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Sun - NON-QUALIFIED DEFERRED COMPENSATION PLAN
SUN MICROSYSTEMS, INC.
U.S. NON-QUALIFIED DEFERRED COMPENSATION PLAN
(As Amended through July 1, 1998)
TABLE OF CONTENTS
Page
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1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Election to Participate in Plan . . . . . . . . . . . . . . . . . . . . . . . 5
5. Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Deferral Increments and Growth. . . . . . . . . . . . . . . . . . . . . . . . 6
7. Earnings or Losses on Accounts. . . . . . . . . . . . . . . . . . . . . . . . 6
8. Certain In-Service Account Distributions . . . . . . . . . . . . . . . . . . 7
9. Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10. Form and Time of Payment of Accounts . . . . . . . . . . . . . . . . . . . 7
11. Effect of Death of Participant. . . . . . . . . . . . . . . . . . . . . . . 8
12. General Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 9
13. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
14. Participant's Unsecured Rights . . . . . . . . . . . . . . . . . . . . . . . 9
15. Non-assignability of Interests . . . . . . . . . . . . . . . . . . . . . . . 9
16. Limitation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17. Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 10
18. Amendment or Termination of the Plan . . . . . . . . . . . . . . . . . . . . 10
19. Choice of Law and Claims Procedure . . . . . . . . . . . . . . . . . . . . . 10
20. Execution and Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SUN MICROSYSTEMS, INC.
U.S. NON-QUALIFIED DEFERRED COMPENSATION PLAN
(As Amended through July 1, 1998)
Sun Microsystems, Inc. (the "Company"), acting on behalf of itself and its U.S. subsidiaries, initially adopted the Sun Microsystems, Inc. U.S. Non-Qualified Deferred Compensation Plan (the "Plan"), effective July 1, 1995.
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. 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.
3. The Company intends to enter into an agreement (the "Trust Agreement") with a person or persons, including an entity, who shall serve as trustee (the "Trustee") under an irrevocable trust, to be used in connection with the Plan (the "Trust").
4. 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.
5. 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 has been established and such utilization shall be in accordance with the procedures set forth herein.
6. 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.
7. 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.
8. 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.
NOW THEREFORE, the Company does hereby adopt this amended and restated 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 bonus awards; and
* Board of Directors retainer payments.
2. Definitions:
(a) Account means a bookkeeping account established pursuant to Section 5(a) for Compensation that is subject to a Participant's deferral election.
(b) Beneficiary means the person or persons designated by the Participant or by the Plan under Section 11(b) to receive payment of the Participant's Account in the event of the Participant's death.
(c) Board means the Board of Directors of the Company, as constituted from time to time.
(d) Committee means the Benefits Plan Committee, appointed by the Board from time to time.
(e) Company means Sun Microsystems, Inc. and its U.S. subsidiaries.
(f) Compensation means:
(i) The amount of the Eligible Employee's base salary paid by the Company or one of its U.S. subsidiaries; and
(ii) The amount paid by the Company or one of its U.S. subsidiaries to an Eligible Employee as an annual corporate bonus award and any other bonus/incentive award that is approved by the Committee 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's fees from the Company, which includes only retainer payments. Compensation does not include directors' expense reimbursements or meeting fees.
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.
(g) Election Period means:
(i) Generally June of each year; and
(ii) For newly hired vice presidents, at the sole discretion of the Benefits Plan Committee, may be eligible to enroll within thirty (30) days of hire.
(iii) With respect to the Plan Restatement, September, 1997.
(h) Eligible Board Member means a member of the Board (other than a member who is also an Eligible Employee).
(i) Eligible Employee means an officer of the Company or other common-law employee of the Company or one of its U.S. subsidiaries.
(j) Participant means an Eligible Board Member or an Eligible Employee who has elected to defer Compensation.
(k) Plan means this Sun Microsystems, Inc. U.S. Non-Qualified Deferred Compensation Plan, as amended from time to time.
(l) Plan Restatement means the amendment and restatement of the Plan as approved by the Board on August 13, 1997.
(m) Plan Restatement Effective Date means October 1, 1997.
(n) Retirement Date means the first day of the month coinciding with or next day following the Participant's termination of employment following the earlier of his or her:
(i) 65th birthday;
(ii) 60th birthday if the Participant has 5 years of Service;
(iii) 55th birthday if the Participant has 10 years of Service; or
(iv) 20th year anniversary of Service.
(o) Service means:
(i) Employment as a common-law employee of the Company or one of its subsidiaries; or
(ii) Period served as an elected Board Member.
A Participant's Service shall be determined by the Committee in its sole discretion.
(p) Total Disability means that the Participant is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which may result in Participant's death, or condition which lasts, or may last, a continuous period of not less than twelve consecutive months. Total Disability shall be determined by the Committee in its sole discretion.
(q) Unforeseeable Emergency means a severe financial hardship to the Participant resulting from:
(i) Sudden or unexpected illness or accident of either the Participant or dependent of same; or
(ii) Loss of the Participant's property due to casualty or other extraordinary and unforeseeable circumstances beyond the control of the Participant.
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; or
(ii) Liquidation of the Participant's assets to the extent that the liquidation of such assets would not itself cause severe financial hardship.
An Unforeseeable Emergency under the Plan does not include:
(i) Sending a child to college; or
(ii) Purchasing a home, per Rev. Proc. 95-64.
(r) Year means the Company's fiscal year unless otherwise noted.
3. Eligibility: Participation in the Plan is limited to Eligible Board Members, and Eligible Employees, who are eligible to participate in the Plan if:
(a) He or she is subject to U.S. income and social security taxes and not covered under a non-U.S. retirement plan;
(b) He or she is an officer, or his or her position is approved as a director level, or higher; or
(c) He or she has been designated expressly as an Eligible Employee by the Committee.
If a Participant receives a distribution described in Section 10(c), the Participant shall be ineligible to participate in the Plan for the balance of the Plan Year in which the distribution occurs and the following Plan Year.
4. Election to Participate in Plan:
(a) Deferral Election. A Participant may elect to participate in the Plan by filing a written "Deferred Compensation Election Form" with the Company during any Election Period. Such election applies to applicable Compensation paid in payroll periods commencing after the close of the Election Period. A new election must be made for each Election Period. The Participant shall specify any amount subject to the limits described in Section 6(a). This can be expressed as a fixed dollar amount or as a percentage.
(b) Election Form. All deferral elections under this Section 4 shall be made in a manner prescribed for this purpose by the Committee.
5. Accounts:
(a) Establishment of Account. The Company shall establish an Account for each Participant who duly files a Deferred Compensation Election Form.
(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 Form. 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.
(c) Vesting. Participants shall at all times be 100% vested in their deferrals under the Plan and all earnings allocable thereto.
6. Deferral Increments and Growth:
(a) The minimum deferral per year will be determined by the Committee.
(b) The Participant who is an Eligible Employee may elect to defer (less any withholding requirements).
(i) Up to 100% of any eligible annual bonus award; and
(ii) Up to 60% of base salary and incentive awards/commissions.
(c) The Participant who is an Eligible Board Member may elect to defer (less any withholding requirements), up to 100% of their retainer payments (to be credited to the account quarterly).
7. Earnings or Losses on Accounts:
(a) General Rule. Subject to Section 7(c) below, the amount in a Participant's Account shall be adjusted for gain or loss on the last day of each month based on the performance of the investment options selected by the Participant in accordance with Section 7(b). Gain or loss shall be computed as if all amounts credited to the Account pursuant to Section 5(b) were credited as of the first day of the month, and all amounts withdrawn from the Account were withdrawn on the first day of the month.
(b) Designation of Investment Indices by the Committee. The 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 Committee may vary the available investment funds from time to time, but not more frequently than quarterly. Subject to Section 7(c), a Participant may select his or her investment options for new deferrals and contributions, or for amounts already credited to his or her Account, once per calendar quarter effective as of the first day of the following quarter using such form or forms as the Committee may specify....
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