EXHIBIT 10.3

 

CISCO SYSTEMS, INC.

 

2005 STOCK INCENTIVE PLAN

 

EFFECTIVE AS OF NOVEMBER 15, 2005

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TABLE OF CONTENTS

 

             Page

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SECTION 1.

      INTRODUCTION    1

SECTION 2.

      DEFINITIONS    1     (a)  

“Affiliate”

   1     (b)  

“Award”

   1     (c)  

“Board”

   1     (d)  

“Cashless Exercise”

   1     (e)  

“Cause”

   1     (f)  

“Change In Control”

   2     (g)  

“Code”

   2     (h)  

“Committee”

   2     (i)  

“Common Stock”

   2     (j)  

“Company”

   2     (k)  

“Consultant”

   2     (l)  

“Corporate Transaction”

   2     (m)  

“Covered Employees”

   3     (n)  

“Director”

   3     (o)  

“Disability”

   3     (p)  

“Employee”

   3     (q)  

“Exchange Act”

   3     (r)  

“Exercise Price”

   3     (s)  

“Fair Market Value”

   3     (t)  

“Fiscal Year”

   4     (u)  

“Grant”

   4     (v)  

“Incentive Stock Option” or “ISO”

   4     (w)  

“Key Employee”

   4     (x)  

“Non-Employee Director”

   4     (y)  

“Nonstatutory Stock Option” or “NSO”

   4     (z)  

“Option”

   4     (aa)  

“Optionee”

   4     (bb)  

“Parent”

   4

 

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    (cc)   

“Participant”

   4     (dd)   

“Performance Goals”

   4     (ee)   

“Performance Period”

   5     (ff)   

“Plan”

   5     (gg)   

“Re-Price”

   5     (hh)   

“SAR Agreement”

   5     (ii)   

“SEC”

   5     (jj)   

“Section 16 Persons”

   5     (kk)   

“Securities Act”

   5     (ll)   

“Service”

   5     (mm)   

“Share”

   6     (nn)   

“Stock Appreciation Right” or “SAR”

   6     (oo)   

“Stock Grant”

   6     (pp)   

“Stock Grant Agreement”

   6     (qq)   

“Stock Option Agreement”

   6     (rr)   

“Stock Unit”

   6     (ss)   

“Stock Unit Agreement”

   6     (tt)   

“Subsidiary”

   6     (uu)   

“10-Percent Shareholder”

   6 SECTION 3.        ADMINISTRATION    6     (a)   

Committee Composition

   6     (b)   

Authority of the Committee

   7     (c)   

Indemnification

   7 SECTION 4.        GENERAL    8     (a)   

General Eligibility

   8     (b)   

Incentive Stock Options

   8     (c)   

Restrictions on Shares

   8     (d)   

Beneficiaries

   8     (e)   

Performance Conditions

   8     (f)   

No Rights as a Shareholder

   9     (g)   

Termination of Service

   9

 

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    (h)   

Director Fees

   9

SECTION 5.

       SHARES SUBJECT TO PLAN AND SHARE LIMITS    10     (a)   

Basic Limitation

   10     (b)   

Additional Shares

   10     (c)   

Dividend Equivalents

   10     (d)   

Share Limits

   10

SECTION 6.

       TERMS AND CONDITIONS OF OPTIONS    10     (a)   

Stock Option Agreement

   10     (b)   

Number of Shares

   11     (c)   

Exercise Price

   11     (d)   

Exercisability and Term

   11     (e)   

Modifications or Assumption of Options

   11     (f)   

Assignment or Transfer of Options

   11

SECTION 7.

       PAYMENT FOR OPTION SHARES    12

SECTION 8.

       TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS    12     (a)   

SAR Agreement

   12     (b)   

Number of Shares

   12     (c)   

Exercise Price

   13     (d)   

Exercisability and Term

   13     (e)   

Exercise of SARs

   13     (f)   

Modification or Assumption of SARs

   13     (g)   

Assignment or Transfer of SARs

   13

SECTION 9.

       TERMS AND CONDITIONS FOR STOCK GRANTS    14     (a)   

Amount and Form of Awards

   14     (b)   

Stock Grant Agreement

   14     (c)   

Payment for Stock Grants

   14     (d)   

Vesting Conditions

   14     (e)   

Assignment or Transfer of Stock Grants

   14     (f)   

Voting and Dividend Rights

   15     (g)   

Modification or Assumption of Stock Grants

   15

 

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SECTION 10.

       TERMS AND CONDITIONS OF STOCK UNITS    15     (a)   

Stock Unit Agreement

   15     (b)   

Number of Shares

   15     (c)   

Payment for Stock Units

   15     (d)   

Vesting Conditions

   15     (e)   

Voting and Dividend Rights

   16     (f)   

Form and Time of Settlement of Stock Units

   16     (g)   

Creditors’ Rights

   16     (h)   

Modification or Assumption of Stock Units

   16     (i)   

Assignment or Transfer of Stock Units

   16

SECTION 11.

       PROTECTION AGAINST DILUTION    17     (a)   

Adjustments

   17     (b)   

Participant Rights

   17     (c)   

Fractional Shares

   17

SECTION 12.

       EFFECT OF A CORPORATE TRANSACTION    17     (a)   

Corporate Transaction

   17     (b)   

Acceleration

   18     (c)   

Dissolution

   18

SECTION 13.

       LIMITATIONS ON RIGHTS    18     (a)   

No Entitlements

   18     (b)   

Shareholders’ Rights

   19     (c)   

Regulatory Requirements

   19

SECTION 14.

       WITHHOLDING TAXES    19     (a)   

General

   19     (b)   

Share Withholding

   19

SECTION 15.

       DURATION AND AMENDMENTS    19     (a)   

Term of the Plan

   19     (b)   

Right to Amend or Terminate the Plan

   20

SECTION 16.

       EXECUTION    20

 

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CISCO SYSTEMS, INC.

 

2005 STOCK INCENTIVE PLAN

EFFECTIVE AS OF NOVEMBER 15, 2005

 

SECTION 1. INTRODUCTION.

 

The Company’s Board of Directors adopts the Cisco Systems, Inc. 2005 Stock
Incentive Plan on July 14, 2005; provided that, the Plan shall become effective
upon its approval by Company shareholders. If the Company’s shareholders do not
approve this Plan, no Awards will be made under this Plan.

 

The purpose of the Plan is to promote the long-term success of the Company and
the creation of shareholder value by offering Key Employees an opportunity to
share in such long-term success by acquiring a proprietary interest in the
Company.

 

The Plan seeks to achieve this purpose by providing for discretionary long-term
incentive Awards in the form of Options (which may constitute Incentive Stock
Options or Nonstatutory Stock Options), Stock Appreciation Rights, Stock Grants
and Stock Units.

 

The Plan shall be governed by, and construed in accordance with, the laws of the
State of California (except its choice-of-law provisions). Capitalized terms
shall have the meaning provided in Section 2 unless otherwise provided in this
Plan or any related Stock Option Agreement, SAR Agreement, Stock Grant Agreement
or Stock Unit Agreement.

 

SECTION 2. DEFINITIONS.

 

(a) “Affiliate” means any entity other than a Subsidiary, if the Company and/or
one or more Subsidiaries own not less than 50% of such entity.

 

(b) “Award” means any award of an Option, SAR, Stock Grant or Stock Unit under
the Plan.

 

(c) “Board” means the Board of Directors of the Company, as constituted from
time to time.

 

(d) “Cashless Exercise” means, to the extent that a Stock Option Agreement so
provides and as permitted by applicable law, a program approved by the Committee
in which payment may be made all or in part by delivery (on a form prescribed by
the Committee) of an irrevocable direction to a securities broker to sell Shares
and to deliver all or part of the sale proceeds to the Company in payment of the
aggregate Exercise Price and, if applicable, the amount necessary to satisfy the
Company’s withholding obligations at the minimum statutory withholding rates,
including, but not limited to, U.S. federal and state income taxes, payroll
taxes, and foreign taxes, if applicable.

 

(e) “Cause” means, except as may otherwise be provided in a Participant’s
employment agreement or Award agreement, a conviction of a Participant for a
felony crime or the

 

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failure of a Participant to contest prosecution for a felony crime, or a
Participant’s misconduct, fraud or dishonesty (as such terms are defined by the
Committee in its sole discretion), or any unauthorized use or disclosure of
confidential information or trade secrets, in each case as determined by the
Committee, and the Committee’s determination shall be conclusive and binding.

 

(f) “Change In Control” except as may otherwise be provided in a Participant’s
employment agreement or Award agreement, means the occurrence of any of the
following:

 

(i) A change in the composition of the Board over a period of thirty-six
consecutive months or less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board membership, to be comprised
of individuals who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board approved
such election or nomination; or

 

(ii) The acquisition, directly or indirectly, by any person or related group of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of securities of the Company representing more than 35% of the total combined
voting power of the Company’s then outstanding securities pursuant to a tender
or exchange offer made directly to the Company’s shareholders which the Board
does not recommend such shareholders accept.

 

(g) “Code” means the Internal Revenue Code of 1986, as amended, and the
regulations and interpretations promulgated thereunder.

 

(h) “Committee” means a committee described in Section 3.

 

(i) “Common Stock” means the Company’s common stock.

 

(j) “Company” means Cisco Systems, Inc., a California corporation.

 

(k) “Consultant” means an individual who performs bona fide services to the
Company, a Parent, a Subsidiary or an Affiliate, other than as an Employee or
Director or Non-Employee Director.

 

(l) “Corporate Transaction” except as may otherwise be provided in a
Participant’s employment agreement or Award agreement, means the occurrence of
any of the following shareholder approved transactions:

 

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(i) The consummation of a merger or consolidation of the Company with or into
another entity or any other corporate reorganization, if more than 50% of the
combined voting power of the continuing or surviving entity’s securities
outstanding immediately after such merger, consolidation or other reorganization
is owned by persons who were not shareholders of the Company immediately prior
to such merger, consolidation or other reorganization; or

 

(ii) The sale, transfer or other disposition of all or substantially all of the
Company’s assets.

 

A transaction shall not constitute a Corporate Transaction if its sole purpose
is to change the state of the Company’s incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Company’s securities immediately before such transactions.

 

(m) “Covered Employees” means those persons who are subject to the limitations
of Code Section 162(m).

 

(n) “Director” means a member of the Board who is also an Employee.

 

(o) “Disability” means that the Key Employee is classified as disabled under a
long-term disability policy of the Company or, if no such policy applies, the
Key Employee is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.

 

(p) “Employee” means any individual who is a common-law employee of the Company,
a Parent, a Subsidiary or an Affiliate.

 

(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(r) “Exercise Price” means, in the case of an Option, the amount for which a
Share may be purchased upon exercise of such Option, as specified in the
applicable Stock Option Agreement. “Exercise Price,” in the case of a SAR, means
an amount, as specified in the applicable SAR Agreement, which is subtracted
from the Fair Market Value in determining the amount payable upon exercise of
such SAR.

 

(s) “Fair Market Value” means the market price of a Share as determined in good
faith by the Committee. The Fair Market Value shall be determined by the
following:

 

(i) If the Shares were traded over-the-counter or listed with NASDAQ on the date
in question, then the Fair Market Value shall be equal to the last transaction
price quoted by the NASDAQ system for the date in question or (ii) if the Common
Stock is listed on the New York Stock Exchange or the American Stock Exchange on
the date in question, the Fair Market

 

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Value is the closing selling price for the Common Stock as such price is
officially quoted in the composite tape of transactions on the exchange
determined by the Committee to be the primary market for the Common Stock for
the date in question; provided, however, that if there is no such reported price
for the Common Stock for the date in question under (i) or (ii), then such price
on the last preceding date for which such price exists shall be determinative of
Fair Market Value.

 

If neither (i) or (ii) are applicable, then the Fair Market Value shall be
determined by the Committee in good faith on such basis as it deems appropriate.

 

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.

 

(t) “Fiscal Year” means the Company’s fiscal year.

 

(u) “Grant” means any grant of an Award under the Plan.

 

(v) “Incentive Stock Option” or “ISO” means an incentive stock option described
in Code Section 422.

 

(w) “Key Employee” means an Employee, Director, Non-Employee Director or
Consultant who has been selected by the Committee to receive an Award under the
Plan.

 

(x) “Non-Employee Director” means a member of the Board who is not an Employee.

 

(y) “Nonstatutory Stock Option” or “NSO” means a stock option that is not an
ISO.

 

(z) “Option” means an ISO or NSO granted under the Plan entitling the Optionee
to purchase Shares.

 

(aa) “Optionee” means an individual, estate or other entity that holds an
Option.

 

(bb) “Parent” means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.

 

(cc) “Participant” means an individual or estate or other entity that holds an
Award.

 

(dd) “Performance Goals” means one or more objective measurable performance
factors as determined by the Committee with respect to each Performance Period
based upon one or more factors, including, but not limited to: (i) operating
income; (ii) earnings before interest, taxes, depreciation and amortization
(“EBITDA”); (iii) earnings; (iv) cash

 

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flow; (v) market share; (vi) sales or revenue; (vii) expenses; (viii) cost of
goods sold; (ix) profit/loss or profit margin; (x) working capital; (xi) return
on equity or assets; (xii) earnings per share; (xiii) economic value added
(“EVA”); (xiv) stock price; (xv) price/earnings ratio; (xvi) debt or
debt-to-equity; (xvii) accounts receivable; (xviii) writeoffs; (xix) cash; (xx)
assets; (xxi) liquidity; (xxii) operations; (xxiii) intellectual property (e.g.,
patents); (xxiv) product development; (xxv) regulatory activity; (xxvi)
manufacturing, production or inventory; (xxvii) mergers and acquisitions or
divestitures; and/or (xxviii) financings, each with respect to the Company
and/or one or more of its affiliates or operating units. Awards issued to
persons who are not Covered Employees may take into account other factors.

 

(ee) “Performance Period” means any period not exceeding 36 months as determined
by the Committee, in its sole discretion. The Committee may establish different
Performance Periods for different Participants, and the Committee may establish
concurrent or overlapping Performance Periods.

 

(ff) “Plan” means this Cisco Systems, Inc. 2005 Stock Incentive Plan as it may
be amended from time to time.

 

(gg) “Re-Price” means that the Company has lowered or reduced the Exercise Price
of outstanding Options and/or outstanding SARs for any Participant(s) in a
manner described by Item 402(i)(1) of SEC Regulation S-K (or its successor
provision).

 

(hh) “SAR Agreement” means the agreement described in Section 8 evidencing each
Award of a Stock Appreciation Right.

 

(ii) “SEC” means the Securities and Exchange Commission.

 

(jj) “Section 16 Persons” means those officers, directors or other persons who
are subject to Section 16 of the Exchange Act.

 

(kk) “Securities Act” means the Securities Act of 1933, as amended.

 

(ll) “Service” means service as an Employee, Director, Non-Employee Director or
Consultant. A Participant’s Service does not terminate when continued service
crediting is required by applicable law. However, for purposes of determining
whether an Option is entitled to continuing ISO status, a common-law employee’s
Service will be treated as terminating ninety (90) days after such Employee went
on leave, unless such Employee’s right to return to active work is guaranteed by
law or by a contract. Service terminates in any event when the approved leave
ends, unless such Employee immediately returns to active work. The Committee
determines which leaves count toward Service, and when Service terminates for
all purposes under the Plan. Further, unless otherwise determined by the
Committee, a Participant’s Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant provides service to
the Company, a Parent, Subsidiary or Affiliate, or a transfer between entities
(the Company

 

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or any Parent, Subsidiary, or Affiliate); provided that there is no interruption
or other termination of Service.

 

(mm) “Share” means one share of Common Stock.

 

(nn) “Stock Appreciation Right” or “SAR” means a stock appreciation right
awarded under the Plan.

 

(oo) “Stock Grant” means Shares awarded under the Plan.

 

(pp) “Stock Grant Agreement” means the agreement described in Section 9
evidencing each Award of a Stock Grant.

 

(qq) “Stock Option Agreement” means the agreement described in Section 6
evidencing each Award of an Option.

 

(rr) “Stock Unit” means a bookkeeping entry representing the equivalent of one
Share, as awarded under the Plan.

 

(ss) “Stock Unit Agreement” means the agreement described in Section 10
evidencing each Award of a Stock Unit.

 

(tt) “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 possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.

 

(uu) “10-Percent Shareholder” means an individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries. In determining stock ownership, the
attribution rules of Section 424(d) of the Code shall be applied.

 

SECTION 3. ADMINISTRATION.

 

(a) Committee Composition. The Board or a Committee appointed by the Board shall
administer the Plan. Unless the Board provides otherwise, the Company’s
Compensation & Management Development Committee shall be the Committee. Members
of the Committee shall serve for such period of time as the Board may determine
and shall be subject to removal by the Board at any time. The Board may also at
any time terminate the functions of the Committee and reassume all powers and
authority previously delegated to the Committee.

 

The Committee shall have membership composition which enables (i) Awards to
Section 16 Persons to qualify as exempt from liability under Section 16(b) of
the Exchange Act

 

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and (ii) Awards to Covered Employees to qualify as performance-based
compensation as provided under Code Section 162(m).

 

The Board may also appoint one or more separate committees of the Board, each
composed of two or more directors of the Company who need not qualify under Rule
16b-3 or Code Section 162(m), that may administer the Plan with respect to Key
Employees who are not Section 16 Persons or Covered Employees, respectively, may
grant Awards under the Plan to such Key Employees and may determine all terms of
such Awards.

 

Notwithstanding the foregoing, the Board shall constitute the Committee and
shall administer the Plan with respect to Non-Employee Directors, shall grant
Awards under the Plan to such Non-Employee Directors, and shall determine all
terms of such Awards.

 

(b) Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have full authority and sole discretion to take any actions it
deems necessary or advisable for the administration of the Plan. Such actions
shall include:

 

  (i) selecting Key Employees who are to receive Awards under the Plan;

 

  (ii) determining the type, number, vesting requirements and other features and
conditions of such Awards and amending such Awards;

 

  (iii) correcting any defect, supplying any omission, or reconciling any
inconsistency in the Plan or any Award agreement;

 

  (iv) accelerating the vesting, or extending the post-termination exercise
term, of Awards at any time and under such terms and conditions as it deems
appropriate;

 

  (v) interpreting the Plan;

 

  (vi) making all other decisions relating to the operation of the Plan; and

 

  (vii) adopting such plans or subplans as may be deemed necessary or
appropriate to provide for the participation by Key Employees of the Company and
its Subsidiaries and Affiliates who reside outside the U.S., which plans and/or
subplans shall be attached hereto as Appendices.

 

The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee’s determinations under the Plan shall be final
and binding on all persons.

 

(c) Indemnification. To the maximum extent permitted by applicable law, each
member of the Committee, or of the Board, shall be indemnified and held harmless
by the Company against and from (i) any loss, cost, liability, or expense that
may be imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Stock Option Agreement, SAR Agreement,
Stock Grant Agreement or Stock Unit Agreement, and (ii) from any and all amounts
paid by him or her in settlement thereof, with the Company’s approval, or paid
by him or her in satisfaction of any judgment in

 

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any such claim, action, suit, or proceeding against him or her, provided he or
she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company’s Articles of Incorporation or Bylaws, by contract, as a matter of
law, or otherwise, or under any power that the Company may have to indemnify
them or hold them harmless.

 

SECTION 4. GENERAL.

 

(a) General Eligibility. Only Employees, Directors, Non-Employee Directors and
Consultants shall be eligible for designation as Key Employees by the Committee,
in its sole discretion.

 

(b) Incentive Stock Options. Only Key Employees who are common-law employees of
the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs.
In addition, a Key Employee who is a 10-Percent Shareholder shall not be
eligible for the grant of an ISO unless the requirements set forth in Section
422(c)(5) of the Code are satisfied.

 

(c) Restrictions on Shares. Any Shares issued pursuant to an Award shall be
subject to such rights of repurchase, rights of first refusal and other transfer
restrictions as the Committee may determine, in its sole discretion. Such
restrictions shall apply in addition to any restrictions that may apply to
holders of Shares generally and shall also comply to the extent necessary with
applicable law. In no event shall the Company be required to issue fractional
Shares under this Plan.

 

(d) Beneficiaries. Unless stated otherwise in an Award agreement, a Participant
may designate one or more beneficiaries with respect to an Award by timely
filing the prescribed form with the Company. A beneficiary designation may be
changed by filing the prescribed form with the Company at any time before the
Participant’s death. If no beneficiary was designated or if no designated
beneficiary survives the Participant, then after a Participant’s death any
vested Award(s) shall be transferred or distributed to the Participant’s estate.

 

(e) Performance Conditions. The Committee may, in its discretion, include
performance conditions in an Award. If performance conditions are included in
Awards to Covered Employees, then such Awards may be subject to the achievement
of Performance Goals established by the Committee. Such Performance Goals shall
be established and administered pursuant to the requirements of Code Section
162(m). Before any Shares underlying an Award or any Award payments subject to
Performance Goals are released to a Covered Employee with respect to a
Performance Period, the Committee shall certify in writing that the Performance
Goals for such Performance Period have been satisfied. Awards with performance
conditions that are granted to Key Employees who are not Covered Employees need
not comply with the requirements of Code Section 162(m).

 

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(f) No Rights as a Shareholder. A Participant, or a transferee of a Participant,
shall have no rights as a shareholder with respect to any Common Stock covered
by an Award until such person has satisfied all of the terms and conditions to
receive such Common Stock, has satisfied any applicable withholding or tax
obligations relating to the Award and the Shares have been issued (as evidenced
by an appropriate entry on the books of the Company or a duly authorized
transfer agent of the Company).

 

(g) Termination of Service. Unless the applicable Award agreement or, with
respect to Participants who reside in the U.S., the applicable employment
agreement provides otherwise, the following rules shall govern the vesting,
exercisability and term of outstanding Awards held by a Participant in the event
of termination of such Participant’s Service (in all cases subject to the term
of the Option or SAR as applicable): (i) upon termination of Service for any
reason, all unvested portions of any outstanding Awards shall be immediately
forfeited without consideration and the vested portions of any outstanding Stock
Units shall be settled upon termination; (ii) if the Service of a Participant is
terminated for Cause, then all unexercised Options and SARs, unvested portions
of Stock Units and unvested portions of Stock Grants shall terminate and be
forfeited immediately without consideration; (iii) if the Service of Participant
is terminated for any reason other than for Cause, death, or Disability, then
the vested portion of his/her then-outstanding Options/SARs may be exercised by
such Participant or his or her personal representative within three months after
the date of such termination; or (iv) if the Service of a Participant is
terminated due to death or Disability, the vested portion of his/her
then-outstanding Options/SARs may be exercised within eighteen months after the
date of termination of Service.

 

(h) Director Fees. Each Non-Employee Director may elect to receive a Stock Grant
under the Plan in lieu of payment of a portion of his or her regular annual
retainer based on the Fair Market Value of the Shares on the date any regular
annual retainer would otherwise be paid. For purposes of the Plan, a
Non-Employee Director’s regular annual retainer shall not include any additional
retainer paid in connection with service on any committee of the Board or paid
for any other reason. Such an election may be for any dollar or percentage
amount equal to at least 25% of the Non-Employee Director’s regular annual
retainer (up to a limit of 100% of the Non-Employee Director’s regular annual
retainer). The election must be made prior to the beginning of the annual board
of directors cycle which shall be any twelve month continuous period designated
by the Board. Any amount of the regular annual retainer not elected to be
received as a Stock Grant shall be payable in cash in accordance with the
Company’s standard payment procedures. Shares granted under this Section 4(h)
shall otherwise be subject to the terms of the Plan applicable to Non-Employee
Directors or to Participants generally (other than provisions specifically
applying only to Employees).

 

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SECTION 5. SHARES SUBJECT TO PLAN AND SHARE LIMITS.

 

(a) Basic Limitation. The stock issuable under the Plan shall be authorized but
unissued Shares. The aggregate number of Shares reserved for Awards under the
Plan shall not exceed 350,000,000 Shares, subject to adjustment pursuant to
Section 11.

 

(b) Additional Shares. If Awards are forfeited or are terminated for any other
reason before being exercised, then the Shares underlying such Awards shall
again become available for Awards under the Plan. SARs shall be counted in full
against the number of Shares available for issuance under the Plan, regardless
of the number of Shares issued upon settlement of the SARs.

 

(c) Dividend Equivalents. Any dividend equivalents distributed under the Plan
shall not be applied against the number of Shares available for Awards.

 

(d) Share Limits.

 

(i) Limits on Options. Subject to adjustment pursuant to Section 11, no Key
Employee shall receive Options to purchase Shares during any Fiscal Year
covering in excess of 5,000,000 Shares and the aggregate maximum number of
Shares that may be issued in connection with ISOs shall be 350,000,000 Shares.

 

(ii) Limits on SARs. Subject to adjustment pursuant to Section 11, no Key
Employee shall receive Awards of SARs during any Fiscal Year covering in excess
of 5,000,000 Shares and the aggregate maximum number of Shares that may be
issued in connection with SARs shall be 350,000,000 Shares.

 

(iii) Limits on Stock Grants and Stock Units. Subject to adjustment pursuant to
Section 11, no Key Employee shall receive Stock Grants or Stock Units during any
Fiscal Year covering, in the aggregate, in excess of 5,000,000 Shares and the
aggregate maximum number of Shares that may be issued as Stock Grants or Stock
Units shall in the aggregate be 35,000,000 Shares.

 

(iv) Limits on Awards to Non-Employee Directors. Subject to adjustment pursuant
to Section 11, no Non-Employee Director shall receive Awards during any Fiscal
Year covering, in the aggregate, in excess of 50,000 Shares; provided that any
Shares received pursuant to an election under Section 4(h) shall not count
against such limit.

 

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

 

(a) Stock Option Agreement. Each Grant of an Option under the Plan shall be
evidenced and governed exclusively by a Stock Option Agreement between the
Optionee and the Company. Such Option shall be subject to all applicable terms
and conditions of the Plan and may be subject to any other terms and conditions
that are not inconsistent with the

 

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Plan and that the Committee deems appropriate for inclusion in a Stock Option
Agreement (including without limitation any performance conditions). The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. The Stock Option Agreement shall also specify whether the
Option is an ISO or an NSO.

 

(b) Number of Shares. Each Stock Option Agreement shall specify the number of
Shares that are subject to the Option and shall be subject to adjustment of such
number in accordance with Section 11.

 

(c) Exercise Price. An Option’s Exercise Price shall be established by the
Committee and set forth in a Stock Option Agreement. The Exercise Price of an
Option shall not be less than 100% of the Fair Market Value (110% for ISO grants
to 10-Percent Shareholders) on the date of Grant.

 

(d) Exercisability and Term. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. The Stock
Option Agreement shall also specify the term of the Option; provided that the
term of an Option shall in no event exceed nine years from the date of Grant.
Unless the applicable Stock Option Agreement provides otherwise, each Option
shall vest and become exercisable with respect to 20% of the Shares subject to
the Option upon completion of one year of Service measured from the vesting
commencement date, the balance of the Shares subject to the Option shall vest
and become exercisable in forty-eight equal installments upon completion of each
month of Service thereafter, and the term of the Option shall be nine years from
the date of Grant. A Stock Option Agreement may provide for accelerated vesting
in the event of the Participant’s death, Disability, or other events.
Notwithstanding any other provision of the Plan, no Option can be exercised
after the expiration date provided in the applicable Stock Option Agreement and
no Option may provide that, upon exercise of the Option, a new Option will
automatically be granted.

 

(e) Modifications or Assumption of Options. Within the limitations of the Plan,
the Committee may modify, extend or assume outstanding options or may accept the
cancellation of outstanding options (whether granted by the Company or by
another issuer) in return for the grant of new Options for the same or a
different number of Shares, at the same or a different Exercise Price, and with
the same or different vesting provisions. Notwithstanding the preceding sentence
or anything to the contrary herein, the Committee may not Re-Price outstanding
Options unless there is approval by the Company shareholders and no modification
of an Option shall, without the consent of the Optionee, impair his or her
rights or obligations under such Option.

 

(f) Assignment or Transfer of Options. Except as otherwise provided in the
applicable Stock Option Agreement and then only to the extent permitted by
applicable law, no Option shall be transferable by the Optionee other than by
will or by the laws of descent and distribution. Except as otherwise provided in
the applicable Stock Option Agreement, an Option may be exercised during the
lifetime of the Optionee only by the Optionee or by the guardian or legal
representative of the Optionee. No Option or interest therein may be assigned,
pledged or hypothecated by the Optionee during his or

 

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her lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.

 

SECTION 7. PAYMENT FOR OPTION SHARES.

 

The entire Exercise Price of Shares issued upon exercise of Options shall be
payable in cash at the time when such Shares are purchased, except as follows
and if so provided for in an applicable Stock Option Agreement:

 

(i) Surrender of Stock. Payment for all or any part of the Exercise Price may be
made with Shares which have already been owned by the Optionee; provided that
the Committee may, in its sole discretion, require that Shares tendered for
payment be previously held by the Optionee for a minimum duration. Such Shares
shall be valued at their Fair Market Value.

 

(ii) Cashless Exercise. Payment for all or any part of the Exercise Price may be
made through Cashless Exercise.

 

(iii) Other Forms of Payment. Payment for all or any part of the Exercise Price
may be made in any other form that is consistent with applicable laws,
regulations and rules and approved by the Committee.

 

In the case of an ISO granted under the Plan, payment shall be made only
pursuant to the express provisions of the applicable Stock Option Agreement. The
Stock Option Agreement may specify that payment may be made in any form(s)
described in this Section 7. In the case of an NSO granted under the Plan, the
Committee may, in its discretion at any time, accept payment in any form(s)
described in this Section 7.

 

SECTION 8. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.

 

(a) SAR Agreement. Each Grant of a SAR under the Plan shall be evidenced and
governed exclusively by a SAR Agreement between the Participant and the Company.
Such SAR shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions that are not inconsistent with
the Plan and that the Committee deems appropriate for inclusion in a SAR
Agreement (including without limitation any performance conditions). A SAR
Agreement may provide for a maximum limit on the amount of any payout
notwithstanding the Fair Market Value on the date of exercise of the SAR. The
provisions of the various SAR Agreements entered into under the Plan need not be
identical. SARs may be granted in consideration of a reduction in the
Participant’s compensation.

 

(b) Number of Shares. Each SAR Agreement shall specify the number of Shares to
which the SAR pertains and shall be subject to adjustment of such number in
accordance with Section 11.

 

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(c) Exercise Price. Each SAR Agreement shall specify the Exercise Price which
shall be established by the Committee. The Exercise Price of a SAR shall not be
less than 100% of the Fair Market Value on the date of Grant.

 

(d) Exercisability and Term. Each SAR Agreement shall specify the date when all
or any installment of the SAR is to become exercisable. The SAR Agreement shall
also specify the term of the SAR which shall not exceed nine years from the date
of Grant. Unless the applicable SAR Agreement provides otherwise, each SAR shall
vest and become exercisable with respect to 20% of the Shares subject to the SAR
upon completion of one year of Service measured from the vesting commencement
date, the balance of the Shares subject to the SAR shall vest and become
exercisable in forty-eight equal installments upon completion of each month of
Service thereafter, and the term of the SAR shall be nine years from the date of
Grant. A SAR Agreement may provide for accelerated vesting in the event of the
Participant’s death, Disability, or other events. SARs may be awarded in
combination with Options or Stock Grants, and such an Award shall provide that
the SARs will not be exercisable unless the related Options or Stock Grants are
forfeited. A SAR may be included in an ISO only at the time of Grant but may be
included in an NSO at the time of Grant or at any subsequent time, but not later
than six months before the expiration of such NSO. No SAR may provide that, upon
exercise of the SAR, a new SAR will automatically be granted.

 

(e) Exercise of SARs. If, on the date when a SAR expires, the Exercise Price
under such SAR is less than the Fair Market Value on such date but any portion
of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of a SAR, the Participant (or any person having the right
to exercise the SAR) shall receive from the Company (i) Shares, (ii) cash or
(iii) any combination of Shares and cash, as the Committee shall determine at
the time of Grant of the SAR, in its sole discretion. The amount of cash and/or
the Fair Market Value of Shares received upon exercise of SARs shall, in the
aggregate, be equal to the amount by which the Fair Market Value (on the date of
exercise) of the Shares subject to the SARs exceeds the Exercise Price of the
Shares.

 

(f) Modification or Assumption of SARs. Within the limitations of the Plan, the
Committee may modify, extend or assume outstanding stock appreciation rights or
may accept the cancellation of outstanding stock appreciation rights (including
stock appreciation rights granted by another issuer) in return for the grant of
new SARs for the same or a different number of Shares, at the same or a
different Exercise Price, and with the same or different vesting provisions.
Notwithstanding the preceding sentence or anything to the contrary herein,
unless there is approval by the Company shareholders, the Committee may not
Re-Price outstanding SARs and no modification of a SAR shall, without the
consent of the Participant, impair his or her rights or obligations under such
SAR.

 

(g) Assignment or Transfer of SARs. Except as otherwise provided in the
applicable SAR Agreement and then only to the extent permitted by applicable
law, no SAR shall be

 

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transferable by the Participant other than by will or by the laws of descent and
distribution. Except as otherwise provided in the applicable SAR Agreement, a
SAR may be exercised during the lifetime of the Participant only by the
Participant or by the guardian or legal representative of the Participant. No
SAR or interest therein may be assigned, pledged or hypothecated by the
Participant during his or her lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.

 

SECTION 9. TERMS AND CONDITIONS FOR STOCK GRANTS.

 

(a) Amount and Form of Awards. Awards under this Section 9 may be granted in the
form of a Stock Grant. Each Stock Grant Agreement shall specify the number of
Shares to which the Stock Grant pertains and shall be subject to adjustment of
such number in accordance with Section 11. A Stock Grant may also be awarded in
combination with NSOs, and such an Award may provide that the Stock Grant will
be forfeited in the event that the related NSOs are exercised.

 

(b) Stock Grant Agreement. Each Stock Grant awarded under the Plan shall be
evidenced and governed exclusively by a Stock Grant Agreement between the
Participant and the Company. Each Stock Grant shall be subject to all applicable
terms and conditions of the Plan and may be subject to any other terms and
conditions that are not inconsistent with the Plan and that the Committee deems
appropriate for inclusion in the applicable Stock Grant Agreement (including
without limitation any performance conditions). The provisions of the various
Stock Grant Agreements entered into under the Plan need not be identical.

 

(c) Payment for Stock Grants. Stock Grants may be issued with or without cash
consideration or any other form of legally permissible consideration approved by
the Committee.

 

(d) Vesting Conditions. Each Stock Grant may or may not be subject to vesting.
Any such vesting provision may provide that Shares shall vest based on Service
over time or shall vest, in full or in installments, upon satisfaction of
performance conditions specified in the Stock Grant Agreement which may include
Performance Goals pursuant to Section 4(e). Unless the applicable Stock Grant
Agreement provides otherwise, each Stock Grant shall vest with respect to 20% of
the Shares subject to the Stock Grant upon completion of each year of Service on
each of the first through fifth annual anniversaries of the vesting commencement
date. A Stock Grant Agreement may provide for accelerated vesting in the event
of the Participant’s death, Disability, or other events.

 

(e) Assignment or Transfer of Stock Grants. Except as provided in the applicable
Stock Grant Agreement, and then only to the extent permitted by applicable law,
a Stock Grant awarded under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor’s
process, whether voluntarily, involuntarily or by operation of law. Any act in
violation of this Section 9(e) shall be void. However,

 

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this Section 9(e) shall not preclude a Participant from designating a
beneficiary who will receive any vested outstanding Stock Grant Awards in the
event of the Participant’s death, nor shall it preclude a transfer of vested
Stock Grant Awards by will or by the laws of descent and distribution.

 

(f) Voting and Dividend Rights. The holder of a Stock Grant awarded under the
Plan shall have the same voting, dividend and other rights as the Company’s
other shareholders. A Stock Grant Agreement, however, may require that the
holder of such Stock Grant invest any cash dividends received in additional
Shares subject to the Stock Grant. Such additional Shares subject to the Stock
Grant shall be subject to the same conditions and restrictions as the Stock
Grant with respect to which the dividends were paid. Such additional Shares
subject to the Stock Grant shall not reduce the number of Shares available for
issuance under Section 5.

 

(g) Modification or Assumption of Stock Grants. Within the limitations of the
Plan, the Committee may modify or assume outstanding stock grants or may accept
the cancellation of outstanding stock grants (including stock granted by another
issuer) in return for the grant of new Stock Grants for the same or a different
number of Shares and with the same or different vesting provisions.
Notwithstanding the preceding sentence or anything to the contrary herein, no
modification of a Stock Grant shall, without the consent of the Participant,
impair his or her rights or obligations under such Stock Grant.

 

SECTION 10. TERMS AND CONDITIONS OF STOCK UNITS.

 

(a) Stock Unit Agreement. Each grant of Stock Units under the Plan shall be
evidenced and governed exclusively by a Stock Unit Agreement between the
Participant and the Company. Such Stock Units shall be subject to all applicable
terms and conditions of the Plan and may be subject to any other terms and
conditions that are not inconsistent with the Plan and that the Committee deems
appropriate for inclusion in the applicable Stock Unit Agreement (including
without limitation any performance conditions). The provisions of the various
Stock Unit Agreements entered into under the Plan need not be identical. Stock
Units may be granted in consideration of a reduction in the Participant’s other
compensation.

 

(b) Number of Shares. Each Stock Unit Agreement shall specify the number of
Shares to which the Stock Unit Grant pertains and shall be subject to adjustment
of such number in accordance with Section 11.

 

(c) Payment for Stock Units. Stock Units shall be issued without consideration.

 

(d) Vesting Conditions. Each Award of Stock Units may or may not be subject to
vesting. Any such vesting provision may provide that Shares shall vest based on
Service over time or shall vest, in full or in installments, upon satisfaction
of performance conditions specified in the Stock Unit Agreement which may
include Performance Goals pursuant to Section 4(e). Unless the applicable Stock
Unit Agreement provides

 

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otherwise, each Stock Unit shall vest with respect to 20% of the Shares subject
to the Stock Unit upon completion of each year of Service on each of the first
through fifth annual anniversaries of the vesting commencement date. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant’s death, Disability, or other events.

 

(e) Voting and Dividend Rights. The holders of Stock Units shall have no voting
rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan
may, at the Committee’s discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Share while the Stock Unit is outstanding.
Dividend equivalents may be converted into additional Stock Units. Settlement of
dividend equivalents may be made in the form of cash, in the form of Shares, or
in a combination of both. Prior to distribution, any dividend equivalents which
are not paid shall be subject to the same conditions and restrictions as the
Stock Units to which they attach.

 

(f) Form and Time of Settlement of Stock Units. Settlement of vested Stock Units
may be made in the form of (a) cash, (b) Shares or (c) any combination of both,
as determined by the Committee at the time of the grant of the Stock Units, in
its sole discretion. Methods of converting Stock Units into cash may include
(without limitation) a method based on the average Fair Market Value of Shares
over a series of trading days. Vested Stock Units may be settled in a lump sum
or in installments. The distribution may occur or commence when the vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred, in accordance with applicable law, to any later date. The
amount of a deferred distribution may be increased by an interest factor or by
dividend equivalents. Until an Award of Stock Units is settled, the number of
such Stock Units shall be subject to adjustment pursuant to Section 11.

 

(g) Creditors’ Rights. A holder of Stock Units shall have no rights other than
those of a general creditor of the Company. Stock Units represent an unfunded
and unsecured obligation of the Company, subject to the terms and conditions of
the applicable Stock Unit Agreement.

 

(h) Modification or Assumption of Stock Units. Within the limitations of the
Plan, the Committee may modify or assume outstanding stock units or may accept
the cancellation of outstanding stock units (including stock units granted by
another issuer) in return for the grant of new Stock Units for the same or a
different number of Shares and with the same or different vesting provisions.
Notwithstanding the preceding sentence or anything to the contrary herein, no
modification of a Stock Unit shall, without the consent of the Participant,
impair his or her rights or obligations under such Stock Unit.

 

(i) Assignment or Transfer of Stock Units. Except as provided in the applicable
Stock Unit Agreement, and then only to the extent permitted by applicable law,
Stock Units shall not be anticipated, assigned, attached, garnished, optioned,
transferred or made subject to any creditor’s process, whether voluntarily,
involuntarily or by operation of law. Any act in violation of this Section 10(i)
shall be void. However, this Section 10(i)

 

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shall not preclude a Participant from designating a beneficiary who will receive
any outstanding vested Stock Units in the event of the Participant’s death, nor
shall it preclude a transfer of vested Stock Units by will or by the laws of
descent and distribution.

 

SECTION 11. PROTECTION AGAINST DILUTION.

 

(a) Adjustments. In the event of a subdivision of the outstanding Shares, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the price
of Shares, a combination or consolidation of the outstanding Shares (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
appropriate adjustments to the following:

 

(i) the number of Shares and the kind of shares or securities available for
future Awards under Section 5;

 

(ii) the limits on Awards specified in Section 5;

 

(iii) the number of Shares and the kind of shares or securities covered by each
outstanding Award; or

 

(iv) the Exercise Price under each outstanding SAR or Option.

 

(b) Participant Rights. Except as provided in this Section 11, a Participant
shall have no rights by reason of any issue by the Company of stock of any class
or securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class.
If by reason of an adjustment pursuant to this Section 11 a Participant’s Award
covers additional or different shares of stock or securities, then such
additional or different shares and the Award in respect thereof shall be subject
to all of the terms, conditions and restrictions which were applicable to the
Award and the Shares subject to the Award prior to such adjustment.

 

(c) Fractional Shares. Any adjustment of Shares pursuant to this Section 11
shall be rounded down to the nearest whole number of Shares. Under no
circumstances shall the Company be required to authorize or issue fractional
shares and no consideration shall be provided as a result of any fractional
shares not being issued or authorized.

 

SECTION 12. EFFECT OF A CORPORATE TRANSACTION.

 

(a) Corporate Transaction. In the event that the Company is a party to a
Corporate Transaction, outstanding Awards shall be subject to the applicable
agreement of merger, reorganization, or sale of assets. Such agreement may
provide, without limitation, for the assumption or substitution of outstanding
Options, SARs, or Stock Units by the surviving

 

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corporation or its parent, for the assumption of outstanding Stock Grant
Agreements by the surviving corporation or its parent, for the replacement of
outstanding Options, SARs, and Stock Units with a cash incentive program of the
surviving corporation which preserves the spread existing on the unvested
portions of such outstanding Awards at the time of the transaction and provides
for subsequent payout in accordance with the same vesting provisions applicable
to those Awards, for accelerated vesting of outstanding Awards, or for the
cancellation of outstanding Options, SARs, and Stock Units, with or without
consideration, in all cases without the consent of the Participant.

 

(b) Acceleration. The Committee may determine, at the time of grant of an Award
or thereafter, that such Award shall become fully vested as to all Shares
subject to such Award in the event that a Corporate Transaction or a Change in
Control occurs. Unless otherwise provided in the applicable Award agreement, in
the event that a Corporate Transaction occurs and any outstanding Options, SARs
or Stock Units are not assumed, substituted, or replaced with a cash incentive
program pursuant to Section 12(a) or any outstanding Stock Grant Agreements are
not assumed pursuant to Section 12(a), then such Awards shall fully vest and be
fully exercisable immediately prior to such Corporate Transaction. Immediately
following the consummation of a Corporate Transaction, all outstanding Options,
SARs and Stock Units shall terminate and cease to be outstanding, except to the
extent that they are assumed by the surviving corporation or its parent.

 

(c) Dissolution. To the extent not previously exercised or settled, Options,
SARs and Stock Units shall terminate immediately prior to the dissolution or
liquidation of the Company.

 

SECTION 13. LIMITATIONS ON RIGHTS.

 

(a) No Entitlements. A Participant’s rights, if any, in respect of or in
connection with any Award is derived solely from the discretionary decision of
the Company to permit the individual to participate in the Plan and to benefit
from a discretionary Award. By accepting an Award under the Plan, a Participant
expressly acknowledges that there is no obligation on the part of the Company to
continue the Plan and/or grant any additional Awards. Any Award granted
hereunder is not intended to be compensation of a continuing or recurring
nature, or part of a Participant’s normal or expected compensation, and in no
way represents any portion of a Participant’s salary, compensation, or other
remuneration for purposes of pension benefits, severance, redundancy,
resignation or any other purpose.

 

Neither the Plan nor any Award granted under the Plan shall be deemed to give
any individual a right to remain an employee, consultant or director of the
Company, a Parent, a Subsidiary or an Affiliate. The Company and its Parents and
Subsidiaries and Affiliates reserve the right to terminate the Service of any
person at any time, and for any reason, subject to applicable laws, the
Company’s Articles of Incorporation and Bylaws and a written employment
agreement (if any), and such terminated person shall be deemed irrevocably to
have waived any claim to damages or specific performance for

 

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breach of contract or dismissal, compensation for loss of office, tort or
otherwise with respect to the Plan or any outstanding Award that is forfeited
and/or is terminated by its terms or to any future Award.

 

(b) Shareholders’ Rights. A Participant shall have no dividend rights, voting
rights or other rights as a shareholder with respect to any Shares covered by
his or her Award prior to the issuance of such Shares (as evidenced by an
appropriate entry on the books of the Company or a duly authorized transfer
agent of the Company). No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such Shares are
issued, except as expressly provided in Section 11.

 

(c) Regulatory Requirements. Any other provision of the Plan notwithstanding,
the obligation of the Company to issue Shares or other securities under the Plan
shall be subject to all applicable laws, rules and regulations and such approval
by any regulatory body as may be required. The Company reserves the right to
restrict, in whole or in part, the delivery of Shares or other securities
pursuant to any Award prior to the satisfaction of all legal requirements
relating to the issuance of such Shares or other securities, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.

 

SECTION 14. WITHHOLDING TAXES.

 

(a) General. A Participant shall make arrangements satisfactory to the Company
for the satisfaction of any withholding tax obligations that arise in connection
with his or her Award. The Company shall not be required to issue any Shares or
make any cash payment under the Plan until such obligations are satisfied.

 

(b) Share Withholding. If a public market for the Company’s Shares exists, the
Committee may permit a Participant to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold all or a
portion of any Shares that otherwise would be issued to him or her or by
surrendering or attesting to all or a portion of any Shares that he or she
previously acquired. Such Shares shall be valued based on the value of the
actual trade or, if there is none, the Fair Market Value as of the previous day.
Any payment of taxes by assigning Shares to the Company may be subject to
restrictions, including, but not limited to, any restrictions required by rules
of the SEC. The Committee may, in its discretion, also permit a Participant to
satisfy withholding or income tax obligations related to an Award through
Cashless Exercise or through a sale of Shares underlying the Award.

 

SECTION 15. DURATION AND AMENDMENTS.

 

(a) Term of the Plan. The Plan shall become effective upon its approval by
Company shareholders. The Plan shall terminate at the Company’s 2007 Annual
Meeting of Shareholders and may be terminated on any earlier date pursuant to
this Section 15.

 

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(b) Right to Amend or Terminate the Plan. The Board may amend or terminate the
Plan at any time and for any reason. The termination of the Plan, or any
amendment thereof, shall not impair the rights or obligations of any Participant
under any Award previously granted under the Plan without the Participant’s
consent. No Awards shall be granted under the Plan after the Plan’s termination.
An amendment of the Plan shall be subject to the approval of the Company’s
shareholders only to the extent such approval is otherwise required by
applicable laws, regulations or rules.

 

SECTION 16. EXECUTION.

 

To record the adoption of the Plan by the Board, the Company has caused its duly
authorized officer to execute this Plan on behalf of the Company.

 

CISCO SYSTEMS, INC. By:  

/s/    MARK CHANDLER

--------------------------------------------------------------------------------

Mark Chandler

Title:   Vice President, Legal Services, General Counsel and Secretary

 

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CISCO SYSTEMS, INC.

NOTICE OF GRANT OF STOCK OPTION

 

Notice is hereby given of the following option grant (the “Option”) made to
purchase shares of Cisco Systems, Inc. (the “Company”) common stock:

 

Optionee:                                         
                                        
                                        
                                                                       

 

Grant Date:                                         
                                        
                                        
                                                                    

 

Type  of  Option: ___ Incentive Stock Option

 

     ___ Nonstatutory Stock Option

 

Grant Number:                                         
                                        
                                        
                                                         

 

Number of Option Shares:                                         
                                        
                                                                    shares

 

Exercise Price: $_________ per share

 

Vesting Commencement Date:                                         
                                        
                                                                       

 

Expiration Date:                                         
                                        
                                        
                                                           

 

Exercise Schedule

 

The Option shall vest and become exercisable with respect to (i) twenty percent
(20%) of the Option Shares upon Optionee’s completion of one (1) year of Service
measured from the Vesting Commencement Date and (ii) the balance of the Option
Shares in a series of forty-eight (48) successive equal monthly installments
upon Optionee’s completion of each additional month of Service over the
forty-eight (48)-month period measured from the first annual anniversary of the
Vesting Commencement Date. In no event shall the Option vest and become
exercisable for any additional Option Shares after Optionee’s cessation of
Service.

 

Should Optionee request a reduction to his or her work commitment to less than
thirty (30) hours per week, then the Committee shall have the right, to extend
the period over which the Option shall thereafter vest and become exercisable
for the Option Shares during the remainder of the Option term. The decision
whether or not to approve Optionee’s request for any reduced work commitment
shall be at the sole discretion of the Company. In no event shall any extension
of the Exercise Schedule for the Option Shares result in the extension of the
Expiration Date of the Option.

 

Optionee understands and agrees that the Option is offered subject to and in
accordance with the terms of the Cisco Systems, Inc. 2005 Stock Incentive Plan
(the “Plan”). Optionee further agrees to be bound by the terms of the Plan and
the terms of the Option as set forth in the Stock Option Agreement attached
hereto.

 

No Employment or Service Contract. Nothing in this Notice or in the attached
Stock Option Agreement or in the Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee’s Service at any time
for any reason, with or without cause.

 

Definitions. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice, the attached Stock Option Agreement or the
Plan.

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STOCK OPTION AGREEMENT

 

Recitals

 

A. The Board has adopted the Plan for the purpose of retaining the services of
selected Employees, non-employee members of the Board or of the board of
directors of any Parent or Subsidiary and Consultants and other independent
advisors who provide services to the Company (or any Parent or Subsidiary).

 

B. Optionee is to render valuable services to the Company (or a Parent or
Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company’s grant of an
option to Optionee.

 

C. All capitalized terms in this Agreement shall have the meaning assigned to
them in this Agreement, the attached Notice of Grant of Stock Option (the “
Notice”), or the Plan.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1. Grant of Option. The Company hereby grants to Optionee, as of the Grant Date,
an option to purchase up to the number of Option Shares specified in the Notice.
The Option Shares shall be purchasable from time to time during the Option term
specified in Paragraph 2 at the Exercise Price specified in the Notice.

 

2. Option Term. This Option shall have a maximum term of nine (9) years measured
from the Grant Date and shall accordingly expire at the close of business on the
Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.

 

3. Limited Transferability. This Option may, in connection with the Optionee’s
estate plan and only to the extent permitted by applicable laws, regulations and
rules, be assigned in whole or in part during Optionee’s lifetime to one or more
members of the Optionee’s immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion shall
be exercisable only by the person or persons who acquire a proprietary interest
in the Option pursuant to such assignment. The terms applicable to the assigned
portion shall be the same as those in effect for this Option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Company may deem appropriate. Should the Optionee die while
holding this Option, then this Option shall be transferred in accordance with
Optionee’s will or the laws of descent and distribution.

 

4. Dates of Exercise. This Option shall vest and become exercisable for the
Option Shares in one or more installments as specified in the Notice. As the
Option becomes exercisable for such installments, those installments shall
accumulate and the Option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the Option term
under Paragraph 5 or 6. As an administrative matter, the exercisable portion of
this Option may only be exercised until the close of the Nasdaq National Market
on the last trading day before the Expiration Date or earlier date of
termination of the Option term under Paragraph 5. Any later

--------------------------------------------------------------------------------

attempt to exercise this Option will not be honored. For example, if Optionee
ceases to remain in Service as provided in Paragraph 5(i) and the date three
(3) months from the date of cessation is Monday, July 4 (a holiday on which the
Nasdaq National Market is closed), Optionee must exercise the exercisable
portion of this Option by 4 pm Eastern Daylight Time on Friday, July 1.

 

5. Cessation of Service. The Option term specified in Paragraph 2 shall
terminate (and this Option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:

 

(i) Should Optionee cease to remain in Service for any reason (other than death,
Disability or Cause) while this Option is outstanding, then Optionee shall have
a period of three (3) months (commencing with the date of such cessation of
Service) during which to exercise this Option, but in no event shall this Option
be exercisable at any time after the Expiration Date.

 

(ii) If Optionee dies while this Option is outstanding, then the personal
representative of Optionee’s estate or the person or persons to whom the Option
is transferred pursuant to Optionee’s will or in accordance with the laws of
descent and distribution shall have the right to exercise this Option. Such
right shall lapse, and this Option shall cease to be outstanding, upon the
earlier of (A) the expiration of the eighteen (18)- month period measured from
the date of Optionee’s death or (B) the Expiration Date.

 

(iii) Should Optionee cease Service by reason of Disability while this Option is
outstanding, then Optionee shall have a period of eighteen (18) months
(commencing with the date of such cessation of Service) during which to exercise
this Option, but in no event shall this Option be exercisable at any time after
the Expiration Date.

 

(iv) Optionee’s date of cessation of Service shall mean the date upon which
Optionee ceases active performance of services for the Company following the
provision of such notification of termination or resignation from Service and
shall be determined solely by this Agreement and without reference to any other
agreement, written or oral, including Optionee’s contract of employment, and
shall not otherwise include any period of notice of termination of employment,
whether expressed or implied.

 

(v) During the limited period of post-Service exercisability, this Option may
not be exercised in the aggregate for more than the number of vested Option
Shares for which the Option is exercisable at the time of Optionee’s cessation
of Service. Upon the expiration of such limited exercise period or (if earlier)
upon the Expiration Date, this Option shall terminate and cease to be
outstanding for any vested Option Shares for which the Option has not been
exercised. However, this Option shall, immediately upon Optionee’s cessation of
Service for any reason, terminate and cease to be outstanding with respect to
any Option Shares in which Optionee is not otherwise at that time vested or for
which this Option is not otherwise at that time exercisable.

--------------------------------------------------------------------------------

(vi) Should Optionee’s Service be terminated for Cause or should Optionee
otherwise engage in activities constituting Cause while this Option is
outstanding, then this Option shall terminate immediately and cease to remain
outstanding. In the event Optionee’s Service with the Company is suspended
pending an investigation of whether Optionee’s Service will be terminated for
Cause, all Optionee’s rights under the Option, including the right to exercise
the Option, shall be suspended during the investigation period.

 

6. Special Acceleration of Option

 

(a) This Option, to the extent outstanding at the time of a Corporate
Transaction but not otherwise fully vested and exercisable, shall automatically
accelerate so that this Option shall, immediately prior to the effective date of
the Corporate Transaction, become vested and exercisable for all of the Option
Shares at the time subject to this Option and may be exercised for any or all of
those Option Shares as fully-vested Shares. No such acceleration of this Option,
however, shall occur if and to the extent: (i) this Option is, in connection
with the Corporate Transaction, either assumed by the successor corporation (or
parent thereof) or replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof) or (ii) this
Option is replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested Option Shares at the time of
the Corporate Transaction (the excess of the Fair Market Value of those Option
Shares over the aggregate Exercise Price payable for such Shares) and provides
for subsequent pay-out in accordance with the same Exercise Schedule set forth
in the Notice. The determination of option comparability under clause (i) shall
be made by the Committee, and such determination shall be final, binding and
conclusive.

 

(b) Immediately following the effective date of the Corporate Transaction, this
Option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.

 

(c) If this Option is assumed in connection with a Corporate Transaction, then
the Committee shall appropriately adjust the number of shares and the kind of
shares or securities covered by the Option and the Exercise Price immediately
after such Corporate Transaction, provided the aggregate Exercise Price shall
remain the same.

 

(d) This Option, to the extent outstanding at the time of a Change in Control
but not otherwise fully vested and exercisable, shall automatically accelerate
so that this Option shall, immediately prior to the effective date of the Change
in Control, become vested and exercisable for all of the Option Shares at the
time subject to this Option and may be exercised for any or all of those Option
Shares as fully-vested Shares. This Option shall remain so exercisable until the
Expiration Date or sooner termination of the Option term.

 

(e) This Agreement shall not in any way affect the right of the

--------------------------------------------------------------------------------

Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

 

7. Adjustment in Option Shares. In the event of a subdivision of the outstanding
Shares, a declaration of a dividend payable in Shares, a declaration of a
dividend payable in a form other than Shares in an amount that has a material
effect on the price of Shares, a combination or consolidation of the outstanding
Shares (by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, appropriate adjustments
shall be made to (i) the total number and/or kind of shares or securities
subject to this Option and (ii) the Exercise Price in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.

 

8. Shareholder Rights. The holder of this Option shall not have any shareholder
rights with respect to the Option Shares until such person shall have exercised
the Option, paid the Exercise Price and become a holder of record of the
purchased Shares.

 

9. Manner of Exercising Option.

 

(a) In order to exercise this Option with respect to all or any part of the
Option Shares for which this Option is at the time exercisable, Optionee (or any
other person or persons exercising the Option) must take the following actions:

 

(i) Pay the aggregate Exercise Price for the purchased Shares in one or more of
the following forms:

 

(A) cash or check made payable to the Company;

 

(B) as permitted by applicable law, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or persons exercising
the Option) shall concurrently provide irrevocable written instructions (I) to a
Company-designated brokerage firm (or in the case of an executive officer or
Board member of the Company, an Optionee-designated brokerage firm) to effect
the immediate sale of the purchased Shares and remit to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased Shares plus, if applicable,
the amount necessary to satisfy the Company’s withholding obligations at the
minimum statutory withholding rates and (II) to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction;

 

(C) a promissory note payable to the Company, but only to the extent authorized
by the Committee in accordance with Paragraph 13; and

 

(D) Shares held by Optionee (or any other person or persons exercising the
Option) for the minimum period established by the Committee and valued at Fair
Market Value on the exercise date.

--------------------------------------------------------------------------------

(ii) Furnish to the Company appropriate documentation that the person or persons
exercising the Option (if other than Optionee) have the right to exercise this
Option.

 

(iii) Make appropriate arrangements with the Company (or Parent or Subsidiary
employing or retaining Optionee) for the satisfaction of all tax withholding
requirements applicable to the Option exercise.

 

(b) As soon as practical after the exercise date, the Company shall issue to or
on behalf of Optionee (or any other person or persons exercising this Option) a
certificate for the purchased Option Shares, with the appropriate legends
affixed thereto.

 

(c) In no event may this Option be exercised for any fractional Shares.

 

(d) Notwithstanding any other provisions of the Plan, this Agreement or any
other agreement to the contrary, if at the time this Option is exercised,
Optionee is indebted to the Company (or any Parent or Subsidiary) for any
reason, the following actions shall be taken, as deemed appropriate by the
Committee:

 

(i) any Shares to be issued upon such exercise shall automatically be pledged
against Optionee’s outstanding indebtedness; and

 

(ii) if this Option is exercised in accordance with subparagraph 9(a)(i)(B)
above, the after tax proceeds of the sale of Optionee’s Shares shall
automatically be applied to the outstanding balance of Optionee’s indebtedness.

 

10. Compliance with Laws and Regulations.

 

(a) The exercise of this Option and the issuance of the Option Shares upon such
exercise shall be subject to compliance by the Company and Optionee with all
applicable laws, regulations and rules relating thereto, including all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Shares may be listed for trading at the time of such
exercise and issuance.

 

(b) The inability of the Company to obtain approval from any regulatory body
having authority deemed by the Company to be necessary to the lawful issuance
and sale of any Shares pursuant to this Option shall relieve the Company of any
liability with respect to the non-issuance or sale of the Shares as to which
such approval shall not have been obtained. The Company, however, shall use its
best efforts to obtain all such approvals.

 

11. Successors and Assigns. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Company and its successors and assigns and
Optionee, Optionee’s assigns and the legal representatives, heirs and legatees
of Optionee’s estate.

 

12. Notices. Any notice required to be given or delivered to the Company under
the terms of this Agreement shall be in writing and addressed to the Company at
its

--------------------------------------------------------------------------------

principal corporate offices. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address maintained
for Optionee in the Company’s records. All notices shall be deemed effective
upon personal delivery or upon deposit in the U.S. mail, postage prepaid and
properly addressed to the party to be notified.

 

13. Financing. The Committee may, in its absolute discretion and without any
obligation to do so, permit Optionee to pay the Exercise Price for the purchased
Option Shares by delivering a full-recourse promissory note payable to the
Company. The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Committee in its sole discretion.

 

14. Construction. The Notice, this Agreement, and the Option evidenced hereby
(a) are made and granted pursuant to the Plan and are in all respects limited by
and subject to the terms of the Plan, and (b) constitute the entire agreement
between Optionee and the Company on the subject matter hereof and supercede all
proposals, written or oral, an all other communications between the parties
related to the subject matter. All decisions of the Committee with respect to
any question or issue arising under the Notice, this Agreement or the Plan shall
be conclusive and binding on all persons having an interest in this Option.

 

15. Governing Law. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California without
resort to the conflict of laws principles thereof.

 

16. Excess Shares. If the Option Shares covered by this Agreement exceed, as of
the Grant Date, the number of Shares which may without shareholder approval be
issued under the Plan, then this Option shall be void with respect to those
excess shares, unless shareholder approval of an amendment sufficiently
increasing the number of Shares issuable under the Plan is obtained in
accordance with the provisions of the Plan and all applicable laws, regulations
and rules.

 

17. Additional Terms Applicable to an Incentive Stock Options. In the event this
Option is designated an Incentive Stock Option in the Notice, the following
terms and conditions shall also apply to the Option:

 

(a) This Option shall cease to qualify for favorable tax treatment as an
Incentive Stock Option if (and to the extent) this Option is exercised for one
or more Option Shares: (A) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Disability or
(B) more than twelve (12) months after the date Optionee ceases to be an
Employee by reason of Disability.

 

(b) Even if this Option is designated as an Incentive Stock Option, if the
Shares subject to this Option (and all other Incentive Stock Options granted to
Optionee by the Company or any Parent or Subsidiary, including under other plans
of the Company) that first become exercisable in any calendar year have an
aggregate Fair Market Value (determined for each Share as of the date of grant
of the option covering

--------------------------------------------------------------------------------

such Share) in excess of $100,000, the Shares in excess of $100,000 shall be
treated as subject to a Nonstatutory Stock Option in accordance all applicable
laws, regulations and rules.

 

18. Leave of Absence. Unless otherwise determined by the Committee, the
following provisions shall apply upon the Optionee’s commencement of an
authorized leave of absence:

 

(a) The Exercise Schedule in effect under the Notice shall be frozen as of the
first day of the authorized leave, and this Option shall not become exercisable
for any additional installments of the Option Shares during the period Optionee
remains on such leave.

 

(b) If the Option is designated as an Incentive Stock Option in the Notice and
if the leave of absence continues for more than ninety (90) days, then this
Option shall automatically convert to a Nonstatutory Stock Option at the end of
the three (3)-month period measured from the ninety-first (91st) day of such
leave, unless the Optionee’s right to return to active work is guaranteed by law
or by a contract.

 

(c) In no event shall this Option become exercisable for any additional Option
Shares or otherwise remain outstanding if Optionee does not resume Service prior
to the Expiration Date of the Option term.

 

19. Further Instruments. The parties agree to execute such further instruments
and to take such further action as may be reasonably necessary to carry out the
purposes and intent of this Agreement.

 

20. Authorization to Release Necessary Personal Information.

 

(a) Optionee hereby authorizes and directs Optionee’s employer to collect, use
and transfer in electronic or other form, any personal information (the “Data”)
regarding Optionee’s employment, the nature and amount of Optionee’s
compensation and the fact and conditions of Optionee’s participation in the Plan
(including, but not limited to, Optionee’s name, home address, telephone number,
date of birth, social security number (or any other social or national
identification number), salary, nationality, job title, number of Shares held
and the details of all options or any other entitlement to Shares awarded,
cancelled, exercised, vested, unvested or outstanding) for the purpose of
implementing, administering and managing Optionee’s participation in the Plan.
Optionee understands that the Data may be transferred to the Company or any of
its Subsidiaries, or to any third parties assisting in the implementation,
administration and management of the Plan, including any requisite transfer to a
broker or other third party assisting with the exercise of Options under the
Plan or with whom Shares acquired upon exercise of this Option or cash from the
sale of such shares may be deposited. Optionee acknowledges that recipients of
the Data may be located in different countries, and those countries may have
data privacy laws and protections different from those in the country of
Optionee’s residence. Furthermore, Optionee acknowledges and understands that
the transfer of the Data to the Company or

--------------------------------------------------------------------------------

any of its Subsidiaries, or to any third parties is necessary for Optionee’s
participation in the Plan.

 

(b) Optionee may at any time withdraw the consents herein, by contacting
Optionee’s local human resources representative in writing. Optionee further
acknowledges that withdrawal of consent may affect Optionee’s ability to
exercise or realize benefits from the Option, and Optionee’s ability to
participate in the Plan.

 

21. No Entitlement or Claims for Compensation.

 

(a) Optionee’s rights, if any, in respect of or in connection with this Option
or any other Award is derived solely from the discretionary decision of the
Company to permit Optionee to participate in the Plan and to benefit from a
discretionary Award. By accepting this Option, Optionee expressly acknowledges
that there is no obligation on the part of the Company to continue the Plan
and/or grant any additional Awards to Optionee. This Option is not intended to
be compensation of a continuing or recurring nature, or part of Optionee’s
normal or expected compensation, and in no way represents any portion of a
Optionee’s salary, compensation, or other remuneration for purposes of pension
benefits, severance, redundancy, resignation or any other purpose.

 

(b) Neither the Plan nor this Option or any other Award granted under the Plan
shall be deemed to give Optionee a right to remain an Employee, Consultant or
director of the Company, a Parent or a Subsidiary or an Affiliate. The Company
and its Parents and Subsidiaries and Affiliates reserve the right to terminate
the Service of Optionee at any time, with or without cause, and for any reason,
subject to applicable laws, the Company’s Articles of Incorporation and Bylaws
and a written employment agreement (if any), and Optionee shall be deemed
irrevocably to have waived any claim to damages or specific performance for
breach of contract or dismissal, compensation for loss of office, tort or
otherwise with respect to the Plan, this Option or any outstanding Award that is
forfeited and/or is terminated by its terms or to any future Award.

 

(c) Optionee agrees that the Company may require Options granted hereunder be
exercised with, and the Option Shares held by, a broker designated by the
Company. In addition, Optionee agrees that his or her rights hereunder shall be
subject to set-off by the Company for any valid debts the Optionee owes to the
Company.

--------------------------------------------------------------------------------

CISCO SYSTEMS, INC.

STOCK GRANT AGREEMENT

 

This Stock Grant Agreement (the “Agreement”) is made and entered into as of
                    , 200   by and between Cisco Systems, Inc., a California
corporation (the “Company”), and                              pursuant to the
Cisco Systems, Inc. 2005 Stock Incentive Plan (the “Plan”). To the extent any
capitalized terms used in this Agreement are not defined, they shall have the
meaning ascribed to them in the Plan. In the event of a conflict between the
terms and provisions of the Plan and the terms and provisions of this Agreement,
the Plan terms and provisions shall prevail.

 

In consideration of the mutual agreements herein contained and intending to be
legally bound hereby, the parties agree as follows:

 

1. Restricted Shares. Pursuant to the Plan, the Company hereby transfers to you,
and you hereby accept from the Company, a Stock Grant Award consisting of
                     Shares (the “Restricted Shares”), on the terms and
conditions set forth herein and in the Plan.

 

2. Vesting of Restricted Shares. So long as your Service continues, the
Restricted Shares shall vest in accordance with the following schedule: twenty
percent (20%) of the total number of Restricted Shares issued pursuant to this
Agreement shall vest on                         , 20     (the first annual
anniversary of the vesting commencement date) and on each annual anniversary
thereafter, unless otherwise provided by the Plan or Section 3 below. In the
event of the termination of your Service for any reason, all unvested Restricted
Shares shall be immediately forfeited without consideration. For purposes of
facilitating the enforcement of the provisions of this Section 2, the Company
may issue stop-transfer instructions on the Restricted Shares to the Company’s
transfer agent, or otherwise hold the Restricted Shares in escrow, until the
Restricted Shares have vested and you have satisfied all applicable obligations
with respect to the Restricted Shares, including any applicable tax withholding
obligations set forth in Section 5 below. Any new, substituted or additional
securities or other property which is issued or distributed with respect to the
unvested Restricted Shares shall be subject to the same terms and conditions as
are applicable to the unvested Restricted Shares under this Agreement and the
Plan.

 

3. Special Acceleration.

 

(a) To the extent the Restricted Shares are outstanding at the time of a
Corporate Transaction, but not otherwise fully vested, such Restricted Shares
shall automatically accelerate immediately prior to the effective date of the
Corporate Transaction and shall become vested in full at that time. No such
acceleration, however, shall occur if and to the extent: (i) this Stock Grant
Agreement is, in connection with the Corporate Transaction, assumed by the
successor corporation (or parent thereof), or (ii) the Restricted Shares are
replaced with a cash incentive program of the successor corporation which
preserves the Fair Market Value of the Restricted Shares at the time of the
Corporate Transaction and provides for subsequent pay-out in accordance with the
vesting schedule set forth in Section 2 above.

--------------------------------------------------------------------------------

(b) Immediately following the effective date of the Corporate Transaction, this
Stock Grant Agreement shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) in connection
with the Corporate Transaction.

 

(c) If this Stock Grant Agreement is assumed in connection with a Corporate
Transaction, then the Committee shall appropriately adjust the number of shares
and the kind of shares or securities covered by this Stock Grant Agreement
immediately after such Corporate Transaction.

 

(d) To the extent the Restricted Shares are outstanding at the time of a Change
in Control but not otherwise fully vested, such Restricted Shares shall
automatically accelerate immediately prior to the effective date of the Change
in Control and shall become vested in full at that time.

 

(e) This Stock Grant Agreement shall not in any way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets.

 

4. Restriction on Election to Recognize Income in the Year of Grant. Under
Section 83 of the Code, the Fair Market Value of the Restricted Shares on the
date the Restricted Shares vest will be taxable as ordinary income at that time.
You understand, acknowledge and agree that, as a condition to the grant of this
Award, you may not elect to be taxed at the time the Restricted Shares are
acquired by filing an election under Section 83(b) of the Code with the Internal
Revenue Service.

 

5. Withholding Taxes. You agree to satisfy any applicable withholding tax
obligations that arise in connection with the Restricted Shares by (i) having
the Company withhold Shares from the Restricted Shares held in escrow, or (ii)
tendering Shares to the Company, in either case, equal in value to the amount
necessary to satisfy any such withholding tax obligation. Such Shares shall be
valued based on the Fair Market Value as of the day prior to the date that the
amount of tax to be withheld is to be determined under applicable law. The
Company shall not be required to release the Restricted Shares from the
stop-transfer instructions or escrow unless and until such obligations are
satisfied.

 

6. Tax Advice. You represent, warrant and acknowledge that the Company has made
no warranties or representations to you with respect to the income tax
consequences of the transactions contemplated by this Agreement, and you are in
no manner relying on the Company or the Company’s representatives for an
assessment of such tax consequences. YOU UNDERSTAND THAT THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
REGARDING ANY STOCK GRANT AWARD. NOTHING STATED HEREIN IS INTENDED OR WRITTEN TO
BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING TAXPAYER PENALTIES.

--------------------------------------------------------------------------------

7. Non-Transferability of Restricted Shares. Except as permitted by applicable
law, Restricted Shares which have not vested pursuant to Section 2 above shall
not be anticipated, assigned, attached, garnished, optioned, transferred or made
subject to any creditor’s process, whether voluntarily or involuntarily or by
the operation of law. However, this Section 7 shall not preclude you from
designating a beneficiary who will receive any vested Restricted Shares in the
event of the your death, nor shall it preclude a transfer of vested Restricted
Shares by will or by the laws of descent and distribution.

 

8. Restriction on Transfer. Regardless of whether the transfer or issuance of
the Restricted Shares has been registered under the Securities Act or has been
registered or qualified under the securities laws of any state, the Company may
impose additional restrictions upon the sale, pledge, or other transfer of the
Restricted Shares (including the placement of appropriate legends on stock
certificates and the issuance of stop-transfer instructions to the Company’s
transfer agent) if, in the judgment of the Company and the Company’s counsel,
such restrictions are necessary in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state, or any other
law.

 

9. Stock Certificate Restrictive Legends. Stock certificates evidencing the
Restricted Shares may bear such restrictive legends as the Company and the
Company’s counsel deem necessary under applicable law or pursuant to this
Agreement.

 

10. Representations, Warranties, Covenants, and Acknowledgments. You hereby
agree that in the event the Company and the Company’s counsel deem it necessary
or advisable in the exercise of their discretion, the transfer or issuance of
the Restricted Shares may be conditioned upon you making certain
representations, warranties, and acknowledgments relating to compliance with
applicable securities laws.

 

11. Voting and Other Rights. Subject to the terms of this Agreement, you shall
have all the rights and privileges of a shareholder of the Company while the
Restricted Shares are subject to stop-transfer instructions, or otherwise held
in escrow, including the right to vote and to receive dividends (if any).

 

12. Authorization to Release Necessary Personal Information.

 

(a) You hereby authorize and direct your employer to collect, use and transfer
in electronic or other form, any personal information (the “Data”) regarding
your employment, the nature and amount of your compensation and the facts and
conditions of your participation in the Plan (including, but not limited to,
your name, home address, telephone number, date of birth, social security number
(or any other social or national identification number), salary, nationality,
job title, number of Shares held and the details of all Awards or any other
entitlement to Shares awarded, cancelled, exercised, vested, unvested or
outstanding) for the purpose of implementing, administering and managing your
participation in the Plan. You understand that the Data may be transferred to
the Company or any of its Subsidiaries, or to any third parties assisting in the
implementation, administration and management of the Plan, including any
requisite transfer to a broker or other third party assisting with the
administration of this Stock Grant Award under the Plan or with whom Shares
acquired pursuant to this Stock Grant Award or cash from the sale of such shares
may be deposited. You acknowledge that recipients of the Data may be located in
different countries, and those countries may have data privacy laws and
protections

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different from those in the country of your residence. Furthermore, you
acknowledge and understand that the transfer of the Data to the Company or any
of its Subsidiaries, or to any third parties is necessary for your participation
in the Plan.

 

(b) You may at any time withdraw the consents herein by contacting your local
human resources representative in writing. You further acknowledge that
withdrawal of consent may affect your ability to exercise or realize benefits
from this Stock Grant Award, and your ability to participate in the Plan.

 

13. No Entitlement or Claims for Compensation.

 

(a) Your rights, if any, in respect of or in connection with this Stock Grant
Award or any other Award is derived solely from the discretionary decision of
the Company to permit you to participate in the Plan and to benefit from a
discretionary Award. By accepting this Stock Grant Award, you expressly
acknowledge that there is no obligation on the part of the Company to continue
the Plan and/or grant any additional Awards to you. This Stock Grant Award is
not intended to be compensation of a continuing or recurring nature, or part of
your normal or expected compensation, and in no way represents any portion of a
your salary, compensation, or other remuneration for purposes of pension
benefits, severance, redundancy, resignation or any other purpose.

 

(b) Neither the Plan nor this Stock Grant Award or any other Award granted under
the Plan shall be deemed to give you a right to remain an Employee, Consultant
or director of the Company, a Parent, a Subsidiary or an Affiliate. The Company
and its Parents and Subsidiaries and Affiliates reserve the right to terminate
your Service at any time, with or without cause, and for any reason, subject to
applicable laws, the Company’s Articles of Incorporation and Bylaws and a
written employment agreement (if any), and you shall be deemed irrevocably to
have waived any claim to damages or specific performance for breach of contract
or dismissal, compensation for loss of office, tort or otherwise with respect to
the Plan, this Stock Grant Award or any outstanding Award that is forfeited
and/or is terminated by its terms or to any future Award.

 

(c) You agree that the Company may require that Restricted Shares be held by a
broker designated by the Company. In addition, you agree that your rights
hereunder shall be subject to set-off by the Company for any valid debts you owe
the Company.

 

14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflict of laws principles thereof.

 

15. Notices. All notices, communications and documents under this Agreement
shall be in writing. All notices, communications, and documents directed to the
Company and related to the Agreement, if not delivered by hand, shall be mailed
to the Company’s principal executive office, Attention: Stock Administration.
The current address of the Company’s principal executive office is:

 

Cisco Systems, Inc.

170 West Tasman Drive

San Jose, CA 95134-1706

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All notices, communications, and documents intended for you and related to this
Agreement, if not delivered by hand, shall be mailed to your address shown on
the last page of this Agreement or such other address as you may specify by
notice complying with this section. Notices, communications, and documents not
delivered by hand shall be mailed by registered or certified mail, return
receipt requested, postage prepaid. All mailings and deliveries related to this
Agreement shall be deemed received only when actually received.

 

16. Binding Effect. Subject to the limitations set forth in this Agreement, this
Agreement shall be binding upon, and inure to the benefit of, the executors,
administrators, heirs, legal representatives, successors, and assigns of the
parties hereto.

 

17. Counterparts. This Agreement may be signed in counterparts with the same
effect as if the signature to each such counterpart were upon a single
instrument, and all counterparts shall be deemed an original of this Agreement.

 

18. Severability. If any provision of this Agreement is held to be unenforceable
for any reason, it shall be adjusted rather than voided, if possible, in order
to achieve the intent of the parties to the extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
full extent possible.

 

*     *     *     *

 

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this
         day of                     , 200_.

 

 

CISCO SYSTEMS, INC. By:         (Signature) Name:     Title:    

 

 

RECIPIENT:

 

  By:         (Signature) Address:      

Telephone Number:     Email Address:    

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NON-EMPLOYEE DIRECTOR ELECTION UNDER THE

CISCO SYSTEMS, INC. 2005 STOCK INCENTIVE PLAN

ANNUAL RETAINER

 

I,                         , being a non-employee member of the Board of
Directors of Cisco Systems, Inc. (the “Company”) hereby elect to receive
(complete either (a) or (b) below):

 

(a)             % (insert percentage between 25% and 100%) of my total annual
retainer

 

(b) $             (insert dollar amount between $18,750 and $75,000) of my total
annual retainer

 

in the form of a fully vested stock grant which will be granted under the 2005
Stock Incentive Plan (the “Plan”) on                              based on the
closing value of the Company’s common stock on that date. I understand that this
election will be effective only if received by                              on
or before              on              and is subject to, and contingent upon,
the approval of the Plan by the Company’s shareholders at the Company’s annual
shareholder meeting to be held on November 15, 2005. I further understand that I
will receive my annual retainer in the form of cash to the extent that I do not
elect to receive it in the form of a stock grant under the Plan and that I will
receive the shares representing any such stock grant on, or as soon as
practicable after, the date of the annual shareholder meeting. I further
understand that my receipt of a stock grant will be taxed as ordinary income to
me based on the value of the shares on the date of grant.

 

 

 

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Signature of Non-Employee Director      Date