S-8

As filed with the Securities and Exchange Commission on August 14, 2002

Registration No. _____________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

SUN MICROSYSTEMS, INC.
(Exact Name of Registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 4150 Network Circle
Santa Clara, CA 95054
(Address, including zip code, of
Registrant’s Principal Executive Offices) 94-2805249
(I.R.S. Employer
Identification Number)

AFARA WEBSYSTEMS, INC. 2000 EQUITY INCENTIVE PLAN

(Full Title of the Plan)

Scott G. McNealy
Chief Executive Officer
SUN MICROSYSTEMS, INC.
4150 Network Circle
Santa Clara, CA 95054
(650) 960-1300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copy to:

Katharine A. Martin, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300

CALCULATION OF REGISTRATION FEE

			Proposed Maximum		Proposed Maximum
	Amount to be		Offering Price Per		Aggregate Offering		Amount of
Title of Securities to be Registered	Registered		Share (1)		Price		Registration Fee
Common Stock, par value $0.00067 per share, to be issued upon exercise of options granted under the Afara WebSystems, Inc. 2000 Equity Incentive Plan (the “Plan”)		209,648	$	1.42	$	297,700.16	$	27.39

(1) The Proposed Maximum Offering Price Per Share was computed pursuant to Rule 457(h) under the Securities Act of 1933, as amended (the “Securities Act”) solely for the purpose of calculating the registration fee. Computation based on the weighted-average per share exercise price (rounded to the nearest cent) of outstanding options under the Plan, the underlying shares of which are registered hereby.

TABLE OF CONTENTS

PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
	Item 3. Information Incorporated by Reference.
	Item 4. Description of Securities.
	Item 5. Interests of Named Experts and Counsel.
	Item 6. Indemnification of Directors and Officers.
	Item 7. Exemption from Registration Claimed.
	Item 8. Exhibits.
	Item 9. Undertakings.
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 4.1
EXHIBIT 5.1
EXHIBIT 23.2
EXHIBIT 99(i).1

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Information Incorporated by Reference.

     There are hereby incorporated by reference into this Registration Statement the following documents and information heretofore filed with the Securities and Exchange Commission (the “Commission”) by Sun Microsystems, Inc. (the “Registrant”):

1.	The Registrant’s Annual Report on Form 10-K for the year ended June 30, 2001, filed pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
2.	The Registrant’s Quarterly Reports on Form 10-Q for the quarters ended September 30, 2001, December 30, 2001 and March 31, 2002, respectively, filed pursuant to Section 13(a) of the Exchange Act.
3.	The Registrant’s Current Report on Form 8-K filed on February 14, 2002, pursuant to Section 13(a) of the Exchange Act.
4.	The Registrant’s Current Report on Form 8-K filed on May 3, 2002, pursuant to Section 13(a) of the Exchange Act.
5.	The Registrant’s Current Report on Form 8-K filed on August 9, 2002 pursuant to Section 13(a) of the Exchange Act.
6.	The Registrant’s Registration Statement on Form 8-A relating to the Registrant’s Common Stock filed pursuant to Section 12(g) of the Exchange Act on October 24, 1986, as amended.
7.	The Registrant’s Registration Statement on Form 8-A/A Amendment No. 9 relating to the Registrant’s Common Share Purchase Rights filed pursuant to Section 12(g) of the Exchange Act on December 20, 2000.

     All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be part hereof from the date of filing of such documents.

Item 4. Description of Securities.

     Not applicable.

Item 5. Interests of Named Experts and Counsel.

2

     Not applicable.

Item 6. Indemnification of Directors and Officers.

     Section 145 of the General Corporation Law of the State of Delaware, as amended, provides that under certain circumstances a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or is or was serving at its request in such capacity in another corporation or business association, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

     Section 11 of the Restated Certificate of Incorporation of the Registrant provides in effect that, subject to certain limited exceptions, the Registrant shall indemnify its directors and officers to the extent authorized or permitted by the General Corporation Law of the State of Delaware. The directors and officers of the Registrant are insured under policies of insurance maintained by the Company, subject to the limits of the policies, against certain losses arising from any claims made against them by reason of being or having been such directors or officers. Like indemnification and insurance is also provided to those employees of the Registrant who serve as administrators of the Plan. In addition, the Company has entered into contracts with certain of its directors providing for indemnification of such persons by the Registrant to the full extent authorized or permitted by law, subject to certain limited exceptions.

Item 7. Exemption from Registration Claimed.

     Not applicable.

Item 8. Exhibits.

Number		Document
	4.1	Afara WebSystems, Inc. 2000 Equity Incentive Plan, as amended
	5.1	Opinion of Counsel with respect to the legality of the securities being registered
	23.1	Consent of Counsel (contained in Exhibit 5.1)
	23.2	Consent of Ernst & Young LLP, Independent Auditors
	24.1	Power of Attorney (see page 6)
	99(i).1	Selected Financial Data Additional Disclosure for FASB No. 142

3

Item 9. Undertakings.

     (a)  The undersigned registrant hereby undertakes:

               (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

               (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

               (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

     (b)  The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

     (c)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

4

SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the Registrant, Sun Microsystems, Inc., certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California, on August 12, 2002.

SUN MICROSYSTEMS, INC
By:	/s/ Stephen T. McGowan
	Stephen T. McGowan Executive Vice President, Corporate Resources and Chief Financial Officer

5

POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Scott G. McNealy and Stephen T. McGowan, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Registration Statement on Form S-8 and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ Scott G. McNealy Scott G. McNealy	Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)	August 12, 2002
/s/ Stephen T. McGowan Stephen T. McGowan	Executive Vice President, Corporate Resources and Chief Financial Officer (Principal Financial Officer)	August 12, 2002
/s/ Michael L. Popov Michael L. Popov	Vice President, Corporate Controller (Principal Accounting Officer)	August 12, 2002
/s/ James L. Barksdale James L. Barksdale	Director	August 12, 2002
/s/ L. John Doerr L. John Doerr	Director	August 12, 2002
/s/ Judith L. Estrin Judith L. Estrin	Director	August 12, 2002
Robert J. Fisher	Director	,2002
Robert L. Long	Director	,2002
/s/ M. Kenneth Oshman M. Kenneth Oshman	Director	August 12, 2002
/s/ Naomi O. Seligman Naomi O. Seligman	Director	August 12, 2002

6

INDEX TO EXHIBITS

Exhibit
Number		Description
	4.1	Afara WebSystems, Inc. 2000 Equity Incentive Plan, as amended
	5.1	Opinion of Counsel, with respect to the legality of the securities being registered
	23.1	Consent of Counsel (contained in Exhibit 5.1)
	23.2	Consent of Ernst & Young LLP, Independent Auditors
	24.1	Power of Attorney (see page 6)
	99(i).1	Selected Financial Data Additional Disclosure for FASB No. 142

EX-4.1 3 f83713orexv4w1.txt EXHIBIT 4.1 EXHIBIT 4.1 AFARA WEBSYSTEMS, INC. 2000 EQUITY INCENTIVE PLAN AS ADOPTED ON SEPTEMBER 15, 2000, AND AMENDED ON JANUARY 19, 2001, FEBRUARY 16, 2001 AND SEPTEMBER 21, 2001 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options and Restricted Stock. Capitalized terms not defined in the text are defined in Section 22 hereof. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 17 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be Thirteen Million Five Hundred Forty-Six Thousand One Hundred Fifty-Four (13,546,154) Shares or such lesser number of Shares as permitted under Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to Sections 2.2, 5.10 and 17 hereof, Shares subject to Awards previously granted will again be available for grant and issuance in connection with future Awards under this Plan to the extent such Shares: (i) cease to be subject to issuance upon exercise of an Option, other than due to exercise of such Option; (ii) are subject to an Award granted hereunder but the Shares subject to such Award are forfeited or repurchased by the Company at the original issue price; or (iii) are subject to an Award that otherwise terminates without Shares being issued. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares of the Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (i) the number of Shares reserved for issuance under this Plan; (ii) the Exercise Prices of and number of Shares subject to outstanding Options; and (iii) the Purchase Prices of and number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the Stockholders of the Company and compliance 1 with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee; and provided, further, that the Exercise Price of any Option may not be decreased to below the par value of the Shares. 3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereof) and Restricted Stock Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan. 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan; (c) approve persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of any conditions of this Plan or any Award; 2 (h) determine the terms of vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement (as defined in Section 5.5) or any Restricted Stock Purchase Agreement (as defined in Section 6.1); (j) determine whether an Award has been earned; (k) make all other determinations necessary or advisable for the administration of this Plan; and (l) extend the vesting period beyond a Participant's Termination Date. 4.2 Committee Discretion. Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (i) at the time of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided such officer or officers are members of the Board. 5. OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 3 5.3 Exercise Period. Options may be exercisable immediately but subject to repurchase pursuant to Section 11 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. Subject to earlier termination of the Option as provided herein, each Participant who is not an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company shall have the right to exercise an Option granted hereunder at the rate of no less than twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may not be less than eighty-five percent (85%) of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 7 hereof. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (i) the number of Shares being purchased; (ii) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any; and (iii) such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Participant shall execute and deliver to the Company the Exercise Agreement together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased. 5.6 Termination. Subject to earlier termination pursuant to Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participant's Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination 4 Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant's Options may be exercised only to the extent that such Options are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such options must be exercised by Participant (or Participant's legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or disability, within the meaning of Section 22(e)(3) of the Code, or (ii) twelve (12) months after the Termination Date when the Termination is for Participant's disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options. (c) If the Participant is terminated for Cause, then Participant's Options shall expire on such Participant's Termination Date, or at such later time and on such conditions as are determined by the Committee. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations 5 promulgated thereunder are amended after the Effective Date (as defined in Section 18 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price; provided, further, that the Exercise Price will not be reduced below the par value of the Shares. 5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant's ISO under Section 422 of the Code. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise of ISOs exceed 12,546,154 Shares (adjusted in proportion to any adjustments under Section 2.2. hereof) over the term of the Plan. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee and will be at least eighty-five percent (85%) of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted or at the time the purchase is consummated, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be one hundred percent (100%) of the Fair Market Value on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 7 hereof. 6.3 Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Section 11 hereof or such other restrictions not inconsistent with Section 25102(o) of the California Corporations Code. 7. PAYMENT FOR SHARE PURCHASES. 7.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company owed to the Participant; (b) by surrender of shares that: (i) either (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by Participant in the public market and (ii) are clear of all liens, claims, encumbrances or security interests; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the Exercise Price or Purchase Price, as the case may be, equal to the par value of the Shares must be paid in cash or other legal consideration permitted by Delaware General Corporation Law; 7 (d) by waiver of compensation due or accrued to the Participant from the Company for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (i) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or (ii) through a "margin" commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or (f) by any combination of the foregoing. 7.2 Loan Guarantees. The Committee may, in its sole discretion, elect to assist the Participant in paying for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 8. WITHHOLDING TAXES. 8.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 8.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding 8 and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that minimum number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined; but in no event will the Company withhold Shares if such withholding would result in adverse accounting consequences to the Company. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee. 9. PRIVILEGES OF STOCK OWNERSHIP. 9.1 Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased pursuant to Section 11 hereof. The Company will comply with Section 260.140.1 of Title 10 of the California Code of Regulations with respect to the voting rights of Common Stock. 9.2 Financial Statements. The Company will provide financial statements to each Participant annually during the period such Participant has Awards outstanding, or as otherwise required under Section 260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding the foregoing, the Company will not be required to provide such financial statements to Participants when issuance of Awards is limited to key employees whose services in connection with the Company assure them access to equivalent information. 10. TRANSFERABILITY. Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to "immediate family" as that term is defined in 17 C.F.R. 240.16a-1(e), and may not be made subject to execution, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participant's legal representative and any elections with respect to an Award may be made only by the Participant or Participant's legal representative. 11. RESTRICTIONS ON SHARES. 9 11.1 Right of First Refusal. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, unless otherwise not permitted by Section 25102(o) of the California Corporations Code, provided that such right of first refusal terminates upon the Company's initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act. 11.2 Right of Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participant's Termination at any time within the later of ninety (90) days after the Participant's Termination Date and the date the Participant purchases Shares under the Plan at the Participant's Exercise Price or Purchase Price, as the case may be, provided that, unless the Participant is an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company, such right of repurchase lapses at the rate of no less than twenty percent (20%) per year over five (5) years from: (a) the date of grant of the Option or (b) in the case of Restricted Stock, the date the Participant purchases the Shares. 12. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares set forth in Section 11 hereof, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. 14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in 10 cash, shares of Common Stock (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended to comply with Section 25102(o) of the California Corporations Code. Any provision of this Plan which is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o). An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (ii) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without Cause. 17. CORPORATE TRANSACTIONS. 17.1 Assumption or Replacement of Awards by Successor or Acquiring Company. In the event of (i) a dissolution or liquidation of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder which merges with the Company in such merger, or which owns or controls another corporation which merges with the Company in such merger) cease to own their shares or other equity interests in the Company; or (iv) the sale of all or substantially all of the assets of the Company, any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders of the Company (after taking into account the existing provisions of the Awards). The successor or acquiring corporation may also substitute by issuing, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to 11 repurchase restrictions and other provisions no less favorable to the Participant than those which applied to such outstanding Shares immediately prior to such transaction described in this Section 17.1. In the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a transaction described in this Section 17.1, then notwithstanding any other provision in this Plan to the contrary, such Awards will expire on such transaction at such time and on such conditions as the Committee will determine. 17.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 17, in the event of the occurrence of any transaction described in Section 17.1 hereof, any outstanding Awards will be treated as provided in the applicable agreement or plan of reorganization, merger, consolidation, dissolution, liquidation or sale of assets. 17.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (i) granting an Award under this Plan in substitution of such other company's award or (ii) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 18. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (i) no Option may be exercised prior to initial stockholder approval of this Plan; (ii) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (iii) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares issued hereunder shall be rescinded; and (iv) Awards granted pursuant to an increase in the number of Shares approved by the Board which increase is not timely approved by stockholders shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded. 19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of 12 stockholder approval. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California. 20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval pursuant to Section 25102(o) of the California Corporations Code or the Code or the regulations promulgated thereunder as such provisions apply to ISO plans. 21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 22. DEFINITIONS. As used in this Plan, the following terms will have the following meanings: "AWARD" means any award under this Plan, including any Option or Restricted Stock Award. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award, including the Stock Option Agreement and Restricted Stock Agreement. "BOARD" means the Board of Directors of the Company. "CAUSE" means Termination because of (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participant's conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud; (ii) the Participant's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company; (iii) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Participant regarding the terms of the Participant's service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an 13 employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant; (iv) Participant's disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company; or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company. "CHANGE OF CONTROL" means (i) any merger, consolidation or other acquisition (or series of related transactions of such nature) pursuant to which more than eighty percent (80%) of the voting power of all equity of the Company would be transferred (excluding a reincorporation to effect a change in domicile) or (ii) any transaction or agreement as a result of which any person would acquire all or substantially all of the assets of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board. "COMMON STOCK" means the Company's common stock, $.00001 par value per share. "COMPANY" means Afara WebSystems, Inc., or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; 14 (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Board may determine); or (d) if none of the foregoing is applicable, by the Committee in good faith. "OPTION" means an award of an option to purchase Shares pursuant to Section 5 hereof. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. "PLAN" means this Afara WebSystems, Inc. 2000 Equity Incentive Plan, as amended from time to time. "PURCHASE PRICE" means the price at which a Participant may purchase Restricted Stock. "RESTRICTED STOCK" means Shares purchased pursuant to a Restricted Stock Award. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6 hereof. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. 15 "SHARES" means shares of the Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any successor security. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave; (ii) military leave; or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Company's Board and issued and promulgated in writing. In the case of any Participant on (i) sick leave; (ii) military leave; or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 16 EX-5.1 4 f83713orexv5w1.txt EXHIBIT 5.1 EXHIBIT 5.1 August 12, 2002 Sun Microsystems, Inc. 4150 Network Circle Santa Clara, CA 95054 RE: REGISTRATION STATEMENT ON FORM S-8 Ladies and Gentlemen: We have acted as counsel to Sun Microsystems, Inc., a Delaware corporation (the "COMPANY") and have examined the Registration Statement on Form S-8 (the "REGISTRATION STATEMENT") to be filed by the Company with the Securities and Exchange Commission on or about August 12, 2002 in connection with the registration under the Securities Act of 1933, as amended (the "1933 Act") of 209,648 shares of the Company's Common Stock, par value $0.00067 per share (the "SHARES"), reserved for issuance under the Afara WebSystems, Inc. 2000 Equity Incentive Plan (the "PLAN"). As your legal counsel, we have examined the Restated Certificate of Incorporation and Bylaws of the Company, the Plan and such other documents of the Company as we have deemed necessary or appropriate for the purposes of the opinion expressed herein, and are familiar with the proceedings proposed to be taken by the Company in connection with the operation and administration of the Plan and the sale and issuance of the Shares pursuant to the Plan. It is our opinion that the Shares, when issued and sold in the manner referred to in the Plan and pursuant to the agreements which accompany the Plan, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an Exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement and any subsequent amendment thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ Wilson Sonsini Goodrich & Rosati EX-23.2 5 f83713orexv23w2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) of Sun Microsystems, Inc. pertaining to the Afara WebSystems, Inc. 2000 Equity Incentive Plan of our report dated July 18, 2001 with respect to the consolidated financial statements and schedule of Sun Microsystems, Inc. included in its Annual Report (Form 10-K) for the year ended June 30, 2001 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP San Jose, California August 12, 2002 EX-99.1 6 f83713orexv99w1.txt EXHIBIT 99(I).1 EXHIBIT 99(i).1 SELECTED FINANCIAL DATA ADDITIONAL DISCLOSURE FOR FASB NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS." The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto included in our Annual Report (Form 10-K) for the year ended June 30, 2001, which is incorporated by reference in this Registration Statement on Form S-8. As of July 1, 2001, Sun early-adopted SFAS 142, "Goodwill and Other Intangible Assets," which addresses the financial accounting and reporting standards for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill no longer be amortized, and instead, be tested for impairment on a periodic basis. We completed both our transitional and annual goodwill impairment tests as of July 1, 2001 and April 1, 2002 respectively and found no impairment. A reconciliation of previously reported net income and earnings per share, to the amounts adjusted for the exclusion of goodwill and workforce amortization, net of the related income tax effect, follows (in millions, except per share amounts):

FISCAL YEAR ENDED JUNE 30, ---------------------------------- 2001 2000 1999 ------ ------ ------ Reported net income ................... $ 927 $1,854 $1,030 Add: Goodwill amortization ......... 285 72 23 Workforce amortization ........ 8 5 3 Tax impact .................... (3) (3) (1) ------ ------ ------ Adjusted net income .................. 1,217 1,928 1,055 ------ ------ ------ Basic earnings per share: Reported earnings per share - basic . 0.28 0.59 0.33 Add: Goodwill amortization ......... 0.09 0.02 0.01 Workforce amortization ........ -- -- -- Tax impact .................... -- -- -- ------ ------ ------ Adjusted earnings per share - basic . 0.37 0.61 0.34 ------ ------ ------ Diluted earnings per share: Reported earnings per share - diluted 0.27 0.55 0.31 Add: Goodwill amortization ......... 0.08 0.02 0.01 Workforce amortization ........ -- -- -- Tax impact .................... -- -- -- ------ ------ ------ Adjusted earnings per share - diluted 0.35 0.57 0.32 ====== ====== ======

-----END PRIVACY-ENHANCED MESSAGE-----

EX-4.1

                                                                     EXHIBIT 4.1

                             AFARA WEBSYSTEMS, INC.

                           2000 EQUITY INCENTIVE PLAN

                        AS ADOPTED ON SEPTEMBER 15, 2000,
                        AND AMENDED ON JANUARY 19, 2001,
                    FEBRUARY 16, 2001 AND SEPTEMBER 21, 2001

        1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options and Restricted Stock. Capitalized
terms not defined in the text are defined in Section 22 hereof. This Plan is
intended to be a written compensatory benefit plan within the meaning of Rule
701 promulgated under the Securities Act.

        2. SHARES SUBJECT TO THE PLAN.


               2.1 Number of Shares Available. Subject to Sections 2.2 and 17
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be Thirteen Million Five Hundred Forty-Six Thousand
One Hundred Fifty-Four (13,546,154) Shares or such lesser number of Shares as
permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations.

                      Subject to Sections 2.2, 5.10 and 17 hereof, Shares
subject to Awards previously granted will again be available for grant and
issuance in connection with future Awards under this Plan to the extent such
Shares: (i) cease to be subject to issuance upon exercise of an Option, other
than due to exercise of such Option; (ii) are subject to an Award granted
hereunder but the Shares subject to such Award are forfeited or repurchased by
the Company at the original issue price; or (iii) are subject to an Award that
otherwise terminates without Shares being issued. At all times the Company will
reserve and keep available a sufficient number of Shares as will be required to
satisfy the requirements of all Awards granted and outstanding under this Plan.

               2.2 Adjustment of Shares. In the event that the number of
outstanding shares of the Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (i) the number of Shares reserved for issuance under
this Plan; (ii) the Exercise Prices of and number of Shares subject to
outstanding Options; and (iii) the Purchase Prices of and number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the Stockholders of the Company and
compliance



                                       1


with applicable securities laws; provided, however, that fractions of a Share
will not be issued but will either be paid in cash at the Fair Market Value of
such fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee; and provided, further, that the Exercise Price of
any Option may not be decreased to below the par value of the Shares.

        3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in
Section 5 hereof) and Restricted Stock Awards may be granted to employees,
officers, directors and consultants of the Company or any Parent or Subsidiary
of the Company; provided such consultants render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.

        4. ADMINISTRATION.

               4.1 Committee Authority. This Plan will be administered by the
Committee or the Board if no Committee is created by the Board. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:

               (a)    construe and interpret this Plan, any Award Agreement and
                      any other agreement or document executed pursuant to this
                      Plan;

               (b)    prescribe, amend and rescind rules and regulations
                      relating to this Plan;

               (c)    approve persons to receive Awards;

               (d)    determine the form and terms of Awards;

               (e)    determine the number of Shares or other consideration
                      subject to Awards;

               (f)    determine whether Awards will be granted singly, in
                      combination with, in tandem with, in replacement of, or as
                      alternatives to, other Awards under this Plan or awards
                      under any other incentive or compensation plan of the
                      Company or any Parent or Subsidiary of the Company;

               (g)    grant waivers of any conditions of this Plan or any Award;



                                       2


               (h)    determine the terms of vesting, exercisability and payment
                      of Awards;

               (i)    correct any defect, supply any omission, or reconcile any
                      inconsistency in this Plan, any Award, any Award
                      Agreement, any Exercise Agreement (as defined in Section
                      5.5) or any Restricted Stock Purchase Agreement (as
                      defined in Section 6.1);

               (j)    determine whether an Award has been earned;

               (k)    make all other determinations necessary or advisable for
                      the administration of this Plan; and

               (l)    extend the vesting period beyond a Participant's
                      Termination Date.

               4.2 Committee Discretion. Unless in contravention of any express
terms of this Plan or Award, any determination made by the Committee with
respect to any Award will be made in its sole discretion either (i) at the time
of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time.
Any such determination will be final and binding on the Company and on all
persons having an interest in any Award under this Plan. The Committee may
delegate to one or more officers of the Company the authority to grant an Award
under this Plan, provided such officer or officers are members of the Board.

        5. OPTIONS. The Committee may grant Options to eligible persons
described in Section 3 hereof and will determine whether such Options will be
Incentive Stock Options within the meaning of the Code ("ISOS") or Nonqualified
Stock Options ("NQSOS"), the number of Shares subject to the Option, the
Exercise Price of the Option, the period during which the Option may be
exercised, and all other terms and conditions of the Option, subject to the
following:

               5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.

               5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
a later date is otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.



                                       3


               5.3 Exercise Period. Options may be exercisable immediately but
subject to repurchase pursuant to Section 11 hereof or may be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement governing such Option; provided, however, that no Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines. Subject to earlier termination of the Option
as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.

               5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Stockholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 hereof.

               5.5 Method of Exercise. Options may be exercised only by delivery
to the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant). The Exercise Agreement will state (i) the number of Shares
being purchased; (ii) the restrictions imposed on the Shares purchased under
such Exercise Agreement, if any; and (iii) such representations and agreements
regarding Participant's investment intent and access to information and other
matters, if any, as may be required or desirable by the Company to comply with
applicable securities laws. Participant shall execute and deliver to the Company
the Exercise Agreement together with payment in full of the Exercise Price, and
any applicable taxes, for the number of Shares being purchased.

               5.6 Termination. Subject to earlier termination pursuant to
Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:

               (a)    If the Participant is Terminated for any reason other than
                      death, Disability or for Cause, then the Participant may
                      exercise such Participant's Options only to the extent
                      that such Options are exercisable as to Vested Shares upon
                      the Termination Date or as otherwise determined by the
                      Committee. Such Options must be exercised by the
                      Participant, if at all, as to all or some of the Vested
                      Shares calculated as of the Termination Date or such other
                      date determined by the Committee, within three (3) months
                      after the Termination



                                       4


                      Date (or within such shorter time period, not less than
                      thirty (30) days, or within such longer time period, not
                      exceeding five (5) years, after the Termination Date as
                      may be determined by the Committee, with any exercise
                      beyond three (3) months after the Termination Date deemed
                      to be an NQSO) but in any event, no later than the
                      expiration date of the Options.


               (b)    If the Participant is Terminated because of Participant's
                      death or Disability (or the Participant dies within three
                      (3) months after a Termination other than for Cause), then
                      Participant's Options may be exercised only to the extent
                      that such Options are exercisable as to Vested Shares by
                      Participant on the Termination Date or as otherwise
                      determined by the Committee. Such options must be
                      exercised by Participant (or Participant's legal
                      representative or authorized assignee), if at all, as to
                      all or some of the Vested Shares calculated as of the
                      Termination Date or such other date determined by the
                      Committee, within twelve (12) months after the Termination
                      Date (or within such shorter time period, not less than
                      six (6) months, or within such longer time period, not
                      exceeding five (5) years, after the Termination Date as
                      may be determined by the Committee, with any exercise
                      beyond (i) three (3) months after the Termination Date
                      when the Termination is for any reason other than the
                      Participant's death or disability, within the meaning of
                      Section 22(e)(3) of the Code, or (ii) twelve (12) months
                      after the Termination Date when the Termination is for
                      Participant's disability, within the meaning of Section
                      22(e)(3) of the Code, deemed to be an NQSO) but in any
                      event no later than the expiration date of the Options.


               (c)    If the Participant is terminated for Cause, then
                      Participant's Options shall expire on such Participant's
                      Termination Date, or at such later time and on such
                      conditions as are determined by the Committee.

               5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.

               5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) will not exceed One Hundred Thousand
Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the
Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of One Hundred Thousand Dollars ($100,000) that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations

                                       5


promulgated thereunder are amended after the Effective Date (as defined in
Section 18 hereof) to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to ISOs, then such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.

               5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants by a
written notice to them; provided, however, that the Exercise Price may not be
reduced below the minimum Exercise Price that would be permitted under Section
5.4 hereof for Options granted on the date the action is taken to reduce the
Exercise Price; provided, further, that the Exercise Price will not be reduced
below the par value of the Shares.

               5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant, to disqualify any Participant's ISO
under Section 422 of the Code. In no event shall the total number of Shares
issued (counting each reissuance of a Share that was previously issued and then
forfeited or repurchased by the Company as a separate issuance) under the Plan
upon exercise of ISOs exceed 12,546,154 Shares (adjusted in proportion to any
adjustments under Section 2.2. hereof) over the term of the Plan.

        6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to certain specified
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, the Purchase Price, the restrictions
to which the Shares will be subject, and all other terms and conditions of the
Restricted Stock Award, subject to the following:

               6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The Restricted Stock Award will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within such thirty (30)
days, then the offer will terminate, unless otherwise determined by the
Committee.



                                       6


               6.2 Purchase Price. The Purchase Price of Shares sold pursuant to
a Restricted Stock Award will be determined by the Committee and will be at
least eighty-five percent (85%) of the Fair Market Value of the Shares on the
date the Restricted Stock Award is granted or at the time the purchase is
consummated, except in the case of a sale to a Ten Percent Stockholder, in which
case the Purchase Price will be one hundred percent (100%) of the Fair Market
Value on the date the Restricted Stock Award is granted or at the time the
purchase is consummated. Payment of the Purchase Price must be made in
accordance with Section 7 hereof.

               6.3 Restrictions. Restricted Stock Awards may be subject to the
restrictions set forth in Section 11 hereof or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.

        7. PAYMENT FOR SHARE PURCHASES.


               7.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:

                      (a)    by cancellation of indebtedness of the Company owed
                             to the Participant;


                      (b)    by surrender of shares that: (i) either (A) have
                             been owned by Participant for more than six (6)
                             months and have been paid for within the meaning of
                             SEC Rule 144 (and, if such shares were purchased
                             from the Company by use of a promissory note, such
                             note has been fully paid with respect to such
                             shares) or (B) were obtained by Participant in the
                             public market and (ii) are clear of all liens,
                             claims, encumbrances or security interests;

                      (c)    by tender of a full recourse promissory note having
                             such terms as may be approved by the Committee and
                             bearing interest at a rate sufficient to avoid
                             imputation of income under Sections 483 and 1274 of
                             the Code; provided, however, that Participants who
                             are not employees or directors of the Company will
                             not be entitled to purchase Shares with a
                             promissory note unless the note is adequately
                             secured by collateral other than the Shares;
                             provided, further, that the portion of the Exercise
                             Price or Purchase Price, as the case may be, equal
                             to the par value of the Shares must be paid in cash
                             or other legal consideration permitted by Delaware
                             General Corporation Law;


                                       7


                      (d)    by waiver of compensation due or accrued to the
                             Participant from the Company for services rendered;


                      (e)    with respect only to purchases upon exercise of an
                             Option, and provided that a public market for the
                             Company's stock exists:

                             (i)    through a "same day sale" commitment from
                                    the Participant and a broker-dealer that is
                                    a member of the National Association of
                                    Securities Dealers (an "NASD DEALER")
                                    whereby the Participant irrevocably elects
                                    to exercise the Option and to sell a portion
                                    of the Shares so purchased sufficient to pay
                                    the total Exercise Price, and whereby the
                                    NASD Dealer irrevocably commits upon receipt
                                    of such Shares to forward the total Exercise
                                    Price directly to the Company; or

                             (ii)   through a "margin" commitment from the
                                    Participant and an NASD Dealer whereby the
                                    Participant irrevocably elects to exercise
                                    the Option and to pledge the Shares so
                                    purchased to the NASD Dealer in a margin
                                    account as security for a loan from the NASD
                                    Dealer in the amount of the total Exercise
                                    Price, and whereby the NASD Dealer
                                    irrevocably commits upon receipt of such
                                    Shares to forward the total Exercise Price
                                    directly to the Company; or

                      (f)    by any combination of the foregoing.


               7.2 Loan Guarantees. The Committee may, in its sole discretion,
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.

        8. WITHHOLDING TAXES.

               8.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash by the Company, such payment
will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.

               8.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding



                                       8


and the Participant is obligated to pay the Company the amount required to be
withheld, the Committee may in its sole discretion allow the Participant to
satisfy the minimum withholding tax obligation by electing to have the Company
withhold from the Shares to be issued that minimum number of Shares having a
Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be
determined; but in no event will the Company withhold Shares if such withholding
would result in adverse accounting consequences to the Company. All elections by
a Participant to have Shares withheld for this purpose will be made in
accordance with the requirements established by the Committee for such elections
and be in writing in a form acceptable to the Committee.

        9. PRIVILEGES OF STOCK OWNERSHIP.


               9.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock. The Participant will have no right to retain such stock
dividends or stock distributions with respect to Unvested Shares that are
repurchased pursuant to Section 11 hereof. The Company will comply with Section
260.140.1 of Title 10 of the California Code of Regulations with respect to the
voting rights of Common Stock.

               9.2 Financial Statements. The Company will provide financial
statements to each Participant annually during the period such Participant has
Awards outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations. Notwithstanding the foregoing, the
Company will not be required to provide such financial statements to
Participants when issuance of Awards is limited to key employees whose services
in connection with the Company assure them access to equivalent information.

        10. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution, and, with respect to NQSOs, by
instrument to an inter vivos or testamentary trust in which the options are to
be passed to beneficiaries upon the death of the trustor (settlor), or by gift
to "immediate family" as that term is defined in 17 C.F.R. 240.16a-1(e), and may
not be made subject to execution, attachment or similar process. During the
lifetime of the Participant an Award will be exercisable only by the Participant
or Participant's legal representative and any elections with respect to an Award
may be made only by the Participant or Participant's legal representative.

        11. RESTRICTIONS ON SHARES.


                                       9


               11.1 Right of First Refusal. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.

               11.2 Right of Repurchase. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after the Participant's Termination Date and the date
the Participant purchases Shares under the Plan at the Participant's Exercise
Price or Purchase Price, as the case may be, provided that, unless the
Participant is an officer, director or consultant of the Company or of a Parent
or Subsidiary of the Company, such right of repurchase lapses at the rate of no
less than twenty percent (20%) per year over five (5) years from: (a) the date
of grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.

        12. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.

        13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares set forth in Section 11 hereof, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated. The
Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note; provided,
however, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve.

        14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in



                                       10


cash, shares of Common Stock (including Restricted Stock) or other
consideration, based on such terms and conditions as the Committee and the
Participant may agree.

        15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is
intended to comply with Section 25102(o) of the California Corporations Code.
Any provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be effective
unless such Award is in compliance with all applicable federal and state
securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (i) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (ii) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.

        16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.

        17. CORPORATE TRANSACTIONS.


               17.1 Assumption or Replacement of Awards by Successor or
Acquiring Company. In the event of (i) a dissolution or liquidation of the
Company; (ii) a merger or consolidation in which the Company is not the
surviving corporation; (iii) a merger in which the Company is the surviving
corporation but after which the stockholders of the Company immediately prior to
such merger (other than any stockholder which merges with the Company in such
merger, or which owns or controls another corporation which merges with the
Company in such merger) cease to own their shares or other equity interests in
the Company; or (iv) the sale of all or substantially all of the assets of the
Company, any or all outstanding Awards may be assumed, converted or replaced by
the successor or acquiring corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor or acquiring corporation may substitute equivalent Awards or provide
substantially similar consideration to Participants as was provided to
stockholders of the Company (after taking into account the existing provisions
of the Awards). The successor or acquiring corporation may also substitute by
issuing, in place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject to



                                       11


repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Section 17.1. In the event such
successor or acquiring corporation (if any) refuses to assume, convert, replace
or substitute Awards, as provided above, pursuant to a transaction described in
this Section 17.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will expire on such transaction at such time and on such
conditions as the Committee will determine.

               17.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of reorganization, merger, consolidation, dissolution, liquidation or
sale of assets.

               17.3 Assumption of Awards by the Company. The Company, from time
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (i) granting an Award under this Plan in substitution of
such other company's award or (ii) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.

        18. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan
will be approved by the stockholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve (12)
months before or after the Effective Date. Upon the Effective Date, the Board
may grant Awards pursuant to this Plan; provided, however, that: (i) no Option
may be exercised prior to initial stockholder approval of this Plan; (ii) no
Option granted pursuant to an increase in the number of Shares approved by the
Board shall be exercised prior to the time such increase has been approved by
the stockholders of the Company; (iii) in the event that initial stockholder
approval is not obtained within the time period provided herein, all Awards
granted hereunder shall be canceled, any Shares issued pursuant to any Award
shall be canceled and any purchase of Shares issued hereunder shall be
rescinded; and (iv) Awards granted pursuant to an increase in the number of
Shares approved by the Board which increase is not timely approved by
stockholders shall be canceled, any Shares issued pursuant to any such Awards
shall be canceled, and any purchase of Shares subject to any such Award shall be
rescinded.

        19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of



                                       12


stockholder approval. This Plan and all agreements hereunder shall be governed
by and construed in accordance with the laws of the State of California.

        20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the stockholders of the Company, amend this Plan in any
manner that requires such stockholder approval pursuant to Section 25102(o) of
the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.

        21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.

        22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:


               "AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.

               "AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award, including the Stock Option Agreement and
Restricted Stock Agreement.

               "BOARD" means the Board of Directors of the Company.

               "CAUSE" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud;
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company; (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an




                                       13


employee, officer, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company
and the Participant; (iv) Participant's disregard of the policies of the Company
or any Parent or Subsidiary of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company; or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.

               "CHANGE OF CONTROL" means (i) any merger, consolidation or other
acquisition (or series of related transactions of such nature) pursuant to which
more than eighty percent (80%) of the voting power of all equity of the Company
would be transferred (excluding a reincorporation to effect a change in
domicile) or (ii) any transaction or agreement as a result of which any person
would acquire all or substantially all of the assets of the Company.

               "CODE" means the Internal Revenue Code of 1986, as amended.

               "COMMITTEE" means the committee created and appointed by the
Board to administer this Plan, or if no committee is created and appointed, the
Board.

               "COMMON STOCK" means the Company's common stock, $.00001 par
value per share.

               "COMPANY" means Afara WebSystems, Inc., or any successor
corporation.

               "DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.

               "EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.

               "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Common Stock determined as follows:

                      (a)    if such Common Stock is then quoted on the Nasdaq
                             National Market, its closing price on the Nasdaq
                             National Market on the date of determination as
                             reported in The Wall Street Journal;


                                       14


                      (b)    if such Common Stock is publicly traded and is then
                             listed on a national securities exchange, its
                             closing price on the date of determination on the
                             principal national securities exchange on which the
                             Common Stock is listed or admitted to trading as
                             reported in The Wall Street Journal;

                      (c)    if such Common Stock is publicly traded but is not
                             quoted on the Nasdaq National Market nor listed or
                             admitted to trading on a national securities
                             exchange, the average of the closing bid and asked
                             prices on the date of determination as reported by
                             The Wall Street Journal (or, if not so reported, as
                             otherwise reported by any newspaper or other source
                             as the Board may determine); or

                      (d)    if none of the foregoing is applicable, by the
                             Committee in good faith.

               "OPTION" means an award of an option to purchase Shares pursuant
to Section 5 hereof.

               "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock representing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

               "PARTICIPANT" means a person who receives an Award under this
Plan.

               "PLAN" means this Afara WebSystems, Inc. 2000 Equity Incentive
Plan, as amended from time to time.


               "PURCHASE PRICE" means the price at which a Participant may
purchase Restricted Stock.

               "RESTRICTED STOCK" means Shares purchased pursuant to a
Restricted Stock Award.


               "RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6 hereof.

               "SEC" means the Securities and Exchange Commission.

               "SECURITIES ACT" means the Securities Act of 1933, as amended.



                                       15


               "SHARES" means shares of the Common Stock reserved for issuance
under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any
successor security.

               "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
representing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

               "TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave; (ii) military
leave; or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company's Board and issued and promulgated in writing. In the case of any
Participant on (i) sick leave; (ii) military leave; or (iii) an approved leave
of absence, the Committee may make such provisions respecting suspension of
vesting of the Award while on leave from the Company or a Parent or Subsidiary
of the Company as it may deem appropriate, except that in no event may an Option
be exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").

               "UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.


               "VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.



                                       16

EX-5.1

                                                                     EXHIBIT 5.1

                                 August 12, 2002

Sun Microsystems, Inc.
4150 Network Circle
Santa Clara, CA 95054

        RE:  REGISTRATION STATEMENT ON FORM S-8

Ladies and Gentlemen:

        We have acted as counsel to Sun Microsystems, Inc., a Delaware
corporation (the "COMPANY") and have examined the Registration Statement on Form
S-8 (the "REGISTRATION STATEMENT") to be filed by the Company with the
Securities and Exchange Commission on or about August 12, 2002 in connection
with the registration under the Securities Act of 1933, as amended (the "1933
Act") of 209,648 shares of the Company's Common Stock, par value $0.00067 per
share (the "SHARES"), reserved for issuance under the Afara WebSystems, Inc.
2000 Equity Incentive Plan (the "PLAN").

        As your legal counsel, we have examined the Restated Certificate of
Incorporation and Bylaws of the Company, the Plan and such other documents of
the Company as we have deemed necessary or appropriate for the purposes of the
opinion expressed herein, and are familiar with the proceedings proposed to be
taken by the Company in connection with the operation and administration of the
Plan and the sale and issuance of the Shares pursuant to the Plan.

        It is our opinion that the Shares, when issued and sold in the manner
referred to in the Plan and pursuant to the agreements which accompany the Plan,
will be legally and validly issued, fully paid and nonassessable.

        We consent to the use of this opinion as an Exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement and any subsequent amendment thereto.

                                          Very truly yours,

                                          WILSON SONSINI GOODRICH & ROSATI
                                          Professional Corporation

                                          /s/ Wilson Sonsini Goodrich & Rosati

EX-23.2

                                                                    EXHIBIT 23.2


               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

        We consent to the incorporation by reference in the Registration
Statement (Form S-8) of Sun Microsystems, Inc. pertaining to the Afara
WebSystems, Inc. 2000 Equity Incentive Plan of our report dated July 18, 2001
with respect to the consolidated financial statements and schedule of Sun
Microsystems, Inc. included in its Annual Report (Form 10-K) for the year ended
June 30, 2001 filed with the Securities and Exchange Commission.

                                        /s/ Ernst & Young LLP

San Jose, California
August 12, 2002

EX-99.1

                                                                 EXHIBIT 99(i).1


       SELECTED FINANCIAL DATA ADDITIONAL DISCLOSURE FOR FASB NO. 142, "GOODWILL
       AND OTHER INTANGIBLE ASSETS."


        The following selected financial data should be read in conjunction with
our consolidated financial statements and the notes thereto included in our
Annual Report (Form 10-K) for the year ended June 30, 2001, which is
incorporated by reference in this Registration Statement on Form S-8.

As of July 1, 2001, Sun early-adopted SFAS 142, "Goodwill and Other Intangible
Assets," which addresses the financial accounting and reporting standards for
goodwill and other intangible assets subsequent to their acquisition. This
accounting standard requires that goodwill no longer be amortized, and instead,
be tested for impairment on a periodic basis. We completed both our transitional
and annual goodwill impairment tests as of July 1, 2001 and April 1, 2002
respectively and found no impairment.

A reconciliation of previously reported net income and earnings per share, to
the amounts adjusted for the exclusion of goodwill and workforce amortization,
net of the related income tax effect, follows (in millions, except per share
amounts):



                                                  FISCAL YEAR ENDED JUNE 30,
                                              ----------------------------------
                                               2001           2000         1999
                                              ------        ------        ------
                                                                 
Reported net income ...................      $   927        $1,854        $1,030
  Add:  Goodwill amortization .........          285            72            23
        Workforce amortization ........            8             5             3
        Tax impact ....................           (3)           (3)           (1)
                                              ------        ------        ------
 Adjusted net income ..................        1,217         1,928         1,055
                                              ------        ------        ------
Basic earnings per share:
  Reported earnings per share - basic .         0.28          0.59          0.33
  Add:  Goodwill amortization .........         0.09          0.02          0.01
        Workforce amortization ........           --            --            --
        Tax impact ....................           --            --            --
                                              ------        ------        ------
  Adjusted earnings per share - basic .         0.37          0.61          0.34
                                              ------        ------        ------
Diluted earnings per share:
  Reported earnings per share - diluted         0.27          0.55          0.31
  Add:  Goodwill amortization .........         0.08          0.02          0.01
        Workforce amortization ........           --            --            --
        Tax impact ....................           --            --            --
                                              ------        ------        ------
  Adjusted earnings per share - diluted         0.35          0.57          0.32
                                              ======        ======        ======