<PAGE>

                                                                    Exhibit 10.8

                            SYCAMORE NETWORKS, INC.
                            -----------------------
                           1999 STOCK INCENTIVE PLAN
                           -------------------------


     1.  PURPOSE.  This 1999 Stock Incentive Plan (the "Plan") is intended to
         -------
provide incentives: (a) to the officers and other employees of Sycamore
Networks, Inc. (the "Company"), and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations"), by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO"or
"ISOs"); (b) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to purchase stock
in the Company pursuant to options granted hereunder which do not qualify as
ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with awards of stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases").  Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights".  As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.

          This Plan will become effective on the day before the date of the
Company's initial public offering (the "Effective Date").

     2.   ADMINISTRATION OF THE PLAN.
          --------------------------

          A.  BOARD OR COMMITTEE ADMINISTRATION.  The Plan will be administered
              ---------------------------------
by a committee or committees appointed by the Board of Directors of the Company
(the "Board") and consisting of two or more members of the Board.  The Board may
delegate responsibility for administration of the Plan with respect to
designated Stock Right recipients to different committees, subject to such
limitations as the Board deems appropriate.  Members of a committee will serve
for such term as the Board may determine, and may be removed by the Board at any
time.  The term "Committee," when used in this Plan, refers to the committee
that has been delegated authority with respect to a matter.  In determining the
composition of any committee or subcommittee, the Board or committee, as the
case may be, shall consider the desirability of compliance with the
compositional requirements of (i) Rule 16(b)-3 of the Securities and Exchange
Commission with respect to Stock Rights grantees who are subject to the trading
restrictions of Section 16(b) of the Securities and Exchange Act of 1934 (the
"1934 Act") with respect to securities of the Company and (ii) Section 162(m) of
the Code, but shall not be bound by such compliance.

          B.  COMMITTEE ACTIONS.  Any Committee has full authority to administer
              -----------------
the

1
<PAGE>

Plan within the scope of its delegated responsibilities, including authority to
interpret and construe any relevant provision of the Plan, to adopt rules and
regulations that it deems necessary, to determine which individuals are eligible
to participate and/or receive Stock Rights under the Plan, to determine the
amount and/or number of shares subject to such Stock Right, and to determine the
terms of such Stock Right made under the Plan (which terms need not be
identical). Decisions of a Committee made within the discretion delegated to it
by the Board are final and binding on all persons.

          C.  DELEGATION TO EXECUTIVE OFFICERS.  To the extent permitted by
              --------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Stock Rights and exercise such other powers under the
Plan as the Board may determine, provided that the Board shall fix the maximum
number of shares subject to Stock Rights and the maximum number of shares for
any one participant to be made by such executive officers.

     3.  ELIGIBLE EMPLOYEES AND OTHERS.  ISOs may be granted to any employee of
         -----------------------------
the Company or any Related Corporation.  Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.  Non-
Qualified Options, Awards and authorizations to make Purchases may be granted to
any employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation.  The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. The granting of any Stock Right to any individual will neither entitle
that individual to, nor disqualify him from, participation in any other grant of
Stock Rights.  Neither the Company nor any Related Corporation shall have any
liability to an individual granted an Option hereunder (an "Optionee"), or to
any other party, if an Option (or any part thereof) which is intended to be an
ISO is not an ISO.

     4.  STOCK.  The stock subject to Stock Rights will be authorized but
         -----
unissued shares of Common Stock of the Company, par value $.001 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner.  Subject to adjustment as provided in Paragraph 19 and further increase
as provided below, the aggregate number of shares which may be issued pursuant
to the Plan is equal to the number of shares of Common Stock remaining for
issuance on the Effective Date under the Company's 1998 Incentive Stock Plan
(the "Predecessor Plan"), plus an annual increase beginning August 1, 2000 of
                          ----
the lesser of (i) 3,000,000 shares; (ii) 5% of the outstanding shares on that
date; or (iii) a lesser amount determined by the Board. If any Stock Right
granted under the Plan (including outstanding Stock Rights granted under the
Predecessor Plan) expires or terminates for any reason without having been
exercised in full or ceases for any reason to be exercisable in whole or in
part, the unpurchased shares subject to such Stock Right will again be available
for grants of Stock Rights under the Plan.  No employee of the Company or any
Related Corporation may be granted in any calendar year Stock Rights with
respect to more than 500,000 shares of Common Stock, in the aggregate.   The
number of shares which may be issued hereunder shall be set forth under "Plan
History".

     5.  GRANTING OF STOCK RIGHTS.  Stock Rights may be granted under the Plan
         ------------------------
at any

2
<PAGE>

time after the Effective Date and before the tenth anniversary of the
Effective Date, except that ISOs must be granted within ten (10) years from the
date the Plan is adopted by the Board or the date the Plan is approved by the
Company's stockholders, whichever is earlier.  The date of grant of a Stock
Right under the Plan will be the date specified by the Committee at the time it
grants the Stock Right.  The Committee may, with the consent of the Optionee,
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 19, provided, however, that the Optionee's consent to such action
shall not be required if the Committee determines that the action, taking into
account any related action, will not materially and adversely affect the
Optionee.  Unless otherwise specified by the Committee in connection with a
particular grant, Options granted under the Plan are intended to qualify as
performance-based under Section 162(m) of the Code and the regulations
thereunder.

     6.  TERMS OF STOCK RIGHTS.  Stock Rights will be evidenced by instruments
         ---------------------
(which need not be identical) in such forms as the Committee may from time to
time approve. Such instruments must conform to or incorporate by reference the
terms set forth in paragraphs 7 through 20 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan.  In granting any Non-Qualified Option, the Committee may specify that such
Non-Qualified Option is subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine.

     7.  OPTION PRICE.  The exercise price per share will be fixed by the
         ------------
Committee, provided, however, that in no event will the exercise price per share
in the case of an ISO or an Option intended to qualify as performance-based
compensation under Section 162(m) of the Code be less than one hundred percent
(100%) of the fair market value per share of Common Stock on the Option grant
date.  In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock on
the date of grant.

     8.  DOLLAR LIMITATION ON ISOs. For so long as the Code provides, to the
         -------------------------
extent that the aggregate fair market value (determined as of the respective
date or dates of grant) of the shares with respect to which Options that would
otherwise be ISOs are exercisable for the first time by any individual during
any calendar year under the Plan (or any other plan of the Company or any
Related Corporation) exceeds the sum of One Hundred Thousand Dollars ($100,000)
(or a greater amount permitted under the Code), whether by reason of
acceleration or otherwise, those Options will not be treated as ISOs. In making
this determination, Options will be taken into account in the order in which
they were granted.

3
<PAGE>

     9.  DETERMINATION OF FAIR MARKET VALUE.  If, at the time an Option is
         ----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available on the date such
Option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market. However, if the Common Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be the fair value of the Common Stock as determined by the
Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.

     10.  OPTION DURATION.  Subject to earlier termination as provided in
          ---------------
paragraph 17, each Option will expire on the date specified by the Committee,
but not more than (i) ten years from the date of grant in the case of Non-
Qualified Options, (ii) ten years from the date of grant in the case of ISOs
generally, and (iii) five years from the date of grant in the case of ISOs
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraph 17,
the term of each ISO will be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to paragraph 19.

     11.  EXERCISE OF OPTION.  Subject to the provisions of paragraphs 12
          ------------------
through 18, each Option granted under the Plan will be exercisable as follows:

          A.  RIGHT TO EXERCISE.  The Option will either be fully exercisable on
              -----------------
the date of grant, subject to such restrictions or repurchase rights as defined
below in paragraph 13, or will become exercisable thereafter in such
installments as the Committee may specify.

          B.  PARTIAL EXERCISE.  Each Option or installment may be exercised at
              ----------------
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.

     12.  RESTRICTED STOCK.
          ----------------

          (A) GRANTS.  The Committee may grant Stock Rights entitling recipients
              ------
to acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Committee in
the applicable Stock Rights agreement are not satisfied prior to the end of the
applicable restriction period or periods established by the Committee for such
Stock Rights

4
<PAGE>

(each, a "Restricted Stock Award").

          (b) TERMS AND CONDITIONS.  The Committee shall determine the terms and
              --------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.  Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the recipient and, unless otherwise determined by the Committee, deposited by
the recipient, together with a stock power endorsed in blank, with the Company
(or its designee).  At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the recipient or if the recipient has died, to the
beneficiary designated, in a manner determined by the Committee, by the
recipient to receive amounts due or exercise rights of the recipient in the
event of the recipient's death (the "Designated Beneficiary").  In the absence
of an effective designation by a recipient, Designated Beneficiary shall mean
the recipient's estate.

     13.  OTHER STOCK-BASED AWARDS.  The Committee shall have the right to grant
          ------------------------
other Stock Rights based upon the Common Stock having such terms and conditions
as the Committee may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.

     14.  MEANS OF EXERCISING STOCK RIGHTS.  A Stock Right (or any part or
          --------------------------------
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such written notice shall be signed by the
holder and shall be delivered in person or by certified or registered mail,
return receipt requested, to the Chief Financial Officer of the Company, or
other authorized representative of the Related Corporation, prior to the
termination of the Stock Right as set forth in this Plan, accompanied by
full payment of the exercise price for the number of shares being purchased (a)
in United States dollars in cash or by check, (b) at the discretion of the
Committee, through delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price of the Stock
Right, (c) at the discretion of the Committee, by delivery of a promissory note,
the terms of which (including the interest rate and the terms of repayment)
shall be established by the Committee, (d) at the discretion of the Committee,
by delivery of notice in such form as the Company may designate together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) or (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question.  The holder of a Stock Right shall
not have the rights of a stockholder with respect to the shares covered by such
Stock Right until the date of issuance of a stock certificate for such shares.
Except as expressly provided in paragraph 19 with respect to changes in
capitalization and stock dividends, no adjustment will be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.

          A.  WITHHOLDING.  At the time the Stock Right is exercised, in whole
              -----------
or in part, or at any time thereafter as requested by the Company, the holder
shall make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any,

5
<PAGE>

which arise in connection with the Stock Right, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the Stock
Right, (ii) the transfer, in whole or in part, of any shares acquired on
exercise of the Stock Right, (iii) the operation of any law or regulation
providing for the imputation of interest, or (iv) the lapsing of any restriction
or making of any election with respect to any shares acquired on exercise of the
Stock Right. Except as the Committee may otherwise provide in a Stock Right
agreement, when the Common Stock is registered under the 1934 Act, a holder may
satisfy such tax obligations in whole or in part by delivery of shares of Common
Stock, including shares retained from the Stock Right creating the tax
obligations, valued at their fair market value. The Company may, to the extent
permitted by law, deduct such tax obligations from any payment of any kind
otherwise due to an individual.

          B.  CERTIFICATE REGISTRATION.  The certificate or certificates for the
              ------------------------
shares as to which the Stock Right shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.

          C.  RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.  The
              ----------------------------------------------------------
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities.  The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations.  In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act.  THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE
EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.  ACCORDINGLY, THE
OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
OPTION IS VESTED.  As a condition to the exercise of the Option, the Company may
require the Optionee 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.

          D.  FRACTIONAL SHARES.  The Company shall not be required to issue
              -----------------
fractional shares upon the exercise of the Option.

     15.  UNVESTED SHARE REPURCHASE OPTION.
          ---------------------------------

          A.   VESTED SHARES AND UNVESTED SHARES DEFINED.  The total number of
               -----------------------------------------
shares multiplied by the Vested Ratio as set forth in the Stock Right agreement
are "Vested Shares."  For purposes of this paragraph 13, the "Unvested Shares"
are the number of shares acquired upon exercise of the Stock Right in excess of
the Vested Shares.

6
<PAGE>

          B.  UNVESTED SHARE REPURCHASE OPTION.  In the event the Optionee's
              --------------------------------
employment with the Company or any Related Corporation is terminated for any
reason, with or without cause, or if the Optionee or the Optionee's legal
representative attempts to sell, exchange, transfer, pledge, or otherwise
dispose of (other than pursuant to an Ownership Change) any shares acquired upon
exercise of the Option which exceed the Optionee's Vested Shares, the Company
shall have the right to repurchase the Unvested Shares under the terms and
subject to the conditions set forth in this paragraph 13 (the "UNVESTED SHARE
REPURCHASE OPTION").

          D.  EXERCISE OF UNVESTED SHARE REPURCHASE OPTION.  The Company may
              --------------------------------------------
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (i) such termination of employment or (ii) the
Company has received notice of the attempted disposition.  If the Company fails
to give notice within such sixty (60) day period, the Unvested Share Repurchase
Option shall terminate unless the Company and the Optionee have extended the
time for the exercise of the Unvested Share Repurchase Option.  The Unvested
Share Repurchase Option must be exercised, if at all, for all of the Unvested
Shares, except as the Company and the Optionee otherwise agree.

          E.  PAYMENT FOR SHARES AND RETURN OF SHARES.  Payment by the Company
              ---------------------------------------
to the Optionee shall be made in cash within thirty (30) days after the date of
the mailing of the written notice of exercise of the Unvested Share Repurchase
Option.  For purposes of the foregoing, cancellation of any indebtedness of the
Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal-and any accrued interest
canceled.  The purchase price per share being repurchased by the Company shall
be an amount equal to the Optionee's original cost per share, as adjusted
pursuant to paragraph 19.  The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the purchase
price to the Optionee.

          F.  ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION.  The Company shall
              ----------------------------------------------
have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one (1) or more persons as
may be selected by the Company.

     16.  ESCROW.
          ------

          A.  ESTABLISHMENT OF ESCROW.  To insure shares subject to the Unvested
              -----------------------
Share Repurchase Option will be available for repurchase, the Company may
require the Optionee to deposit the certificate or certificates evidencing the
shares which the Optionee purchases upon exercise of the Option with an escrow
agent designated by the Company.  If the Company does not require such deposit
as a condition of exercise of the Option, the Company reserves the right at any
time to require the Optionee to so deposit the certificate or certificates in
escrow.  The Company shall bear the expenses of establishing and maintaining the
escrow.

          B.  DELIVERY OF SHARES TO OPTIONEE.  Upon the written request by the
              ------------------------------
Optionee to the Company, the Company will instruct the agent to deliver to the
Optionee as soon as practicable the shares no longer subject to such Unvested
Share Repurchase Option restrictions.

7
<PAGE>

          C.  NOTICES AND PAYMENTS.  In the event the shares held in escrow are
              --------------------
subject to the Company's exercise of the Unvested Share Repurchase Option, the
notices required to be given to the Optionee shall be given to the escrow agent
and any payment required to be given to the Optionee shall be given to the
escrow agent.  Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.

     17.  STOCK DIVIDENDS SUBJECT TO OPTION AGREEMENT.  If, from time to time,
          -------------------------------------------
there is any Adjustment as defined in paragraph 19 or other change in the
character or amount of any of the outstanding stock of the Related Corporation
which is subject to the provisions of this Option then in such event any and all
new substituted or additional securities to which the Optionee is entitled by
reason of the Optionee's ownership of the shares acquired upon exercise of the
Option shall be immediately subject to the Unvested Share Repurchase Option with
the same force and effect as the shares subject to the Unvested Share Repurchase
Option immediately before such event.

     18.  LEGENDS.  The Company may at any time place legends referencing the
          -------
Unvested Share Repurchase Option set forth in paragraph 13 above and any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph.  Unless otherwise specified by the Company, legends placed on
such certificates may include, but shall not be limited to, the following:

     "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED
SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."

     19.  EFFECT OF TERMINATION OF SERVICE.  The following Provisions shall
          --------------------------------
govern the exercise of any Options held by the Optionee at the time of cessation
of service, disability, death or misconduct:

          A.  CESSATION OF SERVICE.  Except to the extent otherwise specifically
              --------------------
provided in the documents evidencing the Option, any outstanding Option
exercisable for fully vested shares at the time the Optionee ceases to provide
services to the Company or a Related Corporation as an employee, a non-employee
Board member or a consultant for any reason other than disability, death or
misconduct, then the Optionee will have a period of three (3) months following
the date of such cessation of service during which to exercise each outstanding
Option held by such Optionee.

          B.  DISABILITY.  Should such service terminate by reason of
              ----------
disability, then any

8
<PAGE>

outstanding Option exercisable by the Optionee for fully vested shares at the
time the Optionee ceases to provide services to the Company may be subsequently
exercised by the Optionee during the six (6) month period following the date of
such cessation of service. However, should such disability be deemed to
constitute permanent disability, then the period during which each outstanding
option for fully vested shares held by the Optionee is to remain exercisable
will be extended by an additional six (6) months so that the exercise period
will be the twelve (12)-month period following the date of the Optionee's
cessation of service by reason of such permanent disability. The term "Permanent
                                                                       ---------
Disability," as used in this Plan, means a disability expected to result in
----------
death or that has lasted or can be expected to last for a continuous period of
twelve (12) months or more, as described in Section 22(e)(3) of the Code.

          C.  DEATH.  Any Option exercisable for fully vested shares by the
              -----
Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
Option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution during the twelve (12) month period following
the date of the Optionee's death.

          D.  MISCONDUCT.  Should the Optionee's service be terminated for
              ----------
misconduct, then all outstanding Options at the time held by the Optionee will
immediately terminate and cease to be outstanding.  The term "Misconduct," when
                                                              ----------
used in this Plan, means the commission of any act of fraud, embezzlement or
dishonesty by the Optionee, any unauthorized use or disclosure by such person of
confidential information or trade secrets of the Company (or any Related
Corporation), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Company or any Related Corporation in a
material manner.  The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Company or any Related Corporation may
consider as grounds for the dismissal or discharge of any Optionee or other
person in the service of the Company or any Related Corporation.

          E.  LEAVE OF ABSENCE.  For purposes of this paragraph 17, a bona fide
              ----------------
leave of absence (such as those attributable to illness, military obligations or
governmental service) with the written consent of the Committee, or to the
extent required by statute, will not be considered an interruption of service
under the Plan.  For the purposes of this paragraph, the leave of absence
provision described above shall not apply to a consultant or advisor of the
Company or any Related Corporation.  Additionally, with respect to Options that
are intended to qualify as ISOs, the leave of absence permitted under this
paragraph shall not exceed the period of time set forth in Treas. Reg. (S)
1.421-7(h)(2) or any successor thereto.

     20.  ASSIGNABILITY.  No Option shall be assignable or transferable by the
          -------------
Optionee except by will or by the laws of descent and distribution.  During the
lifetime of the Optionee each Option may be exercised only by the Optionee.

     21.  ADJUSTMENTS.  Upon the occurrence of any of the following events, an
          -----------
Optionee's rights with respect to Options granted hereunder will be adjusted as
hereinafter provided, unless otherwise specifically provided in the written
agreement between the Optionee and the Company relating to such Option:

9
<PAGE>

          A.  RECAPITALIZATION.  If any change is made to the Common Stock
              ----------------
issuable under the Plan by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities to issuable under the Plan, (ii) the number
and/or class of securities and, if applicable, price per share in affect under
each outstanding Stock Right under the Plan and (iii) the maximum number of
shares issuable to one individual pursuant to paragraph 4.

          B.  TRANSFER OF CONTROL AND OTHER TRANSACTIONS.  A "Transfer of
              ------------------------------------------
Control" will be deemed to have occurred in the event any of the following
occurs with respect to the Company (which for this purpose includes a successor
whose stock is issued under the Plan):

              (i) the direct or indirect sale or exchange by the stockholders in
a single transaction or a series of transactions of the Company of all or
substantially all of the stock of the Company where the stockholders of the
Company immediately before such sale or exchange do not retain, directly or
indirectly and in substantially the same proportion, beneficial interest in
voting stock of the Company or surviving entity representing at least a majority
of the voting power of all voting stock of the Company;

              (ii) a merger, consolidation, reorganization or similar
transaction in which the stockholders of the Company immediately before such
merger do not retain, directly or indirectly and in substantially the same
proportion, beneficial interest in the voting stock of the surviving entity
representing a majority of the voting power of all voting stock; or

              (iii) the sale, exchange, or transfer (including, without
limitation, pursuant to a liquidation or dissolution) of all or substantially
all of the Company's assets (other than a sale, exchange, or transfer to one (1)
or more corporations where the stockholders of the Company immediately before
such sale, exchange, or transfer retain, directly or indirectly and in
substantially the same proportion, beneficial interest in voting stock of the
corporation(s) to which the assets were transferred) representing at least a
majority of the combined voting power of all voting stock of such entity.

          In the event of any Transfer of Control, each outstanding Option,
shall automatically accelerate so that each such Option shall, immediately prior
to effective date of the Transfer of Control, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such Option and may be exercised for any or all of those shares as fully vested
shares of Common Stock, subject to the consummation of the Transfer of Control.
An Option shall not so accelerate if and to the extent:  (i) such Option is
assumed or otherwise continued in full force or effect by the successor
corporation (or parent thereof) pursuant to the terms of the Transfer of
Control, (ii) such Option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Transfer of Control on the shares of Common Stock for which the Option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting

10
<PAGE>

schedule applicable to those option shares or (iii) the acceleration of such
Option is subject to other limitations imposed by the Committee at the time of
the Option grant. All outstanding repurchase rights outstanding on Common Stock
previously issued under the Plan will also terminate automatically, and such
shares will immediately vest in full, immediately before a Transfer of Control,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Transfer of Control or (ii) such accelerated
vesting is precluded by other limitations imposed by the Committee at the time
the repurchase right is issued.

          Notwithstanding the foregoing, the number of Vested Shares shall,
immediately prior to the Transfer of Control, be increased by the number of
Shares that would have become Vested Shares on the date twelve months after the
consummation of the Transfer of Control, provided that if the Optionee has been
employed by the Company for less than twelve months immediately prior to the
Transfer of Control, the number of additional Shares that are Vested Shares
shall be increased by the number of Shares that would have become Vested Shares
on the date six months after the consummation of the Transfer of Control.

          If, following the Transfer of Control, the successor corporation (or
parent thereof) terminates the employment of the Optionee without Cause, upon
such termination all of the Shares shall become Vested Shares.  "Cause" for this
purpose shall mean the willful engaging by the Optionee in illegal conduct or
gross misconduct which is materially injurious to the successor corporation (or
parent thereof).

          C.  MODIFICATION OF ISOs.  Notwithstanding the foregoing, any
              --------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made in a manner intended to avoid any adverse tax consequences for the
holders of such ISOs.  If the Committee determines that such adjustments made
with respect to ISOs would constitute a modification, extension, or renewal (as
those terms are defined in Section 424 of the Code) of such ISOs, it may refrain
from making such adjustments.

          D.  ACCELERATION OF VESTING.  The Committee shall have the right to
              -----------------------
accelerate the Vested Ratio as defined in the Stock Rights Agreement of any
installment of any Stock Right; provided that the Committee shall not, without
the consent of an Optionee, accelerate the permitted exercise date of any
installment of any Option granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to this paragraph 19) if such
acceleration would adversely affect the Optionee's rights thereunder.

          E.  DISSOLUTION OR LIQUIDATION.  In the event of the proposed
              --------------------------
dissolution or liquidation of the Company, the Board shall upon written notice
to the Optionee, provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date.  The Board may specify the effect of a liquidation
or dissolution on any Awards or Purchases granted under the Plan at the time of
the grant of such Award or Purchase.

11
<PAGE>

          F.  ISSUANCES OF SECURITIES.  Except as expressly provided herein, no
              -----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options.  No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.

          G.  ADJUSTMENTS.  Upon the happening of any of the events described in
              -----------
subparagraphs A or B above, the class and aggregate number of shares set forth
in paragraph 4 hereof that are subject to Stock Rights which previously have
been or subsequently may be granted under the Plan (including outstanding
Options incorporated into this Plan from the Predecessor Plan) will also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 19 and, subject to paragraph 2, its determination
shall be conclusive.

     If any person owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee.

     22.  TERM AND AMENDMENT OF PLAN.  The Plan will expire on the tenth
          --------------------------
anniversary of the Effective Date (except as to Options outstanding on that
date).  Subject to the provisions of paragraph 5 above, Stock Rights other than
Options intended to qualify as performance-based compensation under Section
162(m) of the Code may be granted under the Plan before the date of stockholder
approval of the Plan.  The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects.  However, no such
amendment or modification may adversely affect the rights and obligations with
respect to Stock Rights at the time outstanding under the Plan unless the
grantee consents to such amendment or modification.  In addition, certain
amendments may, as determined by the Board in its sole discretion, require
stockholder approval pursuant to applicable laws or regulations.

          Stock Rights other than Options intended to qualify as performance-
based compensation under Section 162(m) of the Code may be granted under the
Plan in excess of the number of shares then available for issuance under the
Plan, provided that any excess shares actually issued shall be held in escrow
until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan.  If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised Options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Company shall promptly refund to the
holders of any such Stock Rights the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.

12
<PAGE>

     23.  APPLICATION OF FUNDS.  The proceeds received by the Company from the
          --------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.

     24.  GOVERNMENTAL REGULATION.  The Company's obligation to sell and deliver
          -----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.

     25.  NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.  Each employee who
          ----------------------------------------------
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO.  A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO.  If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.

     26.  GOVERNING LAW.  The validity and construction of the Plan and the
          -------------
instruments evidencing Stock Rights shall be governed by the laws of the State
of Delaware, or the laws of any other jurisdiction in which the Company or its
successors in interest may be organized.

     27.  NO EMPLOYMENT/SERVICE RIGHTS.  Nothing in the Plan confers upon the
          ----------------------------
grantee of a Stock Right any right to continue in service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company or any Related Corporation or of the grantee, which rights are
hereby expressly reserved by each, to terminate such person's service at any
time for any reason, with or without cause.

13