-PRETAX> 181,456
<INCOME-TAX> 58,066
<INCOME-CONTINUING> 123,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123,390
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
