Exhibit 10.2

 

CISCO SYSTEMS, INC.

1996 STOCK INCENTIVE PLAN

 

As Amended and Restated Effective March 18, 2003

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

  I.   PURPOSE OF THE PLAN

 

This 1996 Stock Incentive Plan is intended to promote the interests of Cisco
Systems, Inc., a California corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.

 

Capitalized terms shall have the meanings assigned to such terms in the attached
Appendix.

 

All share numbers in this March 18, 2003 restatement reflect all splits of the
Common Stock effected through March 22, 2000, including (i) the three
(3)-for-two (2) split of Common Stock effected on December 16, 1997, (ii) the
three (3)-for-two (2) split of Common Stock effected on September 15, 1998,
(iii) the two (2)-for-one (1) split of Common Stock effected on June 21, 1999,
and (iv) the two (2)-for-one (1) split of Common Stock effected on March 22,
2000.

 

  II.   STRUCTURE OF THE PLAN

 

A.    The Plan shall be divided into three separate equity programs:

 

(i)    the Discretionary Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock,

 

(ii)    the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock, and

 

(iii)    the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary) or the attainment of
designated performance goals.

 

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

 

B.    The provisions of Articles One and Five shall apply to all equity programs
under the Plan and shall govern the interests of all persons under the Plan.

 

  III.   ADMINISTRATION OF THE PLAN

 

A.    The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders.

 

B.    Administration of the Discretionary Option Grant Program with respect to
all other persons eligible to participate in that program may, at the Board’s
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer that program with respect to all such
persons. The members of the Secondary Committee may be Board members who are
Employees eligible to receive discretionary option grants under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary). Administration of the Stock Issuance
Program shall be vested in the Primary Committee, except to the extent the Board
delegates administrative authority under the Stock Issuance Program to a
Secondary Committee or retains such authority for itself.

 

C.    Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.

 

D.    Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.

 

E.    Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.

 

F.    Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants made under that program.

 

2.

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

 

  IV.   ELIGIBILITY

 

A.    The persons eligible to participate in the Discretionary Option Grant
Program are as follows:

 

(i)    Employees,

 

(ii)    non-employee members of the Board or the board of directors of any
Parent or Subsidiary, and

 

(iii)    consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).

 

B.    The persons eligible to participate in the Stock Issuance Program shall be
limited to those individuals who render services to the Corporation (or any
Parent or Subsidiary) in the capacity of independent, non-employee consultants
and who are not otherwise Section 16 Insiders at the time of issuance.

 

C.    Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine (i) with respect
to the Discretionary Option Grant Program, which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times when each option is to become exercisable, the vesting schedule (if any)
applicable to the option shares and the maximum term for which the option is to
remain outstanding and (ii) with respect to stock issuances under the Stock
Issuance Program, which eligible persons are to receive stock issuances, the
time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration for such shares.

 

D.    The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as
non-employee Board members on the Plan Effective Date, (ii) those individuals
who first become non-employee Board members on or after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation’s
shareholders, and (iii) those individuals who continue to serve as non-employee
Board members at one or more Annual Shareholders Meetings held after the Plan
Effective Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.

 

3.

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

 

  V.   STOCK SUBJECT TO THE PLAN

 

A.    The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
reserved for issuance over the term of the Plan shall not exceed 2,504,006,600
shares, subject to the automatic share increases described in Paragraph V.B.
below. Such share reserve consists of the number of shares of Common Stock
transferred from the Predecessor Plan, as of the Plan Effective Date
(619,524,900), plus the number of shares added to the reserve pursuant to the
automatic share increases effected in December 1996, December 1997, December
1998, December 1999, December 2000 and December 2001 (1,884,481,700 shares in
the aggregate).

 

B.    The number of shares of Common Stock available for issuance under the Plan
shall automatically increase on the first trading day of fiscal December each
calendar year, beginning with fiscal December in calendar year 1996 and
continuing through fiscal December in calendar year 2001, by a number of shares
equal to four and three-quarters percent (4.75%) of the total number of shares
of Common Stock outstanding on the last trading day in the immediately preceding
fiscal November, but in no event shall any such annual increase exceed
480,000,000 shares.

 

C.    No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights or direct stock issuances for
more than 18,000,000 shares of Common Stock in the aggregate per calendar year.

 

D.    Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued under
the Plan and subsequently cancelled or repurchased by the Corporation, at the
original issue price paid per share, pursuant to the Corporation’s repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants under the Plan.
However, should the exercise price of an option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised or which vest under the stock issuance, and not by the
net number of shares of Common Stock issued to the holder of such option or
stock issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two of the Plan shall not be
available for subsequent issuance under the Plan.

 

E.    If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of

 

4.

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

securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances in the
aggregate under the Plan per calendar year, (iii) the maximum number and/or
class of securities issuable under the Stock Issuance Program, (iv) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Board
members, unless the Plan Administrator determines otherwise, (v) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option under the Plan and (vi) the number and/or class of securities
and price per share in effect under each outstanding option incorporated into
this Plan from the Predecessor Plan. Such adjustments to the outstanding options
are to be effected in a manner which shall preclude the enlargement or dilution
of rights and benefits under such options. The adjustments determined by the
Plan Administrator shall be final, binding and conclusive.

 

 

5.

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

 

ARTICLE TWO

 

DISCRETIONARY OPTION GRANT PROGRAM

 

  I.   OPTION TERMS

 

Each option shall be evidenced by one or more documents in the form approved by
the Plan Administrator; provided, however, that each such document shall comply
with the terms specified below. Each document evidencing an Incentive Option
shall, in addition, be subject to the provisions of the Plan applicable to such
options.

 

A.    Exercise Price.

 

1.    The exercise price per share shall be fixed by the Plan Administrator but
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the option grant date.

 

2.    The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Four and the
documents evidencing the option, be payable in one or more of the forms
specified below:

 

(i)    cash or check made payable to the Corporation,

 

(ii)    shares of Common Stock held for the requisite period necessary to avoid
a charge to the Corporation’s earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date, or

 

(iii)    to the extent the option is exercised for vested shares, through a
special sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions to (a) a brokerage firm
(reasonably acceptable to the Corporation for purposes of administering such
procedure in compliance with the Corporation’s pre-notification policy for sales
of Common Stock) to effect the immediate sale of the purchased shares and remit
to the Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise and (b)
the Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.

 

Except to the extent such sale and remittance procedure is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

 

6.

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

 

B.    Exercise and Term of Options.    Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of nine (9) years
measured from the option grant date.

 

C.    Effect of Termination of Service.

 

1.    The following provisions shall govern the exercise of any options held by
the Optionee at the time of cessation of Service or death:

 

(i)    Any option outstanding at the time of the Optionee’s cessation of Service
for any reason shall remain exercisable for such period of time thereafter as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable after the
expiration of the option term.

 

(ii)    Any option exercisable in whole or in part by the Optionee at the time
of death may be subsequently exercised by the personal representative of the
Optionee’s estate or by the person or persons to whom the option is transferred
pursuant to the Optionee’s will or in accordance with the laws of descent and
distribution.

 

(iii)    Should the Optionee’s Service be terminated for Misconduct, then all
outstanding options held by the Optionee shall terminate immediately and cease
to be outstanding.

 

(iv)    During the applicable post-Service exercise period, the option may not
be exercised in the aggregate for more than the number of vested shares for
which the option is exercisable on the date of the Optionee’s cessation of
Service. Upon the expiration of the applicable exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee’s cessation
of Service, terminate and cease to be outstanding to the extent the option is
not otherwise at that time exercisable for vested shares.

 

D.    The Plan Administrator shall have complete discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding, to:

 

(i)    extend the period of time for which the option is to remain exercisable
following the Optionee’s cessation of Service from the limited exercise period
otherwise in effect for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the expiration of
the option term, and/or

 

7.

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

 

(ii)    permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares of Common
Stock for which such option is exercisable at the time of the Optionee’s
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested had the Optionee continued
in Service.

 

E.    Shareholder Rights.    The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.

 

F.    Repurchase Rights.    The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.

 

G.    Limited Transferability of Options.    During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee’s death. However, a Non-Statutory Option may
be assigned in whole or in part during the Optionee’s lifetime to one or more
members of the Optionee’s immediate family or to a trust established exclusively
for one or more such family members or to one or more individuals, to the extent
such assignment is in connection with the Optionee’s estate plan or pursuant to
a domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.

 

  II.   INCENTIVE OPTIONS

 

The terms specified below shall be applicable to all Incentive Options. Except
as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Four shall be applicable to Incentive Options. Options designated
as Non-Statutory Options when issued under the Plan shall not be subject to the
terms of this Section II.

 

A.    Eligibility.    Incentive Options may only be granted to Employees.

 

8.

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

 

B.    Dollar Limitation.    The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

 

C.    10% Shareholder.    If any Employee to whom an Incentive Option is granted
is a 10% Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.

 

  III.   CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A.    In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall not so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be 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
and provides for subsequent payout in accordance with the same vesting schedule
applicable to those option shares or (iii) the acceleration of such option is
subject to other limitations imposed by the Plan Administrator at the time of
the option grant. The determination of option comparability under clause (i)
above shall be made by the Plan Administrator, and its determination shall be
final, binding and conclusive.

 

B.    All outstanding repurchase rights shall also terminate automatically, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent:
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.

 

C.    Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).

 

9.

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

 

D.    Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan, (iii) the maximum number and/or class of securities
for which any one person may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances under the Plan per calendar
year and (iv) the maximum number and/or class of securities available for
issuance under the Stock Issuance Program.

 

E.    The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee’s Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in which
those options are assumed or replaced and do not otherwise accelerate. Any
options so accelerated shall remain exercisable for fully-vested shares until
the expiration or sooner termination of the option term. In addition, the Plan
Administrator may provide that one or more of the Corporation’s outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares subject
to those terminated repurchase rights shall accordingly vest in full.

 

F.    The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee’s Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control. Each option
so accelerated shall remain exercisable for fully-vested shares until the
expiration or sooner termination of the option term. In addition, the Plan
Administrator may provide that one or more of the Corporation’s outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares subject
to those terminated repurchase rights shall accordingly vest in full.

 

G.    The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.

 

10.

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

 

H.    The outstanding options shall in no way affect the right of the
Corporation 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.

 

  IV.   STOCK APPRECIATION RIGHTS

 

A.    The Plan Administrator shall have full power and authority, exercisable in
its sole discretion, to grant to selected Optionees or other individuals
eligible to receive option grants under the Discretionary Option Grant Program
stock appreciation rights.

 

B.    Three types of stock appreciation rights shall be authorized for issuance
under the Plan: (i) tandem stock appreciation rights (“Tandem Rights”), (ii)
stand-alone stock appreciation rights (“Stand-alone Rights”) and (iii) limited
stock appreciation rights (“Limited Rights”).

 

C.    The following terms and conditions shall govern the grant and exercise of
Tandem Rights under this Article Two.

 

1.    One or more Optionees may be granted a Tandem Right, exercisable upon such
terms and conditions as the Plan Administrator may establish, to elect between
the exercise of the underlying Article Two stock option for shares of Common
Stock or the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (i) the Fair Market Value (on
the option surrender date) of the number of shares in which the Optionee is at
the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate exercise price payable for such vested shares.

 

2.    No such option surrender shall be effective unless it is approved by the
Plan Administrator, either at the time of the actual option surrender or at any
earlier time. If the surrender is so approved, then the distribution to which
the Optionee shall accordingly become entitled under this Section V may be made
in shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.

 

3.    If the surrender of an option is not approved by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than nine (9) years after the date of the option grant.

 

D.    The following terms and conditions shall govern the grant and exercise of
Stand-alone Rights under this Article Two:

 

11.

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

 

1.    One or more individuals eligible to participate in the Discretionary
Option Grant Program may be granted a Stand-alone Right not tied to any
underlying option under this Discretionary Option Grant Program. The Stand-alone
Right shall cover a specified number of underlying shares of Common Stock and
shall be exercisable upon such terms and conditions as the Plan Administrator
may establish. Upon exercise of the Stand-alone Right, the holder shall be
entitled to receive a distribution from the Corporation in an amount equal to
the excess of (i) the aggregate Fair Market Value (on the exercise date) of the
shares of Common Stock underlying the exercised right over (ii) the aggregate
base price in effect for those shares.

 

2.    The number of shares of Common Stock underlying each Stand-alone Right and
the base price in effect for those shares shall be determined by the Plan
Administrator in its sole discretion at the time the Stand-alone Right is
granted. In no event, however, may the base price per share be less than the
Fair Market Value per underlying share of Common Stock on the grant date.

 

3.    The distribution with respect to an exercised Stand-alone Right may be
made in shares of Common Stock valued at Fair Market Value on the exercise date,
in cash, or partly in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.

 

E.    The following terms and conditions shall govern the grant and exercise of
Limited Rights under this Article Two:

 

1.    One or more Section 16 Insiders may, in the Plan Administrator’s sole
discretion, be granted Limited Rights with respect to their outstanding options
under this Article Two.

 

2.    Upon the occurrence of a Hostile Take-Over, the Section 16 Insider shall
have the unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each option with such a Limited Right to
the Corporation, to the extent the option is at the time exercisable for fully
vested shares of Common Stock. The Section 16 Insider shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the vested shares of Common Stock at the
time subject to each surrendered option (or surrendered portion of such option)
over (ii) the aggregate exercise price payable for such vested shares. Such cash
distribution shall be made within five (5) days following the option surrender
date.

 

3.    The Plan Administrator shall pre-approve, at the time such Limited Right
is granted, the subsequent exercise of that right in accordance with the terms
of the grant and the provisions of this Section IV. No additional approval of
the Plan Administrator or the Board shall be required at the time of the actual
option surrender and cash distribution. Any unsurrendered portion of the option
shall continue to remain outstanding and become exercisable in accordance with
the terms of the instrument evidencing such grant.

 

F.    The shares of Common Stock underlying any stock appreciation rights
exercised under this Section IV shall not be available for subsequent issuance
under the Plan.

 

 

12.

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

 

ARTICLE THREE

 

AUTOMATIC OPTION GRANT PROGRAM

 

The following terms and provisions reflect the amendment to the Automatic Option
Grant Program authorized by the Board on July 8, 1999 and approved by the
shareholders at the 1999 Annual Shareholder Meeting on November 10, 1999.

 

  I.   OPTION TERMS

 

A.    Grant Dates.    Option grants under this Article Three shall be made on
the dates specified below:

 

1.    Each individual who is first elected or appointed as a non-employee Board
member on or after November 10, 1999 shall automatically be granted, on the date
of such initial election or appointment, a Non-Statutory Option to purchase
30,000 shares of Common Stock,1 provided that individual has not previously been
in the employ of the Corporation or any Parent or Subsidiary.

 

2.    On the date of each Annual Shareholders Meeting, beginning with the 1999
Annual Shareholders Meeting, each individual who is re-elected to serve as an
Eligible Director shall automatically be granted a Non-Statutory Option to
purchase 15,000 shares of Common Stock2, provided such individual has served as
a non-employee Board member for at least six (6) months. There shall be no limit
on the number of such 15,000-share option grants any one Eligible Director may
receive over his or her period of Board service, and non-employee Board members
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall be eligible to receive one or more such annual option grants
over their period of continued Board service.

 

B.    Exercise Price.

 

1.    The exercise price per share shall be equal to one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the option grant date.

 

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

1   Prior to the July 8, 1999 restatement, the number of shares of Common Stock
for which an initial option grant was to be made to each newly elected or
appointed non-employee Board member was set at 20,000 shares (before taking into
account any splits of the Common Stock effected after that date).

 

2   Prior to the July 8, 1999 restatement, the number of shares of Common Stock
for which a continuing non-employee Board member was to be granted an option at
each annual shareholders meeting at which he or she was re-elected to the Board
was set at 10,000 shares (before taking into account any splits of the Common
Stock effected after that date).

 

13.

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

 

2.    The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

 

C.    Option Term.    Each option shall have a maximum term equal to the lesser
of (i) nine (9) years measured from the option grant date or (ii) twelve (12)
months following termination of Board service.

 

D.    Exercise and Vesting of Options.    Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee’s cessation of Board service
prior to vesting in those shares. Each initial 30,000-share grant shall vest,
and the Corporation’s repurchase right with respect to those shares shall lapse,
in four (4) successive equal annual installments over the Optionee’s period of
Board service, with the first such installment to vest upon the completion of
one (1) year of Board service measured from the automatic grant date. Each
annual 15,000-share grant shall vest, and the Corporation’s repurchase right
with respect to those shares shall lapse, in two (2) successive equal annual
installments over the optionee’s period of Board service measured from the
automatic grant date.

 

E.    Termination of Board Service.    The following provisions shall govern the
exercise of any options held by the Optionee upon his or her cessation of Board
service:

 

(i)    The Optionee (or, in the event of Optionee’s death, the personal
representative of the Optionee’s estate or the person or persons to whom the
option is transferred pursuant to the Optionee’s will or the laws of
inheritance) shall have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.

 

(ii)    During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of Common
Stock for which the option is exercisable at the time of the Optionee’s
cessation of Board service.

 

(iii)    Should the Optionee cease to serve as a Board member by reason of death
or Permanent Disability, then all shares at the time subject to the option shall
immediately vest so that such option may, during the twelve (12)-month exercise
period following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.

 

(iv)    In no event shall the option remain exercisable after the expiration of
the option term. Upon the expiration of the twelve (12)-month exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the

 

14.

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

 

Optionee’s cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.

 

  II.   CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

 

A.    In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).

 

B.    In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become exercisable for all of the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. Each such
option shall remain exercisable for such fully-vested option shares until the
expiration or sooner termination of the option term or the surrender of the
option in connection with a Hostile Take-Over.

 

C.    Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. At the 1999 Annual
Meeting on November 10, 1999, shareholder approval of a proposal amending the
1996 Stock Incentive Plan created an automatic pre-approval of each option grant
with such a cash surrender right made under the Automatic Option Grant Program
on or after this date and the subsequent exercise of that right in accordance
with the provisions of this Section II.C, and no additional approval of the
Board or any Plan Administrator shall accordingly be required at the time of the
actual option surrender and cash distribution.

 

D.    Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation

 

15.

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

of such Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.

 

E.    The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation 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.

 

  III.   REMAINING TERMS

 

The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.

 

16.

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

 

ARTICLE FOUR

 

STOCK ISSUANCE PROGRAM

 

Shares of Common Stock reserved for issuance under the Plan may be issued under
the Stock Issuance Program through direct and immediate issuances without any
intervening option grants. Only person who render services to the Corporation
(or any Parent or Subsidiary) in the capacity of an independent, non-employee
consultant and who are not otherwise Section 16 Insiders at the time of issuance
may receive a stock issuance under the Program. Each such stock issuance shall
be evidenced by a Stock Issuance Agreement which complies with the terms
specified below. Shares of Common Stock may also be issued under the Stock
Issuance Program pursuant to share right awards which entitle the recipients to
receive those shares upon the attainment of designated performance goals. In no
event may more than One Million (1,000,000) shares of Common Stock reserved for
issuance under the Plan be issued pursuant to the provisions of the Stock
Issuance Program.

 

A.    Purchase Price.

 

1.    The purchase price per share of Common Stock subject to direct issuance
shall be fixed by the Plan Administrator, but shall not be less than one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
issuance date.

 

2.    Shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:

 

(i)    cash or check made payable to the Corporation, or

 

(ii)    past services rendered to the Corporation (or any Parent or Subsidiary).

 

B.    Vesting/Issuance Provisions.

 

1.    Shares of Common Stock issued under the Stock Issuance Program may, in the
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant’s period
of Service or upon attainment of specified performance objectives.
Alternatively, the Plan Administrator may issue share right awards under the
Stock Issuance Program which shall entitle the recipient to receive a specified
number of shares of Common Stock upon the attainment of one or more performance
goals established by the Plan Administrator or the completion of a specified
period of Service designated by the Plan Administrator. Upon the attainment of
such performance goals or the completion of such Service requirement,
fully-vested shares of Common Stock shall be issued in satisfaction of those
share right awards.

 

17.

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

 

2.    Any new, substituted or additional securities or other property (including
money paid other than as a regular cash dividend) which the Participant may have
the right to receive with respect to his or her unvested shares of Common Stock
by reason of any stock dividend, stock split, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation’s receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable to the
Participant’s unvested shares of Common Stock and (ii) such escrow arrangements
as the Plan Administrator shall deem appropriate.

 

3.    The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.

 

4.    Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for cash
consideration, the Corporation shall repay that consideration to the Participant
at the time the shares are surrendered.

 

5.    The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant’s interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant’s cessation of Service or the attainment or non-attainment of the
applicable performance objectives.

 

6.    Outstanding share right awards under the Stock Issuance Program shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals or Service requirement
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals or Service requirement have not been attained.

 

18.

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

 

  II.   CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A.    All of the Corporation’s outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent those repurchase rights
are to be assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction.

 

B.    The Plan Administrator shall have the discretionary authority, exercisable
either at the time the unvested shares are issued or any time while the
Corporation’s repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant’s Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).

 

C.    The Plan Administrator shall have the discretionary authority, exercisable
either at the time the unvested shares are issued or any time while the
Corporation’s repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant’s Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.

 

  III.   SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow
by the Corporation until the Participant’s interest in such shares vests or may
be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

 

19.

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

 

ARTICLE FIVE

 

MISCELLANEOUS

 

  I.   FINANCING

 

The Plan Administrator may permit any Optionee (other than a Section 16 Insider)
to pay the option exercise price under the Discretionary Option Grant Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee exceed the sum of (i) the aggregate option exercise price payable for
the purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee in connection with the option
exercise or share purchase.

 

  II.   TAX WITHHOLDING

 

A.    The Corporation’s obligation to deliver shares of Common Stock upon the
exercise of options under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements.

 

B.    The Plan Administrator may, in its discretion, provide any or all holders
of Non-Statutory Options under the Discretionary Option Grant Program or
unvested shares of Common Stock under the Stock Issuance Program with the right
to use shares of Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject in connection with the exercise
of their options or the vesting of their shares. Such right may be provided to
any such holder in either or both of the following formats:

 

Stock Withholding:    The election to have the Corporation withhold, from the
shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

 

Stock Delivery:    The election to deliver to the Corporation, at the time the
Non-Statutory Option is exercised or the issued shares vest, one or more shares
of Common Stock previously acquired by such holder (other than in connection
with the option exercise or stock vesting which triggers the Withholding Taxes)
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

 

20.

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

 

  III.   EFFECTIVE DATE AND TERM OF THE PLAN

 

A.    The Plan and each of the equity incentive programs thereunder shall become
effective immediately upon the approval of the Corporation’s shareholders at the
1996 Annual Meeting. Options may be granted under the Plan at any time on or
after the date of such shareholder approval. If such shareholder approval is not
obtained, then this Plan shall not become effective, and no options shall be
granted and no shares shall be issued under the Plan.

 

B.    The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after this Plan
is approved by the shareholders at the 1996 Annual Meeting. All options
outstanding under the Predecessor Plan at the time of such shareholder approval
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.

 

C.    One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator’s
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.

 

D.    The Plan shall terminate upon the earliest of (i) December 31, 2006, (ii)
the date on which all shares available for issuance under the Plan shall have
been issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. Upon such plan termination,
all outstanding option grants shall thereafter continue to have force and effect
in accordance with the provisions of the documents evidencing such grants.

 

  IV.   AMENDMENT OF THE PLAN

 

A.    The Board shall have complete power and authority to amend or modify the
Plan in any or all respects but may delegate such authority in whole or in part
to the Primary Committee, as the Board deems appropriate. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options at the time outstanding under the Plan unless the
Optionee consents to such amendment or modification. In addition, certain
amendments may require shareholder approval in accordance with applicable laws
and regulations.

 

B.    The Plan was amended by the Board on July 29, 1998 and approved by the
Shareholders at the 1998 Annual Shareholders Meeting, in order to extend the
automatic share increase provisions of the Plan for an additional three (3)-year
through fiscal December in calendar year 2001. The Automatic Option Grant
Program in effect under the Plan was amended by the Board on July 8, 1999 and
approved by the shareholders at the 1999 Annual Shareholder Meeting, in order to
increase the number of shares of Common Stock for which newly elected or

 

21.

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

appointed non-employee Board members and continuing non-employee Board members
may be granted stock options under such program. The Plan was amended on January
9, 2001 to allow the Board to delegate, in whole or in part, its authority to
amend the Plan to the Primary Committee as it deems appropriate. The Plan was
amended on March 18, 2003 to implement the Stock Issuance Program pursuant to
which up to One Million (1,000,000) shares of Common Stock reserved for issuance
under the Plan may be issued pursuant to direct stock issuances under the Stock
Issuance Program.

 

C.    Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program that are in excess of the number of shares
then available for issuance under the Plan, provided any excess shares actually
issued under that program shall be held in escrow until there is obtained
shareholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
shareholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

 

  V.   USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from the sale of shares of Common
Stock under the Plan shall be used for general corporate purposes.

 

  VI.   REGULATORY APPROVALS

 

A.    The implementation of the Plan, the granting of any stock option under the
Plan and the issuance of any shares of Common Stock under the Plan shall be
subject to the Corporation’s procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

 

B.    No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

 

22.

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

 

  VII.   NO EMPLOYMENT/SERVICE RIGHTS

 

Nothing in the Plan shall confer upon the 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 Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person’s Service at any time for
any reason, with or without cause.

 

23.

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

 

APPENDIX

 

The following definitions shall be in effect under the Plan:

 

A.    Automatic Option Grant Program shall mean the automatic option grant
program in effect under Article Three of the Plan.

 

B.    Board shall mean the Corporation’s Board of Directors.

 

C.    Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

 

(i)    the acquisition, directly or indirectly by any person or related group of
persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Corporation),
of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation’s outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation’s shareholders which the Board
does not recommend such shareholders to accept, or

 

(ii)    a change in the composition of the Board over a period of thirty-six
(36) 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.

 

D.    Code shall mean the Internal Revenue Code of 1986, as amended.

 

E.    Common Stock shall mean the Corporation’s common stock.

 

F.    Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:

 

(i)    a merger or consolidation in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation’s
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or

 

(ii)    the sale, transfer or other disposition of all or substantially all of
the Corporation’s assets in complete liquidation or dissolution of the
Corporation.

 

A-1.

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

 

G.    Corporation shall mean Cisco Systems, Inc., a California corporation, and
its successors.

 

H.    Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under Article Two of the Plan.

 

I.    Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

 

J.    Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method of
performance.

 

K.    Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.

 

L.    Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

 

(i)    If the Common Stock is at the time traded on the Nasdaq National Market,
then the Fair Market Value shall be deemed equal to the closing selling price
per share of Common Stock on the date in question, as such price is reported on
the Nasdaq National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.

 

(ii)    If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be deemed equal to the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.

 

M.    Hostile Take-Over shall mean the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than thirty-five
percent (35%) of the total combined voting power of the Corporation’s
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation’s shareholders which the Board does not recommend such
shareholders to accept.

 

A-2.

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

 

N.    Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.

 

O.    Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:

 

(i)    such individual’s involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or

 

(ii)    such individual’s voluntary resignation following (A) a change in his or
her position with the Corporation which materially reduces his or her level of
responsibility, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and target bonuses under any corporate-performance
based bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual’s place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected
without the individual’s consent.

 

P.    Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee, any unauthorized use or disclosure by such person of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).

 

Q.    1934 Act shall mean the Securities Exchange Act of 1934, as amended.

 

R.    Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

 

S.    Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.

 

T.    Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

 

U.    Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.

 

A-3.

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

 

V.    Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more. However, solely
for purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

 

W.    Plan shall mean the Corporation’s 1996 Stock Incentive Plan, as set forth
in this document.

 

X.    Plan Administrator shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.

 

Y.    Predecessor Plan shall mean the Corporation’s pre-existing 1987 Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.

 

Z.    Primary Committee shall mean the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to Section 16 Insiders.

 

AA.    Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.

 

BB.    Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.

 

CC.    Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

 

DD.    Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.

 

EE.    Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares to such person
under the Stock Issuance Program.

 

FF.    Stock Issuance Program shall mean the stock issuance program in effect
under Article Four of the Plan.

 

A-4.

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

 

GG.    Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

HH.    Take-Over Price shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.

 

II.    10% Shareholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).

 

JJ.    Withholding Taxes shall mean the Federal, state and local income and
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.

 

A-5.

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

 

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 (the “Common
Stock”):

 

Optionee:                                    
                                        
                                             

    

 

Grant Date:                                       
                                                                               

    

 

Type of Option:                                                     
Incentive Stock Option

                                                                              
   Non-Statutory Stock Option

Grant Number:                                       
                                                                          

    

 

Number of Option Shares:                                       
                                          shares

    

 

Exercise Price: $                                        
                                                         per share

    

 

Vesting Commencement Date:                                       
                                                    

    

 

Expiration Date:                                       
                                                                            

    

 

Exercise Schedule

 

The Option shall 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 anniversary of the Vesting
Commencement Date. In no event shall the Option 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 Plan Administrator shall have the right,
exercisable in connection with the approval of that reduction, 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 such reduced work commitment shall be
at the sole discretion of the Plan Administrator. 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. 1996 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 Corporation (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 or in the attached Stock Option Agreement.

 

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

 

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 Corporation (or any Parent or Subsidiary).

 

B.    Optionee is to render valuable services to the Corporation (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 Corporation’s grant
of an option to Optionee.

 

C.    All capitalized terms in this Agreement shall have the meaning assigned to
them in the attached Appendix.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

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

 

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, 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 Corporation 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 become exercisable for the Option
Shares in one or more installments as specified in the Grant 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 7,
Optionee must exercise the exercisable portion of this option by 4 p.m. Eastern
Daylight Time on Thursday, July 3. This is because Friday, July 4 is a United
States holiday on which the Nasdaq National Market is closed for trading.

 

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, Permanent Disability or Misconduct) 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 twelve (12)- month period measured from the
date of Optionee’s death or (B) the Expiration Date.

 

(iii)    Should Optionee cease Service by reason of Permanent Disability while
this option is outstanding, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.

 

(iv)    For purposes of this Agreement, Optionee’s period of Service shall not
include any period of notice of termination of employment, whether expressed or
implied. Optionee’s date of cessation of Service shall mean the date upon which
Optionee ceases active performance of services for the Corporation 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.

 

(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

 

2

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

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 Misconduct or should
Optionee otherwise engage in Misconduct while this option is outstanding, then
this option shall terminate immediately and cease to remain outstanding.

 

6.    Special Acceleration of Option

 

(a)    This option, to the extent outstanding at the time of a Corporate
Transaction but not otherwise fully exercisable, shall automatically accelerate
so that this option shall, immediately prior to the effective date of the
Corporate Transaction, become 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 of Common Stock. 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 to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) this option is to be 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
option exercise/vesting schedule set forth in the Grant Notice. The
determination of option comparability under clause (i) shall be made by the Plan
Administrator, and such determination shall be final, binding and conclusive.

 

(b)    Immediately following 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 this option shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.

 

(d)    This Agreement shall not in any way affect the right of the Corporation
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.    Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of

 

3

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

 

shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation’s receipt of consideration, appropriate
adjustments shall be made to (i) the total number and/or class of 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 Corporation;

 

(B)    to the extent the option is exercised for vested Option Shares, 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 Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price payable for the purchased shares plus all
applicable taxes required to be withheld by the Corporation by reason of such
exercise and (II) to the Corporation 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 Corporation, but only to the extent
authorized by the Plan Administrator in accordance with Paragraph 13; and

 

(D)    shares of Common Stock held by Optionee (or any other person or persons
exercising the option) for the requisite period necessary to avoid a charge to
the Corporation’s earnings for financial reporting purposes and valued at Fair
Market Value on the exercise date.

 

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

 

4

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

 

(iii)    Make appropriate arrangements with the Corporation (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 Corporation 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 Corporation (or any Parent or Subsidiary) for any
reason, the following actions shall be taken, as deemed appropriate by the Plan
Administrator:

 

(i)    any shares of Common Stock 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 stock 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 Corporation and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange (or the Nasdaq National Market, if applicable)
on which the Common Stock may be listed for trading at the time of such exercise
and issuance.

 

(b)    The inability of the Corporation to obtain approval from any regulatory
body having authority deemed by the Corporation to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option shall relieve the
Corporation of any liability with respect to the non-issuance or sale of the
Common Stock as to which such approval shall not have been obtained. The
Corporation, 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 Corporation 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
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its

 

5

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

 

principal corporate offices. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address indicated
below Optionee’s signature line on the Grant Notice. 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 Plan Administrator 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 Corporation. 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 Plan Administrator in its sole discretion.

 

14.    Construction.    This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the terms of the Plan. All decisions of the Plan Administrator with respect
to any question or issue arising under the Plan or this Agreement 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 that State’s conflict-of-laws rules.

 

16.    Excess Shares.    If the Option Shares covered by this Agreement exceed,
as of the Grant Date, the number of shares of Common Stock 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 of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.

 

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

 

(a)    This option shall cease to qualify for favorable tax treatment as an
Incentive 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 Permanent Disability or (B)
more than twelve (12) months after the date Optionee ceases to be an Employee by
reason of Permanent Disability.

 

(b)    No installment under this option shall qualify for favorable tax
treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of the
Common Stock or other securities for which this option or any other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate.

 

6

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

 

Should such One Hundred Thousand Dollar ($100,000) limitation be exceeded in any
calendar year, this option shall nevertheless become exercisable for the excess
shares in such calendar year as a Non-Statutory Option.

 

(c)    Should the exercisability of this option be accelerated upon a Corporate
Transaction, then this option shall qualify for favorable tax treatment as an
Incentive Option only to the extent the aggregate Fair Market Value (determined
at the Grant Date) of the Common Stock for which this option first becomes
exercisable in the calendar year in which the Corporate Transaction occurs does
not, when added to the aggregate value (determined as of the respective date or
dates of grant) of the Common Stock or other securities for which this option or
one or more other Incentive Options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Corporation or any
Parent or Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may nevertheless be
exercised for the excess shares in such calendar year as a Non-Statutory Option.

 

(d)    Should Optionee hold, in addition to this option, one or more other
options to purchase Common Stock which become exercisable for the first time in
the same calendar year as this option, then the foregoing limitations on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

 

18.    Leave of Absence.    The following provisions shall apply upon the
Optionee’s commencement of an authorized leave of absence:

 

(a)    The exercise schedule in effect under the Grant 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 Option in the Grant Notice,
then the following additional provision shall apply:

 

If the leave of absence continues for more than ninety (90) days, then this
option shall automatically convert to a Non-Statutory Option under the Federal
tax laws at the end of the three (3)-month period measured from the ninety-first
(91st) day of such leave, unless the Optionee’s reemployment rights are
guaranteed by statute or by written agreement. Following any such conversion of
the option, all subsequent exercises of such option, whether effected before or
after Optionee’s return to active Employee status, shall result in an immediate
taxable event, and the Corporation shall be required to collect from Optionee
all withholding taxes applicable to such exercise.

 

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

 

7

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

 

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 of
Common Stock held and the details of all options or any other entitlement to
shares of Common Stock 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 Corporation 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 of
Common Stock 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 Corporation 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)    The grant of options under the Plan is made at the discretion of the Plan
Administrator, and the Plan may be suspended or terminated by the Corporation at
any time. The grant of an option in one year or at one time does not in any way
entitle Optionee to an option grant in the future. The Plan is wholly
discretionary in nature and is not to be considered part of Optionee’s normal or
expected compensation subject to severance, resignation, redundancy or similar
compensation. The value of the option is an extraordinary item of compensation
which is outside the scope of Optionee’s employment contract (if any).

 

(b)    Optionee shall have no rights to compensation or damages as a result of
Optionee’s Cessation of Service for any reason whatsoever, whether or not in
breach of contract, insofar as those rights arise or may arise from Optionee’s
ceasing to have rights under or be entitled to exercise this option as a result
of such cessation or from the loss or diminution in

 

8

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

 

value of such rights. If Optionee did acquire any such rights, Optionee is
deemed to have waived them irrevocably by accepting the option.

 

 

9

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

 

Appendix

 

The following definitions shall be in effect under the Agreement:

 

A.    Agreement shall mean this Stock Option Agreement.

 

B.    Board shall mean the Corporation’s Board of Directors.

 

C.    Code shall mean the Internal Revenue Code of 1986, as amended.

 

D.    Common Stock shall mean the Corporation’s common stock.

 

E.    Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:

 

(i)    a merger or consolidation in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation’s
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or

 

(ii)    the sale, transfer or other disposition of all or substantially all of
the Corporation’s assets in complete liquidation or dissolution of the
Corporation.

 

F.    Corporation shall mean Cisco Systems, Inc., a California corporation.

 

G.    Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method of
performance.

 

H.    Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

 

I.    Exercise Price shall mean the exercise price per share as specified in the
Grant Notice.

 

J.    Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.

 

K.    Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

 

(i)    If the Common Stock is at the time traded on the Nasdaq National Market,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question, as the price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any

 

A-1

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

successor system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

 

(ii)    If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

 

L.    Grant Date shall mean the date of grant of the option as specified in the
Grant Notice.

 

M.    Grant Notice shall mean the Notice of Grant of Stock Option accompanying
the Agreement, pursuant to which Optionee has been informed of the basic terms
of the option evidenced hereby.

 

N.    Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.

 

O.    Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).

 

P.    Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

 

Q.    Option Shares shall mean the number of shares of Common Stock subject to
the option as specified in the Grant Notice.

 

R.    Optionee shall mean the person to whom the option is granted as specified
in the Grant Notice.

 

S.    Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

 

A-2

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

 

T.    Permanent Disability shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which is expected to result in death or has lasted or can be
expected to last for a continuous period of twelve (12) months or more.

 

U.    Plan shall mean the Corporation’s 1996 Stock Incentive Plan.

 

V.    Plan Administrator shall mean either the Board or a committee of the Board
acting in its administrative capacity under the Plan.

 

W.    Service shall mean the Optionee’s performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.

 

X.    Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.

 

Y.    Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

 

A-3

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

 

INITIAL GRANT

 

CISCO SYSTEMS, INC.

NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR

AUTOMATIC STOCK OPTION

 

Notice is hereby given of the following option grant (the “Option”) to purchase
shares of the Common Stock of Cisco Systems, Inc. (the “Corporation”):

 

Optionee:                                  
                                        
                                               

    

 

Grant Date:                                      
                                                                               
 

    

 

Exercise Price: $                                        
                                                         per share

    

 

Number of Option Shares:                                      
                                           shares

    

 

Expiration Date:                                      
                                                                             

    

 

Type of Option:    Non-Statutory Stock Option

 

Date Exercisable:    Immediately Exercisable

 

Vesting Schedule:    The Option Shares shall initially be unvested and subject
to repurchase by the Corporation at the Exercise Price paid per share. Optionee
shall acquire a vested interest in, and the Corporation’s repurchase right shall
accordingly lapse with respect to, the Option Shares in a series of four (4)
successive equal annual installments upon the Optionee’s completion of each year
of service as a member of the Corporation’s Board of Directors (the “Board”)
over the four (4)-year period measured from the Grant Date. In no event shall
any additional Option Shares vest after Optionee’s cessation of Board service.

 

Optionee understands and agrees that the Option is granted subject to and in
accordance with the terms of the automatic option grant program under the Cisco
Systems, Inc. 1996 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 Automatic Stock Option Agreement attached hereto as Exhibit A.

 

Optionee hereby acknowledges receipt of a copy of the official prospectus for
the Plan in the form attached hereto as Exhibit B. A copy of the Plan is
available upon request made to the Corporate Secretary at the Corporation’s
principal offices.

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

 

REPURCHASE RIGHT.    OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND SHALL BE
SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE PAID PER SHARE,
UPON OPTIONEE’S TERMINATION OF SERVICE AS A MEMBER OF THE CORPORATION’S BOARD OF
DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND CONDITIONS OF SUCH
REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND
SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF
THE OPTION EXERCISE.

 

No Impairment of Rights.    Nothing in this Notice or in the attached Automatic
Stock Option Agreement or the Plan shall interfere with or otherwise restrict in
any way the rights of the Corporation or the Corporation’s shareholders to
remove Optionee from the Board at any time in accordance with the provisions of
applicable law.

 

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

 

DATED:                                   ,             

 

CISCO SYSTEMS, INC.

By:                                     
                                                            

Title:                                    
                                                         

 

 

 

                                                                              
                          

OPTIONEE

Address:                                    
                                                   

                                                                              
                          

 

ATTACHMENTS

Exhibit A—Automatic Stock Option Agreement

Exhibit B—Plan Summary and Prospectus

 

2

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

EXHIBIT A

 

AUTOMATIC STOCK OPTION AGREEMENT

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

EXHIBIT B

 

PLAN SUMMARY AND PROSPECTUS

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

ANNUAL GRANT

 

CISCO SYSTEMS, INC.

NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR

AUTOMATIC STOCK OPTION

 

Notice is hereby given of the following option grant (the “Option”) to purchase
shares of the Common Stock of Cisco Systems, Inc. (the “Corporation”):

 

Optionee:

  

                                                                             
                                                                                
          

Grant Date:

  

                                                                              
                                        
                                                

Exercise Price:

  

$                                per share

Number of Option Shares:

  

                                   shares

Expiration Date:

  

                                                                              
                                        
                                                

Type of Option:

  

Non-Statutory Stock Option

Date Exercisable:

  

Immediately Exercisable

Vesting Schedule: The Option Shares shall initially be unvested and subject to
repurchase by the Corporation at the Exercise Price paid per share. Optionee
shall acquire a vested interest in, and the Corporation’s repurchase right shall
accordingly lapse with respect to, the Option Shares in a series of two (2)
successive equal annual installments upon Optionee’s completion of each year of
service as a member of the Corporation’s Board of Directors (the “Board”) over
the two (2)-year period measured from the Grant Date. In no event shall any
additional Option Shares vest after Optionee’s cessation of Board service.

 

Optionee understands and agrees that the Option is granted subject to and in
accordance with the terms of the automatic option grant program under the Cisco
Systems, Inc. 1996 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 Automatic Stock Option Agreement attached hereto as Exhibit A.

 

Optionee hereby acknowledges receipt of a copy of the official prospectus for
the Plan in the form attached hereto as Exhibit B. A copy of the Plan is
available upon request made to the Corporate Secretary at the Corporation’s
principal offices.

 

REPURCHASE RIGHT.    OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND SHALL BE
SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE PAID PER SHARE,
UPON OPTIONEE’S TERMINATION OF SERVICE AS A MEMBER OF THE

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

CORPORATION’S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE SHARES. THE TERMS AND
CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE
AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY
OPTIONEE AT THE TIME OF THE OPTION EXERCISE.

 

No Impairment of Rights.    Nothing in this Notice or in the attached Automatic
Stock Option Agreement or the Plan shall interfere with or otherwise restrict in
any way the rights of the Corporation or the Corporation’s shareholders to
remove Optionee from the Board at any time in accordance with the provisions of
applicable law.

 

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

 

DATED:                                         ,             

 

CISCO SYSTEMS, INC.

By:                                     
                                                            

Title:                                    
                                                         

 

 

 

                                                                              
                          

OPTIONEE

Address:                                    
                                                   

                                                                              
                          

 

ATTACHMENTS

Exhibit A - Automatic Stock Option Agreement

Exhibit B - Plan Summary and Prospectus

 

 

2

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

EXHIBIT A

 

AUTOMATIC STOCK OPTION AGREEMENT

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

EXHIBIT B

 

PLAN SUMMARY AND PROSPECTUS

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

CISCO SYSTEMS, INC.

AUTOMATIC STOCK OPTION AGREEMENT

 

RECITALS

 

A.    The Corporation has implemented an automatic option grant program under
the Corporation’s 1996 Stock Incentive Plan pursuant to which eligible
non-employee members of the Board will automatically receive special option
grants at designated intervals over their period of Board service in order to
provide such individuals with a meaningful incentive to continue to serve as a
member of the Board.

 

B.    Optionee is an eligible non-employee Board member, and this Agreement is
executed pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the automatic grant of a stock option to purchase shares of the
Corporation’s Common Stock under the Plan.

 

C.    The granted option is intended to be a non-statutory option which does not
meet the requirements of Section 422 of the Internal Revenue Code.

 

D.    All capitalized terms in this Agreement, to the extent not otherwise
defined in the Agreement, shall have the meaning assigned to them in the
attached Appendix.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

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

 

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, 6 or 7.

 

3.    Limited Transferability.    This option may, in connection with the
Optionee’s estate plan, 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 Corporation 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.    Exercisability/Vesting.

 

(a)    This option shall be immediately exercisable for any or all of the Option
Shares, whether or not the Option Shares are vested in accordance with the
Vesting Schedule set forth in the Grant Notice, and shall remain so exercisable
until the Expiration Date or the sooner termination of the option term under
Paragraph 5, 6 or 7.

 

(b)    Optionee shall, in accordance with the Vesting Schedule set forth in the
Grant Notice, vest in the Option Shares in a series of installments over his or
her period of Board service. Vesting in the Option Shares may be accelerated
pursuant to the provisions of Paragraph 5, 6 or 7. In no event, however, shall
any additional Option Shares vest following Optionee’s cessation of service as a
Board member.

 

5.    Cessation of Board Service.    Should Optionee’s service as a Board member
cease while this option remains outstanding, then the option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date in accordance with the following provisions:

 

(i)    Should Optionee cease to serve as a Board member for any reason (other
than death or Permanent Disability) while this option is outstanding, then the
period for exercising this option shall be reduced to a twelve (12)-month period
commencing with the date of such cessation of Board service, but in no event
shall this option be exercisable at any time after the Expiration Date. During
such limited period of exercisability, this option may not be exercised in the
aggregate for more than the number of Option Shares (if any) in which Optionee
is vested on the date of his or her cessation of Board service. Upon the earlier
of (i) the expiration of such twelve (12)-month period or (ii) the specified
Expiration Date, the option shall terminate and cease to be exercisable with
respect to any vested Option Shares for which the option has not been exercised.

 

(ii)    Should Optionee die during the twelve (12)-month period following his or
her cessation of Board service and hold this option at the time of his or her
death, 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 for any or all of the Option Shares in which Optionee is
vested at the time of Optionee’s cessation of Board service (less any Option
Shares purchased by Optionee after such cessation of Board service but prior to
death). Such right of exercise shall terminate, and this option shall
accordingly cease to be exercisable for such vested Option Shares, upon the
earlier of (i) the expiration of the twelve (12)-month period measured from the
date of Optionee’s cessation of Board service or (ii) the specified Expiration
Date of the option term. Should this option be transferred during Optionee’s
lifetime in accordance with the provisions of Paragraph 3, then the
transferee(s) shall have the same limited time period in which to exercise this
option for any or all of those vested Option Shares.

 

2

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

 

        (iii)     Should Optionee cease service as a Board member by reason of
death or Permanent Disability, then all Option Shares at the time subject to
this option but not otherwise vested shall immediately vest in full so that
Optionee (or the personal representative of Optionee’s estate or the person or
persons to whom the option is transferred upon Optionee’s death or to whom the
option is transferred during Optionee’s lifetime in accordance with the
provisions of Paragraph 3) shall have the right to exercise this option for any
or all of the Option Shares as fully-vested shares of Common Stock at any time
prior to the earlier of (i) the expiration of the twelve (12)-month period
measured from the date of Optionee’s cessation of Board service or (ii) the
specified Expiration Date.

 

        (iv)     Upon Optionee’s cessation of Board service for any reason other
than death or Permanent Disability, this option shall immediately terminate and
cease to be outstanding with respect to any and all Option Shares in which
Optionee is not otherwise at that time vested in accordance with the normal
Vesting Schedule set forth in the Grant Notice or the special vesting
acceleration provisions of Paragraph 6 or 7 below.

 

6.     Corporate Transaction.

 

        (a)     In the event of a Corporate Transaction, all Option Shares at
the time subject to this option but not otherwise vested shall automatically
vest so that this option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable for all of the
Option Shares at the time subject to this option and may be exercised for all or
any portion of such shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or its parent company.

 

        (b)     If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.

 

7.     Change in Control/Hostile Take-Over.

 

        (a)     All Option Shares subject to this option at the time of a Change
in Control but not otherwise vested shall automatically vest so that this option
shall, immediately prior to the effective date of such Change in Control, become
fully exercisable for all of the Option Shares at the time subject to this
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. This option shall remain exercisable for
such fully-vested Option Shares until the earliest to occur of (i) the specified
Expiration Date, (ii) the sooner termination of this option in accordance with
Paragraph 5 or 6 or (iii) the surrender of this option under Paragraph 7(b).

 

3

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

 

        (b)    Optionee shall have an unconditional right (exercisable during
the thirty (30)-day period immediately following the consummation of a Hostile
Take-Over) to surrender this option to the Corporation in exchange for a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the Option Shares at the time subject to the surrendered
option (whether or not those Option Shares are otherwise at the time vested)
over (ii) the aggregate Exercise Price payable for such shares. This Paragraph
7(b) limited stock appreciation right shall in all events terminate upon the
expiration or sooner termination of the option term and may not be assigned or
transferred by Optionee.

 

        (c)    To exercise the Paragraph 7(b) limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period, provide
the Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the option is being
surrendered. Such notice must be accompanied by the return of Optionee’s copy of
this Agreement, together with any written amendments to such Agreement. The cash
distribution shall be paid to Optionee within five (5) business days following
such delivery date. Such option surrender and cash distribution has been
pre-approved by the Corporation’s shareholders in connection with their approval
of the Plan, and no additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution. Upon receipt of such cash distribution, this option shall be
cancelled with respect to the shares subject to the surrendered option (or the
surrendered portion), and Optionee shall cease to have any further right to
acquire those Option Shares under this Agreement. The option shall, however,
remain outstanding for the balance of the Option Shares (if any) in accordance
with the terms and provisions of this Agreement, and the Corporation shall
accordingly issue a new stock option agreement (substantially in the same form
as this Agreement) for those remaining Option Shares.

 

8.    Adjustment in Option Shares.    Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration, appropriate adjustments shall be made to (i) the number and/or
class of 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; provided, however, that the aggregate Exercise Price shall
remain the same.

 

9.    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.

 

10.    Manner of Exercising Option.

 

        (a)    In order to exercise this option for all or any part of the
Option Shares for which the option is at the time exercisable, Optionee or, in
the case of exercise after Optionee’s death, Optionee’s executor, administrator,
heir or legatee, as the case may be, must take the following actions:

 

4

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

 

        (i)    To the extent the option is exercised for vested Option Shares,
the Secretary of the Corporation shall be provided with written notice of the
option exercise (the “Exercise Notice”) in substantially the form of Exhibit I
attached hereto, in which there is specified the number of vested Option Shares
to be purchased under the exercised option. To the extent that the option is
exercised for one or more unvested Option Shares, Optionee (or other person
exercising the option) shall deliver to the Secretary of the Corporation a
Purchase Agreement for those unvested Option Shares.

 

        (ii)    The Exercise Price for the purchased shares shall be paid in one
or more of the following alternative forms:

 

        –     cash or check made payable to the Corporation’s order; or

 

        –     shares of Common Stock held by Optionee (or any other person or
persons exercising the option) for the requisite period necessary to avoid a
charge to the Corporation’s earnings for financial reporting purposes and valued
at Fair Market Value on the Exercise Date; or

 

        –     to the extent the option is exercised for vested Option Shares,
through a special sale and remittance procedure pursuant to which Optionee shall
provide irrevocable written instructions (A) to a Corporation-designated
brokerage firm to effect the immediate sale of the vested shares purchased under
the option and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Exercise Price
payable for those shares plus the applicable Federal, state and local income
taxes required to be withheld by the Corporation by reason of such exercise and
(B) to the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.

 

        (iii)    Appropriate documentation evidencing the right to exercise this
option shall be furnished the Corporation if the person or persons exercising
the option is other than Optionee.

 

        (iv)    Appropriate arrangement must be made with the Corporation for
the satisfaction of all Federal, state and local income tax withholding
requirements applicable to the option exercise.

 

        (b)    Except to the extent the sale and remittance procedure specified
above is utilized in connection with the exercise of the option for vested
Option Shares, payment of the Exercise Price for the purchased shares must
accompany the Exercise Notice or Purchase Agreement delivered to the Corporation
in connection with the option exercise.

 

5

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

 

        (c)     As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate or certificates representing the purchased
Option Shares. To the extent any such Option Shares are unvested, the
certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation’s repurchase rights and may be held in escrow
with the Corporation until such shares vest.

 

        (d)     In no event may this option be exercised for fractional shares.

 

11.     No Impairment of Rights.     This Agreement shall not in any way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise make
changes in its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets. In
addition, nothing in this Agreement shall in any way be construed or interpreted
so as to affect adversely or otherwise impair the right of the Corporation or
the shareholders to remove Optionee from the Board at any time in accordance
with the provisions of applicable law.

 

12.    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 Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.

 

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

 

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

 

14.     Construction/Governing Law.    This Agreement and the option evidenced
hereby are made and granted pursuant to the automatic option grant program in
effect under the Plan and are in all respects limited by and subject to the
express terms and provisions of that program. The interpretation, performance,
and enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State’s conflict-of-laws rules.

 

6

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

 

15.     Notices.     Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation 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 indicated below Optionee’s signature line on the Grant Notice. 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.

 

7

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

 

EXHIBIT I

 

NOTICE OF EXERCISE

 

I hereby notify Cisco Systems, Inc. (the “Corporation”) that I elect to purchase
             shares of the Corporation’s Common Stock (the “Purchased Shares”)
at the option exercise price of $              per share (the “Exercise Price”)
pursuant to that certain option (the “Option”) granted to me pursuant to the
automatic option grant program under the Corporation’s 1996 Stock Incentive Plan
on                              ,                 .

 

Concurrently with the delivery of this Exercise Notice to the Secretary of the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.

 

_________________________, ________

Date

   

                                                                              
                                                                   

   

Optionee

   

                                                                              
                                                                   

         

Address:                                    
                                        
                                                     

         

                                                                              
                                                                   

Print name in exact manner

it is to appear on the

stock certificate:

 

                                                                              
                                                                   

     

Address to which certificate

is to be sent, if different

from address above:

 

                                                                              
                                                                   

   

 

                                                                              
                                                                   

     

Social Security Number:

 

                                                                              
                                                                   

 

 

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

 

APPENDIX

 

The following definitions shall be in effect under the Agreement:

 

A.     Agreement shall mean this Automatic Stock Option Agreement.

 

B.     Board shall mean the Corporation’s Board of Directors.

 

C.     Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

 

(i)     the acquisition, directly or indirectly, by any person or related group
of persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation’s outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation’s shareholders which the Board
does not recommend such shareholders to accept, or

 

(ii)     a change in the composition of the Board over a period of thirty-six
(36) 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.

 

D.     Code shall mean the Internal Revenue Code of 1986, as amended.

 

E.     Common Stock shall mean the Corporation’s common stock.

 

F.     Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:

 

(i)     a merger or consolidation in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation’s
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or

 

(ii)     the sale, transfer or other disposition of all or substantially all of
the Corporation’s assets in complete liquidation or dissolution of the
Corporation.

 

A-1

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

 

G.     Corporation shall mean Cisco Systems, Inc., a California corporation.

 

H.     Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 10 of the Agreement.

 

I.     Exercise Price shall mean the exercise price payable per share as
specified in the Grant Notice.

 

J.     Expiration Date shall mean the date on which the option term expires as
specified in the Grant Notice.

 

K.    Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

 

(i)     If the Common Stock is at the time traded on the Nasdaq National Market,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question, as the price is reported on the Nasdaq
National Market. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

 

(ii)     If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

 

L.    Grant Date shall mean the date of grant of the option as specified in the
Grant Notice.

 

M.    Grant Notice shall mean the Notice of Grant of Automatic Stock Option
accompanying this Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

 

N.    Hostile Take-Over shall mean the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than thirty five
percent (35%) of the total combined voting power of the Corporation’s
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation’s shareholders which the Board does not recommend such
shareholders to accept.

 

O.     1934 Act shall mean the Securities Exchange Act of 1934, as amended.

 

A-2

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

 

P.     Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

 

Q.    Option Shares shall mean the number of shares of Common Stock subject to
the option.

 

R.    Optionee shall mean the person to whom the option is granted as specified
in the Grant Notice.

 

S.    Permanent Disability shall mean the inability of Optionee to perform his
or her usual duties as a Board member by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.

 

T.    Plan shall mean the Corporation’s 1996 Stock Incentive Plan.

 

U.    Purchase Agreement shall mean the stock purchase agreement (in form and
substance satisfactory to the Corporation) which must be executed at the time
the option is exercised for unvested Option Shares and which will accordingly
(i) grant the Corporation the right to repurchase, at the Exercise Price, any
and all of those Option Shares in which Optionee is not otherwise vested at the
time of his or her cessation of service as a Board member and (ii) preclude the
sale, transfer or other disposition of any of the Option Shares purchased under
such agreement while those Option Shares remain subject to the repurchase right.

 

V.    Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.

 

W.    Take-Over Price shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting the Hostile
Take-Over.

 

X.    Vesting Schedule shall mean the vesting schedule specified in the Grant
Notice, pursuant to which Optionee will vest in the Option Shares in one or more
installments over his or her period of Board service, subject to acceleration in
accordance with the provisions of the Agreement.

 

A-3

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

 

CISCO SYSTEMS, INC.  

STOCK ISSUANCE AGREEMENT

 

RECITALS

 

This stock issuance agreement (this “Stock Issuance Agreement”) is made and
entered into as of                              by and between Cisco Systems,
Inc., a California corporation having a principal place of business at 170 West
Tasman Drive, San Jose, California (the “Corporation”) and
                            , an individual having a principal place of business
at                          (“Consultant”).

 

A.     Capitalized terms not defined in this Stock Issuance Agreement shall have
the meanings assigned to such terms in the Corporation’s 1996 Stock Incentive
Plan (the “Plan”).

 

B.     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 Corporation (or any Parent or Subsidiary).

 

C.     Consultant is to render valuable services to the Corporation pursuant to
the consulting agreement by and between the Corporation and Consultant executed
on                          (the “Consulting Agreement”), and this Stock
Issuance Agreement is executed pursuant to Article              of, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation’s grant of a share right award to Consultant.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.     GRANT OF SHARE RIGHT AWARD. In full satisfaction of its obligation under
Section          of the Consulting Agreement, the Corporation hereby grants to
Consultant a share right award which entitles Consultant to receive         
shares of Common Stock as soon as practicable following each Issuance Date, in
each case subject to Consultant having provided continuous service to the
Corporation pursuant to the Consulting Agreement through each such date. In no
event will Consultant be issued any shares of Common Stock following
Consultant’s termination of service pursuant to the Consulting Agreement. For
purposes of this Stock Issuance Agreement, “Issuance Date” shall mean
                            .

 

2.     NON-TRANSFERABILITY. This share right award shall be neither transferable
or assignable by Consultant.

 

3.     ADJUSTMENT IN SHARE RIGHT AWARD SHARES. If any change is made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s or its successor’s
receipt of consideration, appropriate adjustments shall be made to the number
and/or class of securities in effect under the share right award made hereunder.
Such adjustments are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such share right award.

 

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

 

4.    STOCKHOLDER RIGHTS. Consultant shall have full stockholder rights with
respect to any shares of Common Stock issued to Consultant hereunder.
Accordingly, Consultant have the right to vote such shares and to receive any
regular cash dividends paid on such shares.

 

5.    CONSTRUCTION. This Stock Issuance Agreement and the share right award
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the terms of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Stock Issuance Agreement shall be conclusive and binding on all persons
having an interest in this share right award.

 

IN WITNESS WHEREOF, the parties have entered into this Stock Issuance Agreement
as of the date first written above.

 

Corporation:

 

CISCO SYSTEMS, INC.

         

By:

  

                                                                              
             

          

Consultant:

      

                                                                              
             

 

2