Exhibit 10.18

Chairman of the Board Bonus Terms for FY09 Under the Section 162(m)

Executive Officer Performance–Based Bonus Plan

 

Plan Objective

The Chairman of the Board Bonus Terms for fiscal year 2009 under the Sun
Microsystems, Inc. (“Sun” or the “Company”) Section 162(m) Executive Officer
Performance-Based Bonus Plan (the “Plan”) are designed to compensate the
Chairman of the Board (the “Chairman”) for contributions to Sun during the
Company’s fiscal year 2009. The Plan provides for annual cash bonus compensation
based on achievement of objectively determinable performance goals against the
Plan measures. The Plan is intended to qualify as “performance-based
compensation” within the meaning of Section 162(m) of the Internal Revenue Code
(the “Code”).

Plan Year/Performance Period

The Plan year is the Company’s fiscal year 2009. The performance period is the
Company’s fiscal year 2009.

Eligibility

These terms apply to the person serving as Sun’s Chairman as of July 1, 2008. In
order to receive a bonus payment with respect to the plan year, the participant
must be serving as Sun’s Chairman as of the last business day of the fiscal
year, except as provided below.

If the Chairman retires, terminates employment due to disability, or dies during
the performance period, the Chairman may receive a prorated bonus (subject to
the sole discretion of the Leadership Development and Compensation Committee
(the “LDCC”)) for the achievement of the performance goals for the portion of
the performance period that the Chairman provided services to Sun. If the
Chairman leaves Sun prior to the end of a fiscal year for any other reason,
including but not limited to a reduction in force, voluntary resignation, or
termination by Sun the Chairman will be ineligible for a bonus payment with
respect to the performance period.

Annual Bonus Target Percentage

The annual bonus target percentage under the Plan is 150% of the Chairman’s
Annual Base Salary (as defined below) for fiscal year 2009, as set forth below
(the “Annual Bonus Target Percentage”).

 

Fiscal Year

 

Annual Bonus Target Percentage

FY09

  150%

Company Performance Measures

The Plan is based on the Company’s performance against the following measures
(the “Company Performance Measures”):

 

  1. Fiscal Year 2009 Annual Revenue (weighted 50%); and

 

  2. Fiscal Year 2009 Annual Operating Income (weighted 50%).

Additional funding shall be allocated to the annual bonus payment if the Annual
Strategic Goals are met.

 

Sun Confidential: Internal Use Only    Page 1 of 3    July 2008

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Chairman of the Board Bonus Terms for FY09 Under the Section 162(m)

Executive Officer Performance–Based Bonus Plan

 

Company Performance Measure Definitions

Revenue: For purposes of calculating the bonus payment under the fiscal year
2009 Plan, “Revenue” is defined as net revenue as reported in the Company’s
consolidated operations analysis, adjusted to exclude certain items set forth in
a schedule approved by the LDCC, as applicable.

Operating Income: For purposes of calculating the bonus payment under the fiscal
year 2009 Plan, “Operating Income” is defined as operating income, calculated on
a GAAP basis, adjusted to exclude certain items set forth in a schedule approved
by the LDCC, as applicable.

Annual Strategic Goals for FY09: The annual strategic goals for FY09 are set
forth in a schedule approved by the LDCC.

Bonus Plan Funding Percentage

The Company uses a schedule, which provides percentages based upon the Company’s
actual performance against the Company’s goals with respect to the Company
Performance Measures for fiscal year 2009 (the “Bonus Plan Funding Percentage”).
The Bonus Plan Funding Percentage is determined for fiscal year 2009 as follows:

 

  1. Fiscal Year 2009: By funding based on actual performance against goals with
respect to annual Revenue and annual Operating Income, each weighted equally;

 

  2. Evaluating and funding each performance measure independently;

 

  3. Additionally, there may be an additional bonus funding based on the
achievement of the Annual Strategic Goals; and

 

  4. The total bonus funding under the Plan is capped at 200% of the Annual
Bonus Target Percentage plus the funding for the Annual Strategic Goals.

Note: The Chairman’s Annual Bonus Plan Funding Percentage may not exceed the
quarterly weighted average Bonus Plan Funding Percentage of the FY09 Quarterly
SMI Bonus Plan for both Operating Income and Revenue.

Annual Base Salary

Annual Base Salary with respect to fiscal year 2009 (“Annual Base Salary”) will
be the gross annual base salary as approved by the LDCC during the first fiscal
quarter of the fiscal year relating to the Plan.

Annual Base Salary exclude expense reimbursements, car/transportation
allowances, expatriate allowances, or other commissions and bonuses paid during
fiscal year 2009.

Actual Bonus Calculation

FY09

The Chairman’s annual bonus payment for fiscal year 2009 will be calculated as
follows:

 

   Annual Bonus Target Percentage

×

   Bonus Plan Funding Percentage (Company Performance Measures plus Annual
Strategic Goals, if applicable)

×

   Annual Base Salary =    Actual Annual Bonus Payment

 

Sun Confidential: Internal Use Only    Page 2 of 3    July 2008

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Chairman of the Board Bonus Terms for FY09 Under the Section 162(m)

Executive Officer Performance–Based Bonus Plan

 

Example: In fiscal year 2009, if the Company achieves 100% of its annual Revenue
goal, 100% of its annual Operating Income goal and 100% of the Annual Strategic
Goals, actual annual bonus payment will be calculated as follows:

For purposes of this calculation, assume the 100% achievement of the Annual
Strategic Goals leads to a 5% increase in the Bonus Plan Funding Percentage. As
a result the Bonus Plan Funding Percentage is assumed to be 105%.

 

Annual Bonus Target Percentage

        150 %

Bonus Plan Funding Percentage

   X      105 %

Eligible Wages

   X    $ 1,000,000  

Actual Annual Bonus Payment for FY09

   =    $ 1,575,000  

Bonus Payment

The plan is measured and paid on an annual basis. In the U.S., bonus awards are
taxable income, and will generally be paid within two and one-half (2.5) months
after the close of the fiscal year, and, in any case, within the qualifying
Short-term Deferral Period pursuant to Code Section 409A. Bonuses are paid in
accordance with local payroll schedules in countries outside the U.S and are
subject to local and regional tax provisions.

Communication of Results

With respect to the performance period during fiscal year 2009, results will be
communicated as soon as administratively feasible after the Company’s fiscal
year financial results are publicly announced.

Administration of the Plan

The LDCC administers the Plan. Members of the LDCC must qualify as outside
directors under Section 162(m) of the Code. The LDCC determines the performance
goals that must be achieved before the actual bonus awards are paid. After the
end of the performance period, the LDCC certifies in writing the extent to which
the pre-established performance goals actually were achieved.

General Provisions and Plan Governance

This Plan is in all respects subject to the terms, definitions and provisions of
Sun’s Section 162(m) Executive Officer Performance-Based Bonus Plan, which is
incorporated herein by reference.

 

Sun Confidential: Internal Use Only    Page 3 of 3    July 2008