<PAGE> 1
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 26, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from _______ to _______
Commission file number: 0-15086
------------------
SUN MICROSYSTEMS, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE 94-2805249
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
901 SAN ANTONIO ROAD, PALO ALTO, CA 94303
(Address of principal executive offices with zip code)
(650) 960-1300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
____________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO 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 26, 1999
Common Stock - $0.00067 par value 1,746,964,132
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 27
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 28
Item 4 - Submission of Matters to a Vote of Security Holders 29
Item 5 - Other Information 30
Item 6 - Exhibits and Reports on Form 8-K 31
SIGNATURES 32
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- -----------------------------
December 26, December 27, December 26, December 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Products $2,996,743 $2,403,252 $5,664,552 $4,577,526
Services 557,180 399,700 1,034,927 734,766
---------- ---------- ---------- ----------
Total net revenues 3,553,923 2,802,952 6,699,479 5,312,292
---------- ---------- ---------- ----------
Cost and expenses:
Cost of sales - products 1,370,487 1,126,780 2,578,018 2,120,185
Cost of sales - services 349,315 225,710 653,961 453,810
Research and development 397,636 307,354 754,596 594,779
Selling, general and administrative 940,658 756,910 1,834,333 1,479,944
Purchased in-process research and
development - 12,000 3,500 92,000
---------- ---------- ---------- ----------
Total costs and expenses 3,058,096 2,428,754 5,824,408 4,740,718
Operating income 495,827 374,198 875,071 571,574
Interest income, net 31,585 20,666 60,130 36,406
---------- ---------- ---------- ----------
Income before income taxes 527,412 394,864 935,201 607,980
Provision for income taxes 174,047 133,445 309,654 235,033
---------- ---------- ---------- ----------
Net income $ 353,365 $ 261,419 $ 625,547 $ 372,947
========== ========== ========== ==========
Net income per common
share - basic $ 0.22 $ 0.17 $ 0.40 $ 0.24
========== ========== ========== ==========
Net income per common
share - diluted $ 0.21 $ 0.16 $ 0.37 $ 0.23
========== ========== ========== ==========
Shares used in the calculation of
net income per share - basic 1,574,025 1,542,110 1,563,724 1,531,454
========== ========== ========== ==========
Shares used in the calculation of
net income per share - diluted 1,691,417 1,633,670 1,677,086 1,618,298
========== ========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 26, June 30,
1999 1999
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,311,293 $ 1,100,761
Short-term investments 3,149,036 1,590,959
Accounts receivable, net 2,038,139 2,310,142
Inventories 559,152 307,873
Deferred tax assets 553,218 506,411
Other current assets 535,288 372,480
----------- -----------
Total current assets 8,146,126 6,188,626
Property, plant and equipment, at cost 3,282,365 2,876,055
Accumulated depreciation and amortization (1,463,903) (1,262,427)
----------- -----------
1,818,462 1,613,628
Other assets, net 1,471,714 696,581
----------- -----------
$11,436,302 $ 8,498,835
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 9 $ 1,646
Accounts payable 673,474 755,797
Accrued liabilities 1,944,115 1,655,554
Income taxes payable 227,417 402,813
Other current liabilities 499,292 432,452
----------- -----------
Total current liabilities 3,344,307 3,248,262
Long-term debt and other obligations 2,154,974 383,297
Total stockholders' equity 5,937,021 4,867,276
----------- -----------
$11,436,302 $ 8,498,835
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
December 26, December 27,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 625,547 $ 372,947
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 356,628 315,514
Tax benefit of options exercised 260,902 96,740
Purchased in-process research and development 3,500 92,000
Net (increase) decrease in accounts receivable 278,408 (258,335)
Net increase in inventories (251,279) (17,218)
Net increase in other current and non-current assets (209,790) (88,670)
Net increase (decrease) in accounts payable (83,079) 115,775
Net increase in other current and non-current liabilities 183,411 138,094
---------- ----------
Net cash provided by operating activities 1,164,248 766,847
---------- ----------
Cash flows from investing activities:
Purchases of short-term investments (4,150,553) (941,865)
Proceeds from sales of short-term investments 1,771,092 235,617
Proceeds from maturities of short-term investments 762,745 265,668
Acquisition of property, plant and equipment (432,051) (361,300)
Acquisition of spare parts and other assets (44,727) (69,576)
Purchases of long-term investments (48,184) -
Payments for acquisitions, net of cash acquired (74,891) (31,269)
---------- ----------
Net cash used in investing activities (2,216,569) (902,725)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 31,986 93,355
Acquisition of treasury stock (389,343) (164,286)
Proceeds from employee stock purchase plans 138,535 58,529
Net increase (reduction) in borrowings and
other obligations 1,481,675 (3,634)
---------- ----------
Net cash provided by (used in) financing activities 1,262,853 (16,036)
---------- ----------
Net increase (decrease) in cash and cash equivalents 210,532 (151,914)
Cash and cash equivalents, beginning of period 1,100,761 835,625
---------- ----------
Cash and cash equivalents, end of period $1,311,293 $ 683,711
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SUN MICROSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
December 26, December 27,
1999 1998
------------ ------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 229 $ 778
Income taxes $225,699 $ 58,702
Supplemental schedule of non-cash investing activities:
In conjunction with the Company's acquisitions, liabilities
were assumed as follows:
Fair value of assets acquired $ 86,413 $198,629
Cash paid for assets (75,103) (35,864)
Stock issued (823) (142,028)
-------- --------
Liabilities assumed $ 10,487 $ 20,737
======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
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 with current year presentation.
On October 19, 1999, Sun completed its merger with Forte Software, Inc.
("Forte"). This merger was accounted for as a pooling of interests and,
accordingly, historical consolidated financial statements of the Company have
been restated to include the financial position, results of operations and cash
flows of Forte for all periods presented.
On December 7, 1999, the Company effected a two-for-one split of its common
stock paid in the form of a stock dividend. All share and per share data has
been adjusted to reflect the split for all periods presented.
While the quarterly financial information is unaudited, the financial statements
included in this report reflect all adjustments (consisting of normal recurring
accruals) that the Company considers necessary for a fair presentation of the
results of operations for the interim periods covered and of the financial
condition of the Company at the date of the interim balance sheet. The results
for the interim periods are not necessarily indicative of the results for the
entire year. The consolidated balance sheet as of June 30, 1999 has been derived
from the audited consolidated financial statements at that date. The information
included in this report should be read in conjunction with the 1999 Annual
Report to Stockholders, which is incorporated by reference in the Company's 1999
Annual Report on Form 10-K.
INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 26, 1999 June 30, 1999
----------------- -------------
<S> <C> <C>
Raw materials $201,924 $113,070
Work in process 66,292 51,183
Finished goods 290,936 143,620
-------- --------
$559,152 $307,873
======== ========
</TABLE>
OTHER ASSETS
Other assets is comprised of the following (in thousands):
<TABLE>
December 26, 1999 June 30, 1999
----------------- -------------
<S> <C> <C>
Long-term investments $ 745,876 $ --
Intangible assets, net 234,284 205,431
Prepaid assets 249,151 286,732
Other 242,403 204,418
---------- --------
$1,471,714 $696,581
========== ========
</TABLE>
Long-term investments consist of equity securities in public and non-public
companies.
7
<PAGE> 8
INCOME TAXES
The Company accounts for income taxes under the liability method 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.
RECENT PRONOUNCEMENTS
In June 1998, Financial Accounting Standards No. 133 ("FAS 133"), "Accounting
for Derivative Instruments and Hedging Activities" was issued and was effective
for all fiscal years beginning after June 15, 1999. FAS 133 was subsequently
amended by Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" and will now be effective for fiscal years beginning after
June 15, 2000, with early adoption permitted. FAS 133, as amended, requires the
Company to recognize all derivatives as either assets or liabilities and to
measure those instruments at fair value. It further provides criteria for
derivative instruments to be designated as fair value, cash flow and foreign
currency hedges and establishes respective accounting standards for reporting
changes in the fair value of the derivative instruments. Upon adoption, the
Company will be required to adjust hedging instruments to fair value in the
balance sheet and recognize the offsetting gains or losses as adjustments to be
reported in net income or other comprehensive income, as appropriate. The
Company has not completed its assessment of the impact of FAS 133, as amended,
on its consolidated financial position or results of operations and will adopt
FAS 133 effective July 1, 2000.
COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ------------------------------
December 26, December 27, December 26, December 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 353,365 $ 261,419 $ 625,547 $ 372,947
Change in unrealized gain (loss) on
investments, net 382,687 (6,513) 390,131 (20,637)
Change in cumulative translation
adjustment 3,352 2,033 (5,539) 2,299
--------- --------- ---------- ---------
Comprehensive income $ 739,404 $ 256,939 $1,010,139 $ 354,609
========= ========= ========== =========
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
December 26, 1999 and June 30, 1999, are as follows:
<TABLE>
<CAPTION>
December 26, 1999 June 30, 1999
----------------- -------------
<S> <C> <C>
Unrealized gains (losses) on securities $389,802 $ (329)
Foreign currency translation adjustments (15,241) (9,702)
-------- --------
Accumulated other comprehensive income $374,561 $(10,031)
======== ========
</TABLE>
8
<PAGE> 9
BUSINESS COMBINATIONS
POOLING OF INTERESTS COMBINATION
On October 19, 1999, the Company completed its merger with Forte Software, Inc.
("Forte"), a software company that designs, develops, markets and supports a set
of products for developing, deploying and managing production applications in
distributed environments, including client/server and the Internet. Under the
terms of the merger agreement, the Company issued 12.7 million shares of Sun
common stock (with a fair market value of $47.03 per share on such date) in
exchange for all of Forte's common stock. In addition, Sun issued 2.7 million
stock options in exchange for Forte's previously outstanding stock options. The
number of Sun shares was calculated using an exchange ratio of 0.6 shares of Sun
stock for each share of Forte common stock. The transaction was accounted for as
a pooling of interests and, accordingly, the historical condensed consolidated
financial statements of the Company have been restated to include the financial
position, results of operations and cash flows of Forte for all periods
presented. Pro forma results of operations have not been presented because the
effect of the merger on the Company's financial statements was not material.
PURCHASE COMBINATIONS
The Company has completed a number of purchase acquisitions. The consolidated
financial statements include the operating results of each business from the
date of acquisition. Pro forma results of operations have not been presented
because the effects of these acquisitions were not material on either an
individual or an aggregate basis.
The Company calculated amounts allocated to in-process research and development
("IPRD") using established valuation techniques and expensed such amounts in the
quarter that each such acquisition was consummated because technological
feasibility of the in-process technology had not been achieved and no alternate
future uses had been established. The Company computed its valuations of IPRD
for the above noted acquisitions using a discounted cash flow analysis on the
anticipated income stream to be generated by the purchased technology.
The excess purchase price over the estimated value of the net tangible assets
was allocated to various intangible assets, consisting primarily of developed
technology and goodwill, as well as other intangible assets, such as customer
base and assembled workforce. The value of developed technology was based upon
future discounted cash flows related to the existing product's projected income
stream. The value of the customer base was determined based upon the value of
existing relationships and the expected revenue stream. The value of the
assembled workforce was based upon the cost to replace that workforce.
Intangible assets, including goodwill, are being amortized over their estimated
useful lives, ranging from two to five years.
On October 18, 1999, the Company acquired all of the outstanding capital stock
of NetBeans Ceska Republika a.s. ("NetBeans"), a Czech Republic joint stock
company and a developer of cross-platform Java(TM) technology-based integrated
development environments, by means of an asset purchase from NetBeans' parent
holding company, NetBeans, Inc., a British Virgin Islands company. The total
purchase price was approximately $9.0 million. This transaction was accounted
for as a purchase, with the excess of the purchase price over the estimated fair
value of tangible assets being allocated primarily to various intangible assets,
including goodwill ($8.0 million), developed technology ($0.8 million) and other
intangible assets ($0.2 million). There was no IPRD associated with this
acquisition.
On August 5, 1999, Sun acquired all of the outstanding capital stock of Star
Division Corporation ("Star Division"), a company conducting development,
engineering, and testing activities associated with the completion of a new
enterprise application platform product, by means of a merger transaction
pursuant to which all of the shares of Star Division were converted into the
right to receive cash. The total purchase price for Star Division was
approximately $59.5 million. Simultaneous with the acquisition of Star Division,
Sun acquired
9
<PAGE> 10
certain assets and liabilities of Star Division Software-Entwicklung und
Vertriebs GmbH ("Star Company"), a related party of Star Division, for total
cash consideration of approximately $14 million. These transactions were
accounted for as purchases, with the excess of the purchase price over the
estimated fair value of net tangible assets being allocated primarily to various
intangible assets, including goodwill ($69.7 million), developed technology
($3.3 million), distribution contracts ($1.1 million) and assembled workforce
($1 million). In addition to the intangible assets acquired, the Company
recorded a $3.5 million charge, representing the write-off of IPRD.
DEBT OFFERING
On July 14, 1999, the shelf registration statement which Sun filed with the
Securities and Exchange Commission (SEC) on June 18, 1999 became effective. The
shelf registration statement registered senior and subordinated debt securities
and common and preferred stock with an aggregate initial offering price of up to
$3 billion. The securities registered by Sun were in addition to the $1 billion
of securities previously registered and declared effective under a separate
shelf registration statement filed with the SEC. On August 4, 1999, the Company
issued $1.5 billion of unsecured senior debt securities in four tranches. The
four tranches are comprised of the following notes (the "Senior Notes"): $200
million (due on August 15, 2002 and bearing interest at 7%), $250 million (due
on August 15, 2004 and bearing interest at 7.35%), $500 million (due on August
15, 2006 and bearing interest at 7.5%), and $550 million (due on August 15, 2009
and bearing interest at 7.65%). Interest on the Senior Notes will be payable
semi-annually. Sun may redeem all or any part of any tranche of the Senior Notes
at any time at a price equal to 100% of the principal plus accrued and unpaid
interest and an amount as determined by a quotation agent, which represents the
present value of the remaining scheduled payments. Sun anticipates that the net
proceeds from this offering will be used to fund expansion of the Company's
business, including additional working capital, capital expenditures,
acquisition of products, technologies and businesses and general corporate
matters. Sun also entered into various interest rate swap agreements to modify
the interest characteristics of the Senior Notes so that the interest associated
with the Senior Notes effectively becomes variable.
10
<PAGE> 11
OPERATING SEGMENTS
Although the Company has various divisions, only Computer Systems and Storage
and Enterprise Services are considered reportable segments under the criteria of
FAS 131. Products in the Computer Systems and Storage segment include a broad
range of desktop systems, servers, storage, and network switches, incorporating
the UltraSPARC (TM) processors and Solaris(TM) Operating Environment. In the
Enterprise Services segment, the Company provides a full range of services and
support to existing and new customers, including education, professional
services, and systems integration. The Other segment consists of various
software and other miscellaneous divisions, such as corporate, which did not
meet the requirements individually for a reportable segment as defined by FAS
131.
Information on reportable segments is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ------------------------------
December 26, December 27, December 26, December 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Computer Systems and Storage $2,691,837 $2,258,989 $5,176,051 $4,317,022
Enterprise Services 557,180 399,700 1,034,927 734,766
Other 304,906 144,263 488,501 260,504
---------- ---------- ---------- ----------
Total $3,553,923 $2,802,952 $6,699,479 $5,312,292
========== ========== ========== ==========
Interdivision revenues
Computer Systems and Storage $ - $ - $ - $ -
Enterprise Services 93,343 78,682 175,663 155,159
Other (93,343) (78,682) (175,663) (155,159)
---------- ---------- ---------- ----------
Total $ - $ - $ - $ -
========== ========== ========== ==========
Operating Income
Computer Systems and Storage $ 549,662 $ 386,070 $1,045,257 $ 692,326
Enterprise Services 75,782 51,653 128,847 87,840
Other (129,617) (63,525) (299,033) (208,592)
---------- ---------- ---------- ----------
Total $ 495,827 $ 374,198 $ 875,071 $ 571,574
========== ========== ========== ==========
</TABLE>
Segment assets have not changed materially from June 30, 1999.
11
<PAGE> 12
SUBSEQUENT EVENTS
On January 31, 2000, the Company acquired all of the outstanding capital stock
of Trustbase, Limited ("Trustbase"), a United Kingdom parent holding company of
JCP Computer Services Limited, a developer of highly secure public key
infrastructure enabling technology, by means of a stock purchase transaction
pursuant to which all of the shares of Trustbase were converted into the right
to receive cash. The total purchase price for Trustbase was approximately $18.2
million. This transaction will be accounted for as a purchase, with the excess
of the purchase price over the estimated fair value of tangible assets being
allocated to various intangible assets.
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth items from the Condensed Consolidated Statements
of Income as a percentage of total net revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 26, December 27, December 26, December 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Products 84.3% 85.7% 84.6% 86.2%
Services 15.7 14.3 15.4 13.8
----- ----- ----- -----
Total net revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of sales:
Products 38.6 40.2 38.5 39.9
Services 9.8 8.1 9.7 8.6
----- ----- ----- -----
Total cost of sales 48.4 48.3 48.2 48.5
----- ----- ----- -----
Gross margin 51.6 51.7 51.8 51.5
----- ----- ----- -----
Research and development 11.2 11.0 11.3 11.2
Selling, general and administrative 26.4 26.9 27.4 27.8
Purchased in-process research
and development - 0.4 - 1.7
----- ----- ----- -----
Operating income 14.0 13.4 13.1 10.8
----- ----- ----- -----
Interest income, net 0.8 0.7 0.9 0.6
----- ----- ----- -----
Income before income taxes 14.8 14.1 14.0 11.4
----- ----- ----- -----
Provision for income taxes 4.9 4.8 4.7 4.4
----- ----- ----- -----
Net income 9.9% 9.3% 9.3% 7.0%
===== ===== ===== =====
</TABLE>
The following section contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, particularly statements
regarding Japanese macroeconomic trends, the impact on our gross margin from
shifts in product mix, our expectations to invest in our services business,
services gross margin expectations for fiscal year 2000, our expectations
relating to future research and development and selling, general and
administrative expenses in fiscal year 2000, our expectations to continue hiring
personnel in certain areas, our expectations as to financial market risks, our
expected effective income tax rate for fiscal 2000, our beliefs as to our
liquidity and capital resources, as well as our expectations set forth in the
section entitled "Purchased in-process research and development," including
percentage of completion, expected product release dates, dates for which we
expect to begin generating benefits from projects, expected product capabilities
and product life cycles, costs and efforts to complete projects, growth rates,
royalty rates, projected revenues, cost of revenue and operating expense
information used by us to calculate discounted cash
13
<PAGE> 14
flows and discount rates and our expectations to continue and successfully
complete product development as well as realize our expected economic return.
These forward-looking statements involve risks and uncertainties, and the
cautionary statements set forth below and those contained in "Future Operating
Results," identify important factors that could cause actual results to differ
materially from those predicted in any such forward-looking statements. Such
factors include, but are not limited to, adverse changes in general economic
conditions, including adverse changes in the specific markets for our products,
adverse business conditions, decreased or lack of growth in the computing
industry, adverse changes in customer order patterns, increased competition,
lack of acceptance of new products, pricing pressures, lack of success in
technological advancements, risks associated with foreign operations (including
the downturn of economic trends and unfavorable currency movements in the Asia
Pacific marketplace), and risks associated with our efforts to comply with Year
2000 requirements. With respect to risks related to purchased in-process
research and development identified above, such factors also include but are not
limited to, delays in the development of in-process technologies or the release
of products into the market, the complexity of the technology, our ability to
successfully manage product introductions, lack of customer acceptance,
competition and changes in technological trends, and market or general economic
conditions. In addition, there can be no assurance that any of the new products
discussed below will be completed, that such products will achieve either
technological or commercial success or that we will receive any economic benefit
from such products as a result of delays in the development of the technology,
the complexity of the technology, or changes in customer needs. Other factors
that may affect such results and financial condition are set forth in our 1999
Annual Report to Stockholders, which is incorporated by reference in our Form
10-K.
RESULTS OF OPERATIONS
NET REVENUES
Our net revenues were $3,553.9 million for the second quarter of fiscal 2000 and
$6,699.5 million for the first six months of fiscal 2000, representing an
increase of 26.8% and 26.1%, respectively, over the corresponding periods of
fiscal 1999.
Our products net revenues for the second quarter of fiscal 2000 increased by
$593.5 million or 24.7% to $2,996.7 million over the corresponding period of
fiscal 1999. Net products revenues were $5,664.6 million for the six months
ended December 26, 1999, an increase of $1,087.0 million or 23.7% over the
corresponding period of fiscal 1999. Approximately half of the increase in
products revenue for the second quarter and first six months of fiscal 2000 is
due to continued strong demand for our enterprise and workgroup servers, as well
as increased revenues generated by our storage products. As a result of the
strong demand in our servers, high-end and low-end desktop system revenue as a
percentage of products net revenues has declined for the three and six months
ended December 26, 1999.
Our services net revenues for the second quarter of fiscal 2000 increased by
$157.5 million or 39.4% to $557.2 million, over the corresponding period of
fiscal 1999. Net revenues from services were $1,034.9 million for the first six
months ended December 26, 1999, an increase of $300.2 million or 40.9% over the
corresponding period of fiscal 1999. The increases in services net revenues are
primarily the result of: (1) an overall shift towards premium service and
support contracts resulting from a larger installed base of high-end server
products; (2) a larger installed service base related to increased product unit
sales; and (3) increased revenues associated with our professional and
educational services.
Our domestic net revenues increased by 33.5% and 29.1% in the second quarter and
first six months of fiscal 2000, respectively, over the corresponding periods of
fiscal 1999. Our international net revenues grew 20.4% and 23.0% in the second
quarter and the first six months of fiscal 2000, respectively, compared with the
corresponding periods of fiscal 1999. In US dollars, European net revenues
increased 15.9% and 19.2%, Rest of
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World (ROW) net revenues increased 40.9% and 32.7%, and Japanese net revenues
increased 11.6% and 23.0%, in the second quarter and first six months of fiscal
2000, respectively, when compared with the corresponding periods of fiscal 1999.
The increases in Europe are primarily due to continued market acceptance of our
network computing products and services in Germany, France, and southern
European countries, and to a lesser extent, from growth in northern European
countries. Although we have experienced U.S. dollar revenue growth in the
European marketplace on a year over year basis, there can be no assurance that
such trends will continue. In particular, if capital spending declines in
certain countries or industries, our results of operations and cash flow could
suffer. The increases in ROW and Japan net revenues are attributable to
increased demand across the Asia Pacific region for our products and services.
Despite signs of recovery in the Japanese economy, we remain cautious with
regard to the Japanese market. In addition, if the economic trends in Japan
significantly worsen in a quarter or decline over an extended period of time,
our results of operations and cash flows could suffer.
A portion of our operations consists of manufacturing and sales activities
outside of the U.S. As a result, our results of operations could be
significantly adversely affected by factors such as changes in foreign currency
exchange rates or economic conditions in the foreign markets in which we
distribute our products. We are primarily exposed to changes in exchange rates
on the Japanese yen, British pound, French franc and German mark. When the U.S.
dollar strengthens against these currencies, the U.S. dollar value of non-U.S.
dollar-based sales decreases. When the U.S. dollar weakens against these
currencies, the U.S. dollar value of non-U.S. dollar-based sales increases.
Correspondingly, the U.S. dollar value of non-U.S. dollar-based costs increases
when the U.S. dollar weakens and decreases when the U.S. dollar strengthens.
Overall we are a net receiver of currencies other than the U.S. dollar and, as
such, benefit from a weaker dollar, and are adversely affected by a stronger
dollar relative to major currencies worldwide. Accordingly, changes in exchange
rates, and in particular a strengthening of the U.S. dollar, may adversely
affect our consolidated sales and operating margins as expressed in U.S.
dollars.
To mitigate the short-term effect of changes in currency exchange rates on our
non-U.S. dollar-based sales, product procurement, and operating expenses, we
routinely hedge our net non-U.S. dollar-based exposures by entering into foreign
exchange forward and option contracts. Currently, hedges of transactions do not
extend beyond three months. Given the short term nature of our foreign exchange
forward and option contracts, our exposure to risk associated with currency
market movement on the instruments is not material.
GROSS MARGIN
Total gross margin was 51.6% and 51.8%, for the second quarter and the first six
months of fiscal 2000, respectively, compared with 51.7% and 51.5% for the
corresponding periods of fiscal 1999.
Products gross margin was 54.3% and 54.5% in the second quarter and first six
months of fiscal 2000, respectively, compared with 53.1% and 53.7% for the
corresponding periods of fiscal 1999. The modest increases in products gross
margin for the three and six months periods in fiscal 2000 reflect the effects
of increased volumes of higher margin servers, partially offset by lower margin
workstations. There could be a possible downward impact on our products gross
margins should the mix of higher margin servers and lower margin workstations
change.
Services gross margin was 37.3% and 36.8% in the second quarter and first six
months of fiscal 2000, respectively, compared with 43.5% and 38.2% for the
corresponding periods of fiscal 1999. The decreases in services gross margin
reflect the impact of building additional infrastructure, improvements in
existing service delivery technologies and processes, and increased headcount.
These additional costs are partially offset by: (1) increased market penetration
in enterprise data center accounts; (2) an overall shift towards premium service
and support contracts resulting from a larger installed base of high-end server
products; (3) continued growth in professional services revenues; and (4)
increased economies of scale in certain geographic markets. We expect
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to continue to invest in our services business through increased headcount,
increased spares inventory and other infrastructure-related initiatives. We
currently expect our services gross margin to be in the mid-to-high thirty
percent range for the remainder of fiscal 2000.
We continuously evaluate the competitiveness of our product and service
offerings. These evaluations could result in repricing actions in the near term.
Our future operating results would be adversely affected if such repricing
actions were to occur and we were unable to mitigate the resulting margin
pressure by maintaining a favorable mix of systems, software, service, and other
products and by achieving component cost reductions, operating efficiencies and
increasing volumes.
RESEARCH AND DEVELOPMENT
Our research and development (R&D) expenses increased to $397.6 million in the
second quarter of fiscal 2000, compared with $307.4 million for the
corresponding period of fiscal 1999. R&D expenses were $754.6 million for the
first six months of fiscal 2000, compared with $594.8 million for the
corresponding period in fiscal 1999. As a percentage of net revenues, R&D
expenses were 11.2% and 11.3% for the second quarter and first six months of
fiscal 2000, respectively, compared with 11.0% and 11.2% in the corresponding
periods of fiscal 1999. Both the dollar and percentage increases in R&D expenses
in the second quarter and first half of fiscal 2000 over the corresponding
periods in fiscal 1999 reflect our continued development of a broad line of
scaleable hardware products, including servers, workstations, and storage
technologies, as well as software products which utilize the Java(TM) platform,
Solaris Operating Environment software, Jini(TM) software, and SPARC(TM)
microprocessors. Furthermore, R&D expenses have increased due to additional
development of products acquired through acquisitions and increased compensation
and compensation-related costs related to higher levels of R&D staffing. The
increases in R&D spending reflect our belief that to maintain our competitive
position in a market characterized by rapid rates of technological advancement,
we must continue to invest significant resources in new systems, software, and
microprocessor development, as well as continue to enhance existing products.
While we expect the dollar amount of research and development expenses to
increase during the remainder of fiscal 2000, R&D as a percentage of revenue for
fiscal 2000 is expected to be in the range of 10.5%-11.0% of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses increased to $940.7 million,
or by 24.3%, in the second quarter of fiscal 2000 compared with $756.9 million
for the corresponding period of fiscal 1999. SG&A was $1,834.3 million for the
six months ended December 26, 1999, an increase or $354.4 million, or 23.9%, in
comparison to the corresponding period of fiscal 1999. As a percentage of net
revenues, SG&A expenses decreased to 26.4% and 27.4% in the second quarter and
first six months of fiscal 2000, respectively, from 26.9% and 27.8%,
respectively, in the corresponding periods of fiscal 1999. The dollar increases
in fiscal 2000 are primarily attributable to: (1) compensation resulting from
higher levels of headcount, principally in the sales organization; (2) annual
salary adjustments; and (3) marketing costs related to promotional programs. We
also made additional investments aimed at improving our own business processes.
As a result, in fiscal 2000 we expect SG&A expense to increase in dollar amount,
as we continue to invest in efforts to achieve additional future operating
efficiencies through the continual review and improvement of business processes.
In addition, we expect to continue to hire personnel to drive demand-creation
programs and to build service and support organizations. However, these
investments in SG&A should not cause SG&A to increase as a percentage of
revenue.
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PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Purchased in-process research and development ("IPRD") of $3.5 million in the
first half of fiscal 2000 represents the write-off of in-process technologies
associated with our acquisitions of Star Division Corporation ("Star Division")
and certain assets and liabilities of Star Division Software-Entwicklung und
Vertriebs GmbH ("Star Company"), a related party of Star Division. Purchased
IPRD of $92.0 million in the first half of fiscal 1999 represents the write-off
of in-process technologies associated with our acquisitions of NetDynamics, Inc.
("NetDynamics"), i-Planet, Inc. ("i-Planet"), and Beduin Communications
Incorporated ("Beduin"). All of these business combinations are known
collectively as "Acquired Companies". At the date of each acquisition noted
above, the projects associated with the IPRD efforts had not yet reached
technological feasibility and the R&D in process had no alternative future uses.
Accordingly, these amounts were expensed on the respective acquisition dates of
each of the Acquired Companies. Also see Notes to Condensed Consolidated
Financial Statements (Unaudited) - Business Combinations.
Star Division Corporation and Star Division Software-Entwicklung und Vertriebs
GmbH:
On August 5, 1999, we acquired all of the outstanding capital stock of Star
Division by means of a merger transaction pursuant to which all of the shares of
Star Division were converted into the right to receive cash. The total purchase
price for Star Division was approximately $59.5 million. Simultaneous with the
acquisition of Star Division, we acquired certain assets and liabilities of Star
Division Software-Entwicklung und Vertriebs GmbH, a related party of Star
Division, for total cash consideration of approximately $14 million.
(Collectively, these companies are referred to as the "Star Companies"). These
transactions were accounted for as purchases, with the purchase price being
allocated to tangible assets, intangible assets and IPRD.
IPRD Overview - Star Companies:
At the acquisition date (August 5, 1999), the Star Companies were conducting
development, coding and testing activities associated with the completion of a
new technology which would enable their most recent version of StarOffice to be
utilized in a portal environment (the "Star Product Offering"). The Star Product
Offering is an updated office productivity suite which will provide word
processing, spreadsheet, graphics design, presentation and data base
applications. The Star Product Offering was initially scheduled to be released
at the end of calendar 1999. Key product features under development included:
- Portal technology that will allow individuals to access office
applications and data via the Internet from different types of devices
including cell phones and personal data assistants.
- Greater interoperability with other office applications. The Star
Product Offering will allow corporate intranets and extranets, as well
as service providers, to host an entire workplace, including
applications, from a single location which would also be accessible via
the Internet.
- Improved functionality and performance across each office application.
At the acquisition date, the Star Companies had made substantial progress in the
areas of product definition, architecture design, and coding. Remaining efforts
necessary to complete the Star Product Offering related primarily to additional
coding, testing, and implementation. We anticipated that an early access/beta
version of the Star Product Offering would be available in the second quarter of
fiscal 2000, with a general availability version scheduled for release in the
second half of fiscal 2000 at which time we expect to realize economic benefits
associated with the Star Product Offering.
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Valuation Analysis - Star Companies:
We calculated the value of the IPRD technology using a discounted cash flow
analysis on the anticipated income streams. The discounted cash flow analysis
was based upon our forecast of future revenues, cost of revenues, and operating
expenses related to the product and technology acquired from the Star Companies
which are intended to be used in our future software application products. We
projected revenue to increase at a compound growth rate of approximately 31%
from fiscal 2000 through 2009. We also expected revenues for the IPRD to peak in
fiscal 2002 (as a percentage of revenue) and decline thereafter, as we expect to
introduce new product technologies. These projections are based on our estimates
of market size and growth, expected trends in technology, and the expected
timing of new product introductions.
Our assumptions with respect to operating expenses used in the valuation
analysis included: (1) cost of goods sold, (2) SG&A expenses, and (3) R&D
expenses. Selected operating expense assumptions we used were based on an
evaluation of the Star Companies' overall business model, including both
historical and expected direct expense levels (as appropriate), and an
assessment of general industry metrics. We project that cost of revenues
(expressed as a percentage of revenue) for the IPRD averages 20% over the
projection period. We estimated SG&A (expressed as a percentage of revenue) for
the IPRD averages 40% over the projection period. Maintenance R&D related to the
IPRD was estimated to be approximately 2% of revenue over the projection period.
The discount rate we selected for the IPRD was 23%. In the selection of the
appropriate discount rate, we gave consideration to our weighted average cost of
capital (WACC), as well as other factors, including the useful life of the
technology, profitability levels of the technology, the uncertainty of
technology advances that are known at the valuation date, and the stage of
completion of the technology. The discount rate we used for the IPRD was
determined to be greater than our WACC due to the fact that the technology had
not yet reached technological feasibility as of the date of the valuation.
The value of the IPRD reflects the relative value and contribution of the
acquired research and development. We gave consideration to the R&D's stage of
completion, the complexity of the work completed to date, the difficulty
completing the remaining development, costs already incurred, and the projected
cost to complete the project in determining the value assigned to IPRD.
Comparison to Actual Results - Star Companies:
At December 26, 1999, significant progress had been made on the development
related to the Star Product Offering that was underway as of the acquisition
date. The early access software version scheduled for release in the second half
of fiscal 2000 was shipped in January 2000. At December 26, 1999, we had
incurred approximately $3.9 million of the planned total cost to complete of
$7.5 million, and no significant adjustments have been made in the economic
assumptions or expectations which underlie our acquisition decision and related
purchase accounting. We are continuing our development efforts related to the
IPRD technology acquired. These development efforts are advancing at a rate
consistent with our expectations.
Given the uncertainties of the development and commercialization process, no
assurance can be given that deviations from these estimates will not occur. We
expect to continue the development of the Star Product Offering and believe that
there is a reasonable chance of successfully completing such development.
However, as there is risk associated with the completion of the in-process
project and commercialization due to the remaining efforts to achieve
technological feasibility, rapidly changing customer needs, complexity of
technology and growing competitive pressures, there can be no assurance that the
project will meet with commercial success. Failure to successfully develop and
commercialize this in-process project would result in the loss of the expected
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economic return inherent in the fair value allocation. Additionally, the value
of our intangible assets acquired may become impaired.
Overall Status of Business Combinations Prior to Fiscal 2000:
With respect to acquisitions completed prior to fiscal 2000, we believe that the
projections we used in performing our valuations with respect to each
acquisition are still valid in all material respects, however, there can be no
assurance that the projected results will be achieved. We continue to make
substantial progress related to the development and commercialization of
acquired technologies. Although we have experienced delays in the completion of
certain of our development efforts and their related commercialization, the
total costs to complete such technologies have not materially increased,
individually or in aggregate. We periodically evaluate our product development
timeline and modify our overall business plan in response to various factors.
Modifications to our business plan include the reallocation of resources among
various alternative development projects. The impact of delays in the
realization of economic benefits related to acquired technologies, individually
or in aggregate, has not been material to our overall consolidated financial
position or results of operations as of and for the six months ended December
26, 1999.
We expect to continue the development of each project which has not yet been
completed and believe that there is a reasonable chance of successfully
completing such development efforts. However, as there is risk associated with
the completion of the in-process projects, there can be no assurance that any
project will meet with either technological or commercial success. Failure to
successfully develop and commercialize these in-process projects would result in
the loss of the expected economic return inherent in the fair value allocation.
Additionally, the value of other intangible assets acquired may become impaired.
INTEREST INCOME, NET
Net interest income was $31.6 million and $60.1 million for the second quarter
and first six months of fiscal 2000, respectively, compared with $20.7 million
and $36.4 million, for the corresponding periods in fiscal 1999. Our cash and
investment portfolio increased in August 1999 due to our issuance of $1.5
billion of unsecured senior debt securities. The increases in interest income,
net, are primarily the result of higher interest earnings on a larger average
portfolio of cash and short-term investments, partially offset by interest
expense related to our issuance of $1.5 billion of unsecured debt securities.
Our interest income and expenses are sensitive to changes in the general level
of U.S. interest rates. In this regard, changes in the U.S. interest rates
affect the interest earned on our cash equivalents and short-term investments,
as well as interest paid on our borrowings. To mitigate the impact of
fluctuations in U.S. interest rates on our unsecured debt securities, we have
entered into interest rate swap transactions.
INCOME TAXES
Our effective income tax rate was 33.0% for the second quarter and first six
months of fiscal 2000, respectively, excluding non-recurring tax charges of $1.2
million resulting from the write-off of IPRD associated with the acquisition of
Star Division in the first quarter of fiscal 2000. Our effective income tax
rate, including such charges for the second quarter and six months ended
December 26, 1999, was 33.0% and 33.1%, respectively.
Our effective income tax rate was 33.0% and 33.1% for the second quarter and
first six months of fiscal 1999, respectively, excluding non-recurring tax
charges of $3.2 million resulting from the write-off of IPRD associated with the
acquisition of i-Planet in the second quarter of fiscal 1999 and of $30.4
million resulting from the write-off of IPRD associated with the acquisition of
NetDynamics in the first quarter of fiscal 1999. Our
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effective rate including such charges for the second quarter and six months
ended December 27, 1998 was 33.8% and 38.7%, respectively.
We currently expect our effective income tax rate to remain at 33.0% for the
rest of fiscal 2000. The expected tax rate excludes the impact of potential
mergers and acquisitions. The tax effects of merger and acquisition transactions
would be accounted for in the interim quarter in which the transactions occur.
Our expected rate is based on current tax law and current estimates of earnings,
and is subject to change.
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition has improved as of December 26, 1999 when compared with
June 30, 1999. During the first six months of fiscal 2000, operating activities
generated $1,164.2 million in cash and cash equivalents. Non-cash expenses
affecting cash provided by operating activities included depreciation and
amortization expense of $356.6 million, tax benefit of options exercised of
$260.9 million, and a charge for IPRD of $3.5 million in connection with the
acquisition of the Star Companies. Accounts receivable decreased $278.4 million,
primarily due to the timing of shipments and related collections. Inventories
increased $251.3 million, primarily due to additional purchases of materials and
supplies to support the increased product and service volumes. Other current and
noncurrent assets increased $209.8 million primarily due to the timing of
payments for income and other taxes and the recording of goodwill and other
intangible assets related to our acquisitions. Accounts payable decreased $83.1
million, primarily due to the timing of purchases and related payments. Other
current and noncurrent liabilities increased $183.4 million primarily due to
increased compensation and compensation-related costs, as well as increases in
sales and marketing costs.
Our investing activities used $2,216.6 million of cash during the first six
months of fiscal 2000, an increase of $1,313.8 million from the $902.7 million
used during the corresponding period in fiscal 1999. The increase is primarily
due to the purchases of short-term investments utilizing a portion of the
proceeds available from our $1.5 billion debt offering. Purchases of short-term
investments totaled $4,150.6 million, up $3,208.7 million, or 341%, from
purchases made during the corresponding period in fiscal 1999. These purchases
were offset by sales and maturities of $2,533.8 million, up $2,032.6 million, or
405%, from sales and maturities during the corresponding period in fiscal 1999.
Also included in investing activities are purchases of long-term investments,
capital spending for real estate development and capital additions to support
increased headcount, primarily in our services, engineering and marketing
organizations. During the first six months of fiscal 2000, our long-term
investments increased from an immaterial amount to approximately $745.9 million.
However, the increase in long-term investments is primarily due to unrealized
gains on investments generated in the second quarter of fiscal 2000; the gains
are the result of investments in several companies which have undergone public
offerings.
During the first six months of fiscal 2000, $1,262.9 million of cash was
provided by financing activities, compared with $16.0 million used during the
corresponding period in fiscal 1999. The increase in cash provided by financing
activities is primarily due to our issuance of $1.5 billion of unsecured senior
debt securities. Acquisition of treasury stock increased by $225.1 million to
$389.3 million during the first six months of fiscal 2000, compared with $164.3
million during the corresponding period in fiscal 1999. This increase in
acquisition of treasury stock partially offsets the increase in cash provided by
financing activities in the first six months of fiscal 2000.
At December 26, 1999, our primary sources of liquidity consisted of cash, cash
equivalents and short-term investments of $4,460.3 million and a revolving
credit facility ("Facility") with banks aggregating $500 million. The Facility
is available subject to compliance with certain covenants. No amounts were
outstanding under the Facility at December 26, 1999.
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On October 16, 1997, we filed a shelf registration statement with the Securities
and Exchange Commission relating to the registration for public offering of
senior and subordinated debt securities and common stock with an aggregate
initial public offering price of up to $1 billion. On October 24, 1997, this
shelf registration statement became effective. On June 18, 1999, we filed an
additional shelf registration statement with the Securities and Exchange
Commission relating to the registration for public offering of senior and
subordinated debt securities and common and preferred stock with an aggregate
initial public offering price of up to $3 billion. On July 14, 1999, this shelf
registration statement became effective. As a result, we may choose to offer up
to $4 billion, from time to time, of debt securities and common and preferred
stock pursuant to Rule 415 in one or more separate series, in amounts, at prices
and on terms to be set forth in the prospectus contained in these registration
statements and in one or more supplements to the prospectus. On August 4, 1999,
we issued $1.5 billion in unsecured debt securities in four tranches. The four
tranches are comprised of the following notes (the "Senior Notes"): $200 million
(due on August 15, 2002 and bearing interest at 7%), $250 million (due on August
15, 2004 and bearing interest at 7.35%), $500 million (due on August 15, 2006
and bearing interest at 7.5%), $550 million (due on August 15, 2009 and bearing
interest at 7.65%). Sun also entered into various interest rate swap agreements
to modify the interest characteristics of the Senior Notes so that the interest
associated with the Senior Notes effectively becomes variable.
Our exposure to interest rate risk on the international short-term borrowings is
not material, given the short-term maturity of these instruments and our
evaluation of the potential for rate changes associated with such instruments.
We believe that the liquidity provided by existing cash and short-term
investments and the borrowing arrangements described above will provide
sufficient capital to meet our requirements through fiscal 2001. We believe the
level of financial resources is a significant competitive factor in our industry
and may choose at any time to raise additional capital through debt or equity
financings to strengthen our financial position, facilitate growth and provide
us with additional flexibility to take advantage of business opportunities that
may arise.
FUTURE OPERATING RESULTS
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED REVENUES, REDUCED MARGINS, REDUCED LEVELS OF
PROFITABILITY AND LOSS OF MARKET SHARE.
We compete in the hardware and software products and services markets. These
markets are intensely competitive. If we fail to compete successfully in these
markets, the demand for our products would decrease. Any reduction in demand
could lead to a decrease in the prices of our products, fewer customer orders,
reduced revenues, reduced margins, reduced levels of profitability, and loss of
market share. These competitive pressures could seriously harm our business and
operating results.
Our competitors are some of the largest, most successful companies in the world.
They include Hewlett Packard Company (HP), International Business Machines
Corporation (IBM), Compaq Computer Corporation (Compaq), and EMC Corporation
(EMC). Our future competitive performance depends on a number of factors,
including our ability to: continually develop and introduce new products and
services with better prices and performance than offered by our competitors;
offer a wide range of products and solutions from small single-processor systems
to large complex enterprise-level systems; offer solutions to customers that
operate effectively within a computing environment that includes hardware and
software from multiple vendors; offer products that are reliable and that ensure
the security of data and information; create products for which third party
software vendors will develop a wide range of applications; and offer high
quality products and services.
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We also compete with systems manufacturers and resellers of systems based on
microprocessors from Intel Corporation (Intel) and Windows NT operating system
software from Microsoft Corporation (Microsoft). These competitors include Dell
Computer Corporation (Dell), HP, and Compaq, in addition to Intel and Microsoft.
This competition creates increased pressure, including pricing pressure, on our
workstation and lower-end server product lines. We expect this competitive
pressure to intensify considerably during our fiscal year 2000 and through
fiscal year 2001 with the anticipated releases of new software products from
Microsoft and new microprocessors from Intel.
The computer systems that we sell are made up of many products and components,
including workstations, servers, storage products, microprocessors, the Solaris
Operating Environment and other software products. In addition, we sell some of
these components separately and as add-ons to installed systems. If we are
unable to offer products and services that compete successfully with the
products and services offered by our competitors or that meet the complex needs
of our customers, our business and operating results could be seriously harmed.
In addition, if in responding to competitive pressures, we are forced to lower
the prices of our products and services and we are unable to reduce our
component costs or improve operating efficiencies, our business and operating
results would be seriously harmed.
Over the last three years, we have invested significantly in our storage
products business with a view to increasing the sales of these products both on
a stand-alone basis to customers using the systems of our competitors, and as
part of the systems that we sell. The intelligent storage products business is
intensely competitive. EMC is currently the leader in this market. To the extent
we are unable to penetrate this market and compete effectively, our business and
operating results could be seriously harmed. In addition, we will be making
significant investments over the next few years to develop, market, and sell
software products under our recent alliance with America Online, Inc. (AOL) and
have agreed to significant minimum revenue commitments. These alliance products
are targeted at the e-commerce market and are strategic to our ability to
successfully compete in this market. If we are unable to successfully compete in
this market, our business and operating results could be seriously harmed.
THE PRODUCTS WE MAKE ARE VERY COMPLEX AND IF WE ARE UNABLE TO RAPIDLY AND
SUCCESSFULLY DEVELOP AND INTRODUCE NEW PRODUCTS, WE WILL NOT BE ABLE TO SATISFY
CUSTOMER DEMAND.
We operate in a highly competitive, quickly changing environment, and our future
success depends on our ability to develop and introduce new products that our
customers choose to buy. If we are unable to develop new products, our business
and operating results would be seriously harmed. We must quickly develop,
introduce, and deliver in quantity new, complex systems, software, and hardware
products and components including our UltraSPARC microprocessors, the Solaris
Operating Environment, our intelligent storage products, and other software
products, such as those products under development or to be developed under our
recent alliance with AOL. The development process for these complicated products
is very uncertain. It requires high levels of innovation from both our product
designers and our suppliers of the components used in our products. The
development process is also lengthy and costly. If we fail to accurately
anticipate our customers' needs and technological trends, or are otherwise
unable to complete the development of a product on a timely basis, we will be
unable to introduce new products into the market on a timely basis, if at all,
and our business and operating results would be adversely affected. In addition,
the successful development of software products under our alliance with AOL
depends on many factors, including our ability to work effectively within the
alliance on complex product development and any encumbrances that may arise from
time to time that may prevent us from developing, marketing, or selling these
alliance software products. If we are unable to successfully develop, market, or
sell the alliance software products or other software products, our business and
operating results could be seriously harmed.
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Software and hardware products such as ours may contain known as well as
undetected errors, and these defects may be found following introduction and
shipment of new products or enhancements to existing products. Although we
attempt to fix errors that we believe would be considered critical by our
customers prior to shipment, we may not be able to detect or fix all such
errors, and this could result in lost revenues and delays in customer
acceptance, and could be detrimental to our business and reputation.
The manufacture and introduction of our new hardware and software products is
also a complicated process. Once we have developed a new product we face the
following challenges in the manufacturing process. We must be able to
manufacture new products in high enough volumes so that we can have an adequate
supply of new products to meet customer demand. We must be able to manufacture
the new products at acceptable costs. This requires us to be able to accurately
forecast customer demand so that we can procure the appropriate components at
optimal costs. Forecasting demand requires us to predict order volumes, the
correct mixes of our software and hardware products, and the correct
configurations of these products. We must manage new product introductions so
that we can minimize the impact of customers delaying purchases of existing
products in anticipation of the new product release. We must also try to reduce
the levels of older product and component inventories to minimize inventory
write-offs. We may also decide to adjust prices of our existing products during
this process in order to try to increase customer demand for these products. If
we are introducing new products at the same time or shortly after the price
adjustment, this will complicate our ability to anticipate customer demand for
our new products.
If we were unable to timely develop, manufacture, and introduce new products in
sufficient quantity to meet customer demand at acceptable costs, or if we were
unable to correctly anticipate customer demand for our new products, our
business and operating results could be significantly harmed.
OUR RELIANCE ON SINGLE SOURCE SUPPLIERS COULD DELAY PRODUCT SHIPMENTS AND
INCREASE OUR COSTS.
We depend on many suppliers for the necessary parts and components to
manufacture our products. There are a number of vendors producing the parts and
components that we need. However, there are some components that can only be
purchased from a single vendor due to price, quality, or technology reasons. For
example, we depend on Sony for various monitors, and on Texas Instruments for
our SPARC microprocessors. If we were unable to purchase the necessary parts and
components from a particular vendor and we had to find a new supplier for such
parts and components, our new and existing product shipments could be delayed,
severely affecting our business and operating results.
OUR FUTURE OPERATING RESULTS DEPEND ON OUR ABILITY TO PURCHASE A SUFFICIENT
AMOUNT OF COMPONENTS TO MEET THE DEMANDS OF OUR CUSTOMERS.
We depend heavily on our suppliers to timely design, manufacture, and deliver
the necessary components for our products. While many of the components we
purchase are standard, we do purchase some components, specifically color
monitors and custom memory integrated circuits such as SRAMS and VRAMS, that
require long lead times to manufacture and deliver. Long lead times make it
difficult for us to plan component inventory levels in order to meet the
customer demand for our products. In addition, in the past, we have experienced
shortages in certain of our components (specifically DRAMS and SRAMS). If a
component delivery from a supplier is delayed, if we experience a shortage in
one or more components or if we are unable to provide for adequate levels of
component inventory, our new and existing product shipments could be delayed and
our business and operating results could suffer.
23
<PAGE> 24
SINCE WE ORDER OUR COMPONENTS (AND IN SOME CASES COMMIT TO PURCHASE) FROM
SUPPLIERS IN ADVANCE OF RECEIPT OF CUSTOMER ORDERS FOR OUR PRODUCTS WHICH
INCLUDE THESE COMPONENTS, WE FACE A SUBSTANTIAL INVENTORY RISK.
As part of our component inventory planning, we frequently pay certain suppliers
well in advance of receipt of customer orders. For example, we often enter into
noncancelable purchase commitments with vendors early in the manufacturing
process of our microprocessors to make sure we have enough of these components
for our new products to meet customer demand. Because the design and
manufacturing process for these components is very complicated it is possible
that we could experience a design or manufacturing flaw that could delay or even
prevent the production of the components for which we have previously committed
to pay. We also face the risk of ordering too many components, or conversely,
not enough components, since the orders are based on the forecasts of customer
orders rather than actual orders. If we cannot change or be released from the
noncancelable purchase commitments, we could incur significant costs from the
purchase of unusable components, due to a delay in the production of the
components or as a result of inaccurately predicting component orders in advance
of customer orders. Our business and operating results could be seriously harmed
as a result of these increased costs.
DELAYS IN PRODUCT DEVELOPMENT OR CUSTOMER ACCEPTANCE AND IMPLEMENTATION OF NEW
PRODUCTS AND TECHNOLOGIES COULD SERIOUSLY HARM OUR BUSINESS.
Delays in product development and customer acceptance and implementation of new
products could seriously harm our business. Delays in the development and
introduction of our products may occur for various reasons. For example, delays
in software development could delay shipments of related new hardware products.
Generally, the computer systems we sell to customers incorporate hardware and
software products that we sell, such as the UltraSPARC microprocessor, the
Solaris Operating Environment and intelligent storage products. Any delay in the
development of the software and hardware included in our systems could delay our
shipment of these systems.
In addition, if customers decided to delay the adoption and implementation of
new releases of our Solaris Operating Environment this could also delay customer
acceptance of new hardware products tied to that release. Adopting a new release
of an operating environment requires a great deal of time and money for a
customer to convert its systems to the new release. The customer must also work
with software vendors who port their software applications to the new operating
system and make sure these applications will run on the new operating system. As
a result, customers may decide to delay their adoption of a new release of an
operating system because of the cost of a new system and the effort involved to
implement it.
IF WE ARE UNABLE TO CONTINUE GENERATING SUBSTANTIAL REVENUES FROM INTERNATIONAL
SALES OUR BUSINESS COULD BE SUBSTANTIALLY HARMED.
Currently, approximately half of our revenues come from international sales. Our
ability to sell our products internationally is subject to the following risks:
general economic and political conditions in each country could adversely affect
demand for our products and services in these markets; currency exchange rate
fluctuations could result in lower demand for our products, as well as currency
translation losses; changes to and compliance with a variety of foreign laws and
regulations may increase our cost of doing business in these jurisdictions;
trade protection measures and import and export licensing requirements subject
us to additional regulation and may prevent us from shipping products to a
particular market, and increase our operating costs.
24
<PAGE> 25
WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE FOR A NUMBER
OF REASONS.
Future operating results will continue to be subject to quarterly
fluctuations based on a wide variety of factors, including:
Seasonality. Our sequential quarterly operating results usually
fluctuate downward in the first quarter of each fiscal year when compared to the
immediately preceding fourth quarter.
Increases in Operating Expenses. Our operating expenses will continue to
increase as we continue to expand our operations. Our operating results could
suffer if our revenues do not increase at least as fast as our expenses.
Acquisitions/Alliances. If, in the future, we acquire technologies,
products, or businesses, or we form alliances with companies requiring
technology investments or revenue commitments (such as our recent alliance with
AOL), we will face a number of risks to our business. The risks we may encounter
include those associated with integrating or comanaging operations, personnel,
and technologies acquired or licensed, and the potential for unknown liabilities
of the acquired or combined business. Also, we will include amortization expense
of acquired intangible assets in our financial statements for several years
following these acquisitions. Our business and operating results on a quarterly
basis could be harmed if our acquisition or alliance activities are not
successful.
Significant Customers. Only one of our customers accounted for more than
10% of our revenues in fiscal 1999 and fiscal 1998. Sales to this customer
accounted for approximately 14% of our fiscal 1999 and 1998 revenues. Our
business could suffer if this customer or another significant customer
terminated its business relationship with us or significantly reduced the amount
of business it did with us.
OUR FAILURE OR THE FAILURE OF OUR BUSINESS PARTNERS AND CUSTOMERS TO BE YEAR
2000 COMPLIANT COULD HARM OUR BUSINESS.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These code fields now need
to be able to distinguish between years beginning with "19" from those beginning
with "20". As a result, computer systems and/or software products may need to be
upgraded to comply with such Year 2000 requirements. In this regard, we made
custom coding enhancements and other necessary modifications to our
mission-critical internal business systems, as well as to other internal
business systems. We believe that such internal systems are now Year 2000
compliant.
We also established a program to assess whether certain of our products are Year
2000 compliant. Under this program, we performed tests on Sun products listed on
our price lists. To monitor this program and to help customers evaluate their
Year 2000 issues, we created a web site at http://sun.com/y2000/cpl.html, which
identified the following categories: products that were released Year 2000
compliant; products that required modifications to be Year 2000 compliant;
products under review; products that are not Year 2000 compliant and need to be
replaced with a Year 2000 compliant product; source code products that could be
modified and implemented without our review; and products that do not process or
manipulate date data or have no date-related technology.
To date we have not experienced any material problems attributable to the
inability to recognize dates beginning with the year 2000 in our products,
services, systems, or internal systems. We believe that the costs associated
with our Year 2000 efforts were not material and estimate such costs to be
between $48 to $50 million, of which approximately $44 million has been spent
through December 26, 1999. The aforementioned costs are estimates
25
<PAGE> 26
due in large part to the fact that we did not separately track the internal
labor costs associated with Year 2000 compliance, unless such costs were
incurred by individuals primarily devoted to Year 2000 compliance efforts.
Although we believe that we have successfully modified our products, services,
and systems as necessary to be Year 2000 compliant, we cannot be sure that our
products do not contain undetected errors or defects associated with Year 2000
functions that may result in material costs to us. Our business could suffer if
we fail to make our products, services, and systems Year 2000 compliant in time.
In addition, some of our customers are running products that are not Year 2000
compliant and will require an upgrade or other remediation to become Year 2000
compliant. We provide limited warranties as to Year 2000 compliance on certain
of our products and services. Except as specifically provided for in the limited
warranties, we do not believe that we are legally responsible for costs incurred
by customers to achieve Year 2000 compliance. We continue to take steps to
identify affected customers, raise customer awareness related to noncompliance
of our older products and encourage such customers to migrate to current
products or product versions. It is possible that we may experience increased
expenses, if we need to upgrade or perform other remediation on products that
our customers are using that are not Year 2000 compliant. Our business may also
materially suffer if customers become concerned about or are dissatisfied with
our products and services as a result of Year 2000 issues.
Although we have passed the rollover from December 31, 1999 to January 1, 2000,
we still face risks to the extent that suppliers of products, services, and
systems purchased by us or the suppliers of others with whom we transact
business cannot timely provide us with products, components, services, or
systems that meet Year 2000 requirements. To the extent that we were not able to
test technology provided by third-party hardware or software vendors, we carried
out audits and obtained Year 2000 compliance certifications from our major
vendors that their products and internal systems, as applicable, are Year 2000
compliant. In the event that any such third parties cannot timely provide us
with products, services, or systems that meet the Year 2000 requirements, our
business could be harmed. Furthermore, a reasonably likely worst-case scenario
would be if one of our major vendors experienced a material disruption in
business, which caused us to experience a material disruption in business. If
either our internal systems or the internal systems, products, or services of
one or more of our major vendors (including banks, energy suppliers, and
transportation providers) fail to achieve Year 2000 compliance, our business
could be seriously harmed. We have developed contingency plans to deal with
potential Year 2000 problems related to our internal systems that are deemed to
be mission-critical and with respect to products and services provided by
outside vendors. If these plans are not successful or if new Year 2000 problems
not covered by our contingency plans emerge, our business and operating results
may be seriously harmed.
Although we believe that the cost of Year 2000 modifications for both internal
use software and systems, as well as Sun's products, is not material, we cannot
be sure that various factors relating to the Year 2000 compliance issues will
not seriously harm our business or operating results. Even though we do not
believe that we are legally responsible for our customers' Year 2000 compliance
obligations, it is unclear whether different governments or governmental
agencies may decide to allocate liability relating to Year 2000 compliance to us
without regard to specific warranties or warranty disclaimers. Our business
could suffer in any given quarter if any liability is allocated to us.
Furthermore, we do not know how customer spending patterns may be affected by
Year 2000 issues. A significant disruption of our financial management and
control systems or a lengthy interruption in our operations caused by a Year
2000 related issue could also result in a material adverse impact on our
operating results and financial condition.
OUR ACQUISITION AND ALLIANCE ACTIVITIES COULD DISRUPT OUR ONGOING BUSINESS.
We intend to continue to make investments in companies, products and
technologies, either through acquisitions or investment alliances. For example,
we have purchased several companies in the past and have also formed alliances,
including our recent alliance with AOL. Acquisitions and alliance activities
often involve potential
26
<PAGE> 27
risks, including: difficulty in assimilating the acquired operations and
employees; difficulty in managing product codevelopment activities with our
alliance partners; retaining the key employees of the acquired operation;
disruption of our ongoing business; inability to successfully integrate the
acquired technology and operations into our business and maintain uniform
standards, controls, policies, and procedures; and lacking the experience to
enter into new markets, products, or technologies.
Some of these factors are beyond our control. Failure to manage these alliance
activities effectively and to integrate entities or assets that we acquire could
affect our operating results or financial condition.
WE DEPEND ON KEY EMPLOYEES AND FACE COMPETITION IN HIRING AND RETAINING
QUALIFIED EMPLOYEES.
Our employees are vital to our success, and our key management, engineering, and
other employees are difficult to replace. We generally do not have employment
contracts with our key employees. Further, we do not maintain key person life
insurance on any of our employees. The expansion of high technology companies in
Silicon Valley and Colorado, as well as many other cities, has increased demand
and competition for qualified personnel. We may not be able to attract,
assimilate, or retain additional highly qualified employees in the future. These
factors could harm our business.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although we are exposed to financial market risks at December 26, 1999,
including changes in interest rates, foreign currency exchange rates and
marketable equity security prices, we do not believe any such exposures are
material. Our interest rate risk exposure relates to our investment portfolio of
cash and marketable securities, as well as our unsecured senior debt and related
interest rate swaps. We are exposed to foreign currency exchange rate risk
related to our foreign exchange option and forward contracts. We are exposed to
equity market price risks on our portfolio of marketable equity securities. To
reduce certain risks, we utilize derivative financial instruments. We do not use
derivative financial instruments for speculative or trading purposes. See
further comments under the "Results of Operations" and "Liquidity and Capital
Resources" headings in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 2.
27
<PAGE> 28
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
1. LEGAL PROCEEDINGS
On October 7, 1997, we filed suit against Microsoft in the United States
District Court for the Northern District of California alleging breach of
contract, trademark infringement, false advertising, unfair competition,
interference with prospective economic advantage and inducing breach of
contract. We filed an amended complaint on October 14, 1997. Microsoft filed its
answer, affirmative defenses and counterclaims to the amended complaint. The
counterclaims include breach of contract, breach of the covenant of good faith
and fair dealing, violation of the California Business & Professions Code and
declaratory judgment. We believe that the counterclaims are without merit and/or
that we have affirmative defenses and intend to vigorously defend ourselves with
respect thereto. On March 24, 1998, the United States District Court judge ruled
in our favor granting a preliminary injunction directing Microsoft to cease
using our Java Compatible Logo(TM) on Microsoft products that failed to pass the
applicable test suites from Sun. In addition, on May 12, 1998, we filed a second
amended complaint alleging copyright infringement by Microsoft and motions
requesting further preliminary injunctive relief directed against the planned
release by Microsoft of additional products that failed to pass our applicable
test suites. The Court held hearings and arguments on such motions on September
8, 9, and 10, 1998. On November 17, 1998, the District Court issued an Order
granting, in substantial part, our request for preliminary injunctions. On
December 15, 1998, Microsoft filed notice of its intent to appeal the District
Court's Order and on December 18, 1998, Microsoft filed Motions with the
District Court to extend the time for compliance with the Order and to clarify
or modify the Order. On January 13, 1999, Microsoft filed an appeal to the
District Court's Order issued on November 17, 1998. On January 22, 1999, Sun and
Microsoft filed numerous motions for summary judgment with the District Court.
On May 24, 1999, the District Court issued tentative rulings on three pending
motions for summary judgment which were argued on June 24, 1999.
An appellate argument before the Ninth Circuit Court of Appeals relating to the
November 1998 preliminary injunction granted in our favor occurred on June 16,
1999. On August 23, 1999, a three-judge panel of the Ninth Circuit Court of
Appeals issued an opinion and ruling on Microsoft's appeal to that Court of the
November 1998 preliminary injunction issued by the District Court. The Ninth
Circuit panel, in its ruling, found sufficient evidence in the record to support
the District Court's conclusion that Sun is likely to prevail on the merits of
its breach of contract claims against Microsoft. However, the panel vacated the
copyright infringement-based injunction that the District Court had entered and
remanded the case back to the District Court for further consideration. The
Remand Order and the lifting of the injunction took effect on September 13,
1999. The District Court held a hearing regarding the Remand Order on October
15, 1999. On January 24, 2000, the District Court issued an Order reinstating,
in substantial part, the Court's previous preliminary injunction. The District
Court's Order was based upon a finding of unfair competition by Microsoft rather
than on a basis of copyright infringement. We believe that the outcome of this
matter will not have a material adverse impact on our financial condition,
results of operations or cash flows in any given fiscal period.
28
<PAGE> 29
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 10, 1999 the Annual Meeting of Stockholders of the Company was held
in Menlo Park, California. The share numbers contained in this Item 4 do not
reflect the Company's two-for-one stock dividend paid on December 7, 1999. The
results of voting of the 653,518,077 shares of Common Stock represented at the
meeting or by proxy are described below.
An election of directors was held with the following individuals being elected
to the Board of Directors of the Company:
<TABLE>
<CAPTION>
Name Shares Voted For Votes Withheld
---- ---------------- --------------
<S> <C> <C>
Scott G. McNealy 650,130,165 3,387,912
James L. Barksdale 646,220,555 7,297,522
L. John Doerr 549,190,325 104,327,752
Judith L. Estrin 649,918,001 3,600,076
Robert J. Fisher 650,125,865 3,392,212
Robert L. Long 650,107,903 3,410,174
M. Kenneth Oshman 650,079,813 3,438,264
</TABLE>
The seven nominees who received the highest number of votes (all of the above
individuals) were elected to the Board of Directors.
The stockholders approved an amendment to the Company's Restated Certificate of
Incorporation to increase the number of shares of Common Stock the Company is
authorized to issue from 1,800,000,000 shares to 3,600,000,000 shares. There
were 647,167,583 votes cast for the amendment, 3,968,250 votes cast against the
amendment, 2,382,244 abstentions, and no broker nonvotes.
The stockholders approved an amendment to the Company's 1990 Long-Term Equity
Incentive Plan in order to increase the number of shares of Common Stock
authorized for issuance thereunder by 37,000,000 shares of Common Stock to an
aggregate of 275,800,000 shares. There were 414,880,424 votes cast for the
amendment, 229,388,330 votes cast against the amendment, 9,249,323 abstentions,
and no broker nonvotes.
29
<PAGE> 30
ITEM 5 - OTHER INFORMATION
SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER
The following is a summary of all sales of our Common Stock (on a pre-split
basis) by our 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 26, 1999:
<TABLE>
<CAPTION>
OFFICER/ NUMBER OF
DIRECTOR DATE PRICE SHARES SOLD
- -------- -------- --------- -----------
<S> <C> <C> <C>
William T. Agnello 10/29/99 $105.7072 64,000
Lawrence W. Hambly 11/24/99 $129.8750 40,000
11/24/99 $128.8790 30,000
11/24/99 $131.8750 24,000
11/24/99 $130.9019 50,000
H. William Howard 10/20/99 $ 95.6250 20,000
James Judson 10/25/99 $ 93.1875 10,000
11/15/99 $121.2500 10,000
John S. McFarlane 11/2/99 $105.0000 10,000
11/15/99 $120.7500 10,000
Alton D. Page 11/12/99 $117.1556 10,000
11/24/99 $129.3125 10,000
Gregory M. Papadopoulos 10/29/99 $105.5859 24,000
Marissa Peterson 11/10/99 $114.0334 25,600
Frank A. Pinto 11/29/99 $135.7812 10,000
Michael L. Popov 11/1/99 $105.2500 24,000
11/12/99 $116.7633 8,000
John C. Shoemaker 11/3/99 $106.4232 32,000
Mark E. Tolliver 11/22/99 $128.0000 10,000
</TABLE>
30
<PAGE> 31
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
3.2 Registrant's Bylaws, as amended December 15, 1999.
3.5 Certificate of Amendment of Registrant's Restated Certificate of Incorporation
effective November 12, 1999.
3.6 Amended Certificate of Designations effective November 12, 1999.
10.65 Registrant's 1990 Employee Stock Purchase Plan, as amended on November 10, 1999.
10.66(1) Registrant's 1990 Long-Term Equity Incentive Plan, as amended on August 11, 1999.
27.0 Financial Data Schedule for the period ended December 26, 1999.
27.1 Financial Data Schedule for the period ended September 26, 1999 (restated for
pooling of interests merger with Forte Software, Inc.)
27.2 Financial Data Schedule for the period ended December 27, 1998 (restated for
pooling of interests merger with Forte Software, Inc.)
27.3 Financial Data Schedule for the period ended September 27, 1998 (restated for
pooling of interests merger with Forte Software, Inc.)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 26,
1999.
- ----------
(1) Incorporated by reference to Registrant's Registration Statement on
Form S-8 file number 333-90907, filed with the Securities and Exchange
Commission on November 12, 1999.
31
<PAGE> 32
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, Corporate Resources
and Chief Financial Officer
/s/ Michael L. Popov
----------------------------------------
Michael L. Popov
Vice President and Corporate Controller,
Chief Accounting Officer
Dated: February 9, 2000
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<S> <C>
3.2 Registrant's Bylaws, as amended December 15, 1999.
3.5 Certificate of Amendment of Registrant's Restated Certificate of Incorporation
effective November 12, 1999.
3.6 Amended Certificate of Designations effective November 12, 1999.
10.65 Registrant's 1990 Employee Stock Purchase Plan, as amended on November 10, 1999.
10.66(1) Registrant's 1990 Long-Term Equity Incentive Plan, as amended on August 11, 1999.
27.0 Financial Data Schedule for the period ended December 26, 1999.
27.1 Financial Data Schedule for the period ended September 26, 1999 (restated for
pooling of interests merger with Forte Software, Inc.)
27.2 Financial Data Schedule for the period ended December 27, 1998 (restated for
pooling of interests merger with Forte Software, Inc.)
27.3 Financial Data Schedule for the period ended September 27, 1998 (restated for
pooling of interests merger with Forte Software, Inc.)
</TABLE>
- ----------
(1) Incorporated by reference to Registrant's Registration Statement on
Form S-8 file number 333-90907, filed with the Securities and Exchange
Commission on November 12, 1999.
<PAGE> 1
BYLAWS
OF
SUN MICROSYSTEMS, INC.
(As adopted on December 14, 1990
and amended as of December 15, 1999)
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - CORPORATE OFFICES.......................................... 5
1.1 REGISTERED OFFICE........................................... 5
1.2 OTHER OFFICES............................................... 5
ARTICLE II - STOCKHOLDERS.............................................. 5
2.1 PLACE OF MEETINGS........................................... 5
2.2 ANNUAL MEETING.............................................. 5
2.3 SPECIAL MEETING............................................. 6
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................ 7
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................ 7
2.6 QUORUM...................................................... 7
2.7 ADJOURNED MEETING; NOTICE................................... 8
2.8 CONDUCT OF BUSINESS......................................... 8
2.9 WAIVER OF NOTICE............................................ 8
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING..................................................... 8
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS.................................................... 9
2.12 VOTING...................................................... 10
2.13 PROXIES..................................................... 10
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE....................... 11
2.15 INSPECTORS OF ELECTION...................................... 11
ARTICLE III - DIRECTORS................................................ 11
3.1 POWERS...................................................... 11
3.2 NUMBER OF DIRECTORS......................................... 11
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS..... 12
3.4 RESIGNATION AND VACANCIES................................... 12
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................... 13
3.6 REGULAR MEETINGS............................................ 13
3.7 SPECIAL MEETINGS; NOTICE.................................... 14
3.8 QUORUM...................................................... 14
3.9 WAIVER OF NOTICE............................................ 14
3.10 CONDUCT OF BUSINESS......................................... 14
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING........... 14
3.12 FEES AND COMPENSATION OF DIRECTORS.......................... 15
3.13 APPROVAL OF LOANS TO OFFICERS............................... 15
3.14 REMOVAL OF DIRECTORS........................................ 15
ARTICLE IV - COMMITTEES................................................ 15
4.1 COMMITTEES OF DIRECTORS..................................... 15
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
4.2 COMMITTEE MINUTES........................................... 16
4.3 MEETINGS AND ACTION OF COMMITTEES........................... 16
ARTICLE V - OFFICERS................................................... 16
5.1 GENERAL MATTERS............................................. 16
5.2 APPOINTMENT OF OFFICERS..................................... 17
5.3 SUBORDINATE OFFICERS........................................ 17
5.4 REMOVAL AND RESIGNATION OF OFFICERS......................... 17
5.5 VACANCIES IN OFFICES........................................ 17
5.6 CHAIRMAN OF THE BOARD....................................... 17
5.7 CHIEF EXECUTIVE OFFICER..................................... 17
5.8 PRESIDENT................................................... 18
5.9 VICE PRESIDENTS............................................. 18
5.10 SECRETARY................................................... 18
5.11 CHIEF FINANCIAL OFFICER..................................... 18
5.12 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............. 19
5.13 AUTHORITY AND DUTIES OF OFFICERS............................ 19
ARTICLE VI - INDEMNITY................................................. 19
6.1 THIRD PARTY ACTIONS......................................... 19
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION............... 19
6.3 SUCCESSFUL DEFENSE.......................................... 20
6.4 DETERMINATION OF CONDUCT.................................... 20
6.5 PAYMENT OF EXPENSES IN ADVANCE.............................. 20
6.6 INDEMNITY NOT EXCLUSIVE..................................... 20
6.7 INSURANCE INDEMNIFICATION................................... 20
6.8 THE CORPORATION............................................. 21
6.9 EMPLOYEE BENEFIT PLANS...................................... 21
6.10 INDEMNITY FUND.............................................. 21
6.11 INDEMNIFICATION OF OTHER PERSONS............................ 21
6.12 SAVINGS CLAUSE.............................................. 21
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES.................................................... 22
ARTICLE VII - RECORDS AND REPORTS...................................... 22
7.1 MAINTENANCE AND INSPECTION OF RECORDS....................... 22
7.2 INSPECTION BY DIRECTORS..................................... 22
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................ 22
ARTICLE VIII - GENERAL MATTERS......................................... 23
8.1 CHECKS...................................................... 23
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............ 23
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...................... 23
8.4 SPECIAL DESIGNATION ON CERTIFICATES......................... 23
8.5 LOST CERTIFICATES........................................... 24
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
8.6 CONSTRUCTION; DEFINITIONS.................................. 24
8.7 DIVIDENDS.................................................. 24
8.8 FISCAL YEAR................................................ 24
8.9 SEAL....................................................... 24
8.10 TRANSFER OF STOCK.......................................... 24
8.11 STOCK TRANSFER AGREEMENTS.................................. 25
8.12 REGISTERED STOCKHOLDERS.................................... 25
8.13 NOTICES.................................................... 25
ARTICLE I - AMENDMENTS................................................ 25
</TABLE>
4
<PAGE> 5
BYLAWS
OF
SUN MICROSYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of the stockholders of this corporation shall be held
each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in these Bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the preceding sentence, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder proposal to be presented at an
annual meeting must be delivered to the secretary of the corporation at the
corporation's principal executive offices not less than 60 or more than 90
calendar days prior to the first anniversary of the date that the corporation
first mailed its proxy statement to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been
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changed by more than 30 calendar days from the first anniversary date of the
previous year's annual meeting, notice by the stockholder to be timely must be
received no later than the close of business on the tenth day following the day
on which public announcement of the date of such annual meeting is first made.
In no event shall the public announcement of an adjournment of an annual meeting
commence a new period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of director in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (or any successor thereto) (the "Exchange Act")
and Rule 14a-11 thereunder (or any successor thereto) (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and such
beneficial owner, and (ii) the class and number of shares for the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. Notwithstanding any provision herein to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.2. For purposes of Section 2.2 and 3.3 of
these Bylaws "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by any executive officer
of the corporation, or by one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and Rule 14a-11 thereunder (or any
successor thereto)(including such proposed nominee's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business to be taken the meeting, a brief
description of such business, the reasons for conducting such business and any
material interest in such business of the person
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or persons calling such meeting and the beneficial owners, if any, on whose
behalf such meeting is called; and (c) as to the person or persons calling such
meeting and the beneficial owners, if any, on whose behalf the meeting is called
(i) the name and address of such persons, as they appear on the corporation's
books, and of such beneficial owners, and (ii) the class and number of shares of
the corporation which are owned beneficially and of record by such persons and
such beneficial owners. No business may be transacted at such special meeting
otherwise than specified in such notice or by or at the direction of the
corporation's board of directors. The corporation's secretary shall cause notice
to be promptly given to the stockholders entitled to vote, in accordance with
the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time
reasonably requested by the person or persons who called the meeting, not less
than 60 nor more than 90 days after the receipt of the request. If the notice is
not given within 20 days after the receipt of a valid request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph 2.3 shall be construed as limiting, fixing or affecting the time when
a meeting of stockholders called by action of the board of directors may be
held.
Only such business shall be conducted at a special meeting of stockholders
called by action of the board of directors as shall have been brought before the
meeting pursuant to the corporation's notice of meeting.
This Section 2.3 may not be amended to eliminate the right of one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent of the votes at a special meeting of stockholders to call such a special
meeting of stockholders, unless holders of at least seventy-five percent of the
shares entitled to vote thereon approve such an amendment.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these Bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the General Corporation Law of Delaware or the certificate of
incorporation of the corporation). The notice shall specify the place, date, and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such
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class or classes entitled to take action with respect to that vote on that
matter, present in person or by proxy, shall constitute a quorum. If a quorum
shall fail to attend any meeting, the chairman of the meeting may adjourn the
meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, those present at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting, except as otherwise required by law.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
Such person as the board of directors may have designated or, in the
absence of such a person, any executive officer of the corporation, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the secretary of the corporation, the secretary of the meeting
shall be such person as the chairman appoints. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order. The date and time of the opening and closing
of the polls for each matter upon which the stockholders will vote at the
meeting shall be announced at the meeting.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or able to be taken at any annual or special meeting
of stockholders may be taken without a meeting, without prior notice, and
without a vote if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the corporation at its registered office in
Delaware, its principal place of
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business, or to an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery to
the corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
the earliest dated consent is delivered to the corporation, a written consent or
consents signed by a sufficient number of holders to take action are delivered
to the corporation in the manner prescribed in the first paragraph of this
section.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any
other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall neither precede nor be more than
ten (10) days after the date upon which such resolution is adopted by the board
of directors. Any stockholder of record seeking to have the stockholders
authorize or take action by written consent shall, by written notice to the
secretary, request the board of directors to fix a record date. The board of
directors shall promptly, but in
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all events within ten (10) days after the date on which such noticed is
received, adopt a resolution fixing the record date.
If the board of directors has not fixed a record date within such time,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in the manner prescribed in the first paragraph of Section 2.10
of these Bylaws. If the board of directors has not fixed a record date within
such time and prior action by the board of directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the date on
which the board of directors adopts the resolution taking such prior action.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Each stockholder shall have one (1) vote for every share of stock entitled
to vote that is registered in his or her name on the record date for the meeting
(as determined in accordance with Section 2.11 of these Bylaws), except as
otherwise provided herein or required by law.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these Bylaws) prior to commencement of the voting
and the stockholder requesting cumulative voting has given notice prior to
commencement of the voting of the stockholder's intention to cumulate votes. If
cumulative voting is properly requested, each holder of stock, or of any class
or classes or of a series or series thereof, who elects to cumulate votes shall
be entitled to as many votes as equals the number of votes which (absent this
provision as to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them, as he may see fit.
Every stock vote shall be taken by ballots, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. All elections shall be
determined by a plurality of the votes cast, and except as otherwise required by
law or provided herein, all other matters shall be determined by a majority of
the votes cast affirmatively or negatively.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or
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dissent to corporate action in writing without a meeting may authorize another
person or persons to act for him by a written or electronic proxy, filed in
accordance with the procedure established for the meeting or taking of action in
writing, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this Section 2.13 may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. An electronic proxy
(which may be transmitted via telephone, e-mail, the Internet or such other
electronic means as the Board of Directors may determine from time to time)
shall be deemed executed if the Company receives an appropriate electronic
transmission from the stockholder or the stockholder's attorney-in-fact along
with a pass code or other indentifier which reasonably establishes the
stockholder or the stockholder's attorney-in-fact as the sender of such
transmission. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212(c) of the General
Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
2.15 INSPECTORS OF ELECTION
The corporation may, and to the extent required by law, shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law, shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Every vote taken by ballots shall be
counted by an inspector or inspectors appointed by the chairman of the meeting.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be no less than five
(5) or more than nine (9). The exact number of directors shall be eight (8),
until changed, within the limits specified above, by a Bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number fixed
without provision for an indefinite number, by an adopted amendment to this
Bylaw duly adopted by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
reducing the number or the minimum number of directors to a number less than
five (5) cannot be adopted if the votes cast against its adoption at a meeting
of the shareholders, or the shares not consenting in the case of action by
written consent, are equal to more than sixteen and two-thirds percent (16-2/3%)
of the outstanding shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number greater than two (2)
times the stated number of directors minus one (1).
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Nominations for election to the board of directors of the corporation at
an annual meeting of stockholders may be made by the board or on behalf of the
board by a nominating committee appointed by the board, or by any stockholder of
the corporation entitled to vote for the election of directors at such meeting.
Such nominations, other than those made by or on behalf of the board, shall be
made by notice in writing received by the secretary of the corporation at the
corporation's principal executive offices not less than 60 or more than 90
calendar days prior to the first anniversary of the date that the corporation
first mailed its proxy statement to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the first anniversary date of the previous year's
annual meeting, notice by the stockholder to be timely must be received no later
than the close of business on the tenth day following the day on which public
announcement (as defined in Section 2.2) of the date of such annual meeting is
first made. Such notice shall set forth as to each proposed nominee who is not
an incumbent director (i) the name, age, business address and, if
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known, residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of such nominee, (iii) the number of shares
of stock of the corporation beneficially owned by each such nominee and by the
nominating stockholder, and (iv) any other information concerning the nominee
that must be disclosed of nominees in proxy solicitations pursuant to Regulation
14A under the Securities Exchange Act of 1934.
The chairman of the annual meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
foregoing procedure. If such determination and declaration is made, the
defective nomination shall be disregarded.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention
of the Secretary of the corporation. When one or more directors so resigns and
the resignation is effective at a future date, only a majority of the directors
then in office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled only
by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled only by a
majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section
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211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the board of directors and publicized among all directors. A
notice of each regular meeting shall not be required.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by any executive officer of the corporation, or by
one-third of the directors then in office (rounded up to the nearest whole
number) and shall be held at a place, on a date and at a time as such officer or
such directors shall fix. Notice of the place, date and time of special
meetings, unless waived, shall be given to each director by mailing written
notice not less than two (2) days before the meeting or by sending a facsimile
transmission of the same not less than two (2) hours before the time of the
holding of the meeting. If the circumstances warrant, notice may also be given
personally or by telephone not less than two (2) hours before the time of the
holding of the meeting. Oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof,
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signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these Bylaws.
3.10 CONDUCT OF BUSINESS
At any meeting of the board of directors, business shall be transacted in
such order and manner as the board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law.
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.12 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
Bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.13 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.14 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as shareholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire board of
directors.
No reduction of the authorized number of directors shall have the effect
of removing any
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director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the Bylaws of the corporation; and, unless the board
resolution establishing the committee, a supplemental resolution of the board of
directors, the Bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings and
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meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.11 (action without a meeting), with such changes in the context of
those Bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 GENERAL MATTERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, a chief executive officer, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the chief executive officer
or the president to appoint, such other officers and agents as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Officers appointed by
the board of directors shall constitute executive officers of the corporation.
Officers appointed by the president or chief executive officer shall be
subordinate officers, unless otherwise specified by the board of directors.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified
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in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors if such officer was appointed by the board of directors,
or by such other person as appointed by the board of directors to fill such
vacancy.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there is no chief
executive officer or president, then the chairman of the board shall also be the
chief executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these Bylaws.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
chief executive officer of the corporation shall, subject to the control of the
board of directors, have general supervision, direction, and control of the
business and the officers of the corporation. He shall preside at all meetings
of the stockholders and, in the absence or nonexistence of a chairman of the
board, at all meetings of the board of directors. He shall have the general
powers and duties of management usually vested in the chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the board of directors or these Bylaws.
5.8 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board or the chief executive officer, if
there be such officers, the president shall have general supervision, direction,
and control of the business and other officers of the corporation. He shall have
the general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these Bylaws.
5.9 VICE PRESIDENTS
In the absence or disability of the chief executive officer and president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president and chief executive officer. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these Bylaws, the president, chief
executive officer or the chairman of the board.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all
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meetings and actions of directors, committees of directors, and stockholders.
The minutes shall show the time and place of each meeting, whether regular or
special (and, if special, how authorized and the notice given), the names of
those present at directors' meetings or committee meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chief executive officer, president and directors, whenever they request it, an
account of all his transactions as chief financial officer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors or the Bylaws.
5.12 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, any executive officer of this corporation, or
any other person designated by the board of directors, shall be authorized to
vote, represent, and exercise on behalf of this corporation all rights incident
to any and all shares of any other corporation or corporations standing in the
name of this corporation. The authority granted herein may be exercised either
by such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by such person having the authority.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
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ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made
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by the corporation only as authorized in the specific case upon a determination
that the indemnification of the Agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 6.l and 6.2.
Such determination shall be made (1) by the board of directors or the executive
committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain on behalf
any person who is or was an Agent of the corporation, or is or was serving at
the request of the corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors and officers, so that any person who is or
was a director or Agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the provisions
of this Article VI (including, without limitation the provisions of Section 6.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall
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include any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its participants,
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 INDEMNITY FUND
Upon resolution passed by the board, the corporation may establish a trust
or other designated account, grant a security interest or use other means
(including, without limitation, a letter of credit), to ensure the payment of
certain of its obligations arising under this Article VI and/or agreements which
may be entered into between the company and its officers and directors from time
to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not an agent (as defined in Section 6.1),
but whom the corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or
other-wise. The corporation may, in its sole discretion, indemnify an employee,
trustee or other agent as permitted by the General Corporation Law of the State
of Delaware. The corporation shall indemnify an employee, trustee or other agent
where required by law.
6.12 SAVINGS CLAUSE
If this article or any portion thereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless
indemnify each agent against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement with respect to any action, suit,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the corporation, to the full extent permitted
by any applicable portion of this Article that shall not have been invalidated,
or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number of class of shares
held by each stockholder, a copy of these Bylaws as
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amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the
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corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertified shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the board of directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the corporation by the chairman of or vice-chairman of the board
of directors, or the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case or uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law or
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
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destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its hooks as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof,
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except as otherwise provided by the laws of Delaware.
8.13 NOTICES
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery, by mail, postage paid, or by facsimile transmission. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his last known address as it appears on the books of the corporation. The time
when such notice shall be deemed received, if hand delivered, or dispatched, if
sent by mail or facsimile, transmission, shall be the time of the giving of the
notice.
ARTICLE IX
AMENDMENTS
Any of these Bylaws may be altered, amended or repealed by the affirmative
vote of a majority of the board of directors or, with respect to Bylaw
amendments placed before the stockholders for approval and except as otherwise
provided herein or required by law, by the affirmative vote of the holders of
seventy-five percent of the shares of the corporation's stock entitled to vote
in the election of directors, voting as one class.
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EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
SUN MICROSYSTEMS, INC.
Michael E. Lehman and Michael H. Morris, certify that:
1. They are the Vice-President, Corporate Resources and Chief Financial
Officer and Vice President, General Counsel and Secretary, respectively, of Sun
Microsystems, Inc., a Delaware corporation (the "Corporation").
2. That Section (a) of Article 4 of the Restated Certificate of
Incorporation of the Corporation now reads:
"The Corporation is authorized to issue two classes of shares designated
"Common Stock" and "Preferred Stock". The total number of shares which
the Corporation shall have authority to issue is One Billion Eight
Hundred Ten Million (1,810,000,000), of which One Billion Eight Hundred
Million (1,800,000,000) shall be Common Stock with a par value of
$0.00067 per share and Ten Million (10,000,000) shall be Preferred Stock
with a par value of $0.001 per share."
is amended to read as follows:
"The Corporation is authorized to issue two classes of shares designated
"Common Stock" and "Preferred Stock". The total number of shares which
the Corporation shall have authority to issue is Three Billion Six
Hundred Ten Million (3,610,000,000), of which Three Billion Six Hundred
Million (3,600,000,000) shall be Common Stock with a par value of
$0.00067 per share and Ten Million (10,000,000) shall be Preferred Stock
with a par value of $0.001 per share."
3. The foregoing Certificate of Amendment of the Restated Certificate of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing Certificate of Amendment of the Restated Certificate of
Incorporation has been duly approved by the required vote of stockholders in
accordance with Section 242 of the Delaware Corporations Code. The total number
of outstanding shares of Common Stock of the Corporation is 780,552,918. No
shares of Preferred Stock are outstanding. The number of shares voting in favor
of the amendment equaled or exceeded the vote required. The percentage vote
required was more than 50% of the outstanding Common Stock.
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We further declare under penalty of perjury under the laws of the State
of Delaware that the matters set forth in the foregoing Certificate of Amendment
are true and correct of our own knowledge.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and the Certificate of Amendment to be signed by Michael E.
Lehman, Vice President, Corporate Resources and Chief Financial Officer and
attested by Michael H. Morris, Vice President, General Counsel and Secretary
this 10th day of November, 1999.
SUN MICROSYSTEMS, INC.
/s/ MICHAEL E. LEHMAN
[Corporate Seal] ------------------------------------
Michael E. Lehman
ATTEST: /s/ MICHAEL H. MORRIS
------------------------------------
Michael H. Morris
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EXHIBIT 3.6
AMENDED CERTIFICATE OF DESIGNATIONS
OF RIGHTS, PREFERENCES AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF
SUN MICROSYSTEMS, INC.
Michael E. Lehman and Michael H. Morris, certify that:
1. They are the Vice President, Corporate Resources and Chief Financial
Officer and Vice President, General Counsel and Secretary, respectively, of Sun
Microsystems, Inc., a Delaware corporation (the "Corporation").
2. Section I. of Item 2. of the Certificate of Designations of Rights,
Preferences and Privileges of Series A Participating Preferred Stock
("Certificate") now reads:
"Section I. Designation and Amount. The shares of such series shall be
designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $0.001 per share, and
the number of shares constituting such series shall be 3,000,000.
is amended to read as follows:
Section I. Designation and Amount. The shares of such series shall be
designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $0.001 per share, and
the number of shares constituting such series shall be 4,000,000."
3. Pursuant to Section 151 of the Delaware Corporations Code, the
foregoing Amended Certificate has been duly approved by the Board of Directors.
We further declare under penalty of perjury under the laws of the State
of Delaware that the matters set forth in the foregoing Certificate of Amendment
are true and correct of our own knowledge.
Executed at Palo Alto, California on November 10, 1999.
/s/ MICHAEL E. LEHMAN
---------------------------------------------
Michael E. Lehman
Vice President, Corporate Resources and
Chief Financial Officer
/s/ MICHAEL H. MORRIS
---------------------------------------------
Michael H. Morris
Vice President, General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.65
SUN MICROSYSTEMS, INC.
1990 EMPLOYEE STOCK PURCHASE PLAN
(LAST AMENDED NOVEMBER 10, 1999)
The following constitute the provisions of the 1990 Employee Stock
Purchase Plan of Sun Microsystems, Inc.
1. Purpose. The purpose of the Plan is to provide Employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of that Section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a Committee designated by the Board to
administer the Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be exercised by the Board
and any references herein to the Committee shall be construed as references to
the Board.
(d) "Common Stock" shall mean the Common Stock, $0.00067 par value
(as adjusted from time to time), of the Company.
(e) "Company" shall mean Sun Microsystems, Inc., a Delaware
corporation.
(f) "Compensation", unless otherwise determined by the Committee,
shall mean regular straight time gross earnings, variable compensation for field
sales personnel, certain incentive bonuses, payments for overtime, shift
premium, lead pay and automobile allowances, but shall exclude other
compensation.
(g) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Committee from time to time in its sole discretion as eligible
to participate in the Plan.
(h) "Employee" shall mean, subject to Section 11(c), any individual
whose customary employment with the Company or any Designated Subsidiary is at
least 20 hours per week and more than five months in any calendar year.
(i) "Enrollment Date" shall mean the first day of each Offering
Period.
(j) "Exercise Date" shall mean the last day of each Exercise Period.
(k) "Exercise Period" shall mean a period commencing on an
Enrollment Date or on the day after an Exercise Date and which is of such
duration as the Committee shall determine.
(l) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) the last reported sale of the Common Stock of the Company
on the NASDAQ National Market System or, if no such reported sale takes place on
any such day, the average of the closing bid and asked prices, or
(ii) if such Common Stock shall then be listed on a national
securities exchange, the last reported sale price or, if no such reported sale
takes place on any such day,
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the average of the closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or
(iii) if such Common Stock shall not be quoted on such
National Market System nor listed or admitted to trading on a national
securities exchange, then the average of the closing bid and asked prices, as
reported by The Wall Street Journal for the over-the-counter market, or
(iv) if none of the foregoing is applicable, then the fair
market value of a share of Common Stock shall be determined by the Committee in
its discretion.
(m) "Offering Period" shall mean the period beginning with the date
an option is granted under the Plan and ending with the date determined by the
Committee. During the term of the Plan, the duration of each Offering Period
shall be determined from time to time by the Committee, provided that no
Offering Period may exceed 27 months in duration. If determined by the
Committee, an Offering Period may include one or more Exercise Periods.
(n) "Plan" shall mean this 1990 Employee Stock Purchase Plan.
(o) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(p) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or by a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or by a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges
and the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 13 of the Plan, the total
number of shares reserved and available for issuance pursuant to the Plan shall
be 111,600,000. The shares may be either authorized but unissued or reacquired
Common Stock.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant.
4. Eligibility.
(a) Any Employee as defined in Section 2 who shall be employed by
the Company on a given Enrollment Date shall be eligible to participate in the
Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent or more of
the total combined voting power or value of all classes of stock of the Company
or of any Subsidiary of the Company, or (ii) which permits his or her rights to
purchase stock in any calendar year under all employee stock purchase plans of
the Company and
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its Subsidiaries to exceed $25,000 worth of stock (determined at the Fair Market
Value of the shares at the time such option is granted).
5. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods, each consisting of such number of Exercise Periods as the
Committee shall determine, and shall continue until terminated in accordance
with Section 20 hereof. The first Offering Period shall commence on a date to be
determined by the Committee. The Committee shall have the power to change the
duration of Offering Periods and Exercise Periods with respect to future
offerings without stockholder approval if such change is announced at least 15
days prior to the scheduled beginning of the first Offering Period and Exercise
Period to be affected.
6. Participation.
(a) An eligible Employee may become a participant in any Offering
Period under the Plan only by completing a subscription agreement authorizing
payroll deductions in form and substance satisfactory to the Committee and
filing it with the Company during the open enrollment period prior to the
applicable Enrollment Date, unless a later time for filing the subscription
agreement is set by the Committee for all eligible Employees with respect to a
given Offering Period.
(b) Payroll deductions for a participant shall commence on the first
payday following the Enrollment Date and shall continue until terminated by the
participant as provided in Section 11.
7. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made (under this
Plan and all employee stock purchase plans of the Company) on each payday during
the Offering Period in an amount not exceeding a total of 10% (or such other
percentage as the Committee may determine) of the Compensation which he or she
receives on each payday during the Offering Period, and the aggregate of such
payroll deductions (under this Plan and all employee stock purchase plans of the
Company) during the Offering Period shall not exceed a total of 10% (or such
other percentage as the Committee may determine) of the participant's
Compensation during said Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 11. A participant's subscription agreement shall
remain in effect for successive Offering Periods unless terminated as provided
in Section 11. To increase or decrease the rate of payroll deductions (within
the limitations of Section 7(a)), (i) with respect to the next Offering Period,
a participant must complete and file with the Company during the open enrollment
period prior to the Enrollment Date for such Offering Period, or (ii) with
respect to the next Exercise Period within the same Offering Period, a
participant must complete and file with the Company prior to the commencement of
the new Exercise Period within such Offering Period, a new subscription
agreement authorizing a change in payroll deduction rate. Except in the case of
authorized leaves of absence (which shall be governed by Section 11(c) below),
such change in rate shall be effective at the beginning of the next Offering
Period or Exercise Period, as the case may be, following the Company's receipt
of the new subscription agreement.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section
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423(b)(8) of the Code and Section 4(b) herein, a participant's payroll
deductions may be decreased to 0% by the Company at such time during any
Exercise Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Exercise
Period which is scheduled to end in a subsequent calendar year, unless
terminated by the participant as provided in Section 11.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of by the participant, the participant must make adequate provision for
the Company's federal, state, or other tax withholding obligations, if any,
which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but will not be obligated to, withhold from
the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefit attributable to sale or
early disposition by the participant of Common Stock under the Plan.
8. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible participant in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the applicable
Purchase Price) up to the number of shares of the Company's Common Stock
determined by dividing such participant's payroll deductions accumulated prior
to or on such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
a participant be permitted to purchase during any Offering Period more than the
number of shares determined to be the maximum permissible number (the "Option
Cap") by the Committee with respect to the Offering Period prior to the
Enrollment Date. In the event that the Committee does not establish an Option
Cap prior to the Enrollment Date, the Option Cap shall be the number of shares
determined by dividing $100,000 by the Fair Market Value of a share of the
Company's Common Stock on the Enrollment Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 4(b), 7(d)
and 13 hereof. Exercise of the option shall occur as provided in Section 9,
unless the participant has withdrawn pursuant to Section 11, and such option
shall expire on the last day of the Offering Period.
9. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 11 below, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased. Any payroll deductions
remaining in a participant's account which are not sufficient to purchase a full
share and any other monies left over in a participant's account after the
Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
10. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of either a certificate representing the
shares purchased upon exercise of his or her option or other evidence of
purchase.
11. Withdrawal; Termination of Employment.
(a) A participant may withdraw all (but not less than all) the
payroll deductions
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credited to his or her account and not yet used to exercise his or her option
under the Plan at any time prior to the close of an Exercise Period by giving
written notice to the Company in form and substance satisfactory to the
Committee. Such notice shall state whether the participant is withdrawing only
from the applicable Exercise Period or entirely from the Offering Period. All of
the participant's payroll deductions credited to his or her account will be paid
to such participant as promptly as practicable after receipt of notice of
withdrawal and such participant's option for the current Offering Period or
Exercise Period (as specified in the notice) will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offering Period or Exercise Period, as applicable. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement during the open enrollment period
preceding the commencement of a subsequent Offering Period. If a participant
withdraws from an Exercise Period, payroll deductions will not resume at the
beginning of any succeeding Exercise Period within the same Offering Period
unless written notice is delivered to the Company in form and substance
satisfactory to the Committee within the open enrollment period preceding the
commencement of the Exercise Period directing the Company to resume payroll
deductions.
(b) Upon a participant's ceasing to be an Employee for any reason or
upon termination of a participant's employment relationship (as described in
Section 2(g)), the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option will be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15, and such participant's option will
be automatically terminated.
(c) In the event an Employee's customary employment with the Company
or any Designated Subsidiary is reduced below 20 hours per week or 5 months per
calendar year during an Offering Period, he or she will be deemed to have
elected to withdraw from the Plan and the payroll deductions credited to his or
her account will be returned to such participant and such participant's option
terminated; provided that (i) if an Employee shall take an unpaid leave of
absence approved by the Company of more than 30 days during an Offering Period
in which the Employee is a participant, and the Employee's right to
re-employment is not guaranteed by statute, he or she will be deemed to have
withdrawn from the applicable Exercise Period on the 31st day of such leave,
(ii) if an Employee shall take a paid leave of absence approved by the Company
of more than 90 days during an Offering Period in which the Employee is a
participant, and the Employee's right to re-employment is not guaranteed by
statute, he or she will be deemed to have withdrawn from the applicable Exercise
Period on the earlier of (aa) the 91st day if the Employee is paid for the
entire 90 day leave, or (bb) the last day upon which the Employee is paid
provided he or she is paid for at least 30 days; and (iii) if an Employee shall
take a paid or unpaid leave of absence of any duration during an Offering
Period, and the Employee's right to re-employment is guaranteed by statute, he
or she shall not be deemed to have withdrawn from the applicable Exercise Period
and his or her option for the purchase of shares will be exercised in accordance
with Section 9 hereof. On the date, if any, upon which the Employee shall be
deemed to have withdrawn from the applicable Exercise Period, the payroll
deductions credited to his or her account will be returned to him or her, but he
or she shall continue to be a participant in the applicable Offering Period
during such authorized leave of absence until and
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unless such authorized leave of absence terminates without his or her returning
to his or her employment with the Company.
(d) A participant's withdrawal from an Exercise Period (but not from
the Offering Period) will not have any effect upon his or her ability to
participate in subsequent Exercise Periods during the same Offering Period.
However, a participant's withdrawal from an Offering Period makes him or her
ineligible for future participation in that Offering Period. Withdrawal from an
Exercise Period or from an Offering Period will not have any effect upon a
participant's eligibility to participate in a succeeding Offering Period of the
Plan or in any similar plan which may hereafter be adopted by the Company,
provided that a participant may elect to participate in a succeeding Offering
Period only during the open enrollment period for such Offering Period and may
not participate concurrently in more than one Offering Period.
(e) Notwithstanding the foregoing, unless otherwise determined by
the Committee, if the Fair Market Value on the Enrollment Date of an Offering
Period in which a participant is enrolled (the "Current Offering Period") is
greater than the Fair Market Value on the Enrollment Date of a succeeding
Offering Period (the "Succeeding Offering Period"), the participant's enrollment
in the Current Offering Period automatically will be terminated immediately
following the exercise of his or her option under the Current Offering Period on
the Exercise Date that occurs immediately prior to the Enrollment Date of the
Succeeding Offering Period, and the participant automatically will be enrolled
in the Succeeding Offering Period, unless the participant elects to remain in
the former Offering Period by delivery to the Company of a written notice in
form and substance satisfactory to the Committee.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan, as set forth in Section 3
hereof, is subject to adjustment upon changes in capitalization of the Company
as provided in Section 19. If, on a given Exercise Date, the number of shares
with respect to which options are to be exercised exceeds the number of shares
then available under the Plan (an "over-subscription"), the Committee shall make
a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable. For Offering Periods commencing on or after May 1, 2000, if the
Committee determines that the on-going operation of the Plan may result in
unfavorable financial accounting consequences, the Committee may, in its
discretion and, to the extent necessary or desirable, modify or amend the Plan
to reduce or eliminate such accounting consequence including, but not limited
to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
14. Administration. The Plan shall be administered by the Board or a
Committee of members of the Board appointed by the Board. The Board or its
Committee shall have full and
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exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. Every finding, decision and determination made by the Board or
its Committee shall, to the full extent permitted by law, be final and binding
upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
from an Offering Period in accordance with Section 11.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate funds from such payroll deductions.
18. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the Reserves, as well as the price
per share of Common Stock covered by each outstanding option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities
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convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Exercise Period and the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Committee. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Committee determines, in the exercise of
its sole discretion and in lieu of such assumption or substitution, to shorten
the Offering Period (and, if applicable, the Exercise Period) then in progress
by setting a new Exercise Date (the "New Exercise Date"). If the Committee
shortens the Offering Period (and the Exercise Period, if applicable) then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Committee shall notify each participant in writing, at least 10
days prior to the New Exercise Date, that the Exercise Date for his or her
option has been changed to the New Exercise Date and that his or her option will
be exercised automatically on the New Exercise Date, unless prior to such date
he or she has withdrawn from the Offering Period or the Exercise Period as
provided in Section 11. For purposes of this paragraph, an option granted under
the Plan shall be deemed to be assumed if, following the sale of assets or
merger, the option confers the right to purchase, for each share of stock
subject to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received in
the sale of assets or merger by holders of Common Stock for each share of Common
Stock held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Committee may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the sale of assets or
merger.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, re-capitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
20. Amendment or Termination.
(a) The Board may at any time and for any reason amend or terminate
the Plan. Except as provided in Section 19, no such termination can affect
options previously granted, provided that the Plan (and any Offering Period
thereunder) may be terminated by the Board on any Exercise Date if the Board
determines that the termination of the Plan is in the best interests of the
Company and its stockholders. Except as provided in Section 19, no amendment may
make any change in any option theretofore granted which adversely affects the
rights of any
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participant. To the extent necessary and desirable to comply with Section 423 of
the Code (or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain stockholder approval in such a manner and
to such a degree as is required thereby.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Committee shall be entitled to change the Offering Periods, establish the
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, permit payroll withholding in excess of the amount designated by
a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the
Committee determines in its sole discretion advisable which are consistent with
the Plan.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law of the United States or other country or jurisdiction,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or quotation
system upon which the shares may then be listed or quoted, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of 20 years unless sooner
terminated under Section 20.
9
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