SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
SUN MICROSYSTEMS, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SUM MICROSYSTEMS, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
SUN MICRO LOGO
October 2, 1996
To: Sun Stockholders:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of Sun Microsystems, Inc. (the "Company") to be held on November 13, 1996, at
10:00 a.m. at the Company's Menlo Park offices at 11 Network Circle (Building
11, Crossroads Conference Room, #2150), Willow Road at Bayfront Expressway,
Menlo Park, California.
At this meeting we are seeking approval of an amendment to the Company's
Certificate of Incorporation which will increase the number of shares of Common
Stock the Company is authorized to issue to 940,000,000 shares. On August 8,
1996, the Company declared a two-for-one stock split (to be effected in the form
of a stock dividend) subject to obtaining stockholder approval of this
amendment. The objectives of the stock split include broadening the distribution
and improving the marketability of the Common Stock. The increase in the number
of authorized shares of Common Stock would be used in part to effect this stock
split. The availability of additional authorized but unissued Common Stock is
intended to facilitate future transactions such as acquisitions, equity
financings or stock splits.
Please read the enclosed materials carefully and return your proxy as soon as
possible. Thank you.
Sincerely,
Scott G. McNealy
Chairman of the Board of Directors,
President and Chief Executive Officer.
<PAGE>
SUN MICRO LOGO
SUN MICROSYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 13, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders of Sun
Microsystems, Inc. ("Company"), a Delaware corporation, will be held at the
Company's Menlo Park offices at 11 Network Circle (Building 11, Crossroads
Conference Room, #2150), Willow Road at Bayfront Expressway, Menlo Park,
California on Wednesday, November 13, 1996, at 10:00 a.m., for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To amend the Company's Restated Certificate of Incorporation to increase
the number of shares of Common Stock, $0.00067 par value, which the
Company is authorized to issue from 300,000,000 shares to 940,000,000
shares in order to effect a two-for-one split of the Company's Common
Stock (in the form of a stock dividend) and to increase the amount of the
Company's authorized but unissued stock.
3. To transact such other business as may properly come before the meeting
and any adjournment(s) thereof.
Only stockholders of record at the close of business on September 17, 1996
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign and return the enclosed Proxy as promptly as possible in the postage-
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person, even though he or she previously has returned a
Proxy.
Michael H. Morris,
Secretary
Mountain View, California
October 2, 1996
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE,SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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<PAGE>
SUN MICROSYSTEMS, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Sun Microsystems, Inc. (the
"Company") for use at the 1996 Annual Meeting of Stockholders ("Annual Meeting")
to be held Wednesday, November 13, 1996, at 10:00 a.m., local time, and at any
adjournment(s) or postponement(s ) thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting of Stockholders. The Annual
Meeting will be held at the Company's Menlo Park offices at 11 Network Circle
(Building 11, Crossroads Conference Room, #2150), Willow Road at Bayfront
Expressway, Menlo Park, California. The Company's principal executive offices
are located at 2550 Garcia Avenue, Mountain View, California 94043 and its
telephone number is (415) 960-1300. These proxy solicitation materials were
mailed on or about October 2, 1996, to all stockholders entitled to vote at the
Annual Meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on September 17, 1996 (the
"Record Date") are entitled to notice of and to vote at the meeting. At such
Record Date, 182,274,388 shares of the Company's Common Stock, $0.00067 par
value, were outstanding. The closing sales price for the Company's Common Stock
on the Record Date, as reported by the Nasdaq National Market, was $58.50 per
share. The Company was aware of the following beneficial owners of more than 5%
of its Common Stock as of the Record Date:
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OF CLASS
---------------- ------ --------
Twentieth Century Companies, Inc.(1)... 12,915,600 7.1%
Twentieth Century Tower
4500 Main Street
Kansas City, MO 64111
Janus Capital Corp.(2) ................ 11,276,000 6.2%
100 Filmore Street
Suite 300
Denver, CO 80206-4923
- ----------
(1) Based on information obtained from a Schedule 13G filed with the Securities
and Exchange Commission dated February 13, 1996. Represents shares
beneficially owned by (i) Twentieth Centuries Companies, Inc., ("TCC")
through its wholly-owned subsidiaries Investors Research Corporation ("IRC")
and Benham Management Corporation ("BMC"), each a registered investment
advisor, and (ii) James E. Stowers, Jr., who controls TCC by virtue of his
beneficial ownership of a majority of the voting stock of TCC. The Company's
securities that are the subject of this Schedule 13G are owned by and held
for the investment companies and separate institutional accounts managed by
IRC and BMC. Mr. Stowers, TCC, IRC and BMC disclaim beneficial ownership of
these securities.
(2) Based on information obtained from a Schedule 13G filed with the Securities
and Exchange Commission dated February 16, 1996. Represents shares
beneficially owned by (i) Janus Capital, a registered investment advisor,
and (ii) Thomas H. Bailey, a stockholder owning 12.2% of Janus Capital
Corp., as well as President and Chairman of the Board of Janus Capital Corp.
Mr. Bailey disclaims beneficial ownership of such shares.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING AND SOLICITATION
On all matters other than the election of directors, each share has one vote.
The Company intends to include abstentions and broker non-votes as present or
represented for purposes of establishing a quorum for the transaction of
business, to include abstentions as shares entitled to vote and to exclude
broker non-votes from the calculation of shares entitled to vote with respect to
any proposal for which authorization to vote was withheld.
1
<PAGE>
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Skinner & Co. to aid in the solicitation of proxies
from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co. a fee not to exceed $5,000 for its
services and will reimburse Skinner & Co. for certain out of pocket expenses
estimated to be not more than $10,000. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Proxies may be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented by
such stockholders at the Company's 1997 Annual Meeting of Stockholders must be
received by the Company no later than June 4, 1997 in order to be considered for
possible inclusion in the proxy statement and form of proxy relating to that
meeting.
EFFECT OF STOCK SPLIT
Unless otherwise noted, all share numbers in this Proxy statement are stated
without giving effect to the Company's proposed two-for-one stock split
described herein. See Proposal II.
PROPOSAL I
ELECTION OF DIRECTORS
GENERAL
A board of seven directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's seven nominees named below, all of whom are currently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting (neither of
which events is expected), the proxies will be voted for such nominee as shall
be designated by the current Board of Directors to fill the vacancy. In the
event that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will ensure the election of as many of the
nominees listed below as possible and, in such event, the specific nominees to
be voted for will be determined by the proxy holders.
VOTE REQUIRED
Every stockholder voting for the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors (seven) to be elected multiplied by the number of shares held by
such stockholder on the Record Date or may distribute the stockholder's votes on
the same principle among as many candidates as the stockholder thinks fit,
provided that votes cannot be cast for more than seven candidates. However, no
stockholder shall be entitled to cumulate votes unless such candidate's name has
been placed in nomination prior to the voting and the stockholder, or any other
stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes.
A quorum comprising the holders of the majority of the outstanding shares of
Common Stock on the Record Date must be present or represented by proxy for the
transaction of business at the Annual Meeting. If a quorum is present, the seven
nominees receiving the highest number of votes will be elected to the Board of
Directors, whether or not such number of votes represents a majority of the
votes cast. Votes withheld and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum but have no other effect under
Delaware law in the election of directors.
The term of office of each person elected as a director will continue until
the next Annual Meeting or until his or her successor has been elected and
qualified.
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW.
2
<PAGE>
NOMINEES
<TABLE>
The names of the nominees, their ages at the Record Date and certain other
information about them are set forth below.
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--------------- --- -------------------- --------------
<S> <C> <C> <C>
Scott G. McNealy .. 41 Chairman of the Board of Directors, President and 1982
Chief Executive Officer, Sun Microsystems, Inc.
L. John Doerr ..... 45 General Partner, Kleiner Perkins Caufield & Byers, 1982
a venture capital investment firm
Judith L. Estrin .. 41 President, Chief Executive Officer and Director, 1995
Precept Software, Inc., a networking
software company
Robert J. Fisher .. 42 Executive Vice President, Chief Operating Officer 1995
and Director, The Gap, Inc., a retail
clothing company
Robert L. Long ... 59 Independent Management Consultant 1988
M. Kenneth Oshman . 56 Chairman of the Board of Directors, President and 1988
Chief Executive Officer, Echelon Corporation, a
provider of control network technologies
A. Michael Spence . 52 Dean, Graduate School of Business, 1990
Stanford University
</TABLE>
Except as set forth below, each of the nominees has been engaged in his or
her principal occupation set forth above during the past five years. There is no
family relationship between any director and any executive officer of the
Company.
Mr. Doerr is also a director of Intuit, Inc., Macromedia, Inc., Netscape
Communications Corporation and Shiva Corporation.
Ms. Estrin has served as the President and Chief Executive Officer of Precept
Software, Inc. since March 1995. From September 1994 to March 1995, Ms. Estrin
was a Computer Industry Consultant. From October 1993 to September 1994, Ms.
Estrin was the Chief Executive Officer of Network Computing Devices, Inc.
("NCD"), a supplier of X-terminals and PC-to-UNIX connectivity software. From
July 1988 to October 1993, Ms. Estrin served as the Executive Vice President of
NCD. Ms. Estrin is also on the Board of Directors of Federal Express Corporation
and Rockwell International, Inc.
Mr. Fisher has served as Executive Vice President and Chief Operating Officer
of The Gap, Inc. (the "Gap") since November, 1995. From July 1993 to November
1995, he served as Chief Financial Officer of the Gap. From August 1992 to July
1993 he served as Executive Vice President and Chief Operating Officer of the
Gap. Prior to such time, since 1980, Mr. Fisher was employed in various
management positions in the Gap's finance, inventory management and
merchandising divisions, including (from August 1989 to August 1992) President
of Banana Republic, a division of the Gap. Mr. Fisher was elected to the Gap's
Board of Directors in 1990.
Mr. Long retired from Eastman Kodak Company ("Kodak") in December 1991 and is
currently an independent management consultant. Mr. Long was Director of
Corporate Planning of Kodak from July 1986 to December 1991 and was elected a
Corporate Vice President in 1985 and a Senior Vice President in 1989.
Mr. Oshman is also a director of Knight-Ridder, Inc.
Mr. Spence has served as Dean of the Graduate School of Business, Stanford
University, since July 1990. Prior to that, he served as Dean of the Faculty of
Arts and Sciences, Harvard University, for six years. Mr. Spence is also a
director of General Mills, Inc., Bank of America Corporation, VeriFone, Inc.,
Nike Inc. and Siebel Systems, Inc.
BOARD MEETING AND COMMITTEES
The Board of Directors held a total of fourteen meetings during the fiscal
year ended June 30, 1996. The Board of Directors has an Audit Committee, a
Compensation Committee and a Nominating Committee.
3
<PAGE>
The Audit Committee currently consists of Messrs. Long (Chairman) and Spence
and Ms. Estrin and held six meetings during the fiscal year ended June 30, 1996.
The Audit Committee recommends engagement of the Company's independent auditors
and is primarily responsible for approving the services performed by the
Company's independent auditors and for reviewing and evaluating the Company's
accounting policies and its system of internal accounting controls. During the
entire fiscal year ended June 30, 1996, the Compensation Committee consisted of
Messrs. Doerr (Chairman) and Oshman and in November 1995, Mr. Fisher joined the
Compensation Committee. The Compensation Committee reviews and approves the
Company's executive compensation policies and, on certain occasions, administers
the Company's employee stock option and stock purchase plans. The Compensation
Committee held five meetings during fiscal 1996. See "Report of Compensation
Committee of the Board on Executive Compensation." The Nominating Committee
currently consists of Messrs. Oshman (Chairman), McNealy and Doerr and held no
meetings during the fiscal year ended June 30, 1996. The Nominating Committee
reviews and makes recommendations regarding candidates for service on the Board
of Directors. The Nominating Committee will consider nominees recommended by
stockholders. Any such recommendations should be submitted in writing to the
President or Secretary of the Company at the Company's principal executive
offices.
During the fiscal year ended June 30, 1996, each incumbent director attended
at least 75% of the aggregate number of meetings of the Board of Directors and
meetings of the committees of the Board on which he or she served.
DIRECTOR COMPENSATION
The Company pays fees of $1,750 per month to each of its nonemployee
directors. In addition, the chairman of each committee of the Board of Directors
is paid $1,500 for each meeting of his or her committee which he or she attends.
Additionally, the nonemployee directors of the Company participate under the
Company's 1988 Directors' Stock Option Plan (the "Directors' Option Plan"), as
adopted by the Board of Directors and approved by the stockholders in October
1988, which provides for the grant of nonstatutory stock options to nonemployee
directors. Under the Directors' Option Plan, each nonemployee director who is a
partner, officer or director of an entity having an equity investment in the
Company is automatically granted a nonstatutory stock option to purchase 10,000
shares of Common Stock of the Company on the date on which such person becomes a
director. Each nonemployee director who is not, on the date of his or her
appointment to the Board, affiliated with an entity having an equity investment
in the Company, is automatically granted an option to purchase 40,000 shares of
Common Stock on the date on which such person becomes a director of the Company.
Thereafter, each nonemployee director is automatically granted a nonstatutory
stock option to purchase 10,000 shares of Common Stock of the Company on the
date of each Annual Meeting of Stockholders at which each such nonemployee
director is re-elected to serve on the Board of Directors, provided that, on
such date, he or she has served on the Board of Directors for at least six
months. The Directors' Option Plan provides that the exercise price of the
options granted thereunder shall be equal to the fair market value of the Common
Stock on the date of grant of the option. Options granted pursuant to the
Directors' Option Plan have a term of five years and are exercisable
cumulatively to the extent of 25% of the shares subject to the option on each of
the first four anniversaries of the date of grant. Options granted pursuant to
the Directors' Option Plan may be exercised only while the optionee is a
director of the Company or within six months after termination of service as a
director due to death or within ninety days after the optionee ceases to serve
as a director of the Company for any other reason.
During the last fiscal year, each of Messrs. Doerr, Long, Oshman, and Spence
were granted an option to purchase 10,000 shares of the Company's Common Stock
at an exercise price of $39.00 per share. Additionally, Ms. Estrin and Mr.
Fisher were each granted an option to purchase 40,000 shares on August 9, 1996
at an exercise price of $22.75 per share. During the last fiscal year, (i) Mr.
Long exercised options for a total of 10,831 shares, at exercise prices of
$11.4375 and 17.1875 per share, for a total net realized gain of $425,778, (ii)
Mr. Doerr exercised an option for 10,000 shares, at an exercise price of $11.00
per share, for a net realized gain of $337,500, (iii) Mr. Oshman exercised an
option for 10,000 shares, at an exercise price of $11.00 per share, for a net
realized gain of $287,500, and (iv) Mr. Spence exercised an option for 10,000
shares, at an exercise price of $11.4375 per share, for a net realized gain of
$356,875.
4
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Doerr, Oshman, and
Fisher. In June 1996, the Company entered into a Limited Partnership Agreement
("LP Agreement") with KPCB Java Associates L.P., a California limited
partnership, as general partner ("KPCB Java"), and certain other limited
partners (the "Partnership"). Pursuant to the L.P. Agreement, the Company agreed
to make capital contributions of $16,000,000 in the aggregate to the Partnership
over a period of time in accordance with the terms of the LP Agreement and, in
addition, to pay a management fee to KPCB VIII Associates, L.P., a California
limited partnership and a general partner of KPCB Java ("KPCB VIII"), equal to
$320,000 on an annual basis (the "Management Fee"). Mr. Doerr, a director of the
Company and a member of the Compensation Committee, is a general partner of KPCB
VIII. Pursuant to the terms of the LP Agreement, Sun was obligated to pay only
$10,666 of the total Management Fee during the fiscal year ended June 30, 1996.
Other than the foregoing, the Company has no interlocking relationships or other
transactions involving any of its Compensation Committee members that are
required to be reported by the Securities and Exchange Commission rules and no
current or former officer of the Company serves on its Compensation Committee.
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of the Record Date, by each director, by each of the executive
officers named in the Summary Compensation Table, and by all directors and
executive officers as a group:
APPROXIMATE
NUMBER OF SHARES PERCENTAGE
NAME BENEFICIALLY OWNED OWNED
- ---- ------------------ -----
Scott G. McNealy(1) ............................ 4,645,518 2.53%
Lawrence W. Hambly(2) .......................... 134,293 *
William J. Raduchel ............................ 4,296 *
Joseph P. Roebuck(3) ........................... 236,991 *
Edward J. Zander(4) ............................ 146,784 *
L. John Doerr(5) ............................... 181,156 *
Judith L. Estrin(6) ............................ 10,000 *
Robert J. Fisher(7) ............................ 13,600 *
Robert L. Long(8) .............................. 32,000 *
M. Kenneth Oshman(9) ........................... 255,000 *
A. Michael Spence(10) .......................... 25,000 *
All current directors and executive officers
as a group (28 persons)(11) .................. 6,701,519 3.63%
- ----------
* Less than 1%.
(1) Includes 1,141,934 shares issuable upon exercise of options held by Mr.
McNealy exercisable at or within 60 days of September 17, 1996.
(2) Includes 57,500 shares issuable upon exercise of options held by Mr. Hambly
exercisable at or within 60 days of September 17, 1996.
(3) Includes 175,884 shares issuable upon exercise of options held by Mr.
Roebuck exercisable at or within 60 days of September 17, 1996.
(4) Includes 108,600 shares issuable upon exercise of options held by Mr.
Zander exercisable at or within 60 days of September 17, 1996.
(5) Includes 35,000 shares issuable upon exercise of options held by Mr. Doerr
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 17, 1996.
(6) Includes 10,000 shares issuable upon exercise of options held by Ms. Estrin
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 17, 1996.
(7) Includes 10,000 shares issuable upon exercise of options held by Mr. Fisher
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 17, 1996.
(8) Includes 18,169 shares issuable upon exercise of options held by Mr. Long
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 17, 1996.
(9) Includes 35,000 shares issuable upon exercise of options held by Mr. Oshman
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 17, 1996. Includes 160,000 shares held by
OS Ventures. Mr. Oshman is the managing general partner of OS Ventures and
has shared power to vote or control the disposition of such shares.
Excludes 12,000 shares held by Mr. Oshman as trustee of a trust in which he
claims no beneficial ownership.
(10) Includes 25,000 shares issuable upon exercise of options held by Mr. Spence
granted pursuant to the 1988 Directors' Stock Option Plan and exercisable
at or within 60 days of September 17, 1996.
(11) Includes 2,286,527 shares issuable upon exercise of options held by
directors and executive officers exercisable at or within 60 days of
September 17, 1996. Excludes certain shares as described in footnote (9)
above.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
The following table shows, as to the Chief Executive Officer and as to each
of the other four most highly compensated executive officers whose salary plus
bonus exceeded $100,000 during the last fiscal year, information concerning all
compensation paid for services to the Company in all capacities during the last
three fiscal years:
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------- --------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RESTRICTED
ANNUAL STOCK SECURITIES LTIP ALL OTHER
NAME AND COMPEN- AWARD(S) UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) SATION ($) ($)(2)(3) OPTIONS (#) ($)(4) ($)(5)
------------------ ---- ---------- ------------ ---------- --------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scott G. McNealy ........... 1996 $600,000 $1,698,240(6) $ -- $ -- 150,000(7) $ -- $6,000
Chairman of the Board, 1995 600,000 2,400,000 -- -- 300,000 -- 2,000
President and Chief 1994 400,000 815,280 -- -- 225,000 124,835 1,200
Executive Officer, Sun
Microsystems, Inc.
Lawrence W. Hambly ......... 1996 350,000 272,426 -- -- 50,000(7) -- 5,040
President, SunService 1995 352,618 350,000 -- -- 100,000 -- 2,000
Division, a division of 1994 309,774 163,056 -- -- 147,500 34,673 1,200
Sun Microsystems, Inc.
William J. Raduchel ........ 1996 350,000 272,426 -- -- 55,000(7) -- 4,827
Vice President, Corporate 1995 349,769 350,000 -- -- 120,000 -- 2,000
Planning and Development 1994 334,885 170,699 -- -- 137,500 23,115 1,200
and Chief Information
Officer, Sun
Microsystems, Inc.
Joseph P. Roebuck .......... 1996 352,000 260,042 -- -- 65,000 -- 3,078
Vice President, Worldwide 1995 351,738 429,910 -- -- 24,000 -- 2,000
Field Operations, 1994 335,000 170,699 -- -- 82,000 21,966 1,200
Sun Microsystems
Computer Company,
a division of Sun
Microsystems, Inc.
Edward J. Zander ........... 1996 450,000 350,262 -- -- 100,000(7) -- 3,442
President, Sun Microsystems 1995 450,000 450,000 -- -- 120,000 -- 2,000
Computer Company, 1994 393,596 202,158 -- 257,493 318,000 57,788 1,200
a division of Sun
Microsystems, Inc.
- ----------
(1) Amounts stated include bonus amounts earned in fiscal 1996 by the executive
officers and paid in fiscal 1997. See also footnote (6) below.
(2) The value of a restricted stock award is determined by (i) multiplying the
number of shares subject to such award by the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the date of grant
of such award and (ii) subtracting any consideration paid.
(3) As of June 30, 1996, 550,855 shares of the Company's restricted Common Stock
were outstanding, having an aggregate value of $32,531,588. In addition, as
of June 30, 1996, Mr. Zander held 40,000 shares of restricted Common Stock
having an aggregate value of $2,354,973, which shares are subject to the
Company's Repurchase Option, which expired as to 10,000 of such shares on
August 16, 1996 and expires as to 20,000 of such shares on September 24,
1997 and as to the remaining 10,000 shares on February 16, 1999. For
purposes hereof, the aggregate value of shares of restricted Common Stock
held by an executive officer is calculated based on the closing price of the
Company's Common Stock as reported on June 30, 1996 on the Nasdaq National
Market, less any consideration paid. Additionally, for purposes hereof, the
Company's "Repurchase Option," referenced above, refers to the option of the
Company to repurchase such shares of the restricted Common Stock at the
original purchase price paid by the executive officer upon termination of
such officer's employment prior to the applicable vesting dates. All of the
above executive officers will receive the same dividends on all shares of
restricted Common Stock as received by all other stockholders of the
Company; however, the Company has never paid and does not currently
anticipate paying any cash dividends in the foreseeable future.
7
<PAGE>
(4) Amounts stated reflect the earned payment of certain "EPS Growth Awards"
granted in November 1991 by the Company to certain key employees, including
executive officers. These EPS Growth Awards are payable in cash only and are
valued based on the Company achieving certain financial results over the
course of two performance periods (the two and one-half year period that
began on the date of grant and ended June 30, 1994 and the three year period
thereafter ending June 30, 1997). The EPS Growth Awards vested 50% on June
30, 1994 and vest the remaining 50% on June 30, 1997, subject to the
recipient's continued employment with the Company.
(5) Amounts stated reflect contributions made by the Company to such executive
officer's account under the Company's 401(k) Plan.
(6) Mr. McNealy elected to defer the payment of his bonus amount earned during
fiscal 1996 until January 1999 pursuant to the Company's Non-Qualified
Deferred Compensation Plan.
(7) Options were awarded on July 17, 1996.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended June 30, 1996 to the executive
officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
(A) (B) (C) (D) (E)
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
NAME GRANTED (#)(2) FISCAL YEAR PRICE($/SH)(3)(4) DATE 5% ($) 10% ($)
- ---- -------------- ----------- ----------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Scott G. McNealy ... 150,000(5) 2.1% $50.00 07/17/06 $ 4,716,710 $11,953,068
Lawrence W. Hambly . 50,000(5) 0.7 50.00 07/17/06 1,572,237 3,984,356
William J. Raduchel 55,000(5) 0.8 50.00 07/17/06 1,729,460 4,382,792
Joseph P. Roebuck .. 40,000 0.6 39.00 11/01/05 981,076 2,486,238
25,000 0.4 46.75 04/10/06 735,021 1,862,687
Edward J. Zander ... 100,000(5) 1.4 50.00 07/17/06 3,144,473 7,968,712
<FN>
- ----------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not represent an estimate by the
Company of future stock price growth.
(2) All stock options granted have ten year terms and become exercisable with
respect to 20% of the shares covered thereby beginning one year after the
date of grant and 20% on each anniversary date thereafter, with full vesting
occurring on the fifth anniversary of the date of grant. See also
"--Employment Contracts and Change-In-Control Agreements" for provisions
regarding acceleration of the vesting for certain officers in certain
circumstances.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by reference to the closing price
reported on the Nasdaq National Market on the last trading day prior to the
date of grant.
(4) The exercise price and tax withholding obligations may be paid in cash and,
subject to certain conditions or restrictions, by delivery of already owned
shares, pursuant to a subscription agreement or pursuant to a cashless
exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
(5) Options were granted on July 17, 1996.
</FN>
</TABLE>
8
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, certain information regarding the exercise
of stock options during the fiscal year ended June 30, 1996 and the value of
options held at fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
NAME ON EXERCISE(#) VALUE REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Scott G. McNealy ... 100,000 $4,903,125 937,934/693,866 $46,424,789/$31,803,077
Lawrence W. Hambly . 73,802 1,773,375 17,500/207,518 859,688/ 9,277,909
William J. Raduchel 36,822 1,308,150 17,500/220,512 859,688/ 9,804,002
Joseph P. Roebuck .. 25,000 1,365,625 116,684/216,112 5,626,699/ 8,261,064
Edward J. Zander ... 133,156 4,577,943 55,000/347,830 2,585,938/ 15,540,710
<FN>
- ----------
(1) Market value of underlying securities at exercise date or fiscal year end,
as the case may be, minus the exercise price.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company currently has no employment contracts with any of the Company's
executive officers named in the Summary Compensation Table above. The Company
did, however, adopt an executive management group change-in-control plan in
October 1990 and, accordingly, has entered into change-in-control agreements
with each of the named executive officers. Pursuant to these agreements, each
such officer is eligible to receive, in the event that his or her employment is
terminated within one year following a change-in-control of the Company, other
than for just cause (as defined), death, disability (as defined), retirement or
resignation other than for good reason (as defined), an amount equal to two and
one-half times his or her annual compensation (or, in the case of Mr. McNealy,
an amount equal to three times his annual compensation), continuation of health
benefits and group term life insurance for twenty-four months thereafter and
accelerated vesting of all options held. For purposes hereof, "annual
compensation" means wages, salary and incentive compensation for the calendar
year coinciding with or immediately preceding the year in which the
above-described severance payment becomes payable. In addition, pursuant to the
terms of these agreements, a change-in-control includes (i) a merger or
acquisition of the Company resulting in a 50% or greater change in the total
voting power of the Company immediately following such transaction, or (ii)
certain changes in the majority composition of the Board of Directors during a
thirty-six month period, not initiated by the Board.
CERTAIN TRANSACTIONS WITH MANAGEMENT
In June and July 1992, Mr. Alvares received two interest-free loans from the
Company in the amounts of $300,000 and $375,000, with principal payable in full
in June 1997 and July 1997, respectively. In December 1994, Mr. Alvares repaid
to the Company $150,000 of the principal amount due under the June 1992 loan. At
fiscal year end, $150,000 of the June 1992 loan and the entire principal amount
of the July 1992 loan were still outstanding. The largest aggregate amount
outstanding under these loans during the last fiscal year ended June 30, 1995
was $525,000. The foregoing loans were made to Mr. Alvares in order to finance
the purchase of his residence.
In December 1992, Chester Silvestri, who became an executive officer of the
Company in fiscal 1994, received an interest free loan from the Company in the
amount of $120,000, with principal payable in full in July 1995. The largest
amount outstanding under this loan during the last fiscal year was $120,000.
This loan was made to Mr. Silvestri to finance the purchase of his residence.
The total principal amount of this loan was repaid in full in August 1995.
As part of the executive change-in-control plan for corporate executive
officers adopted in October 1990, the Company entered into individual
change-in-control agreements with each of its corporate executive officers, in
9
<PAGE>
addition to the executive officers named in the Summary Compensation Table,
containing substantially the same terms as the change-in-control agreements
described under the heading "Employment Contracts and Change-In- Control
Arrangements."
The Company also adopted the Executive Change of Control Severance Plan
("Severance Plan") in June 1990. The Severance Plan covers, among others, all
executive officers who have not otherwise entered into an agreement with the
Company, as described above, and provides that in the event that any such
officer is terminated within one year after the date of any change-in-control,
other than for just cause (as defined), death, voluntary retirement at or after
age 65, total or permanent disability or voluntary resignation, such officer is
entitled to two times his or her annual compensation and the continuation of
health benefits and group term life insurance for twenty-four months.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers (as defined in Rule 16a-1(f)), directors, and persons who own more than
ten percent of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on its
review of the copies of such forms received by it and written representations
from certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that all filing requirements applicable to
its officers, directors and 10% stockholders were complied with during the
fiscal year ended June 30, 1996, except that Janpieter Scheerder, an officer of
the Company, filed one Form 4 related to one transaction after the applicable
deadline.
REPORT OF COMPENSATION COMMITTEE
OF THE BOARD ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of the Company,
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to compensation paid to such executive officers
for the fiscal year ended June 30, 1996. The information contained in the report
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission nor shall such information be incorporated by
reference into any future filing under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, except to the extent that
the Company specifically incorporates it by reference into such filing.
COMPENSATION PHILOSOPHY
The Company's philosophy in setting its compensation policies for executive
officers is to maximize stockholder value over time. The Compensation Committee
sets the Company's compensation policies applicable to the executive officers,
including the Chief Executive Officer, and evaluates the performance of such
officers. The Compensation Committee strongly believes that executive
compensation should be directly linked to continuous improvements in corporate
performance and increases in stockholder value. In this regard, the Compensation
Committee has adopted the following guidelines for compensation decisions:
o Provide a competitive total compensation package that enables the Company
to attract and retain key executive talent.
o Align all pay programs with the Company's annual and long-term business
strategies and objectives.
o Provide variable compensation opportunities that are directly linked to
the performance of the Company and that link executive reward to
stockholder return.
COMPONENTS OF EXECUTIVE COMPENSATION
The Compensation Committee focuses primarily on the following three
components in forming the total compensation package for its executive
officers:
o Base Salary
o Annual Incentive Bonus
o Long-Term Incentives
10
<PAGE>
BASE SALARY
The Committee intends to compensate its executive officers, including the
Chief Executive Officer, competitively within the industry. In order to evaluate
the Company's competitive posture in the industry, the Compensation Committee
reviews and analyzes the compensation packages, including base salary levels,
offered by other high technology companies, specifically reviewing companies
comprising the S&P Computer Systems Index as shown in the Performance Graph
below. In addition, the Committee, together with the Board of Directors, will
also subjectively evaluate the level of performance of each executive officer,
including Mr. McNealy, in order to determine current and future appropriate base
pay levels. For the Chief Executive Officer, the Company has targeted the
lower-end of the base salary range determined by its aforementioned competitive
analysis, giving more significant emphasis to annual bonus and longer-term
incentives for Mr. McNealy's total compensation package. In this regard, over
the last three fiscal years, the Committee has tied a substantial portion of Mr.
McNealy's compensation to his annual bonus. This focus has allowed the Committee
to directly compensate Mr. McNealy for corporate performance, while ultimately
paying Mr. McNealy competitively by industry standards. See "--Annual Incentive
Bonus" below. With respect to the other corporate executive officers of the
Company, the Committee has targeted the higher end of the industry competitive
base salary range, linking a lesser (yet still significant) portion of these
executives' total compensation to annual bonus. See "Annual Incentive Bonus"
below. The Committee also emphasizes longer- term compensation incentives for
these executives as it believes that these longer-term incentives help motivate
the executives to better achieve the Company's corporate performance goals,
thereby more directly contributing to stockholder value.
ANNUAL INCENTIVE BONUS
During fiscal 1996, the executive officers of the Company were eligible for a
target annual incentive bonus, calculated by the Committee as a percentage of
the officers' base salary. All corporate executive officers, other than Mr.
McNealy, were eligible for a target bonus of 55% of their base salary. The
target bonus of 55% is an increase of 5% over the fiscal 1995 target bonus. This
increase is in line with the Committee's goal of closely aligning executive
compensation with corporate performance. As noted above, the Committee has
determined that it is in the stockholders' best interest to tie a significant
portion of Mr. McNealy's total compensation to the Company's performance.
Accordingly, during fiscal 1996, Mr. McNealy was eligible for a target bonus of
200% of his base salary. During the last fiscal year, bonuses awarded to the
executive officers, including Mr. McNealy, were calculated based on the
achievement by the Company of certain earnings per share ("EPS") and revenue
goals. In addition, at the beginning of the fiscal year, the Committee set
certain corporate performance goals based on business, operations and management
objectives and, additionally, certain customer quality and satisfaction goals.
The successful completion of these goals was measured objectively in accordance
with a scoring system assigned to each goal by the Committee. The EPS and
revenue targets, as well as the corporate performance goals and the customer
quality and satisfaction goals are all based on confidential information and are
competitively sensitive to the Company as they are derived from the Company's
internal projections and business plan. At year end, the Committee calculated a
bonus multiplier (the "Year-End Multiplier") based on a comparison of the
Company's actual performance with respect to these corporate, quality, EPS and
revenue measures against the relevant targets for fiscal 1996. This multiplier
can range from zero to a maximum multiplier of 2. At June 30, 1996, the
Committee calculated a Year-End Multiplier applicable to executive officers
(including the Chief Executive Officer) of 1.4152. Therefore, Mr. McNealy's
annual bonus of $1,698,240 reflects his targeted bonus amount multiplied by the
Year-End Multiplier. Elements of the Company's financial performance during
fiscal 1996 that directly affected Mr. McNealy's bonus calculation included
revenue growth of over 20% compared with fiscal year 1995 and EPS growth of
approximately 34% over fiscal 1995.
LONG-TERM INCENTIVES
OPTIONS AND RESTRICTED STOCK. The Committee provides the Company's executive
officers with long-term incentive compensation through grants of stock options
and, in rare cases, restricted stock. The Committee is responsible for
determining the individuals to whom grants should be made, the timing of grants,
the exercise price per share and the number of shares subject to each option or
restricted stock award. Other than stock options and restricted stock, as
discussed below, the Committee made no other long-term performance awards during
the last fiscal year. Long-term incentive awards are granted based on individual
or corporate performance as determined subjectively by the Committee. The
Committee considers grants of options to executive officers during each fiscal
year.
11
<PAGE>
The Committee believes that stock options provide the Company's executive
officers with the opportunity to purchase and maintain an equity interest in the
Company and to share in the appreciation of the value of the stock. The
Committee believes that stock options directly motivate an executive to maximize
long-term stockholder value. The options also utilize vesting periods in order
to encourage key employees to continue in the employ of the Company. All options
to executive officers to date have been granted at the fair market value of the
Company's Common Stock on the date of the grant. The Committee considers the
grant of each option subjectively, considering factors such as the individual
performance of executive officers and competitive compensation packages in the
industry. Mr. McNealy's option grants are also determined subjectively by the
Committee. Options granted to certain officers listed on the Summary
Compensation Table, including Mr. McNealy, were considered by the Committee
during fiscal 1996 but actually granted on July 17, 1996.
The Committee also makes restricted stock awards which can be similarly
beneficial to executives as the value of the award increases with an increasing
stock price. The use of restricted stock has been primarily limited within the
last several fiscal years to specific cases in which a newly hired senior
executive receives a grant in order to replace vested benefits and/or an equity
position at a prior employer, to award an executive officer for extraordinary
performance or to aid in retention. For information regarding the valuation and
vesting of these restricted stock awards, see "Summary Compensation Table."
DEFERRED COMPENSATION PLAN. In June 1995, the Committee approved another
component of the Company's executive compensation program, the Non-Qualified
Deferred Compensation Plan (the "Deferred Plan"). The Deferred Plan is a
voluntary, non-tax qualified, deferred compensation plan available to Board
members, executive officers and vice presidents of the Company and enables such
individuals to save for retirement. Under the Deferred Plan, participants are
entitled to defer compensation until retirement, death, other termination of
employment or other specified dates. Dollars deferred by participants are
credited quarterly with interest equal to the current U.S. Treasury Bill rate
plus one percent. The purpose of this Deferred Plan is to encourage participants
to remain in the employ of the Company as benefits of the Deferred Plan increase
over time.
DISCUSSION OF COMPENSATION IN EXCESS OF $1 MILLION PER YEAR
The Committee has considered the implications of Section 162(m) of the
Internal Revenue Code of 1986, as amended, enacted under the Revenue
Reconciliation Act of 1993. This Section precludes a public corporation from
taking a tax deduction for individual compensation in excess of $1 million for
its Chief Executive Officer or any of its four other highest-paid officers. The
Section also provides for certain exemptions to this limitation, specifically
compensation that is performance based within the meaning of Section 162(m).
In order to qualify compensation derived by executive officers from stock
options as performance-based compensation, as contemplated by the Internal
Revenue Service, certain amendments to the 1990 Long-Term Equity Incentive Plan
were submitted to and approved by the requisite stockholders at the Company's
1994 Annual Meeting of Stockholders.
Additionally, with respect to other forms of compensation granted by this
Committee to such executive officers, the Committee approved the Section 162(m)
Performance-Based Executive Bonus Plan and submitted this plan to stockholders
for the purpose of qualifying bonus payments to executives under Section 162(m),
thereby preserving the deductibility of such payments. Stockholder approval of
this plan was obtained at the Company's 1995 Annual Meeting of Stockholders. The
Committee, however, reserves the right to award compensation to its executives
in the future that may not qualify under Section 162(m) as deductible
compensation. The Committee will, however, continue to consider all elements of
the cost to the Company of providing such compensation, including the potential
impact of Section 162(m).
SUMMARY
The Compensation Committee believes that its executive compensation
philosophy of paying its executive officers well by means of competitive base
salaries and annual bonus and long-term incentives, as described in this report,
serves the interests of the Company and the Company's stockholders.
L. JOHN DOERR
ROBERT J. FISHER
M. KENNETH OSHMAN
12
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in the
cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of the S&P 500 Index and the S&P Computer Systems Index for
the period commencing July 1, 1991 and ending on June 30, 1996. The information
contained in the performance graph shall not be deemed "soliciting material" or
to be "filed" with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SUN MICROSYSTEMS, INC., THE S & P 500 INDEX
AND THE S & P COMPUTER SYSTEMS INDEX
6/91 6/92 6/93 6/94 6/95 6/96
---------------------------------------------------
Sun Microsystems, Inc. 100 94 106 74 174 422
S & P 500 100 113 129 131 165 208
S & P Computer Systems 100 100 68 73 120 135
* $100 invested on 06/30/91 in the Company's Stock or applicable index assuming
reinvestment of dividends. Fiscal year endings shown above on June 30.
13
<PAGE>
PROPOSAL II
PROPOSED AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION--
APPROVAL OF INCREASE IN AUTHORIZED
SHARES OF COMMON STOCK
The Company's Restated Certificate of Incorporation, as currently in effect
(the "Certificate"), provides that the Company's authorized capital stock shall
consist of 300,000,000 shares of Common Stock (the "Common Stock"), $0.00067 par
value, and 10,000,000 shares of Preferred Stock, (the "Preferred Stock"), $0.001
par value. On August 7, 1996, the Company's Board of Directors approved an
amendment of the Certificate (the "Amendment") in order to increase the number
of shares of Common Stock authorized for issuance under the Certificate by
640,000,000 shares to a total of 940,000,000 shares. The text of the Amendment
is set forth as Exhibit A to this Proxy Statement. On August 8, 1996, the Board
of Directors declared a two-for-one stock split (to be effected in the form of a
stock dividend), subject to obtaining stockholder approval of the Amendment. In
the event stockholder approval of the Amendment is obtained, the Company will
then effect the two-for-one stock split (in the form of a stock dividend), to be
paid on December 10, 1996 to holders of record on November 18, 1996 (the "Stock
Split").
GENERAL
In connection with the Stock Split, each holder of shares of the Company's
Common Stock would receive one additional share for each share held. In
addition, the number of shares of Common Stock reserved for issuance or subject
to outstanding options granted under the Company's employee stock plans (the
"Employee Stock Plans") would increase by 100% (and the exercise prices of
outstanding options would correspondingly decrease). The proposed Stock Split
was approved by the Company's Board of Directors with the intention of
benefitting stockholders by obtaining wider market distribution for the
Company's Common Stock, as well as improving the marketability of the Common
Stock. The Company also recognizes benefits from stock splits relating to the
hiring and retention of employees. The proposed increase in the Company's
authorized shares of Common Stock would be necessary to effect the Stock Split.
As of the Record Date 182,274,388 shares of the Company's Common Stock were
outstanding, 24,278,416 shares were subject to outstanding options or restricted
stock purchase rights granted under the Company's Employee Stock Plans and
29,945,768 shares were reserved and available for issuance under the Employee
Stock Plans. In addition, as of the Record Date, 2,588,360 shares were reserved
subject to the exercise of outstanding warrants issued by the Company and
10,000,000 shares of Common Stock were set aside for issuance with respect to
the possible conversion of the Company's authorized but unissued shares of
Preferred Stock. As a result, prior to effecting the Stock Split, the Company
requires a minimum of 249,086,932 shares of the Common Stock authorized for
issuance under its Certificate (the "Share Requirement"). Prior to the
effectiveness of the Amendment, the Company has only 300,000,000 authorized
shares of Common Stock, leaving only 50,913,068 shares outside the Company's
current requirements. The Board of Directors has determined that even prior to
the Stock Split, the number of authorized but unissued shares available was too
low to give the Company adequate flexibility to act quickly in transactions in
which Common Stock may be issued. In the event stockholder approval of this
proposal is obtained, following the effectiveness of the Amendment and the Stock
Split, the Share Requirement would increase to 498,173,864 and, accordingly, the
Company would have a total of 441,826,136 authorized and unissued shares
remaining available pursuant to its Certificate. While the Company has no
specific, present intentions for the use of such shares, the Company believes
that maintaining such a reserve could save the Company time and money in
responding to future events requiring the issuance of additional shares of
Common Stock such as raising additional capital through the sale of securities
in the public market or the acquisition of another company or business.
Moreover, such shares may be used in connection with future stock splits,
effected by means of issuance of a stock dividend, if the Board concludes that
it is in the best interest of the Company's stockholders to implement such
splits. The additional shares of Common Stock authorized but not required to
effect the Stock Split would be available for issuance from time to time by the
Board of Directors without further stockholder action. These additional
authorized shares of Common Stock will restore the Company's flexibility to
issue Common Stock to a level the Board of Directors believes advisable.
The additional shares of Common Stock for which authorization is sought would
be identical to the shares of Common Stock now authorized. Adoption of the
proposed Amendment and the issuance of Common Stock would
14
<PAGE>
not affect the rights of holders of currently outstanding Common Stock of the
Company, except for effects incidental to increasing the number of shares of the
Company's Common Stock outstanding. Holders of Common Stock do not have
preemptive rights to subscribe to additional securities which may be issued by
the Company, which means that current stockholders do not have a prior right to
purchase any new issue of capital stock of the Company in order to maintain
their proportionate ownership thereof. If the Amendment is adopted, it will
become effective upon the filing of the Amendment with the Delaware Secretary of
State.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE PROPOSED AMENDMENT
In addition to the foregoing corporate purposes, under certain circumstances
the Board of Directors could create impediments to, or delay persons seeking to
effect, a takeover or transfer of control of the Company by causing such
additional authorized shares to be issued to a holder or holders who might side
with the Board in opposing a takeover bid that the Board of Directors determines
is not in the best interests of the Company and its stockholders. Such an
issuance could diminish the voting power of existing stockholders who favor a
change in control and the ability to issue the shares could discourage an
attempt to acquire control of the Company. While it may be deemed to have
potential anti-takeover effects, the proposed Amendment is not prompted by any
specific effort or takeover threat currently perceived by management. Moreover,
management does not currently intend to propose additional anti-takeover
measures in the foreseeable future.
In April, 1989, the Board of Directors adopted the Common Shares Rights
Agreement (the "Rights Agreement") and issued under the Rights Agreement, as a
dividend to the holders of Common Stock, rights to purchase Common Stock. The
Rights Agreement is designed to protect stockholders against the adverse
consequences of partial takeovers and other abusive takeover tactics which the
Board of Directors believes are not in the best interests of the Company's
stockholders by providing for certain rights to acquire the Common Stock of the
Company or of an acquiring entity upon the occurrence of certain events. These
rights, should they become exercisable, could possibly deter a potential
takeover of the Company. A copy of the Rights Agreement was filed with the
Securities and Exchange Commission on May 22, 1989, as an exhibit to the
Company's Registration Statement on Form 8-A and was thereafter amended and
restated in December 1990 and filed as an exhibit to the Company's Form 8
amendment to such Form 8-A, and amended thereafter in October 1991, August 1992,
November 1994 and November 1995. In the event the rights become exercisable for
Common Stock of the Company, the Company might have to issue a substantial
number of new shares of Common Stock. Although under the Rights Agreement the
Company is not now obligated (but must use best efforts) to reserve shares of
Common Stock for issuance thereunder, a failure to have sufficient shares
available could result in a delay or failure of implementation of the Rights
Agreement. An increase in the authorized number of shares of Common Stock could
therefore make a change in control of the Company more difficult by facilitating
the operation of the Rights Plan.
Other potential anti-takeover measures are available to management and the
Board of Directors under the Company's Certificate, Bylaws and pursuant to
existing agreements. The Board of Directors of the Company is authorized,
without further stockholder action, to authorize and issue any of the 10,000,000
undesignated shares of Preferred Stock in one or more series and to fix the
voting rights, liquidation preferences, dividend rights, repurchase rights,
conversion rights, redemption rights and terms, including sinking fund
provisions and certain other rights and preferences, of such shares of the
Preferred Stock. The voting and conversion rights of any class or series of
Preferred Stock issued by the Company could adversely affect the voting power of
the holders of Common Stock and may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any of the Preferred Stock.
In addition, other potential anti-takeover measures are available to
management and the Board of Directors under the laws of Delaware, where the
Company is incorporated. Under Delaware statutes, a change in control may be
delayed unless holders of a substantial percentage of the outstanding voting
securities approve the change of control transaction. Although the Delaware
statutes may protect stockholders against partial takeovers and abusive takeover
tactics, the effects of the statutes may negatively impact stockholders desiring
a change of control in the ways set forth above.
15
<PAGE>
REQUIRED VOTE
Affirmative votes constituting a majority of the shares of outstanding Common
Stock on the Record Date and entitled to vote will be required to approve this
Amendment to the Company's Certificate. An abstention and a broker non-vote, if
any, are not affirmative votes and, therefore, will have the same effect as
votes against this proposal.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION.
NOTICE OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young, LLP, independent auditors,
to audit the consolidated financial statements for the fiscal year ending June
30, 1997. Ernst & Young, LLP has served as the Company's independent auditors
since 1982. Notwithstanding the selection, the Board, in its discretion, may
direct appointment of new independent auditors at any time during the year, if
the Board feels that such a change would be in the best interests of the Company
and its stockholders. Representatives of Ernst & Young, LLP are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual Meeting.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: October 2, 1996
16
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EXHIBIT A
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
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 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 182,274,388. 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 Secretary, this
day of November, 1996.
SUN MICROSYSTEMS, INC.
[Corporate Seal] ----------------------------------------------
Michael E. Lehman
ATTEST:
----------------------------------------------
Michael H. Morris
17
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APPENDIX A
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SUN MICROSYSTEMS, INC.
1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Sun Microsystems, Inc., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated October 2, 1996, and
hereby appoints Scott G. McNealy and Michael H. Morris or either of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1996 Annual Meeting of Stockholders of Sun Microsystems, Inc. to be held on
Wednesday, November 13, 1996 at 10:00 a.m., local time, at the Company's Menlo
Park offices at 11 Network Circle (Bldg. 11, Rm. 2150), Willow Road at Bayfront
Expressway, Menlo Park, California, and at any adjournment(s) or postpone
ment(s) thereof,and to vote all shares of Common Stock which the undersigned
would be entitled to vote if then and there personally present, on the matters
set forth on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS IN DICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. ELECTION OF DIRECTORS:
Nominees: Scott G. McNealy; L. John Doerr; Judith L. Estrin; Robert J. Fisher;
Robert L. Long; M. Kenneth Oshman; A. Michael Spence.
FOR [ ] WITHHELD [ ]
[ ] ____________________________
For all nominees except as noted above
2. AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION:
Proposal to approve the amendment to the Company's Restated Certificate of
Incorporation in order to increase the number of shares of Common Stock, $.00067
par value, authorized for is suance thereunder from 300,000,000 shares to
940,000,000 shares in order to effect a two-for-one stock split of the Company's
Common Stock (in the form of a stock dividend) and to increase the amount of the
Company's authorized but unissued stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
and, in their discretion, upon such other matter or matters which may properly
come before the Annual Meeting and any adjournment(s) thereof.
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
Signature: _________________________ Date __________________________
Signature: _________________________ Date __________________________
