-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K94BLerBYr66Vbg2M53TYjAbmBFrgzg/qyt0H+n+5JRq38ekWoUMExxAOhTZO1/S 5zSZEN9Se1kfgt70o8pIQA== 0000950005-96-000898.txt : 19961115 0000950005-96-000898.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950005-96-000898 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUN MICROSYSTEMS INC CENTRAL INDEX KEY: 0000709519 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 942805249 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15086 FILM NUMBER: 96661377 BUSINESS ADDRESS: STREET 1: 2550 GARCIA AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-1100 BUSINESS PHONE: 4159601300 MAIL ADDRESS: STREET 1: 2550 GARCIA AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-1100 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) __X__Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 29, 1996 or _____Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to _______ Commission file number:0-15086 SUN MICROSYSTEMS, INC. (Exact Name of registrant as specified in its charter) Delaware 94-2805249 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2550 Garcia Avenue, Mountain View, CA 94043-1100 (Address of principal executive offices with zip code) Registrant's telephone number, (415) 960-1300 including area code: N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO______ --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES ____ NO______ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at September 29, 1996 Common stock - $0.00067 par value 183,648,532 INDEX PAGE ---- COVER PAGE 1 INDEX 2 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 8 PART II - OTHER INFORMATION Item 5 - Other Information 13 Item 6 - Exhibits and Reports on Form 8 - K 14 SIGNATURES 15 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 29, June 30, 1996 1996 ------------- -------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 460,745 $ 528,854 Short-term investments 203,210 460,743 Accounts receivable, net 1,295,429 1,206,612 Inventories 461,842 460,914 Deferred tax asset 186,531 177,554 Other current assets 245,078 199,059 ------------ ----------- Total current assets 2,852,835 3,033,736 Property, plant and equipment, at cost 1,356,148 1,282,384 Accumulated depreciation and amortization (793,255) (748,535) ------------ ----------- 562,893 533,849 Other assets, net 206,674 233,324 ----------- ----------- $ 3,622,402 $ 3,800,909 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 44,923 $ 49,161 Accounts payable 345,139 325,067 Accrued liabilities 777,420 801,550 Other current liabilities 265,738 313,491 ------------ ------------ Total current liabilities 1,433,220 1,489,269 Long-term debt and other obligations 68,944 60,154 Total stockholders' equity 2,120,238 2,251,486 ------------ ------------ $3,622,402 $3,800,909 ============ ============ See accompanying notes 3 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) Three Months Ended, ------------------------- September 29, October 1, 1996 1995 ------------- ---------- Net revenues $1,859,019 $1,485,278 Cost and expenses: Cost of sales 972,101 816,833 Research and development 186,268 144,085 Selling, general and administrative .. 524,666 411,416 ---------- ---------- Total costs and expenses 1,683,035 1,372,334 Operating income 175,984 112,944 Interest income, net 5,472 11,609 ---------- ---------- Income before income taxes 181,456 124,553 Provision for income taxes 58,066 39,857 ---------- ---------- Net income $ 123,390 $ 84,696 ========== ========== Net income per common and and common - equivalent share $ 0.63 $ 0.42 ========== ========== Common and common-equivalent shares used in the calculation of net income per share 195,058 199,324 ========== ========== See accompanying notes. 4 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Three Months Ended -------------------------- September 29, October 1, 1996 1995 ----------- ----------- Cash flow from operating activities: Net income $ 123,390 $ 84,696 Adjustments to reconcile net income to operating cash flows: Depreciation, amortization and other non-cash items 86,887 72,202 Tax benefit of options exercised 7,655 10,737 Net (increase) decrease in accounts receivable (88,817) 114,218 Net increase in inventories (928) (33,031) Net increase in accounts payable 20,072 25,345 Net increase in other current and non-current assets (35,988) (39,544) Net decrease in other current and non-current liabilities (44,119) (135,106) ----------- ----------- Net cash provided from operating activities 68,152 99,517 ----------- ----------- Cash flow from investing activities: Acquisition of property, plant and equipment (94,890) (75,900) Acquisition of other assets (8,119) (25,754) Acquisition of short-term investments (17,157) (695,886) Maturities of short-term investments 270,196 1,146,591 ----------- ----------- Net cash provided from investing activities 150,030 349,051 ----------- ----------- Cash flow from financing activities: Issuance of common stock 8,595 25,982 Acquisition of treasury stock (271,344) (455,032) Proceeds from employee stock purchase plans 17,141 14,794 Reduction of short - term borrowings, net (4,238) (22,709) Reduction of long - term borrowings and other (36,445) (39,857) ----------- ----------- Net cash used by financing activities (286,291) (476,822) ----------- ----------- Net decrease in cash and cash equivalents $ (68,109) $ (28,254) =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 4,189 $ 5,388 Income taxes $ 46,524 $ 64,454 See accompanying notes.
5 SUN MICROSYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The consolidated financial statements include the accounts of Sun Microsystems, Inc. ("Sun" or the "Company") and its wholly - owned subsidiaries. Intercompany accounts and transactions have been eliminated. Certain amounts from prior years have been reclassified to conform to current year presentation. While the quarterly financial information is unaudited, the financial statements included in this report reflect all adjustments (consisting of normal recurring accruals) that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The results for the interim periods are not necessarily indicative of the results for the entire year. The information included in this report should be read in conjunction with the 1996 Annual Report to Stockholders which is incorporated by reference in the Company's 1996 Form 10-K. INVENTORIES (in thousands) September 29, 1996 June 30, 1996 ------------------ ------------- Raw materials $276,801 $267,811 Work in process 59,722 58,337 Finished goods 125,319 134,766 -------- -------- $461,842 $460,914 ======== ======== INCOME TAXES The Company accounts for income taxes under the liability method of Statement of Financial Accounting Standards No. 109. The provision for income taxes during the interim periods considers anticipated annual income before taxes, earnings of foreign subsidiaries permanently invested in foreign operations, and other differences. STOCK SPLIT On August 8, 1996, the Company announced a two-for-one stock split (payable as a stock dividend), subject to stockholder approval of an increase in the Company's authorized shares of common stock. Subject to receiving such stockholder approval, stockholders of record as of the close of the business on November 18, 1996, will be issued on December 10, 1996 one additional share of common stock for each share of common stock held. The amounts presented for October 1, 1995, June 30, 1996, and September 29, 1996 do not reflect the stock split. 6 COMMON STOCK REPURCHASE In July 1995, the Board of Directors approved a plan to repurchase approximately 24 million shares of the Company's common stock. Repurchases under this plan were completed in August 1996 at a total cost of approximately $696 million of which approximately 4.4 million shares were repurchased for $236 million in first quarter of 1997. In addition, the Company's Board of Directors approved a systematic repurchase program in August which will enable the Company to systematically repurchase a portion of the shares it expects to issue under its 1990 Long-Term Equity Incentive Plan. Total repurchases under the Long-term Equity Incentive Plan repurchase program will not exceed $450,000,000. Approximately 440,000 shares and 180,000 shares were repurchased under the ESPP systematic stock buyback program and Long-Term Equity Incentive Plan buyback program, respectively. 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth items from the Condensed Consolidated Statements of Income as a percentage of net revenues: Three Months Ended, ------------------- September 29, October 1, 1996 1995 ---- ---- Net revenues 100.0% 100.0% Cost of sales 52.3 55.0 ----- ----- Gross margin 47.7 45.0 Research and development 10.0 9.7 Selling, general and administrative 28.2 27.7 ----- ----- Operating income 9.5 7.6 Interest income, net .3 0.8 --- ----- Income before income taxes 9.8 8.4 Provision for income taxes 3.2 2.7 ----- ----- Net income 6.6% 5.7% ===== ===== RESULTS OF OPERATIONS Net revenues Net revenues were $1.859 billion for the first quarter of fiscal 1997, representing an increase of 25.2 % over the corresponding period of fiscal 1996. Over two-thirds of the growth in revenues resulted from strong demand for richly configured servers, and high-end desktop systems, and from memory, storage options, and accessories shipped as part of system sales and as separate orders. The remaining increase reflects growth in revenues from other Sun businesses, including service, aftermarketing, microprocessors, and software. Domestic net revenues increased by 25.8% while international net revenues (including United States exports) grew 24.5% in the first quarter of fiscal 1997 compared with the corresponding period of fiscal 1996. European net revenues increased 26.6% while net revenues in rest of world increased 22.4% in the first quarter of fiscal 1997 when compared with the corresponding periods of fiscal 1996. These increases are due primarily to continued strengthening of the markets in Japan, and the United Kingdom and the expanding markets in Korea and Latin America. Compared with the first quarter of fiscal 1996, the dollar in the first quarter of fiscal 1997 has remained relatively consistent against most major European currencies and strengthened significantly against the Japanese Yen. 8 Management has estimated that the net impact of currency fluctuations on operating results, while slightly unfavorable, was not significant in the quarter ended September 29, 1996. Gross margin Gross margin was 47.7% for the first quarter of fiscal 1997, compared with 45% for the corresponding period of fiscal 1996. The increase in the gross margin reflects the effects of increased revenue generated from richly configured, higher margin servers and memory storage options. While the factors described above resulted in a favorable impact on gross margin for the first quarter of fiscal 1997, systems and memory repricing actions are likely to be initiated in the future, which could result in downward pressure on gross margins. Sun's future operating results could be adversely affected if such repricing actions were to occur and the Company is unable to mitigate the margin pressure by maintaining a favorable mix of systems, software, service, and other revenues and / or by achieving component cost reductions and operating efficiencies. Research and development Research and development (R&D) expenses were $186.3 million in the first quarter of fiscal 1997, compared with $144.1 million for the corresponding period of fiscal 1996. As a percentage of net revenues, R&D expenses increased to 10% for the first quarter of fiscal 1997 from 9.7% in the corresponding period of fiscal 1996. Approximately half of the dollar increase in the first quarter of fiscal 1997 over the corresponding period in fiscal 1996 reflects continued development of UltraSPARC systems and further development of products acquired through the acquisitions of Integrated Micro Products, plc and Cray Business Systems, a division of Cray Research, Inc. The remaining increase in dollar amount of R&D expenses is due primarily to increased compensation as a result increased staffing. Selling, general and administrative Selling, general and administrative (SG&A) expenses were $524.7 million in the first quarter of fiscal 1997 compared with $411.4 million for the same period of fiscal 1996. As a percentage of net revenues, SG&A expenses increased to 28.2% in the first quarter of fiscal 1997 from 27.7% in the corresponding period of fiscal 1996. Approximately half of the dollar increase in 1997 is attributable to increased marketing costs related to new product introductions and other promotional programs, and an increase in sales headcount as compared to the first quarter of fiscal 1996. The dollar increase also reflects investments aimed at improving Sun's own business processes. Interest income, net Net interest income was $5.5 million for the first quarter of fiscal 1997, compared with $11.6 million in net interest income for the corresponding period in fiscal 1996. The decrease in 1997 is primarily the result of lower interest earnings on a smaller portfolio of cash and short-term investments. Income taxes The Company's effective income tax rate for the first quarters of both fiscal 1997 and 1996 was 32%. 9 FUTURE OPERATING RESULTS This following section of the report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties so that actual results may vary materially. The future operating results discussed below represent specific risks which could impact the financial condition and results over the next few quarters. This information below should be read in conjunction with the Company's Form 10-K Annual Report to Stockholders for its fiscal year ended June 30, 1996 ("1996 Form 10-K), as well as with the 1996 Annual Report to Stockholders which is incorporated by reference into the Company's 1996 Form 10-K. The market for Sun's products and services is intensely competitive and subject to continuous, rapid technological change, short product life cycles and frequent product performance improvements and price reductions. Due to the breadth of the Company's product lines and the scalability of its products and network computing model, Sun competes in many segments of the network computing market across a broad spectrum of customers. The Company expects the markets for its products and technologies, as well as its competitors within such markets, will continue to change as the rightsizing trend shifts customer buying patterns to network based systems which often employ solutions from multiple vendors. Competition in these markets will also continue to intensify as Sun and its competitors, principally Hewlett-Packard Corporation, International Business Machines Corporation, Digital Equipment Corporation, and Silicon Graphics, aggressively position themselves to benefit from this shifting of customer buying patterns and demand. The Company is also facing competition from these competitors, as well as other systems manufacturers, such as Compaq Computer Corporation and Dell Computer Corporation, with respect to such competitors products based on microprocessors from Intel Corporation coupled with Windows NT operating system software from Microsoft Corporation. These products demonstrate the viability of certain networked personal computer solutions and have increased the competitive pressure, particularly in the Company's workstation and lower-end server product lines. Finally, the timing of introductions of new products and services by Sun's competitors may negatively impact the future operating results of the Company, particularly when such introductions occur in periods leading up to the Company's introduction of its own new enhanced products. The Company expects this pressure to continue and intensify in fiscal 1997. While many other technical, service and support capabilities affect a customer's buying decision, the Company's future operating results will depend, in part, on its ability to compete with these technologies. The Company's future operating results will depend to a considerable extent on its ability to rapidly and continuously develop, introduce, and deliver in quantity new systems, software, and service products, as well as new microprocessor technologies, that offer its customers enhanced performance at competitive prices. The development of new high - performance computer products, such as the Company's recent development of UltraSPARC, is a complex and uncertain process requiring high levels of innovation from the Company's designers and suppliers, as well as accurate anticipation of customer requirements and technological trends. Once a hardware product is developed, the Company must rapidly bring such products to volume manufacturing, a process that requires accurate forecasting of volumes, mix of products and configurations, among other things in order to achieve acceptable yields and costs. Accordingly, with the introduction of the Company's enhanced server systems introduced during fiscal 1996, future operating results will depend to a considerable extent of the Company's ability to closely manage these product introductions, as well as future product introductions , in order to minimize unfavorable patterns of customer orders, to reduce levels of older inventory and to ensure that adequate supplies of new products can be delivered to meet customer demand. The ability of the Company to match supply and demand is further complicated by the Company's need to adjust prices to reflect changing competitive market conditions as well as the variability and timing of customer orders with respect to the Company's older products. As a result, the 10 Company's operating results could be adversely affected if the Company is not able to correctly anticipate the level of demand for the mix of products. Because the Company is continuously engaged in this product development, introduction, and transition process, its operating results may be subject to considerable fluctuation, particularly when measured on a quarterly basis. The Company is increasingly dependent on the ability of its suppliers to design, manufacture, and deliver advanced components required for the timely introduction of new products. The failure of any of these suppliers to deliver components on time or in sufficient quantities, or the failure of any of the Company's own designers to develop advanced innovative products on a timely basis, could result in a significant adverse impact on the Company's operating results. The inability to secure enough components to build products, including new products, in the quantities and configurations required, or to produce, test and deliver sufficient products to meet demand in a timely manner, would adversely affect the Company's net revenues and operating results. To secure components for development, production, and introduction of new products, the Company frequently makes advanced payments to certain suppliers and often enters into noncancelable purchase commitments with vendors early in the design process. Due to the variability of material requirement specifications during the design process, the Company must closely manage material purchase commitments and respective delivery schedules. In the event of a delay or flaw in the design process, the Company's operating results could be adversely affected due to the Company's obligations to fulfill such noncancelable purchase commitments. Generally, the computer systems sold by Sun, such as the UltraSPARC products, are the result of hardware and software development, such that delays in the software development can delay the ability of the Company to ship new hardware products. In addition, adoption of a new release of an operating system may require effort on the part of the customer and porting by software vendors providing applications. As a result, the timing of conversion to a new release is inherently unpredictable. Moreover, delays by customers in adopting a new release of an operating system can limit the acceptability of hardware products tied to that release. Such delays could adversely affect the future operating results of the Company. Seasonality also affects the Company's operating results, particularly in the first quarter of each fiscal year. In addition, the Company's operating expenses are increasing as the Company continues to expand its operations, and future operating results will be adversely affected if revenues do not increase accordingly. Additionally, the Company plans to continue to evaluate and, when appropriate, make acquisitions of complimentary technologies, products or businesses. As part of this process, the Company will continue to evaluate the changing value of its assets, and when necessary, make adjustments to them. While the Company cannot predict what effect these various factors may have on its financial results, the aggregate effect of these and other factors could result in significant volatility in the Company's future performance and stock price. LIQUIDITY AND CAPITAL RESOURCES Total assets at September 29, 1996 decreased by approximately $179 million from June 30, 1996, due principally to decreases in cash, cash equivalents and short-term investments of $326 million and other long-term assets of $27 million, offset by increases in accounts receivable of $89 million, other current assets of $46 million and property, plant and equipment-net of $29 million. Cash was principally used for the repurchase of 5 million shares of common stock for $271 million, capital expenditures of $95 million, and scheduled debt repayments of $40 million. Other long-term assets decreased primarily due to amortization of capitalized software and intangible assets. The increase in accounts receivable reflects a larger percentage of sales occurring near the end of the quarter and the timing of cash receipts. Other current assets increased due to the timing of payments for insurance and other taxes. The increase in property, plant and equipment reflects capital additions to support increased headcount, primarily in the Company's engineering, service and marketing organizations. 11 Total liabilities decreased $47 million from June 30, 1996, due principally to a decrease in accrued liabilities of $24 million and other current liabilities of $48 million, offset by an increase in accounts payable of $20 million. The net decrease in accrued liabilities reflects payments of performance based compensation, commissions, and income taxes, offset by an increase in marketing and Employee Stock Participation Program liabilities. The other current liabilities decrease primarily reflects the final payment related to the Company's 10.55% senior notes due September 1996. The increase in accounts payable reflects increased inventory receipts during the last three weeks of the quarter as compared to the fourth quarter of fiscal 1996. The Company purchased Phase II and Phase III of its campus located in Menlo Park, California for approximately $116 million in October 1996. At September 29, 1996, the Company's primary sources of liquidity consisted of cash, cash equivalents and short-term investments of $664 million and a revolving credit facility with banks aggregating $300 million, which was available subject to compliance with certain covenants. The Company believes that the liquidity provided by existing cash and short-term investment balances and the borrowing arrangements described above will be sufficient to meet the Company's capital requirements through fiscal 1997. However, the Company believes the level of financial resources is a significant competitive factor in its industry and may choose at any time to raise additional capital through debt or equity financing to strengthen its financial position, facilitate growth and provide the Company with additional flexibility to take advantage of business opportunities that may arise. The statements regarding the sufficiency of the Company's capital resources are forward looking statements which involve risks and uncertainties and actual results may vary materially as a result of factors described above under "Future Operating Results," as well as factors described under the Caption "Item 1 - Business" in the Company's 1996 Form 10-K. 12 ITEM 5 - OTHER INFORMATION SCHEDULE OF SALES BY EXECUTIVE OFFICERS DURING THE QUARTER The following is a summary of all sales of the Company's Common Stock by the Company's executive officers and directors who are subject to Section 16 of the Securities Exchange Act of 1934, as amended, during the fiscal quarter ended September 29,1996: OFFICER/ DATE PRICE NUMBER OF DIRECTOR SHARES SOLD ============================================================================ Michael Lehman 8/8/96 $55.00 10,000 8/9/96 $56.00 5,000 8/9/96 $55.50 5,000 8/28/96 $56.5625 5,000 8/28/96 $57.00 1,000 Michael Morris 8/1/96 $55.315 8,000 8/5/96 $57.44 4,000 8/12/96 $54.94 3,200 Kenneth M. Oshman 8/22/96 $55.00 15,000 8/23/96 $55.00 10,000 8/23/96 $55.00 5,000 Frank Pinto 8/29/96 $56.34 11,000 William Raduchel 8/14/96 $55.5313 10,000 8/14/96 $55.325 10,000 8/14/96 $56.0728 39,500 George Reyes 8/28/96 $55.94 5,000 8/28/96 $56.125 4,000 Janpieter Scheerder 7/29/96 $52.94 4,000 8/2/96 $57.19 6,000 8/9/96 $55.815 6,600 8/12/96 $55.19 12,000 8/15/96 $55.503 12,000 8/29/96 $56.19 3,600 Eric Schmidt 8/29/96 $56.125 5,000 8/30/96 $54.375 5,000 Edward Zander 8/28/96 $56.0625 5,000 13 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS 3.3 Registrant's Amended and Restated Certificate of Incorporation (as amended to date) 10.87 Promissory Note between the Registrant and Alan E. Baratz dated October 4, 1996. 10.88 Form of Idemnification Agreement 11.0 Statement re: Computation of Earnings Per Share 27.0 Financial data for the period ended September 29, 1996 b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 29, 1996. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUN MICROSYSTEMS, INC. BY /s/ Michael E. Lehman ------------------------ Michael E. Lehman Vice President and Chief Financial Officer /s/ George Reyes -------------------- George Reyes Vice President and Corporate Controller, Chief Accounting Officer Dated: November 13, 1996 15 EXHIBITS TO REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996 16 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS PER SHARE (unaudited) (in thousands, except per share amounts) FULLY DILUTED Three Months Ended, --------------------------- September 29, October 1, 1996 1995 -------- -------- Net income $123,390 $ 84,696 ======== ======== Weighted average common shares outstanding 183,557 189,896 Common - equivalent shares attributable to stock options and warrants 12,106 9,780 --------- --------- Total common and common - equivalent shares outstanding 195,663 199,676 ======= ======== Net income per common and common - equivalent share $0.63 $ 0.42 ===== ======= EX-3.3 2 EXHIBIT 3.3 9/17/86 EXHIBIT 3.3 CERTIFICATE OF INCORPORATION OF SUN MICROSYSTEMS, INC. 1. The name of the corporation is Sun Microsystems, Inc. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. (a) This corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock". The total number of shares which this corporation shall have authority to issue is Eighty-Five Million (85,000,000), of which Seventy-Five Million (75,000,000) shall be Common Stock and Ten Million (10,000,000) shall be Preferred Stock. The aggregate par value of all shares of Common Stock is $50,250 and the par value of each such share is $.00067. The aggregate par value of all shares Preferred Stock is $10,000, and the par value of each share is $.001. (b) The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of the Article 2, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (iii) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be reedeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (vii) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series. 5. The name and mailing address of the incorporator are as follows: Judith M. O'Brien Wilson, Sonsini, Goodrich & Rosati Two Palo Alto Square, Suite 900 Palo Alto, CA 94306 -2- 6. The Corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the By-Laws of the Corporation. 8. The number of directors which will constitute the whole Board of Directors of the Corporation shall be as specified in the By-Laws of the Corporation. 9. The election of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. 10. At all elections of directors of the corporation, each holder of stock or of any class or classes or of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. 11. Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. 12. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article 12, nor the adoption of any provision of this Certification of Incorporation inconsistent with this Article 12 in respect of any matter occuring, or any cause of action, suit or claim that, but for this Article 12, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. 13. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the By-Laws of the Corporation. -3- 14. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying, under penalties of perjury, that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 16th day of September, 1986. /s/ Judith M. O'Brien ----------------------------- Judith M. O'Brien 164JOB-1275 09/15/86 -4- 6-30-87 RESTATED CERTIFICATE OF INCORPORATION OF SUN MICROSYSTEMS, INC. (Originally incorporated on September 17, 1986) 1. The name of the corporation is Sun Microsystems, Inc. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Steet, in the City of Willmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. (a) This Corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock". The total number of shares which this corporation shall have authority to issue is One Hundred Thirty-Five Million (135,000,000), of which One Hundred Twenty-Five Million (125,000,000) shall be Common Stock with a par value of $.00067 per share and Ten Million (10,000,000) shall be Preferred Stock with a par value of $.001 per share. (b) The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article 4, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (iii) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be reedeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (vii) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series. (vii) Any other relative or participating rights, preferences and limitations of that series. 5. The name and mailing address of the incorporator are as follows: Judith M. O'Brien Wilson, Sonsini, Goodrich & Rosati Two Palo Alto Square, Suite 900 Palo Alto, CA 94306 6. The Corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the By-Laws of the Corporation. 8. The number of directors which will constitute the whole Board of Directors of the Corporation shall be as specified in the By-laws of the Corporation. 9. At all elections of directors of the Corporation, each holder of stock or of any class or classes or of a series thereof shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single candidate or may distribute them among the number to be elected, or for any two or more of them as he may see fit. 10. Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. 11. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article 11, nor the adoption of any provision of this Certification of Incorporation inconsistent with this Article 11, shall eliminate or reduce the effect of this Article 11 in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article 11, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. 12. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. This Certificate of Incorporation may not be amended to eliminate Section 9 hereof or to divide the directors of the Corporation who are elected by the holders of Common Stock and any Preferred Stock entitled to vote generally with the holders of Common Stock in elections of directors, into two or three classes without the approval of holders of seventy-five percent (75%) of the outstanding shares of the Corporation entitled to vote thereon. 13. Elections for directors need not be by ballot unless a stockholder demands election by ballot at the meeting and before the voting begins or unless the By-laws so require. I, THE UNDERSIGNED, this 23rd day of June, 1987, being the sole incorporator of Sun Microsystems, Inc., do hereby certify that the Corporation has not received any payment for any of its stock and that this Restated Certificate of Incorporation has been adopted in accordance with the provisions of Sections 241 and 245 of the General Corporation Law of the State of Delaware. /s/ Judith M. O'Brien ----------------------------------- Judith M. O'Brien B-2 CERTIFICATE OF MERGER OF SUN MICROSYSTEMS, INC. A CALIFORNIA CORPORATION INTO SUN MICROSYSTEMS, INC. The undersigned corporation does hereby certify: FIRST: That the name and state of incorporation of each of the constituent corporations of the merger are as follows: NAME STATE OF INCORPORATION ---- ---------------------- Sun Microsystems, Inc. California Sun Microsystems, Inc. Delaware SECOND: That an Agreement and Plan of Merger (the "Merger Agreement") between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of subsection (c) of Section 252 of the General Corporation Law of the State of Delaware and that the effective time of the merger shall be noon eastern standard time on the day on which this Certificate is filed with the Secretary of State of the State of Delaware. THIRD: That the name of the surviving corporation of the merger is Sun Microsystems, Inc., a Delaware corporation. FOURTH: That the Restated Certificate of Incorporation of Sun Microsystems, Inc., a Delaware corporation, shall be the certificate of incorporation of the surviving corporation. FIFTH: That the executed Merger Agreement is on file at the principal place of business of the surviving corporation. The address of said principal place of business is 2550 Garcia Avenue, Mountain View, California 94043. SIXTH: That a copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation. SEVENTH: That the authorized capital stock of Sun Microsystems, Inc., a California corporation, is 125,000,000 shares of Common Stock, $.00067 par value, and 10,000,000 shares of Preferred Stock, $.001 par value. SUN MICROSYSTEMS, INC. a Delaware corporation By: /s/ Scott G. McNealy -------------------------------------- Scott G. McNealy, President ATTEST: /s/ Robert G. Smith - --------------------------------------- Robert G. Smith, Assistant Secretary 2SUN:004 -2- 12/7/89 CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF SUN MICROSYSTEMS, INC. William J. Raduchel and Michael H. Morris certify that: 1. They are the Vice President, Chief Financial Officer and Vice President, General Counsel and Corporate Secretary, respectively, of Sun Microsystems, Inc., a Delaware corporation. 2. So much of Section (a) of Article 4 of the Restated Certificate of Incorporation of this Corporation as now reads: "This Corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock". The total number of shares which this corporation shall have authority to issue is One Hundred Thirty Five Million (135,000,000), of which One Hundred Twenty Five Million (125,000,000) shall be Common Stock with a par value of $.00067 per share and Ten Million (10,000,000) shall be Preferred Stock with a par value of $.001 per share." is amended to read as follows: "This Corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock". The total number of shares which this corporation shall have authority to issue is Three Hundred Ten Million (310,000,000), of which Three Hundred Million (300,000,000) shall be Common Stock with a par value of .00067 per share and Ten Million (10,000,000) shall be Preferred Stock with a par value of $.001 per share. 3. The foregoing Certificate of Amendment of the Restated Certificate of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Certificate of Amendment of the Restated and Amended Certificate of Incorporation has been duly approved by the required vote of stockholders in accordance with Section 242 of the Delaware Corporations Code. The total number of outstanding shares of Common Stock of the corporation is 85,177,733. No shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding Common Stock. We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in the foregoing certificate are true and correct of our own knowledge. Executed at Mountain View, California, this 6th day of December, 1989. /s/ William J. Raduchel ------------------------------ William J. Raduchel ATTEST: /s/ Michael H. Morris ------------------------------ Michael H. Morris CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF SUN MICROSYSTEMS, INC. Michael E. Lehman and Michael H. Morris, certify that: 1. They are the Vice-President, Chief Financial Officer and Vice President, General Counsel and Corporate Secretary, respectively, of Sun Microsystems, Inc., a Delaware corporation. 2. So much of Section (a) of Article 4 of the Restated Certificate of Incorportion of this Corporation as now reads. "This Corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock". The total number of shares which this corporation shall have authority to issue is Three Hundred Ten Million (310,000,000), of which Three Hundred Million (300,000,000) shall be Common Stock with a par value of $.00067 per share and Ten Million (10,000,000) shall be Preferred Stock with a par value of $.001 per share." is amended to read as follows: "The Corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock". The total number of shares which this corporation shall have authority to issue is Nine Hundred Fifty Million (950,000,000), of which Nine Hundred Forty Million (940,000,000) shall be Common Stock with a par value of $.00067 per share and Ten Million (10,000,000) shall be Preferred Stock with a par value of $.001 per share." 3. The foregoing Certificate of Amendment of the Restated Certificate of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Certificate of Amendment of the Restated Certificate of Incorporation has been duly approved by the required vote of stockholders in accordance with Section 242 of the Delaware Corporations Code. The total number of outstanding shares of Common Stock of the corporation is 183,648,532. No shares of Preferred Stock are outstanding. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding Common Stock. We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in the foregoing certificate are true and correct of our own knowledge. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto affixed and the Certificate of Amendment to be signed by Michael E. Lehman, its Vice President, Chief Financial Officer and attested by Michael H. Morris, its Vice President, General Counsel and Corporate Secreatary, this 13th day of November, 1996. SUN MICROSYSTEMS, INC. [Corporate Seal] /s/ Michael E. Lehman ------------------------------ Michael E. Lehman ATTEST: /s/ Michael H. Morris ------------------------------ Michael H. Morris EX-10.87 3 PROMISSORY NOTE PROMISSORY NOTE SECURED BY DEED OF TRUST $500,000.00 Mountain View, California October 4, 1996 In installments as stated in this Note, for value received, Alan E. Baratz and Raquel S. Baratz (collectively, "Borrower") hereby promise to pay to Sun Microsystems, Inc., a Delaware corporation ("Lender"), or order, at its offices at 2550 Garcia Avenue, Mountain View, California, or at such other place as Lender may from time to time designate in writing, the principal sum of Five Hundred Thousand Dollars ($500,000.00) with interest on the unpaid balance of principal from the date of this Note until paid in full at the rate of 6.72%, compounded annually, on the following terms: 1. Payment of Principal: The principal due pursuant to this Note shall be paid in full on or before October 4, 2001. 2. Payment of Interest: Accrued interest on the then outstanding principal balance shall be due and payable on October 4, 1997 and on the 4th day of October each year thereafter until payment in full of the principal and interest. 3. General: Principal and interest shall be payable in lawful money of the United States. Interest shall be calculated on the basis of a 360-day year consisting of 12 thirty day months. Each payment shall be applied first to interest then due and the balance of said installment shall be applied to the principal sum. This Note may be prepaid at anytime. 4. Security: This Note is secured by a deed of trust of even date herewith made by Borrower, as trustor, to North American Title Company, as trustee, for Lender, as beneficiary (the "Deed of Trust"), encumbering certain real property commonly known as 11801 Francemont Drive, Los Altos Hills, Santa Clara County, California (the "Property Security"). Default and Acceleration: A. Full Acceleration: Unless otherwise prohibited by law, upon the occurrence of any of the following events, the Holder of this Note shall have the option, without demand or notice, to declare the entire balance of principal of this Note to be immediately due and payable: (i) Borrower defaults in the payment of principal when due pursuant to the terms hereof or defaults in the performance of any obligation of Borrower or other agreement (including any amendment, modification or extension thereof) which may hereafter be executed by Borrower for the purpose of securing this Note; (ii) Borrower, without prior written consent of Lender, voluntarily or by operation of law sells, conveys, assigns, or otherwise transfers, all or substantially all, or any portion of, or interest in the Property Security. (iii) Sixty days after (a) Lender is notified that Borrower is terminating his employment with Lender, or (b) Lender terminates Borrower's employment for cause, as defined below. 1 B. Partial Acceleration: (i) In the event that Borrower's employment is terminated by Lender other than for cause or if Borrower dies or is disabled for a period of more than six months, principal due hereunder shall be accelerated and shall be paid fifty percent (50%) of the principal in twelve (12) equal quarterly installments, with the first such quarterly payment due on the effective date of termination and the successive quarterly payments being due each three months thereafter on the same day of each such months (i.e., if termination is on February 3, payments are due on each succeeding May 3, August 3, November 3 and February 3). The remaining fifty percent (50%) of the principal shall be due in a balloon payment at the end of the thirteenth quarter following the date hereof. Notwithstanding the foregoing, in no event shall such a termination or the foregoing payment schedule extend the due date of this Note beyond October 4, 2001. (ii) For purposes of this Note, the term "cause" shall mean Borrower's misfeasance, malfeasance or misconduct, dishonesty or gross negligence in connection with his employment. 4. Attorneys' Fees: In the event any default hereunder, Borrower hereby promises to pay all costs of collection, including reasonable attorneys' fees incurred by Lender hereof on account of such collection, whether or not suit is filed hereon. 5. Waiver: The waiver by Lender hereof of any breach of or default under any terms, covenant or condition contained herein or in any of the agreements referred to above shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of or default under the same or any other such term, covenant or condition. 6. General Provisions: This Note shall be governed by and construed in accordance with the laws of the State of California. The makers, guarantors and endorsers of this Note hereby severally waive presentment for payment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and consent that Lender may extend the time for payment or otherwise modify the terms of payment or any part or the whole of the debt evidenced by this Note, at the request of any person liable hereon, and such consent shall not alter nor diminish the liability of any person. Borrower hereby waives the defense of the statute of limitations in any action on this Note to the extent permitted by law. The terms of this Note constitute the entire agreement and understanding between the parties and supersede all previous communications, representations or agreements, whether written or oral, with respect to the subject matter hereof. AS BORROWER: /s/ ALAN A. BARATZ ___________________________ Alan E. Baratz /s/ RAQUEL S. BARATZ __________________________ Raquel S. Baratz 2 EX-10.88 4 EXHIBIT 10.88 FORM OF INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of this ____ day of _____________ 1987, by and between SUN MICROSYSTEMS, INC., a Delaware corporation (the "Company"), and____________________ ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and WHEREAS, the Company desires to attract and retain the services of highly qualified individuals. such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. NOW, THEREFORE, in consideration of Indemnitee's service as an officer or director of the Company, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in -1- good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. (c) Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Subsections (a) and (b) of this Section 1 or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to President of the Company at the -2- address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date post-marked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification and advances provided for in Section 1 and this Section 2 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or By-laws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 2(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the -3- Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 3. Additional Indemnification Rights; Nonexclusivity. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its By-laws, any agreement, any vote of stockholders or disinterested Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 4. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in -4- certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 6. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 7. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fill to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 7. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 8. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or (b) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this -5- Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or (c) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company. (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 9. Construction of Certain Phrases. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans: references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 11. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 12. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all -6- court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 13. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware. 15. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SUN MICROSYSTEMS, INC. By:_____________________________________ Its:____________________________________ Address: 2550 Garcia Avenue Mountain View, CA 94043 AGREED TO AND ACCEPTED: INDEMNITEE: __________________________________ (type name) __________________________________ (signature) __________________________________ __________________________________ (address) -8- EX-11 5 EXHIBIT-11 SUN MICROSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS PER SHARE (unaudited) (in thousands, except per share amounts) PRIMARY Three Months Ended, ------------------- September 29, October 1, 1996 1995 ---- ---- Net income $123,390 $ 84,696 ======== ======== Weighted average common shares outstanding 183,557 189,896 Common - equivalent shares attributable to stock options and warrants 11,501 9,428 -------- -------- Total common and common - equivalent shares outstanding 195,058 199,324 ======== ======== Net income per common and common - equivalent share $0.63 $ 0.42 ===== ======= EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-1997 JUN-30-1996 SEP-29-1996 460,745 203,210 1,295,429 126,754 461,842 2,852,835 562,893 793,255 3,622,402 1,489,269 40,000 73 0 0 2,120,165 3,622,402 1,859,019 1,859,019 972,101 1,683,035 0 2,857 2,657 181,456 58,066 123,390 0 0 0 123,390 0.63 0.63
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