Document:

<PAGE>

                                                                    EXHIBIT 10.5

Note: Redacted portions have been marked with (***). The redacted portions are
subject to a request for confidential treatment that has been filed with the
Securities and Exchange Commission.

                                   AGREEMENT

                                    BETWEEN

                   CABLE & WIRELESS GLOBAL NETWORKS LIMITED

                                      AND

                                 TELLIUM, INC.

                                FOR THE SUPPLY

                                      OF

                                NETWORK SYSTEMS
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                      <C>
CLAUSE 1  DEFINITIONS AND INTERPRETATIONS............................................................     4

CLAUSE 2  TERM AND SCOPE OF WORK.....................................................................    11

CLAUSE 3  PURCHASING.................................................................................    12

CLAUSE 4  DOCUMENTATION AND SPECIFICATIONS...........................................................    15

CLAUSE 5  INTENTIONALLY LEFT BLANK...................................................................    16

CLAUSE 6  QUALITY....................................................................................    16

CLAUSE 7  TYPE APPROVALS.............................................................................    17

CLAUSE 8  PRE-SHIPMENT TESTS.........................................................................    17

CLAUSE 9  DELIVERY, INSURANCE, RISK AND TITLE........................................................    18

CLAUSE 10 SYSTEM INTERWORKING........................................................................    19

CLAUSE 11 INTENTIONALLY DELETED......................................................................    20

CLAUSE 12 PRICE AND PAYMENT..........................................................................    20

CLAUSE 13 LIABILITY AND INDEMNITY....................................................................    21

CLAUSE 14 CONTRACTOR'S LIABILITY FOR DELAY...........................................................    23

CLAUSE 15 CONTRACTOR'S REPRESENTATIONS AND WARRANTIES................................................    23

CLAUSE 16 PERFORMANCE WARRANTY.......................................................................    25

CLAUSE 17 PRODUCT SUPPORT............................................................................    27

CLAUSE 19 HARDWARE, SOFTWARE AND HARDWARE/SOFTWARE DEVELOPMENT.......................................    28

CLAUSE 20 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................................    29

CLAUSE 21 ESCROW.....................................................................................    30

CLAUSE 22 LICENSE....................................................................................    30
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                           <C>
CLAUSE 23 INTELLECTUAL PROPERTY...........................................................    31

CLAUSE 24 INTELLECTUAL PROPERTY RIGHTS INDEMNITY..........................................    32

CLAUSE 25 TERMINATION.....................................................................    33

CLAUSE 26 AMENDMENTS......................................................................    35

CLAUSE 27 OTHER CONTRACTORS AND SUB-CONTRACTORS...........................................    36

CLAUSE 28 CONFIDENTIAL INFORMATION........................................................    36

CLAUSE 29 PUBLICITY.......................................................................    38

CLAUSE 30 FORCE MAJEURE...................................................................    38

CLAUSE 31 RESOLUTION OF DISPUTES..........................................................    39

CLAUSE 32 ETHICS..........................................................................    42

CLAUSE 33 NOTICES.........................................................................    42

CLAUSE 34 ENTIRE AGREEMENT................................................................    44

CLAUSE 35 WAIVER..........................................................................    44

CLAUSE 36 SEVERABILITY....................................................................    44

CLAUSE 37 ASSIGNMENT AND SUB-CONTRACTING..................................................    44

CLAUSE 38 COMPLIANCE WITH LAW AND REGULATIONS.............................................    45

CLAUSE 39 GOVERNING LAW AND JURISDICTION..................................................    46
</TABLE>

                                     -ii-
<PAGE>

                                   EXHIBITS

A.   LIST PRICES

B.   [INTENTIONALLY OMITTED]

C.   SPECIFICATIONS

D.   [INTENTIONALLY OMITTED]

E.   TURNKEY AGREEMENT

F.   [INTENTIONALLY OMITTED]

G.   DOCUMENTATION

H-1. CONTRACTOR'S STANDARD FORM OF CONFIDENTIALITY AGREEMENT

H-2. CABLE & WIRELESS GLOBAL CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT

I.   CUSTOMER SERVICE

J.   SOFTWARE MAINTENANCE AGREEMENT

K.   ESCROW

                                     -iii-
<PAGE>

                               PURCHASE AGREEMENT

     This Purchase Agreement (this "Agreement") is made effective as of August
7, 2000 by and between CABLE & WIRELESS GLOBAL NETWORKS, LIMITED, an Ireland
corporation, ("C&W") and TELLIUM, INC., a Delaware corporation ("Tellium").
Entry into this Agreement by C&W is conditioned upon approval by the Board of
Directors of Cable & Wireless plc of the transaction contemplated by and terms
set forth in this Agreement no later than September 5, 2000 or for such
extension of time as the parties may agree, provided, for purposes of clarity,
if the condition is not so satisfied, C&W shall not be deemed to have entered
into or ratified this Agreement. In consideration of the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     CLAUSE 1  DEFINITIONS AND INTERPRETATIONS

     A.   In the Contract, unless inconsistent with the context or otherwise
specified, the following terms shall have the following meanings:

          Agent means (***), or other agent designated by C&W or Cable &
          Wireless plc, in its capacity as agent for a Group Company under this
          Contract.

          Baseline Software means the most current release of Software, as of
          the applicable Date of Delivery, with the most current feature
          functionalities which have been paid for by the Purchaser.  Baseline
          Software requirements are in addition to the requirements set forth in
          Clause 19(C) of this Agreement.

          Clause means a clause of this Agreement.

          Claim means any loss, damages, action, claim, cost or expense
          (including, without limitation, reasonable costs of counsel and court
          or arbitration tribunal costs).

          Commitment means the purchase obligation under the Agreement to be
          satisfied by aggregating purchases by Purchasers, as more particularly
          described in this Agreement..

          Concession means the written waiver by C&W of a requirement of the
          Specifications.

          Confidential Information means any and all written, oral or other
          tangible or intangible form of:

                                      -4-
<PAGE>

          (a)  Commercial or financial information, including but not limited to
               information concerning the Disclosing Party's current and future
               products and services, its clients and customers and its
               marketing plans and techniques; and

          (b)  Technical information including, but not limited to, discoveries,
               ideas, concepts, know-how (whether patentable or capable of being
               protected by copyright or not) research, development, designs,
               specifications, drawings, blueprints, tracings, diagrams, models,
               samples, flow charts, data, computer programs, disks, diskettes,
               algorithms, software programs and trade secrets,

          in each case whether or not labeled as "Confidential" and whether or
          not that information could give any potential or actual competitor of
          the Disclosing Party any form of commercial or other advantage; and

          (c)  The terms and conditions of this Contract.

          Contract means this Agreement and includes any Schedules, Exhibits and
          any associated Purchase Orders, all as may be amended from time to
          time in accordance with this Agreement.

          Contractor means Tellium, Inc., a Delaware corporation, and includes
          its successors and permitted assignees.

          Contract Prices mean the prices to be paid to the Contractor by the
          Purchasers or its Agent under the Contract, which shall not exceed:

               (1)  for each element of Hardware and Software, the lower of (a)
               at least (***) off each list price set out in Exhibit A (***)
               under (***) or (b) any (***),(***) or (***) effected under (***)
               of this Agreement; and

               (2) for services, actual direct costs based on the lower of the
               governing labor rate set forth in Exhibit A or any (***), (***)
               or (***) effected by (***) or (***) of this Agreement..

          Date of Delivery means the date when the deliverable under the
          Contract is delivered to the Purchaser or Agent in accordance with the
          Contract and the applicable Purchase Order.

                                      -5-
<PAGE>

          Disclosing Party means the Party or the Purchaser that owns
          Confidential Information and which discloses such information.

          Disclosure Requirement means any requirement that information be
          disclosed by any (i) law, regulation or legal process, (ii) the rules
          and regulations of any securities exchange on which either party's
          securities are traded and any regulatory body over such securities
          exchange or (iii) any order of a court or other tribunal of competent
          jurisdiction.

          Documentation means the operating manuals, user instructions,
          technical literature, including drawings, diagrams, specifications,
          and other relevant materials written in English related to the use,
          operation, maintenance and control of all or any portion of the
          System.

          Effective Date of Contract means the date set forth above in this
          Agreement.

          Exhibits mean the designated exhibits to this Agreement but
          specifically exclude and do not mean Purchase Orders.

          Existing Network means the Purchaser's relevant computer equipment,
          network and telecommunications facilities (including but not limited
          to its billing systems) and all software, firmware and hardware used
          in relation thereto.

          Force Majeure means events which are beyond the reasonable control of
          the entity claiming Force Majeure which occur after the Effective Date
          of Contract and which is outside the control of the entity claiming
          Force Majeure and whose effects are not capable of being overcome.
          Events of Force Majeure include but are not limited to governmental
          act, war, the threat of imminent war, riots, civil commotion, fires,
          explosions, storms, floods, lightning, earthquakes and other natural
          calamities.  Any failure on the part of the Contractor's sub-
          contractors and suppliers to perform their obligations to the
          Contractor shall not be considered an event of Force Majeure under the
          Contract, unless such failure was the result of a Force Majeure event.
          A strike, work stoppage or other industrial action by the employees of
          the Contractor or its sub-contractors shall not be considered an event
          of Force Majeure unless such strike, work stoppage or industrial
          action is part of an industry-wide campaign that does not arise out of
          a dispute between the Contractor and any of its employees or
          subcontractors between a sub-contractor and any  of its employees.

          Group Company means all and any of:

          (a)  Cable and Wireless plc,

                                      -6-
<PAGE>

          (b)  any direct and indirect subsidiaries of Cable and Wireless plc,
               and

          (c)  any companies in or over which Cable and Wireless plc is able,
               through a direct or indirect shareholding, to exercise control;
               and

          (d)  any company in or over which Cable & Wireless plc is able,
               through direct or indirect shareholding, to exercise significant
               influence.

          Hardware means the hardware including, without limitation, hardware
          and modules identified on Exhibit A and any associated firmware which
          the Contractor is required to supply as part of the Contract.

          Insolvency Event means each and any of the following:

          (a)  the issue of a petition for winding up which is not dismissed
               within thirty (***) of its issue; or

          (b)  the making of an order or an effective resolution being passed
               for winding up except for the purposes of a solvent
               reconstruction or amalgamation and where the resulting entity
               assumes in writing all of the obligations of the relevant party
               under the Contract; or

          (c)  the making of an order for the appointment of an administrative
               receiver, administrator, trustee, liquidator, manager or similar
               officer; or

          (d)  an encumbrancer, receiver (including an administrative receiver)
               or other similar officer taking possession of the whole or any
               part (which is material in the context of the performance of the
               affected party's obligations under the Contract) of such party's
               undertaking, property or assets; or

          (e)  the making or proposing of making of a composition with creditors
               generally; or

          (f)  generally being unable to pay debts as they fall due; or

          (g)  an assignment for the benefit of creditors.

          Intellectual Property Rights mean all rights in inventions, patents,
          copyrights, design rights, semiconductor topography and chip design
          rights, trade marks and

                                      -7-
<PAGE>

          trade names, domain names, service marks, trade secrets, know-how and
          other intellectual property rights (whether registered or
          unregistered) and all applications and registrations for and
          extensions and renewals of such rights or any of them, anywhere in the
          world.

          IPR Claim means an action or claim by any person that the use or
          possession of the Works, any New Technology or the Source Technology
          or any part of them or of any other goods or services provided under
          the Contract infringes the Intellectual Property Rights of that person
          or any other person.

          License means the license granted in the Clause of this Contract
          headed `License'.

          Licensed Software means the Software provided by the Contractor as
          part of the System or otherwise for the purposes of the Contract.

          Media means the media on which the Software and the Documentation for
          the Software are recorded or printed as provided to the Purchaser by
          the Contractor.

          New Technology means inventions, drawings, designs, developments,
          software and technical information including, but not limited to,
          know-how, data, formulae, specifications, procedures and techniques
          discovered derivatively in the course of the engagement of the parties
          and exclusive of the System.

          Party means the Contractor or C&W.

          Pre-Shipment Tests means the series of tests carried out by the
          Contractor prior to delivery to demonstrate that the Hardware and/or
          Software meet the requirements of the Specifications.

          Pre-Shipment Test Completion Certificate means the document issued by
          the Contractor certifying successful completion of the Pre-Shipment
          Tests upon their completion.

          Purchase Order means a purchase order issued by a  Purchaser or Agent
          for all or any portion of the System.

          Purchaser means any Group Company purchasing all or any portion of the
          System under this Contract.

          Receiving Party means the Party or Purchaser that receives
          Confidential Information from the Disclosing Party.

                                      -8-
<PAGE>

          Site means the land, buildings and environment where a System is to be
          installed.

          Software means the set of computer programs in machine-readable code,
          which the Contractor is required to supply as part of the Contract.

          Source Code means the original base code of the Software together with
          associated libraries, command files, any other proprietary
          intermediate software, modifications, enhancements, revisions, updates
          and all relevant listings, flow charts and associated documentation,
          in human readable form which can be used to create executable code,
          supplied on a Media in a format which can be read and printed by the
          Hardware and which is readily accessible for modification and
          adaptation.

          Source Technology means inventions, drawings, designs, developments,
          software and technical information including but not limited to know-
          how, data, formulae, specifications, procedures and techniques
          provided by the Contractor for the purposes of the Contract and which
          is in existence at the Effective Date.

          Specifications means the specifications agreed between C&W and the
          Contractor which define the requirements of the Systems, including
          plans, drawings and data, and related addenda and clarifications, as
          identified in the jointly agreed upon Exhibit C.

          System means the Hardware or Software or any combination thereof (and
          any associated cabling or other items) as defined in the
          Specifications or otherwise set out or referenced in the Contract and
          shall include repaired and replacement parts supplied under the
          Contract.

          System Interworking means the ability of the various components of the
          System to be compatible with and to work in combination with the
          Existing Network and with the systems of other interfacing networks
          and equipment, and "Integrate", "Integrating", 'Integrated' and
          'Integration' shall be construed as referring to this ability.

          Warranty Period means a period from (***), indicated for each
          applicable category as follows: (i) System Software: (***); (ii)
          software media: (***); (iii) all products other than System Software
          and software media: (***).

          Year 2000 Compliant means that neither performance nor functionality
          is affected by dates prior to, during and after the year 2000.  In
          particular:

                                      -9-
<PAGE>

          (a)  no value for a current date will cause any interruption in the
               operation of the System or Existing Network;

          (b)  all manipulations of date-related data will produce the desired
               results for all valid date values;

          (c)  date elements in the interfaces and data storage will permit
               specifying the century to eliminate date ambiguity without human
               intervention;

          (d)  where any date element is represented without a century, the
               correct century shall be unambiguous for all manipulations
               involving that element; and

          (e)  Year 2000 must be recognized as a leap year.

     B.  The headings and marginal notes in the Contract are for ease of
reference only and shall not affect its interpretation or construction.

     C.  The Exhibits to this Agreement are integrated into and form part of
this Agreement.

     D.  Words indicating the singular include the plural and vice versa where
the context requires.

     E.  Words denoting persons include bodies corporate and unincorporated
associations and vice versa where the context requires.

     F.  Reference to any enactment, order, regulation or other similar
instrument shall be construed as a reference to the enactment, order, regulation
or instrument as may be amended by any subsequent enactment, order, regulation
or instrument.

     G.  Reference in the Contract to "days" shall be construed as calendar days
and to weeks as calendar weeks.

     H.  In writing or written includes facsimile transmission expressly and
personally confirmed as received by the designated recipient, electronic mail,
letter, written documents or other comparable means of written communication.

     I.  The Contractor shall be as responsible for the acts and omissions of
its employees, officers, directors and for those of its agents and
subcontractors.

                                     -10-
<PAGE>

     CLAUSE 2  TERM AND SCOPE OF WORK

     A.  The Contract shall become effective on the Effective Date of Contract
and shall continue in force for a period of five (5) years from the Effective
Date (the "Initial Term"), unless terminated earlier in accordance with the
provisions of Clause 25 headed "Termination".  The term of the Contract shall
automatically renew thereafter on the anniversary date of the Effective Date for
one-year periods, subject to termination rights under this Agreement, unless
either Party to this Agreement provides sixty (60) days' advance written notice
to the other Party that the Contract shall expire and not be renewed.
Notwithstanding  anything to the contrary in the Contract, the Contract shall
not expire until the outstanding Purchase Orders placed and accepted prior to
the anticipated date of expiration (based on the notice of expiration) have been
fulfilled, and the date of expiration of this Agreement shall be the last date
of delivery of such ordered Systems.

     B.  The terms and conditions set out in this Agreement shall be the only
terms and conditions which shall apply to this Agreement, except the provisions
of any law and or regulation affecting the provision of the Systems at the
Effective Date of this Agreement or which comes into force during the period of
performance of this Agreement and which, pursuant to the requirement of law,
takes precedence over or varies a provision of this Agreement.  Where any
standard or pre-printed conditions contained on a form of quotation, a purchase
order, acknowledgment of a purchase order, invoice or similar document conflict
with the terms of this Agreement, the terms of this Agreement shall control.

     C.  In the Contract, the Works includes:

          (a)  the System, including

               (i)    the design of the System;

               (ii)   the build of the System in accordance with the
                      Specifications; and

               (iii)  packing and delivery of the System;

all of which are more specifically described in this Agreement.

          (b)  the supply of Documentation;

          (c)  the grant of the License to the Purchaser;

          (d)  the provision of training; and

                                     -11-
<PAGE>

          (e)  the provision of all services expressly set forth in the
               Contract.

     D.  The Contractor shall provide the Works in accordance with the Contract.

     CLAUSE 3  PURCHASING

     A.  The Contractor will develop the Systems in accordance with the Exhibit
C entitled "Specifications".  The Parties acknowledge that a portion of the
Specifications have not been fully developed and further agree to work
diligently and in good faith toward the completion of those Specifications,
which, when completed, will be made a part of Exhibit C.The Parties additionally
acknowledge that the Specifications may be refined from time to time so as to
meet intended functions.

     B.  During the Term of this Contract, C&W, directly or through a designated
Group Company, shall provide the Contractor with quarterly forecasts, each of
which will set forth the quantities of and delivery dates for Systems to be
ordered by Purchasers or Agent during the twelve-month period following the date
of the forecast.  As C&W may deem appropriate, C&W shall work toward the
objective of providing monthly forecasts.

     C.  To order the Works, the Purchasers or Agent shall provide Contractor
with Purchase Orders in writing delivered to Contractor's designated
representative, which, among other things, shall clearly reference the Contract.
The Contractor shall be required to accept and fulfill Purchase Orders up to
(***) of a forecast. Delivery shall be made in accordance with the following
schedule:

          (a)  for orders placed during the first year of the Contract, delivery
               shall be made within (***) after receipt of the Purchase Order;

          (b)  for orders placed after the first year of the Contract, delivery
               shall be made within (***) after receipt of the Purchase Order;
               however, the Contractor agrees that, after the second year of the
               Contract, it shall use all diligent, good faith, commercially
               reasonable efforts to achieve the goal of fulfilling Purchase
               Orders within (***) after receipt of the Purchase Order.

Notwithstanding the intervals stated above, the Contractor shall use diligent,
good faith commercially reasonable efforts to fulfill as quickly as possible
those Purchase Orders placed by a Purchaser on shorter delivery timeframes as
mutually agreed by the parties.

     D.  Unless otherwise specified in the Contract, time is of the essence in
the performance of the Contractor's obligations under the Contract.  The
Contractor shall use its best efforts to prevent delays and to minimize any
delays which may arise and shall take all reasonable steps to expedite the
performance of the Contract.

                                     -12-
<PAGE>

     E.  If the Contractor has reason to believe that the Date of Completion (as
defined in Exhibit E as applicable) or a Date of Delivery may be delayed, it
shall promptly notify the Purchaser of:

          (a)  the cause of the delay;

          (b)  the expected period of delay; and

          (c)  the steps proposed to be taken to minimize the delay.

     F.  Except in circumstances of Force Majeure, no amendment to the Date of
Completion (as applicable) or a Date of Delivery shall be accepted by the
Purchaser except as mutually agreed and confirmed in writing by the Purchaser in
accordance with the procedures set out in the Clause headed `Amendments'.

     G.  The Purchasers shall be entitled to purchase Systems from the
Contractor through the Agent, as well as on a turnkey basis. The Parties' and
the Purchaser's obligations for turnkey purchases shall be the same as provided
under this Agreement; plus the reasonable additional payment and performance
obligations set forth in Exhibit E to this Agreement, which exhibit shall be
negotiated in good faith and diligently by the Parties after the Effective Date
and then incorporated into this Agreement.

     H.  If any Purchaser receives a bona fide offer from a third party (the
"Bona Fide Offer") to purchase the Systems in connection with a liquidation of
such Purchaser, such Purchaser shall (i) provide the Contractor with written
notice of such Bona Fide Offer (the "Offer Notice"), which shall include, among
other things, a copy of such Bona Fide Offer and (ii) shall offer the Contractor
the right to purchase the Systems at the same price and on the same terms and
conditions as the Bona Fide Offer. The Contractor shall have ten (10) days from
receipt of the Offer Notice (the "Notice Date") to accept the offer from the
Purchaser. If the Contractor has rejected or failed to accept such offer within
such ten (10) day period, Purchaser may sell such Systems to the party making
the Bona Fide Offer, pursuant to the terms of the Bona Fide Offer and shall have
no further obligations to the Contractor as to that liquidation.

     I.  During the initial five (5) year term of the Contract, C&W -through the
     Group Companies shall be obligated to purchase in the aggregate U.S. Three
     Hundred Fifty Million Dollars ($350,000,000) of Systems at the Contract
     Prices and may, during the term of the Contract, purchase additional
     Systems at the Contract Prices, subject to (a)  rights of termination for
     default and (b) the purchase obligation reduction set forth in this Clause
     3(I).  The Parties acknowledge that it is the business objective of the
     Contractor to be at the forefront of development of leading edge optical
     cross-connect and related

                                     -13-
<PAGE>

     technology and that the Contractor's competitive technology position is a
     key reason for C&W's selection of the Contractor as a vendor. If though,
     during the term of the Contract, the Contractor does not maintain a
     technological edge so that there exists in the market superior technology
     unmatched by the Contractor, then C&W may reduce the purchase obligation
     under the Contract to U.S. Two Hundred Million Dollars ($200,000,000) and
     the discount specified in (1)(a) of the definition of Contract Price and
     amount due to the Contractor shall be adjusted at the end of the initial
     term of the Contract. At the end of the intial term of the Contract, the
     aggregate purchases under the Contract shall be determined, and the
     applicable purchase discount under 1(a) of the definition of Contract Price
     shall be adjusted as follows. If the aggregate purchases under the Contract
     equal or exceed $350,000,000, then 1(a) of the definition of the Contract
     Price shall not change and no additional sums shall be due to the
     Contractor. If the aggregate purchases total between (***) and (***) then
     the discount to be applied under 1(a) of the definition of Contract Price
     shall be (***), and C&W shall refund promptly to the Contractor the
     difference between amounts paid to date based on (***) discount and those
     same amounts based on a (***) discount. If the aggregate purchases total
     between (***) and (***), then the discount to be applied under 1(a) of the
     definition of Contract Price shall be (***), and C&W shall refund promptly
     to the Contractor the difference between those amounts paid to date based
     on a (***) discount and those same amounts based on a (***) discount. If
     the aggregate purchases total between (***) and up to (but not including)
     $350,000,000, then the discount to be applied under 1(a) of the definition
     of Contract Price shall be (***), and C&W shall refund promptly to the
     Contractor the difference between those amounts paid to date based on a
     (***) discount and those same amounts based on a (***).

     J.  The Contractor acknowledges and agrees that the Contract is not an
     exclusive contract and that the ordering and/or purchasing of optical
     cross-connect technology from any other vendor(s) does not constitute a
     breach of the Contract.  The Group Companies shall also have the option, in
     satisfaction of the foregoing purchase obligation and any additional
     purchases, to purchase, in lieu of Systems, newer equipment of the
     Contractor that constitutes a suitable replacement for Systems.

     K.  The acceptance of the initial Purchase Order placed by the Agent may be
     conditioned upon (i) the parties reaching, after diligent and good faith
     negotiations, commercially reasonable terms for the protection of the
     Contractor's Confidential Information and Intellectual Property Rights; and
     (ii) the Agent agreeing in writing to be bound by relevant obligations of a
     Purchaser under this Agreement.  The Contractor acknowledges and agrees
     that the purpose of this Clause is to protect the Contractor's proprietary
     information; and that this Clause shall not and is not intended to confer a
     right on Contractor to renegotiate the terms of the Contract.

                                     -14-
<PAGE>

     L.  Each Purchaser, by placing a Purchase Order, agrees to and shall be
bound by all obligations of a Purchaser hereunder; however, such obligations
shall not extend to the obligations of C&W or any other Purchaser
hereunder.CLAUSE 4  DOCUMENTATION AND SPECIFICATIONS

     A.  The Contractor shall supply Documentation to the Purchaser with each
delivery of the related deliverable (System, upgrade or other deliverable) under
the Contract or as may be reasonably requested by the Purchaser, in hard or soft
copies or both if reasonably available, including a CD ROM version, as a part of
the Contract Price and not at an additional charge, in the English language in
the number of copies and format agreed between the parties not to exceed two (2)
sets of documentation per System when ordered as a separate line item.  The
Documentation is more specifically identified in the Exhibit G entitled
`Documentation'.

     B.  Any drawings or documents held by the Contractor shall be retained
during the lifetime of the Systems to enable the Contractor to supply any
replacement parts and/or extensions to the Systems.

     C.  The Contractor shall furnish to the Purchaser Documentation completed
in sufficient detail to enable the Purchaser to operate the System properly.

     D.  All System Documentation supplied shall be referenced against a
specific Software or Hardware release.

     E.  Any omission, inconsistency or ambiguity in detail and/or description
in any Documentation provided under the Contract shall be corrected by the
Contractor without delay without cost to the Purchaser, and replacement
Documentation shall be provided promptly by the Contractor at no cost to the
Purchaser.

     F.      The Contractor shall be responsible for any significant
         discrepancies, errors or omissions in the Documentation, whether the
         Documentation has been approved by the Purchaser or not, provided that
         such discrepancies, errors or omissions are not due to inaccurate
         drawings or information and decisions supplied in writing to the
         Contractor by C&W.

     G.      The Contractor shall provide to C&W and the Purchasers
         documentation that identifies for Hardware and Software and services
         (i) part numbers to enable cataloguing, (ii) descriptions, (iii) list
         prices (in accordance with Exhibit A or Clause 12(H), as applicable),
         (iv) discounted prices and (v) System configurations as available. So
         that such information is current, the Contractor shall update this
         documentation regularly or as often as the Purchaser or C&W requests.

                                     -15-
<PAGE>

     CLAUSE 5  INTENTIONALLY LEFT BLANK

     CLAUSE 6  QUALITY

     A.  No later than December 31, 2000, the Contractor shall implement and
shall maintain throughout the term of this Contract a quality system conforming
to the requirements of ISO 9001 (or an equivalent standard approved by C&W, such
approval not to be unreasonably withheld).  In the event the Contractor receives
any notice of nonconformance to ISO 9001 from the ISO registrars, Contractor
shall immediately advise C&W and promptly provide  C&W with (i) the list of
details of nonconformance and (ii) the detailed plan submitted to the ISO
registrars including timelines and goals to achieve compliance with ISO 9001.

     B.  At no cost to C&W (or a Group Company designated by C&W), the
Contractor shall give C&W, or a designated Group Company, reasonable access, to
the extent reasonably possible, to the Contractor's manufacturing locations,
inspection records and test records to audit the effective operation of the
quality system throughout the Contractor's performance of its obligations under
the Contract.

     C.  If C&W (or a Group Company designated by C&W), so requests, the
Contractor shall promptly submit to C&W as part of the Works a quality plan
setting out the specific quality practices, resources and activities relevant to
the Contractor's performance of its obligations under the Contract.

     D.  C&W, itself or through a designated Group Company, may, but is not
obligated to, perform a quality inspection and carry out quality tests on all or
any part of the Systems at any stage during the Contract.  The Contractor shall,
to the extent reasonably possible, give C&W free and safe access to parts of its
premises or those of its subcontractors concerned with the implementation of the
Systems and, at C&W's reasonable cost, shall provide C&W with such inspection
facilities, testing apparatus and services as C&W may reasonably require.

     E.  In addition to the foregoing rights, C&W, or a Group Company designated
by C&W, shall also have the right, but not the obligation, at C&W's cost, to
conduct such laboratory tests of the Systems as it deems appropriate in C&W's
designated laboratory facilities, which shall be reasonably acceptable to the
Contractor.

     F.  If an inspection or test conducted by C&W, or a Group Company
designated by C&W, reveals that all or any part of the Systems will not fulfill
the requirements of the Specifications or that a Specification is deficient,
C&W, or a Group Company designated by C&W, shall notify the Contractor of such
deficiencies. For the avoidance of doubt, such notice shall not relieve the
Contractor from any liability or obligation under the Contract. If a
Specification is revealed to be deficient, then the Parties will diligently and
in good faith work toward a reasonable resolution of the Specification problem.

                                     -16-
<PAGE>

     G.  As to any release of the Works, prior to issuance by C&W, or a Group
Company designated by C&W, of a Fit For Use Certificate (as defined in Clause
8(C)), C&W, or a Group Company designated by C&W, shall be entitled to reject
any Systems, in whole or in part, which do not conform to the Specifications or
otherwise fail laboratory acceptance tests  of C&W, or a Group Company
designated by C&W.

     CLAUSE 7  TYPE APPROVALS

     A.  The Contractor shall, (***), obtain any type approvals or equivalent
approvals required for the Systems or any part of the Systems (***) of the Site.

     B.  The Contractor shall promptly provide C&W, or a Group Company
designated by C&W, with all relevant documentation relating to type approval for
the Systems and such shall be deemed to be Documentation under this Contract.
C&W shall have the right but not the obligation to approve such documentation
and, if not reasonably satisfied, to require the Contractor to carry out
additional type approval tests to satisfy type approval requirements.

     C.  Upon satisfaction of type approval requirements, C&W, or a Group
Company designated by C&W, shall issue to the Contractor a certificate stating
that the Systems at issue are fit for use (the "Fit For Use Certificate").

     CLAUSE 8  PRE-SHIPMENT TESTS

     A.  Before each portion of the Systems is shipped, the Contractor shall
carry out the Pre-Shipment Tests, a listing of which shall be supplied to C&W,
or a Group Company designated by C&W, in advance.  If C&W, or a Group Company
designated by C&W, reasonably considers that the proposed Pre-Shipment Tests are
not sufficient, then the Contractor shall make appropriate amendments to such
schedule to satisfy C&W at no additional cost to C&W.

     B.  C&W reserves the right for itself, or a Group Company designated by
C&W, to be present at and to participate in the Pre-Shipment Tests and the
Contractor shall give adequate notice of the commencement of the Pre-Shipment
Tests.

     C.  Upon successful completion of the Pre-Shipment Tests, the Contractor
shall issue a Pre-Shipment Test Completion Certificate to the Purchaser for such
tested portions of the System.

     D.  In the event that the Contractor manufactures a part of the Systems or
utilizes an item of equipment which does not fully comply with the
Specifications, the Contractor may apply to C&W for a Concession in accordance
with the Clause headed `Amendments'.

                                     -17-
<PAGE>

     CLAUSE 9  DELIVERY, INSURANCE, RISK AND TITLE

     A.  The Systems shall be properly and suitably packed by the Contractor to
ensure that they reach the destination designated by the Purchaser or the Agent
in good condition having due regard to the nature of the Works and the climatic
and other conditions prevailing both during delivery and at the designated
destination.

     B.  NO (***) SHALL BE MADE WITHOUT THE PURCHASER'S EXPRESS, PRIOR WRITTEN
CONSENT.

     C.  The Contractor shall be responsible for delivering the Systems DDP, VAT
unpaid to the designated destination in accordance with INCOTERMS 2000 and shall
insure the same accordingly.  The Purchaser or the Agent shall reimburse the
Contractor for those direct costs and expenses incurred for shipping the Systems
from the Contractor's facility to the designated destination, including all
delivery, carrier insurance, worldwide transit coverage, export, import, tariff
and similar expenses but excluding costs of due diligence, corrective actions,
fines, penalties and the like due to the acts or omissions of the Contractor or
any person or entity for which it has responsibility.  If delivery of a System
VAT unpaid is not permitted under applicable law, then the VAT shall be paid by
the Contractor and the VAT, without mark-up, shall be reimbursed by the
Purchaser or Agent under this Clause 9(C).

     D.  If the designated destination is the Site and the Purchaser's Site
manager has been identified to the Contractor, then the Contractor shall notify
such Site manager in writing, with a copy to the Purchaser at the notice address
set forth in this Agreement or such other address as the Purchaser shall
specify, before the delivery of the Systems of the shipment with reference to
the controlling Purchase Order.  Where relevant the notification shall include
the carrying vessel or flight number, the air waybill, the number and size of
cartons and a brief description of the items being delivered.

     E.  Following the delivery of the Systems to the designated destination,
the Contractor shall submit to the Purchaser, with a complete copy to the
invoicee and the Agent and notice to C&W (for purposes of tracking aggregate
purchases), a shipping document (with an original signature upon request)
detailing the Systems shipped and stating, among other things: (a) the
Contractor's name and, where appropriate, sub-supplier's name; (b) the country
of origin; (c) the port of loading; (d) the country of final destination; (e)
the company vessel or flight number; (f) the metric net and gross weights of
each case, carton or package; (g)  the quantity and description of the Systems;
and (h) the address of the designated destination.  Each case, carton or package
shall show the Purchaser's name, the address of the designated destination, the
Contract reference, the Contract number and/or the Purchase Order number.

     F.  If the Contractor delivers any Systems more than (***) prior to the
time period set forth in the applicable Purchase Order, the Purchaser or the
Agent, as the case may be, may

                                     -18-
<PAGE>

charge the Contractor the reasonable and actual costs of storage, handling and
insurance incurred by the Purchaser or the Agent. All charges made pursuant to
this Clause 9(F) shall be invoiced to the Contractor with express reference to
the controlling Purchase Order.

     G.  If the delivery of the Systems is delayed for reasons other than Force
Majeure, the Purchaser reserves the right to stipulate in writing that all or
part of the Systems so delayed be air freighted to the designated destination,
with any excess cost borne by the Contractor without pass-through or
reimbursement, if any such delay is likely to materially prejudice the scheduled
date of completion of the project of which such Systems are a part.

     H.  Subject to the Purchaser's or Agent's reimbursement obligations under
Clause 9(C) above and except where such obligations have expressly been assumed
by the Purchaser or the Agent, the Contractor shall be solely responsible for
all importation activities associated with the Systems or any part of the
Systems into the country of the designated destination.  Subject to the prior
express agreement of the Contractor and Purchaser, such agreement not to be
unreasonably withheld, a local Group Company may be used and cited as the
importer of record.  The Contractor shall inform the Purchaser or the Agent, as
appropriate, of known applicable import and export laws, rules and regulations
in order to facilitate the delivery of the Systems to the designated
destinations.  The Purchaser recognizes the value of sharing information it may
have to facilitate deliveries and, where it deems prudent, shall do so but
without in any way assuming, waiving or limiting the due diligence and other
obligations of the Contractor or the Agent.  The sharing of information by a
disclosing party shall in no case be deemed to be the rendering of legal advice
nor absolve the receiving party of its independent duty to verify such
information.  Unless applicable export regulations and other law state to the
contrary or unless such duty is assumed by the Agent, the Contractor is
responsible for obtaining all export licenses and permits.

     I.  The Contractor shall insure the Systems with a reputable insurance
company on an "all risk" basis against all loss or damage, and shall lodge and
pursue to conclusion all claims arising prior to title passing in such Systems.

     J.  Title and risk of loss in the Systems shall pass from the Contractor to
the Purchaser (or the Agent if applicable) upon (***) of the Systems to (***) of
the (***) as set forth in Clause 9(C).

     CLAUSE 10  SYSTEM INTERWORKING

     A.  In addition to the Contractor's obligations with regard to System
Interworking under the Specifications or other terms of the Contract, the
Contractor shall, when requested by the Purchaser in writing, provide the
Purchaser with external interface specifications (including protocols, data
formats and connectivity architecture) relevant to the request and shall
promptly

                                     -19-
<PAGE>

discuss with the Purchaser any changes which need to be made to the System to
ensure such System Integration is satisfactorily effected.

     B.  The Purchaser may provide such external interface specifications to
third parties involved in the integration and/or maintenance of the Systems and
Existing Network, as agreed to in writing by the Contractor, and such approval
rights shall be conditioned on their not being unreasonably withheld,
conditioned or delayed, and shall be available only so long as withholding or
conditioning does not materially and adversely affect the Purchaser's ability to
have integration and maintenance services timely performed or cause the
Purchaser to breach an existing contract for such services.  Such disclosure
shall further be subject to the provisions of the Clause headed `Confidential
Information' and provided further that such third party enter a Confidentiality
Agreement in the form attached hereto as Exhibit H-1.

     C.  At the reasonable request of the Purchaser, the Contractor agrees to
co-operate with the Purchaser's other suppliers and/or customers from time to
time to assist the Purchaser in resolving any integration problems specific to
the Purchaser, at the cost of the Purchaser (unless such response is warranty-
related).

     CLAUSE 11  INTENTIONALLY DELETED

     CLAUSE 12  PRICE AND PAYMENT

     A.  The Purchaser or the Agent shall pay amounts due and payable under the
Contract pursuant to an agreed form of detailed invoice, accompanied by agreed
substantiation, import documentation (where applicable) and such other
documentation as is mutually agreed by Purchaser and Contractor. Invoices shall
be submitted to the address shown on the applicable Purchase Order.

     B.  (1) Each Contract Price and each list price on Exhibit A is a firm
maximum price and shall not be exceeded except as a result of amendment to the
Contract made in accordance with the Clause headed `Amendments'.

         (2) If the (***) any (***) or (***) a (***) that is (***) a (***) on
(***), then, (***) and without the (***), such (***) the (***) the (***) is
(***).

         (3) If a (***) from the (***) a (***) or (***) (other than (***)) for
(***) and/or (***) that is (***), then, (***) and without the (***), the (***)
shall be (***) such (***) and (***) at the (***),(***) or (***).

         (4) (***) shall have (***) to (***) the (***) to (***) with a (***)
with the foregoing (***) the (***) and (***) per (***), at its (***), to (***) a
(***) to (***) to (***) the (***) and (***) of the (***).  Any (***) pursuant to
this Clause 12(B) (***) to (***) the (***) as (***) pursuant to the (***) of
(***), attached hereto as (***), and may (***) to (***) the

                                     -20-
<PAGE>

(***) that the (***) has (***) or (***) with this Clause, the applicable dates
upon which any such (***) occurred and the (***) in (***) and (***) up to and
including the (***) but shall not (***) the (***) of the (***) or any other
(***) not directly related to this Clause. If the (***) a (***), then the (***)
shall (***) to the (***), the (***) of the (***) at the (***) of (***) from the
(***) to the (***).

     C.  All amounts payable under the Contract shall be exclusive of value
added or other applicable sales taxes (if any) and import duties, which shall be
paid at the rate and in the manner for the time being prescribed by law and, if
paid by the Contractor on behalf of the Purchaser, shall be passed on to the
Purchaser at cost with no mark-up.  If required to do so by relevant law, the
Purchaser shall deduct any taxes (including, without limitation, withholding
taxes), duties or charges from any payments to be made to the Contractor under
the Contract.

     D.  Where prices specified in the Exhibits or Purchase Orders are stated as
estimates, the prices paid post delivery shall not exceed the amount of such
estimate, as confirmed on the Purchase Order unless otherwise expressly agreed
by the parties in writing.

     E.  All payment, purchase order and invoice amounts shall be in U.S.
Dollars.  Payments shall be made to the address set forth in the invoice, either
by check or electronic transfer at the Purchaser's sole option.

     F.  Invoices together with supporting documentation shall be submitted in
accordance with Clause 12(A) above.  Payment for Systems properly delivered and
invoiced shall be due forty-five (45) days from date of receipt of invoice.

     G.  Past due payments under the Contract will begin accruing interest at
the rate of (***) from the date due until paid.

     CLAUSE 13  LIABILITY AND INDEMNITY

     A.  Except for Claims resulting from any suit, claim or proceeding as set
forth in Clause 24 (Intellectual Property Rights Indemnity), C&W, Purchasers and
Contractor agree that C&W and Purchasers shall not be liable to Contractor and
Contractor shall not be liable to either Purchasers or C&W for any lost profits,
incidental, punitive, consequential, indirect or special loss or damage arising
from or in any way connected with the Contract; provided, however, that if the
law of any jurisdiction applicable to this Contract does not permit such damages
to be completely disclaimed, this Clause shall be interpreted as necessary to
give the affected entity the full benefit of any disclaimer or limitation of
said damages as permitted under such law.

                                     -21-
<PAGE>

     B.  Except for Claims resulting solely from the gross negligence or willful
misconduct of a Group Company, its employees, officers, directors and agents
(other than Agent), the Contractor agrees to indemnify the Group Companies from
and against any and all Claims awarded against, incurred by or paid or payable
by a Group Company as a result of:

          (a)  any injury to or death of any person;

          (b)  any loss of or damage to any property;

          (c)  any claim for infringement of health and safety legislation and
               regulations; and/or

          (d)  any other loss or damage (other than lost profits, incidental,
               punitive, consequential, indirect or special loss or damage which
               is expressly excluded in sub-clause A of this Clause);

Arising out of the negligent, willful or unlawful act or omission or default of
the Contractor, its employees, officers, directors, agents and contractors.

     C.  Each of C&W, Purchasers and the Contractor shall either (1) take out
and maintain for the term of the Contract insurance coverages, with a reputable
insurance company against the liabilities referred to in the Contract and
against all actions in respect thereof or (2) maintain adequate self insurance
for the liabilities referred to in the Preceding Clause.  Any insurance policy
shall, among other things, (i) be written on an occurrence basis (unless
precluded by law, in which event coverages shall be maintained without
interruption for a period of five (5) years after the termination of the
Contract), (ii) if it is Purchaser's or C&W's, note the interests of Contractor,
or if it is Contractor's, note the interests of C&W or Purchaser, as applicable,
and (iii) as to C&W's, Purchaser's and Contractor's respective obligations, be
primary as to any coverages carried by the additional insureds. Where requested
in writing, Purchaser, C&W or Contractor shall provide the other with written
evidence of the insurance coverages obtained.  Insurance coverages shall not
limit or negate the indemnities provided under this Contract.

     D.  C&W agrees to indemnify the Contractor against those direct losses or
damages (other than consequential, indirect or special loss or damage, which are
expressly excluded under sub-Clause A of this Clause) by reason of third party
claims made against the Contractor only because of the presence of a System of
the premises of a Purchaser and where there exists no fault of the Contractor,
its employees, officers, directors, agents or contractors.

                                     -22-
<PAGE>

     E.  The limitations of liability and indemnities contained in this Clause
and in Clauses 24 and 25 shall survive and remain in full force and effect
notwithstanding any termination or expiration of the Contract.

     CLAUSE 14  CONTRACTOR'S LIABILITY FOR DELAY

     A.  If a delivery of Systems or portion of a Purchaser-approved partial
delivery is delayed beyond (***) from the scheduled Date of Delivery in
accordance with Clause 3(C), as adjusted for Force Majeure, the Contractor shall
pay to the Purchaser (***) of the applicable Purchase Order (or, for a
Purchaser-approved partial delivery, (***) of the unusable portion set forth on
the applicable Purchase Order) per day for each day beyond such (***) until
delivery is made, as liquidated damages and not as a penalty; provided, however,
that such liquidated damages shall not exceed the cost of (***) of the Purchase
Order (or, for a Purchaser-approved partial delivery, the unusable portion of
the Purchase Order). If the Contractor fails to deliver such System within (***)
of the designated Date of Delivery, as adjusted for Force Majeure, then the
Purchaser may, without liability, terminate such Purchase Order, and the
Contractor shall pay the liquidated damages accrued to the date of termination
within (***) after the date of such termination.

     B.  No payment of liquidated damages shall be due pursuant to Clause 14(A)
if (i) the delivery is delayed through no fault of Contractor or its
subcontractors or (ii) the delay is a result of the System not being approved by
C&W, or a Group Company designated by C&W following successful lab testing.

     C.  The payment of liquidated damages shall not relieve the Contractor of
its obligation to complete and deliver the Systems or from any other liability
or obligation under the Contract, other than for the specific delay, nor shall
payment of liquidated damages limit the Purchaser's other rights under this
Contract including, without limitation, the rights under Clause 25.

     CLAUSE 15  CONTRACTOR'S REPRESENTATIONS AND WARRANTIES

     A.  The Contractor represents and warrants to C&W that:

          (a)  each of the Systems shall provide the intended facilities and
               functions and perform in accordance with the Specifications;

          (b)  the possession and use of the Systems and any Source Technology
               by the Purchaser shall not infringe any Intellectual Property
               Rights of any third party;

                                     -23-
<PAGE>

          (c)  it shall act in good faith and in a commercially reasonable
               manner in performance of its obligations under this Contract;

          (d)  the Systems shall not cause any degradation in the operation of
               the Existing Network or cause the Existing Network to cease to
               comply with any type approvals or standards applicable at the
               time the Systems are provided;

          (e)  it is a company duly incorporated under the laws of Delaware and
               has the corporate power and authority to accept the terms of the
               Contract and to perform its obligations thereunder;

          (f)  any Software supplied contains no viruses or other contaminants
               or devices including, without limitation, bugs, worms, logic
               bombs, Trojan horses or self-propagating or other programs that
               may cause malfunctions or damage to or erase the Software or data
               contained therein or any other software or data;

          (g)  the Intellectual Property Rights in the Source Technology and the
               Licensed Software are vested in the Contractor or its licensors
               and the Contractor is authorized to grant the licenses to use the
               Source Technology and the Licensed Software under the Contract;

          (h)  except as provided for in sub-clause (g) above, the Systems are
               the Contractor's original work and are not copied from any other
               work or materials, that no rights have been granted to others in
               respect thereof and that no third party has any right, title or
               interest in the Systems or any part thereof; (i) it has the full
               capacity to grant the License;

          (j)  any Software supplied is capable of operating without degradation
               or failure in performance, functionality, output or otherwise in
               relation to any decimal based currencies or any combination of
               decimal based currencies including the euro and the euro symbol;

          (k)  the System shall be free from defects in materials and
               workmanship under normal use;

          (l)  upon its initial delivery, each System shall be new and unused
               (other than factory testing);

                                     -24-
<PAGE>

          (m)  the System and each item of Hardware and Software is Year 2000
               Compliant;

          (n)  where the Existing Network is Year 2000 Compliant, the use of the
               Systems shall not adversely affect the Year 2000 Compliant status
               of the Existing Network; and

          (o)  all individuals providing repair or maintenance services on
               behalf of the Contractor shall have received the appropriate
               Railroad Safety Training.

          B.   The representations and warranties of sub-clauses (a), (b), (d),
(j), (k), (m), (n) and (f) do not apply to any System that (a) has been altered,
modified, or improperly repaired by someone other than the Contractor or its
subcontractors; (b) has been the subject of misuse, negligence, accident, or
improper storage or installation by someone other than the Contractor or its
subcontractors; or (c) has been used or maintained in any manner other than in
accordance with the Documentation.  THE WARRANTIES CONTAINED IN THIS CONTRACT
ARE IN LIEU OF ANY OTHER PRODUCT WARRANTY BY THE CONTRACTOR, WHETHER EXPRESS,
IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION, WARRANTIES OF CORRESPONDENCE
OF DESCRIPTION OF SAMPLES, SATISFACTORY QUALITY AND FITNESS FOR AN IDENTIFIED
PURPOSE AND SHALL SURVIVE THE TERMINATION OR EXPIRATION OF THE CONTRACT.
CONTRACTOR NEITHER ASSUMES NOR AUTHORIZES ANY PERSON TO ASSUME FOR IT ANY OTHER
LIABILITY THAN THOSE SET FORTH IN THE CONTRACT.  THE WARRANTIES EXPRESSED HEREIN
SHALL NOT BE ASSIGNABLE TO ANY OTHER PARTY EXCEPT AS SPECIFICALLY PERMITTED
UNDER THIS AGREEMENT.

     CLAUSE 16  PERFORMANCE WARRANTY A.  The Contractor warrants to C&W and the
Agent the performance of the Systems in accordance with the Specifications for
the applicable Warranty Period.  During the Warranty Period:

          (a)  the Contractor shall promptly investigate the cause of any System
               that fails to meet the Specifications (or within 24 hours with no
               cure period if such non-compliance presents a material, adverse
               threat to the Purchaser's operations),  including, without
               limitation, attendance at the Site and such other of the
               Purchaser's premises as may be necessary, and promptly repair
               such System according to the Specifications and the Purchaser's
               reasonable satisfaction or replace, without charge to the
               Purchaser, such System (or any component thereof) found not to be
               in accordance with the Specifications.

                                     -25-
<PAGE>

          (b)  the Purchaser shall bear the cost of delivering to the Contractor
               any parts of the System which must be repaired or replaced.  The
               Contractor shall bear the cost of delivering to the destination
               specified by the Purchaser the repaired or replaced parts or
               Systems in the most efficient manner.

          (c)  if a System fails to operate in accordance with the
               Specifications and such failure cannot be rectified using the
               standard operational and maintenance procedures, upon notice the
               Contractor shall promptly send a specialist to the Site at the
               Contractor's expense and maintain him/her there at no cost to the
               Purchaser for so long as may be necessary to restore the System,
               provided that if such failure is likely to have a material
               adverse impact on the Purchaser, the specialist shall be sent
               within twenty-four (24) hours notice with no cure period or
               sooner if possible; and

          (d)  if a new hardware or software feature is needed to conform the
               Systems to the Specifications, such new feature shall be
               implemented at no cost to the Purchaser. The absence of a charge
               shall not apply when the Purchaser has requested new
               functionality features.

     B.  If the Contractor fails to remedy the faults within a reasonable time,
taking into account the impact of any such fault on C&W's and the Purchaser's
operations, the Purchaser may proceed to do the work at the Contractor's cost
and expense.  The costs reasonably incurred by the Purchaser shall be deducted
from the Contract Price or be paid by the Contractor to the Purchaser within
(***) of invoice.

     C.  Default repair or emergency repair of Systems by or on behalf of the
Purchaser pursuant to Clause 16(B) above in accordance with the Documentation
and other relevant information supplied shall not invalidate or limit the
Contractor's warranty provided that reasonable care is taken during such repair.
The Purchaser shall immediately notify the Contractor of any emergency repairs
to be undertaken.

     D.  The period of warranty to apply on items repaired or replaced during
the Warranty Period shall be (***) from the date of shipment of the repaired or
replaced item or the balance of the applicable warranty period, whichever is
longer.

     E.  The Contractor shall reimburse the Purchaser's direct costs incurred as
a direct result of errors or omissions in the Documentation.

     F.  If:

                                     -26-
<PAGE>

          (a)  all or any portion of the Systems fails to be Year 2000 Compliant
               in any material respect; or

          (b)  as a result of any act or omission of the Contractor or its
               subcontractors the Year 2000 compliance of the Existing Network
               is adversely affected in any material respect; or

          (c)  where applicable, the combined Systems and Existing Network fails
               to be Year 2000 Compliant;

then the Contractor shall, upon notice, promptly (or within 24 hours with no
cure period if such non-compliance presents a material, adverse threat to the
Purchaser's operations), at no cost to the Purchaser, undertake and diligently
pursue such action as is reasonably necessary to make the Systems Year 2000
Compliant, or to restore the Existing Network to its status prior to the
relevant act or omission of the Contractor or its subcontractors, or to enable
the combined Systems and Existing Network to be Year 2000 Compliant, as the case
may be.

     G. Contractor shall provide support and repair and return service for the
        Systems as set forth in Exhibit I.

     H. If the Contractor fails to respond within the designated response
        periods under this Clause 16, then C&W or the Purchaser shall have the
        right to offset and/or recover all direct costs incurred by C&W or the
        Purchaser as a result of the Contractor's failure timely to respond.

     I. If Systems installation shall become the Contractor's responsibility
        through a turnkey amendment, then such turnkey amendment shall
        incorporate installation and performance warranties acceptable to the
        Parties.

     CLAUSE 17  PRODUCT SUPPORT

     A.  For a period of ten (10) years from the first Date of Delivery under
the Contract, the Contractor shall support the Systems including, without
limitation:

         (a)   timely supply of all spare and replacement parts to the systems
               integrator and/or the Purchaser or Agent at the then-current
               prices less any appropriate discounts;

         (b)   the retention of the Documentation to enable any modifications or
               extensions to the Systems or its integration that may
               subsequently be required; and
<PAGE>

          (c)  Contractor shall offer maintenance and support to C&W and the
               Agent for Software pursuant to the Software Maintenance Agreement
               attached hereto as Exhibit J.

The Contractor shall notify the Purchaser and Agent at least six (6) months in
advance of any termination of production and/or support to enable the Purchaser
and Agent to review their positions, their future spares holding and to exercise
any last buy opportunities.

     A.   Upon cessation of support for the Systems, the Contractor shall supply
          to the Purchaser, without limitation, such drawings, designs and
          technical information as the Purchaser may reasonably require to
          enable it to continue to use, operate and control the Systems.

     B.   The Contractor shall provide and deliver specialist higher level
          technical support to key Cable &Wireless markets in the U.S., U.K.,
          Europe and Japan upon request by C&W or its designee. Dedicated
          Contractor optical network expertise includes optical switching
          network designers, network management software developers, restoration
          and efficiency planners, interoperability (including DWDM, ATM and IP
          networking) engineers. Dedicated support, at no charge to the
          Purchaser or C&W, shall be a minimum of three (3) qualified personnel,
          of which two shall be a project manager and technical sales engineer),
          per region. Support requested by C&W in excess of the dedicated
          personnel shall be at the rates stated in Exhibit A.

     CLAUSE 18  TRAINING SERVICES

     A.  The Contractor shall provide the training courses at the prices
detailed in the Exhibit A.

     B.  Additionally, the Contractor shall provide training on a regular basis
to meet the Purchaser's and the Agent's needs, including customized courses
where required.  Training, including hands-on facilities, shall, wherever
possible, be delivered in, or as near as possible to the Purchaser's or  Agent's
preferred location.

     C.  The Purchaser shall be responsible for any travel, lodging, and other
fees incident to the attendance of its or the Agent's personnel at the
Contractor's training courses.

     CLAUSE 19  HARDWARE, SOFTWARE AND HARDWARE/SOFTWARE DEVELOPMENT

     A. The Contractor shall keep the Purchaser and Agent reasonably informed of
all relevant aspects of the Contractor's software development. The Purchaser
shall forward to the Contractor requests for product development such that the
Contractor may in its sole discretion incorporate reasonable requests in its
software development plan.

                                     -28-
<PAGE>

     B.  The Contractor shall report on a quarterly basis to the Purchaser and
Agent the status of known software upgrades and of any future upgrades that have
been planned since the last report.

     C.  The Contractor shall in all events provide the Purchaser and the Agent
with all maintenance upgrades to the Software during the Warranty Period and any
period of purchased support at no charge to Purchaser or C&W.  For the avoidance
of doubt, the term "maintenance upgrades" shall mean any and all software
(whether or not described as an upgrade, update or release) necessary to correct
bugs, replace temporary maintenance fixes with permanent ones, or provide minor
enhancements, but does not include software which provides substantial new
functionality to the Software.  The Contractor shall inform the Purchaser and
Agent of any Hardware implications when upgrading Software at the earliest
possible date.  If any Hardware supplied and/or installed by the Contractor
needs to be replaced to facilitate the Software maintenance upgrades identified
above, then the new Hardware requirements shall be provided at the Contractor's
sole cost.

     D.  The Contractor shall ensure that all Software supplied will interwork,
         itself or by upgrade, with the (***) immediately preceding versions of
         the Systems. For purposes of the Contract, all releases issued though
         and including (***) of the Contract shall be deemed to constitute the
         Baseline Software

     E.  and a single "version", and the Contractor guarantees continuing
         backward compatibility and interoperability of all future Software
         releases and support, at no additional charge, for the longer of the
         term of the Contract or the Software warranty period. To this end, the
         Contractor shall provide promptly on a routine basis, at no charge to
         the Purchaser or C&W, Baseline Software and all Hardware upgrades so
         that all of the System delivered to the Purchaser to date may be run at
         the same version. The Contractor shall invoice and the Purchaser shall
         pay for all additional functionality Software features beyond Baseline
         Software and for that Hardware necessary for such additional feature
         functionalities. For every release of Software and/or Hardware, the
         Contractor shall provide to C&W and the Purchaser a detailed itemized
         invoice identifying the Software maintenance upgrades, the feature
         upgrades, the Hardware related to Software maintenance upgrades, the
         Hardware related to additional feature functions and the prices
         invoiced for each.

     CLAUSE 20  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     A. C&W will act in good faith and in a commercially reasonable manner in
performance of its obligations under the Contract. Each Purchaser represents and
warrants at the time of its purchases that it will act in good faith in
performance of its obligations under the Contract.

                                     -29-
<PAGE>

     B.   C&W is duly organized and has the power and authority to accept the
terms of the Contract and to perform its obligations hereunder. Each Purchaser,
through its initial Purchase Order, will represent that at the time of purchase
it is duly organized and has the power and authority to accept the terms of the
Contract and to perform its obligations hereunder.

     C.  Except pursuant to Clause 22(E), the Purchaser and C&W shall not, and
shall not authorize any third party to, reverse compile, reengineer or
disassemble or analyze the physical construction of the Systems (or any
component thereof) for any purpose nor will a Purchaser or C&W reproduce the
Software for the purpose of furnishing it to others except as authorized in
writing by the Contractor. Purchaser and C&W shall not remove or destroy any
copyright, logo, trademark, trade name, proprietary markings or confidentiality
legends placed on or contained within the Systems, its containers or any related
materials or Documentation. Purchaser and C&W shall comply with all legends that
appears on or in the Systems, materials or Documentation to the extent
consistent with the Contract and the intended use and purpose of the Systems.

     D.   No copies of the Documentation shall be made except for internal
operational use, and if the Documentation is installed on any intranet, access
to the Documentation shall be limited in accordance with the Clause entitled
"Confidential Information."

     CLAUSE 21 ESCROW

     A.   At the request of C&W, the Contractor shall enter into an Escrow
Agreement with the National Computing Centre (`NCC') in accordance with NCC's
then prevailing terms and conditions, a current copy of which is attached for
reference as Exhibit K entitled `Escrow'.

     B.   C&W shall pay any fees charged by the Escrow Agent.

     CLAUSE 22 LICENSE

     A.   The Contractor hereby grants to the Purchaser a perpetual, irrevocable
(except under the conditions of Clause 22(I) below), royalty-free, non-
transferable and non-exclusive license to use and install the Licensed Software
on and in conjunction with the Systems and/or the Existing Network.

     B.   The Purchaser may make only so many copies of the Licensed Software as
are reasonably necessary for operational security and use.

     C.   The Purchaser may, with fourteen (14) days notice to the Contractor
(or in the event of an emergency such notice in form and time as may be
practicable), allow a permitted third party to use and install the Licensed
Software for the purposes of providing services to the Purchaser.

                                     -30-
<PAGE>

     D.   If any part of the Systems or the Existing Network becomes temporarily
inoperable, then the License is deemed to apply to the use of the Licensed
Software on other equipment which is under the Purchaser's control, without any
additional payment to the Contractor but at the Purchaser's risk and expense
(except where the Systems are defective), until the Systems and/or Existing
Network becomes operable.

     E.   Except as permitted under this Clause or under Clause 16(B), the
Purchaser shall not alter or modify the whole or any part of the Licensed
Software nor, other than in connection with the creation of any necessary
interfaces or to ensure interoperability with software already installed in the
Purchaser's network management systems and with other vendor's platforms in
order to meet operational objectives, decompile, disassemble or reverse engineer
the object code of the Licensed Software.

     F.   If any part of the Licensed Software delivered to the Purchaser is not
owned by the Contractor:

          (a)  the Contractor shall notify the Purchaser and  Agent of that
               fact; and

          (b)  the Contractor grants to the Purchaser a sub-license to such
               third party software with the same rights and subject to the same
               restrictions as the Contractor, such restrictions having been
               notified to the Purchaser prior to the Effective Date.

     G.   The Parties may from time to time by mutual agreement extend the scope
of the licenses granted hereunder.

     H.   Subject to Clause 22(I) below, any termination or expiration of the
Contract shall not operate so as to terminate the License.

     I.   Notwithstanding Clause 22(H) above, the license granted under Clause
22(A) above may be terminated immediately by the Contractor in the event of the
Purchaser's breach of Clause 22(E) or 20(C) above.

     CLAUSE 23  INTELLECTUAL PROPERTY

     A.   The Contract Price includes all amounts which may be payable
(including, without limitation, royalties) in respect of the Intellectual
Property Rights on or in respect of the Systems.

     B.   The Purchasers and C&W acknowledge that all Intellectual Property
Rights in the Source Technology and the Licensed Software are vested, and shall
remain vested, in the Contractor or its licensors.

                                     -31-
<PAGE>

     C.   C&W, Purchasers and Contractor recognize that New Technology may arise
during the course of their association under the Contract. If any New Technology
is deemed by the entity that created it to be deserving of intellectual property
protection, then that entity is responsible for taking steps to protect any
interests it may have in such New Technology and may refuse to disclose such
during its pursuit of Intellectual Property Rights in the same.

     CLAUSE 24  INTELLECTUAL PROPERTY RIGHTS INDEMNITY

     A.  The Contractor agrees to indemnify, hold harmless and defend (with
counsel acceptable to C&W) the Group Companies and their officers, directors,
employees and agents without limitation from and against any and all liability,
loss, damage, costs and expenses (including legal expenses on a solicitor and
own client basis) awarded against, incurred by or paid or payable by the
Purchaser resulting at any time from any IPR Claim.

     B.  This indemnity shall not apply to any infringement resulting directly
and solely from any amendments, modifications or enhancements of the Systems or
the Source Technology undertaken by the Purchaser without license or right to
use.

     C.  C&W or the Purchaser, as applicable, agrees that:

         (a)   C&W or the Purchaser shall promptly notify the Contractor in
               writing of any IPR Claim;

         (b)   C&W or the Purchaser shall not knowingly make any admission as to
               liability or agree to any settlement of or compromise any IPR
               Claim without the prior written consent of the Contractor; and

         (c)   the Contractor shall, at the Contractor's request and expense, be
               entitled to conduct all negotiations and litigation arising from
               any IPR Claim subject to reasonable consultation with the
               Purchaser. The Purchaser and C&W shall, at their election and at
               the Contractor's request and expense, reasonably cooperate with
               the Contractor in connection with such negotiations and
               litigation. If the Contractor fails to mount a defense on a
               timely basis such that C&W and/or the Purchaser may be at risk of
               liability under any IPR Claim, C&W may conduct the litigation at
               the expense of the Contractor, including, without limitation,
               reasonable attorneys fees.

     D.   Without prejudice to any other provision of the Contract, if any IPR
Claim is made, or in C&W's or the Purchaser's reasonable opinion is likely to be
made, against C&W and/or the Purchaser, the Contractor shall act promptly and
diligently pursue at its own expense to:

                                     -32-
<PAGE>

          (a)  modify the affected Systems or replace portions thereof (without
               detracting from its overall performance and while still complying
               with the Specifications) including rewriting, modifying or
               replacing the Documentation (without detracting from its clarity
               and effectiveness) in order to remove the infringement of
               Intellectual Property Rights; or

          (b)  procure for the Purchaser the right to continue to use the
               relevant Systems  and/or Source Technology in accordance with the
               Contract; or

          (c)  in the event that neither (a) nor (b) above can be achieved
               within a timeframe acceptable to the Purchaser, purchase from a
               third party and provide to the Purchaser alternative Systems
               and/or Source Technology that shall perform the functions of the
               affected Systems to a standard acceptable to the Purchaser.

     E.   If the Contractor does not perform any of the actions listed above,
C&W may, without prejudice to its other rights and remedies, terminate the
Contract immediately by reason of the Contractor's material breach and the
provisions of the Clause headed `Termination' shall apply.

     CLAUSE 25  TERMINATION

     A.  C&W has the right, without prejudice to its other rights or remedies,
to terminate the Contract immediately, by written notice to the Contractor, if
the Contractor is in breach of any of its obligations under the Contract and
either fails to remedy that breach within thirty (30) days after receipt of
written notice of such breach from the Purchaser, C&W or its designee, unless a
shorter cure period is specifically prescribed in the Contract for such breach
(e.g., emergency response), in which case such shorter cure period shall
control. If such breach is unable to be remedied despite prompt and diligent
efforts of the Contractor to remedy such breach within the governing cure
period, then C&W may agree to extend the cure period for a reasonable period of
time. . Persistent breaches of the Contract by the Contractor, whether or not
individual breaches have been cured, may be deemed by C&W to constitute material
breach, entitling C&W to terminate on seven days' notice without any right to
cure. C&W or a Purchaser may determine that a breach does not merit termination;
however, such a decision by C&W or a Purchaser shall not constitute a waiver of
any other breach or limit in any way C&W's or a Purchaser's other rights or
remedies.

     B.   The Contractor has the right, without prejudice to its other rights or
remedies, to terminate the Contract immediately, by written notice to C&W if C&W
is in material breach of its obligations under the Contract and fails to remedy
that breach within thirty (30) days after receipt of written notice of such
breach from the Contractor. In addition, the Contractor has the

                                     -33-
<PAGE>

right to terminate the applicable Purchase Order immediately and seek recourse
against the Purchaser if the Purchaser is in material breach of its obligations
under the Contract and the Purchaser or C&W fails to remedy such breach within
thirty (30) days after receipt by the Purchaser and C&W of written notice from
                                                ---
the Contractor of such breach. If any breach under this Clause 25(B) is
unable to be remedied within the governing cure period despite prompt and
diligent efforts of the Purchaser or C&W to remedy such breach within the
governing cure period, then the Contractor may agree to extend the cure period
for a reasonable period of time.

     C.   If C&W, any Purchaser or the Contractor is prevented by Force Majeure
from performing its obligations for a period longer than (***), or such other
time as may be agreed by C&W or Purchaser, as the case may be, and Contractor,
the other Party shall be entitled to terminate the Contract by giving (***)
notice in writing to the party claiming Force Majeure delay.

     D.   Each Party has the right to terminate the Contract immediately by
written notice to the other Party if an Insolvency Event occurs to the other
Party.

     E.   If C&W terminates the Contract for breach or insolvency,,

          (1)  the Contractor shall cease work with respect to the Contract
               forthwith and shall be entitled to receive from the Purchaser the
               unpaid portion of the Contract Price for those Systems (in
               accordance with the Specifications) that have been delivered to
               the Purchaser (but not to the Agent) to the date of termination
               and that portion of a Contract Price that cannot be recouped by
               the Contractor for those accepted Purchase Orders in production
               for more than thirty (30) days at the time of termination , less
               all amounts which C&W or any Purchaser may withhold or offset
               pursuant to the Contract,  and

          (2)  C&W shall be entitled, in addition to any other rights or
               remedies available to it, to recover all damages incurred by it
               or the Purchaser as a result of the breach (subject to the
               provisions of Clause 13 (A)).

     F.  If the Contractor terminates the Contract pursuant to Clause 25, after
taking into account amounts previously paid by the Purchasers and C&W under the
Contract and, in an Insolvency Event, subject to the priorities established by
applicable insolvency law, C&W or the Purchaser, as applicable, shall pay to the
Contractor the Contract Price for those Systems which have been completed in
accordance with the Specifications at the date of termination less all amounts
which C&W or a Purchaser may withhold or offset pursuant to the Contract.

     G.  If the Contract is breached by a Party or a Purchaser for reasons of
Force Majeure and consequently terminated as provided in Clause 25(C), then
neither Party nor any Purchaser,

                                     -34-
<PAGE>

as applicable, shall be liable to any entity under this Agreement for loss or
damage to the extent resulting directly and solely from the event of Force
Majeure.

     H.  Notwithstanding anything to the contrary contained in the Contract, the
liability of C&W and the Purchasers, jointly and severally, shall be limited to
the unpaid portion of the Contract Prices for those Systems that have been
accepted and delivered to the Purchaser (but not the agent) in accordance with
the Contract plus that portion of a Contract Price that cannot be recouped by
the Contractor for those accepted Purchase Orders in production for more than
thirty (30) days, less all amounts that C&W or a Purchaser may withhold or
offset under the Contract.

I.  Any termination or expiration of the Contract shall not affect any accrued
rights or liabilities of either Party or Purchaser, nor shall it affect the
coming into force or the continuance in force of any provision of the Contract
which is expressly or by implication intended to come into or continue in force
on or after such termination.

     CLAUSE 26 AMENDMENTS

     A.  Any amendment to the Contract, including without limitation a
Concession, shall not be binding on the Parties unless it is set out in writing
in accordance with this Clause and executed by the Parties.

     B.  Either Party may request an amendment at any time. If one Party
requests an amendment:

          (a)  the Parties shall discuss the proposed amendment on an informal
               basis, and such discussions shall be without prejudice to the
               rights of either Party;

          (b)  if C&W is the Party requesting the amendment and proposes to
               materially amend the Specifications or the Works, the C&W shall
               request a written quotation for the work and the Contractor
               shall, within fourteen (14) days of receipt of the quotation,
               provide a written statement describing the impact, if any, of the
               proposed amendment together with a written quotation for the
               work;

          (c)  if the Contractor is the Party requesting the amendment and
               proposes to materially amend the Specifications or the Works, the
               Contractor shall request a written acceptance for the work and
               C&W shall respond as soon as may be practicable after receipt of
               the request; however, in no event

                                     -35-
<PAGE>

               shall acceptance be deemed to have occurred by reason of C&W's
               failure to respond;

          (d)  if the Parties agree to proceed further with a proposed
               amendment, C&W shall prepare a written contract amendment and
               submit it to the Contractor for countersignature.

     C.   An amendment shall become effective when signed by both Parties.
Unless otherwise agreed in writing, the Parties shall continue to perform their
obligations under the Contract pending negotiation and, where applicable,
signature of the amendment.

     D.   The grant of a Concession shall not relieve the Contractor from any
other liability or obligation under the Contract.

     E.   Any Party's decision with respect to amendments (including without
limitation the granting of a Concession) is at its sole discretion.

     CLAUSE 27 OTHER CONTRACTORS AND SUB-CONTRACTORS

     A.   In performing its obligations under the Contract, the Contractor
shall:

          (a)   co-operate with any other contractors and sub-contractors
                appointed by the Purchaser and not jeopardize or compromise
                their work; and

          (b)   comply with reasonable directions given by C&W and/or a
                Purchaser from time to time.

     B.   The Contractor shall not be liable for any failure to perform by C&W
and/or a Purchaser or any of its contractors, except to the extent resulting
from the acts or omissions of the Contractor, its employees, officers, agents or
contractors.

     CLAUSE 28  CONFIDENTIAL INFORMATION

     A.   The Receiving Party undertakes to the Disclosing Party that:

          (a)  it shall use Confidential Information of the Disclosing Party
               solely for the purposes of the Contract;

          (b)  it shall reveal Confidential Information of the Disclosing Party
               only to those of its (i) employees or (ii) approved sub-
               contractors, in each case to whom disclosure is necessary for
               them to perform their duties under the Contract; and

                                     -36-
<PAGE>

          (c)  it shall not disclose Confidential Information of the Disclosing
               Party to any third party without the prior written consent of the
               Disclosing Party, except to its professional advisors (such as
               auditors and attorneys) on a "need to know" basis.

     B.   The foregoing obligations shall not apply to any Confidential
Information which:

          (a)  was known to the Receiving Party prior to receipt thereof from
               the Disclosing Party; or

          (b)  is or becomes public knowledge other than by a breach of this
               clause; or

          (c)  is received from a third party without breach of any other legal
               or contractual confidentiality arrangements; or

          (d)  is required to be disclosed by any applicable regulation, law or
               government authority or by a court of competent jurisdiction (a
               "Disclosure Requirement") provided the Receiving Party shall use
               all reasonable endeavors to (i) give the Disclosing Party two (2)
               days notice in writing of such disclosure and (ii) disclose only
               such portion of the Confidential Information as is required to be
               disclosed; or

          (e)  as provided under Clause 10.

     C.   Each Receiving Party shall ensure that its employees and sub-
contractors comply with the confidentiality obligations contained in this Clause
and are bound by terms and conditions of use and non-disclosure and use at least
as onerous as those contained herein. Each Receiving Party shall be responsible
for any breach of such agreement.

     D.   A party may share any Confidential Information with an Affiliate (as
defined in the Confidentiality and Non-Disclosure Agreement between C&W and
Tellium dated as of June __, 2000 (the "Global NDA"), a copy of which is
attached hereto as Exhibit H-2) of such party pursuant to the terms and
conditions of the Global NDA.

     E.  The confidentiality obligations contained in this clause shall remain
in full force and effect for a period of (***) from any termination or
expiration of the Contract.

     F.  If the Contract is terminated or expires, the Receiving Party shall
return or destroy at the Disclosing Party's request all Confidential Information
of the Disclosing Party.

                                     -37-
<PAGE>

     G.   Subject to the Non-Disclosure Agreement, dated as of May 18, 2000, by
and between the Contractor and the Agent, the Contractor will provide the Agent
with all information of Contractor's that is necessary for Agent to integrate
and guaranty end-to-end performance of the Systems, maintenance and support
roles.

     CLAUSE 29  PUBLICITY

     A.   The Contractor, the Purchasers and C&W shall not (and shall ensure
that their employees, agents and sub-contractors shall not) advertise or make
any public announcement in respect of the Contract without the express written
consent of, in the case of C&W and Purchaser, Contractor or in the case of
Contractor, C&W. Such consent shall not be unreasonably withheld, except (i)
pursuant to a Disclosure Requirement or (ii) if a request for consent has been
submitted to the other party and the other party has not responded within
fourteen (14) days.

     B.   If C&W or a Purchaser desires to publicize under this Clause 29, it
shall, prior to publication, submit in draft form to Contractor or its designee,
for its approval, all copy or materials relating to the Contract which is
intended for publication and a list of all countries in which the requesting
party wishes to publicize the Contract.  If Contractor wishes to publicize under
this Clause 29, it shall, prior to publication, submit in draft form to C&W or
its designee, for its approval, all copy or materials relating to the Contract
which is intended for publication and a list of all countries in which the
requesting party wishes to publicize the Contract.

     CLAUSE 30  FORCE MAJEURE

     A.   If either Party or a Purchaser is affected by an event of Force
Majeure, it shall:

          (a)  promptly notify  all affected entities under this Contract in
               writing of the nature and extent of the Force Majeure and the
               estimated duration of any delay; and

          (b)  use its commercially reasonable efforts to commence as soon as
               possible and diligently pursue the mitigation of the effect of
               such Force Majeure event upon the Contract.

     B.   Subject to compliance with the notice requirement in this Clause, the
entity affected by Force Majeure shall be excused from, and shall not be liable
for, any delay or non-performance of its obligations under the Contract to the
extent that its performance is interrupted or prevented by Force Majeure.

                                     -38-
<PAGE>

      CLAUSE 31  RESOLUTION OF DISPUTES

     A.   In the event of any dispute between C&W or Purchaser, on the one hand
and Contractor on the other hand (individually a "Disputing Party" and
collectively, the "Disputing Parties") arising out of or relating to the
Contract, representatives of the Disputing Parties from a level of management
who have authority to settle the dispute shall, within (***) of receipt of a
written notice (the "Original Notice"), meet in a good faith effort to resolve
the dispute.  Unless concluded with a written legally binding agreement, all
negotiations connected with any dispute shall be conducted in confidence and
without prejudice to the rights of the Disputing Parties in any future
proceedings.

     B.   If any dispute cannot be resolved at such meeting, within (***) or
within (***) of the Original Notice if no meeting has taken place, the Disputing
Parties shall use one or more of the following dispute resolution processes:

          (a)  if the dispute is of a technical nature concerning Specifications
               and/or performance of Systems, expert determination, as set out
               below; or

          (b)  mediation or arbitration as set forth below.

     C.   Expert determination of disputes concerning Specifications and
performance shall be carried out in accordance with the following procedure:

          (a)  there shall be one expert, who shall be knowledgeable and
               experienced in the technology at issue;

          (b)  if the Disputing Parties are unable to agree on an expert or if
               the expert agreed upon is unable or unwilling to act and the
               parties are unable to agree upon another qualified and
               experienced expert, the Academy of Experts shall appoint the
               qualified and experienced expert;

          (c)  at least (***) prior to the expert determination, the Disputing
               Parties shall exchange copies of a written summary of their case
               and relevant documentation and shall submit copies of the same to
               the expert;

          (d)  all other details of procedure and the timetable for the expert
               determination shall be determined by the expert, in consultation
               with the Disputing Parties;

                                     -39-
<PAGE>

          (e)  the expert shall  determine the dispute, acting in the capacity
               of an expert, not an arbitrator;

          (f)  the expert shall deliver a written, reasoned determination to the
               Disputing Parties within (***) of full submission of documents
               and any supplementary materials required by the expert;

          (g)  the expert determination shall be legally and finally binding
               upon the Disputing Parties and not subject to appeal.  Any action
               required by the expert determination shall be implemented within
               (***) following the expert determination or as specified within
               the expert determination;

          (h)  the expert determination and all matters connected with it shall
               be kept confidential except as necessary for a Disputing Party to
               implement or enforce the expert determination;

          (i)  unless the Disputing Parties agree otherwise, the fees and
               expenses of the expert as well as any other administrative
               expenses of the expert determination shall be borne by the
               parties in equal shares.  Each Disputing Party shall also its own
               costs of representation except where costs are a matter for the
               expert.

     D.   Before any arbitration proceeding is initiated, the Disputing Parties
shall attempt to resolve the dispute through mediation.  Mediation shall be
carried out in accordance with the Centre for Dispute Resolution (`CEDR')
Mediation Procedure, which is hereby deemed incorporated, and modified as
follows:

          (a)  there shall be one mediator, qualified and experienced in the
               subject matter of the mediation;

          (b)  if the Disputing Parties are unable to agree on a mediator or if
               the mediator agreed upon is unable or unwilling to act and the
               parties are unable to decide upon another qualified and
               experienced mediator, CEDR shall appoint the mediator, who shall
               be so qualified and experienced;

          (c)  the place of mediation shall be London, England;

          (d)  the language to be used in the mediation shall be English;

                                     -40-
<PAGE>

          (e)  if the Disputing Parties reach agreement on the resolution of the
               dispute or difference during the mediation, such agreement shall
               be in writing and, once it is signed by the duly authorized
               representatives of the parties, shall be binding on the parties;

          (f)  unless concluded with a written legally binding agreement, the
               mediation shall be conducted in confidence and without prejudice
               to the rights of the Disputing Parties in any future proceedings.

     E.   In the event that a mediation under Clause 31(D) above is not resolved
within 30 days of its commencement or if the Disputing Parties agree to not
submit the dispute to mediation but to directly submit the dispute to
arbitration, the dispute will be referred to binding arbitration.  Arbitration
shall be carried out in accordance with the UNCITRAL Arbitration Rules as at
present in force, which are hereby deemed incorporated, and modified as follows:

          (a)  for individual disputes less than one million dollars
               ($1,000,000), there shall be one arbitrator, who shall be
               qualified, experienced in arbitration and knowledgeable in the
               subject area of the dispute.  If the Disputing Parties are unable
               to agree on an arbitrator or if an arbitrator agreed upon is
               unwilling or unable to act and the parties are unable to agree
               upon another qualified and experienced arbitrator, the London
               Court of International Arbitration shall appoint the arbitrator,
               who shall be so qualified and experienced;

          (b)  for individual disputes equal to or in excess of one million
               dollars ($1,000,000) there shall be three (3) arbitrators who
               shall be qualified and experienced in arbitration and
               knowledgeable in the subject area of the dispute.  Such
               arbitrators shall be selected as follows:

               (1)  each Disputing Party shall select one (1) arbitrator;

               (2)  the arbitrators selected by the Disputing Parties shall
                    agree on a third arbitrator;

               (3)  if the two (2) arbitrators are unable to agree on an
                    arbitrator or if an arbitrator agreed upon is unwilling or
                    unable to act and the Disputing Parties are unable to agree
                    upon another qualified and experienced arbitrator, the
                    London Court of International Arbitration shall appoint the
                    arbitrator, who shall be so knowledgeable, qualified and
                    experienced;

                                     -41-
<PAGE>

          (c)  the place of arbitration shall be London, England;

          (d)  the language to be used in the arbitration proceedings shall be
               English;

          (e)  the Disputing Parties shall be entitled to take limited discovery
               including the rights to request a reasonable number of documents,
               to serve no more than twenty (20) interrogatories and take no
               more than three (3) depositions.  This limited discovery shall be
               conducted in accordance with governing rules of civil procedure
               in the United Kingdom, which shall be interpreted and enforced by
               the arbitrator.

          (f)  the arbitrator shall conduct an arbitration hearing and
               proceeding and make its decision based on the merits of the case
               before it and shall deliver a written reasoned determination,
               citing the bases for the decision including findings of fact and
               conclusions of law;

          (g)  the Disputing Parties are free to seek interim or urgent
               injunctive relief in aid of the arbitration in any court of
               competent jurisdiction.

     F.   The Parties and each Purchaser agree that any breach of (i) the clause
titled "Confidential Information" or (ii) the provisions of this Contract
protecting the Intellectual Property Rights of any party, will cause actual and
material damage, and that such damages are difficult to calculate.  Each Party
and each Purchaser shall have the unequivocal right to obtain timely injunctive
relief as a result of such breach in any court of competent jurisdiction.

     CLAUSE 32 ETHICS

     C&W, each Purchaser and Contractor shall, in the performance of the
Contract, act in accordance with:

          (a)  sound business ethical principles;

          (b)  the provisions of the United States Foreign Corrupt Practices Act
               and any other applicable anti-corruption laws of England or other
               territories relevant to the Contract.

     CLAUSE 33  NOTICES

     A.   Any notice or other document to be served under the Contract may
(except as expressly provided herein) be delivered by hand or reputable courier,
or sent by post or sent by

                                     -42-
<PAGE>

facsimile or electronically and followed by copy of the notice by mail or
                            ---
courier, in accordance with the provisions of this Clause to the following
address:

          For the Contractor:  Tellium, Inc.
                               2 Crescent Place
                               Oceanport, NJ USA 07757
                               Facsimile: (732) 923-9805
                               Marked for the attention of: Chief Financial
          Officer or such other address as the Contractor may subsequently
          notify to the Purchaser.

          For C&W:             Cable & Wireless Global Networks Limited

                               2 Brookvale Plaza, East Park

                               Shannon

                               County Clare

                               Ireland

                               Attention:  __________________

          WITH  SIMULTANIOUS COPIES TO THE PURCHASER AND TO:

                               Cable & Wireless Global Operations Law Department

                               8219 Leesburg Pike

                               Vienna, Virginia 28219

                               Attention:  General Counsel

          or such other address(es) as C&W may subsequently notify to the
          Contractor.

     B.   Any notice or document shall be deemed to be duly served:

          (a)  if delivered or posted, at the time of delivery to the
               recipient's address notified under the Contract; or

          (b)  if sent by facsimile or electronically, at the time of
               transmission if within the normal business hours of the recipient
               and, if not, noon local time of the recipient on the next
               following business day, and a confirming copy is

                                     -43-
<PAGE>

               delivered by courier to the recipient within forty eight (48)
               hours after transmission.

     CLAUSE 34 ENTIRE AGREEMENT

     A.   This Agreement and the documents incorporated herein supersede all
prior understandings and agreements between the Parties and the Purchasers
relating to the subject matter hereof and contains the entire agreement between
the parties with respect to the subject matter hereof.

     B.   Each Party acknowledges that in agreeing to enter the Contract, it has
not relied on any representation, warranty or other assurance except those set
out in the Contract.

     C.   Notwithstanding anything contained herein to the contrary, the
provisions of the clauses headed `Escrow', `License', `Year 2000', `Performance
Warranty', `Product Support', `Liability and Indemnity', `Confidential
Information', `Intellectual Property', `Intellectual Property Rights Indemnity',
`Resolution of Disputes', `Ethics', `Governing Law and Jurisdiction' and
`Publicity' and any other clauses which are intended to survive termination
shall survive termination of the Contract and shall continue in full force and
effect thereafter.

     CLAUSE 35 WAIVER

     The failure of either Party or a Purchaser to enforce any of its rights or
to require the performance of any obligation, responsibility or liability of the
other under the Contract shall not of itself be taken as a waiver of such
Party's or Purchaser's rights, obligations, responsibilities or liabilities
under the Contract.

     CLAUSE 36 SEVERABILITY

     The invalidity, illegality or unenforceability of any of the provisions of
the Contract shall not affect the validity, legality and enforceability of the
remaining provisions of the Contract, and the Contract shall be construed as if
such invalid, illegal or unenforceable provision was not a part of the Contract.

     CLAUSE 37  ASSIGNMENT AND SUB-CONTRACTING

     A.   Except as expressly provided herein, neither C&W nor any Purchaser may
assign, sub-license, transfer, or otherwise dispose of (each a "Transfer") any
of its rights or any of its obligations under the Contract or any part thereof
or the benefit or advantage of the Contract or any part thereof without the
prior written consent of Contractor, such consent not to be unreasonably
withheld.  Similarly, except as expressly provided herein, the Contractor may
not make a Transfer of any of its rights or any of its obligations under the
Contract or any part

                                     -44-
<PAGE>

thereof or the benefit or advantage of the Contract or any part thereof without
the prior written consent of C&W, such consent not to be unreasonably withheld.
Notwithstanding the foregoing, a Group Company may assign, sublicense, transfer
or otherwise dispose of all or any of its rights or obligations under the
Contract to another Group Company without the Contractor's consent, provided
such other Group Company agrees in writing to be bound as if it was Purchaser
under Clause 3(K). If any Group Company (other than C&W or Cable & Wireless,
plc) agrees to a Transfer such that immediately after the consummation of such
Transfer, the Group Company would no longer qualify as a Group Company, such
Group Company shall cease to be eligible to place orders under the Contract
following the Transfer absent the consent of the Contractor hereunder. For
purposes of this Clause 37(A), a merger, reorganization or similar corporate
transaction in which the Contractor or Cable & Wireless, plc is not the
surviving company, or a sale by Contractor or Cable & Wireless, plc of all or
substantially all of its assets to another entity shall be deemed not to
constitute a Transfer. The Contract shall survive a change in control of the
Contractor; however, C&W shall have the right to immediately terminate the
Contract, without liability and without any cure period, if the transferee fails
to satisfy the contractual obligations of the Contractor under the Contract.

     B.   C&W reserves the right, but does not have the obligation, to approve
all sub-contractors in advance of their appointment by the Contractor.  The
Contractor shall not change sub-contractors without the prior written consent of
C&W, such consent not to be unreasonably withheld.  For the avoidance of doubt,
such consent shall not relieve the Contractor from any liability or obligation
under the Contract.

     CLAUSE 38  COMPLIANCE WITH LAW AND REGULATIONS

     A.   Each Party and each Purchaser shall obtain any permit, license or
other authorizations required by any governmental or other regulatory body to
enable it to perform its obligations under the Contract.

     B.   The Contractor shall comply, and shall ensure that each of the Systems
complies, with all applicable laws, orders, regulations, by-laws or requirements
of any government, local, regulatory, competent authority or agency.

     C.   The Purchaser shall, on request, provide all reasonable assistance to
the Contractor in obtaining information regarding local laws, orders,
regulations, by-laws and requirements, including, without limitation, export
controls.

     D.   In performing its obligations under the Contract, the Contractor shall
not endanger the safety of the public or unlawfully interfere with the
convenience of the public in any way.

     E.   The cost to the Contractor of complying with the provisions of this
Clause is included in the Contract Price.

                                     -45-
<PAGE>

     F.   The Contractor shall procure that its sub-contractors comply with the
obligations set out in this Clause.

     CLAUSE 39 GOVERNING LAW AND JURISDICTION

     A.   The Contract is governed by and shall be construed in accordance with
the laws of England.

     B.   Subject to the clause headed `Resolution of Disputes', each Party and
each Purchaser agrees that the courts of England have exclusive jurisdiction to
settle any disputes in connection with the Contract and accordingly submits to
the exclusive jurisdiction of the English courts.

     C.   Each Party and each Purchaser:

          (a)  waives objection to the English courts on grounds of
               inconvenience forum or otherwise as regards proceedings in
               connection with the Contract; and

          (b)  agrees that a judicial order, other than an interim judicial
               order, of an English court in connection with the Contract is
               conclusive and binding on it (subject to any right of appeal to a
               superior English court) and may be enforced against it in the
               courts of any other jurisdiction in accordance with the laws and
               procedures of that jurisdiction.

     IN WITNESS WHEREOF, C&W and the Contractor have entered into this Agreement
as of the date first above written.

                                              CABLE & WIRELESS
                                             GLOBALNETWORKS,LTD
                                           an Ireland corporation
                                  By:
                                     ------------------------------------------
                                Name:                            Conor O'Leary
                                     ------------------------------------------
                               Title:                                 Director
                                     ------------------------------------------

                                                 TELLIUM, INC.
                                            a Delaware corporation
                                  By:
                                     ------------------------------------------
                                Name:
                                     ------------------------------------------
                               Title:
                                     ------------------------------------------

                                     -46-
<PAGE>

                                                                  EXECUTION COPY

                                 TELLIUM, INC.

                AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT

        This AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT (this "Amendment"),
dated as of January 14, 2000, among TELLIUM, INC., a Delaware corporation (the
"Company"), and each of the investors signatories hereto under the heading
"Investors" (each an "Investor").

        WHEREAS, the Company and the Investors are parties to a Stock Purchase
Agreement dated as of December 2, 1999 (the "Agreement"); and

        WHEREAS, the parties to the Agreement desire to amend such agreement on
the terms and conditions stated herein;

        NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:

                1.  Defined Terms. Capitalized terms used and not otherwise
                    -------------
defined in this Agreement shall have the meanings given to such terms in the
Agreement.

                2.  Amendment to Section 3.5. Section 3.5 of the Agreement is
                    ------------------------
hereby amended and restated in its entirety to read as follows (changed text
appears in bold italics):

                    "3.5. Subsequent Sales of Series D Preferred Stock. It is
                          --------------------------------------------
        anticipated that certain purchasers may not purchase Series D Preferred
        Stock at the Initial Closing, buy may acquire Series D Preferred Stock
        in an aggregate amount not to exceed 1,639,347 shares of Series D
        Preferred Stock at the Purchase Price at no more than three additional
        closings (each, a "Subsequent Closing" and together with the Initial
        Closing, the "Closings") no later than January 14, 2000. Any purchaser
        at a Subsequent Closing shall be acceptable to TWP (as defined in the
        Stockholders Agreement); provided that up to 546,450 shares of Series D
        Preferred Stock may be sold to one or more strategic investors or other
        persons (as identified by a majority of the Corporation's Board of
        Directors) at a Subsequent Closing without TWP's consent and, provided,
                                                                      --------
        further, that 273,224 shares of Series D Preferred Stock may be sold to
        -------
        Science Applications Research Inc. and/or Science Applications
        International Corporation without TWP's consent. Any such sales of
        Series D Preferred Stock shall be made on the terms and conditions set
        forth in this Agreement and shall be considered to have been issued
        pursuant hereto. Any Series D Preferred Stock sold pursuant to this
        Section 3.5 shall be deemed to be "Preferred Shares" for all purposes
        under this Agreement and shall be deemed to be "Preferred Stock" and
        Registrable Securities" for all purposes of the Stockholders Agreement.
        Upon execution and delivery of a counterpart to this Agreement, the
        purchasers thereof shall be deemed to be "Investors" for all purposes of
        this Agreement and shall be deemed to be "Qualified Offerees" and
        "Stockholders" as of the date of this Agreement for all purposes of the
        Stockholders Agreement and Schedule I hereto shall be amended to add
        such parties."
<PAGE>

        3.      Continuing Effect: No Other Amendments. Except as expressly
                --------------------------------------
provided herein, all of the terms and provisions of the Agreement are and
shall remain in full force and effect. The amendment provided for herein is
limited to the specific sections of the Agreement specified herein and shall not
constitute a consent, waiver or amendment of, or an indication of the Investors'
or the Company's willingness to consent to any action requiring consent under or
to waive or amend, any other provisions of the Agreement.

        4.      Governing Law. This Amendment shall be governed by, and
                -------------
construed according to the laws of the State of Delaware.

        5.      Effective Date. This Amendment will become effective upon
                --------------
execution by the Company and such Investors holding at least 66 2/3% of the
Preferred Shares.

        6.      Counterparts. This Amendment may be executed in any number of
                ------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

                                 *  *  *  *  *

                                      -2-
<PAGE>

        IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first written above.

TELLIUM, INC.

By: /s/ Richard W. Barcus
    ----------------------------
   Name:  Richard W. Barcus
   Title: President
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]
                                THOMAS WEISEL CAPITAL PARTNERS, L.P.

                                        By: Thomas Weisel Capital Partners LLC,
                                        its general partner

                                        By: /s/ William B. Bunting
                                            ------------------------------
                                            Name:  William B. Bunting
                                            Title: Authorized Signatory

                                        TWP CEO FOUNDERS' CIRCLE (AI), L.P.

                                        By: Thomas Weisel Capital Partners LLC,
                                        its general partner

                                        By: /s/ William B. Bunting
                                            ------------------------------
                                            Name:  William B. Bunting
                                            Title: Authorized Signatory

                                        TWP CEO FOUNDERS' CIRCLE (QP), L.P.
                                        By: Thomas Weisel Capital Partners LLC,
                                        its general

                                        By: /s/ William B. Bunting
                                            ------------------------------
                                            Name:  William B. Bunting
                                            Title: Authorized Signatory

                                        THOMAS WEISEL PARTNERS GROUP LLC

                                        By: /s/ William B. Bunting
                                            ------------------------------
                                            Name:  William B. Bunting
                                            Title: Authorized Signatory
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]
                                RB INVESTMENT PARTNERS II, LLC

                                        By:

                                        By: /s/ James N. Chung
                                           ------------------------------
                                           Name:  James N. Chung
                                           Title: Managing Member & CFO
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]
                                COMDISCO, INC.

                                By: /s/ [ILLEGIBLE]
                                   ----------------------------
                                    Name: [ILLEGIBLE]
                                    Title: Vice President
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                OAK INVESTMENT PARTNERS VII,
                                LIMITED PARTNERSHIP

                                By:  Oak Associates VII, LLC
                                     Its General Partner

                                By:  /s/ Edward F. Glassmeyer
                                   -----------------------------
                                   Name:  Edward F. Glassmeyer
                                   Title: Managing Member

                                OAK VII AFFILIATES FUND,
                                LIMITED PARTNERSHIP

                                By:  Oak VII Affiliates, LLC
                                     Its General Partner

                                By:  /s/ Edward F. Glassmeyer
                                   -----------------------------
                                   Name:  Edward F. Glassmeyer
                                   Title: Managing Member
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                PEQUOT PRIVATE EQUITY FUND II, L.P.

                                By:  Pequot Capital Management, Inc.
                                     Investment Manager

                                By:  David J. Malet
                                   --------------------------------
                                   Name:  David J. Malet
                                   Title: Chief Financial Officer
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                ACCEL INVESTORS '96 L.P.

                                By: /s/ G. CARTER SEDNAOUI
                                   ----------------------------
                                    Name:  G. CARTER SEDNAOUI
                                    Title: General Partner

                                ACCEL V L.P.

                                By:  Accel V Associates L.L.C.
                                     Its General Partner

                                By: /s/ G. CARTER SEDNAOUI
                                   ----------------------------
                                    Name:  G. CARTER SEDNAOUI
                                    Title: Managing Member

                                ACCEL INTERNET/STRATEGIC
                                TECHNOLOGY FUND L.P.

                                By:  Accel Internet/Strategic Technology Fund
                                     Associates L.L.C.
                                     Its General Partner

                                By: /s/ G. CARTER SEDNAOUI
                                   ----------------------------
                                    Name:  G. CARTER SEDNAOUI
                                    Title: Managing Member

                                ACCEL KEIRETSU V L.P.

                                By:  Accel Keiretsu V. Associates L.L.C.
                                     Its General Partner

                                By: /s/ G. CARTER SEDNAOUI
                                   ----------------------------
                                    Name:  G. CARTER SEDNAOUI
                                    Title: Managing Member
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                TELCORDIA TECHNOLOGIES, INC. (formerly
                                Bell Communications Research, Inc.)

                                By: /s/ William A. Roper
                                   ---------------------------
                                   Name:  William A. Roper
                                   Title: Director
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                SCIENCE APPLICATIONS INTERNATIONAL
                                CORPORATION

                                By:  /s/ William A. Roper
                                   ------------------------------------------
                                   Name:  William A. Roper
                                   Title: Executive Vice President and CFO
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                        WORLDVIEW TECHNOLOGY
                        INTERNATIONAL I, L.P.

                        By:  Worldview Capital I, L.P., its General Partner
                             Worldview Equity I, L.L.C., its General Partner

                        By:  /s/ Michael Orsak
                           -------------------------
                           Name:  Michael Orsak
                           Title: Member

                        WORLDVIEW TECHNOLOGY PARTNERS I, L.P.

                        By:  Worldview Capital I, L.P., its General Partner
                             Worldview Equity I, L.L.C., its General Partner

                        By:  /s/ Michael Orsak
                           -------------------------
                           Name:  Michael Orsak
                           Title: Member

                        WORLDVIEW STRATEGIC PARTNERS I, L.P.

                        By:  Worldview Capital I, L.P., its General Partner
                             Worldview Equity I, L.L.C., its General Partner

                        By:  /s/ Michael Orsak
                           -------------------------
                           Name:  Michael Orsak
                           Title: Member
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                               BLUE ROCK CAPITAL, L.P.

                               By: Blue Rock Partners, L.P., its General Partner
                               By: Blue Rock Inc., its General Partner

                               By: /s/ Virginia Bonker
                                  ----------------------------
                                   Name:  Virginia Bonker
                                   Title: President

<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                    ELLMORE C. PATTERSON PARTNERS

                                    By: /s/ Arthur C. Patterson
                                       ------------------------
                                       Name:  Arthur C. Patterson
                                       Title: GENERAL PARTNER
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                ORTEL CORPORATION

                                By: /s/ Stephen R. Rizzone
                                   ----------------------------
                                   Name:  Stephen R. Rizzone
                                   Title: President & CEO
<PAGE>

             [Tellium, Inc. Amendment to Stock Purchase Agreement]

                                        /s/ John Wallace
                                ----------------------------------
                                Name: John Wallace<PAGE>

                                                                   Exhibit 10.28

                                  TELLIUM, INC.
                            2001 STOCK INCENTIVE PLAN
                                   as adopted
                                 March 12, 2001
<PAGE>

                                  TELLIUM, INC.
                            2001 STOCK INCENTIVE PLAN

     1.   Purpose.
          -------

          The purpose of this Plan is to strengthen Tellium, Inc., a Delaware
corporation (the "Company"), by providing an incentive to its employees,
officers, directors and consultants and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise. It
is intended that this purpose be achieved by extending to employees (including
future employees who have received a formal written offer of employment),
officers, directors, and consultants of the Company and its Subsidiaries an
added long-term incentive for high levels of performance and unusual efforts
through the grant of Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, Dividend Equivalent Rights, Performance Units and
Performance Shares, Share Awards, Phantom Stock and Restricted Stock (as each
term is herein defined). After the Effective Date of this Plan, no further
awards shall be made under the Amended and Restated 1997 Employee Stock
Incentive Plan of Tellium, Inc. (as amended and currently in effect, the "Former
Plan"). Each award outstanding under the Former Plan as of the Effective Date of
this Plan shall remain outstanding and continue to be subject to the terms of
the Former Plan and the award agreement under which such award was granted. Each
Share that is available for the granting of new awards under the Former Plan as
of the Effective Date of this Plan and each Share that is the subject of an
award under the Former Plan but is not issued prior to the time that such award
expires or otherwise terminates (collectively, the "Former Plan Shares") shall,
after the Effective Date of this Plan, not be available for the granting of
awards under the Former Plan, but shall instead be available for the granting of
Options or Awards under this Plan.

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

          For purposes of the Plan:

          2.1  "Adjusted Fair Market Value" means, in the event of a Change in
                --------------------------
Control, the greater of (a) the highest price per Share paid to holders of the
Shares in any transaction (or series of related transactions) constituting or
resulting in a Change in Control other than pursuant to Section 2.10(b) or (b)
the highest Fair Market Value of a Share during the ninety (90) day period
ending on the date of the Change in Control.

          2.2  "Affiliate" means, with respect to any Person, any other Person
                ---------
that, directly or indirectly through one or more intermediaries, controls, or is
controlled by, or under common control with, such Person. Any Relative (for this
purpose, "Relative" means a spouse, child, stepchild, parent, parent of spouse,
sibling or grandchild) of an individual shall be deemed to be an Affiliate of
such individual for purposes hereof.
<PAGE>

Neither the Company nor any Person controlled by the Company shall be deemed to
be an Affiliate of any holder of Company stock.

          2.3  "Agreement" means the written agreement between the Company and
                ---------
an Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.

          2.4  "Award" means a grant of Restricted Stock, Phantom Stock, a Stock
                -----
Appreciation Right, a Performance Award, a Dividend Equivalent Right, a Share
Award, or any or all of them.

          2.5  "Beneficial Ownership" means ownership within the meaning of Rule
                --------------------
13d-3 promulgated under the Exchange Act.

          2.6  "Beneficiary" means an individual, trust or estate who or which,
                -----------
by a written designation of the Optionee or Grantee filed with the Company or by
operation of law succeeds to the rights and obligations of the Optionee or
Grantee under the Plan and an Agreement upon the Optionee's or Grantee's death.

          2.7  "Board" means the Board of Directors of the Company.
                -----

          2.8  "Cause" means:
                -----

               (a) for purposes of Section 6.4, the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the Company or any
of its Subsidiaries, and

               (b) in the case of an Optionee or Grantee whose employment with
the Company or a Subsidiary is, as the date of the applicable Agreement, subject
to the terms of an employment agreement between such Optionee or Grantee and the
Company or a Subsidiary, which employment agreement includes a definition of
"Cause," the term "Cause" as used in this Plan or any Agreement shall have the
meaning set forth in such employment agreement during the period that such
employment agreement remains in effect; or

               (c) in all other cases, the term "Cause" as used in this Plan or
any Agreement shall mean (i) willfully failing to perform reasonably assigned
duties within thirty (30) days after having received written notice from the
Company to do so, (ii) dishonesty or willful misconduct in the performance of
duties, (iii) involvement in a transaction in connection with the performance of
duties to the Company or any of its Subsidiaries which transaction is adverse to
the interests of the Company or any of its Subsidiaries and which is engaged in
for personal profit or (iv) willful violation of any law, rule or regulation
(other than traffic violations or similar offenses) in connection with the
performance of duties.

                                      -2-
<PAGE>

          2.9  "Change in Capitalization" means any increase or reduction in the
                ------------------------
number of Shares, or any change (including, without limitation, in the case of a
spin-off, dividend or other distribution in respect of Shares, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change in corporate
structure or a substantially similar transaction.

          2.10 A "Change in Control" shall mean the occurrence of any of the
                   -----------------
following:

               (a) An acquisition (other than directly from the Company) of any
Voting Securities of the Company by any Person, immediately after which such
Person has Beneficial Ownership of fifty percent (50%) or more of the then
outstanding Shares or the combined voting power of the Company's then
outstanding Voting Securities, provided, however, in determining whether a
Change in Control has occurred pursuant to this Section 2.10(a), Shares or
Voting Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i)
an employee benefit plan (or a trust forming a part thereof) maintained by (A)
the Company or (B) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person
in connection with a "Non-Control Transaction" (as hereinafter defined);

               (b) The individuals who, as of the date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least a
majority of the members of the Board, or following a Merger (as defined in
paragraph (c)(i) below) which results in a Parent corporation, the board of
directors of the ultimate Parent Corporation (as defined in paragraph (c)(i)(A)
below); provided, however, that if the election, or nomination for election by
the Company's common stockholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or

                                      -3-

<PAGE>

     (c)  The consummation of:

          (i) A merger, consolidation or reorganization with or into the Company
or in which securities of the Company are issued (a "Merger"), unless such
Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a
Merger where:

              (A) the stockholders of the Company, immediately before such
Merger own directly or indirectly immediately following such Merger at least
fifty percent (50%) of the combined voting power of the outstanding voting
securities of (x) the corporation resulting from such Merger (the "Surviving
Corporation") if fifty percent (50%) or more of the combined voting power of the
then outstanding voting securities of the Surviving Corporation is not
Beneficially Owned, directly or indirectly by another Person (a "Parent
Corporation"), or (y) if there are one or more Parent Corporations, the ultimate
Parent Corporation; and

              (B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such Merger
constitute at least a majority of the members of the board of directors of (x)
the Surviving Corporation, if there is no Parent Corporation, or (y) if there
are one or more Parent Corporations, the ultimate Parent Corporation; and

              (C) no Person other than (1) the Company, (2) any Related Entity,
(3) any employee benefit plan (or any trust forming a part thereof) that,
immediately prior to such Merger was maintained by the Company or any Related
Entity, or (4) any Person who, together with its Affiliates, immediately prior
to such Merger, had Beneficial Ownership of fifty percent (50%) or more of the
then outstanding Voting Securities or Shares, owns, together with its
Affiliates, Beneficial Ownership of (i) fifty percent (50%) or more of the
combined voting power of the outstanding voting securities or common stock of
(x) the Surviving Corporation if there is no Parent Corporation, or (y) if there
are one or more Parent Corporations, the ultimate Parent Corporation.

          (ii) A complete liquidation or dissolution of the Company; or

          (iii) The sale or other disposition of all or substantially all of the
assets of the Company to any Person (other than a transfer to a Related Entity
or under conditions that would constitute a Non-Control Transaction with the
disposition of the assets being regarded as a Merger for this purpose or the
distribution to the Company's stockholders of the stock of a Related Entity or
any other assets).

     Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting Securities
by the Company which, by reducing the

                                      -4-

<PAGE>

number of Shares or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Shares or Voting Securities by the
Company, and (1) before such share acquisition by the Company the Subject Person
becomes the Beneficial Owner of any new or additional Shares or Voting
Securities in contemplation of such share acquisition by the Company or (2)
after such share acquisition by the Company the Subject Person becomes the
Beneficial Owner of any new or additional Shares or Voting Securities which in
either case increases the percentage of the then outstanding Shares or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.

          2.11  "Code" means the Internal Revenue Code of 1986, as amended.
                 ----

          2.12  "Committee" means a committee, as described in Section 3.1,
                 ---------
appointed by the Board from time to time to administer the Plan and to perform
the functions set forth herein.

          2.13  "Company" means Tellium, Inc.
                 -------

          2.14  "Director" means a director of the Company.
                 --------

          2.15  "Disability" means:
                 ----------

                (a) in the case of an Optionee or Grantee whose employment with
the Company or a Subsidiary is, as of the date of the applicable Agreement,
subject to the terms of an employment agreement between such Optionee or Grantee
and the Company or a Subsidiary, which employment agreement includes a
definition of "Disability," the term "Disability" as used in this Plan or any
Agreement shall have the meaning set forth in such employment agreement during
the period that such employment agreement remains in effect; or

                (b) in all other cases, the term "Disability" as used in this
Plan or any Agreement shall mean a physical or mental infirmity which impairs
the Optionee's or Grantee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.

          2.16  "Disability Date" means the date which is one hundred eighty
                 ---------------
(180) consecutive days after the date on which an Optionee or Grantee is first
absent from active employment with the Company by reason of a Disability.

          2.17  "Dividend Equivalent Right" means a right to receive all or some
                 -------------------------
portion of the cash dividends that are or would be payable with respect to
Shares.

                                      -5-
<PAGE>

          2.18  "Division" means any of the operating units or divisions of the
                 --------
Company designated as a Division by the Committee.

          2.19  "Eligible Individual" means any of the following individuals who
                 -------------------
is designated by the Committee as eligible to receive Options or Awards subject
to the conditions set forth herein: (a) any director (other than a Nonemployee
Director), officer or employee of the Company or a Subsidiary, (b) any
individual to whom the Company or a Subsidiary has extended a formal, written
offer of employment, or (c) any consultant or advisor of the Company or a
Subsidiary.

          2.20  "Exchange Act" means the Securities Exchange Act of 1934, as
                 ------------
amended.

          2.21  "Fair Market Value" on any date means the closing sales prices
                 -----------------
of the Shares on such date on the principal national securities exchange on
which such Shares are listed or admitted to trading, or, if such Shares are not
so listed or admitted to trading, the average of the per Share closing bid price
and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date, the Fair
Market Value shall be the value established by the Board in good faith and, in
the case of an Incentive Stock Option, in accordance with Section 422 of the
Code.

          2.22  "Former Plan" means the Amended and Restated 1997 Employee Stock
                 -----------
Incentive Plan of Tellium, Inc.

          2.23  "Formula Option" means an Option granted pursuant to Section 6.
                 --------------

          2.24  "Grantee" means a person to whom an Award has been granted under
                 -------
the Plan.

          2.25  "Incentive Stock Option" means an Option satisfying the
                 ----------------------
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.

          2.26  "Initial Public Offering" means the consummation of the first
                 -----------------------
public offering of Shares pursuant to a registration statement (other than a
Form S-8 or successor forms) filed with, and declared effective by, the
Securities and Exchange Commission.

          2.27  "Nonemployee Director" means a director of the Company who is a
                 --------------------
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.

                                      -6-
<PAGE>

          2.28  "Nonqualified Stock Option" means an Option which is not an
                 -------------------------
Incentive Stock Option.

          2.29  "Normal Retirement Date" means the date on which an Optionee or
                 ----------------------
Grantee terminates active employment with the Company on or after attainment of
age 65, but does not include termination by the Company for Cause.

          2.30  "Option" means a Nonqualified Stock Option, an Incentive Stock
                 ------
Option, a Formula Option, or any or all of them.

          2.31  "Optionee" means a person to whom an Option has been granted
                 --------
under the Plan.

          2.32  "Outside Director" means a director of the Company who is an
                 ----------------
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.

          2.33  "Parent" means any corporation which is a parent corporation
                 ------
(within the meaning of Section 424(e) of the Code) with respect to the Company.

          2.34  "Performance Awards" means Performance Units, Performance Shares
                 ------------------
or either or both of them.

          2.35  "Performance-Based Compensation" means any Option or Award that
                 ------------------------------
is intended to constitute "performance based compensation" within the meaning of
Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder.

          2.36  "Performance Cycle" means the time period specified by the
                 -----------------
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.

          2.37  "Performance Objectives" has the meaning set forth in Section
                 ----------------------
11.

          2.38  "Performance Shares" means Shares issued or transferred to an
                 ------------------
Eligible Individual under Section 11.

          2.39  "Performance Units" means Performance Units granted to an
                 -----------------
Eligible Individual under Section 11.

          2.40  "Person" means `person' as such term is used for purposes of
                 ------
Section 13(d) or 14(d) of the Exchange Act, including without limitation, any
individual, corporation, limited liability company, partnership, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity or any group of Persons.

                                      -7-
<PAGE>

          2.41  "Phantom Stock" means a right granted to an Eligible Individual
                 -------------
under Section 12 representing a number of hypothetical Shares.

          2.42  "Plan" means the Tellium, Inc. 2001 Stock Incentive Plan, as
                 ----
amended and restated from time to time.

          2.43  "Pooling Transaction" means an acquisition of the Company in a
                 -------------------
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.

          2.44  "Restricted Stock" means Shares issued or transferred to an
                 ----------------
Eligible Individual pursuant to Section 10.

          2.45  "Share Award" means a grant of Shares pursuant to Section 12.
                 -----------

          2.46  "Shares" means the common stock, par value $0.001 per share, of
                 ------
the Company and any other securities into which such shares are changed or for
which such shares are exchanged.

          2.47  "Stock Appreciation Right" means a right to receive all or some
                 ------------------------
portion of the increase in the value of the Shares as provided in Section 8
hereof.

          2.48  "Subsidiary" means (i) except as provided in subsection (ii)
                 ----------
below, any corporation which is or becomes a subsidiary corporation (within the
meaning of Section 424(f) of the Code) with respect to the Company, and (ii)
with respect to provisions relating to the eligibility to receive Options or
Awards other than Incentive Stock Options and to continued employment for
purposes of Options and Awards (unless the Committee determines otherwise), any
entity, whether or not incorporated, in which the Company directly or indirectly
owns fifty percent (50%) or more of the outstanding equity or other ownership
interests.

          2.49  "Successor Corporation" means a corporation, or a parent or
                 ---------------------
subsidiary thereof, which issues or assumes an Option or Award in a transaction
described in Section 424(a) of the Code without regard to Sections 424(a)(1) and
(2) thereof.

          2.50  "Tax Benefit" means an actual decrease in the Company's
                 -----------
liability for taxes in any period.

          2.51  "Ten-Percent Stockholder" means an Eligible Individual, who, at
                 -----------------------
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.

                                      -8-
<PAGE>

          2.52  "Termination of Employment" means the later of (i) severance of
                 -------------------------
the employer-employee relationship with the Company, a Parent or a Subsidiary or
(ii) the resignation, removal or termination of an officer or Director of the
Company, a Parent or a Subsidiary.

          2.53  "Transition Period" means the period beginning with an Initial
                 -----------------
Public Offering and ending as of the earlier of (i) the date of the first annual
meeting of stockholders of the Company at which Directors are to be elected that
occurs after the close of the third (3rd) calendar year following the calendar
year in which the Initial Public Offering occurs or (ii) the expiration of the
"reliance period" under Treasury Regulation (S) 1.162-27(f)(2).

          2.54  "Voting Securities" means all outstanding voting securities of
                 -----------------
the Company entitled to vote generally in the election of the Board of
Directors.

      3.  Administration.
          --------------

          3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. If the Committee
consists of more than one (1) member, a quorum shall consist of not fewer than
two (2) members of the Committee and a majority of a quorum may authorize any
action. Any decision or determination reduced to writing and signed by all of
the members of the Committee shall be as fully effective as if made by a
majority vote at a meeting duly called and held. The Committee shall consist of
at least one (1) Director and may consist of the entire Board; provided,
however, that from and after the date of an Initial Public Offering, (A) if the
Committee consists of less than the entire Board, then with respect to any
Option or Award to an Eligible Individual who is subject to Section 16 of the
Exchange Act, the Committee shall consist of at least two (2) Directors each of
whom shall be a Nonemployee Director and (B) to the extent necessary for any
Option or Award intended to qualify as Performance-Based Compensation to so
qualify, the Committee shall consist of at least two (2) Directors each of whom
shall be an Outside Director. For purposes of the preceding sentence, if one or
more members of the Committee is not a Nonemployee Director and, if necessary
for any Option or Award intended to qualify as Performance-Based Compensation to
so qualify, an Outside Director, but recuses himself or herself or abstains from
voting with respect to a particular action taken by the Committee, then the
Committee, with respect to that action, shall be deemed to consist only of the
members of the Committee who have not recused themselves or abstained from
voting. Subject to applicable law, the Committee may delegate its authority
under the Plan to any other person or persons.

          3.2 No member of the Committee shall be liable for any action, failure
to act, determination or interpretation made in good faith with respect to this
Plan or any

                                      -9-
<PAGE>

transaction hereunder. The Company hereby agrees to indemnify each member of the
Committee for all costs and expenses and, to the extent permitted by applicable
law, any liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.

      3.3 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:

          (a) determine those Eligible Individuals to whom Options shall be
granted under the Plan and the number of such Options to be granted and to
prescribe the terms and conditions (which need not be identical) of each such
Option, including the purchase price per Share, the vesting schedule and the
duration of each Option, and make any amendment or modification to any Option
Agreement consistent with the terms of the Plan;

          (b) select those Eligible Individuals to whom Awards shall be granted
under the Plan and to determine the number of Shares in respect of which each
Award is granted, the terms and conditions (which need not be identical) of each
such Award, including the restrictions or Performance Objectives relating to
Awards and the maximum value of any Award, and make any amendment or
modification to any Award Agreement consistent with the terms of the Plan;

          (c) construe and interpret the Plan and the Options and Awards granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, without limitation, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem necessary or
advisable, including so that the Plan and the operation of the Plan complies
with Rule 16b-3 under the Exchange Act, the Code to the extent applicable and
other applicable law, and otherwise to make the Plan fully effective. All
decisions and determinations by the Committee in the exercise of this power
shall be final, binding and conclusive upon the Company, its Subsidiaries, the
Optionees and Grantees, and all other persons having any interest therein;

          (d) determine the duration and purposes for leaves of absence which
may be granted to an Optionee or Grantee on an individual basis without
constituting a Termination of Employment or service for purposes of the Plan;

               (e) exercise its sole discretion with respect to the powers and
rights granted to it as set forth in the Plan; and

                                     -10-
<PAGE>

          (f) exercise, generally, such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Company with
respect to the Plan.

      4.  Stock Subject to the Plan; Grant Limitations.
          --------------------------------------------

          4.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under this Plan shall not exceed 14,000,000, plus the
Shares that are subject to outstanding awards granted under the Former Plan
which Shares are not issued prior to the expiration or termination of such
awards (including Shares subject to awards that expire or terminate after the
expiration of the term of the Former Plan), plus, if on January 1 of any year in
which this Plan is in effect the aggregate number of Shares with respect to
which Awards may be granted under the Plan (not including Shares that are
subject to outstanding Awards granted under the Plan) is less than five percent
(5%) of the total number of outstanding Shares on such date, an annual increase
(determined as of January 1 of each year) in an amount such that the aggregate
number of Shares with respect to which Awards may be granted under the Plan (not
including Shares that are subject to outstanding Awards granted under the Plan)
is equal to the lesser of (a) five percent (5%) of the total number of
outstanding Shares on such date or (b) such other number of Shares as determined
by the Board; provided, however, that in the aggregate, not more than one-
quarter of the number of allotted Shares may be made the subject of Restricted
Stock Awards under Section 10 of the Plan (other than shares of Restricted Stock
made in settlement of Performance Units pursuant to Section 11.2(b)). The
Company shall reserve for the purposes of the Plan, out of its authorized but
unissued Shares or out of Shares held in the Company's treasury, or partly out
of each, such number of Shares as shall be determined by the Board.

          4.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 4.1 for the granting of further Options and Awards shall
be reduced as follows:

              (a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated; provided, however, that if any
Option is exercised by tendering Shares, either actually or by attestation, to
the Company as full or partial payment of the purchase price, the maximum number
of Shares available under Section 4.1 shall be increased by the number of Shares
so tendered.

              (b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount equal
to the quotient of (i) the dollar amount in which the Performance Unit is
denominated, divided by (ii) the Fair Market Value of a Share on the date the
Performance Unit is granted.

                                     -11-
<PAGE>

          4.3  Whenever any outstanding Option or Award or portion thereof under
this Plan or the Former Plan expires, is canceled, is settled in cash (including
the settlement of tax withholding obligations using Shares), or is otherwise
terminated for any reason without having been exercised or payment having been
made in respect of the entire Option or Award, the Shares allocable to the
expired, canceled, settled or otherwise terminated portion of the Option or
Award may again be the subject of Options or Awards granted hereunder.

          4.4  In no event may more than 24,500,000 Shares be issued upon the
exercise of Incentive Stock Options granted under the Plan.

      5.  Option Grants for Eligible Individuals.
          --------------------------------------

          5.1  Authority of Committee.  Subject to the provisions of the Plan,
               ----------------------
the Committee shall have full and final authority to select those Eligible
Individuals who will receive Options, the terms and conditions of which shall be
set forth in an Agreement. Without limiting the generality of the preceding
sentence, unless the Committee determines otherwise in its sole discretion, in
consideration of granting an Option, the Optionee shall agree, in the Agreement,
to remain in the employ of the Company or any Subsidiary for a period of at
least one (1) year (or such shorter period as may be fixed in the Agreement or
by action of the Committee following grant of the Option) after the Option is
granted. Incentive Stock Options may be granted only to Eligible Individuals who
are employees of the Company or any Subsidiary.

          5.2  Purchase Price.  The purchase price (which may be greater than,
               --------------
less than or equal to the Fair Market Value on the date of grant) or the manner
in which the purchase price is to be determined for Shares under each Option
shall be determined by the Committee and set forth in the Agreement pursuant to
which each Option is granted; provided, however, that the purchase price per
Share under each Option intended to qualify as Performance-Based Compensation
shall not be less than 100% of the Fair Market Value of a Share on the Date the
Option is granted and provided, further, however, that the purchase price per
Share under each Incentive Stock Option shall not be less than 100% of the Fair
Market Value of a Share on the date the Option is granted (110% in the case of
an Incentive Stock Option granted to a Ten-Percent Stockholder).

          5.3  Maximum Duration.  Options granted hereunder shall be for such
               ----------------
term as the Committee shall determine; provided, however, that an Option shall
not be exercisable after the expiration of ten (10) years from the date it is
granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder); and provided, further, however, that the Committee may
provide that an Option (other than an Incentive Stock Option) may, upon the
death of the Optionee prior to the expiration of the Option, be exercised for up
to one (1) year following the date of the Optionee's death even if such period
extends beyond ten (10) years from the date the Option is granted.

                                     -12-
<PAGE>

The Committee may, subsequent to the granting of any Option, extend the term
thereof, but in no event shall the term as so extended exceed the maximum term
provided for in the preceding sentence.

          5.4  Vesting and Exercisability.  Subject to Sections 5.5 and  7.5,
               --------------------------
each Option shall become vested and exercisable in such installments (which need
not be equal) and at such times as may be designated by the Committee and set
forth in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.

          5.5  Termination.  Subject to Sections 5.3, 7.5 and 13 and unless
               -----------
otherwise provided by the Committee, in its sole discretion, at the time of
grant (and set forth in the applicable Agreement) or at a later date, the
following provisions shall apply to Options upon a Termination of Employment:

              (a) Except in the case of termination for Cause, Disability,
retirement on or after the Optionee's Normal Retirement Date, or death as
provided in Sections 5.5(b), (c) and (d) below, upon an Optionee's Termination
of Employment with the Company, a Parent or a Subsidiary for any reason, any
unexercised Option (or portion thereof) held by such Optionee shall expire three
(3) months after the Optionee has a Termination of Employment and such Option
(or portion thereof) may only be exercised by the Optionee or his or her
Beneficiary to the extent that the Option (or a portion thereof) was exercisable
on the date of Termination of Employment.

              (b) If the Optionee's Termination of Employment arises as a result
of a termination for Cause, then, unless the Committee determines otherwise at
the time of the Termination of Employment, any unexercised Options (whether or
not vested and exercisable) held by such Optionee shall terminate and expire
concurrently with the Optionee's Termination of Employment and no rights
thereunder may be exercised.

              (c) If an Optionee suffers a Disability or retires on or after the
Optionee's Normal Retirement Date, any unexercised Option (or portion thereof)
held by such disabled or retired Optionee shall expire one (1) year after the
Disability Date or date of Termination of Employment by reason of retirement, as
the case may be, and such Option (or portion thereof) may only be exercised by
the Optionee or his or her guardian or legal representative to the extent that
the Option (or a portion thereof) was exercisable on the Disability Date or the
date of Termination of Employment by reason of retirement, as the case may be.

              (d) If an Optionee dies while still employed by the Company, each
Option (or portion thereof) held by such Optionee shall immediately become
vested

                                     -13-
<PAGE>

and exercisable with respect to those Shares that otherwise would have vested
during the one-year period following the Optionee's death and will be deemed to
have become vested and exercisable on the day preceding the date of the
Optionee's death. The Options (or portions thereof) which the Optionee was
entitled to exercise on the date of the Optionee's death (which shall include
those Options (or portions thereof) that become vested and exercisable pursuant
to the preceding sentence by reason of the Optionee's death) may be exercised at
any time after the Optionee's death by the Optionee's Beneficiary; provided,
however, that no Option (or portion thereof) may be exercised after the earlier
of: (i) one (1) year after the Optionee's death or (ii) the expiration date
specified for the particular Option in the Agreement. If an Optionee dies after
his or her Termination of Employment, then the Option (or portions thereof)
which the Optionee was entitled to exercise on the date of the Optionee's death
may be exercised by his or her Beneficiary within the remaining portion of the
period specified in Sections 5.5(a) or 5.5(c), as the case may be.

               (e) The Option (or portion thereof), to the extent not yet vested
and exercisable as of the date of the Optionee's Termination of Employment,
shall terminate immediately upon such date.

          5.6  Deferred Delivery of Option Shares.  The Committee may, in its
               ----------------------------------
sole discretion, permit Optionees to elect to defer the issuance of Shares upon
the exercise of one or more Nonqualified Stock Options granted pursuant to the
Plan. The terms and conditions of such deferral shall be determined at the time
of the grant of the Option or thereafter and shall be set forth in the Agreement
evidencing the Option.

          5.7  Modification.  No modification of an Option shall adversely alter
               ------------
or impair any rights or obligations under the Option without the Optionee's
consent.

          5.8  Limitations on Incentive Stock Options.  To the extent that the
               ---------------------------------------
aggregate Fair Market Value (determined as of the date of the grant) of Shares
with respect to which Incentive Stock Options granted under the Plan and
"incentive stock options" (within the meaning of Section 422 of the Code)
granted under all other plans of the Company or its Subsidiaries (in either case
determined without regard to this Section 5.8) are exercisable by an Optionee
for the first time during any calendar year exceeds $100,000, such Incentive
Stock Options shall be treated as Nonqualified Stock Options. In applying the
limitation in the preceding sentence in the case of multiple Option grants,
Options which were intended to be Incentive Stock Options shall be treated as
Nonqualified Stock Options according to the order in which they were granted
such that the most recently granted Options are first treated as Nonqualified
Stock Options.

                                     -14-
<PAGE>

      6.  Option Grants for Nonemployee Directors.
          ---------------------------------------

          6.1 Grant.  Formula Options shall be granted (i) to a Nonemployee
              -----
Director who becomes a member of the Board after March 12, 2001 upon election or
appointment and (ii) to all Nonemployee Directors who are members of the Board
as follows:

              (a) Initial Grant. Each Nonemployee Director who becomes a
                  -------------
Director after March 12, 2001 shall, upon initially becoming a Director, be
granted a Formula Option in respect of 10,000 Shares.

              (b) Annual Grant. Each Nonemployee Director shall be granted a
                  ------------
Formula Option in respect of 3,000 Shares on the first business day of January
in each year that the Plan is in effect provided that the Nonemployee Director
is a Director on such date.

              (c) Terms and Conditions. All Formula Options granted pursuant to
                  --------------------
this Section 6 shall be evidenced by an Agreement containing such other terms
and conditions not inconsistent with the provisions of this Plan as determined
by the Board; provided, however, that such terms shall not vary the price,
amount or timing of Formula Options provided under this Section 6, including
provisions dealing with vesting, forfeiture and termination of such Formula
Options.

          6.2 Purchase Price.  The purchase price for Shares under each Formula
              --------------
Option shall be equal to 100% of the Fair Market Value of such Shares on the
date the Formula Option is granted.

          6.3 Vesting and Exercisability.  Subject to Sections 6.4 and 7.5,
              --------------------------
each Formula Option shall become vested and exercisable with respect to 25% of
the Shares subject thereto on the first anniversary of the date of grant and the
remainder in thirty-six (36) equal monthly installments commencing on the first
day of the thirteenth (13th) month following the date of grant; provided,
however, that the Optionee continues to serve as a Director as of each such
date.

          6.4 Duration.  Subject to Section 7.5, each Formula Option shall
              --------
terminate on the date which is the tenth (10th) anniversary of the date of
grant; provided, however, that if an Optionee dies while a Director and prior to
such tenth (10th) anniversary, the Formula Option may be exercised for up to one
(1) year following the date of the Optionee's death even if such period extends
beyond ten (10) years from the date the Formula Option is granted, unless
terminated earlier as follows:

              (a) If an Optionee's service as a Director terminates for any
reason other than Disability, death or Cause, the Optionee may for a period of
three (3)

                                     -15-
<PAGE>

months after such termination exercise his or her Formula Option to the extent,
and only to the extent, that such Option or portion thereof was vested and
exercisable as of the date the Optionee's service as a Director terminated,
after which time the Formula Option shall automatically terminate in full.

               (b) If an Optionee's service as a Director terminates by reason
of the Optionee's resignation or removal from the Board due to Disability, the
Optionee or his or her guardian or legal representative may, for a period of one
(1) year after such termination, exercise his or her Formula Option to the
extent, and only to the extent, that such Option or portion thereof was vested
and exercisable as of the date the Optionee's service as a Director terminated,
after which time the Formula Option shall automatically terminate in full.

               (c) If an Optionee's service as a Director terminates for Cause,
the Formula Option granted to the Optionee hereunder shall immediately terminate
in full and no rights thereunder may be exercised.

               (d) If an Optionee dies while a Director, each Formula Option (or
portion thereof) held by such Optionee shall immediately become vested and
exercisable with respect to those Shares that otherwise would have vested during
the one-year period following the Optionee's death and will be deemed to have
become vested and exercisable on the day preceding the date of the Optionee's
death. Formula Options may be exercised at any time within one (1) year after
the Optionee's death by the Optionee's Beneficiary after which time the Formula
Option shall terminate in full; provided, however, that the Formula Option may
be exercised to the extent, and only to the extent, that the Formula Option (or
portion thereof) was exercisable on the date of death of the Optionee (which
shall include those Formula Options (or portions thereof) that become vested and
exercisable pursuant to the preceding sentence by reason of the Optionee's
death). If an Optionee dies after his or her service as a Director terminates,
then the Formula Option may be exercised by his or her Beneficiary within the
remaining portion of the period specified in Sections 6.4(a) or 6.4 (b), as the
case may be.

               (e) The Formula Option (or portion thereof), to the extent not
yet vested and exercisable as of the date the Director's service as a Director
terminates for any reason shall terminate immediately upon such date.

      7.  Terms and Conditions Applicable to All Options.
          ----------------------------------------------

          7.1  Additional Terms.  The provisions of this Section 7 shall apply
               ----------------
to all Options, unless otherwise provided by the Committee, in its sole
discretion, in the applicable Agreement.

                                     -16-
<PAGE>

          7.2  Non-Transferability.  No Option granted hereunder shall be
               -------------------
transferable by the Optionee to whom it is granted otherwise than by will or by
the laws of descent and distribution or, in the case of an Option other than an
Incentive Stock Option, in the Committee's sole discretion, pursuant to a
domestic relations order (within the meaning of Rule 16a-12 promulgated under
the Exchange Act) (a "Domestic Relations Transfer"), and, except with respect to
an Option transferred pursuant to a Domestic Relations Transfer, an Option shall
be exercisable during the lifetime of such Optionee only by the Optionee or his
or her guardian or legal representative. Notwithstanding the foregoing, the
Committee may set forth in the Agreement evidencing an Option (other than an
Incentive Stock Option) at the time of grant or thereafter, that the Option may
be transferred to members of the Optionee's immediate family, to trusts solely
for the benefit of such immediate family members and to partnerships in which
such family members and/or trusts are the only partners. Following transfer, for
purposes of this Plan, a transferee of an Option shall be deemed to be the
Optionee; provided that the Option shall be exercisable by the transferee only
to the extent and for such periods that the Option would have been exercisable
if held by the original Optionee. For this purpose, immediate family means the
Optionee's spouse, parents, children, stepchildren and grandchildren and the
spouses of such parents, children, stepchildren and grandchildren. The terms of
an Option shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the Optionee.

          7.3  Method of Exercise.
               ------------------

               (a) The exercise of an Option shall be made only by a written
notice delivered in person or by mail to the Secretary of the Company at the
Company's principal executive office, specifying the number of Shares to be
purchased and, to the extent applicable, accompanied by payment therefor and
otherwise in accordance with such procedures which may be approved by the
Committee from time to time, and in accordance with the Agreement pursuant to
which the Option was granted; provided, however, that Options may not be
exercised by an Optionee for twelve months following a hardship distribution to
the Optionee, to the extent such exercise is prohibited under Treasury
Regulation (S) 1.401(k)- 1(d)(2)(iv)(B)(4). The purchase price for any Shares
purchased pursuant to the exercise of an Option shall be paid, in any of the
following forms: (a) cash or (b) the transfer, either actually or by
attestation, to the Company of Shares that have been held by the Optionee for at
least six (6) months (or such lesser period as may be permitted by the
Committee) prior to the exercise of the Option and that have a Fair Market Value
equal in amount to the purchase price, such transfer to be upon such terms and
conditions as determined by the Committee or (c) a combination of cash and the
transfer of Shares, provided, however, that the Committee, in its sole
discretion, may determine in the case of Options that the purchase price shall
be paid only in cash. In addition, both Options and Formula Options may be
exercised through a registered broker-dealer pursuant to such cashless exercise
procedures which are, from time to time,

                                     -17-
<PAGE>

deemed acceptable by the Committee. Any Shares transferred to the Company as
payment of the purchase price under an Option shall be valued at their Fair
Market Value on the day preceding the date of exercise of such Option. If
requested by the Committee, the Optionee shall deliver the Agreement evidencing
the Option to the Secretary of the Company who shall endorse thereon a notation
of such exercise and return such Agreement to the Optionee. No fractional Shares
(or cash in lieu thereof) shall be issued upon exercise of an Option and the
number of Shares that may be purchased upon exercise shall be rounded to the
nearest number of whole Shares.

              (b) If the Fair Market Value of the Shares with respect to which
the Option is being exercised exceeds the purchase price of such Option, an
Optionee may, instead of exercising an Option as provided in Section 7.3(a),
request that the Committee authorize payment to the Optionee of the difference
between the Fair Market Value of part or all of the Shares which are the subject
of the Option and the purchase price of the Option, such difference to be
determined as of the date the Committee receives the request from the Optionee.
The Committee, in its sole discretion, may grant or deny such a request from an
Optionee with respect to part or all of the Shares as to which the Option is
then exercisable and, to the extent granted, shall direct the Company to make
the payment to the Optionee either in cash or in Shares or in any combination
thereof; provided, however, that the payment in Shares shall be based upon the
Fair Market Value of Shares as of the date the Committee received the request
from the Optionee. An Option shall be deemed to have been exercised and shall be
canceled to the extent that the Committee grants a request pursuant to this
Section 7.3(b).

          7.4 Rights of Optionees.  No Optionee shall be deemed for any purpose
              -------------------
to be the owner of any Shares subject to any Option unless and until (a) the
Option shall have been exercised pursuant to the terms thereof, (b) the Company
shall have issued and delivered Shares to the Optionee, and (c) the Optionee's
name shall have been entered as a stockholder of record on the books of the
Company. Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such Shares, subject to such terms and
conditions as may be set forth in the applicable Agreement.

          7.5 Effect of Change in Control.
              ---------------------------

              (a) Notwithstanding anything to the contrary in Section 5 or
Section 6, in the event of a Change in Control, the Plan and the Options shall
continue; provided, however, that the Committee, in its sole discretion and on
such terms and conditions as it deems appropriate, may provide, either by the
terms of the applicable Agreement or by action taken prior to the occurrence of
any such Change in Control, for any or all of the following alternatives
(separately or in any combination):

              (i) for the payment in cash upon the surrender to the Company for
cancellation of any Option or portion of an Option to the extent vested and

                                     -18-
<PAGE>

not yet exercised in an amount equal to the excess, if any, of (a) (i) in the
case of a Nonqualified Stock Option, the greater of (A) the Fair Market Value,
on the date preceding the date of surrender, of the Shares subject to the Option
or portion thereof surrendered or (B) the Adjusted Fair Market Value of the
Shares subject to the Option or portion thereof surrendered or (ii) in the case
of an Incentive Stock Option, the Fair Market Value, on the date preceding the
date of surrender, of the Shares subject to the Option or portion thereof
surrendered, over (b) the aggregate purchase price for such Shares under the
Option or portion thereof surrendered.

              (ii)  for the replacement of the Options with other rights or
property selected by the Committee in its sole discretion;

              (iii) for the accelerated vesting of all or a portion of the
Options;

              (iv)  for the assumption of the Options by the successor or
survivor corporation, or a parent or subsidiary thereof, or the substitution by
such corporation for such Options of new options covering the stock of the
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or

              (v)   for adjustments in the terms and conditions of outstanding
Options and/or the number and type of Shares or other securities or property
subject to such outstanding Options.

Any action pursuant to this Section 7.5(a) shall be conditioned upon the
consummation of the Change in Control and shall be effective only immediately
before the consummation of the Change in Control.

          (b) Subject to Section 7.5(d) and to the extent set forth in the
applicable Agreement or provided by the Committee, in its sole discretion,
subsequent to the granting of an Option, if, as a result of a Change in Control
transaction, an Option intended to qualify as an Incentive Stock Option fails to
so qualify solely because of the failure to meet the holding requirements of
           ------
Code Section 422(a)(1) (a "Disqualifying Disposition"), the Company shall make a
cash payment to the Optionee equal to the amount which will, after taking into
account all taxes imposed on the Disqualifying Disposition and the receipt of
such payment, leave the Optionee in the same after-tax position the Optionee
would have been in had the Code Section 422(a)(1) holding requirements been met
at the time of the Disqualifying Disposition (which after-tax position will
reflect the total taxes, if any, that would have been incurred by the Optionee
had the Disqualifying Disposition been subject to federal income tax at capital
gains rates) provided, however, that no payment described in this Section shall
exceed the Tax Benefit to the Company resulting from deductions relating to
ordinary income recognized

                                     -19-
<PAGE>

by the Optionee as a result of the Disqualifying Disposition. The payment
described in this Section shall be made by the Company within thirty (30) days
of the filing by the Company of the federal tax return which includes the tax
items associated with the income recognized by the Optionee as a result of the
Disqualifying Disposition (or, if the Tax Benefit described in the preceding
sentence is not realized until a later year, within thirty (30) days of the
filing by the Company of the federal tax return with respect to which such Tax
Benefit is realized).

          (c) Subject to Section 7.5(d) and to the extent set forth in the
applicable Agreement or provided by the Committee, in its sole discretion,
subsequent to the granting of an Option, and provided that an Optionee is not
entitled to payment under Section 7.5(b) hereof, if, as a result of a Change in
Control transaction, an Option intended to qualify as an Incentive Stock Option
fails to so qualify solely because the vesting of the Option is accelerated
                    ------
pursuant to Section 7.5(a) and such acceleration causes the aggregate fair
market value (determined at the time the Option is granted) of the Shares with
respect to which Options are exercisable for the first time by an Optionee
during the calendar year in which such vesting occurs to exceed $100,000, within
the meaning of Code Section 422(d) (a "Disqualified Option"), then, upon
exercise of such Disqualified Option, the Company shall make a cash payment to
the Optionee equal to the amount which will, after taking into account all taxes
imposed on the exercise of such Disqualified Option and the receipt of such
payment, leave the Optionee in the same after-tax position the Optionee would
have been in had the Disqualified Option continued to qualify as an Incentive
Stock Option on the date of exercise and the Optionee sold the Shares received
upon exercise of the Option at their Fair Market Value on the date of exercise,
provided, however, that no payment described in this Section shall exceed the
Tax Benefit to the Company resulting from deductions relating to ordinary income
recognized by the Optionee as a result of exercising the Disqualified Option and
the receipt of such payment. The payment described in this Section shall be made
by the Company within thirty (30) days of the filing by the Company of the
federal tax return which includes the tax items associated with the income
recognized by the Optionee as a result of exercising the Disqualified Option
(or, if the Tax Benefit described in the preceding sentence is not realized
until a later year, within thirty (30) days of the filing by the Company of the
federal tax return with respect to which such Tax Benefit is realized).

          (d) If more than one Optionee is entitled to a cash payment pursuant
to Section 7.5(b) or Section 7.5(c) in any single tax year and the Tax Benefit
realized by the Company in such year with respect to all such Optionees is less
than the aggregate amount of the payments due to such Optionees hereunder, then
(i) each such Optionee shall receive a portion of such cash payment equal to an
amount determined by multiplying the amount of the Tax Benefit realized by the
Company in such year by a fraction the numerator of which is equal to the amount
of payment due to such Optionee and the denominator of which is equal to the
aggregate amount due to all such Optionees entitled to a payment hereunder, and
(ii) subject to further application of this Section

                                     -20-
<PAGE>

7.5(d), shall be entitled to receive the remaining portion within thirty (30)
days of the filing by the Company of the federal tax return with respect to
which such Tax Benefit is realized.

      8.  Stock Appreciation Rights.
          -------------------------

          The Committee may in its sole discretion, either alone or in
connection with the grant of an Option, grant Stock Appreciation Rights in
accordance with the Plan, the terms and conditions of which shall be set forth
in an Agreement. If granted in connection with an Option, a Stock Appreciation
Right shall cover the same Shares covered by the Option (or such lesser number
of Shares as the Committee may determine) and shall, except as provided in this
Section 8, be subject to the same terms and conditions as the related Option.

          8.1     Time of Grant.  A Stock Appreciation Right may be granted (a)
                  -------------
at any time if unrelated to an Option, or (b) if related to an Option, either at
the time of grant, or (except in the case of an Incentive Stock Option) at any
time thereafter during the term of the Option.

          8.2     Stock Appreciation Right Related to an Option.
                  ---------------------------------------------

                  (a) Exercise. Subject to Section 8.9, a Stock Appreciation
                      --------
Right granted in connection with an Option shall be exercisable at such time or
times and only to the extent that the related Options are exercisable
(including, without limitation, exercisability upon Termination of Employment or
a Change in Control), and will not be transferable except to the extent the
related Option may be transferable. A Stock Appreciation Right granted in
connection with an Incentive Stock Option shall expire no later than the
expiration of the related Incentive Stock Option and shall be exercisable only
if the Fair Market Value of a Share on the date of exercise exceeds the purchase
price of the Option specified in the related Incentive Stock Option Agreement.

                  (b) Treatment of Related Options and Stock Appreciation Rights
                      ----------------------------------------------------------
Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in
-------------
connection with an Option, the Option shall be canceled to the extent of the
number of Shares as to which the Stock Appreciation Right is exercised, and upon
the exercise of an Option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of
Shares as to which the Option is exercised or surrendered.

          8.3     Stock Appreciation Right Unrelated to an Option.
                  -----------------------------------------------

                  (a) Terms. Subject to Section 8.9, stock Appreciation Rights
                      -----
unrelated to Options shall contain such terms and conditions as to
exercisability, vesting and duration as the Committee shall determine, but in no
event shall they have a term of

                                     -21-
<PAGE>

greater than ten (10) years; provided, however, that the Committee may provide
that Stock Appreciation Rights may, upon the death of the Grantee, be exercised
for up to one (1) year following the date of the Grantee's death even if such
period extends beyond ten (10) years from the date the Stock Appreciation Right
was granted.

                  (b) Termination. Subject to Section 13 and except as provided
                      -----------
in Section 8.9, and unless otherwise provided by the Committee, in its sole
discretion, in the applicable Agreement, upon a Grantee's Termination of
Employment, a Stock Appreciation Right shall be exercisable by the Grantee to
the same extent that an Option would be exercisable by an Optionee upon the
Optionee's Termination of Employment under the provisions of Section 5.5;
provided, however, no Stock Appreciation Right may be exercised after the
expiration date specified for the particular Stock Appreciation Right in the
applicable Agreement.

          8.4      Amount Payable.  Subject to Section 8.7, upon the exercise of
                   --------------
a Stock Appreciation Right, the Grantee shall be entitled to receive an amount
determined by multiplying (x) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock Appreciation Right over
(A) in the case of a Stock Appreciation Right granted in connection with an
Option, the per Share purchase price under the related Option, or (B) in the
case of a Stock Appreciation Right unrelated to an Option, the Fair Market Value
of a Share on the date the Stock Appreciation Right was granted, by (y) the
number of Shares as to which such Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by including such a limit
in the Agreement evidencing the Stock Appreciation Right at the time it is
granted.

          8.5      Non-Transferability.  No Stock Appreciation Right shall be
                   -------------------
transferable by the Grantee to whom it was granted otherwise than by will or by
the laws of descent and distribution or, in the Committee's sole discretion,
(except in the case of a Stock Appreciation Right granted in connection with an
Incentive Stock Option), pursuant to domestic relations order (within the
meaning of Rule 16a-12 promulgated under the Exchange Act (a "Domestic Relations
Transfer") and, except with respect to a Stock Appreciation Right transferred
pursuant to a Domestic Relations Transfer, such Stock Appreciation Right shall
be exercisable during the lifetime of such Grantee only by the Grantee or his or
her guardian or legal representative. The terms of such Stock Appreciation Right
shall be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Grantee.

          8.6      Method of Exercise.  Stock Appreciation Rights shall be
                   ------------------
exercised by a Grantee only by a written notice delivered in person or by mail
to the Secretary of the Company at the Company's principal executive office,
specifying the number of Shares with respect to which the Stock Appreciation
Right is being exercised. If requested by the Committee, the Grantee shall
deliver the Agreement evidencing the

                                     -22-
<PAGE>

Stock Appreciation Right being exercised and the Agreement evidencing any
related Option to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreement to the Grantee.

          8.7      Form of Payment.  Payment of the amount determined under
                   ---------------
Section 8.4 may be made in the sole discretion of the Committee solely in whole
Shares in a number determined at their Fair Market Value on the date preceding
the date of exercise of the Stock Appreciation Right, or solely in cash, or in a
combination of cash and Shares. If the Committee decides to make full payment in
Shares and the amount payable results in a fractional Share, no fractional
Shares (or cash in lieu thereof) shall be issued upon the exercise of the Stock
Appreciation Right and the number of Shares that will be delivered shall be
rounded to the nearest number of whole Shares.

          8.8      Modification.  No modification of an Award shall adversely
                   ------------
alter or impair any rights or obligations under the Agreement without the
Grantee's consent.

          8.9      Effect of Change in Control.  Notwithstanding anything
                   ---------------------------
contained in this Section 8 to the contrary, in the event of a Change in
Control, the Plan and the Stock Appreciation Rights shall continue; provided,
however, that the Committee, in its sole discretion and on such terms and
conditions as it deems appropriate, may provide, either by the terms of the
applicable Agreement or by action taken prior to the occurrence of any such
Change in Control, for any or all of the following alternatives (separately or
in any combination):

                            (i) with respect to a Stock Appreciation Right
unrelated to an Option, for the payment in cash upon the surrender to the
Company for cancellation of any such Stock Appreciation Right or portion of a
Stock Appreciation Right to the extent vested and not yet exercised in an amount
equal to the excess, if any, of (A) the greater of (i) the Fair Market Value, on
the date preceding the date of surrender, of the Shares subject to the Stock
Appreciation Right or portion thereof surrendered or (ii) the Adjusted Fair
Market Value, on the date preceding the date of surrender, of the Shares over
(B) the aggregate Fair Market Value, on the date the Stock Appreciation Right
was granted, of the Shares subject to the Stock Appreciation Right or portion
thereof surrendered.

                            (ii) for the replacement of the Stock Appreciation
Rights with other rights or property selected by the Committee in its sole
discretion;

                            (iii) for the accelerated vesting of all or a
portion of the Stock Appreciation Rights;

                            (iv) for the assumption of the Stock Appreciation
Rights by the successor or survivor corporation, or a parent or subsidiary
thereof, or the substitution by such corporation for such Stock Appreciation
Rights of new stock appreciation rights

                                     -23-
<PAGE>

covering the stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; or

                            (v) for adjustments in the terms and conditions of
outstanding Stock Appreciation Rights and/or the number and type of Shares or
other securities or property subject to such outstanding Stock Appreciation
Rights.

Any action pursuant to this Section 8.9 shall be conditioned upon the
consummation of the Change in Control and shall be effective only immediately
before the consummation of the Change in Control.

     9.   Dividend Equivalent Rights.
          --------------------------

          The Committee may in its sole discretion grant Dividend Equivalent
Rights to Eligible Individuals in tandem with an Option or Award or as a
separate Award. The terms and conditions (including, without limitation, terms
and conditions relating to a Change in Control) applicable to each Dividend
Equivalent Right shall be specified in the Agreement under which the Dividend
Equivalent Right is granted. In the sole discretion of the Committee, amounts
payable in respect of Dividend Equivalent Rights may be payable currently or
deferred until the lapsing of restrictions on such Dividend Equivalent Rights or
until the vesting, exercise, payment, settlement or other lapse of restrictions
on the Option or Award to which the Dividend Equivalent Rights relate. In the
event that the amount payable in respect of Dividend Equivalent Rights are to be
deferred, the Committee shall determine whether such amounts are to be held in
cash or reinvested in Shares or deemed (notionally) to be reinvested in Shares.
If amounts payable in respect of Dividend Equivalent Rights are to be held in
cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its sole discretion, may determine. In the sole
discretion of the Committee, Dividend Equivalent Rights may be settled in cash
or Shares or a combination thereof, in a single installment or multiple
installments. To the extent necessary for any Dividend Equivalent Right intended
to qualify as Performance-Based Compensation to so qualify, the terms and
conditions of the Dividend Equivalent Right shall be such that payment of the
Dividend Equivalent Right is contingent upon attainment of specified Performance
Objectives within the Performance Cycle, as provided for in Section 11, and such
Dividend Equivalent Right shall be treated as a Performance Award for purposes
of Sections 11 and 16.

     10.  Restricted Stock.
          ----------------

          10.1  Grant.  The Committee may in its sole discretion grant Awards to
                -----
Eligible Individuals of Restricted Stock, which shall be evidenced by an
Agreement between the Company and the Grantee. Each Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its sole discretion,
determine and (without

                                     -24-
<PAGE>

limiting the generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share certificates. Awards of Restricted Stock
shall be subject to the terms and provisions set forth below in this Section 10.

          10.2  Rights of Grantee.  Shares of Restricted Stock granted pursuant
                -----------------
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the sole discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Stock Award, the appropriate blank stock powers, an escrow agreement or any
other documents which the Committee may require within the time period
prescribed by the Committee at the time the Award is granted, the Award shall be
null and void. At the sole discretion of the Committee, Shares issued in
connection with a Restricted Stock Award shall be deposited together with the
stock powers with an escrow agent (which may be the Company) designated by the
Committee. Unless the Committee determines otherwise and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall
have all of the rights of a stockholder with respect to such Shares, including
the right to vote the Shares and to receive all dividends or other distributions
paid or made with respect to the Shares.

          10.3  Non-transferability.  Until all restrictions upon the Shares of
                -------------------
Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth
in Section 10.4, such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall they
be delivered to the Grantee.

          10.4  Lapse of Restrictions.
                ---------------------

                (a) Generally. Subject to Section 10.4(b), restrictions upon
                    ---------
Shares of Restricted Stock awarded hereunder shall lapse at such time or times
and on such terms and conditions as the Committee may determine; provided,
however, that except in the case of Shares of Restricted Stock issued in full or
partial settlement of another Award or other earned compensation, such
restrictions shall not fully lapse prior to the third anniversary of the date on
which such Shares of Restricted Stock were granted. The Agreement evidencing the
Award shall set forth any such restrictions.

                (b) Effect of Change in Control. Notwithstanding anything
                    ---------------------------
contained in this Section 10 to the contrary, in the event of a Change in
Control, the Plan and the Awards of Restricted Stock shall continue; provided,
however, that the Committee, in its sole discretion and on such terms and
conditions as it deems appropriate, may provide, either by the terms of the
applicable Agreement or by action taken prior to the occurrence of any such
Change in Control, for any or all of the

                                     -25-
<PAGE>

following alternatives (separately or in any combination): (i) for the
assumption of the shares of Restricted Stock by the successor or survivor
corporation, or a parent or subsidiary thereof, or the substitution by such
corporation for such shares of Restricted Stock of new shares of restricted
stock of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares, (ii)
for the lapse of all restrictions upon all or a portion of the shares of
Restricted Stock, or (iii) for adjustments in the terms and conditions of
outstanding Awards of Restricted Stock. Any action pursuant to this Section
10.5(b) shall be conditioned upon the consummation of the Change in Control and
shall be effective only immediately before the consummation of the Change in
Control.

        10.5  Terms of Restricted Stock.
              -------------------------

              (a) Forfeiture of Restricted Stock.  Subject to Sections 10.4(b),
                  ------------------------------
10.5(b) and 13, all Restricted Stock shall be forfeited and returned to the
Company and all rights of the Grantee with respect to such Restricted Stock
shall terminate unless the Grantee continues in the service of the Company as an
employee or director until the expiration of the forfeiture period for such
Restricted Stock and satisfies any and all other conditions set forth in the
Agreement. The Committee, in its sole discretion, shall determine the forfeiture
period (which may, but need not, lapse in installments) and any other terms and
conditions applicable with respect to any Restricted Stock Award.

              (b) Waiver of Forfeiture Period. Notwithstanding anything
                  ---------------------------
contained in this Section 10 to the contrary, the Committee may, in its sole
discretion, waive the forfeiture period and any other conditions set forth in
any Agreement under appropriate circumstances (including, without limitation,
the death, Disability or retirement of the Grantee or a material change in
circumstances arising after the date of grant) and subject to such terms and
conditions (including, without limitation, forfeiture of a proportionate number
of the Restricted Stock) as the Committee shall deem appropriate, provided that
the Grantee shall at that time have completed at least one (1) year of
employment or service after the date of grant.

        10.6  Modification or Substitution.  Subject to the terms of the Plan,
              ----------------------------
including, without limitation, Section 16, the Committee may modify outstanding
Awards of Restricted Stock or accept the surrender of outstanding shares of
Restricted Stock (to the extent the restrictions on such Shares have not yet
lapsed) and grant new Awards in substitution for them. Notwithstanding the
foregoing, no modification of an Award shall adversely alter or impair any
rights or obligations under the Agreement without the Grantee's consent.

        10.7  Treatment of Dividends.  At the time an Award of Shares of
              ----------------------
Restricted Stock is granted, the Committee may, in its sole discretion,
determine that the payment to the Grantee of dividends, or a specified portion
thereof, declared or paid on
                                     -26-
<PAGE>

such Shares by the Company shall be (a) deferred until the lapsing of the
restrictions imposed upon such Shares and (b) held by the Company for the
account of the Grantee until such time. In the event that dividends are to be
deferred, the Committee shall determine whether such dividends are to be
reinvested in Shares (which shall be held as additional Shares of Restricted
Stock) or held in cash. If deferred dividends are to be held in cash, there may
be credited at the end of each year (or portion thereof) interest on the amount
of the account at the beginning of the year at a rate per annum as the
Committee, in its sole discretion, may determine. Payment of deferred dividends
in respect of Shares of Restricted Stock (whether held in cash or as additional
Shares of Restricted Stock), together with interest accrued thereon, if any,
shall be made upon the lapsing of restrictions imposed on the Shares in respect
of which the deferred dividends were paid, and any dividends deferred (together
with any interest accrued thereon) in respect of any Shares of Restricted Stock
shall be forfeited upon the forfeiture of such Shares.

          10.8  Delivery of Shares.  Upon the lapse of the restrictions on
                ------------------
Shares of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder.

     11.  Performance Awards.
          ------------------

          11.1  Performance Objectives
                ----------------------

                (a) Establishment. Performance Objectives for Performance Awards
                    -------------
may be expressed in terms of (i) earnings per Share, (ii) Share price, (iii)
pre-tax profits, (iv) after-tax profits, (v) operating profits, (vi) sales or
expenses, (vii) net earnings, (viii) return on equity or assets, (ix) revenues,
(x) EBITDA (earnings before interest, taxes, depreciation and amortization),
(xi) market share, or market penetration, (xii) any combination of the
foregoing, (xiii) confidential business objectives or (xiv)prior to the end of
the Transition Period, such other criteria as the Committee may determine.
Performance Objectives may be in respect of the performance of the Company, any
of its Subsidiaries, any of its Divisions or any combination thereof.
Performance Objectives may be absolute or relative (to prior performance of the
Company or to the performance of one or more other entities or external indices)
and may be expressed in terms of a progression within a specified range. The
Performance Objectives with respect to a Performance Cycle shall be established
in writing by the Committee by the earlier of (x) the date on which a quarter of
the Performance Cycle has elapsed or (y) the date which is ninety (90) days
after the commencement of the Performance Cycle, and in any event while the
performance relating to the Performance Objectives remains substantially
uncertain.

                (b) Effect of Certain Events. At the time of the granting of a
                    ------------------------
Performance Award, or at any time thereafter, in either case to the extent
permitted under

                                     -27-
<PAGE>

Section 162(m) of the Code and the regulations thereunder without adversely
affecting the treatment of the Performance Award as Performance-Based
Compensation, the Committee may provide for the manner in which performance will
be measured against the Performance Objectives (or may adjust the Performance
Objectives) to reflect the impact of specified corporate transactions,
accounting or tax law changes and other extraordinary or nonrecurring events.

                (c) Determination of Performance. Prior to the vesting, payment,
                    ----------------------------
settlement or lapsing of any restrictions with respect to any Performance Award
that is intended to constitute Performance-Based Compensation made to a Grantee
who is subject to Section 162(m) of the Code, the Committee shall certify in
writing that the applicable Performance Objectives have been satisfied to the
extent necessary for such Award to qualify as Performance-Based Compensation.

          11.2  Performance Units.  The Committee, in its sole discretion, may
                -----------------
grant Awards of Performance Units to Eligible Individuals, the terms and
conditions of which shall be set forth in an Agreement between the Company and
the Grantee. Performance Units may be denominated in Shares or a specified
dollar amount and, contingent upon the attainment of specified Performance
Objectives within the Performance Cycle, represent the right to receive payment
as provided in Section 11.2(b) of (i) in the case of Share-denominated
Performance Units, the Fair Market Value of a Share on the date the Performance
Unit was granted, the date the Performance Unit became vested or any other date
specified by the Committee, (ii) in the case of dollar-denominated Performance
Units, the specified dollar amount or (iii) a percentage (which may be more than
100%) of the amount described in clause (i) or (ii) depending on the level of
Performance Objective attainment; provided, however, that, the Committee may at
the time a Performance Unit is granted specify a maximum amount payable in
respect of a vested Performance Unit. Each Agreement shall specify the number of
Performance Units to which it relates, the Performance Objectives which must be
satisfied in order for the Performance Units to vest and the Performance Cycle
within which such Performance Objectives must be satisfied.

                (a) Vesting and Forfeiture. Subject to Sections 11.1(c) and
                    ----------------------
11.4, Performance Units shall become vested in such installments (which need not
be equal) and at such time or times and on such terms, conditions and
satisfaction of Performance Objectives as the Committee may, in its sole
discretion, determine at the time an Award is granted.

                (b) Payment of Awards. Subject to Sections 11.1(c) and 11.4,
                    -----------------
payment to Grantees in respect of vested Performance Units shall be made as soon
as practicable after the last day of the Performance Cycle to which such Award
relates unless the Agreement evidencing the Award provides for the deferral of
payment, in which event the terms and conditions of the deferral shall be set
forth in the Agreement.
                                     -28-
<PAGE>

Subject to Section 11.4, such payments may be made entirely in Shares valued at
their Fair Market Value as of the day preceding the date of payment or such
other date specified by the Committee, entirely in cash, or in such combination
of Shares and cash as the Committee in its sole discretion shall determine at
any time prior to such payment; provided, however, that if the Committee in its
sole discretion determines to make such payment entirely or partially in Shares
of Restricted Stock, the Committee must determine the extent to which such
payment will be in Shares of Restricted Stock and the terms of such Restricted
Stock at the time the Award is granted.

                (c) Non-transferability. Until the vesting of Performance Units,
                    -------------------
such Performance Units shall not be sold, transferred or otherwise disposed of
and shall not be pledged or otherwise hypothecated.

          11.3  Performance Shares.  The Committee, in its sole discretion, may
                ------------------
grant Awards of Performance Shares to Eligible Individuals, the terms and
conditions of which shall be set forth in an Agreement between the Company and
the Grantee. Each Agreement may require that an appropriate legend be placed on
Share certificates. Awards of Performance Shares shall be subject to the
following terms and provisions:

                (a) Rights of Grantee. The Committee shall provide at the time
                    -----------------
an Award of Performance Shares is made the time or times at which the actual
Shares represented by such Award shall be issued in the name of the Grantee;
provided, however, that no Performance Shares shall be issued until the Grantee
has executed an Agreement evidencing the Award, the appropriate blank stock
powers and, in the sole discretion of the Committee, an escrow agreement and any
other documents which the Committee may require as a condition to the issuance
of such Performance Shares. If a Grantee shall fail to execute the Agreement
evidencing an Award of Performance Shares, the appropriate blank stock powers,
an escrow agreement and any other documents which the Committee may require
within the time period prescribed by the Committee at the time the Award is
granted, the Award shall be null and void. At the sole discretion of the
Committee, Shares issued in connection with an Award of Performance Shares shall
be deposited together with the stock powers with an escrow agent (which may be
the Company) designated by the Committee. Except as restricted by the terms of
the Agreement, upon delivery of the Shares to the escrow agent, the Grantee
shall have, in the sole discretion of the Committee, all of the rights of a
stockholder with respect to such Shares, including the right to vote the Shares
and to receive all dividends or other distributions paid or made with respect to
the Shares.

                (b) Non-transferability. Until any restrictions upon the
                    -------------------
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 11.3(c) or 11.4, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they

                                     -29-
<PAGE>

be delivered to the Grantee. The Committee also may impose such other
restrictions and conditions on the Performance Shares, if any, as it deems
appropriate.

                (c) Lapse of Restrictions. Subject to Sections 11.1(c) and 11.4,
                    ---------------------
restrictions upon Performance Shares awarded hereunder shall lapse and such
Performance Shares shall become vested at such time or times and on such terms,
conditions and satisfaction of Performance Objectives as the Committee may, in
its sole discretion, determine at the time an Award is granted.

                (d) Treatment of Dividends. At the time the Award of Performance
                    ----------------------
Shares is granted, the Committee may, in its sole discretion, determine that the
payment to the Grantee of dividends, or a specified portion thereof, declared or
paid on Shares represented by such Award which have been issued by the Company
to the Grantee shall be (i) deferred until the lapsing of the restrictions
imposed upon such Performance Shares and (ii) held by the Company for the
account of the Grantee until such time. In the event that dividends are to be
deferred, the Committee shall determine whether such dividends are to be
reinvested in Shares (which shall be held as additional Performance Shares) or
held in cash. If deferred dividends are to be held in cash, there may be
credited at the end of each year (or portion thereof) interest on the amount of
the account at the beginning of the year at a rate per annum as the Committee,
in its sole discretion, may determine. Payment of deferred dividends in respect
of Performance Shares (whether held in cash or in additional Performance
Shares), together with interest accrued thereon, if any, shall be made upon the
lapsing of restrictions imposed on the Performance Shares in respect of which
the deferred dividends were paid, and any dividends deferred (together with any
interest accrued thereon) in respect of any Performance Shares shall be
forfeited upon the forfeiture of such Performance Shares.

                (e) Delivery of Shares. Upon the lapse of the restrictions on
                    ------------------
Performance Shares awarded hereunder, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares, free of
all restrictions hereunder.

          11.4  Effect of Change in Control.  Notwithstanding anything in this
                ---------------------------
Section 11 to the contrary, in the event of a Change in Control, the Plan and
the Performance Awards shall continue; provided, however, that the Committee, in
its sole discretion and on such terms and conditions as it deems appropriate,
may provide, either by the terms of the applicable Agreement or by action taken
prior to the occurrence of any such Change in Control, for any or all of the
following alternatives (separately or in any combination): (i) for the
assumption of the Performance Awards by the successor or survivor corporation,
or a parent or subsidiary thereof, or the substitution by such corporation for
such Performance Awards of new performance awards of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the applicable performance objectives and, if necessary, the number and kind
of shares, (ii) for the vesting of all or a portion of the Performance Awards as
if all Performance

                                     -30-
<PAGE>

Objectives had been satisfied at the level specified by the Committee in its
sole discretion and, in the case of Performance Units which become vested as a
result of a Change in Control, for a payment which may be made entirely in cash,
entirely in Shares valued at their Fair Market Value as of the day preceding the
payment, or in such combination of cash and Shares as the Committee shall
determine in its sole discretion at any time prior to such payment; provided
that such payment shall be made within ten (10) business days after such Change
in Control, or (iii) for adjustments in the terms and conditions of outstanding
Performance Awards. Any action pursuant to this Section 11.4 shall be
conditioned upon the consummation of the Change in Control and shall be
effective only immediately before the consummation of the Change in Control.

           11.5 Termination. Subject to Sections 11.4 and 13, and unless
                -----------
otherwise provided by the Committee, in its sole discretion, in the applicable
Agreement, the following provisions shall apply to Performance Awards upon a
Termination of Employment:

                (a) Termination of Employment Prior to End of Performance Cycle.
                    -----------------------------------------------------------
Except as provided in Sections 11.5(b) and (d), in the case of a Grantee's
Termination of Employment, prior to the end of a Performance Cycle, the Grantee
will not be entitled to any Performance Awards, and any Performance Shares shall
be forfeited.

                (b) Disability, Retirement or Death Prior to End of Performance
                    -----------------------------------------------------------
Cycle. Unless otherwise provided by the Committee, in its sole discretion, in
-----
the Agreement, if a Grantee's Disability Date or Termination of Employment by
reason of retirement on or after the Grantee's Normal Retirement Date or death
occurs following participation in at least one-half (1/2) of the Performance
Cycle, but prior to the end of a Performance Cycle, the Grantee or such
Grantee's Beneficiary, as the case may be, shall be entitled to receive a
pro-rata share of his or her Performance Award as determined under Subsection
(c).

                (c) Pro-Rata Payment.
                    ----------------

                    (i) Performance Units. With respect to Performance Units,
                        -----------------
the amount of any payment made to a Grantee (or Beneficiary) under circumstances
described in Section 11.5(b) shall be the amount determined by multiplying the
amount of the Performance Units payable in Shares or dollars which would have
been earned, determined at the end of the Performance Cycle, had such employment
not been terminated, by a fraction, the numerator of which is the number of
whole months such Grantee was employed during the Performance Cycle, and the
denominator of which is the total number of months of the Performance Cycle. Any
such payment shall be made as soon as practicable after the end of the
respective Performance Cycle, and shall relate to attainment of Performance
Objectives over the entire
                                     -31-
<PAGE>

Performance Cycle.

              (ii) Performance Shares. With respect to Performance Shares, the
                   ------------------
amount of Performance Shares held by a Grantee (or Beneficiary) with respect to
which restrictions shall lapse under circumstances described in Section 11.5(b)
shall be the amount determined by multiplying the amount of the Performance
Shares with respect to which restrictions would have lapsed, determined at the
end of the Performance Cycle, had such employment not been terminated, by a
fraction, the numerator of which is the number of whole months such Grantee was
employed during the Performance Cycle, and the denominator of which is the total
number of months of the Performance Cycle. The Committee shall determine the
amount of Performance Shares with respect to which restrictions shall lapse
under this Section 11.5(c)(ii) as soon as practicable after the end of the
respective Performance Cycle, and such determination shall relate to attainment
of Performance Objectives over the entire Performance Cycle. At that time, all
Performance Shares relating to that Performance Cycle with respect to which
restrictions shall not lapse shall be forfeited.

          (d) Other Events.  Except to the extent a Performance Award is
              ------------
intended to qualify as Performance-Based Compensation, the Committee may, in its
sole discretion, determine to pay all or any portion of a Performance Award to a
Grantee who has a Termination of Employment prior to the end of a Performance
Cycle under certain circumstances (including, without limitation, a material
change in circumstances arising after the date of grant) and subject to such
terms and conditions as the Committee shall deem appropriate, provided that the
Grantee shall have completed at his or her date of Termination of Employment at
least one (1) year of employment after the date of grant.

          (e) Termination of Employment After End of Performance Cycle.  Subject
              --------------------------------------------------------
to Sections 11.4 and 11.5(f), in the case of a Grantee's Termination of
Employment after the end of a Performance Cycle in which the applicable
Performance Objectives have been satisfied, the Grantee shall not be entitled to
any Performance Awards that have not yet vested as of the date of the Grantee's
Termination of Employment.

          (f) Waiver of Forfeiture.  Notwithstanding anything to the contrary in
              --------------------
Section 11(e), in the case of a Grantee's Termination of Employment after the
end of a Performance Cycle in which the applicable Performance Objectives have
been satisfied, the Committee may, in its sole discretion, waive the forfeiture
of Performance Awards and any other conditions set forth in any Agreement under
appropriate circumstances (including, without limitation, the death, Disability,
or retirement of the Grantee or a material change in circumstances arising after
the date of grant) and subject to such terms and conditions as the Committee
shall deem appropriate.

                                     -32-
<PAGE>

          11.6  Modification or Substitution.  Subject to the terms of the Plan,
                ----------------------------
including, without limitation, Section 16, the Committee may modify outstanding
Performance Awards or accept the surrender of outstanding Performance Awards and
grant new Performance Awards in substitution for them. Notwithstanding the
foregoing, no modification of a Performance Award shall adversely alter or
impair any rights or obligations under the Agreement without the Grantee's
consent.

     12.  Other Share Based Awards.
          ------------------------

          12.1  Share Awards.  The Committee, in its sole discretion, may grant
                ------------
a Share Award to any Eligible Individual on such terms and conditions as the
Committee may determine. Share Awards may be made as additional compensation for
services rendered by the Eligible Individual or may be in lieu of cash or other
compensation to which the Eligible Individual is entitled from the Company.

          12.2  Phantom Stock Awards.
                --------------------

                (a) Grant. The Committee, in its sole discretion, may grant
                    -----
shares of Phantom Stock to any Eligible Individual. Such Phantom Stock shall be
subject to the terms and conditions established by the Committee and set forth
in the applicable Agreement.

                (b) Payment of Awards. Upon the vesting of a Phantom Stock
                    -----------------
Award, the Grantee shall be entitled to receive a cash payment in respect of
each share of Phantom Stock which shall be equal to the Fair Market Value of a
Share as of the date the Phantom Stock Award was granted, or such other date as
determined by the Committee at the time the Phantom Stock Award was granted. The
Committee may, at the time a Phantom Stock Award is granted, provide a
limitation on the amount payable in respect of each share of Phantom Stock. In
lieu of a cash payment, the Committee, in its sole discretion, may settle
Phantom Stock Awards with Shares having a Fair Market Value on the date of
vesting equal to the cash payment to which the Grantee has become entitled.

     13.  Employment Agreement Governs Termination of Employment.
          ------------------------------------------------------

          An employment agreement, if applicable, between an Optionee or Grantee
and the Company shall govern with respect to the terms and conditions applicable
to such Option or Award upon a termination or change in the status of the
employment of the Optionee or Grantee, to the extent that such employment
agreement provides for terms and conditions that differ from the terms and
conditions provided for in the applicable Agreement or the Plan; provided,
however, that to the extent necessary for an Option or Award intended to qualify
as Performance-Based Compensation to so qualify, the terms of the applicable
Agreement or the Plan shall govern the Option or Award; and, provided further,
that the Committee shall have reviewed and, in its sole discretion,

                                     -33-
<PAGE>

approved the employment agreement.

     14.  Adjustment Upon Changes in Capitalization.
          -----------------------------------------

          (a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options or Awards may be granted under the Plan, (ii) the maximum number and
class of Shares or other stock or securities that may be issued upon exercise of
Incentive Stock Options; (iii) the number and class of Shares or other stock or
securities which are subject to outstanding Options or Awards granted under the
Plan and the purchase price therefor, if applicable, (iv) the number and class
of Shares or other securities in respect of which Formula Options are to be
granted under Section 6 and (v) the Performance Objectives.

          (b) Any such adjustment in the Shares or other stock or securities (i)
subject to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code or (ii) subject to outstanding
Options or Awards that are intended to qualify as Performance-Based Compensation
shall be made in such a manner as not to adversely affect the treatment of the
Options or Awards as Performance-Based Compensation.

          (c) If, by reason of a Change in Capitalization, a Grantee of an Award
shall be entitled to, or an Optionee shall be entitled to exercise an Option
with respect to, new, additional or different shares of stock or securities of
the Company or any other corporation, such new, additional or different shares
shall thereupon be subject to all of the conditions, restrictions and
performance criteria which were applicable to the Shares subject to the Award or
Option, as the case may be, prior to such Change in Capitalization.

     15.  Effect of Certain Transactions.
          ------------------------------

          Subject to Sections 7.5, 8.9, 10.4(b) and 11.4 or as otherwise
provided in an Agreement, in the event of (a) the liquidation or dissolution of
the Company or (b) a merger or consolidation of the Company (a "Transaction"),
the Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms, except that following a Transaction
either (i) each outstanding Option or Award shall be treated as provided for in
the agreement entered into in connection with the Transaction or (ii) if not so
provided in such agreement, each Optionee and Grantee shall be entitled to
receive in respect of each Share subject to any outstanding Options or Awards,
as the case may be, upon exercise of any Option or payment or transfer in
respect of any Award, the same number and kind of stock, securities, cash,
property or other consideration that each holder of a Share was entitled to
receive in the Transaction in respect of a Share; provided, however, that such
stock, securities, cash, property, or

                                     -34-
<PAGE>

other consideration shall remain subject to all of the conditions, restrictions
and performance criteria which were applicable to the Options and Awards prior
to such Transaction. The treatment of any Option or Award as provided in this
Section 15 shall be conclusively presumed to be appropriate for purposes of
Section 11.

     16.  Interpretation.
          --------------

          Following the required registration of any equity security of the
Company pursuant to Section 12 of the Exchange Act:

          (a) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the provisions
of the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.

          (b) Unless otherwise expressly stated in the relevant Agreement, each
Option, Stock Appreciation Right and Performance Award granted under the Plan is
intended to be Performance-Based Compensation. The Committee shall not be
entitled to exercise any discretion otherwise authorized hereunder with respect
to such Options or Awards if the ability to exercise such discretion or the
exercise of such discretion itself would cause the compensation attributable to
such Options or Awards to fail to qualify as Performance-Based Compensation.
Notwithstanding anything to the contrary in the Plan, the provisions of the Plan
may at any time be bifurcated by the Board or the Committee in any manner so
that certain provisions of the Plan or any Performance Award intended (or
required in order) to satisfy the applicable requirements of Section 162(m) of
the Code are only applicable to persons whose compensation is subject to Section
162(m).

     17.  Pooling Transactions.
          --------------------

          Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if any,
as are specifically recommended by an independent accounting firm retained by
the Company to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including, without limitation, (a)
deferring the vesting, exercise, payment, settlement or lapsing of restrictions
with respect to any Option or Award, (b) providing that the payment or
settlement in respect of any Option or Award be made in the form of cash, Shares
or securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (c) providing for the extension of the term of any Option or
Award to the extent necessary to accommodate the foregoing, but not beyond

                                     -35-
<PAGE>

the maximum term permitted for any Option or Award.

     18.  Effective Date, Termination and Amendment of the Plan.
          -----------------------------------------------------

          18.1  Effective Date.  The effective date of this Plan shall be the
                --------------
date the Plan is adopted by the Board, subject only to the approval of the
holders of a majority of the outstanding Common Stock of the Company within
twelve (12) months of the adoption of the Plan by the Board.

          18.2  Plan Amendment or Termination.  The Plan shall terminate on the
                -----------------------------
day preceding the tenth anniversary of the date of its adoption by the Board and
no Option or Award may be granted thereafter. The Board may sooner terminate the
Plan and the Board may at any time and from time to time amend, modify or
suspend the Plan; provided, however, that:

                (a) no such amendment, modification, suspension or termination
shall impair or adversely alter any Options or Awards theretofore granted under
the Plan, except with the consent of the Optionee or Grantee, nor shall any
amendment, modification, suspension or termination deprive any Optionee or
Grantee of any Shares which he or she may have acquired through or as a result
of the Plan; and

                (b) to the extent necessary under any applicable law, regulation
or exchange requirement, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law, regulation or
exchange requirement.

     19.  Non-Exclusivity of the Plan.
          ---------------------------

          The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.

     20.  Limitation of Liability.
          -----------------------

          As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:

          (a) give any person any right to be granted an Option or Award other
than at the sole discretion of the Committee;

                                     -36-
<PAGE>

          (b) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;

          (c) interfere with or limit in any way the right of the Company or any
Subsidiary to terminate the employment of any person at any time for any reason
whatsoever, with or without good cause; or

          (d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.

     21.  Regulations and Other Approvals; Governing Law.
          ----------------------------------------------

          21.1 Except as to matters of federal law, the Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
laws principles thereof.

          21.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.

          21.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder.

          21.4 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its sole discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.

          21.5 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Company may place on any certificate

                                     -37-
<PAGE>

representing any such Shares any legend deemed desirable by the Company's
counsel to comply with federal or state securities laws and the Committee may
require any individual receiving Shares pursuant to an Option or Award granted
under the Plan, as a condition precedent to receipt of such Shares, to represent
and warrant to the Company in writing that the Shares acquired by such
individual are acquired without a view to any distribution thereof and will not
be sold or transferred other than pursuant to an effective registration thereof
under said Act or pursuant to an exemption applicable under the Securities Act
or the rules and regulations promulgated thereunder.

     22.  Miscellaneous.
          -------------

          22.1  Multiple Agreements.  The terms of each Option or Award may
                -------------------
differ from other Options or Awards granted under the Plan at the same time, or
at some other time. The Committee may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan, either in addition
to, or in substitution for, one or more Options or Awards previously granted to
that Eligible Individual.

          22.2  Captions.  The use of captions in this Plan or any Agreement is
                --------
for the convenience of reference only and shall not affect the meaning of any
provision of the Plan or such Agreement.

          22.3  Severability.  Whenever possible, each provision of the Plan or
                ------------
an Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Plan or an Agreement shall be
held by a court of competent jurisdiction to be prohibited by or invalid or
unenforceable under applicable law, then (a) such provision shall be deemed to
be amended to accomplish the objectives of the provision as originally written
to the fullest extent permitted by law and (b) all other provisions of the Plan
or an Agreement shall remain in full force and effect.

          22.4  Withholding of Taxes.
                --------------------

                (a) At such times as an Optionee or Grantee recognizes taxable
income in connection with the receipt of Shares or cash hereunder (a "Taxable
Event"), the Optionee or Grantee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
Shares or the payment of such cash. The Company shall have the right to deduct
from any payment of cash to an Optionee or Grantee an amount equal to the
Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. In
satisfaction of the obligation to pay Withholding Taxes to the Company, the
Optionee or Grantee may make a written election (the "Tax Election"), which may
be accepted or rejected in the sole discretion of the Committee, to have

                                     -38-
<PAGE>

withheld a portion of the Shares then issuable to him or her having an aggregate
Fair Market Value equal to the Withholding Taxes.

               (b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.

          22.5 Post-Transition Period.  Any Option or Award granted under the
               ----------------------
Plan after the expiration of the Transition Period which is intended to be
Performance-Based Compensation shall be subject to the approval of the material
terms of the Plan by a majority of the stockholders of the Company in accordance
with Section 162(m) of the Code and the regulations promulgated thereunder.

                                     -39-

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