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                                                                   Exhibit 10.32

                               BAY NETWORKS, INC.
                        1998 EMPLOYEE STOCK PURCHASE PLAN

        1.      ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

                1.1     ESTABLISHMENT. The Bay Networks, Inc. 1998 Employee
Stock Purchase Plan (the "PLAN") is hereby established effective as of the date
of its approval by the stockholders of the Company (the "EFFECTIVE DATE").

                1.2     PURPOSE. The purpose of the Plan is to advance the
interests of Company and its stockholders by providing an incentive to attract,
retain and motivate Eligible Employees of the Participating Company Group and by
motivating such persons to contribute to the growth and profitability of the
Participating Company Group. The Plan provides such Eligible Employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of Stock. The Company intends that the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code (including any amendments or
replacements of such section), and the Plan shall be so construed.

                1.3     TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued.

        2.      DEFINITIONS AND CONSTRUCTION.

                2.1     DEFINITIONS. Any term not expressly defined in the Plan
but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their
respective meanings set forth below:

                        (a)     "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).

                        (b)     "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

                        (c)     "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.

                        (d)     "COMPANY" means Bay Networks, Inc., a Delaware
corporation, or any successor corporation thereto.


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                        (e)     "COMPENSATION" means, with respect to any
Offering Period, all amounts paid in cash and includable as "wages" subject to
tax under Section 3101(a) of the Code without applying the dollar limitation of
Section 3121(a) of the Code. Accordingly, Compensation shall include, without
limitation, salaries, commissions, bonuses, and overtime. Compensation shall not
include reimbursements of expenses, allowances, or any amount deemed received
without the actual transfer of cash or any amounts directly or indirectly paid
pursuant to the Plan or any other stock purchase or stock option plan, or any
other compensation not included above.

                        (f)     "ELIGIBLE EMPLOYEE" means an Employee who meets
the requirements set forth in Section 5 for eligibility to participate in the
Plan.

                        (g)     "EMPLOYEE" means a person treated as an employee
of a Participating Company for purposes of Section 423 of the Code. A
Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan, an
individual shall not be deemed to have ceased to be an Employee while such
individual is on any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event an
individual's leave of absence exceeds ninety (90) days, the individual shall be
deemed to have ceased to be an Employee on the ninety-first (91st) day of such
leave unless the individual's right to reemployment with the Participating
Company Group is guaranteed either by statute or by contract. The Company shall
determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of
such individual's employment or termination of employment, as the case may be.
For purposes of an individual's participation in or other rights, if any, under
the Plan as of the time of the Company's determination, all such determinations
by the Company shall be final, binding and conclusive, notwithstanding that the
Company or any governmental agency subsequently makes a contrary determination.

                        (h)     "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of a share of
Stock (or the mean of the closing bid and asked prices if the Stock is so quoted
instead) as reported by the New York Stock Exchange (the "NYSE") or such other
national or regional securities exchange or market system constituting the
primary market for the Stock, or as reported in The Wall Street Journal or such
other source as the Company deems reliable; provided, however, that the Fair
Market Value of a share of Stock on the Offering Date of an Offering shall be
the closing price quoted on the NYSE on the last trading day prior to the
Offering Date. If the relevant date does not fall on a day on which the Stock
has traded on such securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date, or such other appropriate day as shall
be determined by the Board, in its sole discretion. If there is then no public
market for the Stock, the Fair Market Value on any relevant date shall be as
determined by the Board.

                        (i)     "OFFERING" means an offering of Stock as
provided in Section 6.


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                        (j)     "OFFERING DATE" means, for any Offering, the
first day of the Offering Period with respect to such Offering.

                        (k)     "OFFERING PERIOD" means a period established in
accordance with Section 6.1.

                        (l)     "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.

                        (m)     "PARTICIPANT" means an Eligible Employee who has
become a participant in an Offering Period in accordance with Section 7 and
remains a participant in accordance with the Plan.

                        (n)     "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation designated by the Board as a
corporation the Employees of which may, if Eligible Employees, participate in
the Plan. The Board shall have the sole and absolute discretion to determine
from time to time which Parent Corporations or Subsidiary Corporations shall be
Participating Companies.

                        (o)     "PARTICIPATING COMPANY GROUP" means, at any
point in time, the Company and all other corporations collectively which are
then Participating Companies.

                        (p)     "PURCHASE DATE" means, for any Offering Period
(or Purchase Period, if so determined by the Board in accordance with Section
6.2), the last day of such period.

                        (q)     "PURCHASE PERIOD" means a period, if any,
established in accordance with Section 6.2.

                        (r)     "PURCHASE PRICE" means the price at which a
share of Stock may be purchased under the Plan, as determined in accordance with
Section 9.

                        (s)     "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided in
Section 8, which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the right of
a Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan at any time during an Offering Period.

                        (t)     "STOCK" means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.

                        (u)     "SUBSCRIPTION AGREEMENT" means a written
agreement in such form as specified by the Company, stating an Employee's
election to participate in the Plan and authorizing payroll deductions under the
Plan from the Employee's Compensation.


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                        (v)     "SUBSCRIPTION DATE" means a date prior to or on
the Offering Date of an Offering Period as the Company shall establish.

                        (w)     "SUBSCRIPTION PERIOD" means the period of time
prior to and including the Offering Date as specified by the Company.

                        (x)     "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.

                2.2     CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

        3.      ADMINISTRATION.

                3.1     ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan, of any
form of agreement or other document employed by the Company in the
administration of the Plan, or of any Purchase Right shall be determined by the
Board and shall be final and binding upon all persons having an interest in the
Plan or the Purchase Right. Subject to the provisions of the Plan, the Board
shall determine all of the relevant terms and conditions of Purchase Rights
granted pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.

                3.2     AUTHORITY OF EXECUTIVE OFFICERS. Any executive officer
of the Company shall have the authority to act on behalf of the Company with
respect to any matter, right, obligation, determination or election that is the
responsibility of or that is allocated to the Company herein, provided that the
executive officer has apparent authority with respect to such matter, right,
obligation, determination or election.

                3.3     POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements of
Section 423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum or maximum payroll deduction amount
required for participation in an Offering, (b) a limitation on the frequency or
number of changes, if any, permitted in the rate of payroll deduction during an
Offering, (c) an exchange ratio applicable to amounts withheld in a currency
other than United States dollars, (d) a payroll deduction greater than or less
than the amount designated by a Participant in order to adjust for the Company's
delay or mistake in processing a Subscription Agreement or in otherwise
effecting a Participant's election under the Plan or as advisable to comply with
the 


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requirements of Section 423 of the Code, and (e) determination of the date and
manner by which the Fair Market Value of a share of Stock is determined for
purposes of administration of the Plan.

        4.      SHARES SUBJECT TO PLAN.

                4.1     MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be equal to the sum of (a) five hundred
thousand (500,000), plus (b) the aggregate number of shares of Stock available
for issuance under the Company's 1994 Employee Stock Purchase Plan (the "1994
PLAN") that are not required to complete all offerings under the 1994 Plan which
are in progress as of the Effective Date and shall consist of authorized but
unissued or reacquired shares of Stock, or any combination thereof; provided,
however, that the aggregate number of shares of Stock issuable under the Plan
shall not exceed five million (5,000,000) shares. If an outstanding Purchase
Right for any reason expires or is terminated or canceled, the shares of Stock
allocable to the unexercised portion of such Purchase Right shall again be
available for issuance under the Plan.

                4.2     ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.

        5.      ELIGIBILITY.

                5.1     EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be deemed
an Eligible Employee, except the following:

                        (a)     Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or


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                        (b)     Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.

                5.2     EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of such Employee.

        6.      OFFERINGS.

                6.1     OFFERING PERIODS. Except as otherwise set forth below,
the Plan shall be implemented by Offerings of approximately six (6) months
duration (an "OFFERING PERIOD"). The first Offering Period shall commence on May
1, 1998 and end on the last day of October 1998. Subsequent Offerings shall
commence on the first day of May and November of each year and end on the last
day of the next October and April, respectively, occurring thereafter.
Notwithstanding the foregoing, the Board may establish a different duration for
one or more future Offering Periods or different commencing or ending dates for
such Offering Periods; provided, however, that no Offering Period may have a
duration exceeding twenty-seven (27) months; provided, however, that if the Code
is amended to provide for a different limitation on the maximum duration of an
Offering Period which is different from the limitation set forth in this
sentence, such different limitation shall be deemed incorporated herein. If the
first or last day of an Offering Period is not a day on which the national
securities exchanges are open for trading, the Company shall specify the trading
day that will be deemed the first or last day, as the case may be, of the
Offering Period.

                6.2     PURCHASE PERIODS. If the Board so determines, in its
discretion, each Offering Period may consist of two (2) or more consecutive
Purchase Periods having such duration as the Board shall specify, and the last
day of each such Purchase Period shall be a Purchase Date. If the first or last
day of a Purchase Period is not a day on which the national securities exchanges
are open for trading, the Company shall specify the trading day that will be
deemed the first or last day, as the case may be, of the Purchase Period.

        7.      PARTICIPATION IN THE PLAN.

                7.1     INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not deliver
a properly completed Subscription Agreement to the Company's designated office
on or before the Subscription Date for an Offering Period shall not participate
in the Plan for that Offering Period or for any subsequent Offering Period
unless such Eligible Employee subsequently delivers a properly completed
Subscription Agreement to the appropriate office of 


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the Company on or before the Subscription Date for such subsequent Offering
Period. An Employee who becomes an Eligible Employee after the Offering Date of
an Offering Period shall not be eligible to participate in such Offering Period
but may participate in any subsequent Offering Period provided such Employee is
still an Eligible Employee as of the Offering Date of such subsequent Offering
Period.

                7.2     CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the Purchase Date of each Offering Period in which the Participant
participates provided that such Participant remains an Eligible Employee on the
Offering Date of the new Offering Period and has not either (a) withdrawn from
the Plan pursuant to Section 12.1 or (b) terminated employment as provided in
Section 13. A Participant who may automatically participate in a subsequent
Offering Period, as provided in this Section, is not required to deliver any
additional Subscription Agreement for the subsequent Offering Period in order to
continue participation in the Plan. However, a Participant may deliver a new
Subscription Agreement for a subsequent Offering Period in accordance with the
procedures set forth in Section 7.1 if the Participant desires to change any of
the elections contained in the Participant's then effective Subscription
Agreement. Eligible Employees may not participate simultaneously in more than
one Offering.

        8.      RIGHT TO PURCHASE SHARES.

                8.1     GRANT OF PURCHASE RIGHT. Except as set forth below,
unless otherwise specified by the Board pursuant to Section 8.3, on the Offering
Date of each Offering Period, each Participant in such Offering Period shall be
granted automatically a Purchase Right consisting of an option to purchase that
number of whole shares of Stock determined by dividing the "Payroll Deduction
Limit" (as defined below) by eighty-five percent (85%) of the Fair Market Value
of a share of Stock on such Offering Date. No Purchase Right shall be granted on
an Offering Date to any person who is not, on such Offering Date, an Eligible
Employee.

                8.2     CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock under
the Plan to accrue at a rate which, when aggregated with such Participant's
rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the
Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or
such other limit, if any, as may be imposed by the Code) for each calendar year
in which such Purchase Right is outstanding at any time. For purposes of the
preceding sentence, the Fair Market Value of shares purchased during a given
Offering Period shall be determined as of the Offering Date for such Offering
Period. The limitation described in this Section 8.2 shall be applied in
conformance with applicable regulations under Section 423(b)(8) of the Code.

                8.3     AMENDMENT TO PURCHASE RIGHT PROVISIONS. The Board, in
its discretion, may grant, for any future Offering Period, a Purchase Right
which provides for a different amount of shares of Stock than the amount
described in Section 8.1, including, without limitation, by amending the Payroll
Deduction Limit set forth below. In the event that the Board establishes an
Offering Period of any duration other than six (6) months, the Purchase Right


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described in Section 8.1 shall be appropriately adjusted to reflect the length
of such Offering Period, unless otherwise specified by the Board. In addition,
if the Code is amended to provide for a different limitation on shares
purchasable under Section 423(b)(8) of the Code different than the limitation
described in Section 8.2, such different limitation shall be deemed incorporated
herein to the extent required or permitted by such amendment to the Code.

        9.      PURCHASE PRICE.

                The Purchase Price at which each share of Stock may be acquired
in an Offering Period upon the exercise of all or any portion of a Purchase
Right shall be established by the Board; provided, however, that the Purchase
Price shall not be less than eighty-five percent (85%) of the lesser of (a) the
Fair Market Value of a share of Stock on the Offering Date of the Offering
Period or (b) the Fair Market Value of a share of Stock on the Purchase Date.
Unless otherwise provided by the Board prior to the commencement of an Offering
Period, the Purchase Price for that Offering Period shall be eighty-five percent
(85%) of the lesser of (a) the Fair Market Value of a share of Stock on the
Offering Date of the Offering Period, or (b) the Fair Market Value of a share of
Stock on the Purchase Date.

        10.     ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.

                Shares of Stock acquired pursuant to the exercise of all or any
portion of a Purchase Right may be paid for only by means of payroll deductions
from the Participant's Compensation accumulated during the Offering Period for
which such Purchase Right was granted, subject to the following:

                10.1    AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by the
Participant's Subscription Agreement. The Subscription Agreement shall set forth
the percentage of the Participant's Compensation to be deducted on each payday
during an Offering Period in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering) or more
than ten percent (10%). The maximum amount of payroll deductions for any
six-month Offering Period shall be Five Thousand Forty Dollars ($5,040), which
amount shall be appropriately adjusted in the event that the Board establishes
an Offering Period of other than six (6) months (the "PAYROLL DEDUCTION LIMIT").
Notwithstanding the foregoing, the Board may change the Payroll Deduction Limit
effective as of any future Offering Date.

                10.2    COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided herein.

                10.3    ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the rate of
deductions from his or her Compensation once only during an Offering Period.
However, a Participant may elect to decrease the rate of his or her payroll
deductions to zero percent (0%) and such Participant shall 


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nevertheless remain a Participant in the current Offering Period unless such
Participant withdraws from the Plan as provided in Section 12.1.

                10.4    ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The
Company may, in its sole discretion, suspend a Participant's payroll deductions
under the Plan as the Company deems advisable to avoid accumulating payroll
deductions in excess of the amount that could reasonably be anticipated to
purchase the maximum number of shares of Stock permitted during a calendar year
under the limit set forth in Section 8.2. Payroll deductions shall be resumed at
the rate specified in the Participant's then effective Subscription Agreement at
the beginning of the next Offering Period the Purchase Date of which falls in
the following calendar year.

                10.5    PARTICIPANT ACCOUNTS. Individual bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such Participant's Plan account
and shall be deposited with the general funds of the Company. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose.

                10.6    NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.

        11.     PURCHASE OF SHARES.

                11.1    EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the total
amount of the Participant's payroll deductions accumulated in the Participant's
Plan account during the Offering Period and not previously applied toward the
purchase of Stock by (b) the Purchase Price. However, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.

                11.2    PRO RATA ALLOCATION OF SHARES. In the event that the
number of shares of Stock which might be purchased by all Participants in the
Plan on a Purchase Date exceeds the number of shares of Stock available in the
Plan as provided in Section 4.1, the Company shall make a pro rata allocation of
the remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.

                11.3    DELIVERY OF CERTIFICATES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each Participant,
as appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the 


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name of the Participant, or, if requested by the Participant, in the name of the
Participant and his or her spouse, or, if applicable, in the names of the heirs
of the Participant.

                11.4    RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.

                11.5    TAX WITHHOLDING. At the time a Participant's Purchase
Right is exercised, in whole or in part, or at the time a Participant disposes
of some or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount necessary
to meet such withholding obligations.

                11.6    EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which the Purchase Right relates shall expire immediately upon the end
of the Offering Period.

                11.7    REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan account
setting forth the total payroll deductions accumulated prior to such exercise,
the number of shares of Stock purchased, the Purchase Price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant's Plan account
pursuant to Section 11.4. The report required by this Section may be delivered
in such form and by such means, including by electronic transmission, as the
Company may determine.

        12.     WITHDRAWAL FROM PLAN.

                12.1    VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company's designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal must be elected at least one (1) month prior to the end
of an Offering Period (unless otherwise specified by the Board). A Participant
who voluntarily withdraws from the Plan is prohibited from resuming
participation in the Plan in the same Offering from which he or she withdrew,
but may participate in any subsequent Offering by again satisfying the
requirements of Sections 5 and 7.1. The Company may impose, from time to time, a
requirement that the notice of withdrawal from the Plan be on file with the
Company's designated office for a reasonable period prior to the effectiveness
of the Participant's withdrawal.


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                12.2    RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Section 12.1, the Participant's
accumulated payroll deductions which have not been applied toward the purchase
of shares of Stock shall be refunded to the Participant as soon as practicable
after the withdrawal, without the payment of any interest, and the Participant's
interest in the Plan shall terminate. Such accumulated payroll deductions to be
refunded in accordance with this Section may not be applied to any other
Offering under the Plan.

        13.     TERMINATION OF EMPLOYMENT OR ELIGIBILITY.

                Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, death or disability, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned pursuant
to this Section 13. A Participant whose participation has been so terminated may
again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.

        14.     CHANGE IN CONTROL.

                14.1    DEFINITIONS.

                        (a)     An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.

                        (b)     A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the 


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Company or multiple Ownership Change Events are related, and its determination
shall be final, binding and conclusive.

                14.2    EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In the
event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may assume the Company's rights and obligations under
the Plan. If the Acquiring Corporation elects not to assume the Company's rights
and obligations under outstanding Purchase Rights, the Purchase Date of the then
current Offering Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.

        15.     NONTRANSFERABILITY OF PURCHASE RIGHTS.

                A Purchase Right may not be transferred in any manner otherwise
than by will or the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant.

        16.     COMPLIANCE WITH SECURITIES LAW.

                The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any securities exchange or market system upon which the
Stock may then be listed. In addition, no Purchase Right may be exercised unless
(a) a registration statement under the Securities Act of 1933, as amended, shall
at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.


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<PAGE>   13
        17.     RIGHTS AS A STOCKHOLDER AND EMPLOYEE.

                A Participant shall have no rights as a stockholder by virtue of
the Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.

        18.     LEGENDS.

                The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section.

        19.     NOTIFICATION OF SALE OF SHARES.

                The Company may require the Participant to give the Company
prompt notice of any disposition of shares acquired by exercise of a Purchase
Right within two years from the date of granting such Purchase Right or one year
from the date of exercise of such Purchase Right. The Company may require that
until such time as a Participant disposes of shares acquired upon exercise of a
Purchase Right, the Participant shall hold all such shares in the Participant's
name (or, if elected by the Participant, in the name of the Participant and his
or her spouse but not in the name of any nominee) until the lapse of the time
periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.

        20.     NOTICES.

                All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

        21.     AMENDMENT OR TERMINATION OF THE PLAN.

                The Board may at any time amend or terminate the Plan, except
that (a) such termination shall not affect Purchase Rights previously granted
under the Plan, except as permitted under the Plan, and (b) no amendment may
adversely affect a Purchase Right 


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<PAGE>   14
previously granted under the Plan (except to the extent permitted by the Plan or
as may be necessary to qualify the Plan as an employee stock purchase plan
pursuant to Section 423 of the Code or to obtain qualification or registration
of the shares of Stock under applicable federal, state or foreign securities
laws). In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would authorize the sale of more shares than are
authorized for issuance under the Plan or would change the definition of the
corporations that may be designated by the Board as Participating Companies. In
the event that the Board approves an amendment to increase the number of shares
authorized for issuance under the Plan (the "ADDITIONAL SHARES"), the Board, in
its sole discretion, may specify that such Additional Shares may only be issued
pursuant to Purchase Rights granted after the date on which the stockholders of
the Company approve such amendment, and such designation by the Board shall not
be deemed to have adversely affected any Purchase Right granted prior to the
date on which the stockholders approve the amendment.

        IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Bay Networks, Inc. 1998 Employee Stock Purchase Plan was duly
adopted by the Board of Directors of the Company on February 20, 1998.


                                       /s/ John J. Poggi, Jr.
                                       -----------------------------------------
                                       Secretary


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