<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1997
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)
<TABLE>
<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
(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)814-5000
(Telephone number, including area code, of agent for service)
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
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
- ------------------------- ---------------- ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
1996 Stock Option Plan
- -------------------------
Options 1,000,000 N/A N/A N/A
Common Stock
(par value $.001) 1,000,000 $4.00 $4,000,000 $1,212.12
Employee Stock Purchase Plan
- ----------------------------
Common Stock
(par value $.001) 200,000 $4.00 $ 800,000 $ 242.42
=====================================================================================================
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1996 Stock Option Plan and the
Employee Stock Purchase Plan 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 average of the high
and low prices per share of Common Stock of Farallon Communications, Inc.
as reported on the Nasdaq National Market on April 22, 1997.
<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 Annual Report on Form 10-K for the fiscal year
ended September 30, 1996;
b.(1) The Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1996;
(2) Amendment No. 1 on Form 10-Q filed with the SEC on April 2, 1997;
and
c. 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 Securities Act
of 1933, as amended (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
<PAGE>
Registrant has entered 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
- ------- -------
4 Instrument Defining Rights of Stockholders. Reference is
made to Registrant's Registration Statement No. 0-28450 on
Form 8-A, which is incorporated herein by reference
pursuant to Item 3(c) of this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
23.1 Consent of KPMG Peat Marwick LLP, Independent Certified
Public 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-4 of this
Registration Statement.
99.1 1996 Stock Option Plan.
99.2 Employee Stock Purchase Plan.
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 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,
II-2
<PAGE>
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-3
<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 25 day of April, 1997.
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 all that 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 April 25, 1997
Alan B. Lefkof Executive Officer
and Director
(Principal Executive Officer)
/s/ James A. Clark
- --------------------------- Vice President and April 25, 1997
James A. Clark Chief Financial Officer
(Principal Financial and
Accounting Officer)
II-4
<PAGE>
/s/ Reese M. Jones
___________________________ Director April 25, 1997
Reese M. Jones
___________________________ Director ________, 1997
Bandel L. Carano
/s/ David F. Marquardt
___________________________ Director April 25, 1997
David F. Marquardt
/s/ James R. Swartz
___________________________ Director April 25, 1997
James R. Swartz
II-5
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit
- ------- -------
4 Instrument Defining Rights of Stockholders. Reference is
made to Registrant's Registration Statement No. 0-28450 on
Form 8-A, which is incorporated herein by reference
pursuant to Item 3(c) of this Registration Statement.
5 Opinion and consent of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
23.1 Consent of KPMG Peat Marwick LLP, Independent Certified
Public 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-3 of this
Registration Statement.
99.1 1996 Stock Option Plan.
99.2 Employee Stock Purchase Plan.
<PAGE>
EXHIBIT 5
April 29, 1997
Farallon Communications, Inc.
2470 Mariner Square Loop
Alameda, CA 94501
Re: Farallon Communications, Inc. Registration Statement
for Offering of 1,200,000 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) 1,000,000 shares of Common
Stock under the 1996 Stock Option Plan and (ii) 200,000 shares of Common Stock
under the Employee Stock Purchase Plan, 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, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors
Farallon Communications, Inc. and subsidiary
We consent to incorporation by reference in the registration statement dated
April 29, 1997 on Form S-8 of Farallon Communications, Inc. of our report
dated November 5, 1996, relating to the consolidated balance sheets of
Farallon Communications, Inc. and subsidiary as of September 30, 1995 and
1996, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 1996, and the related schedule, which reports appear, or are
incorporated by reference, in the September 30, 1996 annual report on Form
10-K of Farallon Communications, Inc.
/s/ KPMG Peat Marwick LLP
San Francisco, California
April 29, 1997
<PAGE>
EXHIBIT 99.1
FARALLON COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
----------------------
(Restated December 31, 1996)
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.
B. Administration of the Discretionary Option Grant Program with respect
to all persons eligible to participate in that program may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer 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).
<PAGE>
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, however, the Plan
Administrator (other than the Secondary Committee) may 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 or 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).
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.
2
<PAGE>
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
3,166,995 shares. Such authorized share reserve includes an additional increase
of 1,000,000 shares authorized by the Board under the Plan, subject to
stockholder approval at the 1997 Annual Meeting.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of each of the two
calendar years beginning January 1, 1998, by an amount equal to five percent
(5%) of the shares of Common Stock outstanding on December 31 of the immediately
preceding calendar year; but in no event shall any such increase exceed
1,200,000 shares.
C. 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.
D. 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 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.
3
<PAGE>
E. 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.
4
<PAGE>
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.
5
<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 opti on 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 outstanding 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
6
<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 (i) to a member of the immediate family of the optionee or to a
trust established for the benefit of one or more members of the immediate family
of the optionee, provided that the assignment shall not be effective until
written notice of the assignment is received by the Plan Administrator, or (ii)
in accordance with terms approved in advance by the Plan Administrator. 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
7
<PAGE>
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.
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).
8
<PAGE>
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 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.
9
<PAGE>
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 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.
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.
10
<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 granted after December 31,
-------------------------------
1996 shall become exercisable in a series of five (5) annual installments over
the Optionee's period of continued service as a Board member, with the first
such installment to become exercisable 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 Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
11
<PAGE>
(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 and become exercisable 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 become exercisable 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 become exercisable 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
granted before December 31, 1996 and 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 consent of the Board shall be required in connection with such
option cancellation and cash distribution.
12
<PAGE>
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. 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 Plan 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.
14
<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. On December 31, 1996, the
Plan was amended to increase the number of shares issuable thereunder by
1,000,000 shares, to provide for automatic annual increases to the Plan share
reserve in 1998 and 1999, to extend eligibility to the non-employee directors
under the Discretionary Option Grant Program, and to make certain other
amendments and to delete provisions no longer required by Section 16 of the 1934
Act as a result of the SEC's revision of Rule 16b-3. However, no options granted
under the Plan on the basis of such share increase may be exercised until the
Plan amendment is approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the date of
Board approval of the amendment, then all options previously granted under this
Plan on the basis of such increase shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan on the basis of such increase.
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, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or stock appreciation rights
15
<PAGE>
at the time outstanding under the Plan unless the Optionee consents to such
amendment or modification. Notwithstanding the foregoing clause, 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 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 or (ii) materially modify the eligibility requirements for Plan
participation.
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
16
<PAGE>
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
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.
17
<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
18
<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. 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.
K. 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.
L. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. 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
Underwriting Agreement is executed and the initial public offering price of the
Common 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.
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<PAGE>
N. 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.
O. INCENTIVE OPTION shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. 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.
Q. 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).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
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<PAGE>
T. OPTIONEE shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant or Automatic Option Grant Program.
U. 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.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
--------------------------------------------
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 1996 Stock Option Plan, as set
----
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the Section 12(g) Registration
-------------------
Date.
Z. PREDECESSOR PLAN shall mean the Corporation's existing 1987
----------------
Restated Stock Option Plan.
AA. 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.
BB. 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.
CC. 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.
DD. 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.
EE. 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.
21
<PAGE>
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
GG. SUBSIDIARY shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
HH. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
II. 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.
JJ. 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).
KK. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
22
<PAGE>
EXHIBIT 99.2
FARALLON COMMUNICATIONS, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(Amended and Restated as of December 31, 1996)
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.
<PAGE>
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 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 Five Hundred Thousand (500,000) 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
4
<PAGE>
Plan, (ii) the class and maximum number of securities purchasable per
Participant on any one (1) 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
- alter the purchase price formula so as to reduce the purchase
price payable for the shares purchasable under the Plan; or
8
<PAGE>
- 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 adopted by the Board on April 16, 1996 and approved
by the stockholders on May __, 1996. The Plan was subsequently amended and
restated on December 31, 1996 to increase the number of shares issuable
thereunder by 200,000 shares, subject to stockholder approval at the 1997 Annual
Meeting. No Purchase Rights shall be exercised and no shares of Common Stock
shall be issued hereunder on the basis of the 200,000 share-increase until the
Corporation shall have complied with all applicable requirements of the 1933 Act
(including the registration of the shares of Common Stock 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.
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.
10
