Document:

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                                                                   Exhibit 10.28

                                  TELLIUM, INC.
                            2001 STOCK INCENTIVE PLAN
                                   as adopted
                                 March 12, 2001
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                                  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.
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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-
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          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-
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          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 options or awards granted under the
Former Plan which Shares are not issued prior to the expiration or termination
of such options or awards (including Shares subject to options or 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 Options or Awards may be granted under the Plan
(not including Shares that are subject to outstanding Options or 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 Options or Awards may be granted under the Plan (not including Shares
that are subject to outstanding Options or 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-<PAGE>

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.

                                                                   EXHIBIT 10.29

                                                                  Execution Copy

                              WARRANT CERTIFICATE

                                 TELLIUM, INC.

                                "C" WARRANTS TO
                             Purchase Common Stock

Certificate                                                     Certificate for
No. 1                                                      750,000 "C" Warrants

     THIS WARRANT CERTIFICATE CERTIFIES THAT QWEST INVESTMENT COMPANY, a
Delaware corporation ("QIC"), or its registered assigns, is the registered
holder of the number of "C" Warrants (the "Warrants") set forth above which were
granted by Tellium, Inc., a Delaware corporation (the "Company") to QIC for
$1.00 and other good and valuable consideration.  Each Warrant entitles the
holder thereof to subscribe for and purchase one fully paid and nonassessable
share of common stock, par value $.001 per share (the "Common Stock") (as
adjusted pursuant to Section 5, a "Share") of the Company, at any time and from
time to time after the date such Warrant becomes exercisable pursuant to Section
4.1 and prior to the Expiration Time, at the purchase price of $7.00 per share
(as such price may be adjusted pursuant to Section 5, the "Warrant Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. Terms not otherwise defined herein have the meanings stated in Section
24.

        THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
        INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
        1933.  THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
        SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
        ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
        CONDITIONS SPECIFIED IN SECTION 2 HEREOF, AND NO TRANSFER OF THESE
        SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
        FULFILLED.  UPON THE FULFILLMENT OF CERTAIN SUCH CONDITIONS, THE
        SECRETARY OF TELLIUM, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A
        NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED
        HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF.
<PAGE>

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.

1.   Vesting of Warrants.
     -------------------

     Each Warrant is fully vested, shall be subject to adjustment pursuant to
Section 5, and shall become exercisable as set forth in Section 4.

2.   Transferability of Warrants.
     ---------------------------

     2.1  Warrant Register and Registration.  The Secretary of the Company will
          ---------------------------------
          keep or cause to be kept at the office of the Company books for the
          registration and transfer (the "Warrant Register") of this Warrant
          Certificate and any other Warrant certificate issued hereunder
          (collectively, including the initial Warrant, the "Warrants").  The
          Warrant Certificates will be numbered and will be registered in the
          Warrant Register as they are issued.  The Company and the Secretary of
          the Company will be entitled to treat a person as the owner in fact
          for all purposes of each Warrant registered in such person's name
          (each registered owner is herein referred to as a "holder" of such
          Warrant) and will not be bound to recognize any equitable or other
          claim to or interest in such Warrant on the part of any other person
          and will not be liable for any registration of transfer of Warrants
          that are registered or to be registered in the name of a fiduciary or
          the nominee of a fiduciary.

     2.2  No Transfer.  The Warrants and shares of Common Stock to be issued
          -----------
          pursuant to the exercise of the Warrant (the "Warrant Shares") shall
          not be sold, transferred, assigned, pledged, encumbered or otherwise
          disposed of (each, a "Transfer") except upon the conditions specified
          in this Section 2.

     2.3  Legend.   The Warrant Shares shall (unless otherwise permitted by the
          ------
          provisions of Sections 2.4 and 2.5) be stamped or otherwise imprinted
          with a legend in substantially the following form:

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
          INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
          1933.  THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
          OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
          ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
          CONDITIONS SPECIFIED IN SECTION 2 OF THE WARRANT CERTIFICATE, AND NO
          TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
          CONDITIONS HAVE BEEN FULFILLED.  UPON THE FULFILLMENT OF CERTAIN SUCH
          CONDITIONS, THE SECRETARY OF TELLIUM, INC. HAS AGREED TO DELIVER TO
          THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE

                                      -2-
<PAGE>

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.

          SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER
          HEREOF.

     2.4  Notice.  (a)  Subject to Sections 2.4(b) and 2.4(c), QIC agrees, prior
          ------
          to any Transfer of Warrants (or Warrant Shares), to give written
          notice to comply with the provisions of this Section 2.  Each such
          notice shall be accompanied by the written opinion (addressed to the
          Company by counsel for the holder of such Warrant or Warrant Shares
          and stating that in the opinion of such counsel (which opinion and
          counsel shall be reasonably satisfactory to the Company) such proposed
          Transfer does not involve a transaction requiring registration of such
          Warrant or Warrant Shares under the Securities Act) and, except in
          respect of sales pursuant to Securities Act Rule 144 or a registration
          statement effective pursuant to the Securities Act of 1933, as
          amended, the transferee's agreement in writing to be subject to the
          terms of this Section 2 to the same extent as if such transferee were
          originally a signatory to this Agreement.  QIC shall thereupon be
          entitled to Transfer such shares.  Each certificate or other
          instrument evidencing the Warrant or Warrant Shares issued upon the
          Transfer of any such Warrant or Warrant Shares (and each certificate
          or other instrument evidencing any untransferred balance of such
          Warrant or Warrant Shares) shall bear the legend set forth in Section
          2.3 unless (x) in such opinion of counsel registration of any future
          Transfer is not required by the applicable provisions of the
          Securities Act or (y) the Company shall have waived the requirement of
          such legends; provided, however, that such legend shall not be
          required on any certificate or other instrument evidencing the
          securities issued upon such Transfer in the event such Transfer shall
          be made in compliance with the requirements of Securities Act Rule 144
          and the transferee is not an affiliate (as defined in Rule 144 of the
          Securities Act) of the Company.

          (b)  Unless and until the "C" Warrants are fully exercisable in
               accordance with the terms set forth in the applicable Warrant
               Certificate, and except for a Transfer to an Affiliate (as
               defined in Section 21) of QIC, the "C" Warrants (and Warrant
               Shares) shall not be Transferred without the prior written
               consent of the Company, which shall not be unreasonably withheld
               (it being understood and agreed that a Transfer to a party that
               QIC could reasonably determine is a competitor of the Company or
               to a party that, after reasonable inquiry, QIC knows or has
               reason to know is asserting a material claim against (or an
               adverse party to a litigation or arbitration with) the Company
               are examples of circumstances where the Company may withhold its
               consent under this Section 2.4(b)).

     2.5  Termination.  Notwithstanding the foregoing provisions of this Section
          -----------
          2, the restrictions imposed by this Section 2 upon the transferability
          of the Warrant Shares shall cease and terminate when (i) any such
          shares are sold or otherwise disposed of pursuant to an effective
          registration statement under the Securities Act

                                      -3-
<PAGE>

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.

          or as otherwise contemplated by Section 2.4 and, pursuant to Section
          2.4, the securities so transferred are not required to bear the legend
          set forth in Section 2.3 or (ii) the holder of such shares has met the
          requirements for Transfer of such shares pursuant to paragraph (k) of
          Securities Rule 144. Whenever the restrictions imposed by this Section
          2 shall terminate as to any Warrant Shares, as herein provided, QIC
          shall be entitled to receive from the Company, without expense, a new
          certificate representing such Warrant Shares not bearing the
          restrictive legend set forth in Section 2.3 and not containing any
          other reference to the restrictions imposed by this Section 2.

     2.6  Form of Warrant.  The Warrant Certificates will be executed on behalf
          of the Company by the Chairman of the Board of Directors of the
          Company (the "Board"), its President or one of its Vice Presidents and
          attested to by the Secretary of the Company or an Assistant Secretary.
          The signature of any of such officers on the Warrants may be manual or
          facsimile.

3.   Exchange of Warrants. Each Warrant may be exchanged at the option of the
     --------------------
     holder thereof for another Warrant or Warrants entitling the holder thereof
     to purchase a like aggregate number of Warrant Shares as the Warrant or
     Warrants surrendered then entitle such holder to purchase.  Any holder
     desiring to exchange a Warrant or Warrants will make such request in
     writing delivered to the Secretary of the Company and will surrender,
     properly endorsed, the Warrant or Warrants to be so exchanged at the office
     of the Secretary of the Company.  Thereupon, a new Warrant or Warrants, as
     the case may be, as so requested, will be delivered to the person entitled
     thereto.

4.   Term of Warrants; Exercise of Warrants.
     --------------------------------------

     4.1  Exercisability of Warrants.  The Warrants represented by this Warrant
          --------------------------
          Certificate are exercisable in whole or in part in accordance with the
          following:

          (a)  If Qwest has paid (***) pursuant to the Procurement Agreement
               dated as of September 18, 2000 between the Company and Qwest, as
               amended by the First Amendment to the Procurement Agreement dated
               as of the date hereof (the "Procurement Agreement"), (***)
               Warrants shall be fully exercisable (it being understood and
               agreed that this Section 4.1(a) shall have been satisfied if
               Qwest has made payments and Deemed Payments to the Company
               aggregating such (***).  "Deemed Payments" shall mean the
               aggregate purchase order amounts which are contained in valid and
               effective purchase orders (A) issued under Section 7.1 of the
               Procurement Agreement, (B) confirmed and accepted by the Company
               under Section 7.2 of the Procurement Agreement, and (C)
               containing stated delivery dates in case of the purchase orders
               under Section 7.1(a)(i) and agreed upon delivery dates in case of
               purchase orders under Section 7.1(a)(ii) (as postponed, suspended
               or amended from time to time pursuant to the

                                      -4-
<PAGE>

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.

               Procurement Agreement) for which the Company has not satisfied
               its delivery obligations in circumstances in which the Company
               failed to use commercially reasonable efforts to meet such
               delivery dates.

          (b)  Notwithstanding the foregoing, the Warrants shall become
               exercisable if they have not become exercisable prior to the
               (***) of the date hereof upon such (***).

          The Company shall keep a reasonably detailed record of all Qwest
          payments pursuant to the Procurement Agreement and receipt of all
          purchase orders, and shall furnish Qwest with a copy of such record
          bi-annually, within ten days after end of each six-month period;
          provided, however, the Company will provide Qwest with interim monthly
          reports upon Qwest's written request.  Such record will contain, at a
          minimum, a listing of purchase orders, items purchased, date of
          delivery, name of purchaser, price paid by item and date purchased.

     4.2  Term.  ThE Warrants expire at the Expiration Time.
          ----

     4.3  Exercise of Warrants.
          --------------------

          (a)  A Warrant that has become exercisable pursuant to Section 4.1 may
               be exercised prior to the Expiration Time upon surrender to the
               Company, in care of the Secretary of the Company, of the Warrant
               to be exercised, together with the duly completed and signed
               Election to Purchase in substantially the form attached hereto as
               Exhibit B (the "Election to Purchase"), and upon payment to the
               Company of the Warrant Price for the number of Warrant Shares in
               respect of which such Warrant is then exercised.  Payment of the
               aggregate Warrant Price will be made by wire transfer of
               immediately available funds in accordance with written wire
               transfer instructions to be provided by the Company or by
               converting this Warrant Certificate, or any portion thereof
               pursuant to Section 4.2(b) ("Warrant Conversion").

          (b)  A Warrant may be exercised in a cashless manner (a "Cashless
               Exercise") with respect to a particular number of  Warrant Shares
               subject to the Warrant (the "Converted Warrant Shares") through
               Warrant Conversion by specifying such election in the Election to
               Purchase.  In such event, the Company will issue and cause to be
               delivered (without payment of any Warrant Price or any cash or
               other consideration) that number of Warrant Shares equal to the
               quotient obtained by dividing (1) the value of the Warrant (or
               the specified portion hereof) on the date of exercise, which
               value will be determined by subtracting (A) the aggregate Warrant
               Price of the Converted Warrant Shares immediately prior to the
               exercise of the Warrant from (B) the aggregate fair market value
               of the Converted

                                      -5-
<PAGE>

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.

               Warrant Shares issuable upon exercise of the Warrant on the date
               of exercise, by (2) the fair market value of one Warrant Share on
               the date of exercise. For purposes of this Section 3.2, fair
               market value of a Warrant Share as of a particular date will be
               the Closing Price on the Business Day immediately prior to the
               exercise of the applicable Warrant (or, if not publicly traded,
               the fair market value as determined in clause (B) of the term
               "Fair Market Value".

          (c)  Upon such surrender of the Warrant and payment of the Warrant
               Price (or upon a Cashless Exercise), the Company will issue and
               cause to be delivered with all reasonable dispatch to or upon the
               written order of the holder and in such name or names as the
               holder may designate, a certificate or certificates for the
               number of full Warrant Shares so purchased upon the exercise of
               such Warrants, together with a check or cash in respect of any
               fraction of a share of Common Stock otherwise deliverable upon
               such exercise, as provided in Section 6.  Such certificate or
               certificates will be deemed to have been issued and any person so
               designated to be named therein will be deemed to have become a
               holder of record of such Warrant Shares as of the date of the
               surrender of such Warrants and payment of the Warrant Price;
               provided, however, that if, at the date of surrender of such
               Warrant and payment of such Warrant Price, the transfer books for
               the Warrant Shares or other class of stock purchasable upon the
               exercise of such Warrant will be closed, the certificates for the
               Warrant Shares in respect of which such Warrant is then exercised
               will be issuable as of the date on which such books will next be
               opened (whether before or after the Expiration Time) and until
               such date the Company will be under no duty to deliver any
               certificate for such Warrant Shares; provided, further, that the
               transfer books, unless otherwise required by law, will not be
               closed at any one time for a period longer than twenty (20) days.

          (d)  The rights of purchase represented by the Warrant that have
               become exercisable pursuant to Section 4.1, will be exercisable
               at the election of the holders thereof, either in full or from
               time to time in part.  If a Warrant is exercised in respect of
               less than all of the Warrant Shares purchasable on such exercise
               at any time prior to the Expiration Time, a new Warrant
               evidencing the remaining Warrant Shares will be issued, and the
               Company will deliver the new Warrant pursuant to the provisions
               of this Section 4.2.

          (e)  Notwithstanding any other provision hereof, if an exercise of any
               portion of the Warrant is to be made in connection with a public
               offering of the Common Stock or a Business Combination, such
               exercise may at the election of the holder be conditioned upon
               the conclusion of such

                                      -6-
<PAGE>

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.

               transaction, in which case such exercise will not be deemed to be
               effective until the conclusion of such transaction.

5.   Adjustment of Warrant Price and Number of Warrant Shares.  The number and
     --------------------------------------------------------
     kind of securities purchasable upon the exercise of each Warrant and the
     Warrant Price will be subject to adjustment from time to time as follows:

     5.1  Subdivisions, Combinations and Other Issuances.  If the Company will
          ----------------------------------------------
          at any time prior to the expiration of each Warrant subdivide the
          Common Stock, by split-up or otherwise, or combine the Common Stock,
          or issue additional shares of the Common Stock as a dividend with
          respect to any shares of the Common Stock, the number of Warrant
          Shares issuable on the exercise of the Warrant will forthwith be
          proportionately increased in the case of a subdivision or stock
          dividend, or proportionately decreased in the case of a combination.
          Appropriate adjustments will also be made to the Warrant Price, but
          the aggregate purchase price payable for the total number of Warrant
          Shares purchasable under the Warrant (as adjusted) will remain the
          same.  Any adjustment under this Section 5.1 will become effective at
          the close of business on the date the subdivision or combination
          becomes effective, or as of the record date of such dividend, or in
          the event that no record date is fixed, upon the making of such
          dividend.

     5.2  Recapitalization, Reclassification, Reorganization and Consolidation.
          --------------------------------------------------------------------
          In case of any recapitalization, reclassification, capital
          reorganization or change in the Common Stock of the Company (other
          than as a result of a subdivision, combination, or stock dividend
          provided for in Section 5.1), then, as a condition of such
          recapitalization, reclassification, reorganization or change, lawful
          provision will be made, and duly executed documents evidencing the
          same from the Company or its successor will be delivered to the
          holder, so that the holder will have the right at any time prior to
          the expiration of each Warrant to purchase, at a total price equal to
          that payable upon the exercise of this Warrant, the kind and amount of
          shares of stock and other securities and property receivable in
          connection with such recapitalization, reclassification,
          reorganization, or change by a holder of the same number of shares of
          Common Stock as were purchasable by the holder immediately prior to
          such recapitalization, reclassification, reorganization or change.  In
          any such case appropriate provisions will be made with respect to the
          rights and interest of the holder so that the provisions hereof will
          thereafter be applicable with respect to any shares of stock or other
          securities and property deliverable upon exercise hereof, and
          appropriate adjustments will be made to the Warrant Price payable
          hereunder, provided the aggregate purchase price will remain the same.

     5.3  Issuances Below $7.00 Per Share.  If the Company at any time prior to
          -------------------------------
          the Company's initial public offering of its Common Stock shall issue,
          or shall be

                                      -7-
<PAGE>

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.

          deemed to issue (as provided in Section (E)(3)(b)(3) of Article IV of
          the Company's Amended and Restated Certificate of Incorporation), any
          shares of Common Stock (other than "Excluded Stock," as defined in
          Article IV of the Company's Amended and Restated Certificate of
          Incorporation as of the date hereof), at a price less than the Warrant
          Price then in effect, and if such issuance is not addressed by
          Sections 5.1, 5.2, or 5.5, the Warrant Price shall be reduced to
          reflect this lower price; provided, however, the aggregate number of
          Warrant Shares purchasable under the Warrant will remain the same.
          Consideration other than cash shall be determined in accordance with
          Section (E)(3)(b)(2) of Article IV of the Company's Amended and
          Restated Certificate of Incorporation as of the date hereof.

     5.4  Notice of Adjustment.  When any adjustment is required to be made in
          --------------------
          the number or kind of shares purchasable upon exercise of each
          Warrant, or in the Warrant Price, the Company will promptly notify the
          holder of such event and of the number of shares of Common Stock or
          other securities or property thereafter purchasable upon exercise of
          the Warrant.

     5.5  Other Distributions.  In the event that the Company will, in respect
          -------------------
          of its outstanding shares of Common Stock, declare a distribution
          payable in securities of other persons, evidences of indebtedness
          issued by the Company or other persons, assets (excluding cash
          dividends) or options or rights not referred to in Sections 5.1 and
          5.2, then, in each such case for purposes of this Section 5.5, upon
          exercise of each Warrant the holder will be entitled to a
          proportionate share of any such distribution as though it were the
          holder of the number of shares of Common Stock of the Company
          underlying the Warrant as of the record date fixed for the
          determination of the holders of Common Stock of the Company entitled
          to receive such distribution.

     5.6  No Impairment.  The Company will not, by amendment of its Amended and
          -------------
          Restated Certificate of Incorporation or through any reorganization,
          recapitalization, transfer of assets, consolidation, merger,
          dissolution, issue or sale of securities or any other voluntary
          action, avoid or seek to avoid the observance or performance of any of
          the terms to be observed or performed hereunder by the Company, but
          will at all times in good faith assist in the carrying out of all the
          provisions of this Warrant Certificate and in the taking of all such
          action as may be necessary or appropriate in order to protect the
          exercise rights of the Holder against impairment.

     5.7  Minimum Adjustment.  The adjustments required by the preceding
          ------------------
          sections of this Section 5 shall be made whenever and as often as any
          specified event requiring an adjustment shall occur.  Subject to
          Section 6, adjustments of the Warrant Price or the number of shares of
          Common Stock issuable upon exercise of this Warrant shall be
          calculated to the nearest cent or to the nearest one hundredth of a
          share, as

                                      -8-
<PAGE>

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.

          the case may be. For the purpose of any adjustment, any specified
          event shall be deemed to have occurred at the close of business on the
          date of its occurrence.

     5.8  Adjustment to Warrant Certificate.  This Warrant Certificate need not
          ---------------------------------
          be changed because of any adjustment made pursuant to this Section 5,
          and Warrant Certificates issued after such adjustment may state the
          same Warrant Price and the same number of shares of Common Stock
          issuable upon exercise of the Warrants as are stated in the Warrant
          Certificates initially issued pursuant to this Warrant Certificate.
          The Company, however, may at any time in its sole discretion make any
          change in the form of Warrant Certificate that it may deem appropriate
          to give effect to such adjustments and that does not affect the
          substance of the Warrant Certificate, and any Warrant Certificate
          thereafter issued or countersigned, whether in exchange or
          substitution for any outstanding Warrant Certificate or otherwise, may
          be in the form as so changed.

6.   Fractional Interests.  No fractional Warrant Shares or scrip will be issued
     --------------------
     upon the exercise of Warrants, but in lieu thereof the Company pay therefor
     in cash an amount equal to the product obtained by multiplying the Fair
     Market Value per Warrant Share on the Business Day immediately preceding
     the date of exercise of the Warrants times such fraction.  If more than one
     Warrant will be presented for exercise in full at the same time by the same
     holder, the number of full Warrant Shares that will be issuable upon the
     exercise thereof will be computed on the basis of the aggregate number of
     Warrant Shares purchasable on exercise of the Warrants so presented.

7.   Taxes.  The Company will pay any and all issue, transfer, documentary,
     -----
     stamp and other similar taxes that may be payable in respect of any issue
     or delivery of Warrant Shares upon the exercise of each Warrant; provided,
     however, that the Company will not be required to pay any tax or taxes that
     may be payable in respect of any transfer involved in the issue or delivery
     of any Warrant or certificates for Warrant Shares in a name other than that
     of the registered holder of such Warrant, and no such issue or delivery
     will be made unless and until the person requesting the issuance thereof
     will have paid to the Company the amount of such tax or will have
     established to the satisfaction of the Company that such tax has been paid.

8.   Covenants and Representations.
     -----------------------------

     8.1  Reservation of Warrant Shares.  There have been reserved, and the
          -----------------------------
          Company will at all times reserve and keep available, free from
          preemptive rights, out of its authorized and unissued Common Stock,
          solely for the purpose of effecting the exercise of the Warrants, the
          number of shares of Common Stock that will from time to time be
          sufficient to provide for the exercise of the rights of purchase
          represented by the outstanding Warrants.  All Warrants surrendered in
          the exercise of the rights thereby evidenced will thereupon be
          cancelled by the Company and retired.  Promptly after the Expiration
          Time, the Secretary of the

                                      -9-
<PAGE>

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.

          Company will certify to the Company the aggregate number of Warrants
          then outstanding, and thereafter no shares of Common Stock will be
          subject to reservation in respect of such Warrants. The Company will
          from time to time, in accordance with the laws of the State of
          Delaware, use its commercially reasonable best efforts to increase the
          authorized amount of its Common Stock if at any time the number of
          shares of Common Stock remaining unissued will not be sufficient to
          permit the exercise of all the then outstanding Warrants.

     8.2  Valid Issuance.  Except for those restrictions set forth in the
          --------------
          Stockholder's Agreement, all shares of Common Stock or other
          securities issuable upon exercise of the Warrants will, upon issuance
          in accordance with the terms hereof, be validly issued, fully paid and
          nonassessable, free from all liens, charges, security interests and
          encumbrances created by the Company with respect to the issuance and
          delivery thereof and not subject to preemptive rights.

     8.3  Purchase of Warrants by the Company.  Any of the Company and its
          -----------------------------------
          Subsidiaries will have the right, except as limited by law, other
          agreements or herein, to purchase or otherwise acquire Warrants at
          such times, in such manner and for such consideration as it may deem
          appropriate.

     8.4  Cancellation of Warrants.  If any of the Company and its Subsidiaries
          ------------------------
          will purchase or otherwise acquire Warrants, the same will thereupon
          be cancelled by the Company and retired.  The Company will cancel any
          Warrant surrendered for exchange, substitution, transfer or exercise
          in whole or in part.

     8.5  Corporate Authorization.  The execution, delivery and performance by
          -----------------------
          the Company of its obligations under this Warrant Certificate and the
          Stockholder's Agreement (the "Core Agreements"), and the consummation
          by the Company of the transactions contemplated thereby, and the
          issuance by the Company of these Warrants and the Warrant Shares are
          within the corporate power and authority of the Company, and, have
          been duly authorized by all necessary corporate action.  The Core
          Agreements have been duly and validly authorized, executed and
          delivered by the Company and, subject to their execution by the other
          parties thereto, constitute a valid and binding obligation of the
          Company, enforceable against the Company in accordance with their
          terms, subject to bankruptcy, insolvency, reorganization, moratorium
          and similar laws of general applicability affecting creditors' rights
          and to general equity principles.

     8.6  Consents and Approvals.  The execution, delivery and performance by
          ----------------------
          the Company of its obligations under the Core Agreements and the
          consummation by the Company of the transactions contemplated thereby,
          and the issuance by the Company of these Warrants and the Warrant
          Shares do not and will not require any consent, approval or action by
          or in respect of, or any declaration, filing or registration with, and
          Governmental Authority or other third party, other than

                                      -10-
<PAGE>

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.

          compliance with the applicable requirements of the Securities Act of
          1933, as amended (the "Securities Act") and any applicable state
          securities and "blue sky" laws in connection with the offering, sale
          and delivery of the Warrant Shares.

     8.7  Non-Contravention.  The execution, delivery and performance by the
          -----------------
          Company of the Core Agreements and the consummation by the Company of
          the transactions contemplated thereby, and the issuance by the Company
          of these Warrants and the Warrant Shares do not and will not, with or
          without the giving of notice, the lapse of time or both (i) contravene
          or conflict with the Amended and Restated Certificate of Incorporation
          or Bylaws of the Company, (ii) contravene or conflict with or
          constitute a violation of any provision of any law, rule, regulation,
          judgment, injunction, order or decree binding upon or applicable to
          the Company, (iii) contravene or conflict with or constitute a
          violation of or a default under, or give rise to any right of
          termination, cancellation or acceleration of any right or obligation
          of the Company or to a loss of any benefit to which the Company is
          entitled, under any provision of (A) any material agreement, contract,
          indenture, lease or other instrument binding upon the Company or (B)
          any material license, franchise, permit or other similar authorization
          held by the Company, or (iv) result in the creation or imposition of
          any lien on any asset of the Company.

     8.8  Exempt Sale.  Assuming the accuracy of the representations and
          -----------
          warranties of QIC contained in Section 22 hereof, the offer, sale and
          issuance of the Warrants and Warrant Shares in accordance with this
          Warrant Certificate will be exempt from the registration requirements
          of the Securities Act, and will have been registered or qualified (or
          are exempt from registration and qualification) under the
          registration, permit or qualification requirements of all applicable
          state securities laws.

     8.9.  Corporate Organization.  The Company is a corporation duly organized,
           ----------------------
          validly existing and in good standing under the laws of the State of
          Delaware and has all requisite power and authority and all necessary
          governmental franchises, licenses, permits, authorizations and
          approvals to own or lease and operate its properties and assets and to
          carry on its business as it is now being conducted, and is duly
          qualified or licensed as a foreign corporation to do business and in
          good standing in each jurisdiction in which the conduct or nature of
          the business conducted by it or the character or location of the
          properties owned or leased by it makes such qualification or licensing
          necessary, except where the failure to be so qualified or licensed
          would not have a Material Adverse Effect.  The Company has provided
          QIC with a true and complete copy of its Amended and Restated
          Certificate of Incorporation as in effect on the date hereof.
          "Material Adverse Effect" shall mean, when used with respect to the
          Company, any change, effect or circumstance that, individually or when
          taken together with all other such changes, effects or circumstances,
          is or would reasonably be expected to be materially adverse to the

                                      -11-
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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.

          financial condition, business, properties, assets, prospects or
          operations taken as a whole of the Company.

     8.10.  Capitalization.
            --------------

          As of the date hereof, the authorized capital stock of the Company
          consists of the following:

               (a)  26,661,150 shares of Preferred Stock, of which (A)
                    10,322,917 shares are designated as Series A Preferred
                    Stock, 10,089,584 of which are issued and outstanding, and
                    233,333 of which are reserved for issuance upon conversion
                    of the Series B Preferred Stock, (B) 233,333 shares are
                    designated Series B Preferred Stock, 233,333 of which are
                    issued and outstanding, (C) 2,593,974 shares are designated
                    Series C Preferred Stock, of which 2,564,465 are outstanding
                    and 29,509 are reserved for issuance upon exercise of
                    warrants issued or issuable to Comdisco, Inc., (D) 6,010,926
                    shares are designated Series D Preferred Stock, of which
                    6,010,926 are issued and outstanding and (E) 7,500,000
                    shares are designated Series E Preferred Stock, of which
                    7,274,413 are issued and outstanding.  As of the date
                    hereof, there are 113,320,152 shares of Common Stock
                    issuable on conversion of the issued and outstanding shares
                    of Series A, B, C and D Preferred Stock.

               (b)  900,000,000 shares of Common Stock, 59,084,039 shares of
                    which are issued and outstanding.

          Section 8.10 of the Company Disclosure Schedule sets forth a summary
          of all outstanding stock options and warrants of the Company,
          indicating the number of shares and type of capital stock issuable
          upon exercise thereof.  As of the date hereof, 49,960,242 shares of
          Common Stock have been reserved for issuance upon exercise of such
          stock options and 14,629,644 shares of Common Stock have been reserved
          for issuance upon exercise of such warrants (or upon conversion of
          shares of Series C Preferred Stock issuable upon exercise of such
          warrants).  Except as disclosed in Section 8.10 of the Company
          Disclosure Schedule, there are no options, warrants, exchange rights,
          subscription rights or other agreements, commitments or rights to
          purchase or otherwise acquire from the Company, or agreements,
          commitments or obligations of the Company to issue or sell, any
          capital stock, voting securities or securities convertible into or
          exchangeable or exercisable for capital stock or voting securities of
          the Company, other than those contemplated by this Warrant
          Certificate.

     8.11.  Compliance With Laws; No Defaults.  The Company is not in violation
            ---------------------------------
          of or default under, and no condition exists that with notice or lapse
          of time or both

                                      -12-
<PAGE>

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.

          would constitute a violation of or default under, any applicable
          provisions of any law, statute, ordinance, regulation, judgment,
          order, injunction, permit, license, certificate or other
          authorization, or its governing instruments, except for any
          violations, defaults or conditions that have not had and could not
          reasonably be expected to have a Material Adverse Effect on the
          Company.

     8.12.  Taxes.  The Company has (i) timely filed all material Tax Returns
            -----
          required to be filed (taking into account any extension of time within
          which to file any Tax Return that has been granted by the relevant
          taxing authority) for all taxable periods ending on or prior to the
          date hereof, and such Tax Returns are true, complete and correct in
          all material respects, (ii) paid or accrued all material taxes shown
          to be due and payable on such Tax Returns, and (iii) properly accrued
          all material taxes for periods subsequent to the periods covered by
          such Tax Returns.  There are currently no actions, suits, proceedings,
          investigations, audits or claims now pending against it in respect of
          any taxes.  "Tax Return" shall mean any return, declaration, report,
          claim for refund or information return or statement relating to any
          schedule, supporting information or attachment thereto, and including
          any amendment thereof.

     8.13.  Financial Statements.
            --------------------

          (a)  The Company has delivered to Qwest the following financial
               statements (collectively, the "Company Financial Statements"):

               (i)  the consolidated audited balance sheet of the Company as of
                    December 31, 2000 (the "Balance Sheet") and December 31,
                    1999, and the related consolidated statements of operations,
                    consolidated statements of changes in stockholders' equity
                    and consolidated statements of cash flows for the year ended
                    December 31, 1998, December 31, 1999, and December 31, 2000,
                    together with the notes thereto, audited by, and accompanied
                    by the report thereon, of Ernst & Young LLP relating to 1998
                    and Deloitte & Touche relating to 1999 and 2000.

          (b)  Each of the Company Financial Statements has been prepared in
               accordance with United States generally accepted accounting
               principles applied on a consistent basis, are correct and
               complete in all material respects and fairly present in all
               material respects the financial position of the Company as of the
               respective dates thereto and the results of its operations and
               its cash flows for the respective periods then ended.  The
               accounting records underlying the Company Financial Statements
               accurately and fairly reflect, in reasonable detail, the
               transactions of the Company, reflect only valid transactions, and
               fairly present in all material respects the basis for the
               financial position, the results of operations, and

                                      -13-
<PAGE>

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.

               the changes in financial position set forth in the Company
               Financial Statements and the Company's books of account have been
               maintained on a consistent basis in accordance with acceptable
               business practice.

   8.14.  Subsidiaries.  Except as set forth in the Company Disclosure
          ------------
          Schedule, the Company does not hold or own, directly or indirectly,
          any capital stock or other equity securities of any other corporation,
          or have any direct or indirect equity or ownership interest in any
          association, partnership, joint venture or other entity.

   8.15.  Absence of Undisclosed Liabilities and Decrease in Assets.  The
          ---------------------------------------------------------
          Company does not have any Liabilities, except those Liabilities which
          are (a) fully reflected or in the aggregate adequately reserved
          against in the Balance Sheet (including any notes thereto), or (b)
          incurred in the ordinary course of business since December 31, 2000
          and consistent with past practices and in the aggregate are not
          material to the Company.  Since the date of the Balance Sheet, there
          has been no decrease in the total assets or current assets of the
          Company other than in the ordinary course of business consistent with
          past practice.  Liability shall mean any liability or obligation,
          including any direct or indirect indebtedness, claim, loss, damage,
          deficiency (including deferred income tax and other net tax
          deficiencies and interest and penalties with respect to taxes due and
          unpaid), cost, expense, obligation, guarantee or responsibility,
          whether accrued, absolute or contingent, fixed or unfixed, liquidated
          or unliquidated, secured or unsecured.

   8.16.  Litigation.  There is no claim, action, suit, investigation or
          ----------
          proceeding pending or threatened against or affecting, the Company or
          any of its properties or assets before any court or arbitrator or any
          Governmental Authority that, if adversely determined, would have a
          Material Adverse Effect on the Company.

   8.17.  Disclosure.  None of the representations and warranties of the
          ----------
          Company contained herein or in the Company Disclosure Schedule
          provided to QIC contains any untrue statement of a material fact or
          omits to state a material fact necessary to make the statements
          contained herein or therein not misleading in light of the
          circumstances in which it was made.

   8.18.  No Other Representations or Warranties.  Except for the
          --------------------------------------
          representations and warranties of the Company contained in this
          Section 8, the Company has not made, and QIC may not rely on, any
          representation or warranty with respect to the Company or the
          transactions contemplated by this Warrant Certificate.

   8.19.  No Demand Rights.  The Company has provided QIC with a true and
          ----------------
          complete copy of the Amended and Restated Stockholders Agreement dated
          as of September 19, 2000 by and among the Company and the other
          parties thereto as in effect on the date hereof.  Except as set forth
          in the Company Disclosure Schedule, the Company is presently not under
          any obligation and has not granted

                                      -14-
<PAGE>

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.

          any rights to demand registration of the Company's securities under
          the Securities Act.

9.   Mutilated or Missing Warrants.  If any Warrant is mutilated, lost, stolen
     -----------------------------
     or destroyed and the Company receives evidence thereof reasonably
     satisfactory to it, the Company will issue and deliver in exchange and
     substitution for and upon cancellation of the mutilated Warrant, or in lieu
     of and substitution for the Warrant lost, stolen or destroyed, a new
     Warrant of like tenor and representing an equivalent right or interest.  An
     applicant for such a substitute Warrant will comply with such other
     reasonable requirements and pay such reasonable charges as the Company may
     prescribe.

10.  Rights as Stockholder.  Nothing contained in this Warrant Certificate or in
     ---------------------
     any of the Warrants will be construed as conferring upon the holders or
     their transferees the right to vote or to receive dividends or to consent
     or to receive notice as stockholders in respect of any meeting of
     stockholders for the election of directors of the Company or any other
     matter, or any rights whatsoever as stockholders of the Company.

11.  Notice to Holders.  At any time prior to the expiration of the Warrants and
     -----------------
     prior to their exercise, if any of the following events will occur:

     (a)  the Company will declare any dividend (or any other distribution) on
          Common Stock other than a cash dividend or will declare or authorize
          repurchase of in excess of 10% of the then outstanding shares of
          Common Stock; or

     (b)  the Company will authorize the granting to all holders of Common Stock
          of rights or warrants to subscribe for or purchase any shares of
          Common Stock or any Derivative Securities; or

     (c)  the Company will propose any capital reorganization, recapitalization,
          subdivision or reclassification of Common Stock (other than a
          subdivision or combination of the outstanding Common Stock, or a
          change in par value, or from par value to no par value or from no par
          value to par value), or any consolidation or merger to which the
          Company is a party for which approval of any stockholders of the
          Company will be required, or the sale, transfer or lease of all or
          substantially all of the assets of the Company, or any event described
          in Section 5; or

     (d)  the voluntary or involuntary dissolution, liquidation or winding up of
          the Company (other than in connection with a consolidation, merger, or
          sale of all or substantially all of its property, assets and business
          as an entirety) will be proposed;

     then the Company will give notice in writing of such event to the holders
     at least fifteen (15) days prior to the date fixed as a record date or the
     date of closing the transfer books for the determination of the
     stockholders entitled to such dividend, distribution, or

                                      -15-
<PAGE>

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.

     subscription rights, or for the determination of stockholders entitled to
     vote on such proposed consolidation, merger, sale, transfer or lease of
     assets, dissolution, liquidation or winding up. No failure to give such
     notice or any defect therein or in the mailing thereof will affect the
     validity of the corporate action required to be specified in such notice.

12.  Notices.  All notices, requests and other communications with respect to
     -------
     the Warrants will be in writing.  Communications may be made by telecopy or
     similar writing.  Each communication will be given to the holder at Qwest
     Investment Company, 1801 California Street, Denver, CO  80202, and to the
     Company at its offices in Oceanport, New Jersey, or at any other address as
     the holder or the Company, as the case may be, may specify for this purpose
     by notice to the other party.  Each communication will be effective (a) if
     given by telecopy, when the telecopy is transmitted to the proper address
     and the receipt of the transmission is confirmed, (b) if given by mail, 72
     hours after the communication is deposited in the mails properly addressed
     with first class postage prepaid, (c) if given by nationally-recognized
     overnight courier, on the next Business Day after the date when sent, or
     (d) if given by any other means, when delivered to the proper address and a
     written acknowledgement of delivery is received.

13.  No Waivers; Remedies; Specific Performance.
     ------------------------------------------

     13.1 No Waivers; Remedies.  Prior to the Expiration Time, no failure or
          --------------------
          delay by any holder in exercising any right, power or privilege with
          respect to the Warrants will operate as a waiver of the right, power
          or privilege.  A single or partial exercise of any right, power or
          privilege will not preclude any other or further exercise of the
          right, power or privilege or the exercise of any other right, power or
          privilege.  The rights and remedies provided in the Warrants will be
          cumulative and not exclusive of any rights or remedies provided by
          law.

     13.2 Specific Performance.  In view of the uniqueness of the Warrants, a
          --------------------
          holder would not have an adequate remedy at law for money damages in
          the event that any of the obligations arising under the Warrants is
          not performed in accordance with its terms, and the Company therefore
          agrees that the holder will be entitled to specific enforcement of the
          terms of the Warrants in addition to any other remedy to which they
          may be entitled, at law or in equity.

14.  Amendments, Etc.  No amendment, modification, termination, or waiver of any
     ---------------
     provision of this Warrant Certificate, and no consent to any departure from
     any provision of this Warrant Certificate, will be effective unless it will
     be in writing and signed and delivered by the Company and the holders of a
     majority of the outstanding Warrants (other than the Company), and then it
     will be effective only in the specific instance and for the specific
     purpose for which it is given.  Any permitted transferee must agree in
     writing, as a condition of such transfer, to be bound by the terms and
     conditions of any amendment, modification, termination, or waiver of any
     provision of this Warrant Certificate which has been agreed to in writing
     by the transferor.  The rights of the holder

                                      -16-
<PAGE>

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.

     and the terms and provisions of this Warrant Certificate including, without
     limitation, the performance of the obligations of the Company hereunder,
     will not be affected in any manner whatsoever by the terms and provisions
     of any other agreement other than the Stockholder's Agreement, whether
     entered into prior to or after the date of this Warrant Certificate.

15.  Governing Law.  This Warrant Certificate will be governed by and construed
     -------------
     in accordance with the internal laws of the State of New York without
     regard to the principles of conflicts of law thereof.

16.  Severability of Provisions.  Any provision of this Warrant Certificate that
     --------------------------
     is prohibited or unenforceable in any jurisdiction shall, as to  that
     jurisdiction, be ineffective to the extent of the prohibition or
     unenforceability without invalidating the remaining provisions of this
     Warrant Certificate or affecting the validity or enforceability of the
     provision in any other jurisdiction.

17.  Headings and References.  Headings in this Warrant Certificate are included
     -----------------------
     for the convenience of reference only and do not constitute a part of the
     Warrants for any other purpose.  References to parties and sections in this
     Warrant Certificate are references to the parties or the sections of this
     Warrant Certificate, as the case may be, unless the context will require
     otherwise.

18.  Exclusive Jurisdiction.  Each of the Company and the holder, by acceptance
     ----------------------
     hereof, (a) agrees that any legal action with respect to this Warrant
     Certificate will be brought exclusively in the courts of the State of New
     York or of the United States of America, in each case within the County of
     New York, (b) accepts for itself and in respect of its property, generally
     and unconditionally, the jurisdiction of those courts, and (c) irrevocably
     waives any objection, including, without limitation, any objection to the
     laying of venue or based on the grounds of forum non conveniens, which it
                                                ----- --- ----------
     may now or hereafter have to the bringing of any legal action in those
     jurisdictions; provided, however, that any party may assert in a legal
                    --------  -------
     action in any other jurisdiction or venue each mandatory defense, third-
     party claim or similar claim that, if not so asserted in such legal action,
     may thereafter not be asserted by such party in an original legal action in
     the courts referred to in clause (a) above.

19.  Waiver of Jury Trial.  Each of the Company and the holder waives, by
     --------------------
     acceptance hereof, any right to a trial by jury in any legal action to
     enforce or defend any right under this Warrant Certificate or any
     amendment, instrument, document or agreement delivered, or which in the
     future may be delivered, in connection with this Warrant Certificate and
     agrees that any legal action will be tried before a court and not before a
     jury.

20.  Merger or Consolidation of the Company.  The Company will not merge or
     --------------------------------------
     consolidate with or into any other corporation or other entity where the
     Company is not the resulting or surviving corporation unless the entity
     resulting from such merger or

                                      -17-
<PAGE>

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.

     consolidation, or its parent if the parent issues securities to the
     Company's security holders in such merger of consolidation, will expressly
     assume, by supplemental agreement, the due and punctual performance and
     observance of each and every covenant and condition of this Warrant
     Certificate to be performed and observed by the Company.

21.  Definitions.  For purposes of this Warrant Certificate, the following terms
     -----------
     have the following meanings:

     (a)  "Affiliate" means with respect to any person or entity, any other
          person or entity directly or indirectly controlling, controlled by or
          under common control with such first person or entity (for purposes of
          this definition, "control" as used with respect to a person or entity,
          shall mean the possession, directly or indirectly, of the power to
          direct or cause the direction of management and policies of such
          person or entity, whether by ownership of voting securities, by
          contract or otherwise).

     (b)  "Average Market Price" on any date means the average of the daily
          Closing Prices for the fifteen (15) consecutive Trading Days
          commencing twenty (20) Trading Days before such date.

     (c)  "Business Day" means any day excluding Saturday, Sunday and any day on
          which banking institutions located in the City of New York or Denver,
          Colorado are generally closed.

     (d)  "Business Combination" means, whether concluded or intended to be
          concluded in one transaction or series of transactions, each of the
          following:

          (1)  the merger or consolidation of any of the Company and its
               Subsidiaries with or into any person other than the Company or a
               wholly-owned Subsidiary of the Company;

          (2)  the transfer of all or substantially all of the assets of any of
               the Company and its Subsidiaries to any person or group other
               than the Company or a wholly-owned Subsidiary of the Company;

          (3)  an acquisition from any of the Company, its Subsidiaries and its
               stockholders of any shares of Common Stock or other Securities of
               the Company; or

          (4)  any tender offer (including a self-tender offer) or exchange
               offer, recapitalization, liquidation, dissolution or similar
               transaction involving any of the Company and its Subsidiaries.

                                      -18-
<PAGE>

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.

     (e)  "Closing Price" means, as applied to any security on any date, the
          last reported sales price, regular way, per share of such security on
          such day, or if no such sale takes place on such day, the average of
          the closing bid and asked prices, regular way, in each case, as
          reported in the principal consolidated transaction reporting system
          with respect to securities listed or admitted to trading on the New
          York Stock Exchange or, if shares of such security are not listed or
          admitted to trading on the New York Stock Exchange, as reported in the
          principal consolidated transaction reporting system with respect to
          securities listed on the principal national securities exchange on
          which the shares of such security are listed or admitted to trading,
          or, if the shares of such security are not listed or admitted to
          trading on any national securities exchange, the last quoted sale
          price or, if not so quoted, the average of the high bid and low asked
          prices in the over-the-counter market, as reported by the National
          Association of Securities Dealers, Inc. Automated Quotations Systems
          ("Nasdaq") or, if not so reported, as reported by any similar
          interdealer system then in general use, or, if on any such date the
          shares of security are not quoted or reported by any such
          organization, the average of the closing bid and asked prices as
          furnished by a professional market maker making a market in the shares
          of stock selected by the Board.

     (f)  "Derivative Securities" means securities convertible into or
          exchangeable or exercisable for shares of Common Stock, rights or
          warrants to subscribe for or purchase shares of Common Stock, options
          for the purchase of, or calls, commitments or other claims of any
          character relating to, shares of Common Stock or any securities
          convertible into or exchangeable for any of the foregoing.

     (g)  "Expiration Time" means 5:00 p.m., New York time, on the later of (i)
          the sixth (6th) anniversary of the date hereof or (ii) six (6) months
          after the last day the Warrant becomes exercisable with respect to any
          of the underlying Warrant Shares, or in either case if not a Business
          Day, the next Business Day.

     (h)  "Fair Market Value" of any property will mean the fair market value
          thereof as determined in good faith by the Board; provided, however,
          that the value of any securities will be determined as follows:

          (A)  If publicly held or listed on an exchange or through the Nasdaq
               National Market, the Average Market Price; and

          (B)  If not publicly held or so listed or publicly traded, the value
               will be the fair market value thereof, as mutually determined in
               good faith by the Board and the holders of a majority of the
               Warrants and/or Warrant Shares purchasable upon exercise thereof.

     (i)  "Governmental Authority" shall mean any governmental or regulatory
          body, court, agency, official or authority.

                                      -19-
<PAGE>

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.

     (j)  "Qwest" means Qwest Communications Corporation.

     (k)  "Stockholder's Agreement" means the Supplemental Stockholders'
          Agreement, dated as of the date hereof, by and between the Company and
          QIC.

     (l)  "Subsidiary" means (1) any corporation or other entity of which
          securities or other ownership interests having ordinary voting power
          to elect a majority of the board of directors or other persons
          performing similar functions are at the time directly or indirectly
          owned by the Company, or (2) a partnership or limited liability
          company in which the Company or a Subsidiary of the Company is, at the
          date of determination, a general or limited partner of such
          partnership or a member of such limited liability company, but only if
          the Company or its Subsidiary is entitled to receive more than fifty
          percent of the assets of such partnership or limited liability company
          upon its dissolution.

     (m)  "Trading Day" means, as applied to any class of stock, any day on
          which the New York Stock Exchange or, if shares of such stock are not
          listed or admitted to trading on the New York Stock Exchange, the
          principal national securities exchange on which the shares of such
          stock are listed or admitted for trading or, if the shares of such
          stock are not listed or admitted for trading on any national
          securities exchange, the Nasdaq or, if the shares of such stock are
          not included therein, any similar interdealer system then in general
          use in which the shares of such stock are included, is open for the
          trading of securities generally and with respect to which information
          regarding the sale of securities included therein, or with respect to
          which sales information is reported, is generally available.

22.  Representations and Warranties of QIC.  QIC hereby represents and warrants
     -------------------------------------
     to the Company as of the date hereof as follows:

     22.1  Power and Authority.  QIC has full power and authority to enter into
           -------------------
          this Agreement, to perform its obligations hereunder and to consummate
          the transactions contemplated hereby.  All necessary corporate action
          has been taken by QIC with respect to the execution and delivery of
          this Agreement and the consummation of the transactions contemplated
          hereby.  This Agreement has been duly executed and delivered by, and,
          assuming the due authorization, execution and delivery thereof by the
          Company, constitutes a valid and binding obligation of QIC,
          enforceable against QIC in accordance with its terms, subject to
          bankruptcy, insolvency, reorganization, moratorium and similar laws of
          general applicability affecting creditors' rights and to general
          equity principles.

     22.2  Governmental Consent, Etc. In reliance on the representations of the
           --------------------------
          Company contained herein, no consent, approval or authorization of, or
          designation, declaration or filing with, any Governmental Authority on
          the part of QIC is

                                      -20-
<PAGE>

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.

          required in connection with the valid execution and delivery of this
          Agreement, or the offer, sale or issuance of the Warrants and Warrant
          Shares, or the consummation of any other transactions contemplated
          hereby, except such filings as may be required to be made with the
          Securities and Exchange Commission and the National Association of
          Securities Dealers, Inc.

     22.3  Investment Representations.  (a) QIC is and will be acquiring the
           --------------------------
          Warrants and the Warrant Shares to be issued upon exercise hereof, for
          its own account, for investment and not with a view to the
          distribution thereof within the meaning of the Securities Act except
          that QIC may make certain transfers which will not result in a
          violation of the Securities Act.

          (b)  QIC understands that (i) the Warrants (and the Warrant Shares to
               be issued upon exercise thereof) have not been registered under
               the Securities Act by reason of their issuance by the Company in
               transactions exempt from the registration requirements of the
               Securities Act and the Company's reliance on such exemption is
               predicated upon QIC's representations set forth herein and (ii)
               the Warrants (and the Warrant Shares to be issued upon exercise
               thereof) must be held by QIC indefinitely unless a subsequent
               disposition thereof is registered under the Securities Act or is
               exempt from registration.

          (c)  QIC further understands that, with respect to the Warrants (and
               the Warrant Shares to be issued upon exercise thereof), the
               exemption from registration afforded by Rule 144 (the provisions
               of which are known to QIC) promulgated under the Securities Act
               depends on the satisfaction of various conditions, and that, if
               applicable, Rule 144 may afford a basis for sales only in limited
               amounts.

          (d)  QIC is an "accredited investor" as such term is defined in Rule
               501 promulgated under the Securities Act, with its principal
               executive offices located at the address set forth in Section 12.

     22.4  Affiliate Status.  QIC is a wholly-owned subsidiary of Qwest Services
           ----------------
          Corporation, the parent company of Qwest Communications Corporation.

                                      -21-
<PAGE>

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.

     IN WITNESS WHEREOF, the parties have executed this Warrant Certificate on
the day set forth below in Oceanport, New Jersey.

                                    TELLIUM, INC.

                              By:      /s/ Nicholas DeVito
                                   ------------------------------
                                    Name:  Nicholas DeVito
                                    Title: V.P. Business Development

Dated April 10, 2001

                                    QWEST INVESTMENT COMPANY

                              By:      /s/
                                   ------------------------------
                                    Name:
                                    Title:

                                      -22-
<PAGE>

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.

                                   Exhibit A

                                   ASSIGNMENT

                 (To be signed only upon assignment of Warrant)

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfer unto

                         ______________________________
                                     (Name)
                         ______________________________
                         ______________________________
                                   (Address)
                         ______________________________
                            (Social Security Number)

the Warrant in the name of the undersigned and hereby appoints the Secretary of
the Company as the undersigned's attorney-in-fact to transfer said Warrant on
the books of the Company, with full power of substitution in the premises.

Date: __________, 2001

Signature of Registered Holder:

Note:  The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular without alteration or
enlargement or any change whatever unless the Warrant has been assigned.
<PAGE>

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.

                                   Exhibit B

                              ELECTION TO PURCHASE

Tellium, Inc.
2 Crescent Place
P.O. Box 901
Oceanport, NJ 07757-0901
Attn: Chief Financial Officer

     The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for and to purchase thereunder, shares of the
stock provided for herein, and requests that certificates for such shares be
issued in the name of

                         ______________________________
                                     (Name)
                         ______________________________
                         ______________________________
                                   (Address)
                         ______________________________
                            (Social Security Number)

and, if said number of shares will not be all the shares purchasable thereunder,
that a new Warrant Certificate for the balance remaining of the shares
purchasable under the within Warrant Certificate be registered in the name of
the undersigned holder of this Warrant or his Assignee as below indicated and
delivered to the address stated below.  By placing an X in the following blank,
the undersigned hereby elects to exercise the purchase right with respect to
__________ shares of such Common Stock through Warrant Conversion, as set forth
in Section 3 of the within Warrant Certificate.

Date: __________, 20___

Name of holder of this Warrant Certificate or Assignee:
                                                          -------------------

Address:
                -------------------------------------------------------------

Signature:
                -------------------------------------------------------------

Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular without alteration or
enlargement or any change whatever unless this Warrant Certificate has been
assigned.

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