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                                                                    EXHIBIT 10.5

                               XYLAN CORPORATION

                                1996 STOCK PLAN

                          (as amended March 28, 1997)

     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 the Employees and Consultants
of the Company and to promote the success of the Company's business.

     Options granted hereunder may be either Incentive Stock Options (as defined
under Section 422 of the Code) or Nonstatutory Stock Options, at the discretion
of the Board and as reflected in the terms of the written option agreement.
Stock purchase rights may also be granted under the Plan.

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

       (a)  "Administrator" shall mean the Board or any of its Committees
             -------------
appointed pursuant to Section 4 of the Plan.

       (b)  "Affiliate" shall mean an entity in which the Company owns an equity
             ---------
interest.

       (c)  "Applicable Laws" shall have the meaning set forth in Section 4(a)
             ---------------
below.

       (d)  "Board" shall mean the Board of Directors of the Company.
             -----

       (e)  "Code" shall mean the Internal Revenue Code of 1986, as amended.
             ----

       (f)  "Committee" shall mean the Committee appointed by the Board of
             ---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.

       (g)  "Common Stock" shall mean the Common Stock of the Company.
             ------------

       (h)  "Company" shall mean Xylan Corporation, a California corporation.
             -------

       (i)  "Consultant" shall mean any person who is engaged by the Company or
             ----------
any Parent, Subsidiary or Affiliate to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the event
the Company registers any class of any equity security pursuant to Section 12 of
the Exchange Act, the term Consultant shall thereafter not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
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       (j)  "Continuous Status as an Employee or Consultant" shall mean the
             ----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant.  Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.  For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.

       (k)  "Director" shall mean a member of the Board.
             --------

       (l)  "Employee" shall mean any person, including Named Executives,
             --------
Officers and Directors employed by the Company or any Parent, Subsidiary or
Affiliate of the Company.  The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.

       (m)  "Exchange Act" shall mean the Securities Exchange Act of 1934, as
             ------------
amended.

       (n)  "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 National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock as quoted on such system on the date of determination (if
for a given day no sales were reported, the closing bid on that day shall be
used), as such price is reported in The Wall Street Journal or such other source
                                    ------------------------
as the Administrator deems reliable;

             (ii)  If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the bid and asked prices for the Common Stock 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.

       (o)  "Incentive Stock Option" shall mean an Option intended to qualify as
             ----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.

       (p)  "Named Executive" shall mean any individual who, on the last day of
             ---------------
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such
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capacity) or among the four highest compensated officers of the Company (other
than the chief executive officer). Such officer status shall be determined
pursuant to the executive compensation disclosure rules under the Exchange Act.

       (q)  "Nonstatutory Stock Option" shall mean an Option not intended to
             -------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.

       (r)  "Officer" shall mean 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.

       (s)  "Option" shall mean a stock option granted pursuant to the Plan.
             ------

       (t)  "Optioned Stock" shall mean the Common Stock subject to an Option.
             --------------

       (u)  "Optionee" shall mean an Employee or Consultant who receives an
             --------
Option.

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

       (w)  "Plan" shall mean this 1996 Stock Plan.
             ----

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

       (y)  "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
            ------------
Act as the same may be amended from time to time, or any successor provision.

       (z)  "Share" shall mean a share of the Common Stock, as adjusted in
             -----
accordance with Section 15 of the Plan.

       (aa)  "Stock Purchase Right" shall mean the right to purchase Common
              --------------------
Stock pursuant to Section 11 below.

       (bb)  "Subsidiary" shall mean 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 15 of
         -------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 5,000,000 shares of Common Stock (after a 2-for-1 stock
split).  The Shares may be authorized, but unissued, or reacquired Common Stock.

     If an Option or Stock Purchase Right should expire or become unexercisable
for any reason without having been exercised in full, the unpurchased Shares
that were subject thereto shall, unless the Plan shall have been terminated,
become available for future grant under the
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Plan. Notwithstanding any other provision of the Plan, shares issued under the
Plan and later repurchased by the Company shall not become available for future
grant or sale under the Plan.

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

       (a)  Composition of Administrator.
            ----------------------------

             (i)  Multiple Administrative Bodies. If permitted by Rule 16b-3,
                  ------------------------------
and by the legal requirements relating to the administration of incentive stock
option plans, if any, of applicable securities laws and the Code (collectively,
the "Applicable Laws"), the Plan may (but need not) be administered by different
administrative bodies with respect to Directors, Officers who are not directors
and Employees who are neither Directors nor Officers.

             (ii)  Administration with respect to Directors and Officers. With
                   -----------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees or
Consultants who are also Officers or Directors of the Company, the Plan shall be
administered by (A) the Board, if the Board may administer the Plan in
compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan and Section 162(m) of the Code as it applies
so as to qualify grants of Options to Named Executives as performance-based
compensation, or (B) a Committee designated by the Board to administer the Plan,
which Committee shall be constituted in such a manner as to permit the Plan to
comply with Rule 16b-3 as it applies to a plan intended to qualify thereunder as
a discretionary plan, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise so
as to satisfy the Applicable Laws.

             (iii)  Administration with respect to Other Persons. With respect
                    --------------------------------------------
to grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.

             (iv)  General. If a Committee has been appointed pursuant to
                   ------
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.

       (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, the Administrator shall have the authority, in its discretion:
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             (i)  to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;

             (ii)  to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;

             (iii)  to determine whether and to what extent Options are granted
hereunder;

             (iv)  to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;

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

             (vi)  to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);

             (vii)  to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and

             (viii)  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 shall have declined since the date the Option was granted;

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

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

       (a)  Recipients of Grants. Nonstatutory Stock Options may be granted to
            --------------------
Employees and Consultants.  Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
eligible to receive Incentive Stock Options.  An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.

       (b)  Type of Option. Each Option shall be designated in the written
            --------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares
<PAGE>

with respect to which Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess 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, and
the Fair Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.

         (c)  No Employment Rights.  The Plan shall not confer upon any
              --------------------
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.

     6.  Term of Plan.  The Plan shall become effective upon the earlier to
         ------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 21 of the Plan.  It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 17 of the Plan.

     7.  Term of Option.  The term of each Option shall be the term stated in
         --------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is 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 thereof or
such shorter term as may be provided in the Option Agreement.

     8.  Limitation on Grants to Employees.  Subject to adjustment as provided
         ---------------------------------
in this Plan, the maximum number of Shares which may be subject to options or
stock purchase rights granted to any one Employee under this Plan for any fiscal
year of the Company shall be 300,000.

     9.  Option Exercise Price and Consideration.
         ---------------------------------------

       (a)  Exercise Price.  The per Share exercise price for the Shares to be
            --------------
issued pursuant to 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 the grant of such
Incentive Stock 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 per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant;
<PAGE>

             (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 person who, at the time of the 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 per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant;

             (B)  granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant;

          (iii)  In the case of an Option granted on or after the effective date
of registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination of
such registration, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.

       (b) Permissible Consideration.  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) and may consist entirely of
(1) cash, (2) check, (3) promissory note, (4) other Shares that (x) in the case
of Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six months on the date of surrender or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price, (7) delivery
of an irrevocable subscription agreement for the Shares that irrevocably
obligates the option holder to take and pay for the Shares not more than twelve
months after the date of delivery of the subscription agreement, (8) any
combination of the foregoing methods of payment, or (9) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws. 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>

     10.  Exercise of Option.
          ------------------

       (a)  Procedure for Exercise; Rights as a Shareholder.  Any Option granted
            -----------------------------------------------
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.

       An Option may not be exercised for a fraction of a Share.

       An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option.  The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option.  No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 15 of the Plan.

       Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be 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 Status as an Employee or Consultant.  In the event of
            ---------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
such Optionee may, but only within thirty (30) days (or such other period of
time, not exceeding three (3) months in the case of an Incentive Stock Option or
six (6) months in the case of a Nonstatutory Stock Option, as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination.  To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the optionee does not exercise
such Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.

       (c)  Disability of Optionee.  Notwithstanding Section 10(b) above, in the
            ----------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in
<PAGE>

no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), exercise his or her Option to the extent he or
she was entitled to exercise it at the date of such termination. To the extent
that he or she was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.

          (d)  Death of Optionee. In the event of the death of an Optionee:
               -----------------

          (i)  during the term of the Option who is at the time of his death an
Employee or Consultant of the Company and who shall have been in Continuous
Status as an Employee or Consultant since the date of grant of the Option, the
Option may be exercised, at any time within six (6) months (or such other period
of time, not exceeding six (6) months, as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option being made at
the time of grant of the Option) following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance but only to the extent of
the right to exercise that would have accrued had the Optionee continued living
and remained in Continuous Status as an Employee or Consultant three (3) months
(or such other period of time as is determined by the Administrator as provided
above) after the date of death, subject to the limitation set forth in Section
5(b); or

          (ii)  within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option or may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.

     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 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 (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right.  The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.  Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
<PAGE>

          (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 employment 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 higher of either the original
purchase price or the Fair Market Value on the date of the repurchase.

          (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.  In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.

          (d) Rights as a Shareholder.  Once the Stock Purchase Right is
              -----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company.  No adjustment
will 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 15
of the Plan.

          (e) Rule 16b-3.  Options granted to persons subject to Section 16(b)
              ----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.

     12.  Withholding Taxes.  As a condition to the exercise of Options and
          -----------------
Stock Purchase Rights granted hereunder, the Optionee or Stock Purchase Right
holder shall make such arrangements as the Administrator may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the exercise, receipt or vesting of such
Option or Stock Purchase Right.  The Company shall not be required to issue any
Shares under the Plan until such obligations are satisfied.

     13.  Stock Withholding to Satisfy Withholding Tax Obligations.  At the
          --------------------------------------------------------
discretion of the Administrator, Optionees and Stock Purchase Right holders may
satisfy withholding obligations as provided in this paragraph.  When an Optionee
or Stock Purchase Right holder incurs tax liability in connection with an Option
or Stock Purchase Right which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee or Stock Purchase Right holder is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee or Stock Purchase Right holder may satisfy the
withholding tax obligation by one or some combination of the following methods:
(a) by cash payment, or (b) out of the Optionee's or the Stock Purchase Right
holder's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee or Stock
Purchase Right holder for more than six months on the date of surrender, and
(ii) have a fair market value on the date of surrender equal to or less than the
Optionee's or the Stock Purchase Right holder's marginal tax rate times the
ordinary income recognized, or (d) by electing to have
<PAGE>

the Company withhold from the Shares to be issued upon exercise of the Option or
Stock Purchase Right that number of Shares having a fair market value equal to
the amount required to be withheld. For this purpose, 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 (the "Tax Date").

     Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of an Option or Stock
Purchase Right must comply with the applicable provisions of Rule 16b-3 and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.

     All elections by an Optionee or Stock Purchase Right holder to have Shares
withheld to satisfy tax withholding obligations shall be made in writing in a
form acceptable to the Administrator and shall be subject to the following
restrictions:

       (a) the election must be made on or prior to the applicable Tax Date;

       (b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;

       (c) all elections shall be subject to the consent or disapproval of the
Administrator;

       (d) if the Optionee or Stock Purchase Right holder is an Officer or
Director, the election must comply with the applicable provisions of Rule 16b-3
and shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.

     In the event the election to have Shares withheld is made by an Optionee or
Stock Purchase Right holder and the Tax Date is deferred under Section 83 of the
Code because no election is filed under Section 83(b) of the Code, the Optionee
shall receive the full number of Shares with respect to which the Option or
Stock Purchase Right is exercised but such Optionee or Stock Purchase Right
holder shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.

    14.  Non-Transferability of Options and Stock Purchase Rights.  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.  The designation of a beneficiary by an Optionee or
Stock Purchase Right holder will not constitute a transfer.  An Option or Stock
Purchase Right may be exercised, during the lifetime of the Optionee or Stock
Purchase Right holder only by the Optionee or Stock Purchase Right holder or a
transferee permitted by this Section 14.
<PAGE>

    15.  Adjustments Upon Changes in Capitalization; Corporate Transactions.
         ------------------------------------------------------------------

         (a)  Adjustment.  Subject to any required action by the shareholders
              ----------
of the Company, the number of shares of Common Stock covered by each outstanding
Option or Stock Purchase Right, the number of shares of Common Stock that 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, the
maximum number of shares of Common Stock for which Options or Stock Purchase
Rights may be granted to any employee under Section 8 of the Plan, and 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;
provided, however, that 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 Administrator, 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)  Corporate Transactions.  In the event of the proposed dissolution
              ----------------------
or liquidation of the Company, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Administrator. The Administrator may, in the exercise of its
sole discretion in such instances, declare that any Option or Stock Purchase
Right shall terminate as of a date fixed by the Administrator and give each
Optionee or Stock Purchase Right holder the right to exercise his or her Option
or Stock Purchase Right as to all or any part of the Optioned Stock or
Restricted Stock, including Shares as to which the Option or Stock Purchase
Right would not otherwise be exercisable. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option or Stock Purchase Right shall be
assumed or an equivalent option or stock purchase right shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the Administrator determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the Optionee or
Stock Purchase Right holder shall have the right to exercise the Option or Stock
Purchase Right as to some or all of the Optioned Stock or Restricted Stock,
including Shares as to which the Option would not otherwise be exercisable, or
that Restricted Stock held by a purchaser shall be released from the Company's
repurchase option. If the Administrator makes an Option or Stock Purchase Right
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee or Stock Purchase
Right Holder that the Option or Stock Purchase Right shall be exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right will terminate upon the expiration of such period.
<PAGE>

     16.  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 Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

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

          (a)  Amendment and Termination.  The Board may amend or terminate the
               -------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 21 of the
Plan:

              (i)  any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 15 of the Plan;

              (ii)  any change in the designation of the class of persons
eligible to be granted Options or Stock Purchase Rights;

              (iii)  any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
shareholder approval to qualify options or stock purchase rights granted
hereunder as performance-based compensation under Section 162(m) of the Code; or

              (iv)  any revision or amendment requiring shareholder approval in
order to preserve the qualification of the Plan under Rule 16b-3.

          (b)  Shareholder Approval.  If any amendment requiring shareholder
              ---------------------
approval under Section 17(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 21 of the Plan.

          (c)  Effect of Amendment or Termination.  Any such amendment or
               ----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Stock Purchase Right Holder
and the Board, which agreement must be in writing and signed by the Optionee or
Stock Purchase Right Holder and the Company.

    18.  Conditions Upon Issuance of Shares.  Shares shall not be issued
         ----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
<PAGE>

requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.


     As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right 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 by any of the aforementioned relevant provisions of
law.

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

    20.  Agreements.  Options and Stock Purchase Rights shall be evidenced by
         ----------
written agreements in such form as the Board shall approve.

    21.  Shareholder Approval.
         --------------------

         (a)  Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such shareholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.

         (b)  In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.

         (c)  If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 21(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option or Stock
Purchase Right hereunder to an officer or director after such registration, do
the following:

              (i)  furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
<PAGE>

              (ii)  file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.

    22.  Information to Optionees and Purchasers.  The Company shall provide to
         ---------------------------------------
each Optionee and Stock Purchase Right holder, during the period for which such
Optionee or holder has one or more Options or Stock Purchase Rights outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company.