<PAGE>
As filed with the Securities and Exchange Commission on June 12, 1996
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
FARALLON COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 3661 94-3033136
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2470 Mariner Square Loop
Alameda, California 94501
(Address of principal executive offices) (Zip Code)
------------
FARALLON COMMUNICATIONS, INC.
1996 Stock Option Plan
Employee Stock Purchase Plan
Shares Issued Pursuant to 1987 Restated Stock Option Plan
Shares Issued Pursuant to Stock Bonus Agreement and Stock Bonus Plan
Shares Issued Pursuant to Written Consulting Agreements
(Full title of the Plans)
------------
Alan B. Lefkof
President and Chief Executive Officer
FARALLON COMMUNICATIONS, INC.
2470 Mariner Square Loop
Alameda, California 94501
(Name and address of agent for service)
(510)814-5100
(Telephone number, including area code, of agent for service)
------------
CALCULATION OF REGISTRATION FEE
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=================================================================================================================
Title of Proposed Maximum Proposed Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered (1) per Share(2) Price(2) Fee
---------- ---------- --------- ----- ---
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1996 Stock Option Plan
- ----------------------
Options 2,166,995 N/A N/A N/A
Common Stock (par value $.001) 2,166,995 $15.00 $32,504,925 $11,209
Employee Stock Purchase Plan
- ----------------------------
Common Stock (par value $.001) 300,000 $15.00 $ 4,500,000 $ 1,552
1987 Restated Stock Option Plan
- -------------------------------
Common Stock (par value $.001) 188,875 $15.00 $ 2,833,125 $ 977
Stock Bonus Plan
- ----------------
Common Stock (par value $.001) 16,000 $15.00 $ 240,000 $ 83
Consulting Agreements
- ---------------------
Common Stock (par value $.001) 19,285 $15.00 $ 289,275 $ 100
- -----------------------------------------------------------------------------------------------------------------
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(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1996 Stock Option Plan, the
Employee Stock Purchase Plan, the 1987 Restated Stock Option Plan, the
Stock Bonus Plan and Stock Bonus Agreement and the written Consulting
Agreements by reason of any stock dividend, stock split, recapitalization
or other similar transaction effected without the receipt of consideration
which results in an increase in the number of the outstanding shares of
Common Stock of Farallon Communications, Inc.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the fair market value
per share of Common Stock of Farallon Communications, Inc. on June 12,
1996.
<PAGE>
EXPLANATORY NOTE
Pursuant to General Instruction C of Form S-8, this Registration
Statement contains a prospectus meeting the requirements of Part I of Form S-3
relating to the reoffer by certain individuals of shares of Common Stock, par
value $.001 per share, of Farallon Communications, Inc. acquired pursuant to the
exercise of options granted under the 1987 Restated Stock Option Plan and
written Consulting Agreements and the award of shares under the Stock Bonus Plan
pursuant to Stock Bonus Agreements.
<PAGE>
FARALLON COMMUNICATIONS, INC.
FORM S-8 CROSS REFERENCE SHEET SHOWING LOCATION OF INFORMATION REQUIRED BY
PART I OF FORM S-3
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Form S-3 Item Number Location/Heading in Prospectus
1. Forepart of Registration Statement and Outside Front Cover
page of Prospectus Cover page
2. Inside Front and Outside Back Cover Page of Prospectus Available Information; Incorporation of Certain
Information by Reference
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges Risk Factors
4. Use of Proceeds Not applicable
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Registered Stockholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Not Applicable
10. Interests of Named Experts and Counsel Not Applicable
11. Material Changes Not Applicable
12. Incorporation of Certain Information Documents Incorporated by Reference
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities Indemnification
</TABLE>
<PAGE>
PART II
Information Required in the Registration Statement
Item 3. Incorporation of Documents by Reference
---------------------------------------
Farallon Communications, Inc. (the "Registrant") hereby incorporates by
reference into this Registration Statement the following documents
previously filed with the Securities and Exchange Commission (the
"SEC"):
(a) The Registrant's prospectus filed with the SEC pursuant to Rule
424(a) of the Securities Act of 1933, as amended (the "1933
Act"), in connection with the Registration Statement No. 333-3868
on Form S-1 filed with the SEC on April 22, 1996, together with
amendments thereto, in which there is set forth audited financial
statements for the Registrant's years ended September 30, 1994
and 1995; and
(b) The Registrant's Registration Statement No. 0-28450 on Form 8-A
filed with the SEC on May 3, 1996 pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"),
together with amendments thereto, in which there is described the
terms, rights and provisions applicable to the Registrant's
outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the
date of this Registration Statement and prior to the filing of a post-
effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining
unsold shall be deemed to be incorporated by reference into this
Registration Statement and to be a part hereof from the date of filing
of such documents.
Item 4. Description of Securities
-------------------------
Not Applicable.
Item 5. Interests of Named Experts and Counsel
--------------------------------------
Not Applicable.
Item 6. Indemnification of Directors and Officers
-----------------------------------------
Section 145 of the Delaware General Corporation Law authorizes a
court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad
to permit such indemnification under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising
under the 1933 Act. The Registrant's Bylaws provide for mandatory
indemnification of its directors and officers and permissible
indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's
Certificate of Incorporation provides that, pursuant to Delaware law,
its directors shall not be liable for monetary damages for breach of
their fiduciary duty as directors to the Registrant and its
stockholders. This provision in the Certificate of Incorporation does
not eliminate the fiduciary duty of the directors, and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Registrant for acts or
omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal
benefit to the director and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law.
The provision also does not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws. The Registrant has entered
II-2
<PAGE>
into Indemnification Agreements with its officers and directors. The
Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted
by the Delaware General Corporation Law.
Item 7. Exemption from Registration Claimed
-----------------------------------
Not Applicable.
Item 8. Exhibits
--------
Exhibit Number Exhibit
- -------------- -------
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
23.1 Consent of KPMG Peat Marwick LLP, Independent Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-5 of this
Registration Statement.
99.1 1996 Stock Option Plan.
99.2 Form of Notice of Grant to be generally used in connection with
the 1996 Stock Option Plan.
99.3 Form of Stock Option Agreement to be generally used in
connection with the 1996 Stock Option Plan.
99.4 Addendum to Stock Option Agreement (Involuntary Termination).
99.5 Addendum to Stock Option Agreement (Limited Stock Appreciation
Right).
99.6 Form of Notice of Grant (Non-Employee Director - Initial Grant)
to be generally used in connection with the automatic grant
program of the 1996 Stock Option Plan.
99.7 Form of Stock Option Agreement (Non-Employee Director) to be
generally used in connection with the automatic grant program of
the 1996 Stock Option Plan.
99.8 Employee Stock Purchase Plan.
99.9 Form of Stock Purchase Agreement.
99.10 Form of Enrollment/Change Form.
99.11 Form of Special Officer Participation Form.
99.12 1987 Restated Stock Option Plan.
99.13 Stock Bonus Agreement.
99.14 Stock Bonus Plan.
99.15 Consulting Agreement between the Registrant and Brian Thorson
dated March 12, 1996.
99.16 Consulting Agreement between the Registrant and Alison Ross
dated February 15, 1996.
Item 9. Undertakings
------------
A. The undersigned Registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-
effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the 1933 Act, (ii) to
reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information
with respect to the plan of distribution not previously disclosed in
this Registration Statement or any material change to such information
in this Registration Statement; provided, however, that clauses (1)(i)
--------
and (1)(ii) shall not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the 1934 Act that are incorporated by reference into
this
II-3
<PAGE>
Registration Statement; (2) that for the purpose of determining any
liability under the 1933 Act each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof and (3) to
remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination
of the Registrant's 1996 Stock Option Plan and Employee Stock Purchase
Plan.
B. The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the 1934 Act that is incorporated by reference into this
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons
of the Registrant pursuant to the indemnification provisions summarized
in Item 6 or otherwise, the Registrant has been advised that, in the
opinion of the SEC, such indemnification is against public policy as
expressed in the 1933 Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-8, and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Alameda, State of
California on this 10th day of June, 1996.
FARALLON COMMUNICATIONS, INC.
By: /s/ Alan B. Lefkof
-------------------------------------------
Alan B. Lefkof
President and Chief Executive Officer
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Farallon
Communications, Inc., a Delaware corporation, do hereby constitute and
appoint Alan B. Lefkof and James A. Clark, and either of them, the lawful
attorneys-in-fact and agents with full power and authority to do any and
all acts and things and to execute any and all instruments which said
attorneys and agents, and either one of them, determine may be necessary or
advisable or required to enable said corporation to comply with the
Securities Act of 1933, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with
this Registration Statement. Without limiting the generality of the
foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in
the capacities indicated below to this Registration Statement, to any and
all amendments, both pre-effective and post-effective, and supplements to
this Registration Statement, and to any and all instruments or documents
filed as part of or in conjunction with this Registration Statement or
amendments or supplements thereof, and either of the undersigned hereby
ratifies and confirms that all said attorneys and agents, or either one of
them, shall do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alan B. Lefkof President and Chief Executive Officer June 10,1996
- ------------------------- and Director
Alan B. Lefkof (Principal Executive Officer)
/s/ James A. Clark Vice President and June 10, 1996
- ------------------------- Chief Financial Officer
James A. Clark (Principal Financial and Accounting
Officer)
II-5
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Reese M. Jones Director June 10, 1996
- -------------------------
Reese M. Jones
/s/ Bandel L. Carano Director June 10, 1996
- -------------------------
Bandel L. Carano
/s/ David F. Marquardt Director June 10, 1996
- -------------------------
David F. Marquardt
/s/ James R. Swartz Director June 10, 1996
- -------------------------
James R. Swartz
II-6
<PAGE>
REOFFER PROSPECTUS
224,160 Shares of Common Stock
Farallon Communications, Inc.
This Reoffer Prospectus relates to 224,160 shares of the Common Stock, par
value $.001 (the "Common Stock"), of Farallon Communications, Inc. (the
"Company"), which may be offered from time to time by certain key employees
named herein (the "Registered Stockholders"). It is anticipated that the
Registered Stockholders will offer shares for sale at prevailing prices on the
Nasdaq National Market System on the date of sale. The Company will receive no
part of the proceeds of sale made hereunder. All expenses of registration
incurred in connection with this offering are being borne by the Company, but
all selling and other expenses incurred by each of the Registered Stockholders
will be borne by each such Registered Stockholder.
Following the initial public offering of the Common Stock, the Common Stock
will be traded on the Nasdaq National Market System. The price per share of the
Company's Common Stock as offered in its initial public offering of such Common
Stock is expected to be $15.00.
The Registered Stockholders and any broker executing selling orders on
behalf of the Registered Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event commissions received by such broker may be deemed to be underwriting
commissions under the Securities Act.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED
ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering described herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Registered Stockholder. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, nor shall there be any sale of these
securities by any person in any jurisdiction in which it is unlawful for such
person to make such offer, solicitation or sale. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
The date of this Prospectus is June 12, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company will be subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") upon the
first date on which its Common Stock is registered under Section 12(g) of the
Exchange Act and in accordance therewith will file reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Room of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
219 South Dearborn Street, Chicago, IL 60604; 26 Federal Plaza, New York, NY
10007; and 5757 Wilshire Boulevard, Los Angeles, CA 90036, at prescribed rates.
The Common Stock following the Company's initial public offering will be quoted
on the Nasdaq National Market System. Reports, proxy statements, informational
statements and other information concerning the Company can be inspected at the
offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing additional financial statements and a report thereon by independent
certified public accountants.
A copy of any document incorporated by reference in the Registration
Statement (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that the Registration Statement incorporates) of which this
Reoffer Prospectus forms a part but which is not delivered with this Reoffer
Prospectus will be provided by the Company without charge to any person
(including any beneficial owner) to whom this Reoffer Prospectus has been
delivered upon the oral or written request of such person. Such requests should
be directed to Michael Zukerman, Esq., Farallon Communications, Inc., 2470
Mariner Square Loop, Alameda, California 94501. The Company's telephone number
at that location is (510) 814-5100.
TABLE OF CONTENTS
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Page
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THE COMPANY................................................... 3
RISK FACTORS.................................................. 3
REGISTERED STOCKHOLDERS....................................... 9
PLAN OF DISTRIBUTION.......................................... 10
DOCUMENTS INCORPORATED BY REFERENCE........................... 11
INDEMNIFICATION............................................... 11
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2
<PAGE>
THE COMPANY
Farallon Communications, Inc. (the "Company") develops, markets and
supports complete, easy-to-use, plug-and-play Internet connectivity and
networking solutions and real-time collaboration software. The Company's
products are designed to increase the productivity and efficiency of Internet,
Intranet and LAN users and to target small businesses, geographically dispersed
facilities of large enterprises, home offices, mobile users, schools and other
small organizations that may not have access to sophisticated technical support.
The Company's Internet/Intranet products include its Netopia routers and modems,
which provide high-speed Internet connectivity for individuals and workgroups,
and its Timbuktu Pro collaboration software, which enables real-time, peer-to-
peer collaboration on the Internet, Intranets and LANs. To assist users in
configuring the Netopia products and in arranging service from Internet and
telecommunications service providers, the Company offers its Up & Running,
Guaranteed! Program, which serves as a single source for complete Internet
connectivity. The Company's LAN networking solutions include its EtherWave
family of products, which enable users to easily and cost-effectively create
Ethernet networks with or without a hub.
The Company's objective is to become the leading provider of complete,
high-speed Internet connectivity solutions and real-time, peer-to-peer
Internet/Intranet collaboration software for segments of the networking market
that industry sources have identified as the most rapidly growing and that
typically do not have access to sophisticated technical support. Netopia
products enable plug-and-play Internet connectivity for multiple users through a
single ISDN connection at substantially greater speed than traditional analog-
based Internet connections. Timbuktu Pro expands the functionality of the
Internet beyond e-mail and Web browsing, enabling users to collaborate in real-
time with other Timbuktu Pro users--viewing other users' screens, revising
information, transferring files, controlling other computers and remotely
accessing network resources. The Company intends to leverage its expertise in
developing easy-to-use, plug-and-play LAN networking solutions, its well-
established distribution channels and its customer service and support
infrastructure to more rapidly penetrate the market for Internet/Intranet
products.
The Company's executive offices are located at 2470 Mariner Square Loop,
Alameda, California 94501. The Company's telephone number is (510) 814-5100.
RISK FACTORS
Fluctuations in Quarterly Results; Future Results of Operations Uncertain
The Company's quarterly operating results have varied significantly in the
past and are likely to vary significantly in the future, depending on factors
such as changes in networking and communications technologies, price and product
competition, usage of the Internet and developments and changes in the Internet
market, the demand for the Company's products, changes in pricing policies by
the Company or its competitors, including the grant of price protection terms
and discounts by the Company, changes in the mix of products sold by the Company
and the resulting change in total gross margin, changes in the mix of channels
through which the Company's products are offered, product enhancements and new
product announcements by the Company and its competitors, market acceptance of
new products of the Company or its competitors, raw material costs, write-offs
of obsolete inventory, the size and timing of distributor and end user orders
and purchasing cycles, customer order deferrals in anticipation of enhancements
to the Company's or competitors' products, customer order deferrals in
anticipation of new Macintosh operating system ("MacOS") product offerings by
Apple Computer ("Apple"), manufacturing delays, disruptions in sources of
supply, product life cycles, product quality problems, personnel changes,
changes in the Company's strategy, changes in the level of operating expenses,
the timing of research and development expenditures, the level of the Company's
international revenues, fluctuations in foreign currency exchange rates, general
economic conditions, both in the United states and abroad, and economic
conditions specific to the industries in which the Company competes, among
others. The Company's limited Internet/Intranet operating history makes the
prediction of future Internet/Intranet operating results difficult, if not
impossible. Sales orders are typically shipped shortly after receipt and,
consequently, order backlog at the beginning of any quarter has in the
3
<PAGE>
past represented only a small portion of that quarter's revenues. Accordingly,
the Company's net revenues in any quarter are substantially dependent on orders
booked and shipped during that quarter. Historically, the Company has often
recognized a significant portion of its revenues in the last weeks, or even
days, of a quarter. As a result, the magnitude of quarterly fluctuations may not
become evident until late in, or after the close of, a particular quarter. In
addition, the Company recognizes revenue on products sold through distributors
upon shipment to the distributor. Although the Company maintains reserves for
projected returns and price decreases, there can be no assurance that such
reserves will be adequate. The Company's business also has experienced
seasonality in the past, largely due to customer buying patterns such as
budgeting cycles of educational institutions that purchase the Company's
products. There can be no assurance that the Company's operating results will
not be affected by seasonality in the future or that such seasonality will occur
in a manner consistent with prior periods.
The Company's expense levels are based in large part on expectations as to
future revenues and as a result are relatively fixed in the short term. If
revenues are below expectations in any given quarter, net income is likely to be
disproportionately affected. Due to all of the foregoing factors, revenue and
net income for any future period are not predictable with any significant degree
of certainty. Accordingly, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. There can be no
assurance that the Company's business strategies will be successful or that the
Company will be able to sustain profitability on a quarterly or annual basis in
the future. It is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Common Stock would likely be materially and
adversely affected.
Dependence on Internet/Intranet Products
The Company's business is substantially dependent upon continued growth in
the sale of its Internet/Intranet products. Rapid growth in the use of the
Internet and Intranets is a recent phenomenon. There can be no assurance that
communications or commerce over the Internet will become widespread. In
addition, to the extent that the Internet continues to experience significant
growth in the number of users and level of use, there can be no assurance that
the Internet infrastructure will continue to be able to support the demands
placed upon it by such potential growth, or will not otherwise lose its utility
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of activity, or due to increased government
regulation. Although the Company has experienced significant percentage growth
in Internet/Intranet revenues over the last three fiscal quarters, the Company
does not believe prior percentage growth rates are sustainable or indicative of
future operating results for these products and services. The Company's limited
Internet/Intranet operating history makes the prediction of future
Internet/Intranet operating results difficult, if not impossible. There can be
no assurance that the Company will continue to increase sales of its
Internet/Intranet products, that the Company's existing distribution channels
are appropriate for the sale of its Internet/Intranet products or that sales of
such products will reach levels significant enough to offset expected declines
in sales, average selling prices and gross margins of the Company's local area
network ("LAN") products. Accordingly, the failure of the Company's
Internet/Intranet products to gain market acceptance or to achieve significant
sales would materially and adversely affect the Company's business, operating
results and financial condition.
Dependence on LAN Products; Declining LAN Business
To date, the Company has derived a substantial majority of its revenues
from LAN products. These products have experienced variable average selling
prices and sales volumes, and declining gross margins for the past five fiscal
quarters. The Company anticipates that the average selling prices and gross
margins of its existing LAN products will continue to decline. Accordingly, to
the extent the product mix for any particular period includes a substantial
proportion of LAN products, the Company's total gross margin will be adversely
affected. To date, the Company has been able to partially reduce the decline in
total gross margin by increasing unit sales of existing LAN products, by
reducing the manufacturing cost of products and by introducing new products with
higher margins. There can be no assurance that the Company will achieve any
such reductions in the future. Although the Company's Internet/Intranet
products currently carry a higher average gross margin than its LAN
4
<PAGE>
products, the Company anticipates that competitive pressures in its
Internet/Intranet business may result in declining average selling prices and
gross margins in this business as well.
Dependence on Apple; Competition with Apple Products
To date, the Company has derived the substantial majority of its total
revenues from products designed for networking the Apple MacOS family of
personal computers. Accordingly, the Company is substantially dependent on the
market for MacOS computers and the development and sale of new Apple computers,
particularly sales of such computers into business environments. There can be
no assurance that competitive personal computers will not displace the MacOS
products or reduce sales of MacOS products. In addition, sales of the Company's
products in the past have been adversely affected by the announcement by Apple
of new products with the potential to replace existing products. The inability
of Apple to successfully develop, manufacture, market or sell new products, and
any decrease in the sales or market acceptance of the MacOS family of computers,
would have a material adverse effect on the Company's business, operating
results and financial condition.
The Company relies on an informal working relationship with Apple in
connection with the Company's LAN product development efforts. Although the
Company and Apple have maintained a cooperative working relationship since the
Company's founding, Apple is under no obligation to continue to share product
information or otherwise cooperate with the Company. In addition, there can be
no assurance that Apple will continue to work cooperatively with the Company in
connection with the Company's product development efforts. The absence of such
cooperation in the future, as a result of the restructuring in process at Apple
or any other factors, could have a material adverse effect on the Company's
business, operating results and financial condition. Apple currently offers
products that compete directly with certain of the Company's products. The
Company anticipates that Apple will continue to incorporate additional
connectivity technologies into more of its products in the future, which will
adversely affect sales of the Company's LAN products. Since Apple has
substantially greater financial, technical, sales, marketing and other resources
than the Company, as well as greater name recognition and a larger customer
base, Apple may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sales of its products. The Company believes that it
is likely that Apple will in the future sell separately or bundle with its
computers certain Internet access products, such as Integrated Services Digital
Network ("ISDN") terminal adapters similar to the Company's Netopia ISDN Modem.
Any such additional bundling or enhancement by Apple could have a material
adverse effect on the Company's business, operating results and financial
condition.
Competition
The markets for the Company's products and services are intensely
competitive, highly fragmented and characterized by rapidly changing technology,
evolving industry standards, price competition and frequent new product
introductions. A number of companies offer products that compete with one or
more of the Company's products. The Company's current and prospective
competitors include original equipment manufacturer ("OEM"), product
manufacturers of Internet access and remote LAN access equipment, manufacturers
of remote control and screen sharing software and manufacturers of LAN client
access and network systems products. Increased competition may result in
further price reductions, reduced gross margins and loss of market share, any of
which could materially and adversely affect the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be able to compete successfully against current and future competitors, or
that competitive factors faced by the Company will not have a material adverse
effect on the Company's business, operating results and financial condition.
New Product Development and Rapid Technological Change
The personal computer industry is characterized by rapidly changing
technologies, evolving industry standards, frequent new product introductions,
short product life cycles and rapidly changing customer requirements. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company's future success will depend on its ability to enhance its existing
products and to introduce new products to meet changing customer requirements
5
<PAGE>
and emerging technologies. The Company has in the past and may in the future
experience delays in new product development. There can be no assurance that
the Company will be successful in developing and marketing product enhancements
or new products that respond to technological change, evolving industry
standards and changing customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or product enhancements, or that
its new products and product enhancements will adequately meet the requirements
of the marketplace and achieve any significant degree of market acceptance.
Failure of the Company, for technological or other reasons, to develop and
introduce new products and product enhancements in a timely and cost-effective
manner would have a material adverse effect on the Company's business, operating
results and financial condition.
Complex products such as those offered by the Company may contain
undetected or unresolved defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company,
defects will not be found in new products or new versions of products following
commercial release, resulting in loss of market share, delay in or loss of
market acceptance or product recall. Any such occurrence could have a material
adverse effect upon the Company's business, operating results or financial
condition.
Management of Changing Business
The Company has recently shifted its business strategy from providing only
LAN products to reducing its reliance on LAN products and focusing development
and management efforts on its Internet/Intranet business. This transition
represents a significant challenge for the Company and its administrative,
operational and financial resources and places increased demands on its systems
and controls. The Company's ability to manage the continuing development of its
Internet/Intranet business will require the Company to continue to change,
expand and improve its operational, management and financial systems and
controls and to expand its manufacturing capacity. This transition has resulted
in a continuing increase in the level of responsibility for both existing and
new management personnel. The Company anticipates that any growth in its
Internet/Intranet business will require it to recruit and hire a substantial
number of new engineering, sales and marketing, customer service and managerial
personnel. There can be no assurance that the Company will be successful in
hiring or retaining these personnel, if needed. If the Company is unable to
manage the transition effectively, the Company's business, operating results and
financial condition will be materially and adversely affected.
Dependence on Distributors
The Company relies primarily on distributors for the sale of its
Internet/Intranet and LAN products. Revenues from distributors accounted for
81%, 76%, 73% and 66% of the Company's total revenues in fiscal 1993, 1994 and
1995 and the six months ended March 31, 1996, respectively. A substantial
amount of the Company's revenues result from a limited number of these
distributors. There can be no assurance that future sales by the Company's
distributors will continue at current levels, that the Company will be able to
retain its current distributors in the future on terms which are acceptable to
the Company, that the Company's current distributors will choose to or be able
to market the Company's products effectively, that economic conditions or
industry demand will not adversely affect these or other distributors, or that
these distributors will not devote greater resources to marketing products of
other companies. Accordingly, the loss of, or a significant reduction in
revenue from, one of the Company's distributors could have a material adverse
effect on the Company's business, operating results and financial condition.
International Operations
International revenues accounted for 25%, 25%, 29% and 34% of the Company's
total revenues in fiscal 1993, 1994 and 1995 and the six months ended March 31,
1996, respectively. The Company expects that international revenues will
continue to represent a significant portion of its total revenues. Any
significant decline in international demand for the Company's products would
have a material adverse effect on the Company's business, operating results and
financial condition. The Company believes that in order to increase sales
opportunities and profitability it will be required to expand its international
operations. The Company has committed and continues to commit significant
management attention and financial resources to developing
6
<PAGE>
international sales and support channels. There can be no assurance that the
Company will be able to maintain or increase international market demand for its
products. In addition, the Company is dependent upon the international demand
for Apple products. To the extent that the Company is unable to maintain or
increase international demand for its products, or that international demand for
Apple products does not meet the Company's expectations, the Company's
international sales will be limited, and the Company's business, operating
results and financial condition would be materially and adversely affected.
Dependence on Strategic Alliances; Dependence on Contract Manufacturers and
Limited Source Suppliers
The Company relies on a number of strategic relationships to help achieve
market acceptance of the Company's products and to leverage the Company's
development, sales and marketing resources. Although the Company views these
relationships as important factors in the development and marketing of the
Company's products and services, a majority of the Company's agreements with its
strategic partners or customers do not require future minimum commitments to
purchase the Company's products, are not exclusive and generally may be
terminated at the convenience of either party. There can be no assurance that
the Company's strategic partners regard their relationship with the Company as
strategic to their own respective businesses and operations, that they will not
reassess their commitment to the Company or its products at any time in the
future, or that they will not develop and/or market their own competitive
technology.
The Company does not manufacture any of the components used in its products
and performs only limited assembly on some products. The Company relies on
independent contractors to manufacture to specification the Company's
components, subassemblies, systems and products. The Company also relies upon
limited source suppliers for a number of components used in the Company's
products, including certain key microprocessors and integrated circuits. There
can be no assurance that these independent contractors and suppliers will be
able to timely meet the Company's future requirements for manufactured products,
components and subassemblies. The Company believes that there are alternative
suppliers or alternative components for all of the components contained in its
products. However, any extended interruption in the supply of any of the key
components currently obtained from a limited source would disrupt its operations
and have a material adverse effect on the Company's business, operating results
and financial condition. In addition, the Company anticipates that it will be
necessary to establish additional strategic relationships in the future, in
particular with additional national Internet service providers ("ISPs"), and
there can be no assurance that the Company will be able to establish such
alliances or that such alliances will result in increased revenues.
Dependence on Proprietary Rights and Technology
The Company's ability to compete is dependent in part on its proprietary
rights and technology. The Company relies primarily on a combination of patent,
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its proprietary rights. The Company generally
enters into confidentiality or license agreements with its employees, resellers,
distributors, customers and potential customers and limits access to the
distribution of its software, hardware designs, documentation and other
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to prevent misappropriation of its
technology. There can be no assurance that the Company's patents will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications, whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of
the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology or design around the patents owned by the Company.
The Company relies upon certain software, firmware and hardware designs
that it licenses from third parties, including firmware that is integrated with
the Company's internally developed firmware and used in the Company's products
to perform key functions. There can be no assurance that these third-party
licenses will continue to be available to the Company on commercially reasonable
terms. The loss of, or inability to maintain, such licenses could result in
shipment delays or reductions until equivalent firmware could be developed,
identified,
7
<PAGE>
licensed and integrated which would materially and adversely affect the
Company's business, operating results and financial condition.
Litigation
From time to time, the Company has received claims of infringement of other
parties' proprietary rights. Although the Company believes that all such claims
received to date are immaterial, there can be no assurance that third parties
will not assert infringement claims in the future with respect to the Company's
current or future products. The Company expects that it will increasingly be
subject to infringement claims as the number of products and competitors in the
Company's industry segments grow and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit, could be
time consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require the Company to
enter into royalty or licensing agreements.
In the past, the Company has found it necessary to file suit to protect its
proprietary rights. Such litigation has resulted in, and any litigation in the
future can be expected to result in, substantial costs to the Company and a
diversion of efforts of the Company's personnel.
Lengthy Sales Cycle
The Company's Timbuktu Pro products are often licensed to customers on a
volume license basis for use on private wide area network ("WAN") Intranets
involving thousands of nodes. These licenses often involve significant license
and maintenance fees. As a result, the license of the Company's Timbuktu Pro
products often involves a significant commitment of management attention and
resources by prospective customers. Accordingly, the Company's sales process
for these products is often subject to delays associated with long approval
processes that typically accompany significant capital expenditures. For these
and other reasons, the sales cycle associated with the license of the Timbuktu
Pro products is often lengthy and subject to a number of significant delays over
which the Company has little or no control. There can be no assurance that the
Company will not experience these and additional delays in the future on
Timbuktu Pro or other products.
Tariff and Regulatory Matters
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. However,
rates for telecommunications services are governed by tariffs of licensed
carriers that are subject to regulatory approval. Future changes in these
tariffs could have a material adverse effect on the Company's business,
operating results and financial condition. Any future inability to obtain on a
timely basis or retain domestic certification or foreign regulatory approvals
could have a material adverse effect on the Company's business, operating
results and financial condition.
Dependence on Key Personnel
The Company's business and prospects depend to a significant degree upon
the continuing contributions of its key management, sales, marketing, product
development and administrative personnel. The Company does not have employment
contracts with its key personnel and does not maintain any key person life
insurance policies. The loss of key management or technical personnel could
materially and adversely affect the Company's business, operating results and
financial condition. The Company believes that its prospects depend in large
part upon its ability to attract and retain highly-skilled engineering,
managerial, sales and marketing, and administrative personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel. Failure to attract
and retain key personnel could have a material adverse effect on the Company's
business, operating results and financial condition.
8
<PAGE>
No Prior Public Market; Potential Volatility of Stock Price
Prior to the initial public offering, there has been no public market for
the Company's Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this offering. The market price of
the shares of Common Stock is likely to be highly volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's results of operations, announcements of technological innovations,
introduction of new products by the Company or its competitors, developments
with respect to patents, copyrights or proprietary rights, conditions and trends
in the networking and other technology industries, changes in or failure by the
Company to meet securities analysts' expectations, general market conditions and
other factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
REGISTERED STOCKHOLDERS
The Reoffer Prospectus relates to shares of Common Stock which have been
acquired by certain key employees (the "Registered Stockholders") of the
Company. Registered Stockholders Fred Gerson, Kenneth T. Lamneck, Alan B.
Lefkof (as to 12,000 shares), Richard Maslana, and Sam Roberts, acquired shares
of Common Stock to be offered hereunder pursuant to the exercise of options
granted under the 1987 Restated Stock Option Plan. Registered Stockholders Alan
B. Lefkof (as to 13,000 shares) and Michael J. Zukerman, acquired shares of
Common Stock pursuant to a Stock Bonus Plan and Stock Bonus Agreements between
the Company and such Registered Stockholders. Registered Stockholders Allison
Ross and Brian Thorson, acquired shares of Common Stock pursuant to written
consulting agreements between the Company and such Registered Stockholders.
The following table sets forth certain information with respect to the
Registered Stockholders as of May 22, 1996:
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned Number of Number of Shares Percentage of Shares
Registered Position with as of Shares to be Beneficially Owned Beneficially Owned
Stockholder the Company May 22, 1996 Offered Hereby After Offering After Offering(1)
<S> <C> <C> <C> <C> <C>
Fred Gerson Former Employee 28,000 28,000 28,000 .25%
Kenneth T. Lamneck Former Employee 46,375 41,375 46,375 .42%
Alan B. Lefkof President and 236,400 25,000 236,400 2.1%
Chief Executive
Officer
Richard Maslana VP of Operations 47,250 7,000 47,250 .43%
and General Manager
of LAN Products
Sam Roberts Engineer 100,500 100,500 100,500 .92%
Allison Ross Former Consultant 5,000 5,000 5,000 .04%
Brian Thorson Former Consultant 14,285 14,285 14,285 .13%
Michael J. Zukerman VP, General 60,125 3,000 60,125 .55%
Counsel and
Secretary
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Percentage of beneficial ownership is calculated assuming 9,330,676 shares
of Common Stock were outstanding on May 22, 1996. This percentage also includes
Common Stock of which such individual has the right to acquire beneficial
ownership within 60 days of May 22, 1996, including but not limited to, upon the
exercise of an option. The number of shares outstanding after the offering
under this Reoffer Prospectus includes the 1,500,000 shares of Common Stock
offered for sale by the Company in its initial public offering.
9
<PAGE>
Shares of Common Stock covered by this Reoffer Prospectus may be offered
and sold from time to time by the Registered Stockholders through brokers
through the Nasdaq National Market System or otherwise, at the prices prevailing
at the time of such sales. To the Company's knowledge, no specific brokers or
dealers have been designated by the Registered Stockholders nor has any
agreement been entered into in respect of brokerage commissions or for the
exclusive or coordinated sale of any securities which may be offered pursuant to
this Reoffer Prospectus. The Company will pay all expenses of preparing and
reproducing this Reoffer Prospectus, but will not receive the proceeds from
sales by the Registered Stockholders. The price per share of the Common Stock
as offered in the initial public offering of such Common Stock is expected to be
$15.00.
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Reoffer Prospectus are being
registered by the Company for the account of the Registered Stockholders. The
Company understands that none of such shares will be offered through
underwriters.
Shares of Common Stock covered by this Reoffer Prospectus may be offered
and sold from time to time by the Registered Stockholders through the Nasdaq
National Market System, the over-the-counter market, negotiated transactions or
otherwise, at the prices prevailing at the time of such sales, at prices
relating to such prevailing market prices or at prices otherwise negotiated. To
the Company's knowledge, no specific brokers or dealers have been designated by
the Registered Stockholders nor has any agreement been entered into in respect
of brokerage commissions or for the exclusive or coordinated sale of any
securities which may be offered pursuant to this Reoffer Prospectus. The
Registered Stockholders and any broker dealer through whom sales are made by the
Registered Stockholders may be regarded as "underwriters" within the meaning of
the Securities Act although the Registered Stockholders disclaim such status,
and their compensation may be regarded as underwriter's compensation.
The Company will not receive any of the proceeds from the offering
hereunder. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by each individual Registered Stockholder will be borne by each such
Registered Stockholder.
The price per share of Common Stock, as offered in the initial public
offering is expected to be $15.00.
10
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Company hereby incorporates by reference into this Registration
Statement the following documents previously filed with the Commission:
(a) The Company's prospectus filed with the Commission pursuant to Rule
424(a) of the Securities Act, in connection with the Registration
Statement No. 333-3868 on Form S-1 filed with the Commission on April
22, 1996, together with any amendments thereto, in which there is set
forth audited financial statements for the Company's fiscal years
ended September 30, 1994 and 1995; and
(b) The Company's Registration Statement No. 0-28450 on Form 8-A filed
with the Commission on May 3, 1996 together with amendments thereto,
pursuant to Section 12 of the Exchange Act, in which there is
described the terms, rights and provisions applicable to the Company's
outstanding Common Stock.
All of such documents are on file with the Commission. All documents
subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act prior to the filing of a post-effective amendment which
indicates that all securities to be offered pursuant hereto have been sold or
which deregisters all such securities then remaining unsold shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the 1933 Act. The Company's
Bylaws provide for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Company's Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of their fiduciary duty as directors
to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the fiduciary duty of the directors, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Company has entered into
Indemnification Agreements with its officers and directors. The Indemnification
Agreements provide the Company's officers and directors with further
indemnification to the maximum extent permitted by the Delaware General
Corporation Law.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or controlling persons of the Company
pursuant to the indemnification provisions the Company has been advised that, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the 1933 Act, and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
11
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM S-8
UNDER
SECURITIES ACT OF 1933
FARALLON COMMUNICATIONS, INC.
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
- -------------- ------- -------------
<S> <C> <C>
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
23.1 Consent of KPMG Peat Marwick LLP, Independent Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-5 of this
Registration Statement.
99.1 1996 Stock Option Plan.
99.2 Form of Notice of Grant to be generally used in connection with
the 1996 Stock Option Plan.
99.3 Form of Stock Option Agreement to be generally used in
connection with the 1996 Stock Option Plan.
99.4 Addendum to Stock Option Agreement (Involuntary Termination).
99.5 Addendum to Stock Option Agreement (Limited Stock Appreciation
Right).
99.6 Form of Notice of Grant (Non-Employee Director - Initial Grant)
to be generally used in connection with the automatic grant
program of the 1996 Stock Option Plan.
99.7 Form of Stock Option Agreement (Non-Employee Director) to be
generally used in connection with the automatic grant program of
the 1996 Stock Option Plan.
99.8 Employee Stock Purchase Plan.
99.9 Form of Stock Purchase Agreement.
99.10 Form of Enrollment/Change Form.
99.11 Form of Special Officer Participation Form.
99.12 1987 Restated Stock Option Plan.
99.13 Stock Bonus Agreement.
99.14 Stock Bonus Plan.
99.15 Consulting Agreement between the Registrant and Brian Thorson
dated March 12, 1996.
99.16 Consulting Agreement between the Registrant and Alison Ross
dated February 15, 1996.
</TABLE>
<PAGE>
EXHIBIT 5
Opinion and Consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
<PAGE>
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
ATTORNEYS AT LAW
June 12, 1996
Farallon Communications, Inc.
2470 Mariner Square Loop
Alameda, California 94501
Re: Farallon Communications, Inc. Registration Statement
for Offering of 2,691,155 Shares of Common Stock
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration Statement")
under the Securities Act of 1933, as amended, of (i) 2,166,995 shares of Common
Stock authorized for issuance under the Company's 1996 Stock Option Plan, (ii)
300,000 shares of Common Stock authorized for issuance under the Employee Stock
Purchase Plan, (iii) 188,875 shares of Common Stock issued pursuant to the 1987
Restated Stock Option Plan, (iv) 16,000 shares of Common Stock issued pursuant
to a Stock Bonus Plan and Stock Bonus Agreements between
the Company and certain optionees. We advise you that, in our opinion, when such
shares have been issued and sold pursuant to the applicable provisions of the
1996 Stock Option Plan, Employee Stock Purchase Plan, 1987 Restated Stock Option
Plan, Stock Bonus Plan and Stock Bonus Agreements, and certain written
consulting agreements and in accordance with the Registration Statement, such
shares will be validly issued, fully paid and nonassessable shares of the
Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 HANSEN WAY, SECOND FLOOR, PALO ALTO, CALIFORNIA 94304
TEL: (415) 843-0500 FAX: (415) 843-0314
<PAGE>
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP, Independent Accountants
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
Farallon Communications, Inc. and subsidiary:
We consent to the incorporation by reference in the registration statement (No.
333-____) on Form S-8 of Farallon Communications, Inc. and subsidiary of our
reports dated November 20, 1995, relating to the consolidated balance sheets of
Farallon Communications, Inc. and subsidiary as of September 30, 1994 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1995, and the related schedule, which reports appear in the registration
statement (No. 333-3868) on Form S-1 of Farallon Communications, Inc. and
subsidiary.
/s/ KPMG Peat Marwick, LLP
San Francisco, California
June 12, 1996
<PAGE>
EXHIBIT 23.2
Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP is contained in Exhibit 5
<PAGE>
EXHIBIT 24
Power of Attorney. Reference is made to page II-5 of this
Registration Statement
<PAGE>
EXHIBIT 99.1
1996 Stock Option Plan
<PAGE>
FARALLON COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
----------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1996 Stock Option Plan is intended to promote the interests of
Farallon Communications, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
(ii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals
to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders. No non-employee Board member shall be eligible to serve on the Primary
Committee if such individual has, during the twelve (12)-month period
immediately preceding the date of his or her appointment to the Committee or (if
shorter) the period commencing with the Section 12(g) Registration Date and
ending with the date of his or her appointment to the Primary Committee,
received an option grant or direct stock issuance under the Plan or any other
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary), other than pursuant to the Automatic
Option Grant Program.
<PAGE>
B. Administration of the Discretionary Option Grant Program with respect
to all other persons eligible to participate in those programs may, at the
Board's discretion, be vested in the Primary Committee or a Secondary Committee,
or the Board may retain the power to administer those programs with respect to
all such persons. The members of the Secondary Committee may be Board members
who are Employees eligible to receive discretionary option grants under the Plan
or any stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. The Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant Program and to make such determinations under, and
issue such interpretations of, the provisions of such program and any
outstanding options thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant Program under its jurisdiction or any option
thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants made under the Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
Program are as follows:
(i) Employees,
(ii) non-employee members of the board of directors of any
Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Subsidiary).
2
<PAGE>
B. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, with respect to the option grants under the
Discretionary Option Grant Program, which eligible persons are to receive option
grants, the time or times when such option grants are to be made, the number of
shares to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Statutory Option, the time or times at which
each option is to become exercisable and the vesting schedule (if any)
applicable to the option shares and the maximum term for which the option is to
remain outstanding.
C. The individuals eligible to receive option grants under the Automatic
Option Grant Program shall be those individuals who are serving as non-employee
Board members on the Automatic Option Grant Program Effective Date or who are
first elected or appointed as non-employee Board members after such date,
whether through appointment by the Board or election by the Corporation's
stockholders. A non-employee Board member who has previously been in the employ
of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program on the
Automatic Option Grant Program Effective Date or at the time he or she first
becomes a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed
2,166,995 shares. Such authorized share reserve is comprised of (i) the number
of shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan, plus (ii) an additional
increase of 500,000 shares authorized by the Board under the Plan, subject to
stockholder approval.
B. No one person participating in the Plan may receive options or
separately exercisable stock appreciation rights for more than 500,000 shares of
Common Stock over the period beginning on the Plan Effective Date and ending on
June 30, 1999.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should
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<PAGE>
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised, and not by the net number of shares
of Common Stock issued to the holder of such option.
D. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted options and separately exercisable stock appreciation rights per
calendar year or over the term of the Plan, (iii) the number and/or class of
securities for which automatic option grants are to be subsequently made per
Eligible Director under the Automatic Option Grant Program and (iv) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option (including any option incorporated from the Predecessor Plan)
in order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
---------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
---------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Four and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such time
-----------------------------
or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
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<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent it is not exercisable for vested shares on the date of such
cessation of Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all options held by the Optionee shall terminate
immediately and cease to be outstanding.
(v) In the event of a Corporate Transaction, the
provisions of Section III of this Article Two shall govern the period
for which the outstanding options are to remain exercisable following
the Optionee's cessation of Service and shall supersede any
provisions to the contrary in this section.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's
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<PAGE>
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option had
the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
-------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
------------------
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
-----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
------------
B. Exercise Price. The exercise price per share shall not be less than
---------------
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
------------------
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
7
<PAGE>
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall not so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such
8
<PAGE>
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to (i) the
number and class of securities available for issuance under the Plan on both an
aggregate and per Optionee basis following the consummation of such Corporate
Transaction and (ii) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.
F. Any options which are assumed or replaced in the Corporate Transaction
and do not otherwise accelerate at that time, shall automatically accelerate
(and any of the Corporation's outstanding repurchase rights which do not
otherwise terminate at the time of the Corporate Transaction shall automatically
terminate and the shares of Common Stock subject to those terminated rights
shall immediately vest), in the event the Optionee's Service should subsequently
terminate by reason of an Involuntary Termination within twelve (12) months
following the effective date of such Corporate Transaction. Any options so
accelerated shall remain exercisable for fully vested shares until the earlier
-------
of (i) the expiration of the option term or (ii) the expiration of the one (1)-
year period measured from the effective date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding
9
<PAGE>
options incorporated from the Predecessor Plan) and to grant in substitution new
options covering the same or different number of shares of Common Stock but with
an exercise price per share based on the Fair Market Value per share of Common
Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (A) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (A) five (5) business
-----
days after the receipt of the rejection notice or (B) the last day on which
the option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right in effect for at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the
10
<PAGE>
Corporation, to the extent the option is at the time exercisable for vested
shares of Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount equal
to the excess of (A) the Take-Over Price of the shares of Common Stock
which are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following
the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.
11
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Each Eligible Director who is a non-employee Board
-----------
member on the Automatic Option Grant Program Effective Date and each Eligible
Director who is first elected or appointed as a non-employee Board member after
such date shall automatically be granted, on the Automatic Option Grant Program
Effective Date or on the date of such initial election or appointment (as the
case may be), a Non-Statutory Option to purchase 25,000 shares of Common Stock.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
-----------
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial automatic option grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of five
annual installments over the Optionee's period of continued service as a Board
member, with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions shall
--------------------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of
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<PAGE>
Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of such shares as fully-
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares on the date of such cessation of Board service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock
at the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock
at the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. Each such option shall remain exercisable for such fully-vested option
shares until the expiration or sooner termination of the option term or the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, each automatic option held
by the Optionee for a period of at least six (6) months shall be automatically
canceled. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the canceled option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the cancellation of the option by
the Corporation. No approval or
13
<PAGE>
consent of the Board shall be required in connection with such option
cancellation and cash distribution.
D. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with
the option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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<PAGE>
ARTICLE FOUR
MISCELLANEOUS
-------------
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Discretionary Option Grant Program by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee may not exceed the sum of (i) the
aggregate option exercise price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or stock appreciation rights under the Plan shall be subject
to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan (other than the options granted
under the Automatic Option Grant Program) with the right to use shares of Common
Stock in satisfaction of all or part of the Taxes incurred by such holders in
connection with the exercise of their options. Such right may be provided to any
such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise triggering the Taxes) with an aggregate
Fair Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
15
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant Program shall become effective on the
Plan Effective Date and options may be granted under the Discretionary Option
Grant Program from and after the Plan Effective Date. The Automatic Option Grant
Program shall become effective on the Automatic Option Grant Program Effective
Date and the initial option grants under the Automatic Option Grant Program
shall be made to the Eligible Directors at that time. However, no options
granted under the Plan may be exercised until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan as of such
date shall, immediately upon approval of the Plan by the Corporation's
stockholders, be incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated shall continue
to be governed solely by the terms of the documents evidencing such option, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such incorporated options with respect
to their acquisition of shares of Common Stock.
C. The option/vesting acceleration provisions of Article Two relating to
Corporate Transactions and Changes in Control may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise provide for such acceleration.
D. The Plan shall terminate upon the earliest of (i) April 15, 2006,
--------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan or
(iii) the termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, (i) no such amendment
or modification shall adversely affect the rights and obligations with respect
to options or stock appreciation rights at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification, and (ii) any
amendment made to the Automatic Option Grant Program (or any options outstanding
thereunder) shall be in compliance with the limitations of that program.
Notwithstanding clause (i) above, the Plan Administrator may amend an
outstanding option to reduce the number of option shares previously granted to
an optionee provided the reduction applies solely to unvested shares or shares
which have not yet become exercisable as of the date
16
<PAGE>
of the amendment. In addition, the Board shall not, without the approval of the
Corporation's stockholders, (i) materially increase the maximum number of shares
issuable under the Plan, the number of shares for which options may be granted
under the Automatic Option Grant Program or the maximum number of shares for
which any one person may be granted options or separately exercisable stock
appreciation rights in the aggregate over the term of the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program that are in excess of the number of shares
then available for issuance under the Plan, provided any excess shares actually
issued under those programs are held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees the
exercise price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically canceled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
upon the exercise of any option or stock appreciation right shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
17
<PAGE>
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
18
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
------------------------------
program in effect under the Plan.
B. Automatic Option Grant Program Effective Date shall mean the Section
---------------------------------------------
12(g) Registration Date.
C. Board shall mean the Corporation's Board of Directors.
-----
D. Change in Control shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
----
F. Common Stock shall mean the Corporation's common stock.
------------
G. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
A-1
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
H. Corporation shall mean Farallon Communications, Inc., a Delaware
-----------
corporation.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
J. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
K. Eligible Director shall mean a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
L. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
M. Exercise Date shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
N. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of option grants made on the date the Under
writing Agreement is executed and the initial public offering price of the
Common
A-2
<PAGE>
Stock is established, the Fair Market Value shall be deemed to be
equal to the established initial offering price per share. For purposes of
option grants made prior to such date, the Fair Market Value shall be
determined by the Plan Administrator after taking into account such factors
as the Plan Administrator shall deem appropriate.
O. Hostile Take-Over shall mean a change in ownership of the Corporation
-----------------
effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, and
---
(ii) more than fifty percent (50%) of the securities so
acquired are accepted from persons other than Section 16 Insiders.
P. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
Q. Involuntary Termination shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
R. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
A-3
<PAGE>
S. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
T. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
U. Optionee shall mean any person to whom an option is granted under the
--------
Discretionary Option Grant or Automatic Option Grant Program.
V. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
W. Permanent Disability or Permanently Disabled shall mean the inability
--------------------------------------------
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1996 Stock Option Plan, as set
----
forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.
Z. Plan Effective Date shall mean the Section 12(g) Registration Date.
-------------------
AA. Predecessor Plan shall mean the Corporation's existing 1987 Restated
----------------
Stock Option Plan.
BB. Primary Committee shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
CC. Qualified Domestic Relations Order shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
DD. Secondary Committee shall mean a committee of two (2) or more Board
-------------------
members appointed by the Primary Committee to administer the Discretionary
Option Grant Program with respect to eligible persons other than Section 16
Insiders.
A-4
<PAGE>
EE. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Section 12(g) Registration Date shall mean the first date on which
-------------------------------
the Common Stock is registered under Section 12(g) of the 1934 Act.
GG. Service shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
HH. Stock Exchange shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.
II. Subsidiary shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
JJ. Take-Over Price shall mean the greater of (i) the Fair Market Value
---------------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. Taxes shall mean the Federal, state and local income and employment
-----
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
LL. Ten Percent Stockholder shall mean the owner of stock (as determined
-----------------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-5
<PAGE>
EXHIBIT 99.2
Form of Notice of Grant to be generally used in connection with
the 1996 Stock Option Plan
<PAGE>
FARALLON COMMUNICATIONS, INC.
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Farallon Communications, Inc. (the
"Corporation"):
Optionee:__________________________________________________________
--------
Grant Date:________________________________________________________
----------
Vesting Commencement Date:_________________________________________
-------------------------
Exercise Price: $_____________ per share
--------------
Number of Option Shares: __________________________ shares
-----------------------
Expiration Date:___________________________________________________
---------------
Type of Option: ______ Incentive Stock Option
--------------
______ Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall be unvested and subject to
----------------
repurchase by the Corporation at the Exercise Price paid per share.
Optionee shall acquire a vested interest in, and the Corporation's
repurchase right will accordingly lapse with respect to, (i) twenty-
five percent (25%) of the Option Shares upon Optionee's completion of
one (1) year of Service measured from the Vesting Commencement Date
and (ii) the balance of the Option Shares in successive equal monthly
installments upon Optionee's completion of each of the next thirty-six
(36) months of Service measured from and after the first anniversary
of the Vesting Commencement Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Farallon Communications, Inc. 1996 Stock
Option Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Stock Option Agreement
attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
-----------------
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE RIGHT
EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT SHALL
BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY
TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
<PAGE>
No Employment or Service Contract. Nothing in this Notice or in the
---------------------------------
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
_______________, 199_
Date
FARALLON COMMUNICATIONS, INC.
By:
-----------------------------
Title:
--------------------------
--------------------------------
OPTIONEE
Address:
------------------------
--------------------------------
ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Plan Summary and Prospectus
2
<PAGE>
EXHIBIT A
---------
STOCK OPTION AGREEMENT
----------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
<PAGE>
EXHIBIT 99.3
Form of Stock Option Agreement to be generally used in connection
with the 1996 Stock Option Plan
<PAGE>
FARALLON COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT
----------------------
RECITALS
- --------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meanings
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
---------------
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability. This option shall be neither
-----------------------
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to
the assigned portion shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
4. Dates of Exercise. This option shall become exercisable for the
-----------------
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
<PAGE>
5. Cessation of Service. The option term specified in Paragraph 2
--------------------
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability, or Misconduct) while this option
is outstanding, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which to
exercise this option, but in no event shall this option be exercisable at
any time after the Expiration Date.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall
cease to be outstanding upon the earlier of (i) the expiration of the
-------
twelve (12)- month period measured from the date of Optionee's death or
(ii) the Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this
option be exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
(v) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised. To the extent Optionee is not
vested in the Option Shares at the time of Optionee's cessation of Service,
this option shall immediately terminate and cease to be outstanding with
respect to those shares.
(vi) In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall supersede
any provisions to the contrary in this paragraph.
6. Special Acceleration of Option.
------------------------------
(a) In the event of a Corporate Transaction, the exercisability of
this option, to the extent outstanding at such time but not otherwise fully
exercisable, shall automatically accelerate so that this option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for any or all of the Option Shares at the time subject
2
<PAGE>
to this option as fully-vested shares of Common Stock. No such acceleration of
this option, however, shall occur if and to the extent: (i) this option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) this option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the Option
Shares for which this option is not exercisable at the time of the Corporate
Transaction (the excess of the Fair Market Value of such Option Shares over the
aggregate Exercise Price payable for such shares) and provides for subsequent
pay-out in accordance with the same exercise schedule in effect for the option
pursuant to the option exercise schedule set forth in the Grant Notice. The
determination of option comparability under clause (i) shall be made by the Plan
Administrator, and such determination shall be final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this option,
to the extent not previously exercised, shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) Upon an Involuntary Termination of Optionee's Service within
twelve (12) months following a Corporate Transaction in which this option is
assumed or replaced, the exercisability of this option, to the extent
outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall immediately become fully
exercisable for all the Option Shares at the time subject to this option as
fully-vested shares of Common Stock and may be exercised for any or all of those
shares at any time prior to the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
3
<PAGE>
8. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance with
Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising the
option) shall concurrently provide irrevocable written instructions (a) to
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance procedure is utilized
in connection with the option exercise, payment of the Exercise Price must
accompany the Notice of Exercise delivered to the Corporation in connection
with the option exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal,
4
<PAGE>
state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. Successors and Assigns. Except to the extent otherwise provided
----------------------
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
13. Financing. The Plan Administrator may, in its absolute
---------
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note.
The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion./1//
- -------------------------------
/1// Authorization of payment of the Exercise Price by a promissory note
may, under currently proposed Treasury Regulations, result in the loss of
incentive stock option treatment under the Federal tax laws.
5
<PAGE>
14. Construction. This Agreement and the option evidenced hereby are
------------
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
16. Excess Shares. If the Option Shares covered by this Agreement
-------------
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to such excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
17. Additional Terms Applicable to an Incentive Option. In the event
--------------------------------------------------
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(i) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (i) more than three (3) months
after the date Optionee ceases to be an Employee for any reason other than
death or Permanent Disability or (ii) more than twelve (12) months after
the date Optionee ceases to be an Employee by reason of Permanent
Disability.
(ii) No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the extent) the
aggregate Fair Market Value (determined at the Grant Date) of the Common
Stock for which such installment first becomes exercisable hereunder would,
when added to the aggregate value (determined as of the respective date or
dates of grant) of any earlier installments of the Common Stock and any
other securities for which this option or any other Incentive Options
granted to Optionee prior to the Grant Date (whether under the Plan or any
other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should such One Hundred
Thousand Dollar ($100,000) limitation be exceeded in any calendar year,
this option shall nevertheless become exercisable for the excess shares in
such calendar year as a Non-Statutory Option.
(iii) Should the exercisability of this option be accelerated
upon a Corporate Transaction, then this option shall qualify for favorable
tax treatment as an Incentive Option only to the extent the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which
this option first becomes exercisable in the calendar year in which the
Corporate Transaction occurs does not, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common
6
<PAGE>
Stock or other securities for which this option or one or more other
Incentive Options granted to Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed
One Hundred Thousand Dollars ($100,000) in the aggregate. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in
the calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year as a
Non-Statutory Option.
(iv) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for
the first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are
granted.
7
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Farallon Communications, Inc. (the "Corporation") that
I elect to purchase __________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $___________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1996 Stock Option Plan on ____________________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
____________, 199__
Date
----------------------------------------------
Optionee
Address:______________________________________
______________________________________________
Print name in exact manner
it is to appear on the
stock certificate: ______________________________________________
Address to which certificate
is to be sent, if different
from address above: ______________________________________________
______________________________________________
Social Security Number: ______________________________________________
Employee Number: ______________________________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. Corporation shall mean Farallon Communications, Inc., a Delaware
-----------
corporation.
G. Domestic Relations Order shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
H. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
J. Exercise Price shall mean the exercise price per share as specified in
--------------
the Grant Notice.
K. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
L. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
i
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing price per share of
Common Stock on the date in question, as the price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
M. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
N. Grant Notice shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
P. Involuntary Termination shall mean the termination of Optionee's
-----------------------
Service which occurs by reason of:
(i) Optionee's dismissal or discharge by the Corporation for reasons
other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (B) a
reduction in Optionee's level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of Optionee's
place of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
Q. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
ii
<PAGE>
R. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
S. Notice of Exercise shall mean the notice of exercise in the form
------------------
attached hereto as Exhibit I.
T. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option as specified in the Grant Notice.
U. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
V. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
W. Permanent Disability shall mean the inability of Optionee to engage in
--------------------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
X. Plan shall mean the Corporation's 1996 Stock Option Plan.
----
Y. Plan Administrator shall mean either the Board or a committee of Board
------------------
members, to the extent the committee is at the time responsible for the
administration of the Plan.
Z. Qualified Domestic Relations Order shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
AA. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor.
BB. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
CC. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
iii
<PAGE>
EXHIBIT 99.4
Addendum to Stock Option Agreement (Involuntary Termination)
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement dated _________________ (the
"Option Agreement") by and between Farallon Communications, Inc. (the
"Corporation") and __________________ ("Optionee") evidencing the stock option
granted on such date to Optionee under the terms of the Corporation's 1996 Stock
Option Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CHANGE IN CONTROL
1. The exercisability of the option shall not accelerate upon the
occurrence of a Change in Control, and the option shall, over Optionee's
continued period of Service after the Change in Control, continue to become
exercisable for the Option Shares in accordance with the provisions of the
Option Agreement. However, immediately upon an Involuntary Termination of
Optionee's Service within twelve (12) months following the Change in Control,
the exercisability of this option, to the extent the option is at the time
outstanding but not otherwise fully exercisable, shall automatically accelerate
so that the option shall immediately become fully exercisable for all the Option
Shares at the time subject to the option and may be exercised for any or all of
those shares as fully vested shares of Common Stock at any time prior to the
earlier of (i) the Expiration Date or (ii) the expiration of the one (1)-year
- -------
period measured from the date of the Involuntary Termination.
2. For purposes of this Addendum, a Change in Control shall be deemed
to occur in the event of a change in ownership or control of the Corporation
effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were
still in office at the time such election or nomination was approved by the
Board.
<PAGE>
3. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the option is to remain exercisable following the Involuntary
Termination of Optionee's Service within twelve (12) months after the Change in
Control and shall supersede any provisions to the contrary in the Option
Agreement.
IN WITNESS WHEREOF, Farallon Communications, Inc. has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
FARALLON COMMUNICATIONS, INC.
By:
---------------------------------------
Title:
------------------------------------
------------------------------------------
OPTIONEE
EFFECTIVE DATE: __________, 199_
<PAGE>
EXHIBIT 99.5
Addendum to Stock Option Agreement (Limited Stock Appreciation Right)
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement dated [[2]] (the "Option
Agreement") by and between Farallon Communications, Inc. (the "Corporation") and
[[1]] ("Optionee") evidencing the stock option granted on such date to Optionee
under the terms of the Corporation's 1996 Stock Option Plan, and such provisions
shall be effective immediately. All capitalized terms in this Addendum, to the
extent not otherwise defined herein, shall have the meanings assigned to them in
the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock appreciation right in
tandem with the option, exercisable upon the terms set forth below:
(i) Should a Hostile Take-Over occur at any time after the option
has been outstanding for a period of at least six (6) months measured from
the Effective Date of this Addendum indicated below, then Optionee shall
have the unconditional right (exercisable during the thirty (30)-day period
following such Hostile Take-Over) to surrender the option to the
Corporation, to the extent the option is at the time exercisable for vested
shares of Common Stock. In return for the surrendered option, Optionee
shall receive a cash distribution from the Corporation in an amount equal
to the excess of (A) the Take-Over Price of the shares of Common Stock
which are at the time vested under the surrendered option (or surrendered
portion) over (B) the aggregate Exercise Price payable for such shares.
(ii) To exercise this limited stock appreciation right, Optionee
must, during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the option is being
surrendered. Such notice must be accompanied by the return of Optionee's
copy of the Option Agreement, together with any written amendments to such
Agreement. The cash distribution shall be paid to Optionee within five (5)
days following such delivery date, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection
with such option surrender and cash distribution. Upon receipt of such
cash distribution, the option shall be cancelled with respect to the Option
Shares for which the option has been surrendered, and Optionee shall cease
to have any further right to acquire those Option Shares under the Option
Agreement. The option shall, however, remain outstanding and exercisable
for the balance of the Option Shares (if any) in accordance with the terms
of the Option Agreement, and the Corporation shall issue a new stock option
agreement (substantially in the same form of the surrendered Option
Agreement) for those remaining Option Shares.
(iii) In no event may this limited stock appreciation right be
exercised when there is not a positive spread between the Fair Market Value
of the Option Shares and the aggregate Exercise Price payable for such
shares. This limited stock appreciation right shall in all events
terminate upon the expiration or sooner termination of the option term and
may not be assigned or transferred by Optionee.
<PAGE>
2. For purposes of this Addendum, the following definitions shall be
in effect:
(i) A Hostile Take-Over shall be deemed to occur in the event (A)
any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, and (B) more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer are accepted from
holders other than the officers and directors of the Corporation subject to
the short-swing profit restrictions of Section 16 of the Securities
Exchange Act of 1934, as amended.
(ii) The Take-Over Price per share shall be deemed to be equal to
the greater of (A) the Fair Market Value per Option Share on the option
-------
surrender date or (B) the highest reported price per share of Common Stock
paid by the tender offeror in effecting the Hostile Take-Over. However, if
the surrendered option is designated as an Incentive Option in the Grant
Notice, then the Take-Over Price shall not exceed the clause (A) price per
share.
IN WITNESS WHEREOF, Farallon Communications, Inc. has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
FARALLON COMMUNICATIONS, INC.
By:
------------------------------
Title:
---------------------------
---------------------------------
((1)), OPTIONEE
EFFECTIVE DATE: ___________________, 199_
<PAGE>
EXHIBIT 99.6
Form of Notice of Grant (Non-Employee Director - Initial Grant)
to be generally used in connection with the automatic
grant program of the 1996 Stock Option Plan
<PAGE>
INITIAL GRANT
-------------
FARALLON COMMUNICATIONS, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
----------------------------------------
AUTOMATIC STOCK OPTION
----------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Farallon Communications, Inc. (the
"Corporation"):
Optionee:___________________________________________________________
--------
Grant Date:_________________________________________________________
----------
Exercise Price: $_____________ per share
--------------
Number of Option Shares: 25,000 shares
-----------------------
Expiration Date:____________________________________________________
---------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall be unvested and subject to
----------------
repurchase by the Corporation at the Exercise Price paid per share.
Optionee shall acquire a vested interest in, and the Corporation's
repurchase right will accordingly lapse with respect to the Option
Shares in five (5) equal and successive annual installments upon
Optionee's completion of each year of service as a member of the
Corporation's Board of Directors (the "Board") measured from the Grant
Date. In no event shall any additional Option Shares vest after
Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the automatic option grant program under the
Farallon Communications, Inc. 1996 Stock Option Plan (the "Plan"). Optionee
further agrees to be bound by the terms of the Plan and the terms of the Option
as set forth in the Automatic Stock Option Agreement attached hereto as
Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
<PAGE>
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
----------------
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE RIGHT
EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT SHALL
BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY
TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or the attached
-----------------------
Automatic Stock Option Agreement or in the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation and the
Corporation's stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
________________, 199_
Date
FARALLON COMMUNICATIONS, INC.
By:
--------------------------
Title:
-----------------------
-----------------------------
OPTIONEE
Address:
---------------------
-----------------------------
ATTACHMENTS
- -----------
Exhibit A - Automatic Stock Option Agreement
Exhibit B - Plan Summary and Prospectus
2
<PAGE>
EXHIBIT A
---------
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
<PAGE>
EXHIBIT 99.7
Form of Stock Option Agreement (Non-Employee Director)
to be generally used in connection with the automatic
grant program of the 1996 Stock Option Plan
<PAGE>
FARALLON COMMUNICATIONS, INC.
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
RECITALS
- --------
A. The Corporation has implemented an automatic option grant program under
the Plan pursuant to which eligible non-employee members of the Board will
automatically receive special option grants at periodic intervals over their
period of Board service in order to provide such individuals with a meaningful
incentive to continue to serve as members of the Board.
B. Optionee is an eligible non-employee Board member, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the automatic grant of an option to purchase shares of Common
Stock under the Plan.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
---------------
the Grant Date, a Non-Statutory Option to purchase up to the number of Option
Shares specified in the Grant Notice. The Option Shares shall be purchasable
from time to time during the option term specified in Paragraph 2 at the
Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 7.
3. Limited Transferability. This option, together with the special
-----------------------
stock appreciation right provided under Paragraph 7(b), shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may also be assigned
in whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to the
assigned portion shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Board may deem appropriate.
4. Exercisability/Vesting.
-----------------------
(a) This option shall be immediately exercisable for any or all
of the Option Shares, whether or not the Option Shares are vested in
accordance with the Vesting Schedule and shall remain so exercisable until
the Expiration Date or sooner termination of the option term under
Paragraph 5, 6 or 7.
(b) Optionee shall, in accordance with the Vesting Schedule, vest
in the Option Shares in one or more installments over his or her period of
Board service. Vesting in the Option Shares may be accelerated pursuant to
the provisions of Paragraph 5, 6 or 7. In no event, however, shall any
additional Option Shares vest following Optionee's cessation of service as
a Board member.
<PAGE>
5. Cessation of Board Service. Should Optionee's service as a Board
--------------------------
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(a) Should Optionee cease to serve as a Board member for any
reason (other than death or Permanent Disability) while holding this option,
then the period for exercising this option shall be reduced to a twelve (12)-
month period (commencing with the date of such cessation of Board service), but
in no event shall this option be exercisable at any time after the Expiration
Date. During such limited period of exercisability, this option may not be
exercised in the aggregate for more than the number of Option Shares (if any) in
which Optionee is vested on the date Optionee ceases service as a Board member.
Upon the earlier of (i) the expiration of such twelve (12)-month period or (ii)
the specified Expiration Date, the option shall terminate and cease to be
exercisable with respect to any vested Option Shares for which the option has
not been exercised.
(b) Should Optionee die during the twelve (12)-month period
following his or her cessation of Board service, then the personal
representative of Optionee's estate or the person or persons to whom the option
is transferred pursuant to Optionee's will or in accordance with the laws of
descent and distribution shall have the right to exercise this option for any or
all of the Option Shares in which Optionee is vested at the time of Optionee's
cessation of Board service (less any Option Shares purchased by Optionee after
such cessation of Board service but prior to death). Such right of exercise
shall terminate, and this option shall accordingly cease to be exercisable for
such vested Option Shares, upon the earlier of (i) the expiration of the twelve
(12)-month period measured from the date of Optionee's cessation of Board
service or (ii) the specified Expiration Date.
(c) Should Optionee cease service as a Board member by reason of
death or Permanent Disability, then all Option Shares at the time subject to
this option but not otherwise vested shall vest in full so that Optionee (or the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred upon Optionee's death) shall have the right to
exercise this option for any or all of the Option Shares as fully-vested shares
of Common Stock at any time prior to the earlier of (i) the expiration of the
-------
twelve (12)-month period measured from the date of Optionee's cessation of Board
service or (ii) the specified Expiration Date.
(d) Upon Optionee's cessation of Board service for any reason
other than death or Permanent Disability, this option shall immediately
terminate and cease to be outstanding with respect to any and all Option Shares
in which Optionee is not otherwise at that time vested in accordance with the
normal Vesting Schedule or the special vesting acceleration provisions of
Paragraph 6 or 7 below.
(e) In the event of a Corporate Transaction or Change in Control,
the provisions of Paragraph 6 or 7 shall govern the period for which this option
is to remain exercisable following Optionee's cessation of Board service and
shall supersede any provisions to the contrary in this paragraph.
6. Corporate Transaction.
----------------------
(a) In the event of a Corporate Transaction, all Option Shares at
the time subject to this option but not otherwise vested shall automatically
vest so that this option shall, immediately prior to the effective date of such
Corporate Transaction, become exercisable for any or all of the Option Shares as
fully-vested shares of Common Stock. Immediately
2
<PAGE>
following the Corporate Transaction, this option shall terminate and cease to be
exercisable except to the extent assumed by the successor corporation (or parent
thereof) in connection with such Corporate Transaction.
(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(c) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Change in Control/Hostile Take-Over.
-----------------------------------
(a) All Option Shares subject to this option at the time of a
Change in Control but not otherwise vested shall automatically vest so that this
option shall, immediately prior to the effective date of such Change in Control,
become fully exercisable for all of the Option Shares at the time subject to
this option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. This option shall remain exercisable for such
fully-vested Option Shares until the earliest to occur of (i) the Expiration
Date, (ii) the sooner termination of this option in accordance with Paragraph 5
or 6 or (iii) the surrender of the option in connection with a Hostile Take-
Over.
(b) Provided this option has been outstanding for at least six
(6) months prior to the occurrence of a Hostile Take-Over, Optionee shall have
the unconditional right (exercisable during the thirty (30)-day period
immediately following the consummation of such Hostile Take-Over) to surrender
this option to the Corporation in exchange for a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
Option Shares at the time subject to the surrendered option (whether or not
those Option Shares are otherwise at the time vested) over (ii) the aggregate
Exercise Price payable for such shares. This Paragraph 7(b) limited stock
appreciation right shall in all events terminate upon the expiration or sooner
termination of the option term and may not be assigned or transferred by
Optionee.
(c) To exercise the Paragraph 7(b) limited stock appreciation
right, Optionee must, during the applicable thirty (30)-day exercise period,
provide the Corporation with written notice of the option surrender in which
there is specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy of
this Agreement, together with any written amendments to such Agreement. The cash
distribution shall be paid to Optionee within five (5) days following such
delivery date, and no approval or consent of the Board shall be required in
connection with such option surrender and cash distribution. Upon receipt of
such cash distribution, this option shall be cancelled with respect to the
Option Shares subject to the surrendered option (or the surrendered portion) and
Optionee shall cease to have any further right to acquire those Option Shares
under this Agreement. The option shall, however, remain outstanding for the
balance of the Option Shares (if any) in accordance with the terms of this
Agreement, and the Corporation shall issue a new stock option agreement
(substantially in the same form as this Agreement) for those remaining Option
Shares.
3
<PAGE>
8. Adjustment in Option Shares. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
9. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
10. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) To the extent the option is exercised for vested Option
Shares, execute and deliver to the Corporation a Notice of Exercise for the
Option Shares for which the option is exercised. To the extent this option
is exercised for unvested Option Shares, execute and deliver to the
Corporation a Purchase Agreement.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation,
(B) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(C) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise (or the Purchase
Agreement) delivered to the Corporation in connection with the option
exercise.
4
<PAGE>
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(b) As soon after the Exercise Date as practical, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto. To the extent any such Option
Shares are unvested, the certificates for those Option Shares shall be endorsed
with an appropriate legend evidencing the Corporation's repurchase rights and
may be held in escrow with the Corporation until such shares vest.
(c) In no event may this option be exercised for any fractional
shares.
11. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. Successors and Assigns. Except to the extent otherwise provided
----------------------
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
13. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. Construction. This Agreement and the option evidenced hereby are
------------
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan.
15. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
5
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Farallon Communications, Inc. (the "Corporation") that
I elect to purchase _________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $_________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1996 Stock Option Plan on ___________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price for any Purchased Shares in which I am vested at the time of exercise of
the Option.
________________________,199_
Date
________________________________________
Optionee
Address:________________________________
________________________________________
Print name in exact manner
it is to appear on the ________________________________________
stock certificate:
Address to which certificate
is to be sent, if different
from address above: ________________________________________
________________________________________
Social Security Number: ________________________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Automatic Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with,
the Corporation) of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of thirty-
six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
G. Corporation shall mean Farallon Communications, Inc., a Delaware
-----------
corporation.
H. Domestic Relations Order shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of Optionee.
A-i
<PAGE>
I. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 10 of the Agreement.
J. Exercise Price shall mean the exercise price per share as specified in
--------------
the Grant Notice.
K. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
L. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing price per share of
Common Stock on the date in question, as the price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange which serves as
the primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
M. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
N. Grant Notice shall mean the Notice of Grant of Automatic Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. Hostile Take-Over shall mean a change in ownership of the Corporation
-----------------
effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
---
(ii) more than fifty percent (50%) of the acquired securities are
accepted from persons other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section 16 of
the 1934 Act.
P. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
A-ii
<PAGE>
Q. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
R. Notice of Exercise shall mean the notice of exercise in the form of
------------------
Exhibit I.
S. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option.
T. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
U. Permanent Disability shall mean the inability of Optionee to perform
--------------------
his or her usual duties as a member of the Board by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
V. Plan shall mean the Corporation's 1996 Stock Option Plan.
----
W. Purchase Agreement shall mean the stock purchase agreement (in form and
------------------
substance satisfactory to the Corporation) which grants the Corporation the
right to repurchase, at the Exercise Price, any and all unvested Option Shares
held by Optionee at the time of Optionee's cessation of Board service and which
precludes the sale, transfer or other disposition of any purchased Option Shares
while subject to such repurchase right.
X. Qualified Domestic Relations Order shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Corporation shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
Y. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
Z. Take-Over Price shall mean the greater of (i) the Fair Market Value per
--------------- -------
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting the Hostile Take-
Over.
AA. Vesting Schedule shall mean the vesting schedule specified in the Grant
----------------
Notice.
A-iii
<PAGE>
EXHIBIT 99.8
Employee Stock Purchase Plan
<PAGE>
FARALLON COMMUNICATIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE
--------
This Farallon Communications, Inc. Employee Stock Purchase Plan (the
"Plan") is intended to provide eligible employees of the Corporation and one or
more of its Corporate Affiliates with the opportunity to acquire a proprietary
interest in the Corporation through participation in a plan designed to qualify
as an employee stock purchase plan under Section 423 of 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 Corporation.
-----
Cash Compensation means (i) the regular base salary paid to a
-----------------
Participant by one or more Participating Companies during such individual's
period of participation in the Plan; plus (ii) all of the following amounts to
the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments. However, Cash Compensation
shall not include any contributions (including Code Section 401(k) or Code
Section 125 contributions) made on the Participant's behalf by the Corporation
or any Corporate Affiliate to any deferred compensation plan or welfare benefit
program now or hereafter established.
Code means the Internal Revenue Code of 1986, as amended.
----
Common Stock means shares of the Corporation's common stock.
------------
Corporate Affiliate means any parent or subsidiary corporation of the
-------------------
Corporation (as determined in accordance with Code Section 424), including any
parent or subsidiary corporation which becomes such after the Effective Time.
Corporation means Farallon Communications, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Farallon Communications, Inc. which shall by
appropriate action adopt the Plan.
Effective Time means the time at which the Underwriting Agreement for
--------------
the initial public offering of the Common Stock is executed and finally priced.
The initial Offering Period under the Plan shall start at the time of such
execution and pricing of the Underwriting Agreement. Any Corporate Affiliate
which becomes a Participating Corporation in the Plan after such Effective Time
shall designate a subsequent Effective Time with respect to its employee-
Participants.
Eligible Employee means any person who is regularly engaged for a
-----------------
period of more than twenty (20) hours per week for more than five (5) months per
calendar year, in the rendition of personal services to the Corporation or any
other Participating Corporation as an employee for earnings considered wages
under Section 3121(a) of the Code.
Fair Market Value means, for the Effective Time at which the initial
-----------------
Offering Period under the Plan begins, the price per share at which the Common
Stock is to be sold in the
<PAGE>
initial public offering of the Common Stock pursuant to the Underwriting
Agreement. For any subsequent date under the Plan on which the Common Stock is
registered under Section 12(g) of the 1934 Act and traded on the open market,
Fair Market Value means the closing selling price per share of the Common Stock
on such date, as officially quoted on the principal securities exchange on which
the Common Stock is at the time traded or, if not traded on any securities
exchange, the closing selling price per share of the Common Stock on such date,
as reported on the Nasdaq National Market. If there are no sales of the Common
Stock on such day, then the closing selling price per share on the last
preceding day for which such closing selling price is quoted shall be
determinative of Fair Market Value.
1933 Act means the Securities Act of 1933, as amended.
--------
1934 Act means the Securities Exchange Act of 1934, as amended.
--------
Offering Period means a period of approximately twenty-four (24)
---------------
months that commences on the first business day following each Semi-Annual
Purchase Date, during which a Participant may be granted a purchase right.
Participant means any Eligible Employee of a Participating Corporation
-----------
who is actively participating in the Plan.
Participating Corporation means the Corporation and such Corporate
-------------------------
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan, as of the Effective Time, are listed in attached
Schedule A.
Plan Administrator shall have the meaning given such term in
------------------
Article III.
Semi-Annual Period of Participation means each semi-annual period for
-----------------------------------
which the Participant actually participates in an Offering Period in effect
under the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each Offering Period. The first such semi-annual period
(which may actually be more or less than six (6) months for the initial Offering
Period) shall extend from the Effective Time through the last business day in
January 1997. Subsequent semi-annual periods shall be measured from the first
business day of February to the last business day of July in the same calendar
year and from the first business day of August to the last business day of
January in the succeeding calendar year.
Semi-Annual Purchase Date means the last business day of January and
-------------------------
July each calendar year on which shares of Common Stock are automatically
purchased for Participants under the Plan. The initial Semi-Annual Purchase
Date will be January 31, 1997.
III. ADMINISTRATION
--------------
The Plan Administrator shall have sole and exclusive authority to
administer the Plan and shall consist of a committee (the "Plan Administrator")
of two (2) or more non-employee Board members appointed by the Board. The Plan
Administrator shall have full 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 Code
Section 423. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan.
2
<PAGE>
IV. OFFERING PERIODS
----------------
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive or overlapping Offering Periods until such
time as (i) the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated in accordance with Subsection I of Article VII, Subsection A of
Article IX or Subsection B of Article X.
B. Each Offering Period shall have a maximum duration of twenty-four
(24) months. The duration of each Offering Period shall be designated by the
Plan Administrator prior to the start date. However, the initial Offering
Period shall run from the Effective Time to the last business day of July 1998.
The next Offering Period shall commence on the first business day of February
1997 and continue through the last business day of January 1999, and subsequent
Offering Periods shall commence as designated by the Plan Administrator.
C. The Participant shall be granted a separate purchase right for
each Offering Period in which he or she participates, and each Participant may
participate in more than one (1) Offering Period at any one time. Accordingly,
a Participant may continue to participate in one Offering Period and also enroll
in subsequent Offering Periods. The purchase right shall be granted on the date
such individual first joins an Offering Period in effect under the Plan and
shall be automatically exercised in successive semi-annual installments on the
last business day of January and July of each year. Accordingly, each purchase
right may be exercised up to two (2) times each year it remains outstanding.
D. No purchase rights granted under the Plan shall be exercised, and
no shares of Common Stock shall be issued hereunder, until such time as (i) the
Plan shall have been approved by the stockholders of the Corporation and (ii)
the Corporation shall have complied with all applicable requirements of the 1933
Act (including the registration of the shares of Common Stock issuable under the
Plan on a Form S-8 registration statement filed with the Securities and Exchange
Commission), all applicable listing requirements of any securities exchange on
which the Common Stock is listed for trading and all other applicable
requirements established by law or regulation.
E. The Participant's acquisition of Common Stock under the Plan on
any Semi-Annual Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Semi-Annual Purchase Date, whether
within the same or a different Offering Period.
V. ELIGIBILITY AND PARTICIPATION
-----------------------------
A. Each Eligible Employee of a Participating Corporation shall be
eligible to participate in the Plan in accordance with the following provisions:
- An individual who is an Eligible Employee on the start date of any
Offering Period under the Plan shall be eligible to commence participation in
that Offering Period on such start date.
- An individual who first becomes an Eligible Employee after the
start date of any Offering Period under the Plan may enter any subsequent
Offering Period on which he/she remains an Eligible Employee.
3
<PAGE>
B. In order to participate in the Plan for a particular Offering
Period, the Eligible 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) on or before the start date for such Offering Period.
C. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Compensation paid to the Participant during each Semi-
Annual Period of Participation within the Offering Period, up to a maximum of
fifteen percent (15%). However, if a Participant is participating in more than
one Offering Period at any one time, the maximum authorized payroll deduction
under the Plan remains fifteen percent (15%). The deduction rate so authorized
shall continue in effect for the remainder of the Offering Period, except to the
extent such rate is changed in accordance with the following guidelines:
- The Participant may, at any time during a Semi-Annual Period of
Participation, reduce his/her rate of payroll deduction to become effective
as soon as possible after filing of the requisite reduction form with the
Plan Administrator. The Participant may not, however, effect more than one
(1) such reduction per Semi-Annual Period of Participation.
- The Participant may, prior to the commencement of any new Semi-Annual
Period of Participation within the Offering Period, increase the rate of
his/her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent
(15%) maximum) shall become effective as of the first day of the first
Semi-Annual Period of Participation following the filing of such form. If
the Participant is participating in more than one Offering Period and
Participant elects to increase his or her payroll deduction in any one
Offering Period, the payroll deduction applicable to any other Offering
Period shall be automatically reduced, such that the maximum payroll
deduction for all concurrent Offering Periods remains fifteen percent
(15%).
D. In no event may any Participant's payroll deductions for any one
Semi-Annual Period of Participation exceed Ten Thousand Dollars ($10,000.00).
E. Payroll deductions will automatically cease upon the termination of
the Participant's purchase right in accordance with the applicable provisions of
Section VII below.
VI. STOCK SUBJECT TO PLAN
---------------------
A. The Common Stock purchasable by Participants under the Plan shall,
solely in the discretion of the Plan Administrator, be made available from
either authorized but unissued shares of Common Stock or from shares of Common
Stock reacquired by the Corporation, including shares of Common Stock purchased
on the open market. The total number of shares which may be issued in the
aggregate under the Plan shall not exceed Three Hundred Thousand (300,000)
shares (subject to adjustment under Section VI.B below).
B. In the event any change is made to the Corporation's outstanding
Common Stock by reason of any stock dividend, stock split, exchange or
combination of shares, recapitalization or any other change affecting the Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made by the Plan Administrator to (i) the class and maximum
number of securities issuable over the term of the Plan, (ii) the class and
maximum number of securities purchasable per Participant on any one (1)
4
<PAGE>
Semi-Annual Purchase Date and (iii) the class and number of securities and the
price per share in effect under each purchase right at the time outstanding
under the Plan. Such adjustments shall be designed to preclude the dilution or
enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
---------------
Each Eligible Employee who participates in the Plan for a particular
Offering Period shall have the right to purchase shares of Common Stock, in a
series of successive semi-annual installments during such Offering Period, 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.
A. Purchase Price. Common Stock shall be purchasable on each Semi-
--------------
Annual Purchase Date within the Offering Period at a purchase price equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's commencement date into that Offering Period or
(ii) the Fair Market Value per share on that Semi-Annual Purchase Date.
B. Number of Purchasable Shares. The number of shares purchasable per
----------------------------
Participant on each Semi-Annual Purchase Date during the Offering Period shall
be the number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Semi-Annual Period of
Participation ending with that Semi-Annual Purchase Date (together with any
carryover deductions from the preceding Semi-Annual Period of Participation) by
the purchase price in effect for the Semi-Annual Purchase Date (as determined in
accordance with Subsection A above). However, the maximum number of shares of
Common Stock purchasable per Participant on any Semi-Annual Purchase Date shall
not exceed Two Thousand (2,000) shares, subject to periodic adjustment under
Section VI.B.
Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
of its Corporate Affiliates.
C. Payment. Payment for Common Stock purchased under the Plan shall
-------
be effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin with the first pay day following the Participant's
commencement into the Offering Period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of the Offering Period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the outstanding balance credited to such account. The amounts collected from
a Participant will not be held in any segregated account or trust fund and may
be commingled with the general assets of the Corporation and used for general
corporate purposes.
D. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
- A Participant may, at any time prior to the last five (5) business
days of the next Semi-Annual Purchase Date, terminate his/her outstanding
purchase right(s) under the Plan by filing the prescribed notification form with
the Plan Administrator (or its designate). No further payroll deductions shall
be collected from the Participant with respect to the terminated purchase
5
<PAGE>
right, and any payroll deductions collected for the Semi-Annual Period of
Participation in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on the
Semi-Annual Purchase Date immediately following such termination. If no such
election is made at the time such purchase right is terminated, then the payroll
deductions collected with respect to the terminated right shall be refunded as
soon as possible.
- The termination of such purchase right shall be irrevocable, and a
Participant may not subsequently rejoin the Offering Period for which the
terminated purchase right was granted. In order to resume participation in any
subsequent Offering Period, such individual must re-enroll in the Plan (by
making a timely filing of a new stock purchase agreement and enrollment form) on
or before the date he or she is first eligible to join the new Offering Period.
- Should a Participant cease to remain an Eligible Employee for any
reason (including death, disability or change in status) while his/her purchase
right(s) remains outstanding, then such purchase right(s) shall immediately
terminate, and such individual (or the personal representative of the estate of
a deceased Participant) shall have the following election with respect to the
payroll deductions made to date in the Semi-Annual Period of Participation in
which such cessation of Eligible Employee status occurs:
1) to withdraw all of those deductions, or
2) to have such funds held for the purchase of shares at the end of
the Semi-Annual Period of Participation.
If no such election is made within the thirty (30)-day period following
such cessation of Eligible Employee status or (if earlier) prior to the last day
of the Semi-Annual Period of Participation, then the collected payroll
deductions shall be refunded as soon as possible. In no event, however, may any
payroll deductions be made on the Participant's behalf following his/her
cessation of Eligible Employee status. If a Participant's ceases Eligible
Employee status more than three (3) months prior to the last day of the Semi-
Annual Period of Participation and elects to have funds held for the purchase of
shares on such last date, then the Participant shall be required to satisfy all
income and employment tax withholding requirements applicable to such purchase.
E. Stock Purchase. Shares of Common Stock shall automatically be
--------------
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions in Subsection D above) on each Semi-Annual Purchase
Date. The purchase shall be effected by applying each Participant's payroll
deductions for the Semi-Annual Period of Participation ending on such Semi-
Annual Purchase Date (together with any carryover deductions from the preceding
Semi-Annual Period of Participation) to the purchase of whole shares of Common
Stock (subject to the limitation on the maximum number of purchasable shares
imposed under Subsection B of this Article VII) at the purchase price in effect
for that Semi-Annual Purchase Date. Any payroll deductions not applied to such
purchase because they are not sufficient to purchase a whole share shall be held
for the purchase of Common Stock on the next Semi-Annual Purchase Date.
However, any payroll deductions not applied to the purchase of Common Stock by
reason of the limitation on the maximum number of shares purchasable by the
Participant on the Semi-Annual Purchase Date shall be promptly refunded to the
Participant.
F. Proration of Purchase Rights. Should the total number of shares of
----------------------------
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any
6
<PAGE>
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 the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded to such Participant.
G. Rights as Stockholder. A Participant shall have no stockholder
---------------------
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as practicable after
each Semi-Annual Purchase Date, 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.
Alternatively, the Corporation may provide for the issuance of such certificate
in "street name" for immediate deposit in a Corporation-designated brokerage
account established by the Participant.
H. Assignability. No purchase right granted under the Plan shall be
-------------
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.
I. Corporate Transaction. Should any of the following transactions (a
---------------------
"Corporate Transaction") occur during the Offering Period:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
then each outstanding purchase right shall automatically be exercised,
immediately prior to the effective date of any Corporate Transaction, by
applying the payroll deductions of each Participant for the Semi-Annual Period
of Participation in which such Corporate Transaction occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
-----
Stock on the Participant's commencement date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights in accordance with the applicable
provisions of this Article VII.
7
<PAGE>
VIII. ACCRUAL LIMITATIONS
-------------------
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right outstanding under this Plan
and (ii) similar rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation 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) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the
right to acquire Common Stock pursuant to each purchase right outstanding under
the Plan shall accrue as follows:
- The right to acquire Common Stock under each such purchase right
shall accrue in a series of successive semi-annual installments as and when the
purchase right first becomes exercisable for each such installment on the last
business day of each Semi-Annual Period of Participation for which the right
remains outstanding.
- No right to acquire Common 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 Common Stock under one (1) or more other
purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000) worth
of Common Stock (determined on the basis of the Fair Market Value on the date or
dates of grant) for each calendar year during which one (1) or more of those
purchase rights were at any time outstanding.
- If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Semi-Annual Period of
Participation, then the payroll deductions which the Participant made during
that Semi-Annual Period of Participation with respect to such purchase right
shall be promptly refunded.
C. In the event there is any conflict between the provisions of this
Article VIII and one (1) or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
-------------------------
A. The Board may alter, amend, suspend or discontinue the
Plan following the close of any Semi-Annual Period of Participation. However,
the Board may not, without the approval of the Corporation's stockholders:
- materially increase the number of shares issuable under the Plan or
the maximum number of shares purchasable per Participant on any one (1) Semi-
Annual Purchase Date, except that the Plan Administrator shall have the
authority, exercisable without such stockholder approval, to effect adjustments
to the extent necessary to reflect changes in the Corporation's capital
structure pursuant to Subsection B of Article VI; or
8
<PAGE>
- alter the purchase price formula so as to reduce the purchase price
payable for the shares purchasable under the Plan; or
- materially increase the benefits accruing to Participants under
the Plan or materially modify the requirements for eligibility to participate in
the Plan.
B. The Corporation shall have the right, exercisable in the
sole discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Semi-Annual Period
of Participation. Should the Corporation elect to exercise such right, then the
Plan shall terminate in its entirety. No further purchase rights shall
thereafter be granted or exercised, and no further payroll deductions shall
thereafter be collected, under the Plan.
X. GENERAL PROVISIONS
------------------
A. The Plan was originally adopted by the Board on April
16, 1996 to become effective at the Effective Time, provided that no purchase
--------
rights granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect and all sums collected
from Participants during the initial offering period hereunder shall be
refunded.
B. The Plan shall terminate upon the earlier of (i) the
-------
last business day in July 2006 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.
C. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation.
D. Neither the action of the Corporation 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 Corporation 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 without resort to that State's conflict-of-laws
rules.
9
<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
Farallon Communications, Inc.
<PAGE>
EXHIBIT 99.9
Form of Stock Purchase Agreement
<PAGE>
FARALLON COMMUNICATIONS, INC.
STOCK PURCHASE AGREEMENT
------------------------
I hereby elect to participate in the Employee Stock Purchase Plan (the
"ESPP") for the offering period specified below, and I hereby subscribe to
purchase shares of Common Stock of Farallon Communications, Inc. (the
"Corporation") in accordance with the provisions of this Agreement and the ESPP.
I hereby authorize payroll deductions from each of my paychecks following my
entry into the offering period in the 1% multiple of my earnings (not to exceed
a maximum of 15%) specified in my attached Enrollment Form.
I understand that the offering period is divided into a series of
consecutive purchase periods. The initial purchase period will begin with the
initial public offering of the Common Stock and subsequent purchase periods will
begin on February 1, 1997, August 1, 1997 and February 1, 1998, with purchases
occurring on January 31, 1997, July 31, 1997, January 31, 1998 and July 31,
1998. My participation will automatically remain in effect from one purchase
period to the next during the offering period in accordance with my payroll
deduction authorization, unless I withdraw from the ESPP or change the rate of
my payroll deduction or unless my employment status changes.
I understand that my payroll deductions will be accumulated for the
purchase of shares of the Common Stock on the last business day of each purchase
period within the offering period. The purchase price per share will be 85% of
the lower of (i) the fair market value per share of Common Stock on the start
-----
date of the offering period or (ii) the fair market value per share on the
purchase date.
I understand that I can withdraw from the ESPP at any time prior to
the last 5 business days of a purchase period and elect either to have the
Corporation refund all my payroll deductions for that period or to have such
payroll deductions applied to the purchase of Common Stock at the end of such
period. However, I may not rejoin that particular offering period at any later
date. Upon the termination of my employment for any reason or my loss of
eligible employee status, my participation in the ESPP will immediately cease
and all my payroll deductions for the purchase period in which my employment
terminates or my loss of eligibility occurs will automatically be refunded.
Should I die while an ESPP participant, my payroll deductions will automatically
cease and my estate will receive a refund of my payroll deductions for the
purchase period in which I die. I further understand that I may reduce the rate
of my payroll deductions on one occasion per purchase period and that I may
increase my rate of payroll deductions to become effective at the beginning of
any subsequent purchase period.
I understand that I will receive a stock certificate for the shares
purchased on my behalf after the end of each purchase period or a stock
certificate will be deposited into a brokerage account in my name. The
certificate will be issued or my account will be registered in the name I have
indicated on the Enrollment Form accompanying this Agreement. I understand that
I must notify the Corporation of any disposition of shares purchased under the
ESPP and that I will be required to satisfy all applicable income and employment
tax withholding requirements at the time of such disposition.
I understand that the Corporation has the right, exercisable in its
sole discretion, to amend or terminate the ESPP at any time, with such amendment
or termination to become effective immediately following the exercise of
outstanding purchase rights at the end of any current purchase period. Should
the Corporation elect to terminate the ESPP, I will have no further rights to
purchase shares of Common Stock pursuant to this Agreement.
I understand that the ESPP sets forth restrictions (i) limiting the
maximum number of shares which I may purchase during any purchase period and
(ii) prohibiting me from purchasing more than $25,000 worth of Common Stock for
each calendar year my purchase right remains outstanding. I acknowledge that I
have received a copy of the official Plan Prospectus summarizing the major
features of the ESPP. I have read this Agreement and the Prospectus and hereby
agree to be bound by the terms of both this Agreement and the ESPP. The
effectiveness of this Agreement is dependent upon my eligibility to participate
in the ESPP.
Date:_____________________
-----------------------------------------
Signature Employee
Printed Name:____________________________
Duration of Offering Period: From: start of initial offering period to July 31,
1998
<PAGE>
EXHIBIT 99.10
Form of Enrollment/Change Form
<PAGE>
FARALLON COMMUNICATIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1: Actions Complete Sections:
------- ------------------
ACTIONS [_] New Enrollment 2, 3, 6, 7 and sign attached
---
Stock Purchase Agreement
[_] Payroll Deduction Change 2, 4, 7
[_] Terminate Payroll Deductions 2, 5, 7
[_] Beneficiary Change 2, 6, 7
==================================================================================================================================
SECTION 2:
Name ___________________________________________________________________________________________________
Last First MI Dept.
PERSONNEL
DATA Home Address ____________________________________________________________________________
Street
_______________________________________________________________________________________
City State Zip Code
Social Security #:[_][_][_]-[_][_]-[_][_][_][_]
==================================================================================================================================
SECTION 3: Effective with the Purchase
Period Beginning: Payroll Deduction
Amount: ___% of cash compensation*
NEW [_] Initial Offering Period [_] Aug. 1, 1997 * Must be a multiple of 1% up to a
ENROLLMENT [_] Feb. 1, 1997 maximum of 15% of cash compensation
==================================================================================================================================
SECTION 4: Effective with the I authorize the following new level of payroll
Pay Period Beginning: _______________________ deduction: _______% of cash compensation*
Month, Day and Year
PAYROLL * Must be a multiple of 1% up to a maximum of
DEDUCTION 15% of cash compensation
CHANGE
NOTE: You may reduce your rate of payroll deductions once per purchase period to become effective as soon as
possible following the filing of the change form. You may also increase your rate of payroll deductions
to become effective as of the start date of the next purchase period.
==================================================================================================================================
SECTION 5:
TERMINATE Effective with the Pay Period Your election to terminate your payroll deductions for
PAYROLL Beginning: the balance of the offering period cannot be changed,
DEDUCTIONS and you may not rejoin the offering period at a later
_____________________________ date. You will not be able to resume participation in
Month, Day and Year the ESPP prior to the commencement of the next offering
period.
In connection with my voluntary termination of payroll deductions (or an approved leave of absence), I elect the
following action regarding my ESPP payroll deductions to date in the current purchase period:
[_] Purchase shares of Farallon Communications at end of the period
OR
[_] Refund ESPP payroll deductions collected
NOTE: If your employment terminates for any reason or your eligibility status changes (greater than 20 hrs/wk or greater
than 5 months/yr), you will immediately cease to participate in the ESPP, and your ESPP payroll deductions
collected in that purchase period will automatically be refunded to you.
==================================================================================================================================
SECTION 6: Beneficiary(ies) Relationship of Beneficiary(ies) Percentage
BENEFICIARY ---------------- -------------------------------- ----------
---------------------------------- ----------------------------------- -----------
---------------------------------- ----------------------------------- -----------
==================================================================================================================================
SECTION 7:
AUTHORIZATION I would like my certificate to be issued as follows: (Print name(s) exactly as they should appear.)
[_] My name only, ___________________________________________,
[_] My name, ______________________________, and my spouse, _________________________, [_] as community property
or [_] as joint tenants.
_______________________ ---------------------------------------------------
Date Signature of Employee
</TABLE>
<PAGE>
EXHIBIT 99.11
Form of Special Officer Participation Form
<PAGE>
FARALLON COMMUNICATIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
SPECIAL OFFICER PARTICIPATION FORM
- ------------
SECTION 1:
- ------------
PURPOSE This special participation form will allow the Corporation's
officers to participate in the ESPP upon terms and
conditions which will exempt their acquisitions of the
Corporation's common stock ("Common Stock") from purchase
treatment under the short-swing liability provisions of the
Federal securities laws. In the absence of the commitments
made by the officer pursuant to this form, any such
acquisitions under the ESPP will not qualify for exempt
treatment unless the shares are held for a minimum period of
six (6) months measured from the purchase date.
===============================================================================
SECTION 2:
- ------------
PERSONNEL DATA Name __________________________________________________
Last First MI
Social Security #:[_][_][_]-[_][_]-[_][_][_][_]
===============================================================================
SECTION 3:
- ------------
COMMITMENT I hereby irrevocably commit to remain a participant in the
PERIOD ESPP for the following period (the "Commitment Period")
and to acquire shares of Common Stock on each purchase date
under the ESPP which occurs within the Commitment Period:
[_] the period beginning with the filing of this form with
the ESPP administrator and ending on ____________(must
extend through at least one purchase date more than six
(6) months after the filing date), or
[_] my entire period of ESPP participation.
NOTE: The Commitment Period, together with my participation in the
---- ESPP, will in all events terminate upon my cessation of
employment with the Corporation.
===============================================================================
SECTION 4:
- ------------
PAYROLL DEDUCTION I hereby authorize the Corporation to deduct from each of my
paychecks during the Commitment Period the percentage of pay
specified below for investment in shares of Common Stock
under the ESPP:
[_] ______% of my cash compensation per pay period (any
multiple of 1% up to a maximum of 15%).
The specified rate of payroll deduction will remain in
effect for the entire Commitment Period, and I will not
change such rate of deduction, or otherwise suspend or
terminate such deductions, at any time during the Commitment
Period. No further payroll deductions may be made to the
ESPP after my termination of employment with the
Corporation.
NOTE: If the Commitment Period is to run for the officer's entire
---- period of ESPP participation, the specified rate of payroll
deduction may only be changed upon six (6) months advance
notice to the ESPP administrator. Any such change in the
rate of payroll deduction will not become effective until
six (6) months after the date the notice of such change is
filed with the ESPP administrator. Once the change becomes
effective, any shares subsequently acquired under the ESPP
will have to be held for at least six (6) months in order to
avoid purchase treatment under the short-swing trading
rules, unless the change is effected by filing another
Special Officer Participation Form.
===============================================================================
SECTION 5:
- ------------
WAIVER By signing below, I hereby waive my right under the ESPP to
withdraw any payroll deductions made on my behalf during the
Commitment Period, and none of those deductions may be
refunded to me. Accordingly, all my payroll deductions at
the rate specified in Section 4 above are to be applied to
the purchase of shares of Common Stock on each purchase date
within the Commitment Period during which I continue in the
Corporation's employ. Further, any payroll deductions
collected after the last purchase date during the Commitment
Period but before termination of employment shall be
automatically refunded. This waiver will remain in effect
for the entire Commitment Period.
NOTE: If the Commitment Period is to run for the officer's entire
---- period of ESPP participation, then the waiver may only be
revoked upon six (6) months advance notice to the ESPP
administrator. Only payroll deductions made on the officer's
behalf more than six (6) months after such revocation is
filed with the ESPP administrator may be withdrawn from the
ESPP or otherwise refunded to the officer. Once the
revocation becomes effective, any shares subsequently
acquired under the ESPP will have to be held for at least
six (6) months to avoid purchase treatment under the short-
swing trading rules.
===============================================================================
SECTION 6:
- ------------
AUTHORIZATION To the extent there is any conflict between the commitments
made pursuant to this Special Officer Participation Form and
any other payroll deduction authorizations or other
agreements or commitments in effect for me for the same
period under the ESPP, the terms of this Special Officer
Participation Form will control. The commitments made in
this Special Officer Participation Form are irrevocable,
except to the limited extent otherwise indicated above. As a
result of the commitments made in this agreement, I
understand that any shares of Common Stock which I acquire
under the ESPP more than six (6) months after the date this
form is filed with the ESPP administrator will be treated as
exempt purchases under the short-swing trading rules without
any minimum holding-period requirement.
Date Signed: ______________ Signature: _____________________________________
Date Filed: ______________
<PAGE>
EXHIBIT 99.12
1987 Restated Stock Option Plan
<PAGE>
FARALLON COMPUTING, INC.
1987 RESTATED STOCK OPTION PLAN
-------------------------------
(amended and restated as of MAY 31, 1995)
I. PURPOSE OF THE PLAN
The Farallon Computing, Inc. 1987 Restated Stock Option Plan ("Plan")
is intended to promote the interests of Farallon Computing, Inc. (the
"Corporation") by providing incentives to (i) certain employees of the
Corporation or its Parent or Subsidiary Corporations who are responsible for the
management, growth or financial success of the Corporation or its Parent or
Subsidiary Corporations, (ii) certain non-employee members of the Corporation's
Board of Directors and (iii) certain non-employee consultants who perform
valuable services for the Corporation or its Parent or Subsidiary Corporations,
in order to encourage them to acquire a proprietary interest, or increase their
proprietary interest, in the Corporation and to continue to perform services for
the Corporation or its Parent or Subsidiary Corporations. For purposes of the
Plan, the terms "Parent Corporation" and "Subsidiary Corporation" shall have the
meanings set forth in subsections (e) and (f) of Section 424 of the Internal
Revenue Code.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board of Directors (the
"Board") of the Corporation. The Board, however, may at any time appoint a
committee ("Committee") of two (2) or more individuals and delegate to such
Committee one or more of the administrative powers allocated to the Board
pursuant to the provisions of the Plan. Members of the Committee shall serve for
such period of time as the Board may determine and shall be subject to removal
by the Board at any time. The Board may also at any time terminate the functions
of the Committee and reassume all powers and authority previously delegated to
the Committee.
B. The Plan Administrator (either the Board or the Committee, to the
extent the Committee is at the time responsible for the administration of the
Plan) shall have full power and authority to (i) determine which employees shall
receive option grants, (ii) determine the number of shares to be covered by each
such stock option grant, (iii) determine whether each granted option is to be an
incentive stock option which satisfies the requirements of Section 422 of the
Internal Revenue Code ("Incentive Option") or a non-statutory option not
intended to meet such requirements, (iv) determine the time or times at which
each such option is to be come exercisable, (v) determine the option price for
each such option, (vi) determine the maximum term for which such option is to be
outstanding and (vii) determine all other terms and conditions upon which such
option may be exercised. The Plan Administrator shall have the full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the Plan
and to make such
1
<PAGE>
determinations under, and issue such interpretations of, the Plan and any
outstanding option as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any outstanding option. No person acting under this subsection shall
be held liable for any action or determination made in good faith with respect
to the Plan or any option granted under the Plan.
III. ELIGIBILITY FOR OPTION GRANTS
Employees (whether or not they are officers and members of the Board)
of the Corporation (or any Parent or Subsidiary Corporation), members of the
Board who are not employees of the Corporation and non-employee consultants to
the Corporation (or any Parent or Subsidiary Corporation) shall be eligible for
selection to receive option grants under the Plan.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall consist of shares of the
Corporation's authorized but unissued or reacquired Common Stock ("Common
Stock"). The aggregate number of shares issuable over the term of the Plan
(including the 1,000,000-share increase approved by the Board of May 31, 1995)
shall not exceed 5,120,000 shares, subject to adjustment as provided in
subsection B. Should an option expire or terminate for any reason prior to
exercise or surrender in full (including options canceled in accordance with the
cancellation-regrant provisions of Section 9 of the Plan), the shares subject to
the potion of the option not so exercised or surrendered shall be available for
subsequent option grants under the Plan. Shares subject to an option (or
portion of an option) surrendered in accordance with Section 7 of the Plan and
shares repurchased by the Corporation pursuant to its repurchase rights under
the Plan shall not be available for subsequent option grants under the Plan.
---
B. In the event any change is made to the Common Stock issuable under
the Plan by reason of (i) any Corporate transaction (as defined in Section 8) or
(ii) any stock split, stock dividend, combination of shares, exchange of shares
or other change affecting the outstanding Common Stock as a class without
receipt of consideration, then unless such change results in the termination of
all outstanding options under the Plan as a result of the Corporate Transaction,
appropriate adjustments shall be made to (I) the aggregate class and/or number
of shares issuable under the Plan and (II) the class and/or number of shares and
price per share of the Common Stock subject to each outstanding option in order
to prevent the dilution or enlargement of benefits thereunder.
V. TERMS AND CONDITIONS OF OPTIONS
A. General Requirements. Each option granted under the Plan (i) shall
--------------------
be authorized by action of the Plan Administrator and (ii) shall be evidenced by
a stock option agreement that complies with (or incorporates) each of the terms
and
2
<PAGE>
conditions of this Section and identifies such option as either an Incentive
Option or as a non-statutory option. Individuals who are not employees of the
Corporation or its Parent or Subsidiary Corporations may only be granted non-
statutory options.
B. Option Price.
-------------
1. The option price per share shall be fixed by the Plan
Administrator; provided, however, that in no event shall the option price per
--------
share be less than 85% of the fair market value of a share of Common Stock on
the date of the option grant.
2. If the optionee is, on the date of grant, an owner of stock
(as determined under Section 424(d) of the Internal Revenue code) that possesses
more than 10% of the total combined voting power of all classes of stock of the
Corporation or a Parent or Subsidiary Corporation (such person to be referred to
as a 10% Shareholder), then the option price per share shall not be less than
110% of the fair market value of a share of Common Stock on the date of the
option grant.
3. The option price shall be paid upon exercise of the option and
shall, subject to the provisions of Section 10 and the stock option agreement
that evidences the option grant, be payable in one of the following alternative
forms (as determined by the Plan Administrator):
(1) Full payment in cash or check; or
(2) Full payment in shares of Common Stock held by the
Optionee for at least six months and valued at fair market value on the date of
exercise; or
(3) Full payment through a combination of shares of Common
Stock held by the Optionee for at least six months and valued at fair market
value on the date of exercise and cash or check, equal in the aggregate to the
option price.
4. For all valuation purposes under the Plan, the fair market
value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
(1) If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded in the over-the-counter market,
the fair market value shall be the mean between the highest bid price and lowest
asked price per share of Common Stock on the date in question in the over-the-
counter market, as such prices are reported by the National Association of
Securities Dealers through its Nasdaq system or any successor system. If there
are no reported bid and asked prices for the Common Stock on the date in
question, then the mean between the highest bid price and lowest asked price on
the last preceding date for which such quotations exist shall be
3
<PAGE>
determinative of fair market value. If the Common Stock is traded over-the-
counter on the Nasdaq National Market, the fair market value shall be the
closing selling price per share of Common Stock on the date in question as such
price is reported by the National Association of Securities Dealers through such
system or any successor system. If there is no reported closing selling price
for the Common Stock on the date in question, then the closing selling price on
the last preceding date for which such quotation exists shall be determinative
of fair market value.
(2) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common stock on
such exchange on the date in question, then the fair market value shall be the
closing selling price on such exchange on the last preceding date for which such
quotation exists.
(3) If the Common stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market (or, if the Plan Administrator determines that the value as determined
pursuant to subsections (1) or (2) does not reflect fair market value), then the
Plan Administrator shall determine fair market value after taking into account
such factors as it deems appropriate, including one or more independent
professional appraisals.
C. Term And Exercise Of Options. Each option granted under the Plan
----------------------------
shall be exercisable at such time or times, during such period and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement evidencing such option; provided, however, that no
--------
option granted under the Plan shall have a term in excess of ten years from its
date of grant, or, in the case of an option granted to a 10% Shareholder, a term
in excess of five years from the date of grant. An option by its terms shall not
be assignable or transferable by the optionee other than by will or by the law
of descent and distribution; during the lifetime of the optionee, such option
shall be exercisable only by the optionee. Options shall be exercised by written
notice to the Corporation (in such terms as the Plan administrator may specify),
together with payment of the exercise price.
D. Effect Of Termination Of Employment.
------------------------------------
1. Should an optionee cease to be a Service Provider to the
Corporation for any reason (including death or disability) while the holder of
one or more outstanding options under the Plan, then such option or options
shall not (except to the extent otherwise provided pursuant to Section 11 below)
remain exercisable for more than a thirty-six (36) month period (or such shorter
period determined by the Plan Administrator and specified in the stock option
agreement evidencing the grant) following the date of such cessation of Service
Provider status; provided, however, that
--------
4
<PAGE>
under no circumstances shall such options be exercisable after the specified
expiration date of the option term. Each such option shall, during such thirty-
six (36) month or shorter period, be exercisable only to the extent of the
number of shares (if any) for which the option is exercisable on the date of
such cessation of Service Provider status. Upon the expiration of such thirty-
six (36) month or shorter period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be exercisable.
2. Any option granted to an optionee under the Plan and
exercisable in whole or in part on the date of the optionee's death may be
subsequently exercised, but only to the extent of the number of shares (if any)
for which the option is exercisable on the date of the optionee's death, by the
personal representative of the optionee's estate or by the person or persons to
whom the option is transferred pursuant to the optionee's will or in accordance
with the laws of descent and distribution, provided and only if such exercise
-----------------
occurs prior to the earlier of (i) the third anniversary of the date of the
-------
optionee's cessation of Service Provider status or (ii) the specified expiration
date of the option term. Upon the occurrence of the earlier event, the option
shall terminate and cease to be exercisable.
3. For purposes of the foregoing provision of this Section 5(d)
(and all other provisions of the Plan), unless it is evidenced otherwise in the
specific option agreement evidencing the option grant and/or the purchase
agreement evidencing the purchased optioned shares, the optionee shall be deemed
to be a Service Provider to the Corporation for so long as such individual
renders services on a periodic basis to the Corporation or any Parent or
Subsidiary Corporation in the capacity of an Employee, a non-employee member of
the board of directors or an independent consultant or advisor. The optionee
shall be considered to be an Employee for so long as such individual remains in
the employ of the Corporation or one or more of its Parent or Subsidiary
Corporations.
E. Restrictions Applicable to Common Stock Issued on Exercise.
-----------------------------------------------------------
1. Common Stock issuable upon exercise of an option granted under
the Plan may be subject to such restrictions on transfer, repurchase rights or
other restrictions as may be determined by the Plan Administrator, including the
right of the Corporation (or its assigns), exercisable upon the optionee's
cessation of Service Provider status, to repurchase at the original option price
all or (at the discretion of the Corporation and with the consent of the
optionee) any portion of the shares of Common Stock previously acquired by the
optionee upon the exercise of such option. Any such repurchase right shall be
exercisable by the Corporation (or its assigns) upon such terms and conditions
(including the establishment of the appropriate vesting schedule and other
provisions for the expiration of such right in one or more installments over the
optionee's period of Service Provider status) as the Plan Administrator may
specify in the instrument evidencing such right. All outstanding repurchase
rights under the Plan shall terminate automatically upon the occurrence of any
Corporate Transaction under Section 8, except
5
<PAGE>
to the extent the repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
2. The Plan Administrator may assign the Corporation's repurchase
rights specified under subsection 1. above to any person or entity selected by
the Plan Administrator, including one or more shareholders of the Corporation.
If the selected assignee is other than a Parent or Subsidiary Corporation of the
Corporation, then the assignee must make a cash payment to the Corporation, upon
the assignment of the repurchase rights, in an amount equal to the excess (if
any) of the fair market value of the unvested shares at the time subject to the
repurchase rights and the aggregate repurchase price payable for such unvested
shares thereunder.
3. The Plan Administrator may also in its discretion establish as
a term and condition of one or more options granted under the Plan that the
Corporation shall have a right of first refusal with respect to any proposed
sale or other disposition by the optionee (or any successor in interest by
reason of purchase, gift or other mode of transfer) for any shares of Common
Stock issued upon the exercise of such options. Any such right of first refusal
shall be exercisable by the Corporation (or its assignees) in accordance with
the terms and conditions set forth in the instrument evidencing such right.
F. Investment Purpose. If necessary or advisable to comply with
------------------
applicable Federal or state securities laws, any option granted under the Plan
may be granted on the condition that the optionee agrees that the purchase of
shares of Common Stock thereunder is for investment and not with a view to the
resale or distribution of such stock and that such shares shall be disposed of
only in accordance with such laws. As a condition to issuance of any shares
purchased upon the exercise of any option granted pursuant to the Plan, the
optionee, his executor, administrator, heir or legatee (as the case may be)
receiving such shares may be required to deliver to the Corporation an
instrument, in form and substance satisfactory to the Plan Administrator and its
counsel, implementing such agreement. Any such condition may be eliminated by
the Plan Administrator if the Plan Administrator determines it is no longer
necessary or advisable.
G. Shareholder Rights. No option holder shall have any of the rights
------------------
of a shareholder with respect to any shares covered by an option until such
option holder has exercised the option.
H. Withholding on Non-statutory Options.
-------------------------------------
1. In the event that an optionee is required to pay to the
Corporation an amount with respect to income and employment tax withholding
obligations in connection with the exercise of a non-statutory option, the Plan
Administrator may, in its discretion and subject to such rules as it may adopt,
permit the optionee to satisfy the obligation, in whole or in part, by making an
irrevocable election that a portion of the total value of the shares of Common
Stock subject to the non-
6
<PAGE>
statutory option be paid in the form of cash in lieu of the issuance of Common
Stock and that such cash payment be applied to the satisfaction of the
withholding obligations.
2. If the optionee is subject to the trading restrictions of
Section 16(b) of the Securities Exchange Act of 1934 (the "1934 Act") at the
time of exercise of an option, an election under this subsection H. by such
individual shall be made either (i) at least six months prior to the date the
amount of withholding tax due with respect to the exercise is calculated (the
"Tax Date") or (ii) on or prior to the Tax Date, within a "window period" as
defined in Rule 16b-3(e)(3)(iii) under the 1934 Act; and shall apply only to
options exercised six months or more after the date of grant (unless the option
holder dies or becomes disabled prior to the expiration of such six-month
period). Should the Tax Date be deferred for six months following the exercise
date, the full amount of shares purchased under the exercised option shall be
issued to the officer or director upon exercise, but such individual shall be
obligated unconditionally, upon arrival of his withholding election, to tender
back to the Corporation on the Tax Date the requisite number of shares of Common
Stock (plus cash for any fractional amount) needed to satisfy the designated
percentage of his Federal and state income and employment tax withholding
liability.
VI. INCENTIVE OPTIONS
A. General Conditions. The terms and conditions set forth in this
------------------
Section shall apply to all Incentive Options granted under the Plan. Incentive
Options may only be granted to individuals who are Employees of the Corporation
or any of its Parent or Subsidiary Corporations. Options that are specifically
designated as "non-statutory" options when issued under the Plan shall not be
subject to such terms and conditions.
B. Option Price. The option price per share of the Common Stock
------------
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value of a share of Common Stock on the date
grant.
C. Dollar Limitation. The aggregate fair market value (determined
-----------------
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other option
plan of the Corporation or its Parent or Subsidiary Corporations) may for the
first time become exercisable as incentive stock options under the Federal tax
laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability thereof as incentive stock
options under the Federal tax laws shall be applied on the basis of the order in
which such options are granted.
Except as modified by the preceding provisions of this Section 6,
all the provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.
7
<PAGE>
VII. LIMITED SURRENDER RIGHTS
A. In the event of a Change in Control (as defined below) at a
time when one or more classes of the Corporation's equity securities are
registered under Section 12(g) of the Securities Exchange Act of 1934 (as
amended), then each optionee who is an officer or director at the time subject
to the short-swing profit restrictions of the Federal securities laws shall have
the right to surrender any or all options held by such individual under this
Plan, to the extent such options are at the time exercisable for vested shares,
and receive in exchange therefor an appreciation distribution from the
Corporation. The appreciation distribution shall be equal in amount to the
excess of (i) the Change in Control Price (on the date of surrender) of the
number of shares in which the optionee is at the time vested under the
surrendered option or portion thereof over (ii) the aggregate option price
payable for such vested shares. The limited surrender right provided by this
Section 7 shall be exercisable for a period not to exceed thirty (30) days from
the occurrence of the Change in Control. The approval of the Board shall not be
required for such surrender, and the distribution to which such individual shall
become entitled upon such surrender shall be made entirely in cash.
B. For purposes of subparagraph (a) above, Change in Control shall
mean the acquisition of twenty-five percent (25%) or more of the Corporation's
outstanding voting stock pursuant to a tender or exchange offer (I) which is
made by a person or group of related persons other than the Corporation or a
person that directly or indirectly controls, is controlled by or is under common
control with the Corporation and (II) which the Board does not recommend the
Corporation's shareholders to accept.
C. For purposes of subparagraph (a) above, the Change in Control
Price per share of the vested Common Stock subject to the surrendered option
shall be deemed to be equal to the greater of (a) the Fair Market Value per
-------
share on the date of surrender or (b) the highest reported price per share paid
in effecting the Change in Control. However, if the surrendered option is an
Incentive Option, then the Change in Control price of the vested shares subject
to the surrendered option shall not exceed the Fair Market Value per share.
VIII. SALE, MERGER, REORGANIZATION, ETC.
A. In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Corporation's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, or
8
<PAGE>
(iii) any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the
Corporation's outstanding voting stock is transferred to holders different
from those who held the stock immediately prior to such merger,
then each option outstanding under the Plan shall terminate upon the
consummation of such Corporate Transaction and cease to be exercisable, unless
assumed by the successor corporation or parent thereof.
B. Each outstanding option which is assumed in connection with the
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been
issuable, in consummation of such Corporate Transaction, to an actual holder of
the same number of shares of Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the option price payable per share, provided the aggregate
--------
option price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan following
the consummation of the Corporate Transaction shall be appropriately adjusted.
C. The grant of options under this Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IX. CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than 85% of fair market value (100% of fair market value in the case of an
Incentive Option or, in the case of a 10% Shareholder, not less than 110% of
fair market value) on the new grant date.
X. LOANS OR GUARANTEE OF LOANS
The Plan Administrator may, in its discretion, assist any optionee
(including an optionee who is an officer or member of the Board) in the exercise
of one or more options under the Plan, including the satisfaction of any Federal
and state income and employment tax obligations arising therefrom by
(i) authorizing the extension of a loan from the Corporation to such optionee,
(ii) permitting the optionee to pay the option price in installments over a
period of years or (iii) authorizing a guarantee by the Corporation of a third
party loan to the optionee. Any such assistance shall be upon such terms
(including the interest rate and terms of repayment) as the Plan Administrator
9
<PAGE>
specifies in the stock option agreement. Loans, installment payments and
guarantees may be granted with or without security or collateral (other than to
optionees who are consultants or independent contractors, in which event the
loan must be adequately secured by collateral other than the purchased shares),
but the maximum credit available to the optionee shall not exceed the sum of
(i) the aggregate option price payable for the purchased shares plus (ii) any
Federal and state income and employment tax liability incurred by the optionee
in connection with the exercise of the option.
XI. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to
extend the period of time for which the option is to remain exercisable
following the optionee's termination of Service Provider status from the thirty-
six (36) month or shorter period set forth in the option agreement to such
greater period of time as the Plan Administrator shall deem appropriate;
provided, however, that in no event shall such option be exercisable after the
- --------
specified expiration date of the option term.
XII. AMENDMENT OF THE PLAN AND OPTIONS
A. The Board shall have complete and exclusive power and authority
to amend the Plan and the Plan Administrator may amend or modify outstanding
options issued under the Plan in any or all respects whatsoever not inconsistent
with the terms of the Plan; provided, however, that, except to the extent
necessary to qualify options under the Plan as Incentive Options, no such
amendment shall adversely affect the rights and obligations of an option holder
with respect to options at the time outstanding under the Plan unless the option
holder consents to such amendment; and provided, further, that the Board shall
not, without the approval of the Corporation's shareholders, amend the Plan to
(i) increase the maximum number of shares issuable under the Plan (except for
permissible adjustments under Section 4.B. or subsection B. below),
(ii) materially increase the benefits accruing to individuals who participate
in the Plan or (iii) modify the eligibility requirements for the grant of
options under the Plan.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and is thereafter submitted to the Corporation's shareholders
for approval and (ii) each option so granted is not to become exercisable, in
whole or in part, at any time prior to obtaining such shareholder approval.
XIII. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was initially adopted by the Board and approved by the
Corporation's shareholders on March 31, 1987. The Plan has been restated and
amended on six subsequent occasions to provide further benefits to participants
under the Plan.
10
<PAGE>
The five prior restatements were adopted by the Board on January 29, 1988,
October 27, 1988, September 30, 1989, February 22, 1991, and October 22, 1992,
respectively. This restatement of the Plan shall become effective on May 31,
1995, the date on which the Board adopted this restatement of the Plan.
B. The provisions of this 1995 restatement shall apply only to
options granted under the Plan from and after the date this restatement is
adopted by the Board. All options issued and outstanding under the Plan
immediately prior to such adoption of this restatement shall continue to be
governed by the terms and conditions of the Plan (and the respective instruments
evidencing each such option) as in effect on the date each such options was
previously granted, and nothing in this 1995 restatement shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
options with respect to the acquisition of shares of Common Stock thereunder.
C. Unless the Plan is sooner terminated in accordance with Section
8, no option may be granted under the Plan after the earlier of (i) March 30,
1997 or (ii) the date on which all shares available for issuance under the Plan
have been issued or canceled pursuant to the exercise or surrender of options
granted hereunder.
XIV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
XV. INFORMATION TO OPTIONEES
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless the optionee is a key employee whose duties in connection
with the Corporation assures such employee access to equivalent information.
XVI. WITHHOLDING
The Corporation's obligation to (i) deliver stock certificates upon
the exercise of any option or (ii) pay cash upon the surrender of any option
granted under the Plan shall be subject to the option holder's satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.
XVII. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under
the Plan, and the issuance of Common Stock upon the exercise of any such option
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it, and the Common Stock issued pursuant to it.
11
<PAGE>
EXHIBIT 99.13
Stock Bonus Agreement
<PAGE>
FARALLON COMPUTING, INC.
STOCK BONUS AGREEMENT
---------------------
This Agreement is made as of this _______ day of _______________,
1992, by and among Farallon Computing, Inc., a California corporation
("Corporation"), ___________________, an employee of the Corporation
("Employee").
I. AWARD OF SHARES
---------------
1.1 Issuance. The Employee is hereby issued _________ shares of the
--------
Corporation's Common Stock (the "Shares") pursuant to a stock award made to
Employee pursuant to the Farallon Computing, Inc. Stock Bonus Plan ("Plan").
1.2 Payment. Consideration for the Shares has been paid in the form
-------
of services rendered by Employee to the Corporation and valued by the
Corporation's Board of Directors at $0.60 per share.
II. SECURITIES LAW COMPLIANCE
-------------------------
2.1 Exemption from Registration. The Shares have not been registered
---------------------------
under the Securities Act of 1933, as amended (the "1933 Act") and are being
issued to Employee in reliance upon the exemption from such registration
provided by Rule 701 of the Securities and Exchange Commission for stock
issuances under compensatory benefit plans such as the Plan.
2.2 Disposition of Shares. Employee hereby agrees that Employee shall
---------------------
make no disposition of the Shares (other than a permitted transfer under
paragraph 4.1) unless and until:
(a) Employee shall have notified the Corporation of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Employee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that (i)
Employee has complied with all requirements of this Agreement applicable to the
disposition of the Shares; (ii) the proposed disposition does not require
registration of the Shares under the 1933 Act; (iii) all appropriate action
necessary for compliance with the registration requirements of the 1933 Act or
of any exemption from registration available under the 1933 Act (including Rule
144) has been taken; and (iv) that the proposed disposition will not result in
the contravention of any transfer restrictions applicable to the Shares pursuant
to the provisions of the Commissioner Rules attached as Exhibit II.
<PAGE>
III. TRANSFER RESTRICTIONS
---------------------
3.1 Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Employee shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Shares without the prior written consent of the Corporation or
its underwriters. Such limitations shall be in effect for such period of time
from and after the effective date of such registration statement as may be
requested by the Corporation or such underwriters; provided, however, that in no
event shall such period exceed one hundred-eighty (180) days. The limitations of
this paragraph 3.1 shall remain in effect for the two-year period immediately
following the effective date of the Corporation's initial public offering and
shall thereafter terminate and cease to have any force or effect.
(b) Employee shall be subject to the market stand-off provisions of
this paragraph 3.1 provided and only if the officers and directors of the
--------------------
Corporation are also subject to similar arrangements.
(c) In the event of any stock dividend, stock split, recapitalization
or other change affecting the Corporation's outstanding Common Stock effected as
a class without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 3.1, to the same extent
the Shares are at such time covered by such provisions.
IV. RIGHT OF FIRST REFUSAL
----------------------
4.1 Grant. The Corporation is hereby granted the right of first
-----
refusal ("First Refusal Right"), exercisable in connection with any proposed
sale or other transfer of the Shares. For purposes of this Article IV, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Shares made by Employee, but shall not include (i) a transfer
by gift made to the Employee's spouse, parents or children, including adopted
children, or to a trust for the exclusive benefit of the Employee or the
Employee's spouse or children, provided and only if the Employee obtains the
--------------------
Corporation's prior written consent to such transfer or (ii) a transfer effected
pursuant to the Employee's will or the laws of intestate succession. Employee
shall not transfer, assign, encumber or otherwise dispose of any of the Shares
in contravention of this Article IV.
4.2 Notice of Intended Disposition. In the event the Employee desires
------------------------------
to accept a bona fide third-party offer for any or all of the Shares (the shares
subject to such offer are referred to as the "Target Shares"), Employee shall
promptly (i) deliver to the Secretary of the Corporation written notice (the
"Disposition Notice") of the offer and the basic terms and conditions of the
offer, including the identity of the proposed purchaser and the purchase price,
2
<PAGE>
and (ii) provide satisfactory proof that the disposition of the Target Shares
would not be in contravention of this Agreement.
4.3 Exercise of Right. The Corporation (or its assignees) shall, for
-----------------
a period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to purchase all of the Target Shares upon substantially the same
terms and conditions specified in the Disposition Notice. Such right shall be
exercisable by written notice (the "Exercise Notice") delivered to Employee
prior to the expiration of the twenty-five (25) day exercise period. The
Corporation (or its assignees) shall effect the purchase of the Target Shares,
including payment of the purchase price in cash not more than five (5) business
days after the delivery of the Exercise Notice or the equivalent cash value of
property other than cash for which the third-party purchaser proposes to pay for
the Target Shares, and at such time Employee shall deliver to the Corporation
the certificates representing the Target Shares to be purchased, each
certificate to be properly endorsed for transfer.
4.4 Non-Exercise of Right. In the event the Exercise Notice is not
---------------------
given to Employee within twenty-five (25) days following the date of the
Corporation's receipt of the Disposition Notice, Employee shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party purchaser identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party purchaser than those specified in the Disposition Notice. The third-
party purchaser shall acquire the Target Shares free and clear of the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to the market stand-off provisions of paragraph 3.1. In the event
Employee does not effect such sale or disposition of the Target Shares within
the specified thirty (30) day period, the Corporation's First Refusal Right
shall continue to be applicable to any subsequent disposition of the Target
Shares by Employee until such right lapses in accordance with paragraph 4.5.
4.5 Lapse. The First Refusal Right under this Article IV shall lapse
-----
and cease to have effect upon the earliest to occur of (i) the first date on
which shares of the Corporation's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Corporation's
Board of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering, pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $5,000,000. However, the market stand-off provisions of
paragraph 3.1 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.
4.6 Assignment. The Corporation may assign its First Refusal Right
----------
under Article IV to any person or entity selected by the Corporation's Board of
Directors, including (without limitation) one or more shareholders of the
Corporation.
V. GENERAL PROVISIONS
------------------
5.1 No Employment or Service Contract. Nothing in this Agreement or in
---------------------------------
the Plan shall confer upon the Employee any right to continue in the service or
employ of the
3
<PAGE>
Corporation (or any parent or subsidiary corporation employing or retaining
Employee) for any period of specific duration or interfere with or restrict in
any way the rights of the Corporation (or any parent or subsidiary corporation
employing or retaining Employee) or the Employee, which rights are hereby
expressly reserved by each, to terminate the Employee's employ or service at any
time for any reason whatsoever, with or without cause.
5.2 Notices. Any notice required under this Agreement shall be given
-------
in writing and shall be deemed effective upon personal delivery or upon deposit
in the United States mail, registered or certified, postage prepaid and
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
5.2 to all other parties to this Agreement.
5.3 No Waiver. No waiver of any breach or condition of this
---------
Agreement shall be deemed to be a waiver of any other or subsequent breach or
condition, whether of like or different nature.
VI. MISCELLANEOUS PROVISIONS
------------------------
6.1 Employee Undertaking. Employee hereby agrees to take whatever
--------------------
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Employee or the
Shares pursuant to the express provisions of this Agreement.
6.2 Agreement is Entire Contract. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
6.3 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
6.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6.5 Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Employee and the Employee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
4
<PAGE>
By signing below, Employee acknowledges receipt of a copy of the Plan,
attached as Exhibit I to this Agreement, and of a copy of Section 260.141.11 of
the Rules of the California Corporations Commissioner, attached as Exhibit II to
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
FARALLON COMPUTING, INC.
By:
---------------------------------------
Address:
------------------------------------------
------------------------------------------
------------------------------------------
Employee
Address:
------------------------------------------
------------------------------------------
<PAGE>
EXHIBIT 99.14
Stock Bonus Plan
<PAGE>
EXHIBIT I
FARALLON COMPUTING, INC.
STOCK BONUS PLAN
----------------
1. Purpose. It is the purpose of this Stock Bonus Plan (the "Plan") to
-------
enable Farallon Computing, Inc., a California Corporation (the "Company"), to
award shares of the Company's Common Stock to selected employees of the Company
for outstanding contributions by such individuals rendered to the Company.
2. Eligibility. Eligible participants shall be limited to the Company's
-----------
employees designated by authorization of the Board of Directors (the "Board").
3. Plan Administration. The Plan shall be administered by the Board.
-------------------
The Board shall have full power to issue fully-vested shares of the Company's
Common Stock for past services rendered to the Company by eligible employees.
4. Shares. Subject to the provisions of paragraph 7 relating to
------
adjustments upon changes in stock, a maximum of 100,000 shares of Common Stock
may be issued pursuant to the Plan per year. The stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. Consideration. Common Stock issued under the Plan shall be awarded
-------------
in consideration of past services rendered to the Company and valued at fair
market value as determined by the Board on the date of the stock award.
6. Additional Terms. The Board may impose such additional terms and
----------------
conditions upon any issuance of shares of Common Stock, including, without
limitation, restrictions upon transfer, as the Board determines in its
authorization of awards under the Plan.
7. Adjustments Upon Changes in Stock. If any change is made in the
---------------------------------
stock subject to the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Board shall make appropriate
adjustments in the class and maximum number of shares subject to the Plan.
8. Effective Date and Termination. The effective date of the Plan shall
------------------------------
be October 1, 1992. The Company may terminate the Plan at any time. If not
sooner terminated, the Plan shall terminate at the close of business on
October 1, 2002.
<PAGE>
EXHIBIT II
SECTION 260.141.11
TITLE 10, CALIFORNIA ADMINISTRATIVE CODE
260.141.11 Restriction on Transfer. (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.0 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 206.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or Subdivision (a) of Section 25143 in effect with
respect to such qualification;
<PAGE>
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or Subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their fact a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT 99.15
Consulting Agreement between the Registrant and
Brian Thorson dated March 12, 1996
<PAGE>
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT is made as of March 12, 1996, by and between Farallon
Computing, Inc., a California corporation ("Farallon") and Brian Thorson
("Contractor").
IN CONSIDERATION of mutual covenants and agreements, the parties
hereto agree as follows:
1. TERM OF THIS AGREEMENT. This Agreement shall be in effect for a
period of one year from the date hereof. Thereafter it shall automatically renew
for successive one year periods, unless terminated by either party in accordance
with Section 6 hereof.
2. DUTIES. Contractor's duties are as follows:
A. Contractor shall perform Internet consulting services from time
to time for Farallon. Any such work done under this Agreement shall be done
pursuant to the terms and conditions of this Agreement. However, Farallon and
Contractor reserve the right to separately negotiate any other terms and
conditions that modify or supplement the terms and conditions specified herein.
B. Farallon shall from time to time refer to Contractor certain of
Farallon's customers ("Referral Customers") who desire Internet consulting
services (e.g., creation of World Wide Web sites). The terms and conditions of
any services performed by Contractor for such Referral Customers shall be
separately negotiated between Contractor and the Referral Customers.
C. With respect to any given Referral Customer, Contractor
reserves the right to refuse, at his sole discretion, to take on such Referral
Customer as a client. If Contractor refuses to take on any such Farallon
Customer as a client, Contractor agrees to so notify Farallon at the time of
referral (or within a reasonable time thereafter). If, however, Contractor does
agree to take on such Referral Customer as a client, Contractor agrees to
cooperate with such Referral Customer and to use reasonable commercial efforts
to perform such Internet consulting services.
D. Contractor agrees to remit to Farallon on a quarterly basis 20%
of all gross revenue received by Contractor on account of Internet consulting
services performed by Contractor for any Referral Customers. All such payments
to Farallon shall be net of customer credits and reasonable expense actually
given or incurred by Contractor.
E. Contractor shall use reasonable efforts to promote the sale of
Farallon's Netopia internet access products to and through ISPs, VARs and other
potential reseller and end user customers of internet access products.
Contractor shall have the opportunity to resell Farallon's Netopia internet
access products under the terms of a separately negotiated reseller agreement.
To the extent that Contractor's gross profit (selling price less Contractor's
cost of goods) directly related to his Netopia product sales ("Contractor's
Profit") exceeds $20,000 in any year of this Agreement (commencing March 12,
1996), Contractor
<PAGE>
agrees to remit back to Farallon 20% of the amount by which Contractor's Profit
exceeds $20,000. Such payments back to Farallon shall be accompanied by a report
in reasonable detail providing the basis for such payment. In each year, such
payments and reports shall commence on the 30th day following the end of the
calendar quarter in which Contractor's Profit first exceeded $20,000 and shall
continue until the April 30th report date (covering the period January 1 through
March 12). On March 12 of each year, a new $20,000 Contractor's Profit threshold
shall commence. All such payments to Farallon shall be net of customer credit
actually given by Contractor.
3. COMPENSATION.
A. In consideration for prior services rendered to Farallon under
this Agreement, Farallon shall issue to Contractor immediately upon execution of
this Agreement 28,571 shares of Farallon Common Stock. Such shares shall be
subject to the terms, representations, warranties, covenants and agreements
separately agreed upon by the parties to this Agreement.
B. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
4. CONFIDENTIAL INFORMATION.
A. During the course of this Agreement, Contractor may have access
to or receive information relating to past, present or future products,
software, research, development, inventions, processes, techniques, designs or
other technical information and data of Farallon or other persons or entities,
as well as information concerning administrative, management, financial,
marketing or manufacturing activities of Farallon or others, including
proprietary information specifically developed by Contractor in the course of
its work hereunder, all such information being considered by Farallon as
proprietary and confidential ("Proprietary Information").
B. Both during and after this Agreement, Contractor agrees that
except as authorized in writing by Farallon: (i) Contractor will preserve and
protect the confidentiality of all Proprietary Information including all
materials containing Proprietary Information (the "Materials"); (ii) Contractor
will not disclose to anyone, the existence, source, content or substance of the
Proprietary Information and Materials or make copies of Materials; (iii)
Contractor will not deliver Materials to anyone or remove Materials from
Farallon's
2
<PAGE>
premises; (iv) Contractor will not use Proprietary Information or
Materials in any way other than in Farallon's business; and (v) Contractor will
not disclose, use or copy any information or materials received in confidence by
Contractor during the course of this Agreement from a third party or about a
third party.
C. Notwithstanding the foregoing, Contractor shall have no
liability to Farallon with respect to the disclosure of any Proprietary
Information or Materials which Contractor can establish to: (i) have become
publicly known without breach of this Agreement by Contractor; (ii) have been
publicly released for disclosure by Farallon; or (iii) have been given to
Contractor by someone other than Farallon without a duty to maintain
confidentiality.
D. Not later than three (3) days after the termination of this
Agreement for any reason, or if sooner requested by Farallon, Contractor will
return to Farallon all Materials and copies of Materials, and all copies of
other information or materials covered by this Paragraph.
5. REPRESENTATIONS AND WARRANTIES. Contractor represents and
warrants that:
A. Contractor is able to enter into this Agreement and perform
the services provided for in this Agreement, and that such ability is not
limited or restricted by any agreements or understandings between Contractor and
other persons or companies;
B. any information or materials developed for, or any advice
provided to Farallon, shall not rely or in any way be based upon confidential or
proprietary information or trade secrets obtained or derived by Contractor from
sources other than Farallon unless Contractor has received specific
authorization in writing to use such proprietary information or trade secrets;
C. the work produced under this Agreement will conform to:
(i) the requirements set forth in Section 2; (ii) Farallon's engineering,
programming and documentation standards, when specified; and (iii) commonly
accepted standards for computer hardware engineering, if applicable, and
software design, development and programming, if applicable; and
D. the work produced under this Agreement, including any software
and audiovisual aspects created by code, will not, to the best of Contractor's
knowledge at the time the work is carried out, created, or performed, infringe
upon the copyright or any other proprietary rights of any third party.
6. TERMINATION.
A. Contractor acknowledges and agrees that any breach or attempted
or threatened breach of this Agreement could result in irreparable injury to
Farallon for which there would be no adequate remedy at law.
3
<PAGE>
B. Following the first year of this Agreement, either Contractor
or Farallon may terminate this Agreement for any reason, or for no reason, upon
thirty (30) days prior written notice to the other. Consideration previously
paid hereunder shall not be refundable in the event of termination.
C. A waiver of a breach or default by Contractor or Farallon does
not constitute a waiver of future or other breaches or defaults.
D. In the event of a termination of this Agreement by Farallon
pursuant to this Paragraph, Farallon will have no further obligations or
liabilities under this Agreement. Farallon will have the right, in addition to
all of its other rights, to require Contractor to deliver to Farallon all of
Contractor's work in progress in exchange for reasonable compensation based on
the percentage of the work completed.
7. SURVIVAL OF OBLIGATIONS. Paragraphs 4, 5, and 6 shall survive the
termination of this Agreement for any reason.
8. WORKING ARRANGEMENT.
A. Contractor is an independent contractor and is solely
responsible for all taxes, withholding, and other similar statutory obligations,
including, but not limited to, Workers' Compensation Insurance. Contractor will
defend, indemnify and hold Farallon harmless from any and all claims made by any
person or entity on account of an alleged failure by Contractor to satisfy any
such tax or withholding obligations.
B. Contractor has no authority to act on behalf of or to enter
into any contract or to incur any liability on behalf of Farallon.
C. Contractor's performance under this Agreement shall be
conducted in full compliance with the standards of practice in the field.
9. BINDING EFFECT. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective personal
representatives, heirs, successors and assigns; provided, however, that it shall
not be assignable by Contractor.
10. SEVERABILITY. If for any reason, any provision or partial
provision of this Agreement is held invalid, such invalidity shall not affect
the remainder of said provision or any other provision of this Agreement not
held so invalid, and each such other provision, or portion thereof, shall, to
the full extent consistent with law, continue in full force and effect.
11. NOTICES. All notices required or given herewith shall be addressed
to the President or other principal of Farallon or Contractor, with a copy to
the legal department of each party. Notices shall be given at the designated
address shown beside each name at the end of this Agreement, by registered mail,
recognized national overnight courier service capable of providing
acknowledgment of delivery or by facsimile; provided that any notice given by
facsimile shall be followed up in writing by mail within 5 days.
4
<PAGE>
12. EXPORT. Each party agrees that it will not, directly or
indirectly, export or transmit (i) any work product, trade secret or invention,
or related documentation and technical data or (ii) any product (or any part
thereof), process, or service that is the direct product of any work product,
trade secret or invention to the People's Republic of China, Afghanistan, Iraq
or any group Q, S, W, Y or Z country specified in Supplement No. 1 of Section
770 of the Export Administration Regulations or to any other country to which
such export or transmission is restricted by such regulation or statute, without
the prior written consent, if required, of the Office of Export Administration
of the U.S. Department of Commerce, or such other governmental entity as may
have jurisdiction over such export or transmission.
13. GENERAL.
A. This Agreement shall not be construed as creating an agency,
partnership or any other form of legal association between the parties.
B. The Section headings used in this Agreement are intended for
convenience only and shall not be deemed to supersede or modify any provisions.
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of March 12, 1996.
Brian M. Thorson d/b/a Netopia
---------------------------------------------
Brian M. Thorson
Social Security No. ###-##-####
FARALLON COMPUTING, INC.
By:
------------------------------------------
Title:
---------------------------------------
6
<PAGE>
EXHIBIT 99.16
Consulting Agreement between the Registrant and
Alison Ross dated February 15, 1996
<PAGE>
February 15, 1996
James A. Clark
Vice President and Chief Financial Officer
Farallon Computing, Inc.
2470 Mariner Square Loop
Alameda, CA 94501
Re: Farallon Computing, Inc. Consulting Services
Dear Jim:
This letter will confirm the terms pursuant to which I have provided and
will continue to provide consulting services to Farallon Communications, Inc.
(the "Company") in connection with its contemplated proposed public financing
alternatives, including a potential initial public offering (the "Offering"). I
look forward to continuing to advise you with respect to a number of issues
relating to the Offering, at such times and places as are mutually agreeable.
The range of such issues will be determined by mutual agreement, and may include
some or all of the matters listed on Schedule 1 hereto. I expect to be
available to you as needed, by telephone and in person, the latter including
both private sessions and working group meetings/drafting sessions.
Should you request, we may enter into a separate agreement under which I
would provide additional advisory services in connection with earnings and
related analyst and investor communications once Farallon is public.
Compensation
Cash Compensation. As compensation for my future services, the Company
will pay me $20,000 in cash, which shall be immediately due and payable. In the
event the Offering does not occur by December 31, 1996, an additional $10,000
will become immediately due and payable.
Equity Compensation. In addition to the foregoing cash payments, the
Company's Board of Directors will issue to me as soon as practicable 10,000
shares (the "Shares") of the Company's Common Stock as compensation for services
performed to date. The Shares shall not be subject to any transfer or other
restrictions other than as may be required by law, or as may be required of
other shareholders of equal percentage ownership. In the event an Offering does
not occur by December 31, 1996, the Board of Directors will issue to me an
additional 2,500 shares of Common Stock. The Company shall cause the Shares to
be registered on Form S-8 with the SEC as soon as practicable
<PAGE>
James A. Clark
February 15, 1996
Page 2
following the Offering, but in no event later than 90 days thereafter, subject
to applicable law.
Investor Representations. Purchase Entirely for Own Account. The
---------------------------------
Securities to be received by the undersigned will be acquired for investment for
the undersigned's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and the undersigned has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this letter, the undersigned further
represents that she does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
Disclosure of Information. The undersigned believes she has received all
-------------------------
the information she considers necessary or appropriate for deciding whether to
purchase the Securities. The undersigned further represents that she has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the Securities.
Restricted Securities. The undersigned understands that the Securities she
---------------------
is receiving are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, the undersigned represents that she is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
Expenses. The Company agrees to reimburse me promptly for travel and other
non-administrative expenses reasonably incurred in connection with performance
of services hereunder. In addition, the Company will pay administrative fees of
$300 per month during the term hereof, prorated for partial months.
Nondisclosure
During the course of the consultancy, it is anticipated that you will
provide certain information to me concerning proprietary or confidential
matters, including the Company's technology, trade secrets, customer lists,
marketing plans, financial projections and the like. I agree to keep all such
information ("Confidential Information") confidential and not disclose it to any
third parties (except to employees and agents of mine on a need-to-know basis).
Confidential Information shall not, notwithstanding the foregoing, include
information that (i) is now, or hereafter becomes, through no act or failure to
act on my part, generally known or available; (ii) is known by me at the time of
receiving such information; (iii) is hereafter furnished to me by a third
<PAGE>
James A. Clark
February 15, 1996
Page 3
party, as a matter of right and without restriction on disclosure; (iv) is
required to be disclosed by law or a court of competent jurisdiction; or (v) is
the subject of the Company's written permission to disclose.
Indemnification
Recognizing that transactions such as the Offering sometimes result in
litigation and that my role is advisory, the Company agrees to indemnify me to
the full extent lawful against any claims, losses, liabilities and expenses
(including counsel fees and expenses), when and as incurred, arising out of the
Offering or my engagement hereunder and, if such indemnification were to be
unavailable, to contribute to the settlement loss, liability or expense in the
proportion that reflects the relative benefits to the Company and to me in
connection with the Offering, or if such allocation is unavailable under
applicable law, the relative fault of the Company and me. The respective
relative benefits received by the Company and me shall be deemed to be in the
same proportion as the aggregate compensation paid to me hereunder bears to the
net proceeds of the Offering. It is understood that the compensation referred
to in the foregoing sentence shall include, in addition to cash compensation,
the fair market value of the Shares at the date of issuance. Relative fault
shall be measured by reference to, among other things, our respective intent,
knowledge, access to information and opportunity to correct the actions or
omissions giving rise to the claim, loss, liability or expense. The foregoing
indemnification and contribution shall not apply to any claim, loss, liability
or expense arising from my gross negligence or willful misconduct in performing
my services hereunder.
Termination
My consultancy shall terminate upon the first to occur of (A) the closing
of an Offering; or (B) its earlier termination by either party. The provisions
hereof relating to payment, nondisclosure and indemnification shall survive
termination of my engagement for whatever reason.
<PAGE>
James A. Clark
February 15, 1996
Page 4
I am pleased at the opportunity to work with you and Farallon and look
forward to the exciting weeks and months ahead.
Sincerely,
Smart Finance & Co.
By:
--------------------------------
Alison Ross
Accepted and agreed to:
Farallon Computing, Inc.
By:
--------------------------------
James A. Clark
Title: Vice President and Chief Financial Officer
