PAIRGAIN TECHNOLOGIES INC /CA/, S-8, 1996-07-23

PAIRGAIN TECHNOLOGIES INC /CA/
S-8, 1996-07-23
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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1996
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------------------
PAIRGAIN TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
------------------------------
DELAWARE 33-0282809
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

14402 FRANKLIN AVENUE
TUSTIN, CALIFORNIA 92780
(Address of principal executive offices) (zip code)
------------------------------

1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(Full title of the plan)
------------------------------
CHARLES S. STRAUCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PAIRGAIN TECHNOLOGIES, INC.
14402 FRANKLIN AVENUE
TUSTIN, CALIFORNIA 92780
(714) 832-9922
(Name, address and telephone number, including area code, of agent for service)
------------------------------
===============================================================================
<TABLE>
<CAPTION>
Proposed
Proposed maximum maximum
Amount to be offering price aggregate Amount of
Title of securities to be registered registered(1) per share(2) offering price(2) registration fee
- ------------------------------------ ------------- ------------- ----------------- ----------------

<S> <C> <C> <C> <C>
Options to Purchase Common Stock 200,000 N/A N/A N/A

Common Stock, $.0005 par value 200,000 $52.125 $10,425,000 $3,595.00
</TABLE>

===============================================================================

(1) This Registration Statement shall also cover any additional shares of Common
Stock which become issuable under the 1996 Non-Employee Directors Stock Option
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 Registrant's outstanding shares of Common
Stock.

(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 selling prices per share of Common Stock of PairGain Technologies, Inc. on
July 16, 1996 as reported by the Nasdaq National Market.
<PAGE> 2
PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE

PairGain Technologies, Inc., a Delaware corporation (the
"Registrant"), hereby incorporates by reference into this Registration Statement
the following documents which were previously filed with the Securities and
Exchange Commission (the "SEC"):

(a) The Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 filed pursuant to Section 13(a) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")
on March 30, 1996;

(b) The Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996, filed with the SEC on April 30,
1996;

(d) The Registrant's Registration Statement No. 0-22202 on Form
8-A filed with the SEC on August 6, 1993 pursuant to Section
12 of the 1934 Act, 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 by the Registrant 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 at the
time of such amendment will 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. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Registration Statement to the extent that a statement
contained herein or in any subsequently filed document which also is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.

ITEM 4. DESCRIPTION OF SECURITIES

Not applicable.

ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL

Not applicable.

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act. The Registrant's Bylaws provide that the Registrant will
indemnify its directors and officers to the fullest extent permitted by law and
require the Registrant to advance litigation expenses upon receipt by the
Registrant of an undertaking by the director or officer to repay such advances
if it is ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws shall not be deemed to be exclusive of any other right such persons may
have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.

The Registrant's Restated Certificate of Incorporation
provides that, pursuant to Delaware Law, its directors shall not be liable for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. This provision in the Restated Certificate of
Incorporation does not eliminate

II-1
<PAGE> 3
the duty of care, 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 or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or 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 law or state or federal environmental laws.

In addition, the Registrant has entered into agreements to
indemnify its directors and certain of its officers beyond the indemnification
provided for in the Restated Certificate of Incorporation and Bylaws. These
agreements will, among other things, indemnify the Registrant's directors and
certain of its officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in the right of the Registrant, on
account of services as a director or officer of the Registrant, or as a director
or officer of any other company or enterprise to which the person provides
services at the request of the Registrant.

ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED

Not Applicable.

ITEM 8. EXHIBITS

<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
4 Instruments Defining Rights of Stockholders. Reference is made to Registrant's
Registration Statement No. 0-22202 on Form 8-A, which is incorporated herein by reference
pursuant to Item 3(d) of this Registration Statement.
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Independent Auditors' Consent - Deloitte & Touche LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this Registration Statement.
99.1 1996 Non-Employee Directors Stock Option Plan.
99.2 Form of Notice of Grant of Non-Employee Directors Automatic Stock Option (Initial
Grant).
99.3 Form of Notice of Grant of Non-Employee Directors Automatic Stock Option (Annual
Grant).
99.4 Form of Automatic Stock Option Agreement.
</TABLE>

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 the
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 the Registration Statement, and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the 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 clauses 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 the 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 Non-Employee Directors Stock Option Plan.

II-2
<PAGE> 4
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 the 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 foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE> 5
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 Tustin, State of California, on July 17th, 1996.

PAIRGAIN TECHNOLOGIES, INC.

By: /s/ Charles S. Strauch
-------------------------------------
Charles S. Strauch, Chairman,
Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned officers and directors of PairGain
Technologies, Inc., a Delaware corporation, do hereby constitute and appoint
Charles S. Strauch and Howard S. Flagg, and each 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 any 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 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 to amendments or supplements thereof, and each of
the undersigned hereby ratifies and confirms all that said attorneys and agents,
or any 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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Charles S. Strauch Chairman, Chief Executive Officer July 17, 1996
- ----------------------------- and Director (Principal Executive Officer)
Charles S. Strauch

/s/ Charles W. McBrayer Chief Financial Officer July 17, 1996
- ----------------------------- and Secretary (Principal Financial
Charles W. McBrayer and Accounting Officer)
</TABLE>

II-4
<PAGE> 6
<TABLE>
<S> <C> <C>
/s/ Howard S. Flagg President and Director July 17, 1996
- -----------------------------
Howard S. Flagg

/s/ Benedict A. Itri Vice President, Engineering and Director July 17, 1996
- -----------------------------
Benedict A. Itri

/s/ Robert A. Hoff Director July 17, 1996
- -----------------------------
Robert A. Hoff

/s/ Robert C. Hawk Director July 17, 1996
- -----------------------------
Robert C. Hawk

/s/ B. Allen Lay Director July 17, 1996
- -----------------------------
B. Allen Lay
</TABLE>

II-5
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>

4 Instruments Defining Rights of Stockholders. Reference is made to Registrant's
Registration Statement No. 0-22202 on Form 8-A, which is incorporated herein by reference
pursuant to Item 3(d) of this Registration Statement.
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Independent Auditors' Consent - Deloitte & Touche LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this Registration Statement.
99.1 1996 Non-Employee Directors Stock Option Plan.
99.2 Form of Notice of Grant of Non-Employee Directors Automatic Stock Option (Initial
Grant).
99.3 Form of Notice of Grant of Non-Employee Directors Automatic Stock Option (Annual
Grant).
99.4 Form of Automatic Stock Option Agreement.
</TABLE>

<PAGE> 1
EXHIBIT 5
OPINION AND CONSENT OF BROBECK, PHLEGER & HARRISON LLP

PairGain Technologies, Inc. July 19, 1996
14402 Franklin Avenue
Tustin, California 92780

Re: Registration Statement for Offering of
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 200,000 shares of
the Common Stock of PairGain Technologies, Inc. (the "Company") under the
Company's 1996 Non-Employee Directors Stock Option Plan (the "Plan"). We advise
you that, in our opinion, when such shares have been issued and sold pursuant to
the applicable provisions of the Plan and in accordance with the Registration
Statement, such shares will be duly authorized, validly issued, fully paid and
non-assessable 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/ Brobeck, Phleger & Harrison LLP

BROBECK, PHLEGER & HARRISON LLP

<PAGE> 1
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
PairGain Technologies, Inc. and subsidiaries on Form S-8 of our report dated
January 23, 1996, appearing in the Annual Report on Form 10-K of PairGain
Technologies, Inc. and subsidiaries for the year ended December 31, 1995.

/s/ Deloitte & Touche LLP

Costa Mesa, California
July 19, 1996

<PAGE> 1
EXHIBIT 99.1

PAIRGAIN TECHNOLOGIES, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1996 Non-Employee Directors Stock Option Plan is intended
to promote the interests of PairGain Technologies, Inc., a Delaware corporation,
by providing the non-employee members of the Board 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. ADMINISTRATION OF THE PLAN

The terms of each option grant (including the timing and
pricing of the option grant) shall be determined by the express terms of the
Plan, and neither the Board nor any committee of the Board shall exercise any
discretionary functions with respect to option grants made pursuant to the Plan.

III. ELIGIBILITY

A. The individuals eligible to receive option grants under the
Plan shall be limited to (i) those individuals serving as non-employee Board
members on the date of the 1996 Annual Stockholders Meeting, provided they have
not previously received one or more stock option grants from the Corporation,
(ii) those individuals who are first elected or appointed as non-employee Board
members after date of the 1996 Annual Stockholders Meeting, whether through
appointment by the Board or election by the Corporation's stockholders, and
(iii) those individuals who are to continue to serve as non-employee Board
members following one or more Annual Stockholders Meetings beginning with the
1997 Annual Meeting. 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 initial option grant under the Plan at the time he or she first
becomes a non-employee Board member, but shall be eligible to receive periodic
option grants under the Plan upon his or her continued service as a non-employee
Board member following one or more Annual Stockholders Meetings.
<PAGE> 2
IV. 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 not exceed 200,000
shares*.

B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent the options
expire or terminate for any reason prior to exercise in full. Shares subject to
any option or portion thereof surrendered in accordance with Article Two and all
shares issued under the 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 be paid with shares of Common Stock,
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.

C. 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 option
grants are to be subsequently made per Eligible Director and (iii) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments to the outstanding options shall be made by the
Board and shall be final, binding and conclusive.

- --------

* These numbers have been adjusted to reflect a two-for-one stock
split on June 18, 1996.

2.
<PAGE> 3
ARTICLE TWO

OPTION GRANT PROGRAM

I. OPTION TERMS

A. GRANT DATES. Option grants shall be made on the dates
specified below:

1. Each individual who is serving as a non-employee
Board member on the date of the 1996 Annual Stockholders Meeting shall
automatically be granted on that date a Non-Statutory Option to purchase 20,000
shares** of Common Stock, provided such individual has not been in the prior
employ of the Corporation (or any Parent or Subsidiary) and has not received any
prior stock option grants from the Corporation.

2. Each individual who is first elected or appointed as
a non-employee Board member after the date of the 1996 Annual Stockholders
Meeting shall automatically be granted, on the date of such initial election or
appointment, a NonStatutory Option to purchase 20,000 shares** of Common Stock,
provided such individual has not been in the prior employ of the Corporation (or
any Parent or Subsidiary).

3. On the date of each Annual Stockholders Meeting,
beginning with the 1997 Annual Meeting, each individual who is to continue to
serve as a non-employee Board member shall automatically be granted, whether or
not such individual is standing for re-election as a Board member at that Annual
Meeting, a Non-Statutory Option to purchase an additional 10,000 shares** of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There shall be no limit on the number of such
10,000-share option grants any one non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have received prior stock option grants from the Corporation shall be
eligible to receive such annual grants.

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.

- --------
** These numbers have been adjusted to reflect a two-for-one stock split on June
18, 1996.

3.
<PAGE> 4
2. The exercise price shall become immediately due upon
exercise of the option and shall 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.

C. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.

D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal annual installments over the Optionee's period of continued service as a
Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the Corporation's repurchase right shall
lapse, 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:

4.
<PAGE> 5

(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 for which the option is exercisable at the
time of the Optionee's cessation of Board service.

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

(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 for any reason other than death
or Permanent Disability, 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.

F. 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.

G. 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, an option may be assigned
in accordance with the terms of a Qualified Domestic Relations Order. The
assigned option may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to such Qualified Domestic Relations
Order. The terms applicable to the assigned option (or portion thereof) shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.

5.
<PAGE> 6
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-
OVER

A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the specified 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 option shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

B. In connection with any Change in Control, the shares

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

C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each option held by him or her for a period of at least six (6)
months. 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 surrendered option (whether or
not the Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval of the Board or any committee of the Board shall be
required in connection with such option surrender and cash distribution.

D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same.

E. The grant of options under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

6.
<PAGE> 7
ARTICLE THREE

MISCELLANEOUS

I. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan was adopted by the Board on April 17, 1996
and became effective immediately upon its approval by the Corporation's
stockholders at the 1996 Annual Stockholders Meeting.

B. The Plan shall terminate upon the earliest of (i)
June 12, 2006, (ii) the date on which all shares available for issuance under
the Plan shall have been issued or cancelled pursuant to the exercise or
cash-out 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 option grants and unvested stock issuances outstanding on
such date shall thereafter continue to have force and effect in accordance
with the provisions of the documents evidencing such grants or issuances.

II. AMENDMENT OF THE PLAN

The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, (i) the
Plan, together with the option grants outstanding thereunder, may not be amended
at intervals more frequently than once every six (6) months, other than to the
extent necessary to comply with applicable Federal income tax laws and
regulations, and (ii) no such amendment or modification shall adversely affect
the rights and obligations with respect to options at the time outstanding under
the Plan unless the Optionee consents to such amendment or modification. 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 or the number of shares for which options may be granted to each
Eligible Director, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) materially modify the
eligibility requirements for Plan participation or (iii) materially increase the
benefits accruing to Plan participants.

III. 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.

7.
<PAGE> 8
IV. REGULATORY APPROVALS

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

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

V. NO IMPAIRMENT OF RIGHTS

Nothing in the Plan shall interfere with or otherwise restrict
in any way the rights of the Corporation and the Corporation's stockholders to
remove the Optionee from the Board at any time.

8.
<PAGE> 9
APPENDIX

The following definitions shall be in effect under the Plan:

A. BOARD shall mean the Corporation's Board of
Directors.

B. 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 such election or nomination was approved by the Board.

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

D. COMMON STOCK shall mean the Corporation's common stock.

E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

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

A-1.
<PAGE> 10
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

F. CORPORATION shall mean PairGain Technologies, Inc., a Delaware
corporation.

G. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.

H. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.

I. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as 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 selling price
for the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such quotation
exists.

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

J. HOSTILE TAKE-OVER shall mean a change in ownership of the
Corporation effected through the following transaction:

(i) any person or related group of persons (other than
the Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant

A-2.
<PAGE> 11
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.

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

L. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

M. OPTIONEE shall mean any person to whom an option is granted
under the Plan.

N. 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.

O. PERMANENT DISABILITY shall mean the inability of the Optionee
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

P. PLAN shall mean the Corporation's 1996 Non-Employee Directors
Stock Option Plan, as set forth in this document.

Q. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic
Relations Order which substantially complies with the requirements of Code
Section 414(p).

R. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.

S. 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.

T. 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.

A-3.

<PAGE> 1
EXHIBIT 99.2

INITIAL GRANT

PAIRGAIN TECHNOLOGIES, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTORS
AUTOMATIC STOCK OPTION

Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of PairGain Technologies, Inc.
(the "Corporation"):

Optionee:
----------------------------------------------------
Grant Date:
--------------------------------------------------
Exercise Price: $ per share
----------------------------------
Number of Option Shares: 20,000 shares*

Expiration Date:
---------------------------------------------
Type of Option: Non-Statutory Stock Option

Date Exercisable: Immediately Exercisable

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

Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the PairGain Technologies, Inc. 1996 Non-Employee Directors Stock
Option Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Automatic Stock Option
Agreement attached hereto as Exhibit A.

- --------
*This number has been adjusted to reflect a two-for-one stock split on June 18,
1996.
<PAGE> 2
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE
AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE EXERCISE PRICE
PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICES AS A MEMBER OF THE
CORPORATION'S BOARD OF DIRECTORS. THE TERMS AND CONDITIONS OF SUCH REPURCHASE
RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION
EXERCISE.

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

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

, 199
- --------------
Date

PAIRGAIN TECHNOLOGIES, INC.

By:
-------------------------------
Title:
-------------------------------

----------------------------------
OPTIONEE

Address:
--------------------------

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

ATTACHMENTS
- -----------
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

2.
<PAGE> 3
EXHIBIT A

AUTOMATIC STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B

PLAN SUMMARY AND PROSPECTUS

<PAGE> 1
EXHIBIT 99.3

PAIRGAIN TECHNOLOGIES, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTORS
AUTOMATIC STOCK OPTION

Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of PairGain Technologies, Inc.
(the "Corporation"):

Expiration Date:
---------------------------------------------

Type of Option: Non-Statutory Stock Option

Date Exercisable: Immediately Exercisable

Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall
accordingly lapse with respect to, the Option Shares upon
Optionee's completion of one (1) year of service as a member
of the Corporation's Board of Directors (the "Board") measured
from the Grant Date. In no event shall any Option Shares vest
after Optionee's cessation of Board service.

- --------
*This number has been adjusted to reflect a two-for-one stock split on June 18,
1996.
<PAGE> 2
Optionee hereby acknowledges receipt of a copy of the
official prospectus for the Plan in the form attached hereto as Exhibit B. A
copy of the Plan is available upon request made to the Corporate Secretary at
the Corporation's principal offices.

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

, 199
- ------------------------
Date

PAIRGAIN TECHNOLOGIES, INC.

By:
------------------------------
Title:
---------------------------

---------------------------------
OPTIONEE

Address:
-------------------------

---------------------------------
ATTACHMENTS
- -----------
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

2.
<PAGE> 3
EXHIBIT A

AUTOMATIC STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B

PLAN SUMMARY AND PROSPECTUS

<PAGE> 1
EXHIBIT 99.4

PAIRGAIN TECHNOLOGIES, INC.
AUTOMATIC STOCK OPTION AGREEMENT

RECITALS

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

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

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

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

NOW, THEREFORE, it is hereby agreed as follows:

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

2. Option Term. This option shall have a maximum term
of ten (10) years measured from the Grant Date and shall accordingly expire at
the close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5 or 6.

3. Limited Transferability. This option shall be
neither transferable nor assignable by Optionee, other than a transfer of this
option effected by will or by the laws of descent and distribution following
Optionee's death, and may be exercised, during Optionee's lifetime, only by
Optionee. However, this option may also be assigned in whole or in part during
Optionee's lifetime in accordance with the terms of a Qualified Domestic
Relations Order. The assigned portion of the option shall be exercisable only
by the person

<PAGE> 2
or persons who acquire a proprietary interest in the option pursuant to such
Qualified Domestic Relations Order. The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Corporation may deem appropriate.

4. EXERCISABILITY/VESTING. This option shall be
immediately exercisable for any or all of the Option Shares as fully-vested
shares and shall remain so exercisable until the Expiration Date or the sooner
termination of the option term under Paragraph 5 or 6.

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

- Should Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability) while holding this option,
then the period for exercising this option shall be reduced to a twelve (12)-
month period commencing with the date of such cessation of Board service, but in
no event shall this option be exercisable at any time after the Expiration Date.

- During the twelve (12)-month 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 at the time of the Optionee's
cessation of Board service.

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

- 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 for any reason other
than death or Permanent Disability, 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.

2.
<PAGE> 3
6. CORPORATE TRANSACTION.

A. In the event of any Corporate Transaction, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the specified 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.

B. Immediately following the consummation of a
Corporate Transaction, this option shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent company.

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

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

8. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each option held by him or her for a period of at least six (6)
months. 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 surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval of the Board or any committee of the
Board shall be required in connection with such option surrender and cash
distribution.

9. ADJUSTMENT IN OPTION SHARES. Should any change be
made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be

3.
<PAGE> 4
made to (i) the total number and/or class of securities subject to this option
and (ii) the Exercise Price in order to reflect such change and thereby preclude
a dilution or enlargement of benefits hereunder; provided, however, that the
aggregate Exercise Price shall remain the same.

10. STOCKHOLDER RIGHTS. The holder of this option shall
not have any stockholder rights with respect to the Option Shares until such
person shall have exercised the option, paid the Exercise Price and become a
holder of record of the purchased shares.

11. MANNER OF EXERCISING OPTION.

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

(i) The Secretary of the Corporation shall be
provided with written notice of the option exercise (the "Exercise Notice"), in
substantially the form of Exhibit I attached hereto, in which there is specified
the number of Option Shares to be purchased under the exercised option.

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

- payment in cash or check made payable to the
Corporation's order; or

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

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

4.
<PAGE> 5
(iii) Appropriate documentation evidencing the
right to exercise this option shall be furnished the Corporation if the
person or persons exercising the option is other than the Optionee.

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

B. Except to the extent the sale and remittance
procedure specified above is utilized in connection with the exercise of the
option for vested shares, payment of the Exercise Price for the purchased shares
must accompany the Exercise Notice delivered to the Corporation in connection
with the option exercise.

C. As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate or certificates representing the
purchased Option Shares.

D. In no event may this option be exercised for any
fractional shares.

12. NO IMPAIRMENT OF RIGHTS. This Agreement shall not
in any way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.

13. COMPLIANCE WITH LAWS AND REGULATIONS.

A. The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock is then listed for
trading.

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

14. SUCCESSORS AND ASSIGNS. Except to the extent
otherwise provided in Paragraph 3 or 6, the provisions of this Agreement shall
inure to the benefit of, and be

5.
<PAGE> 6
binding upon, the Corporation and its successors and assigns and Optionee,
Optionee's assigns and the legal representatives, heirs and legatees of
Optionee's estate.

15. CONSTRUCTION/GOVERNING LAW. This Agreement and the
option evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and provisions of the Plan.
The interpretation, performance, and enforcement of this Agreement shall be
governed by the laws of the State of California without resort to that State's
conflict-of-laws rules.

16. NOTICES. Any notice required to be given or
delivered to the Corporation under the terms of this Agreement shall be in
writing and addressed to the Corporation at its principal corporate offices.
Any notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.

6.
<PAGE> 7
EXHIBIT I
NOTICE OF EXERCISE

I hereby notify PairGain Technologies, Inc. (the
"Corporation") that I elect to purchase shares of the Corporation's
Common Stock (the "Purchased Shares") at the option exercise price of
$ per share (the "Exercise Price") pursuant to that certain option
(the "Option") granted to me under the Corporation's 1996 Non-Employee Directors
Stock Option Plan on , 199 .

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

__________________________ __________________________________
Date Optionee

Address: __________________________________

__________________________________

Print name in exact manner
it is to appear on the
stock certificate: __________________________________

Address to which certificate
is to be sent, if different
from address above: __________________________________

__________________________________

Social Security Number: __________________________________

<PAGE> 8
APPENDIX

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Automatic Stock Option Agreement.

B. BOARD shall mean the Corporation's Board of Directors.

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

D. COMMON STOCK shall mean the Corporation's common stock.

E. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:

- 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

- a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.

F. CORPORATE TRANSACTION shall mean either of the following
stockholder- approved transactions to which the Corporation is a party:

- 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 immediately
prior to such transaction; or

A-1
<PAGE> 9
- the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

G. CORPORATION shall mean PairGain Technologies, Inc., a Delaware
corporation.

H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.

I. EXERCISE DATE shall mean the date on which the option shall
have been exercised in accordance with Paragraph 10 of the Agreement.

J. EXERCISE PRICE shall mean the exercise price payable per share
as specified in the Grant Notice.

K. EXPIRATION DATE shall mean the date on which the option term
expires as specified in the Grant Notice.

L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

(a) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as 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 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.

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

M. GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.

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

O. HOSTILE TAKE-OVER shall mean a change in ownership of the
Corporation effected through the following transaction:

- any person or related group of persons (other than
the Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the 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 - more than
fifty percent (50%) of the securities so acquired are accepted from
persons other than Section 16 Insiders.

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

Q. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

R. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.

S. OPTIONEE shall mean the person to whom the option is granted
as specified in the Grant Notice.

T. PERMANENT DISABILITY shall mean the inability of the Optionee
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

U. PLAN shall mean the Corporation's 1996 Non-Employee Director
Stock Option Plan.

V. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic
Relations Order which substantially complies with the requirements of Code
Section 414(p). The Plan Administrator shall have the sole discretion to
determine whether a Domestic Relations Order is a Qualified Domestic Relations
Order.

W. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.

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