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                                                                    Exhibit 10.4

                         TIPPINGPOINT TECHNOLOGIES, INC.
                           THIRD AMENDED AND RESTATED
                   1999 STOCK OPTION AND RESTRICTED STOCK PLAN

     1.    Purpose. The TippingPoint Technologies, Inc. Second Amended and
           -------
Restated 1999 Stock Option and Restricted Stock Plan (the "Plan") is intended to
advance the interests of TippingPoint Technologies, Inc., a Delaware corporation
(the "Company"), and its stockholders, by encouraging and enabling selected
officers, directors and employees, upon whose judgment, initiative and effort
the Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock. It is intended that options which may qualify for treatment as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended, and applicable regulations and rulings promulgated thereunder
(collectively the "Code"), as well as options which may not so qualify, may be
granted under the Plan.

     2.    Definitions.
           -----------

           (a) "Committee" means a Committee of the Board of Directors of the
     Company to whom the Board's authority has been delegated in accordance with
     Section 3 of this Plan.
     ---------

           (b) "Common Stock" means the Company's Common Stock, $.01 par value
     per share.

           (c) "Date of Grant" means the date on which an Option or Restricted
     Stock is granted under the Plan, which will be the date the Committee
     authorizes the Option or Restricted Stock unless the Committee specifies
     another date as the date the grant is to be effective.

           (d) "Date of Exercise" means the date on which an Option is validly
     exercised pursuant to the Plan.

           (e) "Disability" means any medically determinable physical or mental
     impairment that, in the opinion of the Committee, based upon medical
     reports and other evidence satisfactory to the Committee, can reasonably be
     expected to prevent an Optionee from performing substantially all of the
     Optionee's customary duties of employment for a continuous period of not
     less than 12 months so as to be disabled within the meaning of Section
     22(a)(3) of the Code.

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

           (g) "Fair Market Value" of the Company's Common Stock means the
     closing sale price (or the average of the quoted closing bid and asked
     prices if there is no closing sale price reported) on the last market
     trading day prior to the date of determination as reported by the principal
     national stock exchange on which the Common Stock is then listed. If there
     is no reported price information for the Common Stock, the Fair Market
     Value will be determined by the Committee, in its sole discretion. In
     making such

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     determination, the Committee may, but shall not be obligated to, commission
     and rely upon an independent appraisal of the Common Stock.

           (h) "Incentive Stock Option" means an option that qualifies as an
     incentive stock option under all of the requirements of the Code.

           (i) "Incentive Stock Option Agreement" means the agreement between
     the Company and the Optionee, in such form as may from time to time be
     adopted by the Committee, under which the Optionee may purchase Common
     Stock pursuant to the terms of an Incentive Stock Option granted under the
     Plan.

           (j) "Non-Employee Director" means a director of the Company who is
     not an employee of the Company or of any subsidiary or affiliate of the
     Company.

           (k) "Non-Qualified Stock Option" means an option to purchase Common
     Stock granted pursuant to the provisions of the Plan that does not qualify
     as an Incentive Stock Option.

           (l) "Non-Qualified Stock Option Agreement" means the agreement
     between the Company and the Optionee, in such form as may from time to time
     be adopted by the Committee, under which the Optionee may purchase Common
     Stock pursuant to the terms of a Non-Qualified Stock Option granted under
     the Plan.

           (m) "Option" means an option granted under the Plan.

           (n) "Optionee" means a person to whom an Option, which has not
     expired, has been granted under the Plan.

           (o) "Participant" means any person who receives an Option or
     Restricted Stock pursuant to this Plan.

           (p) "Restricted Stock" means Common Stock awarded to a person
     pursuant to Section 7 of this Plan.

           (q) "Retirement" shall mean the termination of an Optionee's
     employment in accordance with the requirements of a written retirement
     plan, policy or rule of the Company which has been duly adopted by the
     Board of Directors of the Company.

           (r) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
     as (and to the extent) such rule, or any successor thereto, may from time
     to time be in effect and including all interpretations thereunder.

           (s) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or
     corporations of the Company as defined in Section 424(f) of the Code.

           (t) "Successor" means the legal representative of the estate of a
     deceased Optionee or the person or persons who acquire the right to
     exercise an Option by bequest or inheritance or by reason of the death of
     an Optionee.

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     3.    Administration and Interpretation of Plan. The Plan shall be
           -----------------------------------------
administered by a Committee designated by the Board of Directors which shall
consist entirely of "Non-Employee Directors" in accordance with the provisions
of Rule 16b-3. The Committee shall have full and final authority in its
discretion, subject to the provisions of the Plan: (i) to determine the
individuals to whom, and the time or times at which, Options or Restricted Stock
shall be granted and the number of shares of Common Stock covered by each Option
or grant of Restricted Stock and to determine all other substantive provisions
of the terms of such Options; (ii) to construe and interpret the Plan; and (iii)
to make all other determinations and take all other actions deemed necessary or
advisable for the proper administration of the Plan. All such actions and
determinations by the Committee shall be final and conclusively binding for all
purposes and upon all persons.

     4.    Common Stock Subject to Options and Grants of Restricted Stock. The
           --------------------------------------------------------------
aggregate number of shares of the Company's Common Stock which may be issued
upon the exercise of Options or upon the grant of Restricted Stock under the
Plan shall not exceed one million thirty-three thousand three hundred
thirty-three (1,033,333) shares of Common Stock, subject to adjustment as set
forth in Section 5 of this Plan. The shares of Common Stock to be issued upon
the exercise of Options or upon the grant of Restricted Stock may be authorized
but unissued shares, shares issued and reacquired by the Company or shares
bought on the open market for the purposes of the Plan. In the event any Option
shall, for any reason, terminate or expire or be canceled or surrendered without
having been exercised in full, or Restricted Stock should fail to vest and be
forfeited in whole or in part for any reason, the shares subject thereto shall,
unless the Plan has terminated, be available for the grant of additional Options
or Restricted Stock under this Plan, subject to the limitations set forth above.

     5.    (a) Adjustments. In the event that the number of outstanding shares
               -----------
     of Common Stock is changed by reason of a stock dividend, stock split,
     recapitalization or combination of shares, the number of shares of Common
     Stock subject to the Plan and to Options and Restricted Stock granted
     pursuant to the Plan shall be proportionately adjusted.

           (b) Annual Increase. The annual increase in the number of shares
               ---------------
     reserved for issuance as Incentive Stock Options shall be the least of the
     following: (1) a number of shares so that the shares reserved for issuance
     of Incentive Stock Options shall be equal to 15% of issued and outstanding
     shares as of the last day of the prior fiscal year; (2) 1,033,333 shares;
     or (3) a smaller number as determined by the Board of Directors. The number
     of shares reserved for issuance under this Plan (including Incentive Stock
     Options, Non-Qualified Stock Options, and Restricted Stock) shall be
     increased so that the total number of shares that may be issued under this
     Plan equals 15% of the outstanding shares as of the final day of the prior
     fiscal year. Such annual increases shall occur automatically on the first
     trading day in January of each year.

     6.    Participants. Incentive Stock Options may be granted under the Plan
           ------------
to any person who is an officer or other key employee (including officers and
employees who are also directors) of the Company or any of its Subsidiaries.
Non-Qualified Options and Restricted Stock may be granted under the Plan to any
person who is an officer, key employee, director or consultant of the Company;
provided, however, that no member of any Committee administering

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this Plan shall be eligible to be granted an option hereunder except under
circumstances that may be permitted under Rule 16b-3 without adversely affecting
any requirement of such rule that this Plan be administered by Non-Employee
Directors.

     7.    Non-Employee Director Stock Options. Any Options granted to
           -----------------------------------
Non-Employee Directors under the Plan shall be Non-Qualified Stock Options. Such
Options granted to Non-Employee Directors may be granted pursuant to the
pre-established formula described in the next paragraph or may, in the sole
discretion of the entire Board of Directors, be granted as to such number of
shares and upon such terms and conditions as shall be determined by the Board of
Directors. Options granted to Non-Employee Directors under the Plan shall be
evidenced by a written agreement in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the terms
and conditions described below and in Section 8:
                                      ----------

           (a) Formula-based Director Stock Options. For each calendar year, an
               ------------------------------------
     Option to purchase 6,667 shares of Common Stock shall be granted
     automatically to each Non-Employee Director on the first day of each
     calendar year on which the Nasdaq National Market, or such other exchange
     or market on which the Company's Common Stock is then traded, is open for
     trading. The option price per share with respect to each Option granted to
     a Non-Employee Directors hereunder shall be 100% of the Fair Market Value
     of the Common Stock on the Date of the Grant of the Option. Options granted
     to Non-Employee Directors hereunder shall be exercisable in full upon the
     Date of Grant of the Option and shall remain exercisable for a term of ten
     years after such Date of Grant.

           (b) Termination of Service. Upon an Optionee's termination of status
               ----------------------
     as a Non-Employee Director with the Company for any reason, any vested
     Options held by such former Non-Employee Director which may be exercised
     during the thirty day period following such termination, and shall expire
     at the end of such thirty day period. Notwithstanding the foregoing
     sentence, if the Optionee's status as an Non-Employee Director terminates
     by reason of or within three months after a merger or other business
     combination resulting in a "Change of Control" as defined below, the
     Non-Employee Director's Options shall terminate upon the latest of (i) six
     months and one day after the merger or business combination, (ii) ten
     business days following the expiration of the period during which
     publication of financial results covering at least thirty days of
     post-merger combined operations has occurred, and (iii) the expiration of
     the stated term of such Non-Employee Director's Options.

           (c) For purposes hereof, "Change of Control" means the occurrence of
     any of the following events, as a result of one transaction or a series of
     transactions: (i) any "person" (as that term is used in Sections 13(d) and
     14(d) of the Exchange Act (as defined below), but excluding the Company,
     its affiliates and any qualified or non-qualified plan maintained by the
     Company or its affiliates) becomes the "beneficial owner" (as defined in
     Rule 13d-3 promulgated under such Act), directly or indirectly, of
     securities of the Company representing more than 50% of the combined voting
     power of the Company's then outstanding securities; (ii) individuals who
     constitute a majority of the Board of Directors of the Company immediately
     prior to a contested election for positions on the Board cease to
     constitute a majority as a result of such contested

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     election; (iii) the Company is combined (by merger, share exchange,
     consolidation, or otherwise) with another corporation and as a result of
     such combination, less than 50% of the outstanding securities of the
     surviving or resulting corporation are owned in the aggregate by the former
     stockholders of the Company; (iv) the Company sells, leases, or otherwise
     transfers all or substantially all of its properties or assets to another
     person or entity; or (v) a dissolution or liquidation of the Company.

           (d) Notwithstanding the foregoing, in no event shall any Non-Employee
     Director be entitled to any "excess parachute payment" as defined in
     Section 280G of the Code.

     8.    Terms and Conditions of Options. Any Option granted under the Plan
           -------------------------------
shall be evidenced by either an Incentive Stock Option Agreement or a
Non-Qualified Stock Option Agreement executed by the Company and the Optionee.
Such agreement shall be subject to the following limitations and conditions:

           (a) Option Price. The option price per share with respect to each
               ------------
     Option shall be determined by the Committee but in no instance shall the
     option price for an Option which is intended to qualify as an Incentive
     Stock Option be less than 100% of the Fair Market Value of a share of the
     Common Stock on the Date of Grant.

           (b) Payment of Option Price.
               -----------------------

               (i) Full payment for shares purchased upon exercising an Option
           shall be made in cash or by check, or by delivery of shares of Common
           Stock, or partly in cash or by check and partly in Common Stock. The
           value of shares of Common Stock delivered in connection with the
           payment of the option price shall be the Fair Market Value of such
           shares on the Date of Exercise of the Option. Any shares of Common
           Stock to be used as payment must, if originally acquired from the
           Company pursuant to the exercise of an Incentive Stock Option, have
           been held for at least two years after the Date of Grant and one year
           after the Date of Exercise.

               (ii) If the shares of Common Stock to be purchased are covered by
           an effective registration statement under the Securities Act of 1933,
           as amended, any Option granted under the Plan may be exercised by a
           broker-dealer acting on behalf of an Optionee if (a) the
           broker-dealer has received from the Optionee or the Company a fully
           and duly endorsed agreement evidencing such Option, together with
           instructions signed by the Optionee requesting the Company to deliver
           the shares of Common Stock subject to such Option to the
           broker-dealer on behalf of the Optionee and specifying the account
           into which such shares should be deposited, (b) adequate provision
           has been made with respect to the payment of any withholding taxes
           due upon such exercise, and (c) the broker-dealer and the Optionee
           have otherwise complied with Section 220.3(e)(4) of Regulation T, 12
           CFR Part 220, or any successor provision.

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         (c)  Term of Option. The expiration date of each Incentive Stock Option
              --------------
and each Non-Qualified Option shall not be more than ten (10) years from the
Date of Grant.

         (d)  Vesting of Stockholder Rights. Neither an Optionee nor his
              -----------------------------
Successor shall have any of the rights of a stockholder of the Company until the
certificate or certificates evidencing the shares purchased pursuant to the
exercise of an Option are properly delivered to such Optionee or his Successor.

         (e)  Exercise of an Option. Each Option shall be exercisable at any
              ---------------------
time, and from time to time, and in no particular order if the Optionee holds
more than one Option, throughout a period commencing on or after the Date of
Grant, as specified by the Committee and reflected in the Incentive Stock Option
Agreement or Non-Qualified Stock Option Agreement, as the case may be, and
ending upon the earliest of the expiration, cancellation, surrender or
termination of the Option; provided, however, that no Option shall be
exercisable in whole or in part prior to the date of stockholder approval of the
Plan. Furthermore, the exercise of each Option shall be subject to the condition
that if at any time the Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration or qualification of any share otherwise deliverable upon
such exercise upon any securities exchange or under any state or federal law, or
that the report to, or consent or approval of any regulatory body, is necessary
or desirable as a condition of, or in connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then in any such event, such
exercise shall not be effective unless such withholding, listing, registration,
qualification, report, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Company.

         (f)  Company Loans. The Company may make stock purchase loans in
              -------------
connection with Option exercises upon the following terms and conditions:

                  (i) Upon the exercise by an Optionee of his Option, or any
         part thereof, and the Optionee's request for a loan pursuant hereto,
         the Company, upon approval by the Committee, may loan said Optionee,
         for the sole purpose of purchasing Common Stock from the Company
         pursuant to the exercise of such Option, an amount up to the exercise
         price of the Option; provided, however, that the Optionee shall execute
         concurrently a promissory note in form satisfactory to the Committee
         for such amount payable to the order of the Company;

                  (ii) The Company shall have no obligation to make any loan to
         any Optionee at any time;

                 (iii) The promissory note referenced above shall provide for
         interest to be payable upon the outstanding principal balance such rate
         and times as the Committee may determine. Interest shall be payable at
         thereof at least annually and shall be charged at the minimum rate
         necessary to avoid the treatment as interest under any applicable
         provision of the Code, of any amounts other than amounts stated to be
         interest under such note. Such note shall also provide that the
         Committee may require the Optionee to secure the payment thereof at any
         time

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         with collateral deemed adequate by the Committee in its sole
         discretion. Such note shall mature, and all outstanding principal and
         interest shall become immediately due and payable in installments or in
         lump sum at such time or times as the Committee shall provide. The note
         will provide for prepayment of principal and accrued interest in whole
         or in part from time to time without premium or penalty and may be
         extended or modified, from time to time, at the Committee's discretion.
         The note shall provide for acceleration of maturity by the Company upon
         the happening of any events determined appropriate by the Committee,
         including, without limitation, any of the following events:

                    (1)     failure of the Optionee to pay or perform any term
              or provision thereof;

                    (2)     termination of the Optionee's employment with the
              Company or a Subsidiary for any reason, whether voluntary or
              involuntary, except Retirement, Disability or death;

                    (3)     if the Optionee shall execute an assignment for the
              benefit of creditors, or admit in writing his inability to pay his
              debts generally as they become due, or voluntarily seek the
              benefit of, or have a petition filed against him seeking the
              benefit of, a judgment, order or decree filed against him pursuant
              to any bankruptcy, insolvency, reorganization, or similar debtor
              relief law affecting the rights of creditors generally;

                    (4)     failure of the Optionee to have discharged within a
              period of thirty (30) days after the commencement thereof any
              attachment, sequestration or similar proceeding against any of the
              assets of the Optionee;

                    (5)     failure of the Optionee to pay any money judgment
              against him at least thirty (30) days prior to the date on which
              any of his assets may be lawfully sold to satisfy such judgment;

                    (6)     failure or refusal of the Optionee to comply with
              any of the terms and conditions of his stock option agreement or
              any other oral or written agreement with the Company;

                    (7)     failure or refusal of the Optionee to provide
              adequate security for payment of the promissory note immediately
              upon request for collateral by the Committee; or

                    (8)     the divorce of the Optionee, unless arrangement
              satisfactory to the Committee are agreed to prior to the entry of
              the divorce decree.

         (g)  Nontransferability of Option. No Option shall be transferable
              ----------------------------
or assignable by an Optionee, voluntarily or by operation of law, other than by
will or the laws of descent and distribution. Each Option shall be exercisable,
during the Optionee's

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lifetime, only by such Optionee. No Option or the shares covered thereby shall
be pledged or hypothecated in any way and no Option or the shares covered
thereby shall be subject to execution, attachment or similar process.

         (h)      Termination of Employment. Unless otherwise provided in the
                  -------------------------
terms of an Incentive Stock Option Agreement or a Non-Qualified Agreement, as
the case may be, pursuant to Section 7(k), upon termination of an Optionee's
employment with the Company or with any of its Subsidiaries for any reason other
than death or Disability, any and all outstanding Options of such Optionee shall
expire, and shall not be exercisable with respect to any vested portion as to
which such Options have not been exercised on a date thirty days after such date
of termination. Any and all Outstanding Options shall be null and void, and
shall not be exercisable with respect to any unvested portion of such Options
immediately upon the termination of the Optionee's employment with the Company
for any reason, including death or Disability. The right of the Optionee to
receive any benefits from the Company or any of its Subsidiaries after
termination of employment with the Company or any of its Subsidiaries by reason
of employment contract, severance arrangement or otherwise shall not affect the
determination that an Optionee's employment has been terminated with the Company
or any of its Subsidiaries for purposes of the Plan. Neither the adoption of
this Plan nor the grant of an Option to an eligible person shall alter in any
way the Company's or the relevant Subsidiary's rights to terminate such person's
employment or directorship at any time with or without cause nor does it confer
upon such person any rights or privileges to continued employment, or any other
rights and privileges, except as specifically provided in the Plan.

         (i)      Disability or Death of Optionee. If an Optionee dies or
                  -------------------------------
suffers a Disability while in the employ of the Company, but prior to
termination of his right to exercise an Option in accordance with the provisions
of his stock option agreement, without having totally exercised the Option, the
Option may be exercised, to the extent of the shares with respect to which the
Option could have been exercised by the Optionee on the date of the Optionee's
death or Disability, by (i) the Optionee's estate or by the person who acquired
the right to exercise the Option by bequest or inheritance or by reason of the
death of the Optionee in the event of the Optionee's death, or (ii) the Optionee
or his personal representative in the event of the Optionee's Disability,
provided the Option is exercised prior to the date of its expiration or not more
than one year from the date of the Optionee's death or Disability, whichever
first occurs. The date of Disability of an Optionee shall be determined by the
Company.

         (j)      Ten Percent Stockholders. Notwithstanding anything herein to
                  ------------------------
the contrary, an Option which is intended to qualify as an Incentive Stock
Option shall be granted hereunder to any Optionee who, immediately before such
Option is granted, beneficially owns, directly or indirectly, more than 10% of
the total combined voting power of all classes of stock of the Company only if
both of the following conditions are met:

                 (i) The option price per share shall be no less than 110% of
         the Fair Market Value of a share of Common Stock on the Date of Grant;
         and

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                          (ii)      The expiration date of the Option shall be
                  not more than five (5) years from the Date of Grant.

                  (k)     Other Terms. Each Incentive Stock Option Agreement or
                          -----------
         Non-Qualified Stock Option Agreement, as the case may be, may contain
         such other provisions (not inconsistent herewith) as the Committee in
         its discretion may determine, including, without limitation:

                          (i)       any provision which shall condition the
                  exercise of all or part of an Option upon such matters as the
                  Committee may deem appropriate (if any) such as the passage of
                  time, or the attainment of certain performance goals,
                  appropriate to reflect the contribution of the Optionee to the
                  performance of the Company;

                          (ii)      any provision which would accelerate the
                  exercisability of an Option in spite of any provision
                  contained in an Option, under such circumstances as the
                  Committee may deem appropriate, including a Change of Control;

                          (iii) the manner in which an Option is to be
                  exercised.

                          In the event the Committee includes a provision for
                  acceleration on a Change of Control, the Committee shall also
                  include in such agreement a provision addressing whether
                  "excess parachute payments" as defined in Section 280G of the
                  Code are permitted, and if permitted, whether compensation for
                  the parachute excise tax is to be paid by the Company to the
                  Optionee.

         9.       Restricted Stock. The Committee shall determine the number of
                  ----------------
shares of Common Stock to be granted as Restricted Stock from time to time under
the Plan. The grant of Restricted Stock shall be evidenced by Restricted Stock
agreements containing such terms and provisions, including provisions concerning
vesting and transferability, as are approved by the Committee, and executed on
behalf of the Corporation by an appropriate officer. The Committee in its
discretion may award shares of Restricted Stock under the Plan without requiring
the payment of cash consideration for such shares by the Participant.

         10.      Allotment of Shares. The grant of an Option or Restricted
                  -------------------
Stock shall not be deemed either to entitle the Participant to, or disqualify
the Participant from, participation in any other grant of options or restricted
stock under this Plan or any other stock option plan of the Company. The number
of shares allotted to each Participant shall be determined by the Committee, in
its discretion; provided, that the aggregate Fair Market Value (determined as of
the time the option is granted) of the Common Stock with respect to which
Options which are intended to qualify as Incentive Stock Options are exercisable
for the first time by such Optionee during any calendar year (under all such
plans of the Optionee's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000.

         11.      Additional Restrictions. No employee shall be eligible to
                  -----------------------
receive Incentive Stock Options (under the Plan and all other option plans of
the Company, its parent and subsidiary corporations) that are exercisable for
the first time in any calendar year with respect to stock with an aggregate Fair
Market Value (determined at the Date of Grant) in excess of $100,000, or such
other limits as may be imposed by the applicable laws and regulations under the
Code in effect

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on the Date of Grant. In the event the Participant's total Incentive Stock
Options exceed the $100,000 limit in any calendar year (whether due to
acceleration of exercisability, miscalculation, error or otherwise) the amount
of Participant's Incentive Stock Options that exceed such limit shall be treated
as Non-Qualified Stock Options. The Incentive Stock Options granted earliest
(whether under this Plan or any other agreement or plan) shall be applied first
to the $100,000 limit. In the event that only a portion of the Incentive Stock
Options granted at the same time can be applied to the $100,000 limit, the
company shall issue separate share certificates for such number of shares as
does not exceed the $100,000 limit, and shall designate such shares as Incentive
Stock Options stock in its share transfer records.

       12.   Designation of Incentive Stock Options. The Committee shall cause
             --------------------------------------
each Option granted hereunder to be clearly designated in the agreement
evidencing such Option, at the time of grant, as to whether or not it is
intended to qualify as an Incentive Stock Option.

       13.   Notices. Whenever any notice is required or permitted hereunder,
             -------
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date which it is personally delivered, or, whether actually
received or not, on the third business day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. The Company or a Participant
may change, at any time and from time to time, by written notice to the other,
the address which it or he had theretofore specified for receiving notices.
Until changed in accordance herewith, the Company and each Participant shall
specify as its and his address for receiving notices the address set forth in
the option agreement pertaining to the shares to which such notice relate.

       14.   Amendment or Discontinuance. The Plan and any Option or Restricted
             ---------------------------
Stock outstanding hereunder may be amended or discontinued by the Committee
without the approval of the stockholders of the Company, except that the
Committee may not, except as expressly provided in the Plan, increase the
aggregate number of shares which may be issued under Options or Restricted Stock
granted pursuant to the Plan, materially amend the eligibility requirements of
the Plan or materially increase the benefits which may accrue to participants
under the Plan, without such approval (if any) as may be required pursuant to
the provisions of Rule 16b-3, or applicable law (including the Code) or the
requirements of any national stock exchange upon which the Company's Common
Stock is traded.

       15.   Effect of the Plan. Neither the adoption of this Plan nor any
             ------------------
action of the Committee shall be deemed to give any officer or employee any
right to be granted an option to purchase Common Stock or restricted stock of
the Company or any of its Subsidiaries, or any other rights except as may be
evidenced by a stock option or restricted stock agreement, or any amendment
thereto, duly authorized by the Committee and executed on behalf of the Company
and then only to the extent and on the terms and conditions expressly set forth
therein.

       16.   Grant of Incentive Stock Options. No Incentive Stock Options shall
             --------------------------------
be granted pursuant to this Plan after the expiration of ten (10) years from the
date of the earlier of: (i) the date the Plan is adopted, or (ii) the date the
Plan is approved by the stockholders of the Company.

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         17. Shares Not Transferable. As a condition to the transfer of the
             -----------------------
shares of Common Stock issued under this Plan, the Company may require an
opinion of counsel, satisfactory to the Company, to the effect that such
transfer will not be in violation of the Securities Act of 1933, as amended, or
any other applicable securities laws or that such transfer has been registered
under federal and all applicable state securities laws. The Board may impose
such additional restrictions on the ownership and transfer of shares of Common
Stock issued pursuant to the Plan as it deems desirable; any such restrictions
shall be set forth in any Option or Restricted Stock agreement entered into
hereunder. Further, the Company shall be authorized to refrain from delivering
or transferring shares of Common Stock issued under this Plan until the
Committee has determined that the Participant has tendered to the Company any
federal, state or local tax owed by the Participant as a result of exercising
the Option, receiving a grant of Restricted Stock or disposing of any Common
Stock, when the Company has a legal liability to satisfy such tax. The Company
shall not be liable to any party for damages due to a delay in the delivery or
issuance of any stock certificate for any reason whatsoever.

         18. Reservation of Shares. During the term of the Plan, the Company
             ---------------------
will at all times reserve and keep available, and will seek or obtain from any
regulatory body having jurisdiction any requisite authority in order to issue
and sell such number of shares of Common Stock as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain the
authority from any regulatory body having jurisdiction which is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any shares
of Common Stock hereunder shall relieve the Company of any liability in respect
of the nonissuance or sale of such Common Stock as to which such requisite
authority shall not have been obtained.

         19. Approval of Plan. The Plan was originally adopted by the Board of
             ----------------
Directors and approved by the stockholders on January 18, 1999. Any amendments
to the Plan which require stockholder approval shall be by a majority of the
votes cast on the issue, including abstentions. The amendments to the Plan
included in this amendment and restatement were approved by the Board of
Directors on August 9, 2001, subject to stockholder approval. The amendments to
the Plan included in this amendment and restatement and any benefits granted
based upon such amendments will be null and void if stockholder approval is not
obtained at the next meeting of stockholders. No Options granted based upon the
amendments to the Plan included in this amendment and restatement shall be
exercised unless and until such amendments have been approved by the
stockholders of the Company as specified above.

         20. Conformity with the Code. The Incentive Stock Options authorized
             ------------------------
pursuant to the Plan are intended to satisfy all requirements for the Incentive
Stock Options under the Code and, notwithstanding any provision of the Plan or
any Incentive Stock Option Agreement, the Plan and all Incentive Stock Options
granted pursuant hereto shall be so construed and all contrary provisions shall
be so limited in scope and effect and to the extent they cannot be so limited,
they shall be void.

         21. Liability of the Company. Neither the Company, its directors,
             ------------------------
officers or employees, nor any Subsidiary which is in existence or hereafter
comes into existence, shall be liable to any Participant or other person (a) if
it is determined for any reason by the Internal Revenue Service or any court
having jurisdiction that any incentive stock option granted hereunder does not
qualify for tax treatment as an incentive stock option under Section 422 of

                                       11

<PAGE>

the Code, or (b) for refusing to sell or issue any shares covered by any Option
or for refusing to issue Restricted Stock if the Company cannot obtain authority
from the appropriate regulatory bodies deemed by the Company to be necessary to
sell or issue such shares in compliance with all applicable federal and state
securities laws and the requirements of any national exchange or trading system
on which the Common Stock is then listed or traded. In addition, the Company
shall have no obligation to any Participant, express or implied, to list,
register or otherwise qualify the shares of Common Stock covered by any Option
or Restricted Stock.

         22. Governing Law. The Plan shall be governed by and construed in
             -------------
accordance with the laws of the State of Delaware and the United States, as
applicable, without reference to the conflict of laws provisions thereof.

         23. Severability of Provisions. If any provision of this Plan is
             --------------------------
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.

                                       12<PAGE>

                                                                    Exhibit 10.8

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (the "Agreement") is made as of March 1,
2001, by and between Netpliance, Inc., a Delaware corporation (the "Company"),
and James E. Cahill ("Employee").

         WHEREAS, the Company desires to continue to obtain the services of
Employee, and Employee desires to continue to provide services to the Company,
in accordance with the terms and conditions of this Agreement;

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Employee agree as
follows.

         1. Employment. Effective on the Effective Date (as defined in Section
            ----------                                                 -------
2) and subject to the terms and conditions of this Agreement, the Company agrees
-
to employ Employee as its Vice President and General Counsel, and Employee
agrees to perform the duties associated with that position diligently and to the
reasonable satisfaction of the Company. From the Effective Date until
termination of this Agreement, Employee will devote Employee's full business
time, attention and energies to the business of the Company.

         2. Term and Termination. Employee will be employed under this Agreement
            --------------------
for an initial term of two years (the "Initial Term"), beginning on the date of
the Agreement (the "Effective Date"). This Agreement shall renew for successive
one year periods after the completion of the Initial Term. Notwithstanding the
foregoing, either party may terminate this Agreement at any time, with or
without cause, by giving 30 days written notice of termination to the other
party, and upon termination, neither parry will have any continuing obligation
to the other party, except if (a) the Company terminates this Agreement without
Cause (as defined below) or the Employee terminates his employment for Good
Reason (as defined below) then the Company will be obligated to pay Employee in
a lump sum within two days after such notice an amount equal to one-half (1/2)
Employee's annual base salary and bonus plan; and (b) the provisions of Sections
                                                                        --------
5, 6, and 7 hereof will survive any termination of this Agreement for any reason
-  -      -
in accordance with their terms. As used in this Agreement, termination for
"Cause" shall mean any termination of Employee for (a) the commission of an act
of fraud or embezzlement against the Company or commission of a crime involving
moral turpitude, (b) consistent willful misconduct or gross negligence in
performing Employee's duties hereunder after written notice of such and
reasonable opportunity to cure, (c) material breach of fiduciary duty in
connection with Employee's employment by the Company after written notice of
such and reasonable opportunity to cure, or (d) a material breach of any of the
terms of this Agreement after written notice of such and reasonable opportunity
to cure; and "Good Reason" shall mean any of the following shall occur without
the Employee's express prior written consent: (a) a change by the Company in
Employee's title, function, duties or responsibilities (including reporting
responsibilities), (b) the Employee's base salary or bonus program is reduced by
the Company, or there is a material reduction in the benefits that are in effect
for the Employee, (c) relocation of the Employee's principal place of employment
to a place located outside of Austin, Texas, or (d) other material breach of
this Agreement by the Company after written notice of such and reasonable
opportunity to cure.

                                       1

<PAGE>

3. Compensation. Beginning on the Effective Date and thereafter during the term
   ------------
of Employee's employment, the Company will pay Employee a base salary of not
less than $175,000 per year, payable biweekly or semi-monthly in accordance with
the payroll practices of the Company in effect from time to time. Such base
salary shall not be reduced and shall be subject to review and potential upward
adjustment periodically, in accordance with the compensation policies of the
Company in effect from time to time. Employee shall also, during the first year
of the Initial Term of Employee's employment hereunder, be eligible for an
annual discretionary incentive bonus of up to 50% of Employee's base salary.
Thereafter, Employee shall be eligible for an annual discretionary incentive
bonus of up to 30% of Employee's base salary. Such bonus to be awarded in
accordance with the bonus policies established by the Company from time to time.
All of Employee's compensation under this Agreement will be subject to deduction
and withholding authorized or required by applicable law.

4. Employee Benefits. Beginning on the Effective Date and thereafter during the
   -----------------
term of this Agreement, the Company will provide to Employee such fringe
benefits, perquisites, vacation and other benefits that the Company provides to
its similarly situated employees. The Company will reimburse Employee for
reasonable out-of-pocket business expenses incurred and documented in accordance
with the policies of the Company in effect from time to time.

5.       Confidential Information.
         ------------------------

         (a) In the course of performing services for the Company under this
     Agreement, Employee may receive or have access to commercially valuable,
     confidential or proprietary information. "Confidential Information" means
     all confidential information, whether oral or written, now or hereafter
     developed, acquired or used by the Company and relating to the business of
     the Company that is not generally known to others in the Company's area of
     business, including without limitation (to the extent confidential) (i) any
     trade secrets, work product, processes, analyses, know-how, software and
     hardware development information or other Intellectual Property of the
     Company; (ii) the Company's advertising, product development, strategic and
     business plans and information; (iii) customer lists and prices at which
     the Company has sold or offered to sell its products or services; and (iv)
     the Company's financial statements and other financial information.

         (b) Employee acknowledges and agrees that the Confidential Information
     (to the extent it can be owned) is and will be the sole and exclusive
     property of the Company. Employee will not use any Confidential Information
     for Employee's own benefit or disclose any Confidential Information to any
     third party (except in the course of performing Employee's authorized
     duties for the Company under this Agreement), either during or subsequent
     to Employee's employment with the Company. Upon termination of Employee's
     employment with the Company, Employee will promptly deliver to the Company
     all documents, computer disks and other computer storage devices and other
     papers and materials (including all copies thereof in whatever form)
     containing or incorporating any Confidential Information or otherwise
     relating in any way to the Company's business that are in Employee's
     possession or under Employee's control. Employee also agrees not to
     disclose to the Company any Confidential Information belonging to others.

                                       2

<PAGE>

         6. Restrictive Covenant. For purposes hereof, the "Noncompetition
            --------------------
     Period" will begin on the Effective Date and end six (6) months after the
     date Employee's employment with the Company is terminated for any reason.
     In consideration of the Company's agreement to employ Employee and the
     receipt by the Employee of Confidential Information, Employee hereby agrees
     that, during the Noncompetition Period, Employee will not (except in the
     course of performing Employee's authorized duties for the Company under
     this Agreement), directly or indirectly, on Employee's own behalf or as an
     officer, director, employee, consultant or other agent of, or as a
     stockholder, partner or other investor in, any person or entity (other than
     the Company or its affiliates):

               (a) engage in any business conducted by the Company, its
         subsidiaries or affiliates and any business competitive with the
         business conducted by the Company, its subsidiaries or affiliates
         (collectively a "Competing Business") within any geographic area in
         which the Company, its subsidiaries or affiliates conducts any
         business, or in which businesses competitive with the businesses of the
         Company, its subsidiaries or affiliates are conducted (the
         "Territory"), or;

               (b) directly or indirectly influence or attempt to influence any
         customer, potential customer, supplier or accounts of the Company, its
         subsidiaries or affiliates located within the Territory to purchase,
         sell or lease goods or services related to a Competing Business other
         than from or to the Company; or

               (c) solicit, encourage, or take any other action which is
         intended, directly or indirectly, to induce any other employee of the
         Company to terminate such employee's employment with the Company, or
         interfere in any manner with the contractual or employment relationship
         between the Company and any other employees of the Company, or hire or
         attempt to hire any former employee of the Company whose termination
         from employment has been effective for ninety (90) days or less;

provided, that the foregoing will not apply to any investment in publicly traded
securities constituting less than 5% of the outstanding; securities in such
class. For purposes of this Agreement, the term "affiliate" means with respect
to any person or entity any other person or entity controlling, controlled by or
under common control with such person or entity.

7.       Enforcement.
         -----------

               (a) Employee represents to the Company that Employee is willing
         and able to engage in businesses other than a Competing Business within
         the Territory and that enforcement of the restrictions set forth in
         Section 6 would not be unduly burdensome to Employee. The Company and
         Employee acknowledge and agree that the restrictions set forth in
         Section are reasonable as to time, geographic area and scope of
         activity and do not impose a greater restraint than is necessary to
         protect the goodwill and other business interests of the Company, and
         Employee agrees that that the Company is justified in believing the
         foregoing.

               (b) If the provisions of Section 6 are found by a court of
                                        ---------
         competent jurisdiction to contain unreasonable or unnecessary
         limitations as to time, geographical

                                       3

<PAGE>

         area or scope of activity, then such court is hereby directed to reform
         such provisions to the minimum extent necessary to cause the
         limitations contained therein as to time, geographical area and scope
         of activity to be reasonable and enforceable.

               (c) Employee acknowledges and agrees that the Company would be
         irreparably harmed by any violation of Employee's obligations under
         Sections 6 and 7 hereof and that, in addition to all other rights or
         remedies available at law or in equity, the Company will be entitled to
         injunctive and other equitable relief to prevent or enjoin any such
         violation. If Employee violates Section 6, the period of time during
                                         ---------
         which the provisions thereof are applicable will automatically be
         extended for a period of time equal to the time that Employee began
         such violation until such violation permanently ceases.

     8. No Obligation to Third Party. Employee represents and warrants that
        ----------------------------
Employee is not under any obligation to any person or other third party and does
not have any other interest which is inconsistent or in conflict with this
Agreement, or which would prevent, limit, or impair Employee's performance of
any of the covenants hereunder or Employee's duties as an employee of the
Company.

     9. Entire Agreement. This Agreement embody the complete agreement of the
        ----------------
parties with respect to the subject matter hereof and supersedes any prior
written, or prior or contemporaneous oral, understandings or agreements between
the parties that related in any way to the subject matter hereof. This Agreement
may be amended only in writing executed by the Company and Employee.

     10. Binding Effect. This Agreement shall be binding upon and inure to the
         --------------
benefit of the respective heirs, executors, administrators, legal
representatives and successors of the Company and Employee.

     11. Notice. Any notice required or permitted under this Agreement must be
         ------
in writing and will be deemed to have been given when delivered personally, by
telecopy or by overnight courier service or three days after being sent by mail,
postage prepaid, to (a) if to the Company, to the Company's principal place of
business, or (b) if to Employee, to Employee's residence or to Employee's latest
address then contained in the Company's records (or to such changed address as
such person may subsequently give notice of in accordance herewith).

     12. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND
         -------------
INTERPRETED IN ACCORDANCE WITH SUBSTANTIVE LAWS OF TEXAS, WITHOUT GIVING EFFECT
TO ANY CONFLICTS OF LAW, RULE OR PRINCIPLE THAT MIGHT REQUIRE THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION.

                                       4

<PAGE>

     IN WITNESS WHEREOF, the Company and Employee have executed and delivered
this Agreement as of the date first above written.

                                                         NETPLIANCE, INC.

                                                         By: /s/ JOHN F. MCHALE
                                                             -------------------
                                                         Name: John F. McHale
                                                         Title: Chairman and CEO

                                                         /s/ JAMES E. CAHILL
                                                         -----------------------
                                                         James E. Cahill

                                       5

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