Exhibit 10.37

REDBACK NETWORKS INC.

1999 STOCK INCENTIVE PLAN

(AS AMENDED AND RESTATED AS OF MAY 11, 2006)

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TABLE OF CONTENTS

 

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ARTICLE 1. INTRODUCTION

   1

ARTICLE 2. ADMINISTRATION

   1

2.1 Committee Composition

   1

2.2 Committee Responsibilities

   1

2.3 Committee for Non-Officer Grants

   2

ARTICLE 3. SHARES AVAILABLE FOR GRANTS

   2

3.1 Basic Limitation

   2

3.2 Increase in Shares

   2

3.3 Additional Shares

   2

ARTICLE 4. ELIGIBILITY

   3

4.1 Awards Other than ISOs

   3

4.2 Incentive Stock Options

   3

ARTICLE 5. CODE SECTION 162(M) PROVISIONS

   3

5.1 Option and SAR Annual Share Limit

   3

5.2 Restricted Share and Restricted Stock Unit Annual Limit

   3

5.3 Section 162(m) Performance Restrictions

   3

ARTICLE 6. OPTIONS

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6.1 Stock Option Agreement

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6.2 Number of Shares

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6.3 Exercise Price

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6.4 Exercisability and Term

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6.5 Effect of Change in Control

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6.6 Modification or Assumption of Options

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6.7 Buyout Provisions

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6.8 ISO $100,000 Rule

   5

ARTICLE 7. STOCK APPRECIATION RIGHTS

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7.1 Grant of SARs

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7.2 Number of Shares

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7.3 Exercise of SARs

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7.4 SAR Agreement

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7.5 Expiration of SARs

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7.6 Payment of SAR Amount

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7.7 Form of Payment

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7.8 Exercisability; Rights of a Stockholder

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7.9 Method of Exercise

   6

 

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ARTICLE 8. PAYMENT FOR OPTION AND SAR SHARES

   6

8.1 General Rule

   6

8.2 Surrender of Stock

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8.3 Exercise/Sale

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8.4 Exercise/Pledge

   7

8.5 Promissory Note

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8.6 Other Forms of Payment

   7

ARTICLE 9. RESTRICTED SHARES

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9.1 Restricted Stock Agreement

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9.2 Payment for Awards

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9.3 Vesting Conditions

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9.4 Other Restrictions

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9.5 Voting and Dividend Rights

   8

ARTICLE 10. RESTRICTED STOCK UNITS

   8

10.1 Grant

   8

10.2 Value of Restricted Stock Units

   9

10.3 Vesting Criteria and Other Terms

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10.4 Earning Restricted Stock Units

   9

10.5 Form and Timing of Payment

   9

10.6 Cancellation

   9

ARTICLE 11. PROTECTION AGAINST DILUTION

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11.1 Adjustments

   9

11.2 Dissolution or Liquidation

   10

11.3 Reorganizations

   10

ARTICLE 12. DEFERRAL OF DELIVERY OF SHARES

   10

ARTICLE 13. AWARDS UNDER OTHER PLANS

   11

ARTICLE 14. LIMITATION ON RIGHTS

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14.1 Retention Rights

   11

14.2 Stockholders’ Rights

   11

14.3 Regulatory Requirements

   11

ARTICLE 15. WITHHOLDING TAXES

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15.1 General

   11

15.2 Share Withholding

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ARTICLE 16. LIMITATION ON PAYMENTS

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16.1 Scope of Limitation

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16.2 Basic Rule

   12

16.3 Reduction of Payments

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16.4 Overpayments and Underpayments

   13

16.5 Related Corporations

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ARTICLE 17. FUTURE OF THE PLAN

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17.1 Term of the Plan

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17.2 Amendment or Termination

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ARTICLE 18. DEFINITIONS

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REDBACK NETWORKS INC.

1999 STOCK INCENTIVE PLAN

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board effective as of the date of the Company’s
initial public offering. The purpose of the Plan is to promote the long-term
success of the Company and the creation of stockholder value by (a) encouraging
Employees, Outside Directors and Consultants to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Employees, Outside
Directors and Consultants with exceptional qualifications and (c) linking
Employees, Outside Directors and Consultants directly to stockholder interests
through increased stock ownership. The Plan seeks to achieve this purpose by
providing for Awards in the form of Restricted Shares, Options (which may
constitute incentive stock options or nonstatutory stock options), Restricted
Stock Units and Stock Appreciation Rights.

The Plan shall be governed by, and construed in accordance with, the laws of the
State of Delaware (except their choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1 Committee Composition. The Plan shall be administered by the Committee. The
Committee shall consist exclusively of two or more directors of the Company, who
shall be appointed by the Board. In addition, the composition of the Committee
shall satisfy:

(a) Such requirements as the Securities and Exchange Commission may establish
for administrators acting under plans intended to qualify for exemption under
Rule 16b-3 (or its successor) under the Exchange Act; and

(b) Such requirements as the Internal Revenue Service may establish for outside
directors acting under plans intended to qualify for exemption under
Section 162(m)(4)(C) of the Code.

2.2 Committee Responsibilities. The Committee shall (a) select the Employees,
Outside Directors and Consultants who are to receive Awards under the Plan,
(b) determine the type, number, vesting requirements and other features and
conditions of such Awards (including, but not limited to, exercise price and any
acceleration or waiver of forfeiture restrictions, and any other restrictions
regarding an Award or the Common Shares relating thereto), (c) interpret the
Plan and the Awards, (d) to approve forms of Award Agreement for use under the
Plan, (e) to create sub-plans or Plan addendums for the purpose of satisfying
Applicable Laws, meeting the objectives of the Plan, and/or qualifying for
preferred tax treatment under foreign tax laws, (f) to prescribe, amend,
interpret and rescind rules and

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regulations relating to the administration, interpretation and application of
the Plan that are consistent therewith, including rules and regulations relating
to sub-plans or Plan addendums, (g) to modify or amend each Award (subject to
Sections 6.6 and 17.2 of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options and SARs longer
than is otherwise provided for in the Plan, (h) to authorize any person to
execute on behalf of the Company any instrument required to effect the grant of
an Award previously granted by the Committee, and (i) make all other decisions
relating to the operation of the Plan. The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Committee’s
determinations under the Plan shall be final and binding on all persons.

2.3 Committee for Non-Officer Grants. The Board may also appoint a secondary
committee of the Board, which shall be composed of one or more directors of the
Company who need not satisfy the requirements of Section 2.1. Such secondary
committee may administer the Plan with respect to Employees and Consultants who
are not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Employees and Consultants
and may determine all features and conditions of such Awards. Within the
limitations of this Section 2.3, any reference in the Plan to the Committee
shall include such secondary committee.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. Subject to Section 3.2, the
aggregate number of Common Shares awarded under the Plan shall not exceed
11,111,864 except for the permitted increases provided for in Section 3.2 below.
The limitations of this Section 3.1 and Section 3.2 shall be subject to
adjustment pursuant to Article 11.

3.2 Increase in Shares. On May 6, 2006 and May 6, 2007, the aggregate number of
Common Shares that may be awarded under the Plan shall automatically increase by
4,611,582 and 3,000,000 Common Shares respectively, resulting in an aggregate
number of 21,822,642 Common Shares available under the Plan.

3.3 Additional Shares. If Awards granted under this Plan expire, are forfeited
or repurchased, or terminate for any other reason before being exercised, then
the corresponding Common Shares shall again become available for the grant of
Awards under this Plan. The aggregate number of Common Shares that may be issued
under the Plan upon the exercise of ISOs shall not be increased when Restricted
Shares or other Common Shares are forfeited. Common Shares that have actually
been issued under the Plan under any Award shall not be returned to the Plan and
shall not become available for future distribution under the Plan; provided,
however, that if Restricted Shares, or Restricted Stock Units are repurchased by
the Company or are forfeited to the Company, such Common Shares shall become
available for future grant under the Plan. Shares used to pay the exercise price
of an Award shall become available for future grant or sale under the Plan. With
respect to SARs, only Common Shares actually issued pursuant to an SAR shall
cease to be available under the Plan. To the extent an Award under the Plan is
paid out in cash rather than stock, such cash payment shall not reduce the
number of Shares available for issuance under the Plan.

 

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ARTICLE 4. ELIGIBILITY.

4.1 Awards Other than ISOs. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of NSOs, Restricted Shares, Restricted Stock
Units and Stock Appreciation Rights.

4.2 Incentive Stock Options. Only Employees who are common-law employees of the
Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In
addition, an Employee who owns more than 10% of the total combined voting power
of all classes of outstanding stock of the Company or any of its Parents or
Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in Section 422(c)(6) of the Code are satisfied.

ARTICLE 5. CODE SECTION 162(M) PROVISIONS.

5.1 Option and SAR Annual Share Limit. No Participant shall be granted, in any
Fiscal Year, Options or SARs covering an aggregate of more than three million
Common Shares; provided, however, that such limit shall be six million in the
Fiscal Year in which the Participant’s employment first commences. The limits in
this Section 5.1 are subject to adjustment under Article 11.

5.2 Restricted Share and Restricted Stock Unit Annual Limit. No Participant
shall be granted, in any Fiscal Year, more than 1,500,000 Common Shares in the
aggregate of the following: (i) Restricted Shares or (ii) Restricted Stock
Units; provided, however, that such limit shall be three million Shares in the
Fiscal Year in which the Participant’s employment first commences. The limits in
this Section 5.2 are subject to adjustment under Article 11.

5.3 Section 162(m) Performance Restrictions. For purposes of qualifying grants
of Restricted Shares or Restricted Stock Units as “performance-based
compensation” under Section 162(m) of the Code, the Committee, in its
discretion, may set restrictions based upon the achievement of Performance
Goals. The Performance Goals shall be set by the Committee on or before the
latest date permissible to enable the Restricted Shares or Restricted Stock
Units to qualify as “performance-based compensation” under Section 162(m) of the
Code. In granting Restricted Shares or Restricted Stock Units which are intended
to qualify under Section 162(m) of the Code, the Committee shall follow any
procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Award under Section 162(m) of the Code (e.g., in
determining the Performance Goals).

ARTICLE 6. OPTIONS.

6.1 Stock Option Agreement. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms of the Plan and may be subject
to any other terms that are not inconsistent with the Plan. The provisions of
the various Stock Option Agreements entered into under the Plan need not be
identical. A Stock Option Agreement may provide that a new Option will be
granted automatically to the Optionee when he or she exercises a prior Option
and pays the Exercise Price in the form described in Article 8.2.

 

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6.2 Number of Shares. Each Stock Option Agreement shall specify the number of
Common Shares subject to the Option, subject to the limits set forth in
Section 5.1 and shall provide for the adjustment of such number in accordance
with Article 11.

6.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price; provided that the per share Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 30% of
the Fair Market Value of a Common Share on the date of grant. Notwithstanding
the foregoing, in the case of an ISO granted to a Participant who, at the time
the ISO is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Subsidiary or any
Parent, the per share Exercise Price shall be no less than 110% of the Fair
Market Value of a Common Share on the date of grant. In the case of an NSO, a
Stock Option Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the NSO is outstanding. Notwithstanding the
foregoing, Options may be granted with a per share Exercise Price of less than
100% of the Fair Market Value per Common Share on the date of grant pursuant to
a merger or other corporate transaction.

6.4 Exercisability and Term. Each Stock Option Agreement shall specify the date
or event when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed ten (10) years from the date of
grant. Moreover, in the case of an ISO granted to a Participant who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Subsidiary or Parent, the term of the ISO shall in no event exceed five
(5) years from the date of grant. A Stock Option Agreement may provide for
accelerated exercisability in the event of the Optionee’s death, disability or
retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee’s service.

6.5 Effect of Change in Control. The Committee may determine, at the time of
granting an Option or thereafter, that such Option shall become exercisable as
to all or part of the Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company, subject to the following
limitations:

(a) In the case of an ISO granted prior to March 31, 2006, the acceleration of
exercisability shall not occur without the Optionee’s written consent.

(b) If the Company and the other party to the transaction constituting a Change
in Control agree that such transaction is to be treated as a “pooling of
interests” for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of exercisability shall not occur to the
extent that the Company’s independent accountants and such other party’s
independent accountants separately determine in good faith that such
acceleration would preclude the use of “pooling of interests” accounting.

 

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In addition, acceleration of exercisability may be required under Section 11.3.

6.6 Modification or Assumption of Options. Within the limitations of the Plan,
the Committee may modify, extend or assume outstanding options or may accept the
cancellation of outstanding options (whether granted by the Company or by
another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.

6.7 Buyout Provisions. The Committee may at any time (a) offer to buy out for a
payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

6.8 ISO $100,000 Rule. Each Option shall be designated in the Stock Option
Agreement as either an ISO or a NSO. However, notwithstanding such designations,
to the extent that the aggregate Fair Market Value:

(a) of Common Shares subject to a Participant’s ISO granted by the Company or
any Subsidiary or Parent, which

(b) becomes exercisable for the first time during any calendar year (under all
plans of the Company or any Subsidiary or Parent) exceeds $100,000, such excess
Options shall be treated as NSO. For purposes of this Section 6.8, ISOs shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Common Shares shall be determined as of the time of grant.

ARTICLE 7. STOCK APPRECIATION RIGHTS.

7.1 Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be
granted Employees, Outside Directors and Consultants at any time and from time
to time as shall be determined by the Committee, in its sole discretion.

7.2 Number of Shares. The Committee shall have complete discretion to determine
the number of SARs granted to any Employee, Outside Director and Consultant,
subject to the limits set forth in Section 5.1.

7.3 Exercise of SARs. SARs shall be exercisable on such terms and conditions as
the Committee, in its sole discretion, will determine.

7.4 SAR Agreement. Each SAR grant will be evidenced by an Award Agreement that
will specify the Exercise Price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, will determine; provided, however, that the Exercise Price will not
be less than 100% of the Fair Market Value on the date of grant.

 

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7.5 Expiration of SARs. An SAR granted under the Plan will expire upon the date
determined by the Committee, in its sole discretion, and set forth in the Award
Agreement; provided, however, that no SAR will have a term of more than ten
(10) years from the date of grant.

7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant will be
entitled to receive payment from the Company in an amount determined by
multiplying:

(a) The difference between the Fair Market Value of a Share on the date of
exercise over the exercise price; times

(b) The number of Shares with respect to which the SAR is exercised.

7.7 Form of Payment. The Company’s obligation arising upon the exercise of a SAR
may be paid in Common Shares or in cash, or in any combination of Common Shares
and cash, as the Committee, in its sole discretion, may determine. Shares issued
upon the exercise of a SAR shall be valued at their Fair Market Value as of the
date of exercise.

7.8 Exercisability; Rights of a Stockholder. SARs shall become exercisable at
such time or times, whether or not in installments, as shall be determined by
the Committee in an Award Agreement; provided, however, that all SARs must be
exercised within ten (10) years of the date they become exercisable or they
shall automatically expire. The Committee may, at any time, accelerate the
exercisability of all or any portion of any SAR. A SAR Agreement may provide for
accelerated exercisability in the event of the Participant’s death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Participant’s service.

7.9 Method of Exercise. SARs may be exercised in whole or in part, by giving
written or electronic notice of exercise to the Company, specifying the number
of shares to be purchased.

The actual or constructive delivery of certificates representing the shares of
Stock to be delivered pursuant to the exercise of a Stock Appreciation Right
will be contingent upon fulfilling any requirements contained in the Stock
Appreciation Right Award or Applicable Laws.

ARTICLE 8. PAYMENT FOR OPTION AND SAR SHARES.

8.1 General Rule. The entire Exercise Price of Common Shares issued upon
exercise of Options and SARs shall be payable in cash or cash equivalents at the
time when such Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall be made only
pursuant to the express provisions of the applicable Stock Option Agreement. The
Stock Option Agreement may specify that payment may be made in any form(s)
described in this Article 8.

 

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(b) In the case of an NSO or a SAR, the Committee may at any time accept payment
in any form(s) described in this Article 8.

8.2 Surrender of Stock. To the extent that this Section 8.2 is applicable, all
or any part of the Exercise Price may be paid by surrendering, or attesting to
the ownership of, Common Shares that are already owned by the Participant. Such
Common Shares shall be valued at their Fair Market Value on the date when the
new Common Shares are purchased under the Plan.

8.3 Exercise/Sale. To the extent that this Section 8.3 is applicable, all or any
part of the Exercise Price and any withholding taxes may be paid by delivering
(on a form prescribed by the Company) an irrevocable direction to a securities
broker approved by the Company to sell all or part of the Common Shares being
purchased under the Plan and to deliver all or part of the sales proceeds to the
Company.

8.4 Exercise/Pledge. To the extent that this Section 8.4 is applicable, all or
any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.

8.5 Promissory Note. To the extent that this Section 8.5 is applicable, all or
any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the Common Shares being purchased under the
Plan, if newly issued, shall be paid in cash or cash equivalents.

8.6 Other Forms of Payment. To the extent that this Section 8.6 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid in
any other form that is consistent with applicable laws, regulations and rules.

ARTICLE 9. RESTRICTED SHARES.

9.1 Restricted Stock Agreement. Each grant of Restricted Shares under the Plan
shall be evidenced by a Restricted Stock Agreement between the recipient and the
Company. Such Restricted Shares shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Restricted Stock Agreements entered into
under the Plan need not be identical. The Committee shall have complete
discretion to determine the number of Restricted Shares granted to any Employee,
Outside Director and Consultant, subject to the limits set forth in Section 5.2.

 

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9.2 Payment for Awards. Subject to the following sentence, Restricted Shares may
be sold or awarded under the Plan for such consideration as the Committee may
determine, including (without limitation) cash, cash equivalents, full-recourse
promissory notes, past services and future services. To the extent that an Award
consists of newly issued Restricted Shares, the consideration shall consist
exclusively of cash, cash equivalents or past services rendered to the Company
(or a Parent or Subsidiary) or, for the amount in excess of the par value of
such newly issued Restricted Shares, full-recourse promissory notes, as the
Committee may determine.

9.3 Vesting Conditions. Each Award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant’s death, disability or retirement or other events. The Committee
may determine, at the time of granting Restricted Shares or thereafter, that all
or part of such Restricted Shares shall become vested in the event that a Change
in Control occurs with respect to the Company, except as provided in the next
following sentence. If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated as
a “pooling of interests” for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of vesting shall not
occur to the extent that the Company’s independent accountants and such other
party’s independent accountants separately determine in good faith that such
acceleration would preclude the use of “pooling of interests” accounting.

9.4 Other Restrictions. The Committee, in its sole discretion, may impose such
other restrictions on Shares of Restricted Stock as it may deem advisable or
appropriate.

(a) General Restrictions. The Committee may set restrictions based upon the
achievement of Company-wide, Subsidiary-wide, departmental, business unit, or
individual goals (including, but not limited to, continued employment or
service), applicable federal or state securities laws, or any other basis
determined by the Committee in its discretion.

(b) Section 162(m) Performance Restrictions. For purposes of qualifying grants
of Restricted Stock as “performance-based compensation” under Section 162(m) of
the Code, the Committee, in its discretion, may set restrictions based upon the
achievement of Performance Goals.

9.5 Voting and Dividend Rights. The holders of Restricted Shares awarded under
the Plan shall have the same voting, dividend and other rights as the Company’s
other stockholders. A Restricted Stock Agreement, however, may require that the
holders of Restricted Shares invest any cash dividends received in additional
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid.

ARTICLE 10. RESTRICTED STOCK UNITS.

10.1 Grant. Restricted Stock Units may be granted at any time and from time to
time as determined by the Committee. Each Restricted Stock Unit grant shall be
evidenced by

 

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an Award Agreement that shall specify such other terms and conditions as the
Committee, in its sole discretion, shall determine, including all terms,
conditions, and restrictions related to the grant and the number of Restricted
Stock Units (subject to the limitations set forth in Section 5.2).

10.2 Value of Restricted Stock Units. Each Restricted Stock Unit shall have an
initial value equal to the Fair Market Value of a Common Share on the date of
grant (and therefore shall be the equivalent of one Common Share for purposes of
determining the number of Common Shares subject to an Award).

10.3 Vesting Criteria and Other Terms. The Committee shall set vesting criteria
in its discretion, which, depending on the extent to which the criteria are met,
will determine the number of Restricted Stock Units that will be paid out to the
Participant.

(a) General Restrictions. The Committee may set vesting criteria based upon the
achievement of Company-wide, Subsidiary-wide, departmental, business unit, or
individual goals (including, but not limited to, continued employment or
service), applicable federal or state securities laws, or any other basis
determined by the Committee in its discretion.

(b) Section 162(m) Performance Restrictions. For purposes of qualifying grants
of Restricted Stock Units as “performance-based compensation” under
Section 162(m) of the Code, the Committee, in its discretion, may set
performance objectives based upon the achievement of Performance Goals.

10.4 Earning Restricted Stock Units. Upon meeting the applicable vesting
criteria, the Participant shall be entitled to receive a payout as specified in
the Award Agreement. Notwithstanding the foregoing, at any time after the grant
of Restricted Stock Units, the Committee, in its sole discretion, may reduce or
waive any vesting criteria that must be met to receive a payout.

10.5 Form and Timing of Payment. Payment of earned Restricted Stock Units shall
be made as soon as practicable after the date(s) set forth in the Award
Agreement. The Committee, in its sole discretion, shall pay earned Restricted
Stock Units in Common Shares.

10.6 Cancellation. On the date set forth in the Award Agreement, all unearned
Restricted Stock Units shall be forfeited to the Company.

ARTICLE 11. PROTECTION AGAINST DILUTION.

11.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Common Shares available for

 

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future Awards under Article 3, (b) the limitations set forth in Article 5,
(c) the number of Common Shares covered by each outstanding Award, (d) the
Exercise Price or purchase price under each outstanding Award, or (e) the number
of Common Shares that may be granted pursuant to ISOs under Article 3. Except as
provided in this Article 11, a Participant shall have no rights by reason of any
issue by the Company of stock of any class or securities convertible into stock
of any class, any subdivision or consolidation of shares of stock of any class,
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class.

11.2 Dissolution or Liquidation. To the extent not previously exercised (with
respect to Options and SARs) or vested (with respect to all other Awards), all
outstanding Awards shall terminate immediately prior to the dissolution or
liquidation of the Company.

11.3 Reorganizations. In the event that the Company is a party to a merger or
other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for (a) the continuation
of the outstanding Awards by the Company, if the Company is a surviving
corporation, (b) the assumption of the outstanding Awards by the surviving
corporation or its parent or subsidiary, (c) the substitution by the surviving
corporation or its parent or subsidiary of its own awards for the outstanding
Awards, (d) full exercisability or vesting and accelerated expiration of the
outstanding Awards or (e) settlement of the full value of the outstanding Awards
in cash or cash equivalents followed by cancellation of such Awards. In
addition, the Committee may determine, at the time of granting an Award or
thereafter, that all or part of such Award shall become vested in the event that
a Change in Control occurs with respect to the Company, subject to the
restrictions of Sections 6.5 and 9.3.

ARTICLE 12. DEFERRAL OF DELIVERY OF SHARES.

The Committee (in its sole discretion) may permit or require a Participant to
have Common Shares that otherwise would be delivered to such Participant as a
result of the exercise or grant of an Award converted into amounts credited to a
deferred compensation account established for such Participant by the Committee
as an entry on the Company’s books. Such amounts shall be determined by
reference to the Fair Market Value of such Common Shares as of the date when
they otherwise would have been delivered to such Participant. A deferred
compensation account established under this Article 12 may be credited with
interest or other forms of investment return, as determined by the Committee. A
Participant for whom such an account is established shall have no rights other
than those of a general creditor of the Company. Such an account shall represent
an unfunded and unsecured obligation of the Company and shall be subject to the
terms and conditions of the applicable agreement between such Participant and
the Company. If the conversion of Awards is permitted or required, the Committee
(in its sole discretion) may establish rules, procedures and forms pertaining to
such conversion, including (without limitation) the settlement of deferred
compensation accounts established under this Article 12. Any deferral pursuant
to this Article 12 shall be in accordance with rules and procedures established
by the Committee, which rules and procedures shall, unless otherwise determined
by the Committee, at all times comply with the requirements of Section 409A of
the Code.

 

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ARTICLE 13. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards may be
settled in the form of Common Shares issued under this Plan. Such Common Shares
shall be treated for all purposes under the Plan like Restricted Shares and
shall, when issued, reduce the number of Common Shares available under
Article 3.

ARTICLE 14. LIMITATION ON RIGHTS.

14.1 Retention Rights. Neither the Plan nor any Award granted under the Plan
shall be deemed to give any individual a right to remain an Employee, Outside
Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates
reserve the right to terminate the service of any Employee, Outside Director or
Consultant at any time, with or without cause, subject to applicable laws, the
Company’s certificate of incorporation and by-laws and a written employment
agreement (if any).

14.2 Stockholders’ Rights. A Participant shall have no dividend rights, voting
rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, in the case of an Option or SAR, the time when he or
she becomes entitled to receive such Common Shares by filing a notice of
exercise and paying the Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.

14.3 Regulatory Requirements. Any other provision of the Plan notwithstanding,
the obligation of the Company to issue Common Shares under the Plan shall be
subject to all applicable laws, rules and regulations and such approval by any
regulatory body as may be required. The Company reserves the right to restrict,
in whole or in part, the delivery of Common Shares pursuant to any Award prior
to the satisfaction of all legal requirements relating to the issuance of such
Common Shares, to their registration, qualification or listing or to an
exemption from registration, qualification or listing.

ARTICLE 15. WITHHOLDING TAXES.

15.1 General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.

15.2 Share Withholding. The Committee may permit a Participant to satisfy all or
part of his or her withholding or income tax obligations by having the Company
withhold all or a portion of any Common Shares that otherwise would be issued to
him or her or by surrendering all or a portion of any Common Shares that he or
she previously acquired. Such Common Shares shall be valued at their Fair Market
Value on the date when they are withheld or surrendered.

 

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ARTICLE 16. LIMITATION ON PAYMENTS.

16.1 Scope of Limitation. This Article 16 shall apply to an Award only if:

(a) The independent auditors most recently selected by the Board (the
“Auditors”) determine that the after-tax value of such Award to the Participant,
taking into account the effect of all federal, state and local income taxes,
employment taxes and excise taxes applicable to the Participant (including the
excise tax under Section 4999 of the Code), will be greater after the
application of this Article 16 than it was before the application of this
Article 16; or

(b) The Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall be subject to this
Article 16 (regardless of the after-tax value of such Award to the Participant).

If this Article 16 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.

16.2 Basic Rule. In the event that the Auditors determine that any payment or
transfer by the Company under the Plan to or for the benefit of a Participant (a
“Payment”) would be nondeductible by the Company for federal income tax purposes
because of the provisions concerning “excess parachute payments” in Section 280G
of the Code, then the aggregate present value of all Payments shall be reduced
(but not below zero) to the Reduced Amount. For purposes of this Article 16, the
“Reduced Amount” shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of Section 280G of the Code.

16.3 Reduction of Payments. If the Auditors determine that any Payment would be
nondeductible by the Company because of Section 280G of the Code, then the
Company shall promptly give the Participant notice to that effect and a copy of
the detailed calculation thereof and of the Reduced Amount, and the Participant
may then elect, in his or her sole discretion, which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 16, present
value shall be determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 16 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.

 

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16.4 Overpayments and Underpayments. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an “Overpayment”) or that
additional Payments which will not have been made by the Company could have been
made (an “Underpayment”), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under Section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in Section 7872(f)(2) of the Code.

16.5 Related Corporations. For purposes of this Article 16, the term “Company”
shall include affiliated corporations to the extent determined by the Auditors
in accordance with Section 280G(d)(5) of the Code.

ARTICLE 17. FUTURE OF THE PLAN.

17.1 Term of the Plan. The Plan shall become effective on the date of the
Company’s initial public offering. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number of Common Shares available under Article 3 that was approved by the
Company’s stockholders.

17.2 Amendment or Termination. The Board may, at any time and for any reason,
amend or terminate the Plan. An amendment of the Plan shall be subject to the
approval of the Company’s stockholders only to the extent required by applicable
laws, regulations or rules. No Awards shall be granted under the Plan after the
termination thereof. The termination of the Plan, or any amendment thereof,
shall not adversely affect any Award previously granted under the Plan, unless
mutually agreed otherwise between the Participant and the Committee, which
agreement must be in writing (or electronic format) and signed by the
Participant and the Company or its Affiliate.

ARTICLE 18. DEFINITIONS.

18.1 “Affiliate” means any entity other than a Subsidiary, if the Company and/or
one or more Subsidiaries own not less than 50% of such entity.

18.2 “Annual Revenue” means the Company’s or a business unit’s net sales for the
Fiscal Year, determined in accordance with generally accepted accounting
principles; provided, however, that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be excluded or included
from the calculation of Annual Revenue with respect to one or more Participants.

 

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18.3 “Award” means any award of an Option, Stock Appreciation Right, Restricted
Share or Restricted Stock Unit under the Plan.

18.4 “Award Agreement” means the agreement between the Company and the recipient
of an Award that contains the terms, conditions and restrictions pertaining to
such Award.

18.5 “Board” means the Company’s Board of Directors, as constituted from time to
time.

18.6 “Cash Position” means as to any Performance Period, the Company’s or
business unit’s level of cash and cash equivalents.

18.7 “Change in Control” shall mean:

(a) The consummation of a merger or consolidation of the Company with or into
another entity or any other corporate reorganization, if persons who were not
stockholders of the Company immediately prior to such merger, consolidation or
other reorganization own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding securities of
each of (i) the continuing or surviving entity and (ii) any direct or indirect
parent corporation of such continuing or surviving entity;

(b) The sale, transfer or other disposition of all or substantially all of the
Company’s assets;

(c) A change in the composition of the Board, as a result of which 50% or fewer
of the incumbent directors are directors who either (i) had been directors of
the Company on the date 24 months prior to the date of the event that may
constitute a Change in Control (the “original directors”) or (ii) were elected,
or nominated for election, to the Board with the affirmative votes of at least a
majority of the aggregate of the original directors who were still in office at
the time of the election or nomination and the directors whose election or
nomination was previously so approved; or

(d) Any transaction as a result of which any person is the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing at least 50% of the total voting power
represented by the Company’s then outstanding voting securities. For purposes of
this Subsection (d), the term “person” shall have the same meaning as when used
in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or of a Parent or Subsidiary and (ii) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company.

 

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A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company’s incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company’s securities immediately before such transaction.

18.8 “Code” means the Internal Revenue Code of 1986, as amended.

18.9 “Committee” means a committee of the Board, as described in Article 2.

18.10 “Common Share” means one share of the common stock of the Company.

18.11 “Company” means Redback Networks Inc., a Delaware corporation.

18.12 “Consultant” means a consultant or adviser who provides bona fide services
to the Company, a Parent, a Subsidiary or an Affiliate as an independent
contractor. Service as a Consultant shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.

18.13 “Earnings Per Share” means as to any Performance Period, the Company’s or
a business unit’s Net Income, divided by a weighted average number of common
shares outstanding and dilutive common equivalent shares deemed outstanding,
determined in accordance with generally accepted accounting principles.

18.14 “Employee” means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.

18.15 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

18.16 “Exercise Price” means the amount for which one Common Share may be
purchased upon exercise of such Option or SAR, as specified in the applicable
Award Agreement.

18.17 “Fair Market Value” means the market price of Common Shares, determined by
the Committee in good faith on such basis as it deems appropriate. Whenever
possible, the determination of Fair Market Value by the Committee shall be based
on the prices reported in The Wall Street Journal. Such determination shall be
conclusive and binding on all persons.

18.18 “Fiscal Year” means a fiscal year of the Company.

18.19 “ISO” means an incentive stock option described in Section 422(b) of the
Code.

18.20 “Net Income” means as to any Performance Period, the income after taxes of
the Company or a business unit determined in accordance with generally accepted
accounting principles, provided that prior to the beginning of the Performance
Period, the Committee shall determine whether any significant item(s) shall be
included or excluded from the calculation of Net Income with respect to one or
more Participants.

 

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18.21 “NSO” means a stock option not described in Sections 422 or 423 of the
Code.

18.22 “Operating Cash Flow” means as to any Performance Period, the Company’s or
a business unit’s sum of Net Income plus depreciation and amortization less
capital expenditures plus changes in working capital comprised of accounts
receivable, inventories, other current assets, trade accounts payable, accrued
expenses, product warranty, advance payments from customers and long-term
accrued expenses, determined in accordance with generally acceptable accounting
principles.

18.23 “Operating Income” means as to any Performance Period, the Company’s or a
business unit’s income from operations determined in accordance with generally
accepted accounting principles.

18.24 “Option” means an ISO or NSO granted under the Plan and entitling the
holder to purchase Common Shares.

18.25 “Optionee” means an individual or estate who holds an Option.

18.26 “Outside Director” shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.

18.27 “Parent” means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.

18.28 “Participant” means an individual or estate who holds an Award.

18.29 “Performance Goals” means the goal(s) (or combined goal(s)) determined by
the Committee (in its discretion) to be applicable to a Participant with respect
to an Award. As determined by the Committee, the Performance Goals applicable to
an Award may provide for a targeted level or levels of achievement using one or
more of the following measures: (a) Annual Revenue, (b) Cash Position,
(c) Earnings Per Share, and (d) Net Income, (e) Operating Cash Flow
(f) Operating Income, (g) Return on Assets, (h) Return on Equity, (i) Return on
Sales, and (j) Total Stockholder Return. The Performance Goals may differ from
Participant to Participant and from Award to Award. The Committee shall
appropriately adjust any evaluation of performance under a Performance Goal to
exclude (i) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management’s discussion and analysis
of financial conditions and results of operations appearing in the Company’s
annual report to stockholders for the applicable year, or (ii) the effect of any
changes in accounting principles affecting the Company’s or a business units’
reported results. Any

 

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criteria used may be measured, as applicable, (i) in absolute terms, (ii) in
relative terms (including, but not limited to, passage of time and/or against
another company or companies), (iii) on a per-share basis, (iv) against the
performance of the Company as a whole or of a business unit or product line of
the Company or against specific markets, and/or (v) to the extent not otherwise
specified by the definition of the Performance Goal, on a pre-tax or after-tax
basis.

18.30 “Performance Period” means the time period of any Fiscal Year or such
longer period as determined by the Committee in its sole discretion during which
the performance objectives must be met.

18.31 “Plan” means this Redback Networks Inc. 1999 Stock Incentive Plan, as
amended from time to time.

18.32 “Restricted Share” means a Common Share awarded under the Plan.

18.33 “Restricted Stock Agreement” means the agreement between the Company and
the recipient of a Restricted Share that contains the terms, conditions and
restrictions pertaining to such Restricted Share.

18.34 “Restricted Stock Unit” means an Award granted pursuant to Article 10 of
the Plan.

18.35 “Return on Assets” means as to any Performance Period, the percentage
equal to the Company’s or a business unit’s Operating Income before incentive
compensation, divided by average net Company or business unit, as applicable,
assets, determined in accordance with generally accepted accounting principles.

18.36 “Return on Equity” means as to any Performance Period, the percentage
equal to the Company’s Net Income divided by average stockholder’s equity,
determined in accordance with generally accepted accounting principles

18.37 “Return on Sales” means as to any Performance Period, the percentage equal
to the Company’s or a business unit’s Operating Income before incentive
compensation, divided by the Company’s or the business unit’s, as applicable,
revenue, determined in accordance with generally accepted accounting principles.

18.38 “Stock Appreciation Right” or “SAR” means an Award granted pursuant to
Article 7 of the Plan.

18.39 “Stock Option Agreement” means the agreement between the Company and an
Optionee that contains the terms, conditions and restrictions pertaining to his
or her Option.

18.40 “Subsidiary” means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.

18.41 “Total Stockholder Return” means as to any Performance Period, the total
return (change in share price plus reinvestment of any dividends) of a share of
the Company’s common stock.

 

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