SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__X__Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended December 29, 1996 or
_____Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _______
Commission file number:0-15086
SUN MICROSYSTEMS, INC.
(Exact Name of registrant as specified in its charter)
Delaware 94-2805249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 Garcia Avenue, Mountain View, CA 94043-1100
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (415) 960-1300
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES___X__ NO______
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES______ NO______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at December 29, 1996
Common stock - $0.00067 par value 368,084,106
<PAGE>
INDEX
PAGE
----
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II - OTHER INFORMATION
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8 - K 14
SIGNATURES 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 29, June 30,
1996 1996
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 438,083 $ 528,854
Short-term investments 312,657 460,743
Accounts receivable, net 1,392,873 1,206,612
Inventories 394,919 460,914
Deferred tax asset 201,134 177,554
Other current assets 229,224 199,059
----------- -----------
Total current assets 2,968,890 3,033,736
Property, plant and equipment, at cost 1,549,677 1,282,384
Accumulated depreciation and amortization (848,739) (748,535)
----------- -----------
700,938 533,849
Other assets, net 196,792 233,324
----------- -----------
$ 3,866,620 $ 3,800,909
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 26,901 $ 49,161
Accounts payable 383,981 325,067
Accrued liabilities 804,805 801,550
Other current liabilities 265,764 313,491
----------- -----------
Total current liabilities 1,481,451 1,489,269
Long-term debt and other obligations 81,002 60,154
Stockholders' equity 2,304,167 2,251,486
----------- -----------
$ 3,866,620 $ 3,800,909
=========== ===========
See accompanying notes.
3
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $2,081,588 $1,751,383 $3,940,607 $3,236,661
Cost and expenses:
Cost of sales 1,033,402 972,665 2,005,503 1,789,498
Research and development 201,010 166,295 387,278 310,380
Selling, general and administrative 591,331 434,452 1,115,997 845,868
---------- ---------- ---------- ----------
Total costs and expenses 1,825,743 1,573,412 3,508,778 2,945,746
Operating income 255,845 177,971 431,829 290,915
Interest income, net 6,421 7,395 11,893 19,004
---------- ---------- ---------- ----------
Income before income taxes 262,266 185,366 443,722 309,919
Provision for income taxes 83,925 59,317 141,991 99,174
---------- ---------- ---------- ----------
Net income $ 178,341 $ 126,049 $ 301,731 $ 210,745
========== ========== ========== ==========
Net income per common and
and common-equivalent
share $ 0.46 $ 0.32 $ 0.77 $ 0.54
========== ========== ========== ==========
Common and common-equivalent
shares used in the calculation
of net income per share 388,738 388,600 389,428 393,598
========== ========== ========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<CAPTION>
Six Months Ended
------------------------------------
December 29, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 301,731 $ 210,745
Adjustments to reconcile net income
to operating cash flows:
Depreciation, amortization and
other non-cash items 198,788 172,120
Increase in accounts receivable (186,261) (30,688)
Decrease (increase) in inventories 65,995 (60,264)
Increase in accounts payable 58,914 40,498
Net increase in other current
and non-current assets (37,045) (35,566)
Net increase (decrease) in other current
and non-current liabilities 12,517 (62,899)
----------- -----------
Net cash provided from operating activities 414,639 233,946
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment (301,582) (137,380)
Acquisition of other assets (22,241) (47,892)
Acquisition of short-term investments (221,081) (1,027,664)
Maturities of short-term investments 371,676 1,538,666
----------- -----------
Net cash (used by) provided from investing activities (173,228) 325,730
----------- -----------
Cash flow from financing activities:
Issuance of common stock 18,101 29,814
Acquisition of treasury stock (329,531) (484,047)
Proceeds from employee stock purchase plans 37,303 27,770
Reduction of short - term borrowings, net (22,260) (36,909)
Reduction of long - term borrowings (35,795) (39,582)
----------- -----------
Net cash used by financing activities (332,182) (502,954)
----------- -----------
Net increase (decrease) in cash and cash equivalents $ (90,771) $ 56,722
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,198 $ 9,669
Income taxes $ 122,888 $ 131,396
<FN>
See accompanying notes
</FN>
</TABLE>
5
<PAGE>
SUN MICROSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sun
Microsystems, Inc. ("Sun" or "the Company") and its wholly - owned
subsidiaries. Intercompany accounts and transactions have been
eliminated. Certain amounts from prior years have been reclassified to
conform to current year presentation.
While the quarterly financial information is unaudited, the financial
statements included in this report reflect all adjustments (consisting
only of normal recurring accruals) that the Company considers necessary
for a fair presentation of the results of operations for the interim
periods covered and of the financial condition of the Company at the
date of the interim balance sheet. The results for the interim periods
are not necessarily indicative of the results for the entire year. The
information included in this report should be read in conjunction with
the 1996 Annual Report to Stockholders which is incorporated by
reference in the Company's 1996 Form 10-K.
INVENTORIES (in thousands)
December 29, 1996 June 30, 1996
----------------------- -----------------
Raw materials $231,730 $267,811
Work in process 31,081 58,337
Finished goods 132,108 134,766
-------- --------
$394,919 $460,914
======== ========
INCOME TAXES
The Company accounts for income taxes under the liability method of Statement of
Financial Accounting Standards No. 109. The provision for income taxes during
the interim periods considers anticipated annual income before taxes, earnings
of foreign subsidiaries permanently invested in foreign operations, and other
differences.
STOCK DIVIDEND
The Company declared two-for-one stock split (effected in the form of a stock
dividend) to stockholders of record as of the close of business on November 18,
1996. Share and per share amounts presented have been adjusted to reflect the
stock dividend.
6
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
<TABLE>
The following table sets forth items from the Condensed Consolidated
Statements of Income as a percentage of net revenues:
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 49.6 55.5 50.9 55.3
------ ------ ------ ------
Gross margin 50.4 44.5 49.1 44.7
Research and development 9.7 9.5 9.8 9.6
Selling, general and administrative 28.4 24.8 28.3 26.0
------ ------ ------ ------
Operating income 12.3 10.2 11.0 9.1
Interest income, net 0.3 0.4 0.3 0.6
------ ------ ------ ------
Income before income taxes 12.6 10.6 11.3 9.7
Provision for income taxes 4.0 3.4 3.6 3.1
------ ------ ------ ------
Net income 8.6% 7.2% 7.7% 6.6%
====== ====== ====== ======
RESULTS OF OPERATIONS
</TABLE>
Net revenues
Net revenues were $2.082 billion for the second quarter and $3.941 billion for
the first six months of fiscal 1997, representing increases of 18.9 % and 21.7%,
respectively, over the comparable periods of fiscal 1996. Approximately eighty
percent of the growth in revenues resulted from increased demand for servers,
high-end desktop systems, and from memory, storage options, and accessories
shipped as part of system sales. The remaining increase reflects growth in
revenues from other Sun businesses, including service, aftermarketing, and
microprocessors, as compared with the corresponding periods of fiscal 1996.
Domestic net revenues increased by 22.6% and 24.1% while international net
revenues (including United States exports) grew 15.4% and 19.5% in the second
quarter and first six months of fiscal 1997, respectively, compared with the
corresponding periods of fiscal 1996. European net revenues increased 13.9% and
19.3% while net revenues in Rest of World increased 17.3% and 19.6% in the
second quarter and first six months of fiscal 1997, respectively, when compared
with the same periods of fiscal 1996. These increases are due primarily to
continued strengthening of most of the markets in Europe and the expanding
markets in Asia.
Compared with the second quarter of fiscal 1996, the dollar has weakened against
the British pound sterling and strengthened against the Japanese yen, German
mark, and French franc. For the six month period ended December 29, 1996, the
dollar has strengthened significantly against the Japanese yen and remained
relatively
7
<PAGE>
consistent against most major European currencies, compared with the
corresponding period of fiscal 1996. Management has estimated that the net
impact of currency fluctuations on operating results, while slightly favorable,
was not significant in the second quarter or the first six months of fiscal
1997.
Gross margin
Gross margin was 50.4% for the second quarter and 49.1% for the first six months
of fiscal 1997, compared with 44.5% and 44.7%, respectively, for the
corresponding periods in fiscal 1996. The increase in the gross margin for the
periods compared reflects principally the effects of increased revenue generated
from higher margin servers and memory storage options and accessories, as well
as continued Company cost decreases.
The factors described above resulted in a favorable impact on gross margin for
the second quarter and first six months of fiscal 1997. Systems repricing
actions may be initiated in the future, which could result in downward pressure
on gross margins. Sun's future operating results would be adversely affected if
such repricing actions were to occur and the Company were unable to mitigate the
margin pressure by maintaining a favorable mix of systems, software, service,
and other revenues and by achieving component cost reductions and operating
efficiencies.
Research and development
Research and development (R&D) expenses were $201.0 million in the second
quarter and $387.3 million for the first six months of fiscal 1997, compared
with $166.3 and $310.4 million for the same periods of fiscal 1996. As a
percentage of net revenues, R&D expenses increased to 9.7% for the second
quarter and 9.8% for the first six months of fiscal 1997, from 9.5% and 9.6%
respectively in the comparable periods of fiscal 1996. Slightly less than
one-fourth of the dollar increase in the second quarter and the first six months
of fiscal 1997 over the comparable periods in fiscal 1996 reflects development
of hardware and software products which utilize the Java architecture. The
remaining increase for the second quarter and first six months of fiscal 1997 is
attributable to continued development of UltraSPARC systems and further
development of products acquired through acquisitions of Integrated Micro
Products, plc and Cray Business Systems, a division of Cray Research, Inc. and
increased compensation as a result of higher levels of staffing.
Selling, general and administrative
Selling, general and administrative (SG&A) expenses were $591.3 million in the
second quarter and $1,116.0 million in the first six months of fiscal 1997,
compared with $434.5 and $845.9 million for the same periods of fiscal 1996. As
a percentage of net revenues, SG&A expenses were 28.4% and 28.3% in the second
quarter and first six months of fiscal 1997, respectively, and 24.8% and 26.0%,
respectively in the comparable periods of fiscal 1996. Approximately half of the
dollar increases are attributable to increased marketing costs related to new
product introductions and other promotional programs, and increases related to
compensation resulting from higher levels of headcount. The remaining increases
reflect costs incurred in connection with the Company's ongoing efforts to
improve business processes and cycle times. The Company expects to continue to
invest in efforts to achieve additional operating efficiencies through continual
review and improvement of business processes. In addition, the Company expects
to continue to hire personnel to further expand its demand creation programs and
service support organizations.
Interest income, net
Net interest income was $6.4 million for the second quarter and $11.9 million
for the first six months of fiscal 1997, compared with $7.4 million and $19.0
million, respectively, for the corresponding periods in fiscal 1996. The
decrease from the second quarter of fiscal 1997 is primarily the result of lower
interest earnings due to a
8
<PAGE>
smaller average portfolio of cash and investments offset by interest savings
from reduced debt levels, as compared to the corresponding period in fiscal
1996. The decrease for the first six months of fiscal 1997 is primarily the
result of lower interest earnings due to a smaller average portfolio of cash and
investments as compared to the corresponding period in fiscal 1996.
Income taxes
The Company's effective income tax rate for the second quarter and the first six
months of both fiscal 1997 and 1996 was 32%.
FUTURE OPERATING RESULTS
This following section contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties so that actual results may vary
materially.
The future operating results discussed below represent specific risks which
could impact the financial condition and results over the next few quarters.
This information below should be read in conjunction with the 1996 Annual Report
to Stockholders which is incorporated by reference in the Company's 1996 Form
10-K.
The market for Sun's products and services is intensely competitive and subject
to continuous, rapid technological change, short product life cycles and
frequent product performance improvements and price reductions. Due to the
breadth of the Company's product lines and the scalability of its products and
network computing model, Sun competes in many segments of the network computing
market across a broad spectrum of customers. The Company expects the markets for
its products and technologies, as well as its competitors within such markets,
will continue to change as the rightsizing trend shifts customer buying patterns
to network based systems which often employ solutions from multiple vendors.
Competition in these markets will also continue to intensify as Sun and its
competitors, principally Hewlett-Packard, International Business Machines,
Digital Equipment Corporation, and Silicon Graphics, aggressively position
themselves to benefit from this shifting of customer buying patterns and demand.
The Company is also facing competition from these competitors, as well as other
systems manufacturers, such as Compaq Computer Corporation and Dell Computer
Corporation, with respect to such competitors products based on microprocessors
from Intel Corporation coupled with Windows NT operating system software from
Microsoft Corporation. These products demonstrate the viability of certain
networked personal computer solutions and have increased the competitive
pressure, particularly in the Company's workstation and lower-end server product
lines. Finally, the timing of introductions of new products and services by
Sun's competitors may negatively impact the future operating results of the
Company, particularly when such introductions occur in periods leading up to the
Company's introduction of its own new enhanced products. The Company expects
this pressure to continue and to intensify throughout the remainder of fiscal
1997. While many other technical, service and support capabilities affect a
customer's buying decision, the Company's future operating results will depend,
in part, on its ability to compete with these technologies.
The Company's future operating results will depend to a considerable extent on
its ability to rapidly and continuously develop, introduce, and deliver in
quantity new systems, software, and service products, as well as new
microprocessor technologies, that offer its customers enhanced performance at
competitive prices. The development of new high - performance computer products,
such as the Company's recent development of the UltraSPARC is a complex and
uncertain process requiring high levels of innovation from the Company's
designers and suppliers, as well as accurate anticipation of customer
requirements and technological trends. Once a hardware product is developed, the
Company must rapidly bring such products to volume manufacturing, a process that
requires accurate forecasting of volumes, mix of products and configurations,
among other things, in order to achieve acceptable yields and costs.
9
<PAGE>
Accordingly, with the introduction of the Company's enhanced server systems
during fiscal 1996, future operating results will depend to a considerable
extent on the Company's ability to closely manage these product introductions,
as well as future product introductions , in order to minimize unfavorable
patterns of customer orders, to reduce levels of older inventory and to ensure
that adequate supplies of new products can be delivered to meet customer demand.
The ability of the Company to match supply and demand is further complicated by
the Company's need to adjust prices to reflect changing competitive market
conditions as well as the variability and timing of customer orders with respect
to the Company's older products. As a result, the Company's operating results
could be adversely affected if the Company is not able to correctly anticipate
the level of demand for the mix of products. Because the Company is continuously
engaged in this product development, introduction, and transition process, its
operating results may be subject to considerable fluctuation, particularly when
measured on a quarterly basis.
The Company is increasingly dependent on the ability of its suppliers to design,
manufacture, and deliver advanced components required for the timely
introduction of new products. The failure of any of these suppliers to deliver
components on time or in sufficient quantities, or the failure of any of the
Company's own designers to develop advanced innovative products on a timely
basis, could result in a significant adverse impact on the Company's operating
results. The inability to secure enough components to build products, including
new products, in the quantities and configurations required, or to produce, test
and deliver sufficient products to meet demand in a timely manner, would
adversely affect the Company's net revenues and operating results. To secure
components for development, production, and introduction of new products, the
Company frequently makes advanced payments to certain suppliers and often enters
into noncancelable purchase commitments with vendors early in the design
process. Due to the variability of material requirement specifications during
the design process, the Company must closely manage material purchase
commitments and respective delivery schedules. In the event of a delay or flaw
in the design process, the Company's operating results could be adversely
affected due to the Company's obligations to fulfill such noncancelable purchase
commitments.
Generally, the computer systems sold by Sun, such as the UltraSPARC based
products, are the result of hardware and software development, such that delays
in the software development can delay the ability of the Company to ship new
hardware products. In addition, adoption of a new release of an operating system
may require effort on the part of the customer and porting by software vendors
providing applications. As a result, the timing of conversion to a new release
is inherently unpredictable. Moreover, delays by customers in adopting a new
release of an operating system can limit the acceptability of hardware products
tied to that release. Such delays could adversely affect the future operating
results of the Company.
Seasonality also affects the Company's operating results, particularly in the
first quarter of each fiscal year. In addition, the Company's operating expenses
are increasing as the Company continues to expand its operations, and future
operating results will be adversely affected if revenues do not increase
accordingly. Additionally, the Company plans to continue to evaluate and, when
appropriate, make acquisitions of complementary technologies, products or
businesses. As part of this process, the Company will continue to evaluate the
changing value of its assets, and when necessary, make adjustments thereto.
While the Company cannot predict what effect these various factors may have on
its financial results, the aggregate effect of these and other factors could
result in significant volatility in the Company's future performance and stock
price.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total assets at December 29, 1996 increased by approximately $66 million from
June 30, 1996, due principally to increases in accounts receivable of $186
million, property, plant and equipment-net of $167 million, and other current
assets of $30 million, offset by decreases in cash, cash equivalents and
short-term investments of $239 million and inventories of $66 million. The
increase in accounts receivable reflects a larger percentage of sales occurring
near the end of the quarter and the timing of cash receipts. Increase in
property, plant and equipment reflects the purchase of Phase II of the campus
located in Menlo Park for approximately $100 million and capital additions to
support increased headcount, primarily in engineering, service and marketing.
Other current assets increased due to the timing of payments for insurance and
other taxes. Cash was principally used for the systematic and opportunistic
repurchases of 12.1 million shares of common stock for $329 million, capital
expenditures of approximately $200 million, purchase of Phase II of the campus
located in Menlo Park, and scheduled debt repayments of $40 million, offset by
net maturities of short-term investments for $150 million and cash provided from
operations. The reduction in inventories reflects improved inventory management.
Total current liabilities decreased $8 million from June 30, 1996, due
principally to a decrease in other current liabilities of $48 million and
short-term borrowings of $22 million, offset by an increase in accounts payable
of $59 million. The decrease in other current liabilities and short-term
borrowings reflects the final payment related to the Company's senior notes and
scheduled debt repayments. The increase in accounts payable reflects increased
inventory receipts during the last three weeks of the quarter as compared to the
fourth quarter of fiscal 1996.
At December 29, 1996, the Company's primary sources of liquidity consisted of
cash, cash equivalents and short-term investments of $750 million and a
revolving credit facility with banks aggregating $300 million, which was
available subject to compliance with certain covenants. The Company believes
that the liquidity provided by existing cash and short-term investment balances
and the borrowing arrangement described above will be sufficient to meet the
Company's capital requirements through fiscal 1997. However, the Company
believes the level of financial resources is a significant competitive factor in
its industry and may choose at any time to raise additional capital through debt
or equity financing to strengthen its financial position, facilitate growth and
provide the Company with additional flexibility to take advantage of business
opportunities that may arise. The sufficiency of the Company's capital resources
are forward looking statements which involve risks and uncertainties and actual
results may vary materially.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 13, 1996, the Annual Meeting of Stockholders of the Company was held
in Menlo Park, California. An election of directors was held with the following
individuals being elected to the Board of Directors of the Company:
Share Voted For Votes Withheld
--------------- --------------
Scott G. McNealy 314,141,304 1,592,750
L. John Doerr 314,200,826 1,533,228
Judith L. Estrin 314,176,294 1,557,760
Robert J. Fisher 314,181,142 1,552,912
Robert L. Long 314,171,094 1,562,960
M. Kenneth Oshman 314,195,994 1,538,060
A. Michael Spence 314,172,572 1,561,482
The seven nominees who received the highest number of votes (all of the above
individuals) were elected to the Board of Directors. Votes withheld from any
nominee were counted for purposes of determining the presence or absence of a
quorum.
The stockholders also approved an amendment to the Company's Restated
Certificate of Incorporation increasing the number of shares of common stock,
par value $0.00067, authorized for issuance thereunder from 300,000,000 to
940,000,000 shares. There were 305,052,626 shares voted for the amendment,
6,386,726 shares voted against the amendment, 918,234 abstentions and 3,376,468
broker non-votes. The affirmative vote of the holders of a majority of the
outstanding shares of common stock outstanding on the record date of the Annual
Meeting was needed in order to approve the foregoing proposal. Votes cast
against the proposal , abstentions and broker non-votes, were counted only for
purposes of determining a quorum and were counted as votes against the proposal.
12
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ITEM 5 - OTHER INFORMATION
SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER
The following is a summary of all sales of the Company's Common Stock by
the Company's executive officers and directors who are subject to Section
16 of the Securities Exchange Act of 1934, as amended, during the fiscal
quarter ended December 29, 1996:
OFFICER/ DATE PRICE NUMBER OF
DIRECTOR SHARES SOLD
==========================================================================
William Joy 11/1/96 $30.8906 40,000
11/8/96 $31.937 20,000
11/22/96 $28.75 20,000
11/22/96 $28.7187 20,000
11/25/96 $28.687 20,000
11/25/96 $28.4062 20,000
11/25/96 $28.6562 20,000
11/26/96 $28.2812 40,000
Michael Lehman 11/7/96 $37.7812 8,000
11/7/96 $37.7812 8,000
11/7/96 $37.7812 8,000
Eric Schmidt 11/21/96 $29.687 10,000
11/22/96 $28.937 10,000
John Shoemaker 11/6/96 $31.72 20,000
10/31/96 $30.392 2,000
Chet Silvestri 11/8/96 $32.312 20,000
11/27/96 $28.625 20,000
Michael Spence 11/7/96 $31.9687 20,000
Dorothy Terrell 11/7/96 $32.0312 6,000
11/8/96 $32.5312 6,000
11/7/96 $31.7844 20,000
11/8/96 $32.7085 6,000
Edward Zander 11/27/96 $57.0625 5,000
13
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
10.89 Form of Change of Control Agreement executed by each
corporate executive officer of Registrant.
10.90 Form of Change of Control Agreement executed by Chief
Executive Officer of Registrant.
10.91 Form of Vice President Change of Control Severance
Plan
10.92 Form of Director-Level Change of Control Severance
Plan
11.0 Statement re: Computation of Earnings Per Share
27.0 Financial data for the period ended December 29, 1996
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN MICROSYSTEMS, INC.
BY
/s/ Michael E. Lehman
------------------------
Michael E. Lehman
Vice President and Chief Financial Officer
/s/ George Reyes
--------------------
George Reyes
Vice President and Corporate Controller,
Chief Accounting Officer
Dated: February 11, 1997
15
<PAGE>
EXHIBITS TO REPORT
------------------
ON FORM 10-Q
------------
FOR THE QUARTERLY PERIOD ENDED DECEMBER 29, 1996
------------------------------------------------
November 13, 1996
Dear [Name]:
Sun Microsystems, Inc. (the "Company") considers it essential to the
best interests of its stockholders to attract top executives and to foster the
continuous employment of key management personnel. In this connection, the Board
of Directors of the Company (the "Board") recognizes that the possibility of a
change of control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
ensure the continuity of management and to foster objectivity in the face of
potentially disturbing circumstances arising from the possibility of a change of
control of the Company, although no such change is now contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your further services to the Company, the Company agrees that
you shall receive the severance benefits set forth in this letter agreement
("Agreement") in the event your employment with the Company terminates
subsequent to a "Change of Control" of the Company (as defined in subparagraph
2(c) hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until your employment with the Company is
terminated other than after a Change of Control unless sooner terminated by
written agreement of the Company and you.
2. Definitions. As used in this Agreement:
(a) "Annual Compensation" means the total of (i) one year of
base salary, at the highest base salary rate that you were paid by the Company
in the 12-month period prior to the date of your termination of employment (the
"Look-Back Period"), (ii) 100% of the greatest "On Target" annual bonus for
which you were eligible within the Look-Back Period, and (iii) 100% of the
greatest "On Target" Commission for which you were eligible within the Look-Back
Period.
(b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
<PAGE>
(c) "Change of Control" of the Company means and includes each
and all of the following occurrences:
(i) The stockholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the
total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets.
(ii) The acquisition by any Person as Beneficial
Owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting
power represented by the Company's then outstanding voting
securities except pursuant to a negotiated agreement with the
Company and pursuant to which such securities are purchased
for the Company.
(iii) A majority of the Board of Directors of the
Company in office at the beginning of any thirty-six (36)
month period is replaced during the course of such thirty-six
(36) month period (other than by voluntary resignation of
individual directors in the ordinary course of business) and
such placement was not initiated by the Board of Directors of
the Company as constituted at the beginning of such thirty-six
(36) month period.
Any other provision of this Section notwithstanding,
the term "Change in Control" shall not include either of the
following events undertaken at the election of the Company:
(x) Any transaction, the sole purpose of
which is to change the state of the Company's
incorporation;
(y) A transaction, the result of which is to
sell all or substantially all of the assets of the
Company to another corporation (the "surviving
corporation"); provided that the surviving
corporation is owned directly or indirectly by the
stockholders of the Company immediately following
such transaction in substantially the same
proportions as their ownership of the Company's
Common Stock immediately preceding such transaction;
and provided, further, that the surviving corporation
expressly assumes this Agreement.
-2-
<PAGE>
(d) "COBRA" means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Company" means Sun Microsystems, Inc., a Delaware
corporation, and any successor as provided in Article VII hereof.
(g) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Sections 13(d) of the Exchange Act
but excluding the Company and any subsidiary and any employee benefit plan
sponsored or maintained by the Company or any subsidiary (including any trustee
of such plan acting as Trustee).
(h) "Severance Payment" means the payment of severance
compensation as provided in Section 3 of this Agreement.
3. Compensation Upon Termination of Employment Following a Change of
Control. Subject to Sections 7 and 8 below, if your employment with the Company
is terminated within twelve (12) months after a Change in Control,
(a) you will be entitled to a Severance Payment in an amount
computed as follows:
(i) an amount equal to two and one-half (2 1/2) times
Annual Compensation ("Termination Payment"); plus
(ii) the same percentage of Company-paid health and
group-term life insurance benefits as were provided
to you and your family under plans of the Company as
of the Change of Control for a total of twenty-four
(24) months.
(b) the Company agrees that in addition to the Termination
Payment, all outstanding stock options previously granted to you under the
Company's Stock Option Plan (including any options issued in substitution or
assumption of such options as a result of a Change in Control), whether vested
or unvested, shall immediately have their vesting accelerated upon such
termination, and all such outstanding non-statutory stock options shall be
exercisable for a period of three (3) months after such termination.
-3-
<PAGE>
(c) Any cash payment to you under subparagraph 3(a) shall be
made within 30 calendar days of your termination of employment.
(d) Notwithstanding anything contained in subsections (a) and
(b) above, the Company shall have no obligation to make any payment or offer any
benefits to you under this Section 3 if your employment is terminated prior to a
Change in Control or if your employment is terminated after a Change in Control
for Cause (as defined in Section 4), death, Disability (as defined in Section
5), retirement or resignation other than for Good Reason (as defined in Section
6).
(e) For purposes of COBRA, the date of a "qualifying event"
for you and your covered dependents shall be the date upon which the coverage
provided under Section 3(a)(ii) above terminates.
Furthermore, for purposes of this Agreement, if it is determined by the
Company's independent public accountants (the "Accountants") that acceleration
of vesting of shares would preclude accounting for the acquisition of the
Company as a pooling of interests, and it is a condition to the closing of the
Change of Control transaction that the transaction be accounted for as a pooling
of interests, then the Company shall not accelerate the vesting of your options
under this Section 3.
4. Cause. For purposes of this Agreement, "Cause" means (i) theft or
damage of Company property; (ii) use, possession, sale or distribution of
illegal drugs, (iii) being under the influence of alcohol or drugs (except to
the extent medically prescribed) while on duty or on Company premises, (iv)
involvement in activities representing conflicts of interest, (v) improper
disclosure of confidential information, (vi) conduct endangering, or likely to
endanger, the health or safety of another employee; (vii) conviction of a
felony, or (viii) falsifying or misrepresenting information on Company records.
5. Disability. For purposes of this Agreement, "Disability" means that,
at the time your employment is terminated, you have been unable to perform the
duties of your position for a period of six (6) consecutive months as the result
of your incapability due to physical or mental illness.
6. Good Reason. The Company will be obligated to make payments and
provide benefits under Section 3 if you terminate your employment for Good
Reason within twelve months after a Change in Control. For purposes of this
Agreement, "Good Reason" means
(i) a material reduction in salary or benefits,
(ii) a material change in job responsibilities,
(iii) a request to relocate, except for office relocations
that would not increase your one-way commute by more than 50 miles, or
(iv) the failure of the Company to obtain the assumption of
the Agreement as stipulated in Section 11.
7. Parachute Payments. In the event that any payment or benefit
received or to be received by you in connection with a termination of your
employment with the Company (collectively, the "Severance Payments") would (i)
constitute a "parachute payment" within the meaning of section 280G of the Code
or any similar or successor provision to 280G and (ii) but for this Section 7,
be subject to the excise tax imposed by section 4999 of the Code or any similar
or successor provision to section 4999 (the "Excise Tax"), then such Severance
Payments (which Severance Payments shall collectively
-4-
<PAGE>
be referred to herein as the "Severance Parachute Payments") shall be reduced to
the largest amount which would result in no portion of the Severance Parachute
Payments being subject to the Excise Tax. In the event any reduction of benefits
is required pursuant to this Agreement, you shall be allowed to choose which
benefits hereunder are reduced (e.g., reduction first from the Severance
Payment, then from the vesting acceleration). Any determination as to whether a
reduction is required under this Agreement and as to the amount of such
reduction shall be made in writing by the Accountants prior to the Change of
Control, whose determinations shall be conclusive and binding upon the
Participant and the Company for all purposes. If the Internal Revenue Service
(the "IRS") determines that a Severance Parachute Payment is subject to the
Excise Tax, then the Company or any related corporation, as their exclusive
remedy, shall seek to enforce the provisions of Section 8 hereof. Such
enforcement of Section 8 hereof shall be the only remedy, under any and all
applicable state and federal laws or otherwise, for your failure to reduce the
Severance Parachute Payments so that no portion thereof is subject to the Excise
Tax. The Company or related corporation shall reduce a Severance Parachute
Payment in accordance with Section 7 only upon written notice by the Accountants
indicating the amount of such reduction, if any. The Company shall bear all
costs the Accountants may reasonably incur in connection with any calculations
contemplated by this Agreement.
8. Remedy. If, notwithstanding the reduction described in Section 7
hereof, the IRS determines that you are liable for the Excise Tax as a result of
the receipt of a Severance Parachute Payment, then you shall, subject to the
provisions of this Agreement, be obligated to pay to the Company (the "Repayment
Obligation") an amount of money equal to the "Repayment Amount". The Repayment
Amount with respect to a Severance Parachute Payment shall be the smallest such
amount, if any, as shall be required to be paid to the Company so that your net
proceeds with respect to any Severance Parachute Payment (after taking into
account the payment of the Excise Tax imposed on such Severance Parachute
Payment) shall be maximized. Notwithstanding the foregoing, the Repayment Amount
with respect to a Severance Parachute Payment shall be zero if a Repayment
Amount of more than zero would not eliminate the Excise Tax imposed on such
Severance Parachute Payment. If the Excise Tax is not eliminated through the
performance of the Repayment Obligation, you shall pay the Excise Tax. The
Repayment Obligation shall be performed within 30 days of either (i) your
entering into a binding agreement with the IRS as to the amount of your Excise
Tax liability or (ii) a final determination by the IRS or a court decision
requiring you to pay the Excise Tax with respect to such a Severance Parachute
Payment from which no appeal is available or is timely taken.
9. Disputes. If you disagree with your allotment of benefits under this
Agreement, you may file a written appeal with the designated Human Resources
representative. Any claim relating to this Agreement shall be subject to this
appeal process. The written appeal must be filed within sixty (60) days of your
termination date.
The appeal must state the reasons that you believe you are entitled to
different benefits under the Agreement. A designated Human Resources
representative shall review the claim. If the claim is wholly or partially
denied, the designated Human Resources representative shall provide you with a
written notice of the denial, specifying the reasons the claim was denied. Such
notice shall be provided within ninety (90) days of receiving your written
appeal.
If your appeal is denied, you shall have the right and option
to elect review of such denial by either a court of competent jurisdiction or by
arbitration.
-5-
<PAGE>
10. No Mitigation.
(a) You shall not be required to mitigate the amount of any
payment provided for in Section 3 hereof by seeking other employment or
otherwise, nor shall the amount of such payment be reduced by reason of
compensation or other income you receive for services rendered after
your termination of employment with the Company.
(b) In addition to the Termination Payment payable pursuant to
Section 3 hereof, you shall be entitled to receive all benefits payable
to you under any benefit plan of the Company in which you participate.
11. Company's Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. As used in this Section 11,
"Company" includes any successor to its business or assets as aforesaid which
executes and delivers this Agreement or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.
12. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five (5) days after deposit with postal authorities
transmitted by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first or last page of this Agreement, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change address shall be effective only upon receipt.
13. Amendment or Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing by you and the Company. No waiver of either party at any
time of the breach of, or lack of compliance with, any conditions or provisions
of this Agreement shall be deemed a waiver of the provisions or conditions
hereof.
14. Sole Agreement. This Agreement represents the entire agreement
between you and the Company with respect to the matters set forth herein and
supersedes and replaces any prior agreements in their entirety. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement will be made by either party which are not set
forth expressly herein.
15. Employee's Successors. This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts are still payable to you hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of the Agreement to your devisee, legatee, or other designee or, if there
be no such designees, to your estate.
16. Funding. This Agreement shall be funded from the Company's general
assets.
-6-
<PAGE>
17. Validity. The invalidity or unenforceabihty of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
18. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
19. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
If the foregoing conforms with your understanding, please indicate your
agreement to the terms hereof by signing where indicated below and returning one
copy of this Agreement to the undersigned.
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
set forth above.
Very truly yours,
SUN MICROSYSTEMS, INC.
-------------------------------------
Michael H. Morris
Vice President, General Counsel and
Secretary
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
- ---------------------------------
[Name]
- ---------------------------------
- ---------------------------------
(Address)
-7-
EXHIBIT 10.90
November 13, 1996
Dear Mr. McNealy:
Sun Microsystems, Inc. (the "Company") considers it essential to the
best interests of its stockholders to attract top executives and to foster the
continuous employment of key management personnel. In this connection, the Board
of Directors of the Company (the "Board") recognizes that the possibility of a
change of control may exist and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be taken to
ensure the continuity of management and to foster objectivity in the face of
potentially disturbing circumstances arising from the possibility of a change of
control of the Company, although no such change is now contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your further services to the Company, the Company agrees that
you shall receive the severance benefits set forth in this letter agreement
("Agreement") in the event your employment with the Company terminates
subsequent to a "Change of Control" of the Company (as defined in subparagraph
2(c) hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect until your employment with the Company is
terminated other than after a Change of Control unless sooner terminated by
written agreement of the Company and you.
2. Definitions. As used in this Agreement:
(a) "Annual Compensation" means the total of (i) one year of
base salary, at the highest base salary rate that you were paid by the Company
in the 12-month period prior to the date of your termination of employment (the
"Look-Back Period"), (ii) 100% of the greatest "On Target" annual bonus for
which you were eligible within the Look-Back Period, and (iii) 100% of the
greatest "On Target" Commission for which you were eligible within the Look-Back
Period.
(b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
<PAGE>
(c) "Change of Control" of the Company means and includes each
and all of the following occurrences:
(i) The stockholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the
total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets.
(ii) The acquisition by any Person as Beneficial
Owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting
power represented by the Company's then outstanding voting
securities except pursuant to a negotiated agreement with the
Company and pursuant to which such securities are purchased
for the Company.
(iii) A majority of the Board of Directors of the
Company in office at the beginning of any thirty-six (36)
month period is replaced during the course of such thirty-six
(36) month period (other than by voluntary resignation of
individual directors in the ordinary course of business) and
such placement was not initiated by the Board of Directors of
the Company as constituted at the beginning of such thirty-six
(36) month period.
Any other provision of this Section notwithstanding,
the term "Change in Control" shall not include either of the
following events undertaken at the election of the Company:
(x) Any transaction, the sole purpose of
which is to change the state of the Company's
incorporation;
(y) A transaction, the result of which is to
sell all or substantially all of the assets of the
Company to another corporation (the "surviving
corporation"); provided that the surviving
corporation is owned directly or indirectly by the
stockholders of the Company immediately following
such transaction in substantially the same
proportions as their ownership of the Company's
Common Stock immediately preceding such transaction;
and provided, further, that the surviving corporation
expressly assumes this Agreement.
-2-
<PAGE>
(d) "COBRA" means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Company" means Sun Microsystems, Inc., a Delaware
corporation, and any successor as provided in Article VII hereof.
(g) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Sections 13(d) of the Exchange Act
but excluding the Company and any subsidiary and any employee benefit plan
sponsored or maintained by the Company or any subsidiary (including any trustee
of such plan acting as Trustee).
(h) "Severance Payment" means the payment of severance
compensation as provided in Section 3 of this Agreement.
3. Compensation Upon Termination of Employment Following a Change of
Control. Subject to Sections 7 and 8 below, if your employment with the Company
is terminated within twelve (12) months after a Change in Control,
(a) you will be entitled to a Severance Payment in an amount
computed as follows:
(i) an amount equal to three (3) times annual
Compensation ("Termination Payment"); plus
(ii) the same percentage of Company-paid health and
group-term life insurance benefits as were provided
to you and your family under plans of the Company as
of the Change of Control for a total of twenty-four
(24) months.
(b) the Company agrees that in addition to the Termination
Payment, all outstanding stock options previously granted to you under the
Company's Stock Option Plan (including any options issued in substitution or
assumption of such options as a result of a Change in Control), whether vested
or unvested, shall immediately have their vesting accelerated upon such
termination, and all such outstanding non-statutory stock options shall be
exercisable for a period of three (3) months after such termination.
-3-
<PAGE>
(c) Any cash payment to you under subparagraph 3(a) shall be
made within 30 calendar days of your termination of employment.
(d) Notwithstanding anything contained in subsections (a) and
(b) above, the Company shall have no obligation to make any payment or offer any
benefits to you under this Section 3 if your employment is terminated prior to a
Change in Control or if your employment is terminated after a Change in Control
for Cause (as defined in Section 4), death, Disability (as defined in Section
5), retirement or resignation other than for Good Reason (as defined in Section
6).
(e) For purposes of COBRA, the date of a "qualifying event"
for you and your covered dependents shall be the date upon which the coverage
provided under Section 3(a)(ii) above terminates.
Furthermore, for purposes of this Agreement, if it is determined by the
Company's independent public accountants (the "Accountants") that acceleration
of vesting of shares would preclude accounting for the acquisition of the
Company as a pooling of interests, and it is a condition to the closing of the
Change of Control transaction that the transaction be accounted for as a pooling
of interests, then the Company shall not accelerate the vesting of your options
under this Section 3.
4. Cause. For purposes of this Agreement, "Cause" means (i) theft or
damage of Company property; (ii) use, possession, sale or distribution of
illegal drugs, (iii) being under the influence of alcohol or drugs (except to
the extent medically prescribed) while on duty or on Company premises, (iv)
involvement in activities representing conflicts of interest, (v) improper
disclosure of confidential information, (vi) conduct endangering, or likely to
endanger, the health or safety of another employee; (vii) conviction of a
felony, or (viii) falsifying or misrepresenting information on Company records.
5. Disability. For purposes of this Agreement, "Disability" means that,
at the time your employment is terminated, you have been unable to perform the
duties of your position for a period of six (6) consecutive months as the result
of your incapability due to physical or mental illness.
6. Good Reason. The Company will be obligated to make payments and
provide benefits under Section 3 if you terminate your employment for Good
Reason within twelve months after a Change in Control. For purposes of this
Agreement, "Good Reason" means
(i) a material reduction in salary or benefits,
(ii) a material change in job responsibilities,
(iii) a request to relocate, except for office relocations
that would not increase your one-way commute by more than 50 miles, or
(iv) the failure of the Company to obtain the assumption of
the Agreement as stipulated in Section 11.
7. Parachute Payments. In the event that any payment or benefit
received or to be received by you in connection with a termination of your
employment with the Company (collectively, the "Severance Payments") would (i)
constitute a "parachute payment" within the meaning of section 280G of the Code
or any similar or successor provision to 280G and (ii) but for this Section 7,
be subject to the excise tax imposed by section 4999 of the Code or any similar
or successor provision to section 4999 (the "Excise Tax"), then such Severance
Payments (which Severance Payments shall collectively
-4-
<PAGE>
be referred to herein as the "Severance Parachute Payments") shall be reduced to
the largest amount which would result in no portion of the Severance Parachute
Payments being subject to the Excise Tax. In the event any reduction of benefits
is required pursuant to this Agreement, you shall be allowed to choose which
benefits hereunder are reduced (e.g., reduction first from the Severance
Payment, then from the vesting acceleration). Any determination as to whether a
reduction is required under this Agreement and as to the amount of such
reduction shall be made in writing by the Accountants prior to the Change of
Control, whose determinations shall be conclusive and binding upon the
Participant and the Company for all purposes. If the Internal Revenue Service
(the "IRS") determines that a Severance Parachute Payment is subject to the
Excise Tax, then the Company or any related corporation, as their exclusive
remedy, shall seek to enforce the provisions of Section 8 hereof. Such
enforcement of Section 8 hereof shall be the only remedy, under any and all
applicable state and federal laws or otherwise, for your failure to reduce the
Severance Parachute Payments so that no portion thereof is subject to the Excise
Tax. The Company or related corporation shall reduce a Severance Parachute
Payment in accordance with Section 7 only upon written notice by the Accountants
indicating the amount of such reduction, if any. The Company shall bear all
costs the Accountants may reasonably incur in connection with any calculations
contemplated by this Agreement.
8. Remedy. If, notwithstanding the reduction described in Section 7
hereof, the IRS determines that you are liable for the Excise Tax as a result of
the receipt of a Severance Parachute Payment, then you shall, subject to the
provisions of this Agreement, be obligated to pay to the Company (the "Repayment
Obligation") an amount of money equal to the "Repayment Amount". The Repayment
Amount with respect to a Severance Parachute Payment shall be the smallest such
amount, if any, as shall be required to be paid to the Company so that your net
proceeds with respect to any Severance Parachute Payment (after taking into
account the payment of the Excise Tax imposed on such Severance Parachute
Payment) shall be maximized. Notwithstanding the foregoing, the Repayment Amount
with respect to a Severance Parachute Payment shall be zero if a Repayment
Amount of more than zero would not eliminate the Excise Tax imposed on such
Severance Parachute Payment. If the Excise Tax is not eliminated through the
performance of the Repayment Obligation, you shall pay the Excise Tax. The
Repayment Obligation shall be performed within 30 days of either (i) your
entering into a binding agreement with the IRS as to the amount of your Excise
Tax liability or (ii) a final determination by the IRS or a court decision
requiring you to pay the Excise Tax with respect to such a Severance Parachute
Payment from which no appeal is available or is timely taken.
9. Disputes. If you disagree with your allotment of benefits under this
Agreement, you may file a written appeal with the designated Human Resources
representative. Any claim relating to this Agreement shall be subject to this
appeal process. The written appeal must be filed within sixty (60) days of your
termination date.
The appeal must state the reasons that you believe you are entitled to
different benefits under the Agreement. A designated Human Resources
representative shall review the claim. If the claim is wholly or partially
denied, the designated Human Resources representative shall provide you with a
written notice of the denial, specifying the reasons the claim was denied. Such
notice shall be provided within ninety (90) days of receiving your written
appeal.
If your appeal is denied, you shall have the right and option
to elect review of such denial by either a court of competent jurisdiction or by
arbitration.
-5-
<PAGE>
10. No Mitigation.
(a) You shall not be required to mitigate the amount of any
payment provided for in Section 3 hereof by seeking other employment or
otherwise, nor shall the amount of such payment be reduced by reason of
compensation or other income you receive for services rendered after
your termination of employment with the Company.
(b) In addition to the Termination Payment payable pursuant to
Section 3 hereof, you shall be entitled to receive all benefits payable
to you under any benefit plan of the Company in which you participate.
11. Company's Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. As used in this Section 11,
"Company" includes any successor to its business or assets as aforesaid which
executes and delivers this Agreement or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.
12. Notice. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five (5) days after deposit with postal authorities
transmitted by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first or last page of this Agreement, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change address shall be effective only upon receipt.
13. Amendment or Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing by you and the Company. No waiver of either party at any
time of the breach of, or lack of compliance with, any conditions or provisions
of this Agreement shall be deemed a waiver of the provisions or conditions
hereof.
14. Sole Agreement. This Agreement represents the entire agreement
between you and the Company with respect to the matters set forth herein and
supersedes and replaces any prior agreements in their entirety. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter of this Agreement will be made by either party which are not set
forth expressly herein.
15. Employee's Successors. This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts are still payable to you hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of the Agreement to your devisee, legatee, or other designee or, if there
be no such designees, to your estate.
16. Funding. This Agreement shall be funded from the Company's general
assets.
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<PAGE>
17. Validity. The invalidity or unenforceabihty of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
18. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
19. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
If the foregoing conforms with your understanding, please indicate your
agreement to the terms hereof by signing where indicated below and returning one
copy of this Agreement to the undersigned.
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
set forth above.
Very truly yours,
SUN MICROSYSTEMS, INC.
-----------------------------------------
Michael H. Morris
Vice President, General Counsel and
Secretary
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:
- -----------------------------------
Scott G. McNealy
- -----------------------------------
- -----------------------------------
(Address)
-7-
EXHIBIT 10.91
SUN MICROSYSTEMS, INC.
VICE PRESIDENT CHANGE OF CONTROL SEVERANCE PLAN
Introduction
The Board of Directors of Sun Microsystems, Inc., a Delaware
corporation ("Company"), has evaluated the economic and social impact of certain
acquisitions or change of control events on its employees. The Board recognized
that it will no longer have the power to protect interests of the employees
after an acquisition or other change of control. As a result, the Board believes
that it is in the Company's interest to provide its employees with the right to
compensation and assurance of economic security in certain circumstances
following an acquisition or other change of control. Furthermore, the Board
believes a severance compensation plan of this kind will aid the Company in
attracting and retaining the highly qualified, high performing individuals who
are essential to its success. The plan's assurance of fair treatment will ensure
organizational stability during any period of significant uncertainty that is
inherent to an acquisition or other change of control.
Accordingly, the following plan has been developed and is hereby
adopted.
SECTION I.
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date, the Company hereby establishes a severance
plan to be known as the "Vice President Change of Control Severance Plan" (the
"Plan"), as set forth in this document. The purposes of the Plan are set forth
in the Introduction.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all Employees
of the Company who, at or after the Effective Date, meet the eligibility
requirements of Section III.
1.3 Contractual Right to Benefits
This Plan establishes and vests in each Participant a contractual right
to the benefits to which he or she is entitled hereunder, enforceable by the
Participant against his or her Employer or the Company, or both.
<PAGE>
SECTION II.
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
term is capitalized.
(a) "Annual Compensation" means the total of (i) one year of
base salary, at the highest base salary rate that you were paid by the Company
in the 12-month period prior to the date of your termination of employment (the
"Look-Back Period"), (ii) 100% of the greatest "On Target" annual bonus for
which you were eligible within the Look-Back Period, and (iii) 100% of the
greatest "On Target" Commission for which you were eligible within the Look-Back
Period.
(b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Change of Control" of the Company means and includes each
and all of the following occurrences:
(i) The stockholders of the Company approve a merger
or consolidation, other than a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets.
(ii) The acquisition by any Person as Beneficial
Owner, directly or indirectly, or securities of the Company
representing fifty percent (50%) or more of the total voting
power represented by the Company's then outstanding voting
securities except pursuant to a negotiated agreement with the
Company and pursuant to which such securities are purchased
for the Company.
(iii) A majority of the Board of Directors of the
Company in office at the beginning of any thirty-six (36)
month period is replaced during the course of such thirty-six
(36) month period (other than by voluntary resignation of
individual directors in the ordinary course of business) and
such replacement was not initiated by the Board of Directors
of the Company as constituted at the beginning of such
thirty-six (36) month period.
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<PAGE>
Any other provision of this Section notwithstanding, the term "Change
of Control" shall not include either of the following events undertaken at the
election of the Company:
(i) Any transaction, the sole purpose of which is to
change the state of the Company's incorporation.
(ii) A transaction, the result of which is to sell
all or substantially all the assets of the Company to another corporation (the
"surviving corporation"); provided that the surviving corporation is owned
directly or indirectly by the stockholders of the Company immediately following
such transaction in substantially the same proportions as their ownership of the
Company's common stock immediately preceding such transaction; and provided,
further, that the surviving corporation expressly assumes this Agreement.
(d) "Change of Control Date" means, for purposes of this Plan,
the date as of which a Change of Control shall have occurred.
(e) "COBRA" means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(f) "Code" means the Internal Revenue Code of 1986, as
amended.
(g) "Company" means Sun Microsystems, Inc., a Delaware
corporation, and any successor as provided in Section VII hereof.
(h) "Effective Date" means November 13, 1996.
(i) "Eligible Employee" means a common law employee of an
Employer whose official Company title is Vice President (other than an employee
who is a party to an individual agreement with the Company which provides
severance or severance-type benefits), and whose customary employment as of a
Change of Control is 20 hours or more per week. For purposes of this plan, an
Employee shall be considered to continue to be employed in the case of sick
leave, military leave, or any other leave of absence approved pursuant to the
regular leave policy of the Company.
(j) "Employer" means the Company or a subsidiary of the
Company which has adopted the Plan pursuant to Section VI hereof.
(k) "Hours of Work" means the Employee's customary hours of
employment per week. For purposes of this Plan, customary Hours of Work shall
not include overtime or other extraordinary hours.
(l) "Just Cause" means the termination of employment of an
Employee shall have taken place as a result of (i) theft or damage of Company
property; (ii) use, possession, sale or distribution of illegal drugs, (iii)
being under the influence of alcohol or drugs (except to the extent
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<PAGE>
medically prescribed) while on duty or on Company premises, (iv) involvement in
activities representing conflicts of interest, (v) improper disclosure of
confidential information, (vi) conduct endangering, or likely to endanger, the
health or safety of another employee; (vii) conviction of a felony, or (viii)
falsifying or misrepresenting information on Company records.
(m) "Participant" means an Employee who meets the eligibility
requirements of Section III.
(n) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of the Exchange Act but
excluding the Company and any subsidiary and any employee benefit plan sponsored
or maintained by the Company or any subsidiary (including any trustee of such
plan acting as Trustee).
(o) "Plan" means the Sun Microsystems, Inc. Vice President
Change of Control Severance Plan.
(p) "Severance Payment" means the payment of severance
compensation as provided in Section IV hereof.
2.2 Applicable Law
To the extent not preempted by the laws of the United States,
the laws of the State of California shall be the controlling law in all matters
relating to the Plan.
2.3 Severability
If a provision of this Plan shall be held illegal or invalid,
the illegality or invalidity shall not affect the remaining parts of the Plan
and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
SECTION III.
ELIGIBILITY
3.1 Participation in Plan
Any Eligible Employee shall become a Participant in the Plan.
A Participant shall cease to be a Participant in the Plan when he or she ceases
to be an Employee of an Employer, unless such Participant is then entitled to
payment of a Severance Payment as provided in the Plan.
A Participant entitled to payment of a Severance Payment shall remain a
Participant in the Plan until the full amount of the Severance Payment has been
paid to the Participant.
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<PAGE>
3.2 Re-entry into Plan
For purposes of Section 4.3, an individual who ceases to be an
Eligible Employee due to a reduction in Hours of Work below 20 hours and who
again becomes an Eligible Employee prior to an Change of Control shall be deemed
to have been "continuously employed" for his or her entire period of employment
as an Eligible Employee.
SECTION IV.
SEVERANCE BENEFITS
4.1 Right to Severance Benefits
A Participant shall be entitled to receive from the Company a
Severance Payment and certain benefits in the amount and to the extent provided
in this Section IV if there has been a Change of Control of the Company and if,
within twelve (12) months thereafter, the Participant's employment by an
Employer shall terminate for any reason specified in Section 4.2, whether the
termination is voluntary or involuntary. A Participant shall not be entitled to
a Severance Payment or benefits if termination occurs for reasons not specified
in Section 4.2, including death, voluntary retirement at or after age 65, total
and permanent disability, or for Just Cause.
4.2 Good Reasons for Termination
Following a Change of Control, a Participant shall be entitled
to a Severance Payment and to the benefits described in Section 4.5 following
termination of employment, whether voluntary or involuntary, for one or more of
the following reasons:
(a) The Employer reduces by 15% or more the Participant's
Annual Compensation.
(b) The Employer reduces by 20% or more the Participant's
Hours of Work as in effect immediately prior to the Change of Control.
(c) Without the Participant's express written consent, the
Employer requires the Participant to change the location of his or her job or
office, so that he or she will be based at a location more than fifty (50) miles
from the location of his job or office immediately prior to the Change of
Control.
(d) The cost of Employer-provided benefits, under plans,
arrangements, policies and procedures, taken as a whole, decreases by 25% or
more of the Employer-provided cost immediately prior to the Change of Control or
the cost of such benefits to the Participant increases by 25% or more of the
Participant's cost immediately prior to the Change of Control; provided,
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<PAGE>
however, that if such increase results from the Employer's good faith exercise
of better judgment in response to changes in federal or state law, such decrease
increase shall not be a Good Reason for Termination.
(e) The Participant incurs a Significant Reduction in Duties
and Responsibilities as determined by the "Review Committee". Such review
Committee shall be composed of seven (7) Employees, appointed by the Board of
Directors for this purpose, of which no less than four (4) are Participants. The
Review Committee may establish such procedures as it deems appropriate to
facilitate a fair and objective review process to determine whether a
Participant has incurred a Significant Reduction in Duties and Responsibilities.
(f) A successor company fails or refuses to assume the
Company's obligations under this Plan, as required by Section VII.
(g) The Company or any successor company breaches any of the
provisions of this Plan.
(h) The Employer terminates the employment of a Participant at
or after a Change of Control other than for Just Cause.
4.3 Amount of Severance Payment
(a) Subject to Section 4.3(b), each Participant entitled to a
Severance Payment under this Plan who is employed by the Company as of the
Change of Control Date shall receive from the Company a lump sum cash payment in
an amount equal to two (2) times Annual Compensation.
(b) In the case of a Participant who is not a citizen of the
United States, the Company may, in its discretion, reduce the Severance Payment
otherwise calculated under Section 4.3(a) by the amount of severance-type
benefits to which such Participant is then entitled under the laws of the
country in which the Participant resides.
(c) A Participant shall not be required to mitigate damages or
the amount of his or her Severance payment by seeking other employment or
otherwise, nor shall the amount of such payment be reduced by any compensation
earned by the Participant as a result of employment after his or her termination
of employment by an Employer.
4.4 Time of Severance Payment
The Severance Payment to which a Participant is entitled shall
be paid by the Company to the Participant, in cash and in full, no later than
ten (10) calendar days after the termination of the Participant's employment. If
such a Participant should die before all amounts payable to him or her have been
paid, such unpaid amounts shall be paid to the Participant's spouse, if living,
otherwise to the personal representative of the Participant's estate.
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<PAGE>
4.5 Other Severance Provisions
(a) Subject to the requirements of the Code, Participants will
receive, in addition to the Severance Payment, the same percentage of
Company-Paid health and group-term life insurance in the same plans as were
provided to such Participant immediately prior to the Participant's termination
(the "Company-Paid Coverage"). If a Participant's Company-Paid Coverage also
included the Participant's dependents immediately prior to the Participant's
termination, such dependents shall continue to be covered at the same percentage
rate after such termination.
(b) Company-Paid Coverage shall continue for twenty-four (24)
months beginning at the Participant's termination date.
(c) For purposes of COBRA, the date of the "qualifying event"
for Participants and their covered dependents shall be the date upon which the
Company-Paid Coverage terminates.
(d) In addition to the Severance Payment and the Company-Paid
Coverage, all outstanding options previously granted to Participants under the
Employer's stock option plans (including any options issued in substitution or
assumption of such options as a result of a Change in Control), whether vested
or unvested, shall have their vesting immediately accelerated upon such
termination; provided, however, that if it is determined by the Company's
independent public accountants (the "Accountants") that acceleration of vesting
of option shares would preclude accounting for the acquisition of the Company as
a pooling of interests, and it is a condition to the closing of the Change of
Control transaction that the transaction be accounted for as a pooling of
interests, then the Company shall not accelerate the vesting of options
hereunder.
4.6 Parachute Payments
(a) In the event that any payment or benefit received or to be
received by a Participant in connection with a termination of the Participant's
employment with an Employer (collectively, the "Termination Payments") would (i)
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code or any similar or successor provision to Section 280G and (ii) but for
this Section 4.6(a), be subject to the excise tax imposed by section 4999 of the
Code or any similar or successor provision to section 4999 (the "Excise Tax"),
then, subject to the provisions of (c) below, such Termination Payments (which
Termination Payments shall collectively be referred to herein as the
"Termination Parachute Payments") shall be reduced to the largest amount which
would result in no portion of the Termination Parachute Payments being subject
to the Excise Tax. In the event any reduction of benefits is required pursuant
to this subsection 4.6(a), each Participant shall be allowed to choose which
benefits hereunder are reduced (e.g., reduction first from the Severance
Payment, then from the vesting acceleration). Any determination as to whether a
reduction is required under this Section 4.6. and as to the amount of such
reduction shall be made in writing by the Company's independent public
accountants prior to the Change of Control (the "Accountants"), whose
determinations shall be conclusive and binding upon the Participant and the
Company for all purposes. For purposes of making the calculations required by
this Section 4.6., the
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<PAGE>
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and the Participant shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 4.6.
(b) If the Internal Revenue Service (the "IRS") determines
that a Termination Parachute Payment is subject to the Excise Tax, then the
Company or any related corporation, as their exclusive remedy, shall seek to
enforce the provisions of (c) below. Such enforcement of Section 4.6(c) hereof
shall be the only remedy, under any and all applicable state and federal laws or
otherwise, for the failure to reduce the Termination Parachute Payments so that
no portion thereof is subject to the Excise Tax.
(c) If, notwithstanding the reduction described in (a) above,
the IRS determines that a Participant is liable for the Excise Tax as a result
of the receipt of a Termination Parachute Payment, then such Participant shall,
subject to the provisions of this Plan, be obligated to pay to the Company (the
"Repayment Obligation") an amount of money equal to the "Repayment Amount". The
Repayment Amount with respect to a Termination Parachute Payment shall be the
smallest such amount, if any, as shall be required to be paid to the Company so
that such Participant's net proceeds with respect to any Termination Parachute
Payment (after taking into account the payment of the Excise Tax imposed on such
Termination Parachute Payment) shall be maximized. Notwithstanding the
foregoing, the Repayment Amount with respect to a Termination Parachute Payment
shall be zero if a Repayment Amount of more than zero would not eliminate the
Excise Tax imposed on such Termination Parachute Payment. If the Excise Tax is
not eliminated through the performance of the Repayment Obligation, the
participant shall pay the Excise Tax. The Repayment Obligation shall be
performed within 30 days of either (i) the Participant entering into a binding
agreement with the IRS as to the amount of his or her Excise Tax liability or
(ii) a final determination by the IRS or a court decision requiring the
Participant to pay the Excise Tax with respect to such a Termination Parachute
Payment from which no appeal is available or is timely taken.
SECTION V.
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of this Plan nor the Severance Payment
provided for hereunder shall reduce any amounts otherwise payable, or in any way
diminish the Participant's rights as an Employee of an Employer, whether
existing now or hereafter, under any benefit, incentive, retirement, stock
option, stock bonus, stock purchase plan, or any employment agreement or other
plan or arrangement.
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<PAGE>
5.2 Employment Status
THIS PLAN DOES NOT CONSTITUTE A CONTRACT OF EMPLOYMENT OR
IMPOSE ON THE PARTICIPANT OR THE PARTICIPANT'S EMPLOYER ANY OBLIGATION TO RETAIN
THE PARTICIPANT AS AN EMPLOYEE, TO CHANGE THE STATUS OF THE PARTICIPANT AS AN
AT-WILL EMPLOYEE, OR TO CHANGE THE COMPANY'S POLICIES REGARDING TERMINATION OF
EMPLOYMENT.
SECTION VI.
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Company, this Plan
may be adopted by any Subsidiary of the Company. Upon such adoption, the
Subsidiary shall become an Employer hereunder and the provisions of the Plan
shall be fully applicable to the Employees of that Subsidiary. The term
"Subsidiary" means any corporation in which the Company, directly or indirectly
holds a majority of the voting power of its outstanding shares of capital stock.
SECTION VII.
SUCCESSOR TO COMPANY
7.1 The Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Plan, shall mean the Company as
hereinbefore defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of this Plan.
SECTION VIII.
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change of Control has not occurred, this Plan shall
expire on November 13, 2001, unless sooner terminated as provided in Section
8.2, or unless extended for an additional period or periods by resolution
adopted by the Board of Directors of the Company.
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<PAGE>
If a Change of Control occurs, this Plan shall continue in
full force and effect, and shall not terminate or expire until after all
Participants who become entitled to Severance Payments hereunder shall have
received such payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by
resolution adopted by two-thirds of the Board of Directors of the Company,
unless a Change of Control has previously occurred. If a Change of Control
occurs, the Plan no longer shall be subject to amendment, change, substitution,
deletion, revocation or termination in any respect whatsoever.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Company, certifying that the amendment or termination has been approved by
the Board of Directors. A proper amendment of the Plan automatically shall
effect a corresponding amendment to all Participants' rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
SECTION IX.
PLAN ADMINISTRATION
9.1 Discretionary Authority.
Prior to a Change of Control, the Employer shall have
discretionary authority to construe and interpret the terms of the Plan, to
determine eligibility and to make all other determinations under the Plan. On or
after the date a Change of Control, the Employer shall not have discretionary
authority to construe and interpret the Plan, and any decisions of the Employer
with respect to the Plan during such period shall be subject to de novo review
if and when the such decisions are reviewed by a court or in arbitration.
9.2 Initial Appeal Procedure
An employee or former employee of an Employer who disagrees
with their allotment of benefits under this Plan may file a written appeal with
the designated Human Resources representative. Any claim relating to this Plan
shall be subject to this appeal process. The written appeal must be filed within
sixty (60) days of the employee's termination date.
The appeal must state the reasons the employee or former employee
believes he or she is entitled to different benefits under the Plan. The
designated Human Resources representative shall
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<PAGE>
review the claim. If the claim is wholly or partially denied, the designated
Human Resources representative shall provide the employee a written notice of
the denial, specifying the reasons the claim was denied. Such notice shall be
provided within ninety (90) days of receiving the written appeal.
9.3 Review of Appeal Procedure
If the appeal of an employee or former employee of an Employer
appeal is denied, such employee or former employee shall have the right and
option to elect review of such denial by either a court of competent
jurisdiction or by arbitration as set forth in Section 11 hereof.
SECTION X.
LEGAL FEES AND EXPENSES
10.1 The Company shall pay all legal fees, costs of litigation and/or
arbitration, and other expenses incurred in good faith by each Participant as a
result of the Company's refusal to make the Severance payment to which the
Participant becomes entitled under this Plan, or as a result of the Company's
contesting the validity, enforceability or interpretation of the Plan.
SECTION XI.
ARBITRATION
11.1 Each Participant shall have the right and option to elect (in lieu
of litigation) to have any dispute or controversy arising under or in connection
with the Plan settled by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Participant within fifty (50)
miles from the location of his or her job with an Employer, in accordance with
rules of the American Arbitration Association then in effect. Judgment may be
entered on the award of the arbitrator in any court having jurisdiction. All
expenses of such arbitration, including the fees and expenses of the counsel for
the Participant, shall be borne by the Company.
SECTION XII.
FUNDING
12.1 The Plan shall be funded from the Company's general assets.
-i-
SUN MICROSYSTEMS, INC.
DIRECTOR LEVEL CHANGE OF CONTROL SEVERANCE PLAN
Amended and Restated Effective as of November 13, 1996
Introduction
The Board of Directors of Sun Microsystems, Inc., a Delaware
corporation ("Company"), has evaluated the economic and social impact of certain
acquisitions or change of control events on its employees. The Board recognized
that it will no longer have the power to protect interests of the employees
after an acquisition or other change of control. As a result, the Board believes
that it is in the Company's interest to provide its employees with the right to
compensation and assurance of economic security in certain circumstances
following an acquisition or other change of control. Furthermore, the Board
believes a severance compensation plan of this kind will aid the Company in
attracting and retaining the highly qualified, high performing individuals who
are essential to its success. The plan's assurance of fair treatment will ensure
organizational stability during any period of significant uncertainty that is
inherent to an acquisition or other change of control.
Accordingly, the following plan has been developed and is hereby
adopted.
SECTION I.
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date, the Company hereby establishes a severance
plan to be known as the "Director Level Change of Control Severance Plan" (the
"Plan"), as set forth in this document. The purposes of the Plan are set forth
in the Introduction.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all Employees
of the Company who, at or after the Effective Date, meet the eligibility
requirements of Section III.
1.3 Contractual Right to Benefits
This Plan establishes and vests in each Participant a contractual right
to the benefits to which he or she is entitled hereunder, enforceable by the
Participant against his or her Employer or the Company, or both.
<PAGE>
SECTION II.
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
term is capitalized.
(a) "Annual Compensation" means the total of (i) one year of
base salary, at the highest base salary rate that you were paid by the Company
in the 12-month period prior to the date of your termination of employment (the
"Look-Back Period"), (ii) 100% of the greatest "On Target" annual bonus for
which you were eligible within the Look-Back Period, and (iii) 100% of the
greatest "On Target" Commission for which you were eligible within the Look-Back
Period.
(b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Change of Control" of the Company means and includes each
and all of the following occurrences:
(i) The stockholders of the Company approve a merger
or consolidation, other than a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets.
(ii) The acquisition by any Person as Beneficial
Owner, directly or indirectly, or securities of the Company
representing fifty percent (50%) or more of the total voting
power represented by the Company's then outstanding voting
securities except pursuant to a negotiated agreement with the
Company and pursuant to which such securities are purchased
for the Company.
(iii) A majority of the Board of Directors of the
Company in office at the beginning of any thirty-six (36)
month period is replaced during the course of such thirty-six
(36) month period (other than by voluntary resignation of
individual directors in the ordinary course of business) and
such replacement was not initiated by the Board of Directors
of the Company as constituted at the beginning of such
thirty-six (36) month period.
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Any other provision of this Section notwithstanding, the term "Change
of Control" shall not include either of the following events undertaken at the
election of the Company:
(i) Any transaction, the sole purpose of which is to
change the state of the Company's incorporation.
(ii) A transaction, the result of which is to sell
all or substantially all the assets of the Company to another
corporation (the "surviving corporation"); provided that the
surviving corporation is owned directly or indirectly by the
stockholders of the Company immediately following such
transaction in substantially the same proportions as their
ownership of the Company's common stock immediately preceding
such transaction; and provided, further, that the surviving
corporation expressly assumes this Agreement.
(d) "Change of Control Date" means, for purposes of this Plan,
the date as of which a Change of Control shall have occurred.
(e) "COBRA" means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(f) "Code" means the Internal Revenue Code of 1986, as
amended.
(g) "Company" means Sun Microsystems, Inc., a Delaware
corporation, and any successor as provided in Section VII hereof.
(h) "Effective Date" as to Employees of an Employer means the
date the Plan is approved by the Board of Directors of that Employer, or such
other date as the Board shall designate in its resolution approving the Plan.
(i) "Eligible Employee" means a common law employee of an
Employer whose official Company title is Director (other than an employee who is
a party to an individual agreement with the Company which provides severance or
severance-type benefits), and whose customary employment as of a Change of
Control is 20 hours or more per week. For purposes of this plan, an Employee
shall be considered to continue to be employed in the case of sick leave,
military leave, or any other leave of absence approved pursuant to the regular
leave policy of the Company.
(j) "Employer" means the Company or a subsidiary of the
Company which has adopted the Plan pursuant to Section VI hereof.
(k) "Hours of Work" means the Employee's customary hours of
employment per week. For purposes of this Plan, customary Hours of Work shall
not include overtime or other extraordinary hours.
(l) "Just Cause" means the termination of employment of an
Employee shall have
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<PAGE>
taken place as a result of (i) theft or damage of Company property; (ii) use,
possession, sale or distribution of illegal drugs, (iii) being under the
influence of alcohol or drugs (except to the extent medically prescribed) while
on duty or on Company premises, (iv) involvement in activities representing
conflicts of interest, (v) improper disclosure of confidential information, (vi)
conduct endangering, or likely to endanger, the health or safety of another
employee; (vii) conviction of a felony, or (viii) falsifying or misrepresenting
information on Company records.
(m) "Participant" means an Employee who meets the eligibility
requirements of Section III.
(n) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of the Exchange Act but
excluding the Company and any subsidiary and any employee benefit plan sponsored
or maintained by the Company or any subsidiary (including any trustee of such
plan acting as Trustee).
(o) "Plan" means the Sun Microsystems, Inc. Director Level
Change of Control Severance Plan.
(p) "Severance Payment" means the payment of severance
compensation as provided in Section IV hereof.
2.2 Applicable Law
To the extent not preempted by the laws of the United States,
the laws of the State of California shall be the controlling law in all matters
relating to the Plan.
2.3 Severability
If a provision of this Plan shall be held illegal or invalid,
the illegality or invalidity shall not affect the remaining parts of the Plan
and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
SECTION III.
ELIGIBILITY
3.1 Participation in Plan
Any Eligible Employee shall become a Participant in the Plan.
A Participant shall cease to be a Participant in the Plan when he or she ceases
to be an Employee of an Employer, unless such Participant is then entitled to
payment of a Severance Payment as provided in the Plan. A Participant entitled
to payment of a Severance Payment shall remain a Participant in the Plan until
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<PAGE>
the full amount of the Severance Payment has been paid to the Participant.
3.2 Re-entry into Plan
For purposes of Section 4.3, an individual who ceases to be an
Eligible Employee due to a reduction in Hours of Work below 20 hours and who
again becomes an Eligible Employee prior to an Change of Control shall be deemed
to have been "continuously employed" for his or her entire period of employee as
an Eligible Employee.
SECTION IV.
SEVERANCE PAYMENTS
4.1 Right to Severance Payment
A Participant shall be entitled to receive from the Company a
Severance Payment and certain benefits in the amount provided in this Section IV
if there has been a Change of Control of the Company and if, within twelve (12)
months thereafter, the Participant's employment by an Employer shall terminate
for any reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Severance Payment or
benefits if termination occurs for reasons not specified in Section 4.2,
including death, voluntary retirement at or after age 65, total and permanent
disability, or for Just Cause.
4.2 Good Reasons for Termination
Following a Change of Control, a Participant shall be entitled
to a Severance Payment and to the benefits described in Section 4.5 following
termination of employment, whether voluntary or involuntary, for one or more of
the following reasons:
(a) The Employer reduces by 15% or more the Participant's
Annual Compensation.
(b) The Employer reduces by 20% or more the Participant's
Hours of Work as in effect immediately prior to the Change of Control.
(c) Without the Participant's express written consent, the
Employer requires the Participant to change the location of his or her job or
office, so that he or she will be based at a location more than fifty (50) miles
from the location of his job or office immediately prior to the Change of
Control.
(d) The cost of Employer-provided benefits, under plans,
arrangements, policies and procedures, taken as a whole, decreases by 25% or
more of the Employer-provided cost immediately prior to the Change of Control or
the cost of such benefits to the Participant increases
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<PAGE>
by 25% or more of the Participant's cost immediately prior to the Change of
Control; provided, however, that if such increase results from the Employer's
good faith exercise of better judgment in response to changes in federal or
state law, such decrease increase shall not be a Good Reason for Termination.
(e) The Participant incurs a Significant Reduction in Duties
and Responsibilities as determined by the "Review Committee". Such review
Committee shall be composed of seven (7) Employees, appointed by the Board of
Directors for this purpose, of which no less than four (4) are Participants. The
Review Committee may establish such procedures as it deems appropriate to
facilitate a fair and objective review process to determine whether a
Participant has incurred a Significant Reduction in Duties and Responsibilities.
(f) A successor company fails or refuses to assume the
Company's obligations under this Plan, as required by Section VII.
(g) The Company or any successor company breaches any of the
provisions of this Plan.
(h) The Employer terminates the employment of a Participant at
or after a Change of Control other than for Just Cause.
4.3 Amount of Severance Payment
(a) Subject to Section 4.3(b), each Participant entitled to a
Severance Payment under this Plan who is employed by the Company as of the
Change of Control Date shall receive from the Company a lump sum cash payment in
an amount equal to one and one-half (1 1/2) times Annual Compensation.
(b) In the case of a Participant who is not a citizen of the
United States, the Company may, in its discretion, reduce the Severance Payment
otherwise calculated under Section 4.3(a) by the amount of severance-type
benefits to which such Participant is then entitled under the laws of the
country in which the Participant resides.
(c) A Participant shall not be required to mitigate damages or
the amount of his or her Severance payment by seeking other employment or
otherwise, nor shall the amount of such payment be reduced by any compensation
earned by the Participant as a result of employment after his or her termination
of employment by an Employer.
4.4 Time of Severance Payment
The Severance Payment to which a Participant is entitled shall
be paid by the Company to the Participant, in cash and in full, no later than
ten (10) calendar days after the termination of the Participant's employment. If
such a Participant should die before all amounts payable to him or her have been
paid, such unpaid amounts shall be paid to the Participant's spouse, if living,
otherwise to
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<PAGE>
the personal representative of the Participant's estate.
4.5 Other Severance Provisions
(a) Subject to the requirements of the Code, Participants will
receive, in addition to the Severance Payment, the same percentage of
Company-Paid health and group-term life insurance in the same plans as were
provided to such Participant immediately prior to the Participant's termination
(the "Company-Paid Coverage"). If a Participant's Company-Paid Coverage also
included the Participant's dependents immediately prior to the Participant's
termination, such dependents shall continue to be covered at the same percentage
rate after such termination.
(b) Company-Paid Coverage shall continue for eighteen (18)
months beginning at the Participant's termination date.
(c) For purposes of COBRA, the date of the "qualifying event"
for Participants and their covered dependents shall be the date upon which the
Company-Paid Coverage terminates.
4.6 Parachute Payments
(a) In the event that any payment or benefit received or to be
received by a Participant in connection with a termination of the Participant's
employment with an Employer (collectively, the "Termination Payments") would (i)
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code or any similar or successor provision to Section 280G and (ii) but for
this Section 4.6(a), be subject to the excise tax imposed by section 4999 of the
Code or any similar or successor provision to section 4999 (the "Excise Tax"),
then, subject to the provisions of (c) below, such Termination Payments (which
Termination Payments shall collectively be referred to herein as the
"Termination Parachute Payments") shall be reduced to the largest amount which
would result in no portion of the Termination Parachute Payments being subject
to the Excise Tax. Any determination as to whether a reduction is required under
this Section 4.6. and as to the amount of such reduction shall be made in
writing by the Company's independent public accountants prior to the Change of
Control (the "Accountants"), whose determinations shall be conclusive and
binding upon the Participant and the Company for all purposes. For purposes of
making the calculations required by this Section 4.6, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Company and the Participant shall
furnish to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section. The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 4.6.
(b) If the Internal Revenue Service (the "IRS") determines
that a Termination Parachute Payment is subject to the Excise Tax, then the
Company or any related corporation, as their exclusive remedy, shall seek to
enforce the provisions of (c) below. Such enforcement of
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<PAGE>
Section 4.6(c) hereof shall be the only remedy, under any and all applicable
state and federal laws or otherwise, for the failure to reduce the Termination
Parachute Payments so that no portion thereof is subject to the Excise Tax.
(c) If, notwithstanding the reduction described in (a) above,
the IRS determines that a Participant is liable for the Excise Tax as a result
of the receipt of a Termination Parachute Payment, then such Participant shall,
subject to the provisions of this Plan, be obligated to pay to the Company (the
"Repayment Obligation") an amount of money equal to the "Repayment Amount". The
Repayment Amount with respect to a Termination Parachute Payment shall be the
smallest such amount, if any, as shall be required to be paid to the Company so
that such Participant's net proceeds with respect to any Termination Parachute
Payment (after taking into account the payment of the Excise Tax imposed on such
Termination Parachute Payment) shall be maximized. Notwithstanding the
foregoing, the Repayment Amount with respect to a Termination Parachute Payment
shall be zero if a Repayment Amount of more than zero would not eliminate the
Excise Tax imposed on such Termination Parachute Payment. If the Excise Tax is
not eliminated through the performance of the Repayment Obligation, the
participant shall pay the Excise Tax. The Repayment Obligation shall be
performed within 30 days of either (i) the Participant entering into a binding
agreement with the IRS as to the amount of his or her Excise Tax liability or
(ii) a final determination by the IRS or a court decision requiring the
Participant to pay the Excise Tax with respect to such a Termination Parachute
Payment from which no appeal is available or is timely taken.
SECTION V.
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of this Plan nor the Severance Payment
provided for hereunder shall reduce any amounts otherwise payable, or in any way
diminish the Participant's rights as an Employee of an Employer, whether
existing now or hereafter, under any benefit, incentive, retirement, stock
option, stock bonus, stock purchase plan, or any employment agreement or other
plan or arrangement.
5.2 Employment Status
THIS PLAN DOES NOT CONSTITUTE A CONTRACT OF EMPLOYMENT OR
IMPOSE ON THE PARTICIPANT OR THE PARTICIPANT'S EMPLOYER ANY OBLIGATION TO RETAIN
THE PARTICIPANT AS AN EMPLOYEE, TO CHANGE THE STATUS OF THE PARTICIPANT AS AN
AT-WILL EMPLOYEE, OR TO CHANGE THE COMPANY'S POLICIES REGARDING TERMINATION OF
EMPLOYMENT.
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<PAGE>
SECTION VI.
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Company, this Plan
may be adopted by any Subsidiary of the Company. Upon such adoption, the
Subsidiary shall become an Employer hereunder and the provisions of the Plan
shall be fully applicable to the Employees of that Subsidiary. The term
"Subsidiary" means any corporation in which the Company, directly or indirectly
holds a majority of the voting power of its outstanding shares of capital stock.
SECTION VII.
SUCCESSOR TO COMPANY
7.1 The Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Plan, shall mean the Company as
hereinbefore defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of this Plan.
SECTION VIII.
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change of Control has not occurred, this Plan shall
expire on November 13, 2001, unless sooner terminated as provided in Section
8.2, or unless extended for an additional period or periods by resolution
adopted by the Board of Directors of the Company.
If a Change of Control occurs, this Plan shall continue in
full force and effect, and shall not terminate or expire until after all
Participants who become entitled to Severance Payments hereunder shall have
received such payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by
resolution adopted by two-thirds of the Board of Directors of the Company,
unless a Change of Control has previously occurred. If a Change of Control
occurs, the Plan no longer shall be subject to amendment, change,
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<PAGE>
substitution, deletion, revocation or termination in any respect whatsoever.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Company, certifying that the amendment or termination has been approved by
the Board of Directors. A proper amendment of the Plan automatically shall
effect a corresponding amendment to all Participants' rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
SECTION IX.
PLAN ADMINISTRATION
9.1 Discretionary Authority.
Prior to a Change of Control, the Employer shall have
discretionary authority to construe and interpret the terms of the Plan, to
determine eligibility and to make all other determinations under the Plan. On or
after the date a Change of Control, the Employer shall not have discretionary
authority to construe and interpret the Plan, and any decisions of the Employer
with respect to the Plan during such period shall be subject to de novo review
if and when the such decisions are reviewed by a court or in arbitration.
9.2 Initial Appeal Procedure
An employee or former employee of an Employer who disagrees
with their allotment of benefits under this Plan may file a written appeal with
the designated Human Resources representative. Any claim relating to this Plan
shall be subject to this appeal process. The written appeal must be filed within
sixty (60) days of the employee's termination date.
The appeal must state the reasons the employee or former
employee believes he or she is entitled to different benefits under the Plan.
The designated Human Resources representative shall review the claim. If the
claim is wholly or partially denied, the designated Human Resources
representative shall provide the employee a written notice of the denial,
specifying the reasons the claim was denied. Such notice shall be provided
within ninety (90) days of receiving the written appeal.
9.3 Review of Appeal Procedure
If the appeal of an employee or former employee of an Employer
appeal is denied, such employee or former employee shall have the right and
option to elect review of such denial by either a court of competent
jurisdiction or by arbitration as set forth in Section 11 hereof.
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<PAGE>
SECTION X.
LEGAL FEES AND EXPENSES
10.1 The Company shall pay all legal fees, costs of litigation and/or
arbitration, and other expenses incurred in good faith by each Participant as a
result of the Company's refusal to make the Severance payment to which the
Participant becomes entitled under this Plan, or as a result of the Company's
contesting the validity, enforceability or interpretation of the Plan.
SECTION XI.
ARBITRATION
11.1 Each Participant shall have the right and option to elect (in lieu
of litigation) to have any dispute or controversy arising under or in connection
with the Plan settled by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by the Participant within fifty (50)
miles from the location of his or her job with an Employer, in accordance with
rules of the American Arbitration Association then in effect. Judgment may be
entered on the award of the arbitrator in any court having jurisdiction. All
expenses of such arbitration, including the fees and expenses of the counsel for
the Participant, shall be borne by the Company.
SECTION XII.
FUNDING
12.1 The Plan shall be funded from the Company's general assets.
-11-
<TABLE>
EXHIBIT 11
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
PRIMARY
-------
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net income $178,341 $126,049 $301,731 $210,745
======== ======== ======== ========
Weighted average common
shares outstanding 368,381 366,782 367,748 373,286
Common - equivalent shares
attributable to stock options and warrants 20,357 21,818 21,680 20,312
-------- -------- -------- --------
Total common and common -
equivalent shares outstanding 388,738 388,600 389,428 393,598
======== ======== ======== ========
Net income per common and
common - equivalent share $0.46 $ 0.32 $ 0.77 $ 0.54
======== ======== ======== ========
</TABLE>
-1-
<PAGE>
<TABLE>
EXHIBIT 11
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
FULLY DILUTED
-------------
Three Months Ended Six Months Ended
------------------ ----------------
December 29, December 31, December 29, December 31,
1996 1995 1996 1995
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net income $178,341 $126,049 $301,731 $210,745
======== ======== ======== ========
Weighted average common
shares outstanding 368,381 366,782 367,748 373,286
Common - equivalent shares
attributable to stock options and warrants 20,357 22,934 22,285 21,250
-------- -------- -------- --------
Total common and common -
equivalent shares outstanding 388,738 389,716 390,033 394,536
======== ======== ======== ========
Net income per common and
common - equivalent share $ 0.46 $ 0.32 $ 0.77 $ 0.54
======== ======== ======== ========
</TABLE>
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 438,083
<SECURITIES> 312,657
<RECEIVABLES> 1,392,873
<ALLOWANCES> 154,086
<INVENTORY> 394,919
<CURRENT-ASSETS> 2,968,890
<PP&E> 1,549,677
<DEPRECIATION> 848,739
<TOTAL-ASSETS> 3,866,620
<CURRENT-LIABILITIES> 1,481,451
<BONDS> 40,000
<COMMON> 73
0
0
<OTHER-SE> 2,304,094
<TOTAL-LIABILITY-AND-EQUITY> 3,866,620
<SALES> 2,081,588
<TOTAL-REVENUES> 2,081,588
<CGS> 1,033,402
<TOTAL-COSTS> 1,825,743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,160
<INTEREST-EXPENSE> 2,132
<INCOME-PRETAX> 262,266
<INCOME-TAX> 83,925
<INCOME-CONTINUING> 178,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,341
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
