Exhibit 10.2

 

SUN MICROSYSTEMS, INC.

 

2005 U.S. NON-QUALIFIED DEFERRED COMPENSATION PLAN

 

Effective January 1, 2005

 

Sun Microsystems, Inc. (the “Company”), acting on behalf of itself and its U.S.
subsidiaries, hereby adopts the Sun Microsystems, Inc. 2005 U.S. Non-Qualified
Deferred Compensation Plan (the “Plan”) effective January 1, 2005.

 

RECITALS

 

1. The Company maintains the Plan, a deferred compensation plan for the benefit
of a select group of management or highly compensated employees of the Company
as well as members of the Company’s Board of Directors.

 

2. The Plan is the successor plan to the Sun Microsystems, Inc. U.S.
Non-Qualified Deferred Compensation Plan (the “Prior Plan”). Effective
December 31, 2004, the U.S. Non-Qualified Deferred Compensation Plan shall be
frozen and no new contributions shall be made to it; provided, however, that any
deferrals made under the Prior Plan before January 1, 2005 shall continue to be
governed by the terms and conditions of the Prior Plan as in effect on
December 31, 2004.

 

3. Any deferrals made under the Prior Plan after December 31, 2004 shall be
deemed to have been made under the Plan and all such deferrals shall be governed
by the terms and conditions of the Plan as it may be amended from time to time.

 

4. Under the Plan, the Company is obligated to pay vested accrued benefits to
Plan Participants and their Beneficiary or Beneficiaries from the Company’s
general assets.

 

5. The Company has entered into an agreement (the “Trust Agreement”) with Wells
Fargo Bank, N.A. pursuant to which Wells Fargo Bank, N.A., serves as the trustee
(the “Trustee”) under an irrevocable trust, to be used in connection with the
Plan (the “Trust”).

 

6. The Company intends to make contributions to the Trust so that such
contributions will be held by the Trust and invested, reinvested and
distributed, all in accordance with this Plan and the Trust Agreement.

 

7. The Company intends that amounts contributed to the Trust and the earnings
thereon shall be used by the Trustee to satisfy the liabilities of the Company
under the Plan with respect to each Plan Participant for whom an Account (as
defined below) has been established and such utilization shall be in accordance
with the procedures set forth herein.

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8. The Company intends that the Trust be a “grantor trust” with the principal
and income of the Trust treated as assets and income of the Company for federal
and state income tax purposes.

 

9. The Company intends that the assets of the Trust shall at all times be
subject to the claims of the general creditors of the Company as provided in the
Trust Agreement.

 

10. The Company intends that the existence of the Trust shall not alter the
characterization of the Plan as “unfunded” for purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), and shall not be
construed to provide income to Plan Participants under the Plan prior to actual
payment of the vested accrued benefits hereunder.

 

11. The Company intends that the Plan comply with the requirements of
Section 409A of the Code.

 

NOW THEREFORE, the Company does hereby adopt this Plan as follows and does also
hereby agree that the Plan shall be structured, held and disposed of as follows:

 

  1. Purpose. The Plan provides Participants an opportunity to defer payment of
a portion of Employee salary and incentive bonus/commissions (for Sales Vice
Presidents and Directors); Employee annual and quarterly bonus awards; and Board
of Directors’ Director Fees.

 

  2. Definitions.

 

  (a) Account means a bookkeeping account established pursuant to Section 5(a)
of the Plan for Compensation that is subject to a Participant’s Deferred
Compensation Election.

 

  (b) Administrator means the Compensation Committee or such other person,
company or entity as may be designated from time to time by the Compensation
Committee except as otherwise provided herein.

 

  (c) Beneficiary means the person or persons designated by the Participant or
by the Plan under Section 11(b) of the Plan to receive payment of the
Participant’s Account in the event of the Participant’s death.

 

  (d) Board means the Board of Directors of the Company, as constituted from
time to time.

 

  (e) Change of Control. A “Change of Control” shall be deemed, consistent with
Section 409A of the Code and the proposed regulations promulgated thereunder, to
occur on the date that:

 

  (i) Any one person, or more than one person acting as a group (as defined in
Proposed Regulation Section 1.409A-3(g)(5)(v)(B)), acquires ownership of stock
of the Company, that together with

 

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stock held by such person or group, constitutes more than fifty percent (50%) of
the total fair market value or total voting power of the stock of the Company.
However, if any one person, or more than one person acting as a group, is
considered to own more than fifty percent (50%) of the total fair market value
or total voting power of the stock of the Company, the acquisition of additional
stock by the same person or persons is not considered a Change of Control. This
Section 2(e)(i) applies only when there is a transfer of stock of the Company
(or the issuance of stock of the Company) and stock in the Company remains
outstanding after the transaction; or

 

  (ii) Any one person, or more than one person acting as a group (as defined in
Proposed Regulation Section 1.409A-3(g)(5)(v)(B)), acquires (or has acquired
during the twelve-month period ending on the date of the most recent acquisition
by such person or persons) assets from the Company that have a total “Gross Fair
Market Value” (as defined in Proposed Regulation Section 1.409A-3(g)(5)(vii)(A))
equal to or more than forty percent (40%) of the total Gross Fair Market Value
of all of the assets of the Company immediately prior to such acquisition or
acquisitions; or

 

  (iii) Any one person, or more than one person acting as a group (as defined in
Proposed Regulation Section 1.409A-3(g)(5)(v)(B)), acquires (or has acquired
during the twelve-month period ending on the date of the most recent acquisition
by such person or persons) ownership of stock of the Company possessing
thirty-five percent (35%) or more of the total voting power of the stock of the
Company; or

 

  (iv) A majority of the members of the Board is replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of the appointment
or election; provided, however, that no Change of Control shall be deemed to
have occurred if any other corporation is a majority shareholder of the Company.

 

  (f) Code means the Internal Revenue Code of 1986, as amended.

 

  (g) Compensation Committee means the Leadership Development and Compensation
Committee of the Board, appointed by the Board from time to time.

 

  (h) Company means Sun Microsystems, Inc. and its U.S. subsidiaries, and any
successor organization thereto.

 

  (i) Compensation means:

 

  (i) The amount paid by the Company to an Eligible Employee as base salary; and

 

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  (ii) The amount paid by the Company to an Eligible Employee as an annual or
quarterly corporate bonus award and any other bonus/incentive award that is
approved by the Administrator as earnings that can be deferred under the Plan
(some incentive/bonus awards will not be eligible for deferral); and

 

  (iii) For Sales Vice Presidents and Directors, incentive bonus/commissions;
and

 

  (iv) In the case of an Eligible Board Member, the amount of his or her
Director Fees from the Company.

 

For purposes of the foregoing, Compensation as described in clauses (i),
(ii) and (iii) shall be eligible for deferral only to the extent such amounts
are otherwise subject to U.S. payroll reporting and withholding.

 

  (j) Deferred Compensation Election means an election by an Eligible Employee
or Eligible Board Member to participate in the Plan in accordance with Section 4
of the Plan.

 

  (k) Determination Date means each December 31.

 

  (l) Director Fees means any compensation payable with respect to an Eligible
Board Member’s service as a member of the Board, including, but not limited to,
meeting fees and annual retainer fees. Director Fees do not include directors’
expense reimbursements, stock options, or other stock-based compensation.

 

  (m) Election Period means November/December of each Plan Year.

 

  (n) Eligible Board Member means a member of the Board (other than a member who
is also an Eligible Employee) who meets the requirements set forth in Section 3
of the Plan.

 

  (o) Eligible Employee means an officer of the Company or other common-law
employee of the Company whose position is approved as a director level or higher
and who otherwise meets the requirements set forth in Section 3 of the Plan.

 

  (p) ERISA means the Employee Retirement Income Security Act of 1974, as
amended.

 

  (q) Investment Committee means the Administrative Committee of the Sun
Microsystems, Inc. Tax Deferred Retirement Savings Plan.

 

  (r) Key Employee means an Eligible Employee who, on a Determination Date, is

 

  (i) An officer of the Company having annual compensation greater than the
compensation limit in Section 416(i)(1)(A)(i) of the Code, provided that no more
than fifty officers of the Company shall be determined to be Key Employees as of
any Determination Date;

 

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  (ii) A five percent owner of the Company; or

 

  (iii) A one percent owner of the Company having annual compensation from the
Company of more than $150,000.

 

If an Eligible Employee is determined to be a Key Employee on a Determination
Date, then such Eligible Employee shall be considered a Key Employee for
purposes of the Plan during the period beginning on the first April 1 following
the Determination Date and ending on the next March 31.

 

  (s) Participant means an Eligible Board Member or an Eligible Employee who has
elected to defer Compensation.

 

  (t) Plan means this Sun Microsystems, Inc. 2005 U.S. Non-Qualified Deferred
Compensation Plan, as amended from time to time.

 

  (u) Plan Year means the calendar year.

 

  (v) Prior Plan means the Sun Microsystems, Inc. U.S. Non-Qualified Deferred
Compensation Plan, as amended from time to time.

 

  (w) Retirement Date means the last day of the month coinciding with or
following the Participant’s separation from Service following the earlier of his
or her

 

  (i) 55th birthday, if the Participant’s full years of Service with the Company
and its non-U.S. subsidiaries added to Participant’s age (in full years) equals
or exceeds 65; or

 

  (ii) 20th year anniversary of Service (including Service with businesses
acquired by the Company and designated by the Administrator for this purpose).

 

  (x) Service means:

 

  (i) Employment as a common-law employee of the Company or one of its non-U.S.
subsidiaries; or

 

  (ii) Period served as an elected Board Member.

 

A Participant’s Service shall be determined by the Administrator in its sole
discretion. A Participant’s Service shall not be deemed to have separated from
Service merely because the capacity in which the Participant renders Service to
the Company or any of its non-U.S. subsidiaries changes from Eligible Employee
to Eligible Board Member or vice-versa. Notwithstanding the foregoing, a
separation from Service will not be deemed to have occurred if

 

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an Eligible Employee continues to provide services to the Company or any of its
non-U.S. subsidiaries in a capacity other than as an employee and if the former
Eligible Employee is providing services at an annual rate that is fifty percent
or more of the services rendered, on average, during the immediately preceding
three full calendar years of employment with the Company or any of its non-U.S.
subsidiaries (or if employed by the Company or any of its non-U.S. subsidiaries
less than three years, such lesser period) and the annual remuneration for such
services is fifty percent or more of the annual remuneration earned during the
final three full calendar years of employment (of if less, such lesser period);
provided, however, that a separation from Service will be deemed to have
occurred if an Eligible Employee’s service with the Company or any of its
non-U.S. subsidiaries is reduced to an annual rate that is less than twenty
percent of the services rendered, on average, during the immediately preceding
three full calendar years of employment with the Company or any of its non-U.S.
subsidiaries (or if employed by the Company or any of its non-U.S. subsidiaries
less than three years, such lesser period) or the annual remuneration for such
services is less than twenty percent of the annual remuneration earned during
the three full calendar years of employment with the Company or any of its
non-U.S. subsidiaries (or if less, such lesser period).

 

In addition to the foregoing, a separation from Service will not be deemed to
have occurred while an Eligible Employee is on military leave, sick leave, or
other bona fide leave of absence if the period of such leave does not exceed six
months, or if longer, so long as the Eligible Employee’s right to reemployment
with the Company or any of its non-U.S. subsidiaries is provided either by
statute or contract. If the period of leave exceeds six months and the Eligible
Employee’s right to reemployment is not provided either by statute or contract,
then the employee is deemed to have separated from Service on the first day
immediately following such six-month period.

 

  (y) Unforeseeable Emergency means a severe financial hardship to the
Participant or Beneficiary resulting from:

 

  (i) An illness or accident of the Participant or Beneficiary, the
Participant’s or Beneficiary’s spouse, or the Participant’s or Beneficiary’s
dependent (as defined in Section 152(a) of the Code); or

 

  (ii) Loss of the Participant’s or Beneficiary’s property due to casualty
(including the need to rebuild a home following damage to a home not otherwise
covered by insurance); or

 

  (iii) Other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant or Beneficiary.

 

Hardship shall not constitute an Unforeseeable Emergency under the Plan to the
extent that it is, or may be, relieved by:

 

  (i) Reimbursement or compensation, by insurance or otherwise;

 

  (iv) Liquidation of the Participant’s or Beneficiary’s assets to the extent
that the liquidation of such assets would not itself cause severe financial
hardship. Such assets shall include but not be limited to stock options, Company
stock, and 401(k) plan balances; or

 

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  (v) Cessation of deferrals under the Plan.

 

An Unforeseeable Emergency under the Plan does not include (among other events):

 

  (ii) Sending a child to college; or

 

  (vi) Purchasing a home.

 

  3. Eligibility. Participation in the Plan is limited to Eligible Board
Members, and Eligible Employees who are members of a select group of management
or highly compensated employees. Such Eligible Board Member or Eligible Employee
is eligible to participate in the Plan if he or she is paid through the
Company’s U.S. payroll and not covered under a non-U.S. retirement plan.

 

  4. Election to Participate in Plan.

 

  (a) Deferral Election. An Eligible Employee or an Eligible Board Member may
elect to participate in the Plan by submitting a Deferred Compensation Election
in such form as the Company may specify during any Election Period. Subject to
the provisions of Sections 4(b) below, a Deferral Election must be made and
become irrevocable not later than last day of the Plan Year preceding the Plan
Year in which the Compensation being deferred is earned. A Deferred Compensation
Election made in the 2006 Plan Year or thereafter will remain in force until it
is amended or revoked. Any such amendment or revocation will take affect on the
first day of the Plan Year following the Plan Year in which the Participant
elects to amend or revoke the outstanding Deferred Compensation Election. In
addition to the foregoing, a Participant’s Deferred Compensation Election shall
be suspended if such Participant applies for and is otherwise eligible to
receive a distribution on account of an Unforeseeable Emergency. Such suspension
shall continue through the end of Plan Year in which the Participant applies for
a distribution due to an Unforeseeable Emergency and the Participant must submit
a new Deferred Compensation Election during an Election Period to resume
participation in the Plan.

 

  (b) Deferral Election for Newly Eligible Employees and Newly Eligible Board
Members. In the Administrator’s discretion, a newly Eligible Employee or a newly
Eligible Board Member may elect to participate in the Plan by submitting a
Deferred Compensation Election in such form as the Company may specify; provided
that such Deferred Compensation Election is made and becomes irrevocable not
later than thirty days following the date such newly Eligible Employee or Board
Member first becomes eligible to participate in the Plan and provided further
that such

 

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Deferred Compensation Election applies only to Compensation earned after the
date of the election. In compliance with this Section 4(b), only a prorated
portion of a Participant’s bonus may be deferred if the Participant’s initial
Deferred Compensation Election is made after the performance period applicable
to the bonus has begun. Effective January 1, 2006 only a newly Eligible Employee
whose position is approved as a vice president level or higher shall be
permitted in the Administrator’s discretion to make a Deferred Compensation
Election pursuant to this Section 4(b).

 

  (c) Special Elections in 2005 regarding Deferrals. In accordance with IRS
Notice 2005-1, A-20, (i) on or before March 11, 2005, Eligible Employees were
permitted to terminate Deferred Compensation Elections made with respect to
salary and incentive award/commission Compensation earned during the period
January 1, 2005 through March 20, 2006 and Deferred Compensation Elections made
with respect to fiscal year 2005 bonus Compensation that was otherwise payable
in 2005 and (ii) on or before November 25, 2005 certain Eligible Employees were
permitted to terminate Deferred Compensation Elections made with respect to 2005
bonus Compensation, notwithstanding the fact that such Deferred Compensation
Elections otherwise would have been irrevocable under Section 4(a) above.
Elections made pursuant to this Section 4(c) are irrevocable and subject to any
special administrative rules imposed by the Administrator consistent with
Section 409A of the Code and Notice 2005-1, A-20. No special election under this
Section 4(c) shall be permitted after December 31, 2005.

 

  (d) Initial Deferral Election. Any Deferred Compensation Election under this
Section 4 that is an initial Deferred Compensation Election also will include an
election as to the time and form of payment of the deferred Compensation.

 

  (e) Election Form. All Deferred Compensation Elections under this Section 4
shall be made in a manner prescribed for these purposes by the Administrator.

 

  5. Accounts.

 

  (a) Establishment of Account. The Company shall establish an Account for the
terms of the Deferred Compensation Election.

 

  (b) Credits to Account. A Participant’s Account shall be credited with an
amount equal to the percentage of each Compensation payment which would have
been payable currently to the Participant but for the terms of the Deferred
Compensation Election. Deferred Compensation for Participants shall be credited
to the Participant’s Account as of the first day of the month in which such
deferred amounts would otherwise be paid to the Participant.

 

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  (c) Vesting. Participants shall at all times be 100% vested in their deferrals
under the Plan and all earnings or losses allocable thereto.

 

  6. Deferral Increments.

 

  (a) Minimum Deferral. The minimum deferral per Plan Year will be determined by
the Administrator.

 

  (b) Maximum Deferral – Eligible Employees. The Participant who is an Eligible
Employee may elect to defer (less any withholding requirements):

 

  (i) Up to 75% of any eligible annual or quarterly bonus award; and

 

  (ii) Up to 60% of base salary and incentive awards/commissions.

 

  (c) Maximum Deferral – Eligible Board Members. A Participant who is an
Eligible Board Member may elect to defer (less any withholding requirements), up
to 100% of his or her Director Fees (to be credited to the account quarterly).

 

  7. Earnings or Losses on Accounts.

 

  (a) General Rule. Except as otherwise provided in the Plan, the amount in a
Participant’s Account shall be adjusted for gain or loss based on the
performance of the investment options selected by the Participant (or
Beneficiary following a Participant’s death) in accordance with Section 7(b)
below. Gain or loss shall be computed daily. All distributions from the Account
will be valued as of the end of the last day of the month preceding the payment
date.

 

  (b) Designation of Investment Indices by the Investment Committee. The
Investment Committee shall specify two or more investment funds that shall serve
as benchmarks for the investment performance of amounts credited to the
Accounts. Accounts shall be adjusted to reflect the gain or loss, net of any
allocable costs or expenses, such accounts would experience had they actually
been invested in the specified funds at the relevant times. The Investment
Committee may vary the available investment funds from time to time, but not
more frequently than quarterly. A Participant (or Beneficiary following a
Participant’s death) may select his or her investment options for new deferrals
or for amounts already credited to his or her Account, once per month effective
as of the first day of the following month and in such manner as the Investment
Committee may specify.

 

  8. Certain In-Service Account Distributions.

 

  (a) In-Service Account Distribution Elections. Each Participant may elect at
the time of his or her initial Deferred Compensation Election or in accordance
with Section 8(c) below, to have one or more distributions of a

 

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specified percentage or dollar amount of his or her Account commencing in his or
her third year of Plan participation, provided that the Participant has not
separated from Service with the Company or any of its non-U.S. subsidiaries
prior to the elected in-service distribution date. A Participant may delay once
or cancel such in-service account distribution election at any time, provided
that such election must be made at least one year prior to the first day of the
Plan Year in which the original distribution date was scheduled, and provided
further that the newly elected distribution date is at least five years after
the originally scheduled distribution date. A Participant may not receive an
in-service account distribution more frequently than once in a Plan Year whether
such distribution is on account of an initial in-service account distribution
election or a modified in-service account distribution election. Any in-service
account distribution shall be paid with the last payroll of the month following
the distribution date elected by the Participant.

 

  (b) Previously Scheduled In-Service Account Distributions. In-service account
distribution elections in effect under the Prior Plan and not otherwise modified
pursuant to Section 8(c) below shall remain in full force and effect with
respect to the Plan. Notwithstanding the foregoing, in-service account
distributions elections in effect under the Prior Plan pursuant to which
distributions were scheduled to occur in 2005 shall not apply to Compensation
deferred in 2005 (and earnings thereon); provided, however, that if a
Participant elected a distribution of one hundred percent of his Account in 2005
pursuant to an in-service account distribution election in effect under the
Prior Plan, then such election shall apply to Compensation deferred in 2005 (and
earnings thereon). In-service account distribution elections in effect under the
Prior Plan that apply, pursuant to this Section 8(b), to Compensation deferred
under the Plan and to Compensation deferred under the Prior Plan and pursuant to
which distributions shall be made in 2006 and later, shall be applied pro rata
to Compensation deferred under the Plan and the Prior Plan based on the relative
values of the Plan and Prior Plan accounts.

 

  (c) Special In-Service Account Distribution Election. Notwithstanding any
other provision of the Plan to the contrary, a Participant may elect an
in-service account distribution or change the time of an in-service account
distribution as elected in accordance with Section 8(a) or 8(b) above, provided
that the election is made at least twelve months prior to the originally
scheduled distribution date and the election is made not later than December 31,
2006. An elections made pursuant to this Section 8(c) shall be treated as an
initial in-service account distribution election and shall be subject to any
special administrative rules imposed by the Administrator including rules
intended to comply with Section 409A of the Code and Notice 2005-1, A-19. No
election under this Section 4(c) shall (i) result in an in-service distribution
before the Participant’s third year of Plan participation, (ii) result in a
Participant receiving an in-service distribution more frequently than once in a
Plan Year, (iii) change the

 

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payment date of any distribution otherwise scheduled to be paid in 2006 or cause
a payment to be paid in 2006, or (iv) be permitted after December 31, 2006.

 

  9. Statements. Quarterly, and/or at intervals determined by the Administrator,
the Company shall prepare and deliver to each Participant a statement listing
the amount credited to such Account as of the applicable date.

 

  10. Form and Time of Payment of Accounts.

 

  (a) Distribution of Account upon Retirement. In the event of a Participant’s
separation from Service on or after his or her Retirement Date, distribution of
the Participant’s Account shall begin with the last payroll of the month
following the month in which the Participant separates from Service, and shall
be made consistent with the form of distribution specified on the Participant’s
Deferred Compensation Election. After the first installment, future installments
shall be paid with the second payroll of each Plan Year. Available forms shall
include either a lump sum payment or a series of approximately equal annual
installments over a period of five years, ten years or fifteen years. For
purposes of the Plan, installment payments shall be treated as a single
distribution under Section 409A of the Code. Accounts subject to installment
payouts shall continue to be adjusted for gains or losses in the same manner as
active Accounts. A Participant may modify his or her elected form of
distribution (i.e., lump sum or installments) at any time prior to the date that
is at least one year before the date the Participant separates from Service,
provided that the Participant’s distribution is delayed at least five years from
the originally scheduled distribution date. If a Participant modifies his or her
elected form of distribution but he or she separates from Service less than one
year following the date of the modification election, his or her prior elected
form of distribution shall apply to any distribution.

 

  (b) Distribution Prior to Retirement. If a Participant separates from Service
with the Company or any of its non-U.S. subsidiaries prior to his or her
Retirement Date (other than on account of death), distribution of the
Participant’s Account shall begin with the last payroll of the month following
the month in which the Participant separates from Service and shall be made
consistent with the form of distribution specified on the Participant’s Deferred
Compensation Election. After the first installment, future installments shall be
paid with the second payroll of each Plan Year. Available forms of distribution
shall include either a lump sum payment or a series of approximately equal
annual installments over a period of five years. For purposes of the Plan,
installment payments shall be treated as a single distribution under
Section 409A of the Code. Accounts subject to installment payouts shall continue
to be adjusted for gains or losses in the same manner as active Accounts. A
Participant may modify his or her elected form of distribution (i.e. lump sum or
installments) at any time prior to the date that is at least one year before the
date the Participant separates from Service, provided that the

 

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Participant’s distribution is delayed at least five years from the originally
scheduled distribution date. If a Participant modifies his or her elected form
of distribution but he or she separates from Service less than one year
following the date of the modification election, his or her prior elected form
of distribution shall apply to any distribution.

 

  (c) Previously Scheduled Distribution Elections. A distribution election
applicable to a Participant’s separation from Service on or after his or her
Retirement Date or a Participant’s separation from Service prior to his or her
Retirement Date in effect under the Prior Plan shall remain in full force and
effect with respect to the Plan subject to the terms and conditions of Sections
10(a) and (b) above.

 

  (d) Default Distribution Election. In the absence of an effective Deferred
Compensation Election as to the timing and/or method of distribution of a
Participant’s Account, distribution of the Participant’s Account shall be made
in one lump sum payment with the last payroll of the month following the month
in which the Participant separates from Service.

 

  (e) Delayed Distribution to Key Employees. Notwithstanding any other provision
of Sections 10(a), (b), (c) or (d) above, a distribution made to a Participant
who is designated as a Key Employee shall be delayed for a minimum of sixth
months following the Participant’s separation from Service. Any payment that
otherwise would have been made pursuant to Sections 10(a), (b), (c) or (d) above
during such sixth month period shall be made in one lump sum payment with the
last payroll of the seventh month following the month in which the Participant
separates from Service. The determination of which Participants are Key
Employees shall be made by the Administrator in its sole discretion in
accordance with Section 2(r) of the Plan and Sections 416(i) and 409A of the
Code and the regulations promulgated thereunder.

 

  (f) Separation from Service on account of Leave of Absence or Reduction in
Service. Notwithstanding any other provision of this Section 10, any
distribution triggered under the Plan on account of a Participant’s separation
from Service following (i) a military leave, sick leave, or other bona fide
leave of absence that is more than six months in duration where the
Participant’s right to reemployment with the Company or any of its non-U.S.
subsidiaries is not provided either by statute or contract or (ii) a reduction
in the Participant’s service with the Company or any of its non-U.S.
subsidiaries to an annual rate that is less than twenty percent of the services
rendered, on average, during the immediately preceding three full calendar years
of employment with the Company or any of its non-U.S. subsidiaries (or if
employed by the Company or any of its non-U.S. subsidiaries less than three
years, such lesser period) or the annual remuneration for such services is less
than twenty percent of the annual remuneration earned during the three full
calendar years of employment (or if less, such lesser period), shall begin with
the last payroll of the month following the month in which the Participant is no
longer paid through the Company’s or any of its non-U.S. subsidiaries’ payroll.

 

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  (g) Unforeseeable Emergency. In the event of a Participant’s Unforeseeable
Emergency, and upon application by such Participant, the Administrator may
determine at its sole discretion that payment of all, or part, of such
Participant’s Account shall be made in one lump sum payment with the last
payroll of the month following the month in which the distribution is approved
by the Administrator. Payments due to a Participant’s Unforeseeable Emergency
shall be permitted only to the extent reasonably required to satisfy the
Participant’s need.

 

  (h) Prohibition on Acceleration. Notwithstanding any other provision of the
Plan to the contrary, no distribution shall be made from the Plan that would
constitute an impermissible acceleration of payment as defined in
Section 409A(3) of the Code and the regulations promulgated thereunder.

 

  11. Effect of Death of Participant.

 

  (a) Distributions. In the event of a Participant’s death while an Eligible
Employee or Eligible Board Member (except in the case of a Participant’s suicide
during the first two years of his or her participation in the Plan), the
Participant’s Account, together with an amount equal to two times the
Participant’s actual deferrals under the Plan (exclusive of earnings) (the
“supplemental survivor benefit”) shall be distributed to the Participant’s
Beneficiary. Notwithstanding the foregoing, the total supplemental survivor
benefit shall not exceed Three Million Dollars ($3,000,000). In the event of
(i) a Participant’s death while no longer an Eligible Employee or Eligible Board
Member (as applicable), or (ii) a Participant’s suicide during the first two
years of his or her participation in the Plan, only the Participant’s Account,
if any, shall be distributed to the Beneficiary. The Participant’s supplemental
survivor benefit shall be paid in a lump sum not later than twelve months
following the Participant’s death and the Participant’s Account, if any, shall
be distributed to the Participant’s Beneficiary in three annual installments
commencing with the last payroll of the month following the month in which the
Participant dies. After the first installment, future installments shall be paid
with the second payroll of each Plan Year. The remaining Account balance (during
the period of the installment payouts) shall continue to be adjusted for gains
or losses in the same manner as active Accounts.

 

  (b) Beneficiary Designation. Upon enrollment in the Plan, each Participant
shall file a prescribed form with the Company naming a person or persons as the
Beneficiary who will receive distributions payable under the Plan in the event
of the Participant’s death. If the Participant does not name a Beneficiary, or
if none of the named Beneficiaries is living at the time payment is due, then
the Beneficiary shall be the Participant’s spouse, or if none, the Participant’s
children in equal shares, or if none, the Participant’s estate.

 

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The Participant may change the designation of a Beneficiary at any time in
accordance with procedures established by the Administrator. Designation of a
Beneficiary, or an amendment or revocation thereof, shall be effective only if
made in the prescribed manner and received by the Company prior to the
Participant’s death.

 

  12. General Duties of Trustee. The Trustee shall manage, invest and reinvest
the Trust Fund as provided in the Trust Agreement. The Trustee shall collect the
income on the Trust Fund, and make distributions therefrom, all as provided in
the Plan and in the Trust Agreement

 

  13. Withholding Taxes. All distributions under the Plan shall be subject to
reduction in order to reflect tax withholding obligations imposed by law.

 

  14. Participant’s Unsecured Rights. The Account of any Participant, and such
Participant’s right to receive distributions from his or her Account, shall be
considered an unsecured claim against the general assets of the Company; such
Accounts are unfunded bookkeeping entries. The Company considers the Plan to be
unfunded for tax purposes and for purposes of Title I of ERISA. No Participant
shall have an interest in, or make claim against, any specific asset of the
Company pursuant to the Plan.

 

  15. Non-assignability of Interests. Except as provided under Section 19 of the
Plan, the interest of a Participant under the Plan is not subject to option or
assignable by either voluntary or involuntary assignment or by operation of law,
including without limitation to: bankruptcy, garnishment, attachment or other
creditor’s process. Any act in violation of this Section 15 shall be void and
without effect.

 

  16. Limitation of Rights.

 

  (a) Bonuses. Nothing in this Plan shall be construed to give any Eligible
Employee any right to be granted a bonus award.

 

  (b) Employment Rights. Neither the Plan nor deferral of any Compensation, nor
any other action taken pursuant to the Plan, shall constitute, or be evidence
of, any agreement or understanding, express or implied, that the Company will
employ an Eligible Employee for any period of time, in any position at any
particular rate of compensation. The Company reserves the right to terminate an
Eligible Employee’s Service at any time for any reason, except as otherwise
expressly provided in a written employment agreement.

 

  17. Administration of the Plan. The Plan shall be administered by the
Administrator. The Administrator shall have full power and authority to
administer, construe and determine all questions that shall arise as to
interpretations of the Plan’s provisions, including determination of
eligibility, allocation of assets, method of payment, participation and benefits
under the terms of the Plan, establish procedures for administering the Plan,
prescribe forms, and take any and all necessary actions in connection with the
Plan. The Administrator’s interpretation and construction of the Plan shall be
conclusive and binding on all persons, and

 

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will be given the maximum possible deference allowed by law. The Administrator
may appoint such agents, counsel, accountants, consultants and other persons as
may be required to assist in administering the Plan and to allocate and delegate
its power and authority described herein to one or more employees, officers or
agents or to one or more persons or organizations that it has employed to
perform its administrative responsibilities. In the event that any Participants
are found to be ineligible, that is, not members of a select group of management
or highly compensated employees, according to a determination made by the U.S.
Department of Labor, the Administrator shall take whatever steps it deems
necessary, in its sole discretion, to equitably protect the interests of the
affected Participants.

 

  18. Amendment or Termination of the Plan.

 

  (a) General Rule. The Compensation Committee may amend, suspend, or terminate
the Plan at any time; provided, however, that no such action shall reduce a
Participant’s Account under the Plan without the Participant’s written consent.
In the event of termination of the Plan, the Accounts of Participants shall be
distributed within the period beginning twelve months after the date the Plan
was terminated and ending twenty-four months after the date the Plan was
terminated, or pursuant to Sections 8 or 10 of the Plan, if earlier. If the Plan
is terminated and Accounts are distributed, the Company shall terminate all
account balance non-qualified deferred compensation plans with respect to all
participants and shall not adopt a new account balance non-qualified deferred
compensation plan for at least five years after the date the Plan was
terminated.

 

  (b) Change of Control. The Compensation Committee may terminate the Plan
thirty days prior to or twelve months following a Change of Control and
distribute the Accounts of the Participants within the twelve-month period
following the termination of the Plan. If the Plan is terminated and Accounts
are distributed, the Company shall terminate all substantially similar
non-qualified deferred compensation plans sponsored by the Company and all of
the benefits of the terminated plans shall be distributed within twelve months
following the termination of the plans.

 

  (c) Dissolution or Bankruptcy. The Plan shall automatically terminate upon a
corporation dissolution of the Company that is taxed under Section 331 of the
Code or with the approval of a bankruptcy court pursuant to 11 U.S.C.
Section 503(b)(1(A), provided that the Participants’ Accounts are distributed
and included in the gross income of the Participants by the latest of (i) the
Plan Year in which the Plan terminates or (ii) the first Plan Year in which
payment of the Accounts is administratively practicable.

 

  19. Domestic Relations Orders.

 

  (a) In General. The procedures established by the Company for the
determination of the qualified status of domestic relations orders and for
making distributions under qualified domestic relations orders, as provided in
Section 206(d) of ERISA, shall apply to the Plan, to the extent applicable.

 

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  (b) Distributions. To the extent required to comply with a qualified domestic
relations order, amounts awarded to an alternate payee under a qualified
domestic relations order shall be distributed in the form of a lump sum
distribution as soon as administratively feasible following the determination of
the qualified status of the domestic relations order. To the extent that the
qualified domestic relations order does not require an immediate lump sum
distribution, the alternate payee shall have all rights regarding investment
elections and distribution elections and withdrawal rights as if such alternate
payee were a Participant. For purposes of determining distributions to an
alternate payee, “separation from Service” or “Retirement Date” shall be the
separation from Service or Retirement Date of the Participant whose Account was
the subject of the qualified domestic relations order.

 

  20. Incompetency. In the event a benefit is payable to a minor or person
declared incompetent or incapable of handling the disposition of his property,
the Administrator may pay such benefit to the guardian, legal representative or
person having the care or custody of such minor, incompetent or incapable
person. The Administrator may require proof of incompetency, minority or
guardianship as it may deem appropriate prior to distribution of the benefit.
Such distribution shall completely discharge the Company from all liability with
respect to such benefit.

 

  21. Choice of Law. The validity, interpretation, construction and performance
of the Plan shall be governed by ERISA and the Code, and, to the extent that
they are not preempted, by the laws of the State of California, excluding
California’s choice-of-law provisions.

 

  22. Claims and Review Procedure.

 

  (a) Informal Resolution of Questions. Any Participant or Beneficiary who has
questions or concerns about his or her benefits under the Plan is encouraged to
communicate with the Administrator. If this discussion does not give the
Participant or Beneficiary satisfactory results, a formal claim for benefits may
be made within one year of the event giving rise to the claim in accordance with
the procedures of this Section 22.

 

  (b) Formal Benefits Claim – Review by Administrator. A Participant or
Beneficiary may make a written request for review of any matter concerning his
or her benefits under this Plan. The claim must be addressed to the
Administrator, 2005 U.S. Non-qualified Deferred Compensation Plan, Sun
Microsystems, Inc., 4230 Network Circle, M\S USCA23-106, Santa Clara, California
95054. The Administrator shall decide the action to be taken with respect to any
such request and may require additional information if necessary to process the
request. The Administrator shall review the request and shall issue his or her
decision, in writing, no later than 90 days after the date the request is
received,

 

16

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unless the circumstances require an extension of time. If such an extension is
required, written notice of the extension shall be furnished to the person
making the request within the initial 90-day period, and the notice shall state
the circumstances requiring the extension and the date by which the
Administrator expects to reach a decision on the request. In no event shall the
extension exceed a period of 90 days from the end of the initial period.

 

  (c) Notice of Denied Request. If the Administrator denies a request in whole
or in part, he or she shall provide the person making the request with written
notice of the denial within the period specified in Section 22(b) above. The
notice shall set forth the specific reason for the denial, reference to the
specific Plan provisions upon which the denial is based, a description of any
additional material or information necessary to perfect the request, an
explanation of why such information is required, and an explanation of the
Plan’s appeal procedures and the time limits applicable to such procedures,
including a statement of the claimant’s right to bring a civil action under
Section 502(a) of ERISA following an adverse benefit determination on review.

 

  (d) Appeal to Administrator.

 

  (i) A person whose request has been denied in whole or in part (or such
person’s authorized representative) may file an appeal of the decision in
writing with the Administrator within 60 days of receipt of the notification of
denial. The appeal must be addressed to: Administrator, 2005 U.S. Non-qualified
Deferred Compensation Plan, Sun Microsystems, Inc., 4230 Network Circle, M\S
USCA23-106, Santa Clara, California 95054. The Administrator, for good cause
shown, may extend the period during which the appeal may be filed for another 60
days. The appellant and/or his or her authorized representative shall be
permitted to submit written comments, documents, records and other information
relating to the claim for benefits. Upon request and free of charge, the
applicant should be provided reasonable access to and copies of, all documents,
records or other information relevant to the appellant’s claim.

 

  (ii) The Administrator’s review shall take into account all comments,
documents, records and other information submitted by the appellant relating to
the claim, without regard to whether such information was submitted or
considered in the initial benefit determination. The Administrator shall not be
restricted in his or her review to those provisions of the Plan cited in the
original denial of the claim.

 

  (iii) The Administrator shall issue a written decision within a reasonable
period of time but not later than 60 days after receipt of the appeal, unless
special circumstances require an extension of

 

17

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time for processing, in which case the written decision shall be issued as soon
as possible, but not later than 120 days after receipt of an appeal. If such an
extension is required, written notice shall be furnished to the appellant within
the initial 60-day period. This notice shall state the circumstances requiring
the extension and the date by which the Administrator expects to reach a
decision on the appeal.

 

  (iv) If the decision on the appeal denies the claim in whole or in part
written notice shall be furnished to the appellant. Such notice shall state the
reason(s) for the denial, including references to specific Plan provisions upon
which the denial was based. The notice shall state that the appellant is
entitled to receive, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to the claim
for benefits. The notice shall describe any voluntary appeal procedures offered
by the Plan and the appellant’s right to obtain the information about such
procedures. The notice shall also include a statement of the appellant’s right
to bring an action under Section 502(a) of ERISA.

 

  (v) The decision of the Administrator on the appeal shall be final, conclusive
and binding upon all persons and shall be given the maximum possible deference
allowed by law.

 

  (e) Exhaustion of Remedies. No legal or equitable action for benefits under
the Plan shall be brought unless and until the claimant has submitted a written
claim for benefits in accordance with Section 22(b) above, has been notified
that the claim is denied in accordance with Section 22(c) above, has filed a
written request for a review of the claim in accordance with Section 22(d)
above, and has been notified in writing that the Administrator has affirmed the
denial of the claim in accordance with Section 22(d) above; provided, however,
that an action for benefits may be brought after the Administrator has failed to
act on the claim within the time prescribed in Section 22(b) and Section 22(d),
respectively.

 

  (f) Statute of Limitations. No legal or equitable action for benefits under
the Plan may be commenced more than two years after the Administrator denies the
claim on appeal or the Administrator fails to act on the claim within the time
prescribed in Section 22(b) and Section 22(d), respectively.

 

  23. Execution and Signature. To record the adoption of the Plan by the
Compensation Committee, the Company has caused its duly authorized officer to
affix the corporate name hereto:

 

SUN MICROSYSTEMS, INC.

By:

 

/s/ William N. MacGowan

--------------------------------------------------------------------------------

Printed Name: William N. MacGowan

Title:

 

Senior Vice President, Human Resources

 

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