Exhibit 10.4

 

SUN MICROSYSTEMS, INC.

2005 U.S. NON-QUALIFIED DEFERRED COMPENSATION PLAN

Amended and Restated Effective January 1, 2005

Sun Microsystems, Inc. (the “Company”), acting on behalf of itself and its U.S.
subsidiaries, hereby amends and restates 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.

 

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.

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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; retention
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 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

 

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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

 

  (ii)

The amount paid by the Company to an Eligible Employee as an annual or quarterly
corporate bonus award, retention 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

 

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  (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. Eligible
Employee does not include any individual who performs services for the Company
as (i) an employee of a third party pursuant to a written agreement between the
Company and such third party, (ii) an independent contractor, (iii) a
consultant, or (iv) is classified as such by the Company (whether or not such
classification is upheld upon governmental or judicial review or such individual
is reclassified by the Company).

 

  (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.

 

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  (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;

 

  (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 earlier of the Participant’s

 

  (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.

 

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Notwithstanding the foregoing, a separation from Service will not be deemed to
have occurred if 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;

 

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  (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

 

  (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 the
event an Eligible Employee is downgraded below the director level during a Plan
Year, his or her Deferred Compensation Election will remain in effect through
the end of such Plan Year. 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

 

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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 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, 2005 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.

 

  (f)

Retention Awards Following Acquisition. The Company may, in its discretion,
provide retention awards subject to vesting to selected employees in connection
with an acquisition of a business. Such award may, by its terms, provide for the
deferral of payment to a later year. Alternatively, an Eligible Employee who
receives a retention award that does not vest for a period of at least twelve
(12) months from grant may submit a Deferred Compensation Election with respect
to part or all of such award; provided the Deferred Compensation Election is
filed within thirty (30) days following the date of grant and at least 12 months
prior to the date such award (or portion thereof) is no longer subject to a
substantial risk of

 

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forfeiture (as defined in Section 409A of the Code). The award or Deferred
Compensation Election, as applicable, shall specify the payment year and payment
schedule and shall otherwise be subject to the terms and conditions of the Plan.
Nothing in this Section 4(f) shall preclude a Participant from filing a Deferred
Compensation Election to defer a retention award consistent with the provisions
of IRS Notice 2006-79.

 

  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. Effective
January 1, 2007, Deferred Compensation for Participants shall be credit to the
Participant’s Account as soon as administratively possible after the date such
deferred amount would otherwise be paid to the Participant.

 

  (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

 

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by the Participant (or Beneficiary following a Participant’s death) in
accordance with Section 7(b) of 7(c) 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. Prior to
January 1, 2007, 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.

 

  (c)

Investment of Accounts. Effective January 1, 2007, the Investment Committee
shall select two or more investment options to be made available to Participants
for investment under the Plan. The Investment Committee may change, discontinue,
or add to the investment options made available under the Plan at any time as
determined by the Investment Committee in its sole discretion. 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 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.

 

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  (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 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

 

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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 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.

 

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  (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), (d) or (f), 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), (d) or (f) 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.

 

  (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

 

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acceleration of payment as defined in Section 409A(a)(3) of the Code and the
regulations promulgated thereunder.

 

  (i)

De Minimis Accounts. Notwithstanding any other payment schedule provided in the
Plan or in a Participant’s Deferred Compensation Election, such Participant will
receive a lump sum payment, subject to the provisions of Section 10(e), if the
unpaid balance of the Participant’s Account upon the payment date following a
Separation from Service is less than $10,000.

 

  11.

Effect of Death of Participant.

 

  (a)

Death Prior to January 1, 2007. This Section 11(a) shall apply prior to
January 1, 2007. In the event of a Participant’s death while an 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 under the Plan and the
Prior Plan shall not exceed Three Million Dollars ($3,000,000). In the event of
(i) a Participant’s death while no longer an 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)

Death On or After January 1, 2007. This Section 11(b) shall apply effective
January 1, 2007. In the event of a Participant’s death, the Participant’s
Account 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.

 

  (c)

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

 

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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.

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.

 

15

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  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 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.

 

16

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  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.

 

  (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 Global Benefits. 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 Global Benefits. A Participant or Beneficiary
may make a written request for review of any matter concerning his or her
benefits under this Plan.

 

17

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The claim must be addressed to Global Benefits, 2005 U.S. Non-Qualified Deferred
Compensation Plan, Sun Microsystems, Inc., 4230 Network Circle, M\S USCA23-106,
Santa Clara, California 95054. Global Benefits shall decide the action to be
taken with respect to any such request and may require additional information if
necessary to process the request. Global Benefits shall review the request and
shall issue its decision, in writing, no later than 90 days after the date the
request is received, 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 Global Benefits 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 Global Benefits 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

 

18

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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 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 Global Benefits or 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 Global Benefits or the Administrator fails to act on the claim within
the time prescribed in Section 22(b) and Section 22(d), respectively.

 

19

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  23.

Execution and Signature. To record the amendment and restatement of the Plan by
the Compensation Committee, the Company has caused its duly authorized officer
to sign this document this 2nd day of November, 2006.

 

Sun Microsystems, Inc.  

By:

 

/s/ William N. MacGowan

 

Printed Name: William N. MacGowan

 

Title: Executive Vice President, People and Places

and Chief Human Resources Officer

 

 

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