<PAGE>
 
                                                                    EXHIBIT 10.3

                        COVAD COMMUNICATIONS GROUP, INC.


                                1997 STOCK PLAN
                           (AMENDED AUGUST 26, 1998)


    1.   Purposes of the Plan.  The purposes of this Stock Plan are to attract
         --------------------                                                 
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant.  Stock
Purchase Rights may also be granted under the Plan.

    2.   Definitions.  As used herein, the following definitions shall apply:
         -----------                                                         

         (a)  "Administrator" means the Board or any of its Committees as shall
               -------------  
be administering the Plan in accordance with Section 4 hereof.

         (b)  "Applicable Laws" means the requirements relating to the
               ---------------                                        
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.

         (c)  "Board" means the Board of Directors of the Company.
               -----                                              

         (d)  "Code" means the Internal Revenue Code of 1986, as amended.
               ----                                                      

         (e)  "Committee"  means a committee of Directors appointed by the Board
               ---------                                                        
in accordance with Section 4 hereof.

         (f)  "Common Stock" means the Common Stock of the Company.
               ------------                                        

         (g)  "Company" means Covad Communications Group, Inc., a Delaware
               -------                                                    
corporation.

         (h)  "Consultant" means any person who is engaged by the Company or
               ----------
any Parent or Subsidiary to render consulting or advisory services to such
entity.

         (i)  "Director" means a member of the Board of Directors of the
               --------                                                 
Company.

         (j)  "Disability" means total and permanent disability as defined in
               ----------                                                    
Section 22(e)(3) of the Code.
<PAGE>
 
         (k)  "Employee" means any person, including Officers and Directors,
               --------                                                     
employed by the Company or any Parent or Subsidiary of the Company.  A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.  If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

         (l)  "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------                                               
amended.

         (m)  "Fair Market Value" means, as of any date, the value of Common
               -----------------                                            
Stock determined as follows:

              (i)    If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

              (ii)   If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

              (iii)  In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.

         (n)  "Incentive Stock Option" means an Option intended to qualify as an
               ----------------------                                           
incentive stock option within the meaning of Section 422 of the Code.

         (o)  "Nonstatutory Stock Option" means an Option not intended to
               -------------------------
qualify as an Incentive Stock Option.

         (p)  "Officer" means a person who is an officer of the Company within
               -------                                                        
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

         (q)  "Option" means a stock option granted pursuant to the Plan.
               ------                                                    
<PAGE>
 
         (r)  "Option Agreement" means a written or electronic agreement between
               ----------------                                                 
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant.  The Option Agreement is subject to the terms and conditions of
the Plan.

         (s)  "Option Exchange Program" means a program whereby outstanding
               -----------------------                                     
Options are exchanged for Options with a lower exercise price.

         (t)  "Optioned Stock" means the Common Stock subject to an Option or a
               --------------                                                  
Stock Purchase Right.

         (u)  "Optionee" means the holder of an outstanding Option or Stock
               --------                                                    
Purchase Right granted under the Plan.

         (v)  "Parent" means a "parent corporation," whether now or hereafter
               ------                                                        
existing, as defined in Section 424(e) of the Code.

         (w)  "Plan" means this 1997 Stock Plan.
               ----                             

         (x)  "Restricted Stock" means shares of Common Stock acquired pursuant
               ----------------                                                
to a grant of a Stock Purchase Right under Section 11 below.

         (y)  "Section 16(b)" means Section 16(b) of the Securities Exchange Act
               -------------                                                    
of 1934, as amended.

         (z)  "Service Provider"  means an Employee, Director or Consultant.
               ----------------                                             

         (aa) "Share" means a share of the Common Stock, as adjusted in
               -----                                                   
accordance with Section 12 below.

         (bb) "Stock Purchase Right" means a right to purchase Common Stock
               --------------------                                        
pursuant to Section 11 below.

         (cc) "Subsidiary" means a "subsidiary corporation," whether now or
               ----------                                                  
hereafter existing, as defined in Section 424(f) of the Code.

    3.   Stock Subject to the Plan.  Subject to the provisions of Section 12 of
         -------------------------                                             
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 13,970,250 post-split Shares.  The Shares may be
authorized but unissued, or reacquired Common Stock.

         If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale
<PAGE>
 
under the Plan (unless the Plan has terminated).  However, Shares that have
actually been issued under the Plan, upon exercise of either an Option or Stock
Purchase Right, shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if Shares of Restricted
Stock are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.

    4.   Administration of the Plan.
         -------------------------- 

         (a)  Administrator.  The Plan shall be administered by the Board or a
              -------------                                                   
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.

         (b)  Powers of the Administrator. Subject to the provisions of the Plan
              ---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:

              (i)    to determine the Fair Market Value;

              (ii)   to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;

              (iii)  to determine the number of Shares to be covered by each
such award granted hereunder;

              (iv)   to approve forms of agreement for use under the Plan;

              (v)    to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

              (vi)   to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;

              (vii)  to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;

              (viii) to initiate an Option Exchange Program;
<PAGE>
 
              (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

              (x)    to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by Optionees to
have Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and

              (xi)   to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

         (c)  Effect of Administrator's Decision.  All decisions, determinations
              ----------------------------------                                
and interpretations of the Administrator shall be final and binding on all
Optionees.

    5.   Eligibility.
         ----------- 

         (a)  Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

         (b)  Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option.  However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options.  For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted.  The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

         (c)  Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.

    6.   Term of Plan.  The Plan shall become effective upon its adoption by the
         ------------                                                           
Board.  It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.

    7.   Term of Option.  The term of each Option shall be stated in the Option
         --------------                                                        
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof.  In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is 
<PAGE>
 
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.

    8.   Option Exercise Price and Consideration.
         --------------------------------------- 

         (a)  The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

              (i)    In the case of an Incentive Stock Option

                     (A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.

                     (B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

              (ii)   In the case of a Nonstatutory Stock Option

                     (A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.

                     (B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.

              (iii)  Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.

         (b)  The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
<PAGE>
 
    9.   Exercise of Option.
         ------------------ 

         (a)  Procedure for Exercise; Rights as a Stockholder. Any Option
              -----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.

              An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.  Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option.  The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised.  No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

              Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

         (b)  Termination of Relationship as a Service Provider.  If an Optionee
              -------------------------------------------------                 
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement).  In the absence of a specified time in
the Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination.  If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan.  If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

         (c)  Disability of Optionee.  If an Optionee ceases to be a Service
              ----------------------                                        
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement).  In the absence of a specified
time in the Option Agreement,
<PAGE>
 
the Option shall remain exercisable for twelve (12) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

         (d)  Death of Optionee.  If an Optionee dies while a Service Provider,
              -----------------                                                
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance.  In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination.  If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan.  If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

         (e)  Buyout Provisions.  The Administrator may at any time offer to buy
              -----------------                                                 
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

    10.  Non-Transferability of Options and Stock Purchase Rights.  The Options
         --------------------------------------------------------              
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

    11.  Stock Purchase Rights.
         --------------------- 

         (a)  Rights to Purchase.  Stock Purchase Rights may be issued either
              ------------------                                             
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan.  After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer.  The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations.  The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.

         (b)  Repurchase Option.  Unless the Administrator determines otherwise,
              -----------------                                                 
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability).  The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company.  The repurchase option shall lapse
<PAGE>
 
at such rate as the Administrator may determine. Except with respect to Shares
purchased by Officers, Directors and Consultants, the repurchase option shall in
no case lapse at a rate of less than 20% per year over five (5) years from the
date of purchase.

         (c)  Other Provisions.  The Restricted Stock purchase agreement shall
              ----------------                                                
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

         (d)  Rights as a Stockholder.  Once the Stock Purchase Right is
              -----------------------                                   
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

    12.  Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
         ---------------------------------------------------------------- 

         (a)  Changes in Capitalization.  Subject to any required action by the
              -------------------------                                        
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company.  The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration."  Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. 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 of Common Stock subject to an Option or Stock Purchase Right.

         (b)  Dissolution or Liquidation.  In the event of the proposed
              --------------------------                               
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction.  The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable.  In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated.  To the 
<PAGE>
 
extent it has not been previously exercised, an Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action.

         (c)  Merger or Asset Sale. In the event of a merger of the Company with
              --------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

    13.  Time of Granting Options and Stock Purchase Rights.  The date of grant
         --------------------------------------------------                    
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

    14.  Amendment and Termination of the Plan.
         ------------------------------------- 

         (a)  Amendment and Termination. The Board may at any time amend, alter,
              -------------------------
suspend or terminate the Plan.

         (b)  Stockholder Approval.  The Board shall obtain stockholder approval
              --------------------                                              
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
<PAGE>
 
         (c)  Effect of Amendment or Termination.  No amendment, alteration,
              ----------------------------------                            
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

    15.  Conditions Upon Issuance of Shares.
         ---------------------------------- 

         (a)  Legal Compliance.  Shares shall not be issued pursuant to the
              ----------------                                             
exercise of an Option  unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

         (b)  Investment Representations.  As a condition to the exercise of an
              --------------------------                                       
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

    16.  Inability to Obtain Authority.  The inability of the Company to obtain
         -----------------------------                                         
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

    17.  Reservation of Shares.  The Company, during the term of this Plan,
         ---------------------                                             
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

    18.  Stockholder Approval.  The Plan shall be subject to approval by the
         --------------------                                               
stockholders of the Company within twelve (12) months after the date the Plan is
adopted.  Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.

    19.  Information to Optionees and Purchasers.  The Company shall provide to
         ---------------------------------------                               
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements.  The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.