8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

May 14, 2002

Date of Report (date of earliest event reported)

SUN MICROSYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	0-15086	94-2805249
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification Number)

4150 Network Circle
Santa Clara, CA 95054

(Address of principal executive offices)

(650) 960-1300

(Registrant’s telephone number, including area code)

901 San Antonio Road, Palo Alto, California 94303

(Former name or former address, if changed since last report)

TABLE OF CONTENTS

	ITEM 5. OTHER EVENTS
	ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURE
EXHIBIT INDEX
EXHIBIT 10.96

ITEM 5. OTHER EVENTS

     The following is a description of the loans outstanding or granted by Sun Microsystems, Inc. to executive officers and members of Sun’s Board of Directors during fiscal 2002 and fiscal 2003.

     In November 2001, Mark A. Canepa, Executive Vice President, Network Storage Products, received a loan from Sun in the amount of $246,656, payable in full on February 8, 2002 (fifteen days after Sun’s trading window opened following the release of Sun’s earnings for the second fiscal quarter of 2002), at an interest rate of 2.73% per annum. This loan was made to assist Mr. Canepa in paying the taxes related to the vesting of restricted stock previously granted to Mr. Canepa. The loan was full recourse and secured by a portion of the Sun Common Stock purchased by Mr. Canepa with a fair market value equal to twice the principal amount of the loans at the time the loans were granted. This loan, including interest, was paid in full by Mr. Canepa by February 8, 2002.

     In November 2001, Masood A. Jabbar, former Executive Vice President, Global Sales Operations, received two loans from Sun in the amounts of $13,133.97 and $73,275.70, respectively, payable in full on February 8, 2002 (fifteen days after Sun’s trading window opened following the release of Sun’s earnings for the second fiscal quarter of 2002), at an interest rate of 2.73% per annum. These loans were made to assist Mr. Jabbar in exercising stock options due to expire in November 2001 and paying the taxes associated with the exercise. These loans were full recourse loans and secured by a portion of the Sun Common Stock purchased by Mr. Jabbar with a fair market value equal to twice the principal amount of the loans at the time the loans were granted. These loans, including interest were paid in full by Mr. Jabbar by February 8, 2002.

     In November 2001 and January 2002, Robert L. Long, a member of Sun’s Board of Directors, received two loans from Sun in the amounts of $343,634 and $250,000, respectively, payable in full on February 8, 2002 (fifteen days after Sun’s trading window opened following the release of Sun’s earnings for the second fiscal quarter of 2002) at an interest rate of 2.73% per annum. These loans were made to assist Mr. Long in exercising stock options due to expire in November 2001 and paying the taxes associated with the exercise. These loans were full recourse and secured by a portion of the Sun Common Stock purchased by Mr. Long upon exercise of the options with a fair market value equal to twice the principal amount of the loans at the time the loans were granted. These loans, including interest were paid in full by Mr. Long by February 8, 2002.

     In October 2000, Eva Sage-Gavin, who was recently appointed to the executive officer position of Senior Vice President, Global Talent Organization on July 25, 2002, received a non-interest bearing, nonrecourse loan from Sun in the amount of $500,000, payable in five annual installments of $50,000, $50,000, $100,000, $50,000 and $250,000, respectively, due on the anniversary date of the loan and secured by a deed of trust on Ms. Sage-Gavin’s principal residence. At the time that the Sarbanes-Oxley Act of 2002 (the “Sarbanes Act”) was adopted, Sun and Ms. Sage-Gavin were in the process of amending the loan to make the entire principal due on or before October 31, 2005. Since the loan was not amended before the adoption of the Sarbanes Act, the loan will remain unchanged and Ms. Sage-Gavin will be obligated to pay the past due amount of $50,000 to Sun as soon as possible and all future installments when due under the terms of the loan. This loan was made for the purchase of her residence in connection with her job-related relocation. As of August 8, 2002, the entire $500,000 amount remained outstanding.

     In October 2001, Jonathan I. Schwartz, Executive Vice President, Software, received a full recourse, unsecured loan from Sun in the amount of $1,000,000, payable in full on or before October 29, 2005, at an interest rate of 4.82% per annum, compounded annually. This loan was made to assist Mr. Schwartz in meeting certain obligations in connection with a margin loan. In May 2002, Sun’s Board of Directors approved the grant of additional loans to Mr. Schwartz for an aggregate principal of up to $3,000,000 at market rate terms and for the same purpose as the loan granted in October 2001. Sun issued the first of these loans in June 2002, with a principal amount of $1,000,000 and an interest rate of 6.75% per annum, compounded semi-annually, payable in full on or before

June 30, 2006. This loan was a full recourse loan and secured by Sun Common Stock owned by Mr. Schwartz with a fair market value equal initially to the principal amount of the loan and obligated Mr. Schwartz to increase the number of shares of Sun Common Stock to secure the loan every six months as necessary so that the fair market value of the Sun Common Stock securing the loan equaled the total amount of principal, accrued interest and any other obligations then owed by Mr. Schwartz to Sun under the terms of the loan. On July 19, 2002, Sun loaned Mr. Schwartz the remaining $2,000,000 previously authorized. Under the terms of the July 2002 loan agreement, all previous loans to Mr. Schwartz (including the prior unsecured $1,000,000 loan issued in October 2001) were consolidated into one full recourse loan containing the same terms, an interest rate of 6.75% per annum, compounded semi-annually, payable in full on or before June 30, 2006 and secured by Sun Common Stock owned by Mr. Schwartz with a fair market value equal initially to the total $4,000,000 principal amount subject to adjustment every six months as provided in the June 2002 loan described above. As of August 8, 2002, the entire $4,000,000 amount remained outstanding.

     In November 1999, Patricia C. Sueltz, Executive Vice President, Enterprise Services, received a nonrecourse loan from Sun in the amount of $850,000, payable in full on or before December 1, 2004, at an interest rate of 6.02% compounded annually, accrued interest to be paid annually and secured by a deed of trust on Ms. Sueltz's principal residence. At the time that the Sarbanes Act was adopted, Sun and Ms. Sueltz were in the process of amending the loan to make the accrued interest due in full on or before December 1, 2004. Since the loan was not amended before the adoption of the Sarbanes Act, the loan will remain unchanged and Ms. Sueltz will be obligated to pay the past due interest to Sun as soon as possible and all other amounts owed under the loan when due under the terms of the loan. This loan was made for the purchase of her residence in connection with her job-related relocation. As of August 8, 2002, the entire $850,000 amount remained outstanding.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

     (a)  Exhibits.

10.94(1)	Promissory Notes issued to Robert L. Long on November 12, 2001 and January 10, 2002 and related documents.
10.95(1)	Promissory Notes issued to Masood A. Jabbar on November 7, 2001 and related documents.
10.96	Promissory Note issued to Jonathan I. Schwartz dated October 29, 2001 (“Note 1”), Promissory Note issued to Jonathan I. Schwartz dated June 28, 2002 (“Note 2”), cancellation of Notes 1 and 2 dated July 18, 2002, and Promissory Note issued to Jonathan I. Schwartz on July 19, 2002.

(1) Loan paid in full by February 8, 2002. Incorporated by reference to the Company's Form 10-Q for the quarter ending March 31, 2002 filed on May 13, 2002.

-2-

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act or 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	SUN MICROSYSTEMS, INC.
Date: August 8, 2002	By:	/s/ John D. Croll
		John D. Croll Senior Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit
Number	Description
10.94(1)	Promissory Notes issued to Robert L. Long on November 12, 2001 and January 10, 2002 and related documents.
10.95(1)	Promissory Notes issued to Masood A. Jabbar on November 7, 2001 and related documents.
10.96	Promissory Note issued to Jonathan I. Schwartz dated October 29, 2001 (“Note 1”), Promissory Note issued to Jonathan I. Schwartz dated June 28, 2002 (“Note 2”), cancellation of Notes 1 and 2 dated July 18, 2002, and Promissory Note issued to Jonathan I. Schwartz on July 19, 2002.

(1) Loan paid in full by February 8, 2002. Incorporated by reference to the Company’s Form 10-Q for the quarter ending March 31, 2002 filed on May 13, 2002.

EX-10.96 3 f83387exv10w96.txt EXHIBIT 10.96 EXHIBIT 10.96 FULL RECOURSE PROMISSORY NOTE $1,000,000.00 Palo Alto, California Date October 29, 2005 For value received, Jonathan Schwartz and Sophie Ziegler (collectively, "Borrower") hereby promise to pay to Sun Microsystems, Inc., a Delaware corporation (Lender), at its offices at 901 San Antonio Rd., Palo Alto, California, or at such other place as Lender may from time to time designate in writing, the principal sum of One Million Dollars ($1,000,000.00) on the following terms: 1. Payment: The principal due pursuant to this Note shall be paid in full on or before October 29, 2005 in lawful money of the United States. This Note shall bear interest at the rate of four and eighty-two one hundredths percent (4.82 %) per annum, compounded annually. This Note may be prepaid at any time. 2. Default and Acceleration: A. Full Acceleration: Unless otherwise prohibited by law, upon the occurrence of any of the following events, the Lender or the holder of this Note may, without demand or notice, declare the entire balance of principal of this Note, and any accrued interest, to be immediately due and payable: (i) Borrower defaults in the payment of principal when due pursuant to the terms hereof or defaults in the performance of any obligation of Borrower or other agreement (including any amendment, modification or extension thereof) which may hereafter be executed by Borrower for the purpose of securing this Note; (ii) (60) days after (a) Lender is notified that Borrower (with respect to references to employment terms herein, Borrower shall refer to Mr. Schwartz) is terminating his employment with Lender, or (b) Lender terminates Borrower's employment for cause, as defined below. B. Partial Acceleration: (i) In the event that Borrower's employment is terminated by Lender other than for cause or if Borrower dies or is disabled for a period of more than six (6) months, principal due hereunder and any accrued interest, shall be accelerated and shall be paid fifty percent (50%) of the principal in twelve (12) equal monthly installments, with the first such monthly payment due on the effective date of termination and the successive monthly payments being due on the first of each month thereafter. The remaining fifty percent (50%) of the principal shall be due in a balloon payment at the end of the thirteenth month following the date hereof. Notwithstanding the foregoing, in no event shall such a termination or the foregoing payment schedule extend the due date of this Note beyond the due date set out in paragraph 1, hereinabove. (ii) For purposes of this Note, the term "cause" shall mean Borrower's misfeasance, malfeasance or misconduct, dishonesty or gross negligence in connection with his employment. The term disabled shall have the meaning set out in the Sun Microsystems, Inc. Long Term Disability Plan, as the same may be amended from time to time. 3. Full Recourse: The obligation of payment under this Note is unsecured. Notwithstanding the foregoing, the Lender shall have FULL RECOURSE against any and all assets of the Borrower in the event of the occurrence of a default under the terms of this Note. 4. Attorneys' Fees: In the event of any default hereunder, Borrower hereby promises to pay all costs of collection, including reasonable attorneys fees incurred by Lender hereof on account of such collection, whether or not suit is filed hereon. 5. Waiver: The waiver by Lender hereof of any breach of or default under any terms, covenant or condition contained herein or in any of the agreements referred to above shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of or default under the same or any other such term, covenant or condition. 6. No Usury: Borrower hereby represents and warrants that at no time shall the proceeds of the indebtedness evidenced hereby be used primarily for personal, family, or household purposes as that term is defined and used in Article XV of the California Constitution (as amended from time to time). 7. General Provisions: This Note shall be governed by and construed in accordance with the laws of the State of California. The makers, guarantors and endorsers of this Note hereby severally waive presentment for payment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and consent that Lender may extend the time for payment or otherwise modify the terms of payment or any part or the whole of the debt evidenced by this Note, at the request of any person liable hereon, and such consent shall not alter nor diminish the liability of any person. Borrower hereby waives the defense of the statute of limitations in any action on this Note to the extent permitted by law. The terms of this Note constitute the entire agreement and understanding between the parties and supersede all previous communications, representations or agreements, whether written or oral, with respect to the subject matter hereof. BORROWER: /s/ Jonathan Schwartz ---------------------------- BORROWER: /s/ Sophie Ziegler ---------------------------- PROMISSORY NOTE SECURED BY SUN MICROSYSTEMS, INC. COMMON STOCK $1,000,000 Santa Clara, CA June 28, 2002 FOR VALUE RECEIVED, the undersigned, Jonathan I. Schwartz (the "Employee") and Sophie Ziegler (jointly and severally, the "Borrowers"), promise to pay to Sun Microsystems, Inc., a Delaware corporation ("Lender"), at 4120 Network Circle, Santa Clara, CA (or at such other place as Lender may from time to time designate by written notice to Borrowers), in lawful money of the United States, the principal sum of One Million Dollars ($1,000,000) (sometimes referred to herein as the "Loan"), on the following terms: 1. Payment: A. Payment: The principal and any unpaid interest due pursuant to this Note shall be paid in full on or before June 30, 2006 in lawful money of the United States. B. This Note may be prepaid at any time. 2. Interest: Interest on the outstanding principal balance of this Note shall accrue at the prime rate of interest plus two percent (2%) being, six and seventy-five one hundredths percent (6.75%) per annum (the "Interest Rate"), compounded semi-annually. While any failure of Borrowers of obligations under this Note exists, or after Full Acceleration, as defined below, Borrowers shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding amounts under this Note at a rate per annum which is determined by adding two percent (2%) per annum to the Interest Rate then in effect for this Note. Interest shall be calculated on the basis of a three hundred sixty (360) day year consisting of twelve (12) months. 3. Security: Borrowers shall ensure that at all times the obligations of Borrowers, now existing or hereafter arising, owing to Lender under this Note, and each obligation of performance by Borrowers hereunder, shall be collateralized with a fully perfected, first priority lien on Sun Microsystems, Inc. common stock (the "Sun Stock"), subject to no other liens of any other persons, equal or exceeding in Fair Market Value an aggregate amount equaling or exceeding one hundred percent (100%) of the aggregate outstanding principal, accrued and unpaid interest and such other amounts payable under this Note (the "Collateral Maintenance Amount") pursuant to documentation in form and substance satisfactory to Lender. Such collateral shall be maintained in an escrow account at EquiServe Trust Company, N.A. (the "Escrow"). The Fair Market Value of the Sun Stock held in the Escrow shall be determined on each January 1 and July 1 (the "Maintenance Date") until all amounts under this Note are repaid in full. In the event that the Fair Market Value of the Sun Stock as of any Maintenance Date is less than the Collateral Maintenance Amount as of such Maintenance Date, Borrowers shall promptly contribute additional shares of Sun Stock to the Escrow with a Fair Market Value equal to such deficiency. For purposes of this paragraph, "Fair Market Value" means, with respect to the Sun Stock, for any day, the reported last sale price per share on Nasdaq, or, if the Sun Stock is not admitted to trading on Nasdaq, on the principal national securities exchange or inter-dealer quotation system on which the Sun Stock is listed or admitted to trading, or if not admitted to trading on Nasdaq, or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the closing bid price per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by Lender for that purpose. This Note is secured by One Hundred Ninety Two Thousand Three Hundred Seventy Four (192,374) shares of Sun Stock. Borrowers shall deliver the Sun Stock to Lender or Lender's designated agent simultaneously with receipt of the Loan by Borrowers, or Borrowers' designated agent. 4. Default and Acceleration: A. Full Acceleration: Unless otherwise prohibited by law, upon the occurrence of any of the following events, the Lender shall have the option, without demand or notice, to declare the entire balance of principal of this Note together with all accrued interest to be immediately due and payable: (1) Borrowers default in the payment of principal when due pursuant to the terms hereof or default in the performance of any obligation of Borrowers or any other agreement (including any amendment, modification or extension thereof) which may hereafter be executed by Borrowers for the purpose of securing this Note or which affects the Security. (2) Borrowers, without the prior written consent of Lender, voluntarily or by operation of law sell, convey, assign, encumber, mortgage or otherwise transfer, all or substantially all, or any portion of, or interest in the Security. (3) Sixty (60) days after (a) Lender is notified that Employee is terminating his employment with Lender, or (b) Lender terminates Borrower's employment for cause, as defined below. B. Partial Acceleration: (1) In the event that Employee's employment is terminated by Lender other than for cause or if Employee dies or is disabled for a period of more than six months, principal due hereunder shall be accelerated and shall be paid fifty percent (50%) of the principal in twelve (12) equal quarterly installments, with the first such quarterly payment due on the effective date of termination and the successive quarterly payments being due each three months thereafter on the same day of each such months (i.e., if termination is on February 3, payments are due on each succeeding May 3, August 3, November 3 and February 3). The remaining fifty percent (50%) of the principal shall be due in a balloon payment at the end of the thirteenth quarter following the date hereof. Notwithstanding the foregoing, in no event shall such a termination or the foregoing payment schedule extend the due date of this Note beyond June 30, 2006. (2) For purposes of this Note, the term "cause" shall mean Employee's misfeasance, malfeasance or misconduct, dishonesty or gross negligence in connection with his employment. 5. Full Recourse: The Lender shall have full recourse against any and all assets of the Borrowers in the event of the occurrence of a default under the terms of this Note. 6. Attorneys' Fees: In the event of Borrowers' default hereunder, Borrowers shall pay all costs of collection, including reasonable attorneys' fees incurred by the holder hereof on account of such collection, whether or not suit is filed hereon. 7. Waiver: The waiver by Lender hereof of any breach of or default under any terms, covenant or condition contained herein or in any of the agreements referred to above shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of or default under the same or any other such term, covenant or condition. 8. No Usury: Borrowers hereby represent and warrant that at no time shall the proceeds of the indebtedness evidenced hereby be used "primarily for personal, family, or household purposes" as that term is defined and used in Article XV of the California Constitution (as amended from time to time). Anything in this Note to the contrary notwithstanding, it is expressly stipulated and agreed that the intent of Borrowers and Lender is to comply at all times with all usury and other laws relating to this Note. If the laws of the State of California would now or hereafter render usurious, or are revised, repealed or judicially interpreted so as to render usurious, any amount called for under this Note, or contracted for, charged or received with respect to the loan evidenced by this Note, or if any prepayment by Borrowers results in Borrowers having paid any interest in excess of that permitted by law, then it is Borrowers' and Lender's express intent that all excess amounts theretofore collected by Lender be credited to the principal balance of this Note (or, if this Note has been paid in full, refunded to Borrowers), and the provisions of this Note immediately be deemed reformed and the amounts therefore collectible hereunder reduced, without the necessity of execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. 9. General Provisions: This Note shall be governed by and construed in accordance with the laws of the State of California. The makers of this Note hereby waive presentment for payment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and consent that Lender may extend the time for payment or otherwise modify the terms of payment or any part of the whole of the debt evidenced by this Note, at the request of any person liable hereon, and such consent shall not alter nor diminish the liability of any person. Borrowers hereby waive the defense of the statute of limitations in any action on this Note to the extent permitted by law. The terms of this Note constitute the entire agreement and understanding between the parties and supercede all previous communications, representations or agreements, whether written or oral, with respect to the subject matter hereof. 10. THIS NOTE AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON THE PART OF OR ON BEHALF OF THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE PREPARATION, NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE AND ALL RELATED DOCUMENTATION AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING EFFECT OF THIS NOTE AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS MATTER. AS BORROWERS /s/ Jonathan I. Schwartz -------------------------------- Name: Jonathan I. Schwartz /s/ Sophie Ziegler -------------------------------- Name: Sophie Ziegler CANCELLATION OF PROMISSORY NOTES In consideration for a loan in the amount of Two Million Dollars ($2,000,000) (the "New Loan") from Sun Microsystems, Inc. (the "Company") to Jonathan I. Schwartz and Sophie Ziegler (jointly and severally, the "Borrowers"), the parties agree to the consolidation of Borrowers outstanding promissory notes, being that certain Full Recourse Promissory Note dated October 29, 2001 in the amount of One Million Dollars ($1,000,000), and that certain Promissory Note Secured by Sun Microsystems, Inc. Common Stock dated June 28, 2002 in the amount of One Million Dollars ($1,000,000) both executed by Borrowers in favor of the Company (jointly referred to as the "Old Notes"), with the New Loan. Accordingly, upon execution by Borrowers of a promissory note in the aggregate amount of Four Million Dollars ($4,000,000) on terms agreed by the parties, the Company will cancel the Old Notes. Dated: July 18, 2002 SUN MICROSYSTEMS, INC. BORROWERS /s/ Jonathan I. Schwartz ------------------------ By: /s/ Stephen T. McGowan Jonathan I. Schwartz ---------------------- Name: Stephen T. McGowan /s/ Sophie Ziegler ------------------ Sophie Ziegler Title: Executive Vice President, Corporate Resources and Chief Financial Officer PROMISSORY NOTE SECURED BY SUN MICROSYSTEMS, INC. COMMON STOCK $4,000,000 Santa Clara, CA July 19, 2002 WHEREAS, the undersigned, Jonathan I. Schwartz (the "Employee") and Sophie Ziegler (jointly and severally, the "Borrowers"), executed that certain Full Recourse Promissory Note dated October 29, 2001 in the amount of One Million Dollars ($1,000,000), and Borrowers also executed that certain Promissory Note Secured by Sun Microsystems, Inc. Common Stock dated June 28, 2002 in the amount of One Million Dollars ($1,000,000) (hereinafter jointly referred to as the "Old Notes"), both in favor of Sun Microsystems, Inc. (the "Lender"); and WHEREAS, Borrowers now wish to consolidate the Old Notes with a new note in the amount of Two Million Dollars ($2,000,000) that Borrowers desire to execute in favor of Lender for an aggregate note amount of Four Million Dollars ($4,000,000), and in that regard, Borrowers and Lender have executed that certain Cancellation of Promissory Notes dated July 18, 2002 to cancel the Old Notes; NOW THEREFORE, Borrowers hereby undertake the following: FOR VALUE RECEIVED, Borrowers promise to pay to Sun Microsystems, Inc., a Delaware corporation ("Lender"), at 4150 Network Circle, Santa Clara, CA (or at such other place as Lender may from time to time designate by written notice to Borrowers), in lawful money of the United States, the principal sum of Four Million Dollars ($4,000,000) (the "Note"), on the following terms: 1. Payment: A. Payment: The principal and any unpaid interest due pursuant to this Note shall be paid in full on or before June 30, 2006 in lawful money of the United States. B. This Note may be prepaid at any time. 2. Interest: Interest on the outstanding principal balance of this Note shall accrue at the prime rate of interest plus two percent (2%) being, six and seventy-five one hundredths percent (6.75%) per annum (the "Interest Rate"), compounded semi-annually. While any failure of Borrowers of obligations under this Note exists, or after Full Acceleration, as defined below, Borrowers shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding amounts under this Note at a rate per annum which is determined by adding two percent (2%) per annum to the Interest Rate then in effect for this Note. Interest shall be calculated on the basis of a three hundred sixty (360) day year consisting of twelve (12) months. 3. Security: Borrowers shall ensure that at all times the obligations of Borrowers, now existing or hereafter arising, owing to Lender under this Note, and each obligation of performance by Borrowers hereunder, shall be collateralized with a fully perfected, first priority lien on Sun Microsystems, Inc. common stock (the "Sun Stock"), subject to no other liens of any other persons, equal or exceeding in Fair Market Value an aggregate amount equaling or exceeding one hundred percent (100%) of the aggregate outstanding principal, accrued and unpaid interest and such other amounts payable under this Note (the "Collateral Maintenance Amount") pursuant to documentation in form and substance satisfactory to Lender. Such collateral shall be maintained in an escrow account at EquiServe Trust Company, N.A. (the "Escrow"). The Fair Market Value of the Sun Stock held in the Escrow shall be determined on each January 1 and July 1 (the "Maintenance Date") until all amounts under this Note are repaid in full. In the event that the Fair Market Value of the Sun Stock as of any Maintenance Date is less than the Collateral Maintenance Amount as of such Maintenance Date, Borrowers shall promptly contribute additional shares of Sun Stock to the Escrow with a Fair Market Value equal to such deficiency. For purposes of this paragraph, "Fair Market Value" means, with respect to the Sun Stock, for any day, the reported last sale price per share on Nasdaq, or, if the Sun Stock is not admitted to trading on Nasdaq, on the principal national securities exchange or inter-dealer quotation system on which the Sun Stock is listed or admitted to trading, or if not admitted to trading on Nasdaq, or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the closing bid price per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by Lender for that purpose. This Note is secured by Seven Hundred Twenty Three Thousand Five Hundred Seventeen (723,517) shares of Sun Stock. Borrowers shall deliver the Sun Stock to Lender or Lender's designated agent simultaneously with receipt of the funds under this Note by Borrowers, or Borrowers' designated agent. 4. Default and Acceleration: A. Full Acceleration: Unless otherwise prohibited by law, upon the occurrence of any of the following events, the Lender shall have the option, without demand or notice, to declare the entire balance of principal of this Note together with all accrued interest to be immediately due and payable: (1) Borrowers default in the payment of principal when due pursuant to the terms hereof or default in the performance of any obligation of Borrowers or any other agreement (including any amendment, modification or extension thereof) which may hereafter be executed by Borrowers for the purpose of securing this Note or which affects the Security. (2) Borrowers, without the prior written consent of Lender, voluntarily or by operation of law sell, convey, assign, encumber, mortgage or otherwise transfer, all or substantially all, or any portion of, or interest in the Security. (3) Sixty (60) days after (a) Lender is notified that Employee is terminating his employment with Lender, or (b) Lender terminates Borrower's employment for cause, as defined below. B. Partial Acceleration: (1) In the event that Employee's employment is terminated by Lender other than for cause or if Employee dies or is disabled for a period of more than six months, principal due hereunder shall be accelerated and shall be paid fifty percent (50%) of the principal in twelve (12) equal quarterly installments, with the first such quarterly payment due on the effective date of termination and the successive quarterly payments being due each three months thereafter on the same day of each such months (i.e., if termination is on February 3, payments are due on each succeeding May 3, August 3, November 3 and February 3). The remaining fifty percent (50%) of the principal shall be due in a balloon payment at the end of the thirteenth quarter following the date hereof. Notwithstanding the foregoing, in no event shall such a termination or the foregoing payment schedule extend the due date of this Note beyond June 30, 2006. (2) For purposes of this Note, the term "cause" shall mean Employee's misfeasance, malfeasance or misconduct, dishonesty or gross negligence in connection with his employment. 5. Full Recourse: The Lender shall have full recourse against any and all assets of the Borrowers in the event of the occurrence of a default under the terms of this Note. 6. Attorneys' Fees: In the event of Borrowers' default hereunder, Borrowers shall pay all costs of collection, including reasonable attorneys' fees incurred by the holder hereof on account of such collection, whether or not suit is filed hereon. 7. Waiver: The waiver by Lender hereof of any breach of or default under any terms, covenant or condition contained herein or in any of the agreements referred to above shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of or default under the same or any other such term, covenant or condition. 8. No Usury: Borrowers hereby represent and warrant that at no time shall the proceeds of the indebtedness evidenced hereby be used "primarily for personal, family, or household purposes" as that term is defined and used in Article XV of the California Constitution (as amended from time to time). Anything in this Note to the contrary notwithstanding, it is expressly stipulated and agreed that the intent of Borrowers and Lender is to comply at all times with all usury and other laws relating to this Note. If the laws of the State of California would now or hereafter render usurious, or are revised, repealed or judicially interpreted so as to render usurious, any amount called for under this Note, or contracted for, charged or received with respect to the loan evidenced by this Note, or if any prepayment by Borrowers results in Borrowers having paid any interest in excess of that permitted by law, then it is Borrowers' and Lender's express intent that all excess amounts theretofore collected by Lender be credited to the principal balance of this Note (or, if this Note has been paid in full, refunded to Borrowers), and the provisions of this Note immediately be deemed reformed and the amounts therefore collectible hereunder reduced, without the necessity of execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder. 9. General Provisions: This Note shall be governed by and construed in accordance with the laws of the State of California. The makers of this Note hereby waive presentment for payment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note, and consent that Lender may extend the time for payment or otherwise modify the terms of payment or any part of the whole of the debt evidenced by this Note, at the request of any person liable hereon, and such consent shall not alter nor diminish the liability of any person. Borrowers hereby waive the defense of the statute of limitations in any action on this Note to the extent permitted by law. The terms of this Note constitute the entire agreement and understanding between the parties and supercede all previous communications, representations or agreements, whether written or oral, with respect to the subject matter hereof. 10. THIS NOTE AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND WITHOUT ANY DURESS OR UNDUE INFLUENCE ON THE PART OF OR ON BEHALF OF THE PARTIES HERETO, WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (a) THEY HAVE READ SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE PREPARATION, NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE AND ALL RELATED DOCUMENTATION AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND BINDING EFFECT OF THIS NOTE AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS MATTER. AS BORROWERS /s/ Jonathan I. Schwartz -------------------------- Name: Jonathan I. Schwartz /s/ Sophie Ziegler -------------------------- Name: Sophie Ziegler -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.96

                                                                   EXHIBIT 10.96

                          FULL RECOURSE PROMISSORY NOTE

$1,000,000.00                                             Palo Alto, California

Date October 29, 2005


For value received, Jonathan Schwartz and Sophie Ziegler (collectively,
"Borrower") hereby promise to pay to Sun Microsystems, Inc., a Delaware
corporation (Lender), at its offices at 901 San Antonio Rd., Palo Alto,
California, or at such other place as Lender may from time to time designate in
writing, the principal sum of One Million Dollars ($1,000,000.00) on the
following terms:

1. Payment: The principal due pursuant to this Note shall be paid in full on or
before October 29, 2005 in lawful money of the United States. This Note shall
bear interest at the rate of four and eighty-two one hundredths percent (4.82 %)
per annum, compounded annually. This Note may be prepaid at any time.

2. Default and Acceleration:

        A. Full Acceleration: Unless otherwise prohibited by law, upon the
occurrence of any of the following events, the Lender or the holder of this Note
may, without demand or notice, declare the entire balance of principal of this
Note, and any accrued interest, to be immediately due and payable:

(i) Borrower defaults in the payment of principal when due pursuant to the terms
hereof or defaults in the performance of any obligation of Borrower or other
agreement (including any amendment, modification or extension thereof) which may
hereafter be executed by Borrower for the purpose of securing this Note;

(ii) (60) days after (a) Lender is notified that Borrower (with respect to
references to employment terms herein, Borrower shall refer to Mr. Schwartz) is
terminating his employment with Lender, or (b) Lender terminates Borrower's
employment for cause, as defined below.

        B. Partial Acceleration:

(i) In the event that Borrower's employment is terminated by Lender other than
for cause or if Borrower dies or is disabled for a period of more than six (6)
months, principal due hereunder and any accrued interest, shall be accelerated
and shall be paid fifty percent (50%) of the principal in twelve (12) equal
monthly installments, with the first such monthly payment due on the effective
date of termination and the successive monthly payments being due on the first
of each month thereafter. The remaining fifty percent (50%) of the principal
shall be due in a balloon payment at the end of the thirteenth month following
the date hereof. Notwithstanding the foregoing, in no event shall such a
termination or the foregoing payment schedule extend the due date of this Note
beyond the due date set out in paragraph 1, hereinabove.

(ii) For purposes of this Note, the term "cause" shall mean Borrower's
misfeasance,




malfeasance or misconduct, dishonesty or gross negligence in connection with his
employment. The term disabled shall have the meaning set out in the Sun
Microsystems, Inc. Long Term Disability Plan, as the same may be amended from
time to time.

3. Full Recourse: The obligation of payment under this Note is unsecured.
Notwithstanding the foregoing, the Lender shall have FULL RECOURSE against any
and all assets of the Borrower in the event of the occurrence of a default under
the terms of this Note.

4. Attorneys' Fees: In the event of any default hereunder, Borrower hereby
promises to pay all costs of collection, including reasonable attorneys fees
incurred by Lender hereof on account of such collection, whether or not suit is
filed hereon.

5. Waiver: The waiver by Lender hereof of any breach of or default under any
terms, covenant or condition contained herein or in any of the agreements
referred to above shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of or default under the same or any other
such term, covenant or condition.

6. No Usury: Borrower hereby represents and warrants that at no time shall the
proceeds of the indebtedness evidenced hereby be used primarily for personal,
family, or household purposes as that term is defined and used in Article XV of
the California Constitution (as amended from time to time).

7. General Provisions: This Note shall be governed by and construed in
accordance with the laws of the State of California. The makers, guarantors and
endorsers of this Note hereby severally waive presentment for payment, protest
and demand, notice of protest, demand and dishonor and nonpayment of this Note,
and consent that Lender may extend the time for payment or otherwise modify the
terms of payment or any part or the whole of the debt evidenced by this Note, at
the request of any person liable hereon, and such consent shall not alter nor
diminish the liability of any person. Borrower hereby waives the defense of the
statute of limitations in any action on this Note to the extent permitted by
law. The terms of this Note constitute the entire agreement and understanding
between the parties and supersede all previous communications, representations
or agreements, whether written or oral, with respect to the subject matter
hereof.

BORROWER: /s/ Jonathan Schwartz
         ----------------------------

BORROWER: /s/ Sophie Ziegler
         ----------------------------



                                PROMISSORY NOTE
                        SECURED BY SUN MICROSYSTEMS, INC.
                                  COMMON STOCK

$1,000,000                                                       Santa Clara, CA
                                                                   June 28, 2002



FOR VALUE RECEIVED, the undersigned, Jonathan I. Schwartz (the "Employee") and
Sophie Ziegler (jointly and severally, the "Borrowers"), promise to pay to Sun
Microsystems, Inc., a Delaware corporation ("Lender"), at 4120 Network Circle,
Santa Clara, CA (or at such other place as Lender may from time to time
designate by written notice to Borrowers), in lawful money of the United States,
the principal sum of One Million Dollars ($1,000,000) (sometimes referred to
herein as the "Loan"), on the following terms:

1.  Payment:

        A.  Payment: The principal and any unpaid interest due pursuant to this
            Note shall be paid in full on or before June 30, 2006 in lawful
            money of the United States.

        B.  This Note may be prepaid at any time.

2. Interest: Interest on the outstanding principal balance of this Note shall
accrue at the prime rate of interest plus two percent (2%) being, six and
seventy-five one hundredths percent (6.75%) per annum (the "Interest Rate"),
compounded semi-annually. While any failure of Borrowers of obligations under
this Note exists, or after Full Acceleration, as defined below, Borrowers shall
pay interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all outstanding amounts under this
Note at a rate per annum which is determined by adding two percent (2%) per
annum to the Interest Rate then in effect for this Note. Interest shall be
calculated on the basis of a three hundred sixty (360) day year consisting of
twelve (12) months.

3. Security: Borrowers shall ensure that at all times the obligations of
Borrowers, now existing or hereafter arising, owing to Lender under this Note,
and each obligation of performance by Borrowers hereunder, shall be
collateralized with a fully perfected, first priority lien on Sun Microsystems,
Inc. common stock (the "Sun Stock"), subject to no other liens of any other
persons, equal or exceeding in Fair Market Value an aggregate amount equaling or
exceeding one hundred percent (100%) of the aggregate outstanding principal,
accrued and unpaid interest and such other amounts payable under this Note (the
"Collateral Maintenance Amount") pursuant to documentation in form and substance
satisfactory to Lender. Such collateral shall be maintained in an escrow account
at EquiServe Trust Company, N.A. (the "Escrow"). The Fair Market Value of the
Sun Stock held in the Escrow shall be determined on each January 1 and July 1
(the "Maintenance



Date") until all amounts under this Note are repaid in full. In the event that
the Fair Market Value of the Sun Stock as of any Maintenance Date is less than
the Collateral Maintenance Amount as of such Maintenance Date, Borrowers shall
promptly contribute additional shares of Sun Stock to the Escrow with a Fair
Market Value equal to such deficiency. For purposes of this paragraph, "Fair
Market Value" means, with respect to the Sun Stock, for any day, the reported
last sale price per share on Nasdaq, or, if the Sun Stock is not admitted to
trading on Nasdaq, on the principal national securities exchange or inter-dealer
quotation system on which the Sun Stock is listed or admitted to trading, or if
not admitted to trading on Nasdaq, or listed or admitted to trading on any
national securities exchange or inter-dealer quotation system, the closing bid
price per share in the over-the-counter market as furnished by any New York
Stock Exchange member firm selected from time to time by Lender for that
purpose.

This Note is secured by One Hundred Ninety Two Thousand Three Hundred Seventy
Four (192,374) shares of Sun Stock. Borrowers shall deliver the Sun Stock to
Lender or Lender's designated agent simultaneously with receipt of the Loan by
Borrowers, or Borrowers' designated agent.

4. Default and Acceleration:

A. Full Acceleration: Unless otherwise prohibited by law, upon the occurrence of
any of the following events, the Lender shall have the option, without demand or
notice, to declare the entire balance of principal of this Note together with
all accrued interest to be immediately due and payable:

(1) Borrowers default in the payment of principal when due pursuant to the terms
hereof or default in the performance of any obligation of Borrowers or any other
agreement (including any amendment, modification or extension thereof) which may
hereafter be executed by Borrowers for the purpose of securing this Note or
which affects the Security.

(2) Borrowers, without the prior written consent of Lender, voluntarily or by
operation of law sell, convey, assign, encumber, mortgage or otherwise transfer,
all or substantially all, or any portion of, or interest in the Security.

(3) Sixty (60) days after (a) Lender is notified that Employee is terminating
his employment with Lender, or (b) Lender terminates Borrower's employment for
cause, as defined below.

B. Partial Acceleration:

    (1) In the event that Employee's employment is terminated by Lender other
    than for cause or if Employee dies or is disabled for a period of more than
    six months, principal due hereunder shall be accelerated and shall be paid
    fifty percent (50%) of the principal in twelve (12) equal quarterly
    installments, with the first such quarterly payment due on the effective
    date of termination and the successive quarterly payments being due each
    three months thereafter on the same day of



    each such months (i.e., if termination is on February 3, payments are due on
    each succeeding May 3, August 3, November 3 and February 3). The remaining
    fifty percent (50%) of the principal shall be due in a balloon payment at
    the end of the thirteenth quarter following the date hereof. Notwithstanding
    the foregoing, in no event shall such a termination or the foregoing payment
    schedule extend the due date of this Note beyond June 30, 2006.

(2) For purposes of this Note, the term "cause" shall mean Employee's
misfeasance, malfeasance or misconduct, dishonesty or gross negligence in
connection with his employment.

5. Full Recourse: The Lender shall have full recourse against any and all assets
of the Borrowers in the event of the occurrence of a default under the terms of
this Note.

6. Attorneys' Fees: In the event of Borrowers' default hereunder, Borrowers
shall pay all costs of collection, including reasonable attorneys' fees incurred
by the holder hereof on account of such collection, whether or not suit is filed
hereon.

7. Waiver: The waiver by Lender hereof of any breach of or default under any
terms, covenant or condition contained herein or in any of the agreements
referred to above shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of or default under the same or any other
such term, covenant or condition.

8. No Usury: Borrowers hereby represent and warrant that at no time shall the
proceeds of the indebtedness evidenced hereby be used "primarily for personal,
family, or household purposes" as that term is defined and used in Article XV of
the California Constitution (as amended from time to time). Anything in this
Note to the contrary notwithstanding, it is expressly stipulated and agreed that
the intent of Borrowers and Lender is to comply at all times with all usury and
other laws relating to this Note. If the laws of the State of California would
now or hereafter render usurious, or are revised, repealed or judicially
interpreted so as to render usurious, any amount called for under this Note, or
contracted for, charged or received with respect to the loan evidenced by this
Note, or if any prepayment by Borrowers results in Borrowers having paid any
interest in excess of that permitted by law, then it is Borrowers' and Lender's
express intent that all excess amounts theretofore collected by Lender be
credited to the principal balance of this Note (or, if this Note has been paid
in full, refunded to Borrowers), and the provisions of this Note immediately be
deemed reformed and the amounts therefore collectible hereunder reduced, without
the necessity of execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder.

9. General Provisions: This Note shall be governed by and construed in
accordance with the laws of the State of California. The makers of this Note
hereby waive presentment for payment, protest and demand, notice of protest,
demand and dishonor and nonpayment of this Note, and consent that Lender may
extend the time for payment or otherwise modify the terms of payment or any part
of the whole of the debt evidenced by this Note, at the request of any person
liable hereon, and such consent shall not alter nor



diminish the liability of any person. Borrowers hereby waive the defense of the
statute of limitations in any action on this Note to the extent permitted by
law. The terms of this Note constitute the entire agreement and understanding
between the parties and supercede all previous communications, representations
or agreements, whether written or oral, with respect to the subject matter
hereof.

10. THIS NOTE AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND WITHOUT
ANY DURESS OR UNDUE INFLUENCE ON THE PART OF OR ON BEHALF OF THE PARTIES HERETO,
WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS
DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (a) THEY HAVE READ
SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE PREPARATION,
NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN
CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY
UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE AND ALL RELATED DOCUMENTATION
AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND
BINDING EFFECT OF THIS NOTE AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS MATTER.

                                      AS BORROWERS

                                      /s/ Jonathan I. Schwartz
                                      --------------------------------
                                      Name: Jonathan I. Schwartz

                                      /s/ Sophie Ziegler
                                      --------------------------------
                                      Name:  Sophie Ziegler



                                CANCELLATION OF
                                PROMISSORY NOTES

In consideration for a loan in the amount of Two Million Dollars ($2,000,000)
(the "New Loan") from Sun Microsystems, Inc. (the "Company") to Jonathan I.
Schwartz and Sophie Ziegler (jointly and severally, the "Borrowers"), the
parties agree to the consolidation of Borrowers outstanding promissory notes,
being that certain Full Recourse Promissory Note dated October 29, 2001 in the
amount of One Million Dollars ($1,000,000), and that certain Promissory Note
Secured by Sun Microsystems, Inc. Common Stock dated June 28, 2002 in the amount
of One Million Dollars ($1,000,000) both executed by Borrowers in favor of the
Company (jointly referred to as the "Old Notes"), with the New Loan.
Accordingly, upon execution by Borrowers of a promissory note in the aggregate
amount of Four Million Dollars ($4,000,000) on terms agreed by the parties, the
Company will cancel the Old Notes.

Dated:  July 18, 2002


SUN MICROSYSTEMS, INC.                      BORROWERS

                                            /s/ Jonathan I. Schwartz
                                            ------------------------
By:      /s/ Stephen T. McGowan             Jonathan I. Schwartz
         ----------------------

Name: Stephen T. McGowan                    /s/ Sophie Ziegler
                                            ------------------
                                            Sophie Ziegler

Title:  Executive Vice President, Corporate
        Resources and Chief Financial Officer



                                PROMISSORY NOTE
                        SECURED BY SUN MICROSYSTEMS, INC.
                                  COMMON STOCK

$4,000,000                                                       Santa Clara, CA

                                                                   July 19, 2002

WHEREAS, the undersigned, Jonathan I. Schwartz (the "Employee") and Sophie
Ziegler (jointly and severally, the "Borrowers"), executed that certain Full
Recourse Promissory Note dated October 29, 2001 in the amount of One Million
Dollars ($1,000,000), and Borrowers also executed that certain Promissory Note
Secured by Sun Microsystems, Inc. Common Stock dated June 28, 2002 in the amount
of One Million Dollars ($1,000,000) (hereinafter jointly referred to as the "Old
Notes"), both in favor of Sun Microsystems, Inc. (the "Lender"); and

WHEREAS, Borrowers now wish to consolidate the Old Notes with a new note in the
amount of Two Million Dollars ($2,000,000) that Borrowers desire to execute in
favor of Lender for an aggregate note amount of Four Million Dollars
($4,000,000), and in that regard, Borrowers and Lender have executed that
certain Cancellation of Promissory Notes dated July 18, 2002 to cancel the Old
Notes;

NOW THEREFORE, Borrowers hereby undertake the following:

FOR VALUE RECEIVED, Borrowers promise to pay to Sun Microsystems, Inc., a
Delaware corporation ("Lender"), at 4150 Network Circle, Santa Clara, CA (or at
such other place as Lender may from time to time designate by written notice to
Borrowers), in lawful money of the United States, the principal sum of Four
Million Dollars ($4,000,000) (the "Note"), on the following terms:

1.  Payment:

    A.     Payment: The principal and any unpaid interest due pursuant to this
           Note shall be paid in full on or before June 30, 2006 in lawful money
           of the United States.

    B.     This Note may be prepaid at any time.

2. Interest: Interest on the outstanding principal balance of this Note shall
accrue at the prime rate of interest plus two percent (2%) being, six and
seventy-five one hundredths percent (6.75%) per annum (the "Interest Rate"),
compounded semi-annually. While any failure of Borrowers of obligations under
this Note exists, or after Full Acceleration, as defined below, Borrowers shall
pay interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all outstanding amounts under this
Note at a rate per annum which is determined by adding two percent (2%) per
annum to the Interest Rate then in effect for this Note. Interest shall be
calculated on the basis of a three hundred sixty (360) day year consisting of
twelve (12) months.



3. Security: Borrowers shall ensure that at all times the obligations of
Borrowers, now existing or hereafter arising, owing to Lender under this Note,
and each obligation of performance by Borrowers hereunder, shall be
collateralized with a fully perfected, first priority lien on Sun Microsystems,
Inc. common stock (the "Sun Stock"), subject to no other liens of any other
persons, equal or exceeding in Fair Market Value an aggregate amount equaling or
exceeding one hundred percent (100%) of the aggregate outstanding principal,
accrued and unpaid interest and such other amounts payable under this Note (the
"Collateral Maintenance Amount") pursuant to documentation in form and substance
satisfactory to Lender. Such collateral shall be maintained in an escrow account
at EquiServe Trust Company, N.A. (the "Escrow"). The Fair Market Value of the
Sun Stock held in the Escrow shall be determined on each January 1 and July 1
(the "Maintenance Date") until all amounts under this Note are repaid in full.
In the event that the Fair Market Value of the Sun Stock as of any Maintenance
Date is less than the Collateral Maintenance Amount as of such Maintenance Date,
Borrowers shall promptly contribute additional shares of Sun Stock to the Escrow
with a Fair Market Value equal to such deficiency. For purposes of this
paragraph, "Fair Market Value" means, with respect to the Sun Stock, for any
day, the reported last sale price per share on Nasdaq, or, if the Sun Stock is
not admitted to trading on Nasdaq, on the principal national securities exchange
or inter-dealer quotation system on which the Sun Stock is listed or admitted to
trading, or if not admitted to trading on Nasdaq, or listed or admitted to
trading on any national securities exchange or inter-dealer quotation system,
the closing bid price per share in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by Lender for
that purpose.

This Note is secured by Seven Hundred Twenty Three Thousand Five Hundred
Seventeen (723,517) shares of Sun Stock. Borrowers shall deliver the Sun Stock
to Lender or Lender's designated agent simultaneously with receipt of the funds
under this Note by Borrowers, or Borrowers' designated agent.

4. Default and Acceleration:

A. Full Acceleration: Unless otherwise prohibited by law, upon the occurrence of
any of the following events, the Lender shall have the option, without demand or
notice, to declare the entire balance of principal of this Note together with
all accrued interest to be immediately due and payable:

(1) Borrowers default in the payment of principal when due pursuant to the terms
hereof or default in the performance of any obligation of Borrowers or any other
agreement (including any amendment, modification or extension thereof) which may
hereafter be executed by Borrowers for the purpose of securing this Note or
which affects the Security.

(2) Borrowers, without the prior written consent of Lender, voluntarily or by
operation of law sell, convey, assign, encumber, mortgage or otherwise transfer,
all or substantially all, or any portion of, or interest in the Security.



(3) Sixty (60) days after (a) Lender is notified that Employee is terminating
his employment with Lender, or (b) Lender terminates Borrower's employment for
cause, as defined below.

B. Partial Acceleration:

(1) In the event that Employee's employment is terminated by Lender other than
for cause or if Employee dies or is disabled for a period of more than six
months, principal due hereunder shall be accelerated and shall be paid fifty
percent (50%) of the principal in twelve (12) equal quarterly installments, with
the first such quarterly payment due on the effective date of termination and
the successive quarterly payments being due each three months thereafter on the
same day of each such months (i.e., if termination is on February 3, payments
are due on each succeeding May 3, August 3, November 3 and February 3). The
remaining fifty percent (50%) of the principal shall be due in a balloon payment
at the end of the thirteenth quarter following the date hereof. Notwithstanding
the foregoing, in no event shall such a termination or the foregoing payment
schedule extend the due date of this Note beyond June 30, 2006.

(2) For purposes of this Note, the term "cause" shall mean Employee's
misfeasance, malfeasance or misconduct, dishonesty or gross negligence in
connection with his employment.

5. Full Recourse: The Lender shall have full recourse against any and all assets
of the Borrowers in the event of the occurrence of a default under the terms of
this Note.

6. Attorneys' Fees: In the event of Borrowers' default hereunder, Borrowers
shall pay all costs of collection, including reasonable attorneys' fees incurred
by the holder hereof on account of such collection, whether or not suit is filed
hereon.

7. Waiver: The waiver by Lender hereof of any breach of or default under any
terms, covenant or condition contained herein or in any of the agreements
referred to above shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of or default under the same or any other
such term, covenant or condition.

8. No Usury: Borrowers hereby represent and warrant that at no time shall the
proceeds of the indebtedness evidenced hereby be used "primarily for personal,
family, or household purposes" as that term is defined and used in Article XV of
the California Constitution (as amended from time to time). Anything in this
Note to the contrary notwithstanding, it is expressly stipulated and agreed that
the intent of Borrowers and Lender is to comply at all times with all usury and
other laws relating to this Note. If the laws of the State of California would
now or hereafter render usurious, or are revised, repealed or judicially
interpreted so as to render usurious, any amount called for under this Note, or
contracted for, charged or received with respect to the loan evidenced by this
Note, or if any prepayment by Borrowers results in Borrowers having paid any
interest in excess of that permitted by law, then it is Borrowers' and Lender's
express intent that all excess amounts theretofore collected by Lender be
credited to the principal balance of this Note (or, if this Note has been paid
in full, refunded to Borrowers), and



the provisions of this Note immediately be deemed reformed and the amounts
therefore collectible hereunder reduced, without the necessity of execution of
any new document, so as to comply with the then applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder.

9. General Provisions: This Note shall be governed by and construed in
accordance with the laws of the State of California. The makers of this Note
hereby waive presentment for payment, protest and demand, notice of protest,
demand and dishonor and nonpayment of this Note, and consent that Lender may
extend the time for payment or otherwise modify the terms of payment or any part
of the whole of the debt evidenced by this Note, at the request of any person
liable hereon, and such consent shall not alter nor diminish the liability of
any person. Borrowers hereby waive the defense of the statute of limitations in
any action on this Note to the extent permitted by law. The terms of this Note
constitute the entire agreement and understanding between the parties and
supercede all previous communications, representations or agreements, whether
written or oral, with respect to the subject matter hereof.

10. THIS NOTE AND ALL RELATED DOCUMENTATION ARE EXECUTED VOLUNTARILY AND WITHOUT
ANY DURESS OR UNDUE INFLUENCE ON THE PART OF OR ON BEHALF OF THE PARTIES HERETO,
WITH THE FULL INTENT OF CREATING THE OBLIGATIONS AND SECURITY INTERESTS
DESCRIBED HEREIN AND THEREIN. THE PARTIES ACKNOWLEDGE THAT: (a) THEY HAVE READ
SUCH DOCUMENTATION; (b) THEY HAVE BEEN REPRESENTED IN THE PREPARATION,
NEGOTIATION AND EXECUTION OF SUCH DOCUMENTATION BY LEGAL COUNSEL OF THEIR OWN
CHOICE OR THAT THEY HAVE VOLUNTARILY DECLINED TO SEEK SUCH COUNSEL; (c) THEY
UNDERSTAND THE TERMS AND CONSEQUENCES OF THIS NOTE AND ALL RELATED DOCUMENTATION
AND THE OBLIGATIONS THEY CREATE; AND (d) THEY ARE FULLY AWARE OF THE LEGAL AND
BINDING EFFECT OF THIS NOTE AND THE OTHER DOCUMENTS CONTEMPLATED BY THIS MATTER.

                                                   AS BORROWERS

                                                   /s/  Jonathan I. Schwartz
                                                   --------------------------
                                                   Name: Jonathan I. Schwartz

                                                   /s/ Sophie Ziegler
                                                   --------------------------
                                                   Name: Sophie Ziegler