<PAGE>

                                                                    EXHIBIT 10.7

                          SUNRISE TELECOM INCORPORATED

                                2000 STOCK PLAN


                        EFFECTIVE AS OF [EFFECTIVE DATE]
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                               TABLE OF CONTENTS
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SECTION 1.        INTRODUCTION........................................   1

SECTION 2.        DEFINITIONS.........................................   1

         (a)      "Affiliate".........................................   1

         (b)      "Award".............................................   1

         (c)      "Board".............................................   1

         (d)      "Change In Control".................................   1

         (e)      "Code"..............................................   2

         (f)      "Committee".........................................   2

         (g)      "Common Stock"......................................   2

         (h)      "Company"...........................................   2

         (i)      "Consultant"........................................   3

         (j)      "Director"..........................................   3

         (k)      "Disability"........................................   3

         (l)      "Employee"..........................................   3

         (m)      "Exchange Act"......................................   3

         (n)      "Exercise Price"....................................   3

         (o)      "Fair Market Value".................................   3

         (p)      "Grant".............................................   3

         (q)      "Incentive Stock Option" or "ISO"...................   3

         (r)      "Key Employee"......................................   4

         (s)      "Non-Employee Director".............................   4

         (t)      "Nonstatutory Stock Option" or "NSO"................   4

         (u)      "Option"............................................   4

         (v)      "Optionee"..........................................   4

         (w)      "Parent"............................................   4

         (x)      "Participant".......................................   4

         (y)      "Plan"..............................................   4

         (z)      "Restricted Stock"..................................   4

         (aa)     "Restricted Stock Agreement"........................   4

         (bb)     "Securities Act"....................................   4

         (cc)     "Service"...........................................   4

         (dd)     "Share".............................................   4

                                      -i-
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                                                                        Page
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         (ee)     "Stock Option Agreement"............................   4

         (ff)     "Subsidiary"........................................   4

         (gg)     "10-Percent Shareholder"............................   5

SECTION 3.        ADMINISTRATION......................................   5

         (a)      Committee Composition...............................   5

         (b)      Authority of the Committee..........................   5

         (c)      Indemnification.....................................   6

         (d)      Financial Reports...................................   6

SECTION 4.        ELIGIBILITY.........................................   6

         (a)      General Rules.......................................   6

         (b)      Incentive Stock Options.............................   6

         (c)      Non-Employee Directors..............................   6

SECTION 5.        SHARES SUBJECT TO PLAN..............................   7

         (a)      Basic Limitation....................................   7

         (b)      Annual Addition.....................................   7

         (c)      Additional Shares...................................   7

         (d)      Dividend Equivalents................................   7

         (e)      Limits on Options...................................   8

         (f)      Limits on Restricted Stock..........................   8

SECTION 6.        TERMS AND CONDITIONS OF OPTIONS.....................   8

         (a)      Stock Option Agreement..............................   8

         (b)      Number of Shares....................................   8

         (c)      Exercise Price......................................   8

         (d)      Exercisability and Term.............................   8

         (e)      Modifications or Assumption of Options..............   9

         (f)      Transferability of Options..........................   9

         (g)      No Rights as Stockholder............................   9

         (h)      Restrictions on Transfer............................   9

SECTION 7.        PAYMENT FOR OPTION SHARES...........................   9

         (a)      General Rule........................................   9

         (b)      Surrender of Stock..................................   9

         (c)      Promissory Note.....................................  10

                                      -ii-
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                                                                        Page
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         (d)      Other Forms of Payment..............................  10

SECTION 8.        TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK.  10

         (a)      Time, Amount and Form of Awards.....................  10

         (b)      Restricted Stock Agreement..........................  10

         (c)      Payment for Restricted Stock........................  10

         (d)      Vesting Conditions..................................  10

         (e)      Assignment or Transfer of Restricted Stock..........  10

         (f)      Trusts..............................................  10

         (g)      Voting and Dividend Rights..........................  11

SECTION 9.        PROTECTION AGAINST DILUTION.........................  11

         (a)      Adjustments.........................................  11

         (b)      Participant Rights..................................  11

SECTION 10.       EFFECT OF A CHANGE IN CONTROL.......................  11

         (a)      Merger or Reorganization............................  11

         (b)      Acceleration........................................  12

SECTION 11.       LIMITATIONS ON RIGHTS...............................  12

         (a)      Retention Rights....................................  12

         (b)      Stockholders' Rights................................  12

         (c)      Regulatory Requirements.............................  12

SECTION 12.       WITHHOLDING TAXES...................................  12

         (a)      General.............................................  12

         (b)      Share Withholding...................................  12

SECTION 13.       DURATION AND AMENDMENTS.............................  13

         (a)      Term of the Plan....................................  13

         (b)      Right to Amend or Terminate the Plan................  13

SECTION 14.       EXECUTION...........................................  13

                                     -iii-
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                          SUNRISE TELECOM INCORPORATED


                                2000 STOCK PLAN


                        EFFECTIVE AS OF [EFFECTIVE DATE]

SECTION 1.  INTRODUCTION.

     The Company's Board of Directors adopted the Sunrise Telecom Incorporated
     2000 Stock Plan on April 5, 2000 and the Company's stockholders approved
     the Plan on April 5, 2000.  The Plan is effective on [EFFECTIVE DATE], the
     date of the Company's initial public offering.

     The purpose of the Plan is to promote the long-term success of the Company
     and the creation of shareholder value by offering Key Employees an
     opportunity to acquire a proprietary interest in the success of the
     Company, or to increase such interest, and to encourage such selected
     persons to continue to provide services to the Company and to attract new
     individuals with outstanding qualifications.

     The Plan seeks to achieve this purpose by providing for Options (which may
     constitute Incentive Stock Options or Nonstatutory Stock Options) and
     Awards of Restricted Stock.

     The Plan shall be governed by, and construed in accordance with, the laws
     of the State of Delaware (except its choice-of-law provisions).
     Capitalized terms shall have the meaning provided in Section 2 unless
     otherwise provided in this Plan or Stock Option Agreement or Restricted
     Stock Agreement.

SECTION 2.  DEFINITIONS.

(a)  "Affiliate" means any entity other than a Subsidiary, if the Company and/or
     one or more Subsidiaries own not less than 50% of such entity.  For
     purposes of determining an individual's "Service," this definition shall
     include any entity other than a Subsidiary, if the Company, a Parent and/or
     one or more Subsidiaries own not less than 50% of such entity.

(b)  "Award" means any award of an Option or Restricted Stock under the Plan.

(c)  "Board" means the Board of Directors of the Company, as constituted from
     time to time.

(d)  "Change In Control" except as may otherwise be provided in the Stock Option
     Agreement or Restricted Stock Agreement, means the occurrence of any of the
     following:

        (i)  The consummation of a merger or consolidation of the Company with
     or into another entity or any other corporate reorganization, if more than
<PAGE>

      [50%] of the combined voting power of the continuing or surviving entity's
      securities outstanding immediately after such merger, consolidation or
      other reorganization is owned by persons who were not stockholders of the
      Company immediately prior to such merger, consolidation or other
      reorganization;

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

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

        (iv)  Any transaction as a result of which any person is the "beneficial
      owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
      indirectly, of securities of the Company representing at least 20% of the
      total voting power represented by the Company's then outstanding voting
      securities. For purposes of this Paragraph (iv), the term "person" shall
      have the same meaning as when used in sections 13(d) and 14(d) of the
      Exchange Act but shall exclude:

                    (A) A trustee or other fiduciary holding securities under an
               employee benefit plan of the Company or a subsidiary of the
               Company; and

                    (B) A corporation owned directly or indirectly by the
               stockholders of the Company in substantially the same proportions
               as their ownership of the common stock of the Company.

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

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

(f)  "Committee" means a committee consisting of one or more members of the
     Board that is appointed by the Board (as described in Section 3) to
     administer the Plan.

(g)  "Common Stock" means the Company's common stock.

(h)  "Company" means Sunrise Telecom Incorporated, a Delaware corporation.

                                       2
<PAGE>

(i)  "Consultant" means an individual who performs bona fide services to the
     Company, a Parent, a Subsidiary or an Affiliate other than as an Employee
     or Director or Non-Employee Director.

(j)  "Director" means a member of the Board who is also an Employee.

(k)  "Disability" means that the Key Employee is unable to engage in any
     substantial gainful activity by reason of any medically determinable
     physical or mental impairment which can be expected to result in death or
     which has lasted or can be expected to last for a continuous period of not
     less than 12 months.

(l)  "Employee" means any individual who is a common-law employee of the
     Company, a Parent, a Subsidiary or an Affiliate.

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

(n)  "Exercise Price" means the amount for which a Share may be purchased upon
     exercise of such Option, as specified in the applicable Stock Option
     Agreement.

(o)  "Fair Market Value" means the market price of Shares, determined by the
     Committee as follows:

     (i)   If the Shares were traded over-the-counter on the date in question
but were not classified as a national market issue, then the Fair Market Value
shall be equal to the mean between the last reported representative bid and
asked prices quoted by the NASDAQ system for such date;

     (ii)  If the Shares were traded over-the-counter on the date in question
and were classified as a national market issue, then the Fair Market Value shall
be equal to the last-transaction price quoted by the NASDAQ system for such
date;

     (iii) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and

     (iv)  If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such basis as
it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Wall Street Journal. Such determination
                                       -------------------
shall be conclusive and binding on all persons.

(p)  "Grant" means any grant of an Option under the Plan.

(q)  "Incentive Stock Option" or "ISO" means an incentive stock option described
     in Code section 422(b).

                                       3
<PAGE>

(r)  "Key Employee" means an Employee, Director, Non-Employee Director or
     Consultant who has been selected by the Committee to receive an Award under
     the Plan.

(s)  "Non-Employee Director" means a member of the Board who is not an Employee.

(t)  "Nonstatutory Stock Option" or "NSO" means a stock option that is not an
     ISO.

(u)  "Option" means an ISO or NSO granted under the Plan entitling the Optionee
     to purchase Shares.

(v)  "Optionee" means an individual, estate or other entity that holds an
     Option.

(w)  "Parent" means any corporation (other than the Company) in an unbroken
     chain of corporations ending with the Company, if each of the corporations
     other than the Company owns stock possessing 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.  A corporation that attains the status of a
     Parent on a date after the adoption of the Plan shall be considered a
     Parent commencing as of such date.

(x)  "Participant" means an individual or estate or other entity that holds an
     Award.

(y)  "Plan" means this Sunrise Telecom Incorporated 2000 Stock Plan as it may be
     amended from time to time.

(z)  "Restricted Stock" means a Share awarded under the Plan.

(aa) "Restricted Stock Agreement" means the agreement described in Section 8
     evidencing each Award of Restricted Stock.

(bb) "Securities Act" means the Securities Act of 1933, as amended.

(cc) "Service" means service as an Employee, Director, Non-Employee Director or
     Consultant.

(dd) "Share" means one share of Common Stock.

(ee) "Stock Option Agreement" means the agreement described in Section 6
     evidencing each Grant of an Option.

(ff) "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.  A corporation that attains the status of a Subsidiary on a date
     after the adoption of the Plan shall be considered a Subsidiary commencing
     as of such date.

                                       4
<PAGE>

(gg) "10-Percent Shareholder" means an individual who owns more than ten percent
     (10%) of the total combined voting power of all classes of outstanding
     stock of the Company, its Parent or any of its subsidiaries.  In
     determining stock ownership, the attribution rules of section 424(d) of the
     Code shall be applied.

SECTION 3.  ADMINISTRATION.

(a)  Committee Composition.  A Committee appointed by the Board shall administer
     the Plan.  The Board shall designate one of the members of the Committee as
     chairperson.  If no Committee has been approved, the entire Board shall
     constitute the Committee.  Members of the Committee shall serve for such
     period of time as the Board may determine and shall be subject to removal
     by the Board at any time.  The Board may also at any time terminate the
     functions of the Committee and reassume all powers and authority previously
     delegated to the Committee.

     With respect to officers or directors subject to Section 16 of the Exchange
     Act, the Committee shall consist of those individuals who shall satisfy the
     requirements of Rule 16b-3 (or its successor) under the Exchange Act with
     respect to Awards granted to persons who are officers or directors of the
     Company under Section 16 of the Exchange Act.

     The Board may also appoint one or more separate committees of the Board,
     each composed of one or more directors of the Company who need not qualify
     under Rule 16b-3, who may administer the Plan with respect to Key Employees
     who are not considered officers or directors of the Company under Section
     16 of the Exchange Act, may grant Awards under the Plan to such Key
     Employees and may determine all terms of such Awards.

     Notwithstanding the foregoing, the Board shall constitute the Committee and
     shall administer the Plan with respect to Options granted to Non-Employee
     Directors under Section 4(c).

(b)  Authority of the Committee.  Subject to the provisions of the Plan, the
     Committee shall have full authority and discretion to take any actions it
     deems necessary or advisable for the administration of the Plan.  Such
     actions shall include:

        (i)   selecting Key Employees who are to receive Awards under the Plan;
        (ii)  determining the type, number, vesting requirements and other
              features and conditions of such Awards;
        (iii) interpreting the Plan; and
        (iv)  making all other decisions relating to the operation of the Plan.

     The Committee may adopt such rules or guidelines, as it deems appropriate
     to implement the Plan.  The Committee's determinations under the Plan shall
     be final and binding on all persons.

                                       5
<PAGE>

(c)  Indemnification.  Each member of the Committee, or of the Board, shall be
     indemnified and held harmless by the Company against and from (i) any loss,
     cost, liability, or expense that may be imposed upon or reasonably incurred
     by him or her in connection with or resulting from any claim, action, suit,
     or proceeding to which he or she may be a party or in which he or she may
     be involved by reason of any action taken or failure to act under the Plan
     or any Stock Option Agreement or any Restricted Stock Agreement, and (ii)
     from any and all amounts paid by him or her in settlement thereof, with the
     Company's approval, or paid by him or her in satisfaction of any judgment
     in any such claim, action, suit, or proceeding against him or her, provided
     he or she shall give the Company an opportunity, at its own expense, to
     handle and defend the same before he or she undertakes to handle and defend
     it on his or her own behalf.  The foregoing right of indemnification shall
     not be exclusive of any other rights of indemnification to which such
     persons may be entitled under the Company's Certificate of Incorporation or
     Bylaws, by contract, as a matter of law, or otherwise, or under any power
     that the Company may have to indemnify them or hold them harmless.

(d)  Financial Reports.  To the extent required by applicable law, the Company
     shall furnish to Participants the Company's summary financial information
     including a balance sheet regarding the Company's financial condition and
     results of operations, unless such Participants have duties with the
     Company that assure them access to equivalent information.  Such financial
     statements need not be audited.

SECTION 4.  ELIGIBILITY.

(a)  General Rules.  Only Employees, Directors, Non-Employee Directors and
     Consultants shall be eligible for designation as Key Employees by the
     Committee.

(b)  Incentive Stock Options.  Only Key Employees who are common-law employees
     of the Company, a Parent or a Subsidiary shall be eligible for the grant of
     ISOs.  In addition, a Key Employee who is a 10-Percent Shareholder shall
     not be eligible for the grant of an ISO unless the requirements set forth
     in section 422(c)(5) of the Code are satisfied.

(c)  Non-Employee Directors.  Non-Employee Directors shall also be eligible to
     receive Options as described in this Section 4(c) from and after the date
     the Board has determined to implement this provision.

        (i)  Each eligible Non-Employee Director shall automatically be granted
     an NSO to purchase Shares with a Fair Market Value of $25,000 as of the
     date of grant of such NSO as of the later of (i) the effective date of this
     Plan, or (ii) his or her initial appointment as a Non-Employee Director. In
     addition, upon the conclusion of each regular annual meeting of the
     Company's stockholders following the effective date of this Plan, each
     eligible Non-Employee Director who will continue serving as a member of the
     Board thereafter shall automatically receive an NSO to purchase Shares with
     a Fair Market Value of $25,000 as of the date of grant of such NSO.

                                       6
<PAGE>

        (ii)  All NSOs granted to a Non-Employee Director under this Section
      4(c) shall vest and become 100% exercisable upon the one (1) year
      anniversary of the date the Option is granted to the Non-Employee
      Director, provided the Non-Employee Director is a member of the Board on
      such date. Notwithstanding the foregoing, all NSOs granted to a Non-
      Employee Director under this Section 4(c) shall become fully vested and
      exercisable upon the Non-Employee Director's death or Disability while the
      Non-Employee Director is a member of the Board.

        (iii) The Exercise Price under all NSOs granted to a Non-Employee
      Director under this Section 4(c) shall be equal to one hundred percent
      (100%) of the Fair Market Value of a Common Share on the date of grant,
      payable in one of the forms described in Section 7.

        (iv)  All NSOs granted to a Non-Employee Director under this Section
      4(c) shall terminate on the earlier of:

              (1)  The 10th anniversary of the date of grant;

              (2)  The date ninety (90) days after the termination of such Non-
     Employee Director's service for any reason, other than the Non-Employee
     Director's death or Disability while a member of the Board; or

              (3)  The date one (1) year after the Non-Employee Director's death
     or Disability while a member of the Board.

SECTION 5.  SHARES SUBJECT TO PLAN.

(a)  Basic Limitation.  The stock issuable under the Plan shall be authorized
     but unissued Shares or treasury Shares.  The aggregate number of Shares
     reserved for Awards under the Plan shall be 3,750,000, plus such number of
     Shares as were available for issuance under the Company's 1993 Stock Plan
     as of the effective date of this Plan.  The foregoing limit is subject to
     adjustment pursuant to Section 9.

(b)  Annual Addition.  Beginning with the first fiscal year of the Company
     beginning after the effective date of this Plan, on the first day of each
     fiscal year, Shares shall be added to the Plan equal to the least of (i)
     2.5% (two and one-half percent) of the outstanding Shares as of the last
     day of the prior fiscal year, (ii) 1,300,000 Shares, subject to the
     adjustment pursuant to Section 9, or (iii) such lesser amount as the Board
     may determine.

(c)  Additional Shares.  If Awards are forfeited or terminate for any other
     reason before being exercised, then the Shares underlying such Awards shall
     again become available for Awards under the Plan.

(d)  Dividend Equivalents.  Any dividend equivalents distributed under the Plan
     shall not be applied against the number of Shares available for Awards.

                                       7
<PAGE>

(e)  Limits on Options.  No Key Employee shall receive Options to purchase
     Shares during any fiscal year covering in excess of 600,000 Shares;
     provided, however, a newly hired Key Employee may receive Options to
     purchase up to 900,000 Shares during the fiscal year of his or her date of
     hire.

(f)  Limits on Restricted Stock.  No Key Employee shall receive Award(s) of
     Restricted Stock during any fiscal year covering in excess of 75,000
     Shares.

SECTION 6.  TERMS AND CONDITIONS OF OPTIONS.

(a)  Stock Option Agreement.  Each Grant under the Plan shall be evidenced by a
     Stock Option Agreement between the Optionee and the Company.  Such Option
     shall be subject to all applicable terms and conditions of the Plan and may
     be subject to any other terms and conditions that are not inconsistent with
     the Plan and that the Committee deems appropriate for inclusion in a Stock
     Option Agreement.  The provisions of the various Stock Option Agreements
     entered into under the Plan need not be identical.  A Stock Option
     Agreement may provide that new Options will be granted automatically to the
     Optionee when he or she exercises the prior Options.  The Stock Option
     Agreement shall also specify whether the Option is an ISO or an NSO.

(b)  Number of Shares.  Each Stock Option Agreement shall specify the number of
     Shares that are subject to the Option and shall provide for the adjustment
     of such number in accordance with Section 9.

(c)  Exercise Price.  An Option's Exercise Price shall be established by the
     Committee and set forth in a Stock Option Agreement.  To the extent
     required by applicable law the Exercise Price of an ISO shall not be less
     than 100% of the Fair Market Value (110% for 10-Percent Shareholders) of a
     Share on the date of Grant.  In the case of an NSO, a Stock Option
     Agreement may specify an Exercise Price that varies in accordance with a
     predetermined formula while the NSO is outstanding.

(d)  Exercisability and Term.  Each Stock Option Agreement shall specify the
     date when all or any installment of the Option is to become exercisable.
     The Stock Option Agreement shall also specify the term of the Option;
     provided that the term of an ISO shall in no event exceed ten (10) years
     from the date of Grant.  An ISO that is granted to a 10-Percent Shareholder
     shall have a maximum term of five (5) years.  No Option can be exercised
     after the expiration date provided in the applicable Stock Option
     Agreement.  A Stock Option Agreement may provide for accelerated
     exercisability in the event of the Optionee's death, disability or
     retirement or other events and may provide for expiration prior to the end
     of its term in the event of the termination of the Optionee's service.  A
     Stock Option Agreement may permit an Optionee to exercise an Option before
     it is vested, subject to the Company's right of repurchase over any Shares
     acquired under the unvested portion of the Option (an "early exercise"),
     which right of repurchase shall lapse at the same rate the Option would
     have vested had there been no early exercise.  In no event shall the
     Company be required to issue fractional Shares upon the exercise of an
     Option.

                                       8
<PAGE>

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

(f)  Transferability of Options.  Except as otherwise provided in the applicable
     Stock Option Agreement and then only to the extent permitted by applicable
     law, no Option shall be transferable by the Optionee other than by will or
     by the laws of descent and distribution.  Except as otherwise provided in
     the applicable Stock Option Agreement, an Option may be exercised during
     the lifetime of the Optionee only or by the guardian or legal
     representative of the Optionee.  No Option or interest therein may be
     assigned, pledged or hypothecated by the Optionee during his lifetime,
     whether by operation of law or otherwise, or be made subject to execution,
     attachment or similar process.

(g)  No Rights as Stockholder.  An Optionee, or a transferee of an Optionee,
     shall have no rights as a stockholder with respect to any Common Stock
     covered by an Option until such person becomes entitled to receive such
     Common Stock by filing a notice of exercise and paying the Exercise Price
     pursuant to the terms of such Option.

(h)  Restrictions on Transfer.  Any Shares issued upon exercise of an Option
     shall be subject to such rights of repurchase, rights of first refusal and
     other transfer restrictions as the Committee may determine.  Such
     restrictions shall apply in addition to any restrictions that may apply to
     holders of Shares generally and shall also comply to the extent necessary
     with applicable law.

SECTION 7.  PAYMENT FOR OPTION SHARES.

(a)  General Rule.  The entire Exercise Price of Shares issued upon exercise of
     Options shall be payable in cash at the time when such Shares are
     purchased, except as follows:

        (i)  In the case of an ISO granted under the Plan, payment shall be made
     only pursuant to the express provisions of the applicable Stock Option
     Agreement. The Stock Option Agreement may specify that payment may be made
     in any form(s) described in this Section 7.

        (ii) In the case of an NSO granted under the Plan, the Committee may in
     its discretion, at any time accept payment in any form(s) described in this
     Section 7.

(b)  Surrender of Stock.  To the extent that this Section 7(b) is applicable,
     payment for all or any part of the Exercise Price may be made with Shares
     which have already been owned by the Optionee for such duration as shall be
     specified by the Committee.  Such Shares shall be valued at their Fair
     Market Value on the date when the new Shares are purchased under the Plan.

                                       9
<PAGE>

(c)  Promissory Note.  To the extent that this Section 7(c) is applicable,
     payment for all or any part of the Exercise Price may be made with a full-
     recourse promissory note.

(d)  Other Forms of Payment.  To the extent that this Section 7(d) is
     applicable, payment may be made in any other form that is consistent with
     applicable laws, regulations and rules.

SECTION 8.  TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK.

(a)  Time, Amount and Form of Awards.  Awards under the Plan may be granted in
     the form of Restricted Stock.

(b)  Restricted Stock Agreement.  Each Award of Restricted Stock under the Plan
     shall be evidenced by a Restricted Stock Agreement between the Participant
     and the Company.  Such Award shall be subject to all applicable terms and
     conditions of the Plan and may be subject to any other terms and conditions
     that are not inconsistent with the Plan and that the Committee deems
     appropriate for inclusion in a Restricted Stock Agreement.  The provisions
     of the various Restricted Stock Agreements entered into under the Plan need
     not be identical.

(c)  Payment for Restricted Stock.  Restricted Stock may be issued with or
     without cash consideration under the Plan.

(d)  Vesting Conditions.  Each Award of Restricted Stock shall become vested, in
     full or in installments, upon satisfaction of the conditions specified in
     the Restricted Stock Agreement.  A Restricted Stock Agreement may provide
     for accelerated vesting in the event of the Participant's death, Disability
     or retirement or other events.

(e)  Assignment or Transfer of Restricted Stock.  Except as provided in Section
     12, or in a Restricted Stock Agreement, or as required by applicable law, a
     Restricted Stock granted under the Plan shall not be anticipated, assigned,
     attached, garnished, optioned, transferred or made subject to any
     creditor's process, whether voluntarily, involuntarily or by operation of
     law.  Any act in violation of this Section 8(e) shall be void.  However,
     this Section 8(e) shall not preclude a Participant from designating a
     beneficiary who will receive any outstanding Restricted Stock in the event
     of the Participant's death, nor shall it preclude a transfer of Restricted
     Stock by will or by the laws of descent and distribution.

(f)  Trusts.  Neither this Section 8 nor any other provision of the Plan shall
     preclude a Participant from transferring or assigning Restricted Stock to
     (a) the trustee of a trust that is revocable by such Participant alone,
     both at the time of the transfer or assignment and at all times thereafter
     prior to such Participant's death, or (b) the trustee of any other trust to
     the extent approved in advance by the Committee in writing.  A transfer or
     assignment of Restricted Stock from such trustee to any person other than
     such Participant shall be permitted only to the extent approved in advance
     by the Committee in writing, and Restricted Stock held by such trustee
     shall be subject to all of the conditions and

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<PAGE>

     restrictions set forth in the Plan and in the applicable Restricted Stock
     Agreement, as if such trustee were a party to such Agreement.

(g)  Voting and Dividend Rights.  The holders of Restricted Stock awarded under
     the Plan shall have the same voting, dividend and other rights as the
     Company's other stockholders.  A Restricted Stock Agreement, however, may
     require that the holders of Restricted Stock invest any cash dividends
     received in additional Restricted Stock.  Such additional Restricted Stock
     shall be subject to the same conditions and restrictions as the Award with
     respect to which the dividends were paid.  Such additional Restricted Stock
     shall not reduce the number of Shares available under Section 5.

SECTION 9.  PROTECTION AGAINST DILUTION.

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

        (i)   the number of Shares available for future Awards under Section 5;

        (ii)  the number of Shares that may be awarded per person under Section
              5;

        (iii) the number of Shares covered by each outstanding Award; or

        (iv)  the Exercise Price under each outstanding Option.

(b)  Participant Rights.  Except as provided in this Section 9, a Participant
     shall have no rights by reason of any issue by the Company of stock of any
     class or securities convertible into stock of any class, any subdivision or
     consolidation of shares of stock of any class, the payment of any stock
     dividend or any other increase or decrease in the number of shares of stock
     of any class.

SECTION 10.  EFFECT OF A CHANGE IN CONTROL.

(a)  Merger or Reorganization.  In the event that the Company is a party to a
     merger or other reorganization, outstanding Awards shall be subject to the
     agreement of merger or reorganization.  Such agreement may provide, without
     limitation, for the assumption of outstanding Awards by the surviving
     corporation or its parent, for their continuation by the Company (if the
     Company is a surviving corporation), for accelerated vesting or for their
     cancellation with or without consideration, in all cases without the
     consent of the Participant.

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<PAGE>

(b)  Acceleration.  The Committee may determine, at the time of granting an
     Award or thereafter, that such Award shall become fully vested as to all
     Shares subject to such Award in the event that a Change in Control occurs
     with respect to the Company.

SECTION 11.  LIMITATIONS ON RIGHTS.

(a)  Retention Rights.  Neither the Plan nor any Award granted under the Plan
     shall be deemed to give any individual a right to remain an employee,
     consultant or director of the Company, a Parent, a Subsidiary or an
     Affiliate.  The Company and its Parents and Subsidiaries and Affiliates
     reserve the right to terminate the Service of any person at any time, and
     for any reason, subject to applicable laws, the Company's Certificate of
     Incorporation and Bylaws and a written employment agreement (if any).

(b)  Stockholders' Rights.  A Participant shall have no dividend rights, voting
     rights or other rights as a stockholder with respect to any Shares covered
     by his or her Award prior to the issuance of a stock certificate for such
     Shares.  No adjustment shall be made for cash dividends or other rights for
     which the record date is prior to the date when such certificate is issued,
     except as expressly provided in Section 9.

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

SECTION 12.  WITHHOLDING TAXES.

(a)  General.  A Participant shall make arrangements satisfactory to the Company
     for the satisfaction of any withholding tax obligations that arise in
     connection with his or her Award.  The Company shall not be required to
     issue any Shares or make any cash payment under the Plan until such
     obligations are satisfied.

(b)  Share Withholding.  If a public market for the Company's Shares exists, the
     Committee may permit a Participant to satisfy all or part of his or her
     withholding or income tax obligations by having the Company withhold all or
     a portion of any Shares that otherwise would be issued to him or her or by
     surrendering all or a portion of any Shares that he or she previously
     acquired.  Such Shares shall be valued at their Fair Market Value on the
     date when taxes otherwise would be withheld in cash.  Any payment of taxes
     by assigning Shares to the Company may be subject to restrictions,
     including, but not limited to, any restrictions required by rules of the
     Securities and Exchange Commission.

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<PAGE>

SECTION 13.  DURATION AND AMENDMENTS.

(a)  Term of the Plan.  The Plan, as set forth herein, shall become effective on
     the date of its adoption by the Board, subject to the approval of the
     Company's stockholders.  No Options shall be exercisable until such
     stockholder approval is obtained.  In the event that the stockholders fail
     to approve the Plan within twelve (12) months after its adoption by the
     Board, any Awards made shall be null and void and no additional Awards
     shall be made.  To the extent required by applicable law, the Plan shall
     terminate on the date that is ten (10) years after its adoption by the
     Board and may be terminated on any earlier date pursuant to Section 13(b).

(b)  Right to Amend or Terminate the Plan.  The Board may amend or terminate the
     Plan at any time and for any reason.  The termination of the Plan, or any
     amendment thereof, shall not affect any Award previously granted under the
     Plan.  No Awards shall be granted under the Plan after the Plan's
     termination.  An amendment of the Plan shall be subject to the approval of
     the Company's stockholders only to the extent required by applicable laws,
     regulations or rules.

SECTION 14.  EXECUTION.

     To record the adoption of the Plan by the Board, the Company has caused its
     duly authorized officer to execute this Plan on behalf of the Company.

                              SUNRISE TELECOM INCORPORATED



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