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:
[X]Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SUN MICROSYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
REGISTRANT
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of 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 transaction applies:
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(2) Aggregate number of securities to which transaction 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:
---------------------------------------------------------------
[ ] 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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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 9:00 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 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 9:00 a.m., for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To 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.
<PAGE>
SUN MICROSYSTEMS, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of Sun Microsystems, Inc.
("Company") for use at the 1996 Annual Meeting of Stockholders ("Annual
Meeting") to be held Wednesday, November 13, 1996, at 9:00 a.m., local time, and
at any adjournment(s) or postponement(s ) thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Company's 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, _______ 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 _______ 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
Twentieth Century Tower
4500 Main Street
Kansas City, MO 64111
Janus Capital Corp. (2) ..................... 11,276,000
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 Corpora tion
("IRC") and Benham Management Corporation ("BMC"), each a registered
investment
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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.
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.
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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.
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.
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Nominees
The names of the nominees, their ages at the Record Date and certain
other information about them are set forth below.
Name of Nominee Age Principal Occupation Director Since
- --------------- --- -------------------- --------------
Scott G. McNealy 41 Chairman of the Board of Directors, 1982
President and Chief Executive Officer,
Sun Microsystems, Inc.
L. John Doerr 45 General Partner, Kleiner Perkins Caufield 1982
& Byers, a venture capital investment firm
Judith L. Estrin 41 President, Chief Executive Officer and 1995
Director, Precept Software, Inc., a
networking software company
Robert J. Fisher 42 Executive Vice President, Chief Operating 1995
Officer 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, 1988
President and Chief Executive Officer,
Echelon Corporation, a provider of
control network technologies
A. Michael Spence 52 Dean, Graduate School of Business, 1990
Stanford University
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
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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. 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.
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 1996, 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
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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.
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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.
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"), L. John Doerr, a director of the
Company and a member of the Compensation Committee as a limited partner, 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 is one of the general partners 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.
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:
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Approximate
Number of Shares Percentage
Name Beneficially Owned Owned
- ---- ------------------ -----------
Scott G. McNealy (1)
Lawrence W. Hambly (2)
William J. Raduchel (3)
Joseph P. Roebuck (4)
Edward J. Zander (5)
L. John Doerr (6)
Judith L. Estrin (7)
Robert J. Fisher (8)
Robert L. Long (9)
M. Kenneth Oshman (10)
A. Michael Spence (11)
All current directors and executive officers as a
group (28 persons) (12)
- ----------
* Less than 1%
(1) Includes _____ shares issuable upon exercise of options held by Mr.
McNealy exercisable at or within 60 days of September 17, 1996.
(2) Includes _____ shares issuable upon exercise of options held by Mr.
Hambly exercisable at or within 60 days of September 17, 1996.
(3) Includes _____ shares issuable upon exercise of options held by Mr.
Raduchel exercisable at or within 60 days of September 17, 1996.
(4) Includes _____ shares issuable upon exercise of options held by Mr.
Roebuck exercisable at or within 60 days of September 17, 1996.
(5) Includes _____ shares issuable upon exercise of options held by Mr.
Zander exercisable at or within 60 days of September 17, 1996.
(6) Includes _____ 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.
(7) Includes _____ 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.
(8) Includes _____ 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.
(9) Includes _____ 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.
(10) Includes _____ 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,
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1996. Includes _____ 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 _____ shares held by
Mr. Oshman as trustee of a trust in which he claims no beneficial
ownership.
(11) Includes _____ 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.
(12) Includes _____ 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
(10) above.
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<TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows, as to the Chief Executive Officer and as to
each of the other four most highly compensated executive officers whose salary
plus bonus exceeded $100,000 during the last fiscal year, information concerning
all compensation paid for services to the Company in all capacities during the
last three fiscal years:
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted
Annual Stock Securities LTIP All Other
Name and Compensa- Award(s) Underlying Payouts Compensation
Principal Position Year Salary($) Bonus($)(1) tion($) ($)(2)(3) Options(#) ($)(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
Vice President, Corporate 1996 350,000 272,426 -- -- 55,000(7) -- 4,827
Planning and Development 1995 349,769 350,000 -- -- 120,000 -- 2,000
and Chief Information 1994 334,885 170,699 -- -- 137,500 23,115 1,200
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, Sun 1994 335,000 170,699 -- -- 82,000 21,966 1,200
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.
<FN>
- -----------------
(1) Amounts stated include bonus amounts earned in fiscal 1996 by the executive
officers and paid in fiscal 1997. See also footnote (7) 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
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grant of such award and (ii) subtracting any consideration paid.
(3) As of June 30, 1996, 550,855 shares of 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 expires as to 10,000 of such shares on
August 16, 1996, 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.
(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 his bonus amount earned during fiscal 1997
until January 1999 pursuant to the Company's Non-Qualified Deferred
Compensation Plan.
(7) Options were awarded on July 17, 1996.
</FN>
</TABLE>
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<TABLE>
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended June 30, 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 Exercise for Option Term(1)
Options Employees in Price Expiration ---------------------------
Name Granted(#)(2) Fiscal Year ($/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>
13
<PAGE>
<TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
The following table sets forth, for each of the executive officers named
in the Summary Compensation Table above, certain information regarding the
exercise of stock options during the fiscal year ended June 30, 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 Value Realized Fiscal Year-End(#) Fiscal Year-End($)(1)
Name on Exercise(#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <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 has, however, entered into change-in-control agreements with each of the
named executive officers. Pursuant to these agreements, each such officer is
eligible to receive, in the event that his or her employment is terminated
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
14
<PAGE>
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
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
15
<PAGE>
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
16
<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
targets the lower-end of the base salary range determined by its aforementioned
competitive analysis, giving more significant emphasis to annual bonus and
longer-term incentives for Mr. McNealy's total compensation package. In this
regard, over the last 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 targets the higher
end of the industry competitive base salary range, linking a lesser (yet still
significant) portion of these executives' total compensation to annual bonus.
See "Annual Incentive Bonus" below. The Committee also emphasizes longer-term
compensation incentives for these executives as it believes that these
longer-term incentives help motivate the executives to better achieve the
Company's corporate performance goals, thereby more directly contributing to
stockholder value.
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
17
<PAGE>
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.
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 officers listed on
the Summary Compensation Table, including Mr. McNealy but excluding Mr. Roebuck,
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
18
<PAGE>
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).
19
<PAGE>
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
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 304(d)
of Regulation S-T.]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Cumulative Total Return
---------------------------------------------
6/91 6/92 6/93 6/94 6/95 6/96
Sun Microsystems Inc SUNW 100 94 106 74 174 422
S & P 500 I500 100 113 129 131 165 208
S & P COMPUTER SYSTEMS ICPS 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.
20
<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 proposed increase in the Company's authorized shares of Common Stock
would be necessary to effect the Stock Split.
As of the Record Date _______ shares of the Company's Common Stock were
outstanding, _______ shares were subject to outstanding options or restricted
stock purchase rights granted under the Company's Employee Stock Plans and
_______ shares were reserved 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 _______
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
21
<PAGE>
authorized shares of Common Stock, leaving only ______ 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 _______
and, accordingly, the Company would have a total of _______ 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 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.
22
<PAGE>
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.
23
<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 is not an affirmative
vote and, therefore, will have the same effect as a vote against the proposal.
Broker non-votes, if any, are disregarded in the calculation of the number of
votes.
Management recommends that the stockholders vote "FOR" the Amendment of 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
24
<PAGE>
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 ______.
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
25
<PAGE>
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 9:00 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 __________________________
