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CISCO SYSTEMS, INC.
SEPTEMBER 26, 1997
DEAR CISCO SYSTEMS SHAREHOLDER:
You are cordially invited to attend the Annual Meeting of Shareholders
("Annual Meeting") of Cisco Systems, Inc. (the "Company") which will be held at
the Company's headquarters in the Gateway Conference Center, Building J, located
at 255 W. Tasman Drive, San Jose, California 95134-1706 on Thursday, November
13, 1997, at 10:00 a.m. You will find a map with directions to the meeting on
page 21 of the Proxy Statement.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
If you do not plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so automatically by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
/s/ John T. Chambers
John T. Chambers
President and Chief Executive Officer
San Jose, California
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign, and date the enclosed proxy as promptly as possible and return
it in the enclosed envelope (to which no postage need be affixed if mailed in
the United States).
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CISCO SYSTEMS, INC.
170 W. TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134-1706
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 13, 1997
The Annual Meeting of Shareholders ("Annual Meeting") of Cisco Systems,
Inc. (the "Company") will be held at the Company's headquarters in the Gateway
Conference Center, Building J, located at 255 W. Tasman Drive, San Jose,
California 95134-1706, on Thursday, November 13, 1997, at 10:00 a.m. for the
following purposes:
1. To elect nine directors of the Board of Directors to serve until
the next Annual Meeting and until their successors have been elected and
qualified;
2. To approve a series of amendments to the 1989 Employee Stock
Purchase Plan, including a 15,000,000 share increase;
3. To amend Article IV(A) of the Company's Restated Articles of
Incorporation to increase the par value of the common stock;
4. To ratify the selection of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the fiscal year ending July 25, 1998;
and
5. To act upon such other matters as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The record date for determining those
shareholders who will be entitled to notice of, and to vote at, the meeting and
at any adjournment thereof is September 15, 1997. The stock transfer books will
not be closed between the record date and the date of the meeting. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at the offices of the Company.
Whether or not you plan to attend the Annual Meeting, please complete,
date, sign, and return the enclosed proxy promptly in the accompanying reply
envelope. Your proxy may be revoked at any time prior to the Annual Meeting. If
you decide to attend the Annual Meeting and wish to change your proxy vote, you
may do so automatically by voting in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Larry R. Carter
Larry R. Carter
Secretary
San Jose, California
September 26, 1997
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CISCO SYSTEMS, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Cisco Systems, Inc., a California
corporation (the "Company"), for the Annual Meeting of the Shareholders (the
"Annual Meeting") to be held at 10:00 a.m. on November 13, 1997, at the
Company's headquarters in the Gateway Conference Center, Building J, located at
255 W. Tasman Drive, San Jose, California 95134-1706, and at any adjournments or
postponements of the Annual Meeting. These proxy materials were first mailed to
shareholders on or about September 26, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On September 15, 1997, the record date for determination of
shareholders entitled to vote at the Annual Meeting, there were 672,119,249
shares of Common Stock outstanding. Each shareholder of record on September 15,
1997, is entitled to one vote for each share of Common Stock held by such
shareholder on September 15, 1997. Abstentions and broker non-votes are counted
as present for the purpose of determining the presence of a quorum for the
transaction of business. In the election of directors, the nine candidates
receiving the highest number of affirmative votes will be elected. Proposals 2
and 4 each require for approval (i) the affirmative vote of a majority of those
shares present and voting, and (ii) the affirmative vote of a majority of the
required quorum. Thus, abstentions and broker non-votes can have the effect of
preventing approval of a proposal where the number of affirmative votes, though
a majority of the votes cast, does not constitute a majority of the required
quorum. Proposal 3, the amendment of the Restated Articles of Incorporation
requires for approval the affirmative vote of a majority of the outstanding
shares entitled to vote at the Annual Meeting.
PROXIES
Whether or not you are able to attend the Annual Meeting, you are urged to
complete and return the enclosed proxy, which is solicited by the Company's
Board of Directors and which will be voted as you direct on your proxy when
properly completed. In the event no directions are specified, such proxies will
be voted FOR the nominees of the Board of Directors (proposal 1), and FOR
proposals 2, 3, and 4 and in the discretion of the proxy holders, as to other
matters that may properly come before the Annual Meeting. You may revoke or
change your proxy at any time before the Annual Meeting. To do this, send a
written notice of revocation or another signed proxy with a later date to the
Secretary of the Company at the Company's principal executive offices before the
beginning of the Annual Meeting. You may also revoke your proxy by attending the
Annual Meeting and voting in person.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional solicitation material furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares
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in their names that are beneficially owned by others so that they may forward
this solicitation material to such beneficial owners. In addition, the Company
has retained Corporate Investor Communications, Inc. ("CIC") to act as a proxy
solicitor in conjunction with the Annual Meeting. Under the terms of an
agreement dated July 24, 1997, the Company has agreed to pay $12,000.00 to CIC
for proxy solicitation services plus an additional $3.00 per holder contacted.
The original solicitation of proxies by mail may be supplemented by a
solicitation by telephone, telegram, or other means by directors, officers, or
employees of the Company. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The names of persons who are nominees for director and their positions and
offices with the Company are set forth in the table below. The proxy holders
intend to vote all proxies received by them in the accompanying form for the
nominees listed below unless otherwise instructed. In the event any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who may be designated by the present Board
of Directors to fill the vacancy. As of the date of this Proxy Statement, the
Board of Directors is not aware of any nominee who is unable or will decline to
serve as a director. The nine (9) nominees receiving the highest number of
affirmative votes of the shares entitled to vote at the Annual Meeting will be
elected directors of the Company to serve until the next Annual Meeting and
until their successors have been elected and qualified. Shareholders may not
cumulate votes in the election of directors.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD
NOMINEES WITH THE COMPANY
------------------------------- ----------------------------------------------------------
<S> <C>
Carol A. Bartz................. Director
John T. Chambers............... President, Chief Executive Officer, and Director
James F. Gibbons............... Director
Edward R. Kozel................ Sr. Vice President, Chief Technical Officer, and Director
John P. Morgridge.............. Chairman of the Board
Robert L. Puette............... Director
Masayoshi Son.................. Director
Donald T. Valentine............ Vice Chairman of the Board
Steven M. West................. Director
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
MS. BARTZ, 49, has been a member of the Board of Directors since November
1996. She has been Chairman and Chief Executive Officer of Autodesk, Inc. since
September 1996. From April 1992 to September 1996 she was Chairman, Chief
Executive Officer and President of Autodesk, Inc. Prior to that, she was with
Sun Microsystems from August 1983 to April 1992 most recently as Vice President
of Worldwide Field Operations. Ms. Bartz also currently serves on the Board of
Directors of Airtouch Communications, Inc., BEA Systems, Inc., Cadence Design
Systems, Inc. and Network Appliance, Inc.
MR. CHAMBERS, 48, has been a member of the Board of Directors since
November 1993. He joined the Company as Senior Vice President in January 1991
and became Executive Vice President in June 1994. Mr. Chambers became President
and Chief Executive Officer of the Company as of January 31, 1995. Prior to his
services at Cisco, he was with Wang Laboratories for eight years, most recently
as Senior Vice President of U.S. Operations.
DR. GIBBONS, 66, has been a member of the Board of Directors since May
1992. He is a Professor of Electrical Engineering at Stanford University and
also Special Consul to the Stanford President for Industrial Relations. He was
Dean of the Stanford University School of Engineering from 1984 to 1996. Dr.
Gibbons
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also currently serves on the Board of Directors of Lockheed Martin Corporation,
Centigram Communications Corporation, El Paso Natural Gas Company, Amati
Communications Corporation and Raychem Corporation.
MR. KOZEL, 42, has been a member of the Board of Directors since November
1996. He joined the Company as Director, Program Management in March 1989. In
April 1992, he became Director of Field Operations and in February 1993, he
became Senior Vice President of Business Development. Since January 1996, he has
been Senior Vice President and Chief Technical Officer of the Company. Mr. Kozel
currently serves on the Board of Directors of CyberCash, Inc. and NetFRAME
Systems, Inc.
MR. MORGRIDGE, 64, joined the Company as President and Chief Executive
Officer and was elected to the Board of Directors in October 1988. Mr. Morgridge
became Chairman of the Board on January 31, 1995. From 1986 to 1988 he was
President and Chief Operating Officer at GRiD Systems, a manufacturer of laptop
computer systems. Mr. Morgridge currently serves on the Board of Directors of
Polycom, Inc.
MR. PUETTE, 55, has been a member of the Board of Directors since January
1991. He has been President, Chief Executive Officer and on the Board of
Directors of NetFRAME Systems, Inc. since January 1995 and became Chairman of
the Board of Directors in January 1996. He was a consultant from November 1993
to December 1994. Prior to that, he was Senior Vice President of Apple Computer,
Inc. and President of the Apple USA Division from June 1990 to October 1993. Mr.
Puette also currently serves on the Board of Directors of Quality Semiconductor
Corporation.
MR. SON, 40, has been a member of the Board of Directors since July 26,
1995. He has been the President and Chief Executive Officer of SOFTBANK
Corporation for more than fifteen years.
MR. VALENTINE, 65, has been a member of the Board of Directors of the
Company since December 1987 and was elected Chairman of the Board of Directors
in December 1988. He became Vice Chairman of the Board on January 31, 1995. He
has been a general partner of Sequoia Capital since 1974. Mr. Valentine
currently serves as Chairman of the Board of Directors of C-Cube Microsystems
Inc., a semiconductor video compression company, Chairman of the Board of
Network Appliance, Inc., a company in the network file server business, and
Chairman of the Board of Elantec Semiconductor, Inc., a manufacturer of analog
integrated circuits.
MR. WEST, 42, has been a member of the Board of Directors of the Company
since April 1996. He has been President and Chief Executive Officer of Hitachi
Data Systems, a joint venture computer hardware services company owned by
Hitachi, Ltd. and Electronic Data Systems Corporation, since June 1996. Prior to
that, Mr. West was at Electronic Data Systems Corporation from 1984 to June of
1996, most recently as President of Electronic Data Systems Corporation
Infotainment Business Unit.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended July 26, 1997, the Board of Directors held six
meetings. During this period, all of the directors except one attended or
participated in more than 75% of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees of the Board on which each such director served. Masayoshi Son, a
member of the Board of Directors residing in Japan, attended 33% of the Board of
Directors meetings.
The Company has six standing Committees: the Acquisition Committee, the
Audit Committee, the Compensation/Stock Option Committee, the Executive
Committee, the Nomination Committee, and the Special Stock Option Committee.
The Acquisition Committee reviews acquisition strategies and candidates
with the Company's management, approves acquisitions and also makes
recommendations to the Board of Directors. This Committee held three meetings
during the last fiscal year. This Committee currently consists of Messrs.
Valentine, Chambers, Morgridge and Puette.
The Audit Committee is responsible for reviewing the Company's financial
procedures and controls and for selecting and meeting with the independent
auditors. This Committee held three meetings during the last fiscal year. This
Committee currently consists of Ms. Bartz and Messrs. Puette and West.
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The Compensation/Stock Option Committee is responsible for reviewing the
compensation arrangements in effect for the Company's executive officers and for
administering all the Company's employee benefit plans, including the 1996 Stock
Incentive Plan. This committee held fifteen meetings during the last fiscal
year. This Committee currently consists of Messrs. Puette and Gibbons.
The Executive Committee's duties include anything permitted by law to be
performed by the Board of Directors that does not require the full Board. This
Committee held no meetings during the last fiscal year. This Committee currently
consists of Messrs. Morgridge, Chambers, and Valentine.
The Nomination Committee is responsible for nominating new members to be
considered for the Board of Directors. This Committee held no meetings during
the last fiscal year. This Committee currently consists of Messrs. Chambers,
Gibbons, and Puette.
The Special Stock Option Committee has concurrent authorization with the
Compensation/Stock Option Committee to make option grants under the 1996 Stock
Incentive Plan to eligible individuals other than executive officers of the
Company. This committee held no meetings during the last fiscal year with
respect to the approval of such option grants. This committee currently consists
of Messrs. Chambers and Morgridge.
DIRECTOR COMPENSATION
Effective with the 1997 fiscal year, the annual retainer fee for
non-employee directors has been increased to $32,000. Accordingly, for fiscal
1997, the non-employee directors were each paid a $32,000 annual retainer fee
for serving on the Board, except that the fee paid to Ms. Bartz was pro-rated to
$24,000 for a period of Board service commencing in November 1996. Directors who
are also employees of the Company are eligible to receive options under the
Company's 1996 Stock Incentive Plan and to participate in the Company's 1989
Employee Stock Purchase Plan, the 401(k) Plan, and the Management Incentive
Plan. During the 1997 fiscal year, non-employee directors were eligible to
participate in the Discretionary Option Grant Program in effect under the 1996
Stock Incentive Plan, and all non-employee directors were eligible to receive
periodic option grants under the Automatic Option Grant Program in effect under
the 1996 Plan.
At the Annual Meeting held on November 15, 1996, each of the following
non-employee directors re-elected to the Board received an option grant under
the Automatic Option Grant Program for 10,000 shares of Common Stock with an
exercise price of $64.75 per share: Messrs. Gibbons, Puette, Son, Valentine, and
West. In addition, Ms. Bartz received an automatic option grant for 20,000
shares on November 15, 1996, when she was first appointed to the Board, with an
exercise price of $64.75 per share. The exercise price in effect for each option
is equal to the fair market value per share of Common Stock on the grant date.
Each option has a maximum term of nine (9) years measured from the grant date,
subject to earlier termination following the optionee's cessation of Board
service. The shares subject to each 10,000-share grant will vest in two
successive equal annual installments upon the optionee's completion of each year
of Board service over the two-year period measured from the grant date. The
shares subject to the 20,000-share grant made to Ms. Bartz will vest in four (4)
successive equal annual installments upon her completion of each year of Board
service over the four (4)-year period measured from the grant date. Each option
is immediately exercisable for all of the option shares; however, any shares
purchased under the option will be subject to repurchase by the Company, at the
option exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. Lastly, the option shares will
immediately vest in full upon certain changes in control or ownership of the
Company or upon the optionee's death or disability while a Board member.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the nominees listed herein.
4
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PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1989 Employee Stock Purchase Plan (the "Purchase Plan") which will
effect the following changes: (i) increase the maximum number of shares of
Common Stock authorized for issuance over the term of the Purchase Plan by an
additional 15,000,000 shares, (ii) eliminate the thirty day employment
requirement as a condition for participation in the Purchase Plan, (iii) reduce
the maximum number of shares of Common Stock purchasable per participant on each
purchase date to 2,500 shares and (iv) extend the term of the Plan from January
3, 2000 to January 3, 2005.
The primary purpose of the amendment is to ensure that the Company will
have a sufficient reserve of Common Stock available under the Purchase Plan to
provide eligible employees of the Company and its participating affiliates with
the continuing opportunity to acquire a proprietary interest in the Company
through participation in a payroll-deduction based employee stock purchase plan
under Section 423 of the Internal Revenue Code.
The Purchase Plan was originally adopted by the Board of Directors in
December 1989 and approved by the Company's shareholders in January 1990. In May
1997, the Board of Directors adopted the amendment to the Purchase Plan which is
the subject of this Proposal.
The following is a summary of the principal features of the Purchase Plan,
as amended. The summary, however, does not purport to be a complete description
of all the provisions of the Purchase Plan. Any stockholder who wishes to obtain
a copy of the actual plan document may do so by written request to the Corporate
Secretary at the Company's headquarters in San Jose, California.
ADMINISTRATION
The Purchase Plan is currently administered by the Compensation/Stock
Option Committee of the Board. Such committee, acting as Plan Administrator, has
full authority to adopt administrative rules and procedures and to interpret the
provisions of the Purchase Plan. All costs and expenses incurred in plan
administration are paid by the Company without charge to participants.
SECURITIES SUBJECT TO THE PURCHASE PLAN
24,600,000 shares of Common Stock have been reserved for issuance over the
term of the Purchase Plan, including the 15,000,000-share increase for which
shareholder approval is sought under this Proposal. The shares may be made
available from authorized but unissued shares of the Company's Common Stock or
from shares of Common Stock repurchased by the Company, including shares
repurchased on the open market. The reserved shares will also be used to fund
stock purchases under the International Employee Stock Purchase Plan which the
Company has established for the employees of its foreign subsidiaries.
In the event that any change is made to the Company's outstanding Common
Stock (whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
of securities purchasable per participant on any one purchase date, (iii) the
class and maximum number of securities purchasable per executive officer over
the term of the Plan and (iv) the class and number of securities and the price
per share in effect under each outstanding purchase right.
OFFERING PERIODS AND PURCHASE DATES
Shares of Common Stock will be offered under the Purchase Plan through a
series of successive purchase periods, each with a maximum duration of
twenty-four (24) months and a minimum duration of three (3) months. At present,
purchase periods begin under the Purchase Plan on the first business day of each
calendar quarter, and each purchase period is of a duration of six (6) months.
Purchases will occur on the last business day of March, June, September, and
December each year.
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ELIGIBILITY AND PARTICIPATION
Any individual who is employed on a basis under which he or she is expected
to work more than 20 hours per week for more than five (5) months per calendar
year in the employ of the Company or any participating parent or subsidiary
corporation (including any corporation which subsequently becomes such at any
time during the term of the Purchase Plan) is eligible to participate in the
Purchase Plan.
Eligible employees may join a purchase period at the start of that purchase
period or on any entry date which may occur within that purchase period. At
present, eligible employees may only join each six (6)-month purchase period on
the start date of such purchase period.
As of July 26, 1997, 7,648,550 shares of Common Stock had been issued under
the Purchase Plan, and 16,951,450 shares would be available for future issuance,
assuming approval of the 15,000,000-share increase which forms part of this
Proposal. As of July 26, 1997, the Company estimates that approximately 10,500
employees, including 6 executive officers, were eligible to participate in the
Purchase Plan.
PURCHASE PRICE
The purchase price of the Common Stock acquired on each purchase date will
be equal to 85% of the lower of (i) the fair market value per share of Common
Stock on the date the purchase period begins or (ii) the fair market value per
share of Common Stock on the purchase date.
The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be deemed to be equal to the closing selling price per share
on such date on the Nasdaq National Market. On July 25, 1997, the fair market
value per share of Common Stock determined on such basis was $79.6875 per share.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
Each participant may authorize periodic payroll deductions in any multiple
of 1% (up to a maximum of 10%) of his or her eligible earnings each purchase
period. The accumulated deductions will automatically be applied on each
purchase date to the purchase of whole shares of Common Stock at the purchase
price in effect for that purchase date.
For purposes of the Purchase Plan, eligible earnings include base salary,
bonuses, commissions and overtime pay.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's right to
acquire Common Stock, including the following:
- Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
- A participant may not be granted rights to purchase more than $25,000
worth of Common Stock (valued at the time each purchase right is granted)
for each calendar year in which such purchase rights are outstanding.
- No participant may purchase more than 2,500 shares of Common Stock on any
one purchase date.
- An executive officer subject to the short-swing profit restrictions of
the federal securities laws may not purchase more than 480,000 shares of
Common Stock over the term of the Purchase Plan.
TERMINATION OF PURCHASE RIGHTS
The participant may stop contributions to the Purchase Plan at any time,
and his or her accumulated payroll deductions will, at the participant's
election, either be refunded immediately or applied to the purchase
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of Common Stock on the next scheduled purchase date. The participant's purchase
right will immediately terminate upon his or her cessation of employment for any
reason other than death or permanent disability. Any payroll deductions which
the participant may have made for the purchase period in which such cessation of
employment occurs will be refunded and will not be applied to the purchase of
Common Stock. Should the participant's employee status cease by reason of death
or permanent disability, then such individual (or the representative of his or
her estate) may elect to have the participant's accumulated payroll deductions
either refunded or applied to the purchase of Common Stock on the next scheduled
purchase date.
SHAREHOLDER RIGHTS
No participant will have any shareholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased on
the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the purchase
date.
ASSIGNABILITY
No purchase rights will be assignable or transferable by the participant,
except by will or the laws of inheritance following a participant's death.
CHANGE IN CONTROL
In the event the Company is acquired by merger or sale of all or
substantially all of the Company's assets or outstanding voting stock, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the purchase period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to the effective date of such acquisition.
SHARE PRORATION
Should the total number of shares of Common Stock to be purchased pursuant
to outstanding purchase rights on any particular date exceed the number of
shares available for issuance under the Purchase Plan at that time, then the
Plan Administrator will make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock allocated to such individual, will be refunded.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earlier of (i) January 3, 2005 or
(ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without shareholder approval, (i) increase the
number of shares issuable under the Purchase Plan, (ii) alter the purchase price
formula so as to reduce the purchase price or (iii) modify the requirements for
eligibility to participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the purchase period in
which such shares were acquired or within one (1) year after the
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purchase date on which those shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares, and the Company will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the purchase period in which the
shares were acquired and more than one (1) year after the purchase date of those
shares, then the participant will recognize ordinary income in the year of sale
or disposition equal to the lower of (i) the amount by which the fair market
value of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) fifteen percent (15%) of the fair market value of
the shares on the participant's entry date into that purchase period. Any
additional gain upon the disposition will be taxed as a long-term capital gain
subject to a maximum federal tax rate of 20% if the shares are held for more
than eighteen (18) months after the purchase date. The Company will not be
entitled to an income tax deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of death,
his or her estate will recognize ordinary income in the year of death equal to
the lower of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her entry date into the purchase
period in which those shares were acquired.
ACCOUNTING TREATMENT
The issuance of Common Stock under the Purchase Plan will not result in a
direct compensation expense chargeable against the Company's reported earnings.
However, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact the purchase rights granted under the Purchase
Plan would have upon the Company's reported earnings were the value of those
purchase rights treated as compensation expense.
STOCK ISSUANCES
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and the various indicated groups,
the number of shares of Common Stock purchased under the Purchase Plan between
July 29, 1996 and June 30, 1997, the most recent purchase date, together with
the weighted average purchase price paid per share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
PURCHASED AVERAGE
NAME SHARES PURCHASE PRICE
----------------------------------------------------------- --------- --------------
<S> <C> <C>
John T. Chambers........................................... 0 $ 0
Chairman of the Board and Chief Executive Officer
Larry R. Carter............................................ 548 $40.71
Vice President, Finance and Administration, Chief
Financial Officer and Secretary
F. Selby Wellman........................................... 0 $ 0
Senior Vice President, Business Units
Gary J. Daichendt.......................................... 476 $52.66
Senior Vice President Worldwide Operations
Carl Redfield.............................................. 582 $40.68
Senior Vice President, Manufacturing and Logistics
All current executive officers as a group (6 persons)(1)... 2,054 $46.00
All employees, including current officers who are not
executive officers, as a group (approximately 10,500
persons) 1,369,165 $44.51
</TABLE>
- ---------------
(1) Determined as of July 26, 1997.
8
<PAGE> 11
NEW PLAN BENEFITS
No purchase rights have been granted, and no shares of Common Stock have
been issued, under the Purchase Plan on the basis of the 15,000,000-share
increase for which shareholder approval is sought under this Proposal.
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and voting at the Annual Meeting, together with
the affirmative vote of a majority of the required quorum, is required for
approval of the 15,000,000-share increase to the Purchase Plan. Should such
shareholder approval not be obtained, then the 15,000,000-share increase will
not be implemented, and any purchase rights granted on the basis of the
15,000,000-share increase to the Purchase Plan will immediately terminate. No
additional purchase rights will be granted on the basis of such share increase,
and the term of the Purchase Plan will not be extended by five (5) years to
January 3, 2005. However, the Purchase Plan will continue in effect until the
earlier of (i) the date the remaining share reserve under the Purchase Plan is
issued or (ii) January 3, 2000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendment to the Purchase Plan is
necessary in order to provide employees with the continuing opportunity to
acquire an equity interest in the Company as an incentive for them to remain in
the Company's service. For this reason, the Board of Directors recommends that
the shareholders vote FOR the amendment to the Purchase Plan.
PROPOSAL NO. 3
INCREASE IN THE PAR VALUE OF THE COMMON STOCK
The Company's shareholders are being asked to approve an amendment to
Article IV (A) of the Restated Articles of Incorporation to increase the par
value of the Common Stock from no par value to $.001 par value (in the form
attached hereto as Exhibit A). The affirmative vote of a majority of the
outstanding shares entitled to vote at the Annual Meeting is required to amend
the Restated Articles of Incorporation.
The Company anticipates that a change from no par value to $.001 par value
Common Stock will save the Company significant expense and thus benefit the
shareholders. Under the laws of the State of California, the state in which the
Company is incorporated, a corporation may have par or no par value stock.
However, some states impose qualification or licensing fees on foreign
corporations to transact business in such states based upon the authorized
capital stock of a corporation. In certain states, the rates at which
qualification or licensing fees are assessed differ, depending upon whether the
shares of the corporation are with or without par value, with nominal par value
shares being assessed at a lower rate than no par value shares.
The increase in par value of the Company's Common Stock from no par value
to $.001 par value per share will have no effect on any of the rights and
privileges now possessed by holders of Common Stock.
If the proposal to amend the Restated Articles of Incorporation is adopted,
an amount equal to the aggregate par value of all issued shares of Common Stock
will be credited to stated capital (referred to as "Common Stock" in the
Company's financial statements) and the amount by which the consideration
received for such shares exceeds the aggregate par value will be credited to
additional paid-in capital and will thereafter be referred to as "Additional
Paid-In Capital" in the Company's financial statements.
If adopted, the amendment to the Restated Articles of Incorporation will be
effective at the close of business on the date of filing the amendment to the
Restated Articles of Incorporation with the California Secretary of State. The
Company anticipates that the filing will occur on November 13, 1997.
Shareholders should retain certificates issued prior to November 13, 1997, and
those certificates will continue to represent
9
<PAGE> 12
the same number of shares, but will be deemed have the value of $.001 per share.
Certificates should not be returned to the Company or its transfer agent.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
amendment to Article IV (A) of the Company's Restated Articles of Incorporation
to increase the par value of the Common Stock from no par value to $.001 par
value per share.
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the shareholders to ratify the selection of Coopers &
Lybrand L.L.P. as the Company's independent accountants for the fiscal year
ending July 25, 1998. The affirmative vote of a majority of the outstanding
voting shares of the Company present or represented and voting at the Annual
Meeting, together with the affirmative vote of a majority of the required
quorum, is required to ratify the selection of Coopers & Lybrand L.L.P.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors, in its discretion, may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors feels that such a change would be in the Company's and its
shareholders' best interests.
Coopers & Lybrand L.L.P. has audited the Company's financial statements
annually since fiscal 1988. Its representatives will be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR the
ratification of the selection of Coopers & Lybrand L.L.P. to serve as the
Company's independent accountants for the fiscal year ending July 25, 1998.
10
<PAGE> 13
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of July
26, 1997 for (i) all persons who are beneficial owners of five percent or more
of the Company's Common Stock, (ii) each director and nominee for director,
(iii) the Company's Chief Executive Officer and the other executive officers
named in the Summary Compensation Table below, and (iv) all current officers and
directors as a group as of July 26, 1997:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
-------------------------------------------------------------- ------------ --------
<S> <C> <C>
Carol A. Bartz................................................ 20,000 *
Larry R. Carter(3)............................................ 298,238 *
John T. Chambers.............................................. 1,215,332 *
Gary J. Daichendt............................................. 63,809 *
James F. Gibbons.............................................. 31,580 *
Edward R. Kozel............................................... 444,307 *
Richard M. Moley.............................................. 1,906,850 *
John P. Morgridge(4).......................................... 9,988,657 1.49
Robert L. Puette.............................................. 50,000 *
Carl Redfield................................................. 278,142 *
Masayoshi Son................................................. 50,000 *
Donald T. Valentine(5)........................................ 395,048 *
F. Selby Wellman.............................................. 97,083 *
Steven M. West................................................ 30,000 *
All current officers and directors as a group (14
persons)(6)................................................. 14,869,046 2.21
</TABLE>
- ---------------
* Less than one percent.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock. The
number of shares beneficially owned includes Common Stock of which such
individual has the right to acquire beneficial ownership either currently or
within 60 days after July 26, 1997, including, but not limited to, upon the
exercise of an option.
(2) Percentage of beneficial ownership is based upon 670,778,669 shares of
Common Stock, all of which were outstanding on July 26, 1997. For each
individual, this percentage includes Common Stock of which such individual
has the right to acquire beneficial ownership either currently or within 60
days of July 26, 1997, including, but not limited to, upon the exercise of
an option; however, such Common Stock shall not be deemed outstanding for
the purpose of computing the percentage owned by any other individual. Such
calculation is required by General Rule 13d-3(d)(1)(i) under the Securities
Exchange Act of 1934. Based upon a review of 13G filings made with the
Securities and Exchange Commission during fiscal year 1997, there were no 5%
shareholders.
(3) Includes 4,279 shares held by the Carter Rev. Trust dated October 18, 1994.
(4) Includes 8,867,689 shares held by John P. Morgridge and Tashia F. Morgridge
as Trustees of the Morgridge Family Trust (UTA DTD 6/30/88). Includes 18,670
shares held by Tashia F. Morgridge. Includes 492,286 shares held in the
Morgridge Family Foundation.
(5) Includes 95,540 shares held by the Donald T. Valentine Family Trust Under
Agreement dated April 29, 1967. Includes 109,508 shares held in total by the
following partnerships: Sequoia Technology Partners VI and Sequoia Partners,
the general partner of Sequoia Capital VI (collectively, the "Sequoia
Entities"). Mr. Valentine disclaims beneficial ownership of shares held by
the Sequoia Entities, except to the extent of his pecuniary interest
therein.
11
<PAGE> 14
(6) Includes outstanding options to purchase 2,760,321 shares of Common Stock
held by six (6) officers and eight (8) directors of the Company to the
extent such options are either currently exercisable or will become
exercisable within 60 days after July 26, 1997. See Note 2 with respect to
shares that have been included herein.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report initial ownership of the Company's
Common Stock and any subsequent changes in ownership to the Securities and
Exchange Commission ("SEC"). Specific due dates have been established by the
SEC, and the Company is required to disclose in this Proxy Statement any failure
to file by these dates. Based upon (i) the copies of Section 16(a) reports that
the Company received from such persons for their 1997 fiscal year transactions
and (ii) the written representations received from one or more of such persons
that no annual Form 5 reports were required to be filed for them for the 1997
fiscal year, the Company believes that there has been compliance with all
Section 16(a) filing requirements applicable to such officers, directors, and
ten-percent beneficial owners for such fiscal year with the exception of late
Form 5 reports for the 1996 and 1997 fiscal years filed by Dr. Gibbons with
respect to distributions covering a total of 1,580 shares of the Company's
Common Stock from a partnership of which Dr. Gibbons is a limited partner.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
The Compensation/Stock Option Committee (the "Committee") of the Board of
Directors sets the compensation of the Chief Executive Officer, reviews the
design, administration, and effectiveness of compensation programs for other key
executives, and approves stock option grants for all executive officers. The
Committee, serving under a charter adopted by the Board of Directors, is
composed entirely of outside directors who have never served as officers of the
Company.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Committee believes that the compensation programs for
executive officers of the Company should be designed to attract, motivate, and
retain talented executives responsible for the success of the Company and should
be determined within a competitive framework and based on the achievement of
overall financial results, individual contributions, and a measure of customer
satisfaction. Within this overall philosophy, the Committee's objectives are to:
- Offer a total compensation program that takes into consideration the
compensation practices of the Peer Companies and other selected companies
with whom the Company competes for executive talent.
- Provide annual variable incentive awards that take into account the
Company's overall financial performance relative to corporate objectives
and the Peer Companies' performance, and based on individual
contributions and a measure of customer satisfaction.
- Align the financial interests of executive officers with those of
shareholders by providing significant equity-based, long-term incentives.
COMPENSATION COMPONENTS AND PROCESS
The three major components of the Company's executive officer compensation
are: (i) base salary, (ii) variable incentive awards, and (iii) long-term,
equity-based incentive awards.
The Committee determines executive officers' compensation levels with the
assistance of the Company's Human Resources Department, which works with an
independent consulting firm that furnishes the Committee with executive
compensation data drawn from a nationally recognized survey of similarly sized
technology companies (the "Peer Companies"). A significant number of the Peer
Companies are listed in the
12
<PAGE> 15
Hambrecht & Quist Technology Index which is included in the Performance Graph
for this Proxy Statement. Certain companies not included in this Index were
considered Peer Companies because the Company competes for executive talent with
those firms. However, some organizations in the Hambrecht & Quist Technology
Index were excluded from the Peer Companies list because they were not
considered competitors for executive talent or because compensation information
was not available.
The positions of the Company's CEO and executive officers were compared
with those of their counterparts at the Peer Companies, and the market
compensation levels for comparable positions were examined to determine base
salary, target incentives, and total cash compensation. In addition, the Peer
Companies' practices concerning stock option grants were reviewed and compared.
Base Salary. The base salary for each executive officer is determined at
levels considered appropriate for comparable positions at the Peer Companies.
The Company's policy is to target base salary levels between the 25th and 50th
percentile of compensation practices at the Peer Companies.
Variable Incentive Awards. To reinforce the attainment of Company goals,
the Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive pool for executive officers is determined on the basis of the
Company's achievement of the financial performance targets established at the
beginning of the fiscal year, a range for the executive's contribution, and a
measure of customer satisfaction. The incentive plan requires a threshold level
of Company performance based on both revenue and profit that must be attained
before any incentives are awarded. Once the new fiscal year's threshold is
reached, specific formulas are in place to calculate the actual incentive
payment for each officer. A target is set for each executive officer based on
targets for comparable positions at the Peer Companies. In fiscal 1997, the
Company exceeded its performance targets. Awards paid reflected these results
plus individual accomplishments of both corporate and functional objectives and
a component of customer satisfaction.
Long-Term, Equity-Based Incentive Awards. The goal of the Company's
long-term, equity-based incentive awards is to align the interests of executive
officers with shareholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. The Committee determines the size of
long-term, equity-based incentives according to each executive's position within
the Company and sets a level it considers appropriate to create a meaningful
opportunity for stock ownership. In addition, the Committee takes into account
an individual's recent performance, his or her potential for future
responsibility and promotion, comparable awards made to individuals in similar
positions with the Peer Companies, and the number of unvested options held by
each individual at the time of the new grant. The relative weight given to each
of these factors varies among individuals at the Committee's discretion.
During fiscal 1997, the Committee made option grants to Messrs. Carter,
Chambers, Daichendt, Redfield, and Wellman under the 1996 Stock Incentive Plan.
Each grant allows the officer to acquire shares of the Company's common stock at
a fixed price per share (the market price on the grant date) over a specified
period of time. Specifically, the option vests in periodic installments over a
four-year period, contingent upon the executive officer's continued employment
with the Company. Accordingly, the option will provide a return only if the
officer remains with the Company and only if the market price appreciates over
the option term.
CEO Compensation. The annual base salary for Mr. Chambers was established
by the Committee on August 1, 1996, for the period July 29, 1996 to July 26,
1997. The Committee's decision was based on Mr. Chambers' personal performance
of his duties and on salary levels paid to chief executive officers of the Peer
Companies, but set below the 25th percentile of the surveyed data in order to
have a substantial portion of his total compensation, in the form of variable
incentive awards and stock option grants, tied to Company performance and stock
price appreciation.
Mr. Chambers' 1997 fiscal year incentive compensation was based on the
actual financial performance of the Company relative to corporate objectives and
a measure of customer satisfaction. Mr. Chambers' incentive compensation
provided no dollar guarantees. His bonus award was based on the incentive plan
used for all executive officers. Mr. Chambers' received two stock option grants
during 1997, each grant was awarded at the
13
<PAGE> 16
same time the Company granted awards to all employees under the Company's broad
based stock option program. The option grants made to Mr. Chambers were based
upon his performance and leadership with the Company. The grants placed a
significant portion of his total compensation at risk, since the options' value
depends on the appreciation of the Company's common stock over the option term.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any fiscal year. The
limitation applies only to compensation which is not considered to be
performance-based. Non-performance based compensation paid to the Company's
executive officers for the 1997 fiscal year did not exceed the $1 million limit
per officer, and the Committee does not anticipate that the non-performance
based compensation to be paid to the Company's executive officers for fiscal
1998 will exceed that limit. The Company's 1996 Stock Incentive Plan has been
structured so that any compensation deemed paid in connection with the exercise
of option grants made under that plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because it
is unlikely that the cash compensation payable to any of the Company's executive
officers in the foreseeable future will approach the $1 million limitation, the
Committee has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Committee will reconsider this decision should the individual cash
compensation of any executive officer ever approach the $1 million level.
COMPENSATION/STOCK OPTION COMMITTEE
Robert L. Puette, Chairman
James F. Gibbons
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation/Stock Option Committee of the Company's
Board of Directors are as named above in the Compensation/Stock Option Committee
Report. No member of the Committee was at any time during the 1997 fiscal year
or at any other time an officer or employee of the Company.
Mr. Puette, the Chairman of the Compensation/Stock Option Committee, is the
President, Chief Executive Officer and member of the Board of Directors of
NetFRAME Systems, Inc. ("NetFRAME"), and Mr. Kozel, an executive officer of the
Company, is also a member of the NetFRAME Board. No other executive officer of
the Company served on the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation/Stock Option Committee.
14
<PAGE> 17
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on July 26, 1992, along with the composite prices of
companies listed in the S&P 500 and the Hambrecht & Quist Technology Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
7/26/92 7/25/93 7/31/94 7/30/95 7/28/96 7/26/97
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cisco Systems, Inc. $100 $204 $162 $433 $794 $1232
S & P 500 100 109 111 137 154 228
H & Q Technology 100 119 126 224 219 399
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings made by the Company under those
statutes, the preceding Compensation/Stock Option Committee Report on Executive
Compensation and the Company Stock Performance Graph will not be incorporated by
reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those statutes.
- ---------------
Notes
1) The Company's fiscal year ended on July 26, 1997.
2) No cash dividends have been declared on the Company's Common Stock.
Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
15
<PAGE> 18
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned, by the Company's
Chief Executive Officer and the four other highest-paid executive officers whose
salary and bonus for the 1997 fiscal year were in excess of $100,000, for
services rendered in all capacities to the Company and its subsidiaries for each
of the last three fiscal years. No executive officer who would have otherwise
been includable in such table on the basis of salary and bonus earned for the
1997 fiscal year has been excluded by reason of his or her termination of
employment or change in executive status during that fiscal year. The
individuals included in the table will be collectively referred to as the "Named
Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION
------------------------------------------------ LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
------------------------------ OTHER ANNUAL ------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION(3) OPTIONS(#) ($)(1)
- ---------------------------- ---- --------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John T. Chambers............ 1997 266,991 291,243 0 800,000 1,500
President, Chief Executive 1996 249,824 368,952 0 700,000 1,500
Officer, Director 1995 230,468 163,806 0 400,000 1,500
Larry R. Carter............. 1997 270,166 200,078 23,030 125,000 1,500
Vice President, Finance 1996 229,335 265,198 0 110,000 1,500
and Administration, Chief 1995 100,006 65,157 180,000 550,000 1,500
Financial Officer, and
Secretary
F. Selby Wellman............ 1997 286,364 179,325 95,000 125,000 1,500
Senior Vice President, 1996 227,641 288,243 87,907 185,000 1,500
Business Units 1995 49,248 33,276 0 300,000 0
Gary J. Daichendt........... 1997 265,325 183,711 0 200,000 0
Senior Vice President, 1996 217,833 272,932 0 85,0000 0
Worldwide Operations 1995 201,064 96,913 140,000 420,000 0
Carl Redfield............... 1997 223,386 152,604 9,386 165,000 1,500
Senior Vice President, 1996 194,213 217,626 0 85,000 1,500
Manufacturing and Logistics 1995 158,547 101,132 0 200,000 1,500
</TABLE>
- ---------------
(1) Represents the matching contribution which the Company made on behalf of
each Named Officer to the Company's 401(k) Plan.
(2) The amounts shown under the Bonus column represent cash bonuses earned for
the indicated fiscal years.
(3) The amounts reported for the 1997 fiscal year consist of: (i) reimbursement
for the payment of taxes attributable to imputed interest income on certain
loans made by the Company to the Named Officers ($23,030 for Mr. Carter and
$9,386 for Mr. Redfield); and (ii) $95,000 of relocation payments for Mr.
Wellman.
16
<PAGE> 19
STOCK OPTIONS
The following table provides information with respect to the stock option
grants made during the 1997 fiscal year under the Company's 1996 Stock Incentive
Plan to the Named Officers. No stock appreciation rights were granted to the
Named Officers during the fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE OF ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION -------------------------
NAME (1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------ --------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John T. Chambers.............. 300,000 .7448 50.000 07/29/05 8,269,923 20,369,215
500,000 1.2414 46.500 04/28/06 12,818,381 31,572,284
Larry R. Carter............... 125,000 .3103 50.875 04/04/06 3,506,103 8,635,699
F. Selby Wellman.............. 125,000 .3103 50.875 04/04/06 3,506,103 8,635,699
Gary J. Daichendt............. 75,000 .1862 67.000 10/04/05 2,770,424 6,823,687
125,000 .3103 50.875 04/04/06 3,506,103 8,635,699
Carl J. Redfield.............. 40,000 .0993 63.125 02/07/06 1,392,104 3,428,818
125,000 .3103 50.875 04/04/06 3,506,103 8,635,699
</TABLE>
- ---------------
(1) Options were granted on July 29, 1996, October 4, 1996, February 7, 1997,
April 4, 1997 and April 28, 1997, and have a maximum term of 9 years
measured from the applicable grant date, subject to earlier termination in
the event of the optionee' s cessation of service with the Company. Each
option will become exercisable for 25% of the option shares upon the
completion of one year of service measured from the grant date and will
become exercisable for the remaining shares in equal monthly installments
over the next 36 months of service thereafter. However, the option will
immediately become exercisable for all of the option shares in the event the
Company is acquired by a merger or asset sale, unless the options are
assumed by the acquiring entity.
(2) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 9-year option term will be at the assumed 5% or 10% annual rates of
compounded stock price appreciation or at any other defined level. Unless
the market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the executive
officers.
17
<PAGE> 20
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named Officers
concerning their exercise of options during the 1997 fiscal year and the
unexercised options held by them as of the end of such year. No stock
appreciation rights were exercised during the fiscal year, and no stock
appreciation rights were outstanding at the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OF VALUE OPTIONS AT JULY 26, 1997 AT JULY 26, 1997($)(1)
SHARES ACQUIRED REALIZED -------------------------- --------------------------
NAME ON EXERCISE ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John T. Chambers....... 0 0 786,249 1,373,751 $45,191,972 $ 55,303,028
Larry R. Carter........ 0 0 266,458 418,542 $15,371,684 $ 19,110,504
F. Selby Wellman....... 75,000 $3,301,953 76,875 383,125 $ 2,810,819 $ 14,969,806
Gary J. Daichendt...... 105,000 $4,762,734 42,292 406,458 $ 1,802,418 $ 15,517,738
Carl J. Redfield....... 139,833 $7,553,992 245,209 314,958 $15,043,480 $ 11,568,625
</TABLE>
- ---------------
(1) Based upon the market price of $79.6875 per share, which was the closing
selling price per share of Common Stock on the Nasdaq National Market on the
last day of the 1997 fiscal year less the option exercise price payable per
share.
(2) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Company's executive officers have employment, change in
control, or severance agreements with the Company, and their employment may be
terminated at any time at the discretion of the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1994, the Company loaned Carl Redfield, Senior Vice President,
Manufacturing and Logistics of the Company, $200,000. The loan is due in full on
March 1, 1998. The loan is interest free and is collateralized by a deed of
trust on real property.
In February 1995, the Company loaned Larry R. Carter, Vice President,
Finance and Administration, Chief Financial Officer, and Secretary of the
Company, $400,000. The loan is due in full on February 13, 1999. The loan is
interest free and is collateralized by a deed of trust on real property.
In January 1996, the Company loaned Gary J. Daichendt, Senior Vice
President, Worldwide Operations of the Company, $400,000. The loan is due in
full on January 12, 2000. The loan is interest free and is collaterized by a
deed of trust on real property.
In June 1996, the Company loaned F. Selby Wellman, Senior Vice President,
Business Units of the Company, $1,300,000. The loan was paid in full in July
1997. The loan was interest free and was collaterized by a deed of trust on real
property.
SHAREHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the Company's
annual meeting of shareholders to be held in 1998 must be received by the
Company no later than June 8, 1998 in order to be included in the proxy
statement and related proxy materials.
18
<PAGE> 21
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES, AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO CISCO SYSTEMS, INC., 170 W. TASMAN
DRIVE, SAN JOSE, CALIFORNIA 95134-1706, ATTN: INVESTOR RELATIONS.
OTHER MATTERS
The Board knows of no other matters to be presented for shareholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Larry R. Carter
Larry R. Carter
Secretary
19
<PAGE> 22
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE RESTATED ARTICLES OF INCORPORATION OF
CISCO SYSTEMS, INC.
The undersigned, John T. Chambers and Larry R. Carter, hereby certify that
they are and at all times herein mentioned have been, the duly elected and
acting President and Secretary of Cisco Systems, Inc., a California corporation
(the "Corporation"), and further certify that:
I. Article IV (A) of the Restated Articles of Incorporation of the
Corporation ("the Restated Articles") is hereby amended to read in its
entirety as follows:
"(A) CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares that the corporation is
authorized to issue is One Billion Two Hundred Five Million
(1,205,000,000) shares. One Billion Two Hundred Million (1,200,000,000)
shares shall be Common Stock, par value $0.001 per share, and Five
Million (5,000,000) shares shall be Preferred Stock."
As of November , 1997, each outstanding share of Common Stock
with no par value will automatically be converted into one share of
Common Stock with a par value of $0.001.
II. The foregoing Certificate of Amendment has been duly approved by
the Board of Directors of the Corporation.
III. The foregoing Certificate of Amendment of the Restated Articles
of Incorporation has been duly approved by the requisite number of shares
of the Corporation in accordance with Sections 902 and 903 of the
California Corporations Code. The total number of outstanding shares of
each class entitled to vote with respect to the forgoing amendment was
, , shares of Common Stock. The number of shares voting in favor of
the foregoing amendment equalled or exceeded the vote required, such
required vote being a majority of the outstanding shares of Common Stock.
No shares of Preferred Stock are outstanding.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment on November , 1997.
--------------------------------------
John T. Chambers
Chief Executive Officer
--------------------------------------
Larry R. Carter
Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Certificate of Amendment and know the contents thereof, and that the
statements therein are true.
Executed at San Jose, California, on November , 1997.
--------------------------------------
John T. Chambers
--------------------------------------
Larry R. Carter
20
<PAGE> 23
DIRECTIONS TO CISCO SYSTEMS
[Location Map to Cisco World Headquarters]
21
<PAGE> 24
CISCO SYSTEMS, INC.
1989 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AND RESTATED MAY 29, 1997)
I. PURPOSE
The Cisco Systems, Inc. 1989 Employee Stock Purchase Plan (the
"Plan") is intended to provide eligible employees of the Company and one or more
of its Corporate Affiliates with the opportunity to acquire a proprietary
interest in the Company through participation in a plan designed to qualify as
an employee stock purchase plan under Section 423 of the Internal Revenue Code
(the "Code").
II. DEFINITIONS
For purposes of administration of the Plan, the following terms
shall have the meanings indicated:
BOARD means the Board of Directors of the Company.
COMPANY means Cisco Systems, Inc., a California corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Cisco Systems, Inc. which shall by appropriate action adopt the Plan.
CORPORATE AFFILIATE means any company which is either the parent
corporation or a subsidiary corporation of the Company (as determined in
accordance with Section 424 of the Code), including any parent or subsidiary
corporation which becomes such after the Effective Date.
EFFECTIVE DATE means January 1, 1990; provided, however, that any
Corporate Affiliate which becomes a Participating Company in the Plan after
January 1, 1990 shall designate a subsequent Effective Date with respect to its
employee-Participants.
ELIGIBLE EARNINGS means (i) the regular basic earnings paid to a
Participant by one or more Participating Companies, (ii) any salary deferral
contributions made on behalf of the Participant to the Company's Code Section
401(k) Plan or Code Section 125 Plan plus (iii) overtime payments, bonuses and
commissions. There shall be excluded from the calculation of Eligible Earnings:
(I) all profit-sharing distributions and other incentive-type payments and (II)
all contributions (other than Code Section 401(k) and Code Section 125
contributions) made by the Company or its Corporate Affiliates for the
Participant's benefit under any employee benefit or welfare plan now or
hereafter established.
EMPLOYEE means any person who is regularly scheduled to work more
than 20 hours per week for more than 5 months per calendar year in the employ of
the Company or any other Participating Company for earnings considered wages
under Section 3401(a) of the Code.
PARTICIPANT means any Employee of a Participating Company who is
actively participating in the Plan.
<PAGE> 25
PARTICIPATING COMPANY means the Company and such Corporate
Affiliate or Affiliates as may be designated from time to time by the Board. The
Participating Companies in the Plan, as of May 29, 1997, are listed in attached
Schedule A.
STOCK means shares of the common stock of the Company.
III. ADMINISTRATION
The Plan shall be administered by the Board or by a committee
(the "Committee") comprised of at least two or more Board members appointed from
time to time by the Board. The Plan Administrator (whether the Board or the
Committee) shall have full authority to administer the Plan, including authority
to interpret and construe any provision of the Plan and to adopt such rules and
regulations for administering the Plan as it may deem necessary in order to
comply with the requirements of Section 423 of the Code. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan.
IV. PURCHASE PERIODS
(a) Stock shall be offered for purchase under the Plan through a
series of successive purchase periods until such time as (i) the maximum number
of shares of Stock available for issuance under the Plan shall have been
purchased or (ii) the Plan shall have been sooner terminated in accordance with
Article IX.
(b) Under no circumstances shall any purchase rights granted
under the Plan be exercised, nor shall any shares of Stock be issued hereunder,
until such time as (i) the Plan shall have been approved by the Company's
shareholders and (ii) the Company shall have complied with all applicable
requirements of the Securities Act of 1933 (as amended), all applicable listing
requirements of any securities exchange on which the Stock is listed and all
other applicable requirements established by law or regulation.
(c) The Plan shall be implemented in a series of consecutive
purchase periods, each to be of such duration (not to exceed twenty-four (24)
months per purchase period) as determined by the Plan Administrator prior to the
commencement date of the purchase period. Purchase periods may commence at
quarterly or semi-annual intervals over the term of the Plan. Accordingly, up to
four (4) separate purchase periods may commence in each calendar year the Plan
remains in existence. The Plan Administrator will announce the date each
purchase period will commence and the duration of that purchase period in
advance of the last day of the immediately preceding purchase period.
(d) The Participant shall be granted a separate purchase right
for each purchase period in which he/she participates. The purchase right shall
be granted on the first day of the purchase period and shall be automatically
exercised on the last business day of that purchase period or any earlier day
the purchase right is to be exercised hereunder.
(e) An Employee may participate in only one purchase period at a
time. Accordingly, an Employee who wishes to join a new purchase period must
withdraw from the current purchase period in which he/she is participating and
must also enroll in the new purchase period prior to the start date of that
purchase period. The Plan Administrator, in its discretion, may require an
Employee who withdraws from one purchase period to wait one full purchase period
before re-enrolling in a new purchase period under the Plan.
2.
<PAGE> 26
V. ELIGIBILITY AND PARTICIPATION
(a) Each individual who is an Employee of a Participating Company
on the commencement date of any purchase period under the Plan shall be eligible
to participate in the Plan for that purchase period.
(b) In order to participate in the Plan for a particular purchase
period, the Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) prior to the commencement date of the purchase period.
(c) The payroll deduction authorized by a Participant for
purposes of acquiring Stock under the Plan may be any multiple of 1% of the
Eligible Earnings paid to the Participant during the period the purchase right
remains outstanding, up to a maximum of 10% per purchase right. The deduction
rate so authorized shall continue in effect for the entire period the purchase
right remains outstanding, unless the Participant shall, prior to the end of the
purchase period for which the purchase right will remain in effect, reduce such
rate by filing the appropriate form with the Plan Administrator (or its
designate). The reduced rate shall become effective as soon as practicable
following the filing of such form. Payroll deductions, however, will
automatically cease upon the termination of the Participant's purchase right in
accordance with Section VII(d) or (e) below.
VI. STOCK SUBJECT TO PLAN
(a) The Stock purchasable by Participants under the Plan shall,
solely in the Board's discretion, be made available from either authorized but
unissued Stock or from reacquired Stock, including shares of Stock purchased on
the open market. The total number of shares which may be issued under the Plan
shall not exceed 24,600,000 shares (subject to adjustment under subparagraph (b)
below). Such share reserve has been adjusted for the various forward splits of
the Stock which have been effected since the Effective Date and includes the
15,000,000-share increase subject to shareholder approval at the 1997 Annual
Meeting.
(b) In the event any change is made to the Stock purchasable
under the Plan by reason of (I) any merger, consolidation or reorganization or
(II) any stock dividend, stock split, combination of shares or other change
affecting the outstanding Stock as a class without the Company's receipt of
consideration, then unless such change occurs in connection with a Section
VII(j) transaction, appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant on any one purchase date, (iii) the class and maximum number of
shares purchasable by any one executive officer over the term of the Plan and
(iv) the class and number of shares and the price per share of the Stock subject
to each purchase right at the time outstanding under the Plan.
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular
purchase period shall have the right to purchase Stock upon the terms and
conditions set forth below and shall execute a purchase agreement embodying such
terms and conditions and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.
3.
<PAGE> 27
(a) Purchase Price. The purchase price per share shall be the
lesser of (i) 85% of the fair market value per share of Stock on the date on
which the purchase right is granted or (ii) 85% of the fair market value per
share of Stock on the date the purchase right is exercised. For purposes of
determining such fair market value (and for all other valuation purposes under
the Plan), the fair market value per share of Stock on any relevant date shall
be the closing selling price per share on such date, as officially quoted on the
principal exchange on which the Stock is at the time traded or, if not traded on
any such exchange, the closing selling price per share of the Stock on such
date, as reported on the Nasdaq National Market. If there are no sales of Stock
on such day, then the closing selling price for the Stock on the next preceding
day for which there does exist such quotation shall be determinative of fair
market value.
(b) Number of Purchasable Shares. The number of shares
purchasable by a Participant upon the exercise of an outstanding purchase right
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during each purchase period the
purchase right remains outstanding by the purchase price in effect for that
purchase period. Any remaining amount in the Participant's account shall be
carried over to the next purchase period. However, the maximum number of shares
purchasable by any Participant on any one purchase date shall not exceed 2,500
shares (subject to adjustment under Section VI(b)), and any amount not applied
to the purchase of Stock on behalf of a Participant by reason of such limitation
shall be refunded to that Participant. In addition, should the Employee be an
executive officer of the Company subject to the short-swing profit restrictions
of the Federal securities laws, then the maximum number of shares which such
Employee may purchase over the term of the Plan shall not exceed 480,000 shares
(as adjusted for the various forward splits of the Stock effected since the
Effective Date and subject to further adjustment under Section VI(b)).
Accordingly, no such officer shall be eligible to receive purchase rights for
any purchase period if the number of shares which would otherwise be purchasable
by such individual for that purchase period would result in the issuance to such
individual of shares of Stock in excess of the maximum number of shares
purchasable in the aggregate by such individual over the term of the Plan.
Under no circumstances shall purchase rights be granted under the
Plan to any Employee if such Employee would, immediately after the grant, own
(within the meaning of Code Section 425(d)), or hold outstanding options or
other rights to purchase, stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Corporate Affiliates.
(c) Payment. Payment for Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin on the first pay day coincident with or immediately
following the commencement date of the relevant purchase period and shall
terminate with the pay day ending with or immediately prior to the last day of
the purchase period. The amounts so collected shall be credited to the book
account maintained by the Company on the Participant's behalf under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such book account. The amounts collected from a Participant may be commingled
with the general assets of the Company and may be used for general corporate
purposes.
(d) Termination of Purchase Rights.
(i) A Participant may, prior to the last day of any purchase
period, terminate his/her outstanding purchase right under the Plan by filing
the prescribed notification form
4.
<PAGE> 28
with the Plan Administrator (or its designate). No further payroll deductions
shall be collected from the Participant with respect to the terminated purchase
right, and the Participant shall have the following election with respect to any
payroll deductions for the purchase period collected prior to the termination
date: (A) have the Company refund the payroll deductions which the Participant
made in that purchase period with respect to the terminated purchase right or
(B) have such payroll deductions held for the purchase of shares at the end of
such purchase period. If no such election is made, then such payroll deductions
shall automatically be refunded at the end of such purchase period.
(ii) The termination shall be irrevocable with respect to the
particular purchase right to which it pertains and shall also require the
Participant to re-enroll in the Plan (by making a timely filing of a new
purchase agreement and payroll deduction authorization) if the Participant
wishes to resume participation in a subsequent purchase period.
(e) Termination of Employment. If a Participant ceases to remain
an Employee while his/her purchase right remains outstanding, then such purchase
right shall immediately terminate and all sums previously collected from the
Participant during the purchase period in which such termination occurs shall be
promptly refunded to the Participant. However, should the Participant die or
become permanently disabled while in Employee status or should the Participant
cease active service by reason of a leave of absence, then the Participant (or
the person or persons to whom the rights of the deceased Participant under the
Plan are transferred by will or by the laws of descent and distribution) shall
have the election, exercisable up until the end of the purchase period in which
the Participant dies or becomes permanently disabled or in which the leave of
absence commences, to (i) withdraw all the funds in the Participant's payroll
account at the time of his/her cessation of Employee status or the commencement
of such leave or (ii) have such funds held for the purchase of shares at the end
of such purchase period. If no such election is made, then such funds shall
automatically be held for the purchase of shares at the end of such purchase
period. In no event, however, shall any further payroll deductions be added to
the Participant's account following his/her cessation of Employee status or the
commencement of such leave. Should the Participant return to active service
following a leave of absence, then his/her payroll deductions under the Plan
shall automatically resume at the rate in effect at the time the leave began,
provided such Participant returns to such active service prior to the close of
the purchase period in which that leave began.
For purposes of the Plan: (a) a Participant shall be considered
to be an Employee for so long as such Participant remains in the active employ
of the Company or any other Participating Company under the Plan, and (b) a
Participant shall be deemed to be permanently disabled if he/she is unable, by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of at least twelve (12) months,
to engage in any substantial gainful employment.
(f) Stock Purchase. The Stock subject to the purchase right of
each Participant (other than Participants whose purchase rights have previously
terminated in accordance with Section VII(d) or (e) above) shall be
automatically purchased on the Participant's behalf on the last business day of
the purchase period for which such purchase right remains outstanding. The
purchase shall be effected by applying the amount credited to each Participant's
book account on the last business date of the purchase period to the purchase of
whole shares of Stock (subject to the limitations on the maximum number of
purchasable shares set forth in Section VII(b)) at the purchase price in effect
for such purchase period.
(g) Proration of Purchase Rights. Should the total number of
shares of Stock to be
5.
<PAGE> 29
purchased pursuant to outstanding purchase rights on any particular date exceed
the number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and any amounts credited to the accounts of
Participants shall, to the extent not applied to the purchase of Stock, be
refunded to the Participants.
(h) Shareholder Rights. A Participant shall have no rights as a
shareholder with respect to shares covered by the purchase rights granted to the
Participant under the Plan until the shares are actually purchased on the
Participant's behalf in accordance with Section VII(f). No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the purchase date.
A Participant shall be entitled to receive, as soon as
practicable after the date of each purchase, a stock certificate for the number
of shares purchased on the Participant's behalf. Such certificate may, upon the
Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with right of survivorship.
(i) Assignability. No purchase rights granted under the Plan
shall be assignable or transferable by a Participant other than by will or by
the laws of descent and distribution, and during the Participant's lifetime the
purchase rights shall be exercisable only by the Participant.
(j) Merger or Liquidation of Company. In the event the Company or
its stockholders enter into an agreement to dispose of all or substantially all
of the assets or outstanding capital stock of the Company by means of a sale,
merger or reorganization in which the Company will not be the surviving
corporation (other than a reorganization effected primarily to change the State
in which the Company is incorporated) or in the event the Company is liquidated,
then all outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to the consummation of such sale, merger,
reorganization or liquidation by applying all sums previously collected from
Participants during the purchase period of such transaction to the purchase of
whole shares of Stock, subject, however, to the applicable limitations of
Section VII(b).
VIII. ACCRUAL LIMITATIONS
(a) No Participant shall be entitled to accrue rights to acquire
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (I) Stock rights accrued under other
purchase rights outstanding under this Plan and (II) similar rights accrued
under other employee stock purchase plans (within the meaning of Section 423 of
the Code) of the Company or its Corporate Affiliates, would otherwise permit
such Participant to purchase more than $25,000 worth of stock of the Company or
any Corporate Affiliate (determined on the basis of the fair market value of
such stock on the date or dates such rights are granted to the Participant) for
each calendar year such rights are at any time outstanding.
(b) For purposes of applying the accrual limitations of Section
VIII(a), the right to acquire Stock pursuant to each purchase right outstanding
under the Plan shall accrue as follows:
(i) The right to acquire Stock under each such purchase right
shall accrue as and when the purchase right first becomes exercisable on the
last business day of each purchase period the right remains outstanding.
6.
<PAGE> 30
(ii) No right to acquire Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the same
calendar year the right to acquire $25,000 worth of Stock (determined on the
basis of the fair market value on the date or dates of grant) pursuant to one or
more purchase rights held by the Participant during such calendar year.
(iii) If by reason of the Section VIII(a) limitations, one or
more purchase rights of a Participant do not accrue for a particular purchase
period, then the payroll deductions which the Participant made during that
purchase period with respect to such purchase rights shall be promptly refunded.
(c) In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
The Board may from time to time alter, amend, suspend or
discontinue the Plan; provided, however, that no such action shall adversely
affect purchase rights at the time outstanding under the Plan; and provided,
further, that no such action of the Board may, without the approval of the
shareholders of the Company, increase the number of shares issuable under the
Plan (other than adjustments pursuant to Sections VI(b) and VII(b)), alter the
purchase price formula so as to reduce the purchase price specified in the Plan,
or materially modify the requirements for eligibility to participate in the
Plan.
X. GENERAL PROVISIONS
(a) The Plan became effective on the designated Effective Date
and was approved by the Company's shareholders in January 1990. The Board
authorized a 15,000,000-share increase to the Plan on May 29, 1997, subject to
shareholder approval at the 1997 Annual Meeting. No purchase rights shall be
granted, and no shares of Stock shall accordingly be issued, on the basis of
such 15,000,000-share increase unless and until the shareholders approve such
increase at the 1997 Annual Meeting.
(b) The Plan shall terminate upon the earlier of (i) January 3,
2005 or (ii) the date on which all shares available for issuance under the Plan
shall have been sold pursuant to purchase rights exercised under the Plan. The
extension of the term of the Plan from January 3, 2000 to January 3, 2005 is
subject to shareholder approval at the 1997 Annual Meeting.
(c) All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
(d) Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.
(e) The provisions of the Plan shall be governed by the laws of
the State of California.
7.
<PAGE> 31
Schedule A
Companies Participating in
1989 Employee Stock Purchase Plan
---------------------------
Cisco Systems, Inc.
8.
<PAGE> 32
DETACH HERE
CISCO SYSTEMS, INC.
Annual Meeting of Shareholders, November 13, 1997
P
This Proxy is Solicited on Behalf of the Board of Directors of
R Cisco Systems, Inc.
O The undersigned revokes all previous proxies, acknowledges receipt of
the notice of shareholders meeting to be held November 13, 1997 and the
X proxy statement, and appoints John T. Chambers and Larry R. Carter or
either of them the proxy of the undersigned, with full power of
Y substitution, to vote all shares of Common Stock of Cisco Systems, Inc.
that the undersigned is entitled to vote, either on his or her own behalf
or on behalf of an entity or entities, at the Annual Meeting of
Shareholders of the Company to be held at the Company's headquarters in the
Gateway Conference Center, Building J, located at 255 W. Tasman Drive, San
Jose, California 95134-1700, on Thursday, November 13, 1997 at 10:00 a.m.,
and at any adjournment or postponement thereof, with the same force and
effect as the undersigned might or could do if personally present thereat.
The shares represented by this proxy shall be voted in the manner set forth
on the reverse side.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE> 33
DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
1. Election of all nominees listed below to the Board of Directors to
serve until the next Annual Meeting and until their successors have
been duly elected and qualified, except as noted (write the names, if
any, of nominees for whom you withhold authority to vote)
Nominees Carol A. Bartz, John T. Chambers, James F. Gibbons, Edward R.
Kosel, John P. Morgridge, Robert L. Austin, ???????? Son, Donald T.
Valentine, Steven M. West
FOR WITHHOLD
[ ] ALL [ ] FROM ALL
NOMINEES NOMINEES
[ ]______________________________________
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Proposal to approve a series of [ ] [ ] [ ]
amendments to the 1989 Employee
Stock Purchase Plan, including a
15,000,000 share increase.
3. Proposal to amend Article IV(A) [ ] [ ] [ ]
of the Company's Restated Articles
of Incorporation to increase the
par value of the common stock.
4. Proposal to ratify the selection [ ] [ ] [ ]
of Coopers and Lybrand, L.L.P. as
the Company's Independent
accountants for the fiscal year
ending July 28, 1996.
5. Proposal to transact such other business as may properly come
before the Annual Meeting or any adjournment or postponement
thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign your name exactly as it appears hereon. If acting as attorney,
executor, trustee, or in other representative capacity, sign name and title
Signature: ___________ Date: ________ Signature: ____________ Date: ________
