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                                                                   EXHIBIT 10.03

                        OPTICAL NETWORKS, INCORPORATED

                          1998 EQUITY INCENTIVE PLAN

                           as Adopted April 22, 1998

                         as Amended December 14, 1998,
                       April 29, 1999, August 16, 1999,
                     November 18, 1999,  December 8, 1999
                             and January 31, 2000


     1.  PURPOSE.  The purpose of this Plan is to provide incentives to attract,
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retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock.  Capitalized terms not defined
in the text are defined in Section 22 hereof.  This Plan is intended to be a
written compensatory benefit plan within the meaning of Rule 701 promulgated
under the Securities Act.

     2.   SHARES SUBJECT TO THE PLAN.
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          2.1  Number of Shares Available.  Subject to Sections 2.2 and 17
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hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 13,203,802 Shares or such lesser number of Shares
as permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations.  Subject to Sections 2.2 and 17 hereof, Shares will again be
available for grant and issuance in connection with future Awards under this
Plan that:  (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option or
(b) are subject to a Restricted Stock Award that otherwise terminates without
Shares being issued.  At all times the Company will reserve and keep available a
sufficient number of Shares as will be required to satisfy the requirements of
all Awards granted under this Plan.

          2.2  Adjustment of Shares.  In the event that the number of
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outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan, (b) the Exercise Prices of and number of Shares subject to
outstanding Options and (c) the Purchase Prices of and number of Shares subject
to other outstanding Awards will be proportionately adjusted, subject to any
required action by the Board or the shareholders of the Company and compliance
with applicable securities laws; provided, however, that fractions of a Share
will not be issued but will either be paid in cash at Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.

     3.   ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only
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to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company.  NQSOs (as defined in
Section 5 hereto) and Restricted Stock Awards may be granted to employees,
officers, directors and consultants of the Company or any Parent or Subsidiary
of the Company; provided such consultants render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.

     4.   ADMINISTRATION.
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          4.1  Committee Authority.  This Plan will be administered by the
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Committee or the Board acting as the Committee.  Subject to the general
purposes, terms and conditions of this Plan, and to the direction of
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the Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:

          (a)  construe and interpret this Plan, any Award Agreement and any
               other agreement or document executed pursuant to this Plan;

          (b)  prescribe, amend and rescind rules and regulations relating to
               this Plan;

          (c)  select persons to receive Awards;

          (d)  determine the form and terms of Awards;

          (e)  determine the number of Shares or other consideration subject to
               Awards;

          (f)  determine whether Awards will be granted singly, in combination
               with, in tandem with, in replacement of, or as alternatives to,
               other Awards under this Plan or awards under any other incentive
               or compensation plan of the Company or any Parent or Subsidiary
               of the Company;

          (g)  grant waivers of Plan or Award conditions;

          (h)  determine the vesting, exercisability and payment of Awards;

          (i)  correct any defect, supply any omission, or reconcile any
               inconsistency in this Plan, any Award, any Award Agreement, any
               Exercise Agreement or any Restricted Stock Purchase Agreement;

          (j)  determine whether an Award has been earned; and

          (k)  make all other determinations necessary or advisable for the
               administration of this Plan.

          4.2  Committee Discretion.  Any determination made by the Committee
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with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, and subject to Section 5.9 hereof, at any later time, and such
determination will be final and binding on the Company and on all persons having
an interest in any Award under this Plan.  The Committee may delegate to one or
more officers of the Company the authority to grant an Award under this Plan,
provided such officers are members of the Board.

     5.   OPTIONS.  The Committee may grant Options to eligible persons and will
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determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOs" or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

          5.1  Form of Option Grant.  Each Option granted under this Plan will
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be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("Stock Option Agreement"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.

          5.2  Date of Grant.  The date of grant of an Option will be the date
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on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee.  The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

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          5.3  Exercise Period.  Options may be exercisable immediately (subject
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to repurchase pursuant to Section 11 hereof) or may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("Ten Percent Shareholder") will be exercisable after the expiration
of five (5) years from the date the ISO is granted.  The Committee also may
provide for Options to become exercisable at one time or from time to time,
periodically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines.  Subject to earlier termination of the Option as
provided herein, each Participant who is not an officer, director or consultant
of the Company or of a Parent or Subsidiary of the Company shall have the right
to exercise an Option granted hereunder at the rate of at least twenty percent
(20%) per year over five (5) years from the date such Option is granted.

          5.4  Exercise Price.  The Exercise Price of an Option will be
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determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (a) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (b) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant.  Payment for the Shares
purchased must be made in accordance with Section 7 hereof.

          5.5  Method of Exercise.  Options may be exercised only by delivery to
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the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.

          5.6  Termination.  Subject to earlier termination pursuant to Sections
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17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:

          (a)  If the Participant is Terminated for any reason except death or
               Disability, then the Participant may exercise such Participant's
               Options only to the extent that such Options are exercisable upon
               the Termination Date and such Options must be exercised by the
               Participant, if at all, as to all  or some of the Vested Shares
               calculated as of the Termination Date, within three (3) months
               after the Termination Date (or within such shorter time period,
               not less than thirty (30) days, or within such longer time
               period, not exceeding five (5) years, after the Termination Date
               as may be determined by the Committee, with any exercise beyond
               three (3) months after the Termination Date deemed to be an NQSO)
               but in any event, non later than the expiration date of the
               Options.

          (b)  If the Participant is Terminated because of Participant's death
               or Disability (or the Participant dies within three (3) months
               after a Termination), then Participant's Options may be exercised
               only to the extent that such Options are exercisable by
               Participant on the Termination Date and must be exercised by
               Participant (or Participant's legal representative or authorized
               assignee), if at all, as to all or some of the Vested Shares
               calculated as of the Termination Date, within twelve (12) months
               after the Termination Date (or within such shorter time period,
               not less than six (6) months, or within such longer time period,
               not exceeding five (5) years, after the Termination Date as may
               be determined by the Committee, with any exercise beyond (i)
               three (3) months after the Termination Date when the Termination
               is for any reason other than the Participant's

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               death or disability, within the meaning of Section 22(e)(3) of
               the Code, or (ii) twelve (12) months after the Termination Date
               when the Termination is for Participant's disability, within the
               meaning of Section 22(e)(3) of the Code, deemed to be an NQSO)
               but in any event no later than the expiration date of the
               Options.

          5.7  Limitations on Exercise.  The Committee may specify a reasonable
               -----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.

          5.8  Limitations on ISOs.  The aggregate Fair Market Value (determined
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as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed $100,000.  If the Fair Market Value
of Shares on the date of grant with respect to which ISOs are exercisable for
the first time by a Participant during any calendar year exceeds $100,000, then
the Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISOs and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs.  In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date (as defined in Section 18 hereof) to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs, then
such different limit will be automatically incorporated herein and will apply to
any Options granted after the effective date of such amendment.

          5.9  Modification, Extension or Removal.  The Committee may modify,
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extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted.  Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code.  Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; provided, however, that the Exercise Price
may not be reduced below the minimum Exercise Price that would be permitted
under Section 5.4 hereof for Options granted on the date the action is taken to
reduce the Exercise Price.

          5.10 No Disqualification.  Notwithstanding any other provision in
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this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

     6.   RESTRICTED STOCK.  A Restricted Stock Award is an offer by the Company
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to sell to an eligible person Shares that are subject to restrictions.  The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject, and all other terms and conditions of the Restricted Stock
Award, subject to the following:

          6.1  Form of Restricted Stock Award.  All purchases under a Restricted
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Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan.  The Restricted Stock Award will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person.  If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within such thirty (30) days , then
the offer will terminate, unless otherwise determined by the Committee.

          6.2  Purchase Price.  The Purchase Price of Shares sold pursuant to a
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Restricted Stock Award will be determined by the Committee and will be at least
eighty-five percent (85%) of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted or at the time the purchase is consummated,
except in the case of a sale to a Ten Percent Shareholder, in which case the
Purchase Price will be one hundred percent (100%) of

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the Fair Market Value on the date the Restricted Stock Award is granted or at
the time the purchase is consummated. Payment of the Purchase Price must be made
in accordance with Section 7 hereof.

          6.3  Restrictions.  Restricted Stock Awards may be subject tot he
               ------------
restrictions set forth in Section 11 hereof or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.

     7.   PAYMENT FOR SHARE PURCHASES.
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          7.1  Payment.  Payment for Shares purchased pursuant to this Plan may
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be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:

          (a)  by cancellation of indebtedness of the Company to the
               Participant;

          (b)  by surrender of shares that:  (i) either (A) have been owned by
               Participant for more than six (6) months and have been paid for
               within the meaning of SEC Rule 144 (and, if such shares were
               purchased from the Company by use of a promissory note, such note
               has been fully paid with respect to such shares) or (B) were
               obtained by Participant in the public market and (ii) are clear
               of all liens, claims, encumbrances or security interests.

          (c)  by tender of a full recourse promissory note having such terms as
               may be approved by the Committee and bearing interest at a rate
               sufficient to avoid imputation of income under Sections 483 and
               1274 of the Code; provided, however, that Participants whoa re
               not employees or directors of the Company will not be entitled to
               purchase Shares with a promissory note unless the note is
               adequately secured by collateral other than the Shares.

          (d)  by waiver of compensation due or accrued to the Participant for
               services rendered;

          (e)  with respect only to purchases upon exercise of an Option, and
               provided that a public market for the Company's stock exists:

               (1)  through a "same day sale" commitment from the Participant
                    and a broker-dealer that is a member of the National
                    Association of Securities Dealers (an "NASD Dealer") whereby
                    the Participant irrevocably elects to exercise the Option
                    and to sell a portion of the Shares so purchased to pay for
                    the Exercise Price, and whereby the NASD Dealer irrevocably
                    commits upon receipt of such Shares to forward the Exercise
                    Price directly to the Company; or

               (2)  through a "margin" commitment from the Participant and an
                    NASD Dealer whereby the Participant irrevocably elects to
                    exercise the Option and to pledge the Shares so purchased to
                    the NASD Dealer in a margin account as security for a loan
                    from the NASD Dealer in the amount of the Exercise Price,
                    and whereby the NASD Dealer irrevocably commits upon receipt
                    of such Shares to forward the Exercise Price directly to the
                    Company; or

          (f)  by any combination of the foregoing.

          7.2  Loan Guarantees.  The Committee may help the Participant pay for
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Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.

     8.   WITHHOLDING TAXES.
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          8.1  Withholding Generally.  Whenever Shares are to be issued in
               ---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to

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satisfy federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares. Whenever, under
this Plan, payments in satisfaction of Awards are to be made in cash, such
payment will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.

          8.2  Stock Withholding.  When, under applicable tax laws, a
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Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined.  All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.

     9.   PRIVILEGES OF STOCK OWNERSHIP.
          -----------------------------

          9.1  Voting and Dividends.  No Participant will have any of the rights
               --------------------
of a shareholder with respect to any Shares until the Shares are issued to the
Participant.  After Shares are issued to the Participant, the Participant will
be a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased pursuant to Section 11 hereof.  The Company will
comply with Section 260.140.1 of Title 10 of the California Code of Regulations
with respect to the voting rights of Common Stock.

          9.2  Financial Statements.  The company will provide financial
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statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding, or as otherwise required under Section
260.140.46 of Title 10 of the California Code of Regulations.  Notwithstanding
the foregoing, the Company will not be required to provide such financial
statements to Participants when issuance is limited to key employees whose
services in connection with the Company assure them access to equivalent
information.

     10.  TRANSFERABILITY.  Awards granted under this Plan, and any interest
          ---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution.  During the lifetime of the
Participant an Award will be exercisable only by the Participant or
Participant's legal representative and any elections with respect to an Award,
may be made only by the Participant or Participant's legal representative.

     11.  RESTRICTIONS OF SHARES.
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          11.1  Right of First Refusal.  At the discretion of the Committee, the
                ----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant to an effective registration statement
filed under the Securities Act.

          11.2  Right of Repurchase.  At the discretion of the Committee, the
                -------------------
Company reserve to itself and/or its assignee(s) in the Award Agreement a right
to repurchase Unvested Shares held by a Participant for cash and/or cancellation
of purchase money indebtedness following such Participant's Termination at any
time within the later of ninety (90) days after the Participant's Termination
Date and the date the Participant purchases Shares under the Plan at the
Participant's Exercise Price or Purchase Price, as the case may be, provided,
that unless the

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Participant is an officer, director or consultant of the Company or of a Parent
or Subsidiary of the Company, such right of repurchase lapses at the rate of at
least twenty percent (20%) per year over five (5) years from: (a) the date of
grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.

     12.  CERTIFICATES.  All certificates for Shares or other securities
          ------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules,, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.

     13.  ESCROW; PLEDGE OF SHARES.  To enforce any restrictions on a
          ------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates.  Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral.  In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve.  The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.

     14.  EXCHANGE AND BUYOUT OF AWARDS.  The Committee may, at any time or from
          -----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards.  The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including Restricted Stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.

     15.  SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.  This Plan is intended
          ----------------------------------------------
to comply with Section 25102(o) of the California Corporations Code.  Any
provision of this Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o).  An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (b) compliance with any exemption,
completion of any registration or other qualification of such Shares under any
state or federal law or ruling of any governmental body that the Company
determines to be necessary or advisable.  The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
exemption, registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.

     16.  NO OBLIGATION TO EMPLOY.  Nothing in this Plan or any Award granted
          -----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
Cause.

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     17.  CORPORATE TRANSACTIONS.
          ----------------------

          17.1  Assumption or Replacement of Awards by Successor or Acquiring
                -------------------------------------------------------------
Corporation.  In the event of (a) a dissolution or liquidation of the Company,
-----------
(b) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company or their relative stock holdings and the Awards granted under this
Plan are assumed, converted or replaced by the successor or acquiring
corporation, which assumption, conversion or replacement will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges with the Company in such merger, or
which owns or controls another corporation which merges, with the Company in
such merger) cease to own their shares or other equity interests in the Company,
or (d) the sale of all or substantially all of the assets of the Company, any or
all outstanding Awards may be assumed, converted or replaced by the successor or
acquiring corporation (if any), which assumption, conversion or replacement will
be binding on all Participants.  In the alternative, the successor or acquiring
corporation may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to shareholders (after taking into
account the existing provisions of the Awards).  The successor or acquiring
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Section 17.1.  In the event such
successor or acquiring corporation (if any) does not assume or substitute
Awards, as provided above, pursuant to a transaction described in this Section
17.1, then notwithstanding any other provision in this Plan to the contrary, the
vesting of such Awards will accelerate and the Options will become exercisable
in full prior to the consummation of such event at such times and on such
conditions as the Committee determines, and if such Options are not exercised
prior to the consummation of the corporate transaction, they shall terminate in
accordance with the provisions of this Plan.

          17.2  Other Treatment of Awards.  Subject to any greater rights
                -------------------------
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.

          17.3  Assumption of Awards by the Company.  The Company, from time to
                -----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under this Plan in substitution of
such other company's award or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan.  Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant.  In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code).  In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.

     18.  ADOPTION AND SHAREHOLDER APPROVAL.  This Plan will become effective on
          ---------------------------------
the date that it is adopted by the Board (the "Effective Date").  This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date.  Upon the effective Date, the Board may grant
Awards pursuant to this Plan; provided, however, that:  (a) no Option may be
exercised prior to initial shareholder approval of this Plan; (b) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; (c) in the event that initial shareholder approval
is not obtained within the time period provided herein, all Awards granted
hereunder shall be canceled, any Shares issued pursuant to any Award shall be
canceled and any purchase of Shares issued hereunder shall be rescinded; and (d)
Awards granted pursuant to an increase in the number of Shares approved by the
Board which increase is not timely approved by shareholders shall be canceled,
any Shares issued pursuant to any such Awards shall be canceled, and any
purchase of Shares subject to any such

                                       8
<PAGE>

Award shall be rescinded. In the event that initial shareholder approval is not
obtained within twelve (12) months before or after the date this Plan is adopted
by the Board, all Awards granted hereunder will be canceled, any Shares issued
pursuant to any Award will be canceled and any purchase of Shares hereunder will
be rescinded.

     19.  TERM OF PLAN/GOVERNING LAW.  Unless earlier terminated as provided
          --------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval.  This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.

     20.  AMENDMENT OR TERMINATION OF PLAN.  Subject to Section 5.9 hereof, the
          ---------------------------------
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to be
executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the shareholders of the Company, amend this Plan in any
manner that requires such shareholder approval pursuant to Section 25102(o) of
the California Corporations Code or the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.

     21.  NONEXCLUSIVITY OF THE PLAN.  Neither the adoption of this Plan by the
          --------------------------
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.

     22.  DEFINITIONS.  As used in this Plan, the following terms will have the
          -----------
following meanings:

          "Award" means any award under this Plan, including any Option or
Restricted Stock Award.

          "Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.

          "Board" means the Board of Directors of the Company.

          "Cause" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, director or consultant to
the Company or a Parent or Subsidiary of the Company, including without
limitation, the willful and continued failure or refusal of the Participant to
perform the material duties required of such Participant as an employee,
director or consultant of the Company or a Parent or Subsidiary of the Company,
other than as a result of having a Disability, or a breach of any applicable
invention assignment and confidentiality agreement or similar agreement between
the Company and the Participant, (iv) Participant's disregard of the policies of
the Company or any Parent or Subsidiary of the Company so as to cause loss,
damage or injury to the property, reputation or employees of the Company or a
Parent or Subsidiary of the Company, or (v) any other misconduct by the
Participant which is materially injurious to the financial condition or business
reputation of, or is otherwise materially injurious to, the Company or a Parent
or Subsidiary of the Company.

          "Code" means the Internal Revenue Code of 1986, as amended.

          "Committee" means the committee appointed by the Board to administer
this Plan, or if no committee is appointed, the Board.

                                       9
<PAGE>

          "Company" means Optical Networks, Incorporated, or any successor
corporation.

          "Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.

          "Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.

          "Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

          (a)  if such Common Stock is then quoted on the Nasdaq National
               Market, its closing price on the Nasdaq National Market on the
               last trading day prior to the date of determination as reported
               in The Wall Street Journal;
                  -----------------------

          (b)  if such Common Stock is publicly traded and is then listed on a
               national securities exchange, its closing price on the last
               trading day prior to the date of determination on the principal
               national securities exchange on which the Common Stock is listed
               or admitted to trading as reported in The Wall Street Journal;
                                                     -----------------------

          (c)  if such Common Stock is publicly traded but is not quoted on the
               Nasdaq National Market nor listed or admitted to trading on a
               national securities exchange, the average of the closing bid and
               asked prices on the last trading day prior to the date of
               determination as reported by The Wall Street Journal (or, if not
                                            -----------------------
               so reported, as otherwise reported by any newspaper or other
               source as the Board may determine); or

          (d)  if none of the foregoing is applicable, by the Committee in good
               faith.

          "Option" means an award of an option to purchase Shares pursuant to
Section 5 hereof.

          "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain

          "Participant" means a person who receives an Award under this Plan

          "Plan" means this Optical Networks, Incorporated 1998 Equity Incentive
Plan, as amended from time to time.

          "Purchase Price" means the price at which a Participant may purchase
Restricted Stock

          "Restricted Stock" means Shares purchased pursuant to a Restricted
Stock Award.

          "Restricted Stock Award" means an award of Shares pursuant to Section
6 hereof.

          "SEC" means the Securities and Exchange Commission.

          "Securities Act" means the Securities Ac t of 1933, as amended.

          "Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and
any successor security.

                                       10
<PAGE>

          "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 fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

          "Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company.  A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated in writing.  In the case of any Participant
on (i) sick leave, (ii) military leave or (iii) an approved leave of absence,
the Committee may make such provisions respecting suspension of vesting of the
Award while on leave from the Company or a Parent or Subsidiary of the Company
as it may deem appropriate, except that in no event may an Option be exercised
after the expiration of the term set forth in the Stock Option Agreement.  The
Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").

          "Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.

          "Vested Shares" means "Vested Shares" as defined in the Award
Agreement.

                                       11