8-KMaterial AgreementsRegulation FD

CISCO SYSTEMS, INC. 8-K Report, Material Agreement (Sep 21, 2006)

Filed September 21, 2006For Securities:CSCO

Summary

This 8-K filing from Cisco Systems, Inc. (CSCO) on September 21, 2006, details two key compensation-related updates. Firstly, it outlines new annual equity grant arrangements for re-elected non-employee directors, effective from the 2006 annual shareholder meeting. These directors will receive an annual option grant for 15,000 shares and a restricted stock grant for 5,000 shares, with specific vesting schedules. Secondly, and of more significant financial implication, the company announced merit-based, company-wide stock option grants to eligible employees. Approximately 138 million stock options were granted at an exercise price of $23.01 per share, with an additional approximately 4 million restricted stock units awarded to certain employees. These grants are part of Cisco's ongoing employee compensation strategy.

Key Highlights

  • 1Cisco approved modified annual equity grants for re-elected non-employee directors starting with the 2006 shareholder meeting.
  • 2Non-employee directors will receive 15,000 stock options and 5,000 restricted stock units annually.
  • 3Option grants for directors will vest over two years, while restricted stock vests in one year.
  • 4The company transitioned to the 2005 Stock Incentive Plan for future director grants, allowing for discretionary awards up to 50,000 shares per director annually.
  • 5Cisco's Compensation Committee approved merit-based stock options for approximately 138 million shares to eligible employees.
  • 6The exercise price for these employee stock options is $23.01 per share, based on the closing price on September 21, 2006.
  • 7Approximately 4 million restricted stock units were also granted to certain employees.

Frequently Asked Questions

Beginning with the 2006 annual shareholder meeting, re-elected non-employee directors will receive an annual option grant to purchase 15,000 shares and an annual grant of 5,000 shares of restricted stock. The options vest over two years, and the restricted stock vests fully after one year of board service.

On September 21, 2006, Cisco approved merit-based stock options for approximately 138 million shares to eligible employees. The exercise price for these options is $23.01 per share, which was the closing price on that date.

While the grants represent a significant number of shares and potential dilution, this 8-K filing is primarily informational. The actual financial impact will be recognized over time through stock-based compensation expense as per accounting standards. Investors should monitor future financial reports for detailed impact.

These merit-based grants are a common practice for technology companies like Cisco to attract, retain, and incentivize employees. Stock options and restricted stock align employee interests with shareholder value by giving them a stake in the company's future performance and stock price appreciation.