Document:

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                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

               THIS AGREEMENT is entered into as of November 28, 1999, by and
between PANKAJ PATEL (the "Employee") and REDBACK NETWORKS INC., a Delaware
corporation (the "Company"). This Agreement shall be effective at the effective
time of the merger (the "Merger") contemplated by the Merger Agreement and Plan
of Reorganization dated November 28, 1999, by and among the Company, Siara
Systems, Inc., a Delaware corporation ("Siara Systems"), and the stockholder
agent described therein. This Agreement shall be null and void, and no parties
shall be deemed to have any rights hereunder, unless and until the Merger is
consummated.

               1. DUTIES AND SCOPE OF EMPLOYMENT.

                      (a) POSITION. The Company agrees to employ the Employee in
the position of Senior Vice President--Engineering or in such other position as
the Company subsequently may assign to the Employee (the "Employment"). The
Employee shall report to the Company's President and Chief Operating Officer or
to such other, more senior person as the Company subsequently may determine.

                      (b) OBLIGATIONS TO THE COMPANY. During his Employment, the
Employee shall devote his full business efforts and time to the Company. During
his Employment, without the prior written approval of the Company's Chief
Executive Officer, the Employee shall not render services in any capacity to any
other person or entity and shall not act as a sole proprietor or partner of any
other person or entity or as a shareholder owning more than five percent of the
stock of any other corporation. The Employee shall comply with the Company's
policies and rules, as they may be in effect from time to time during his
Employment.

                      (c) NO CONFLICTING OBLIGATIONS. The Employee represents
and warrants to the Company that he is under no obligations or commitments,
whether contractual or otherwise, that are inconsistent with his obligations
under this Agreement. The Employee represents and warrants that he will not use
or disclose, in connection with his employment by the Company, any trade secrets
or other proprietary information or intellectual property in which the Employee
or any other person has any right, title or interest and that his employment by
the Company as contemplated by this Agreement will not infringe or violate the
rights of any other person. The Employee represents and warrants to the Company
that he has returned all property and confidential information belonging to any
prior employer.

               2. COMPENSATION.

                      (a) SALARY. The Company shall pay the Employee as
compensation for his services a base salary at a gross annual rate of not less
than $230,000. Such salary shall be payable in accordance with the Company's
standard payroll procedures.

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                      (b) ACCELERATED VESTING OF EQUITY. At the effective time
of the Merger, (i) the vested portion of shares of the Company's stock then held
by the Employee shall be increased by the shares that otherwise would have
vested during the 12-month period following the effective time of the Merger and
(ii) the exercisable portion of options to purchase shares of the Company's
stock then held by the Employee shall be increased by the options that otherwise
would have become exercisable during the 12-month period following the effective
time of the Merger. During the 12-month period following the effective time of
the Merger, no additional shares of the Company's stock held by the Employee at
the effective time of the Merger shall vest and no additional options to
purchase shares of the Company's stock held by the Employee at the effective
time of the Merger shall become exercisable. Thereafter, such shares shall vest
and such options shall become exercisable in accordance with the original terms
applicable to such shares and options.

               3. VACATION AND EMPLOYEE BENEFITS. During his Employment, the
Employee shall be eligible for paid vacations in accordance with the Company's
standard policy for similarly-situated employees, as it may be amended from time
to time. During his Employment, the Employee shall be eligible to participate in
the employee benefit plans maintained by the Company for similarly-situated
employees, subject in each case to the generally applicable terms and conditions
of the plan in question and to the determinations of any person or committee
administering such plan.

               4. BUSINESS EXPENSES. During his Employment, the Employee shall
be authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.

               5. TERM OF EMPLOYMENT.

                      (a) EMPLOYMENT AT WILL. Either party may terminate the
Employee's Employment at any time and for any reason (or no reason), and with or
without Cause, by giving the other party notice in writing. The Employee's
Employment with the Company shall be "at will," meaning that either the Employee
or the Company shall be entitled to terminate the Employee's employment at any
time and for any reason, with or without Cause. Any contrary representations
that may have been made to the Employee shall be superseded by this Agreement.
This Agreement shall constitute the full and complete agreement between the
Employee and the Company on the "at will" nature of the Employee's Employment,
which may only be changed in an express written agreement signed by the Employee
and a duly authorized officer of the Company.

                      (b) RIGHTS UPON TERMINATION OF EMPLOYMENT. Except as
expressly provided in Section 6, upon the termination of the Employee's
Employment pursuant to this Section 5, the Employee shall only be entitled to
the compensation, benefits and reimbursements described in Sections 2, 3 and 4
for the period preceding the effective date of the termination.

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The payments under this Agreement shall fully discharge all responsibilities of
the Company to the Employee.

                      (c) TERMINATION OF AGREEMENT. This Agreement shall
terminate when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Employee's obligations under Sections 7 and 8.

               6. TERMINATION BENEFITS.

                      (a) GENERAL RELEASE. Any other provision of this Agreement
notwithstanding, Subsection (b) below shall not apply unless the Employee (i)
has executed a general release (in a form prescribed by the Company) of all
known and unknown claims that he may then have against the Company or persons
affiliated with the Company and (ii) has agreed not to prosecute any legal
action or other proceeding based upon any of such claims.

                      (b) ACCELERATED VESTING OF EQUITY. The vested percentage
of the Employee's shares of the Company's stock and the exercisable percentage
of his options to purchase shares of the Company's stock shall be determined by
adding 12 months to the actual length of his service if, prior to the date 18
months after the effective time of the Merger:

                             (i) The Company terminates the Employee's
        Employment for any reason other than Cause or Permanent Disability; or

                             (ii) The Employee resigns his Employment because he
        is required to serve in any position lower than Senior Vice President of
        the Company.

If this Section 6(b) becomes applicable during the 12-month period following the
effective time of the Merger and Section 2(b) also applies to such shares or
options, then the vested percentage of such shares and the exercisable
percentage of such options shall be determined by adding 12 months to the
service that the Employee would have completed as of the date 12 months after
the effective time of the Merger.

                      (c) DEFINITION OF "CAUSE." For all purposes under this
Agreement, "Cause" shall mean:

                             (i) Any breach of this Agreement, the Proprietary
        Information and Inventions Agreement between the Employee and the
        Company, or any other written agreement between the Employee and the
        Company, if such breach causes material harm to the Company;

                             (ii) Any willful misconduct that causes material
        harm to the Company, including (without limitation) repeated failure to
        follow the directions of the person to whom the Employee reports;

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                             (iii) Conviction of, or a plea of "guilty" or "no
        contest" to, a felony under the laws of the United States or any state
        thereof;

                             (iv) Misappropriation of the assets of the Company
        or other acts of fraud or embezzlement; or

                             (v) The abuse of alcohol or controlled substances
        that has a detrimental effect upon the Employee's performance of his
        duties under this Agreement.

                      (d) DEFINITION OF "PERMANENT DISABILITY." For all purposes
under this Agreement, "Permanent Disability" shall mean that the Employee, at
the time notice is given, has failed to perform his duties under this Agreement
for a period of not less than 90 consecutive days as the result of his
incapacity due to physical or mental injury, disability or illness.

               7. NON-DISCLOSURE. This Agreement is contingent upon the
Employee's execution of the Company's form of Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.

               8. NON-COMPETITION, NON-SOLICITATION AND SAVINGS CLAUSE.

                      (a) THE RESTRICTED PERIOD. This Section 8 shall apply only
during the period commencing at the effective time of the Merger and ending on
the earlier of (i) the date 12 months after the effective date of the
termination of the Employee's Employment for any reason or (ii) the date 18
months after the effective time of the Merger (the "Restricted Period").

                      (b) NON-COMPETITION AND NON-SOLICITATION. In exchange for
the consideration stated herein and for the purchase of his shares of Siara
Systems stock by the Company, the Employee agrees that during the Restricted
Period he shall not:

                             (i) Directly or indirectly, individually or in
        conjunction with others, engage in activities that compete with the
        Company's Business or work for any entity engaged in a business that
        competes with the Company's Business. The Employee in particular agrees
        not to solicit, serve, contract with or otherwise engage any existing or
        prospective customer, client or account of the Company in the area of
        its Business. The Employee and the Company agree that the Company's
        Business is global in scope.

                             (ii) Cause or attempt to cause any existing or
        prospective customer, client or account of the Company in the area of
        its Business to divert from, terminate, limit or in any manner modify,
        or fail to enter into, any actual or potential business relationship
        with the Company. The Employee and the Company agree that this provision
        is reasonably enforced with reference to any geographic area in which
        the Company's Business maintains any such relationship.

                                       4

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                             (iii) Directly or indirectly solicit, employ or
        conspire with others to employ any of the Company's employees. The term
        "employ" for purposes of this Paragraph (iii) means to enter into an
        arrangement for services as a full-time or part-time employee,
        independent contractor, agent or otherwise. The Employee and the Company
        agree that this provision is reasonably enforced as to any geographic
        area in which the Company conducts its Business.

The Employee further agrees that during the Restricted Period he shall inform
any new employer, or any other person or entity with whom he enters into a
business relationship, of the existence of this Section 8 before accepting
employment or entering into such business relationship.

                      (c) DEFINITION OF "BUSINESS." For all purposes under this
Agreement, "Business" shall mean the networking market, including IP routing,
subscriber management systems, Sonet networking, ATM switching, IP Sec and VPN.

                      (d) SAVINGS CLAUSE. The Employee agrees that the scope and
terms of this Section 8 are reasonable and that it is the Employee's intent and
desire that this Section 8 be enforced to the fullest extent permissible under
the laws and public policies applied in the jurisdiction in which enforcement is
sought. If any particular provision of this Section 8 is adjudicated to be
invalid or unenforceable, the parties specifically authorize the tribunal making
such determination to edit the invalid or unenforceable provision to allow this
Section 8 to be valid and enforceable to the fullest extent allowed by law or
public policy.

               9. SUCCESSORS.

                      (a) COMPANY'S SUCCESSORS. This Agreement shall be binding
upon any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.

                      (b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

               10. MISCELLANEOUS PROVISIONS.

                      (a) NOTICE. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.

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                      (b) MODIFICATIONS AND WAIVERS. No provision of this
Agreement shall be modified, waived or discharged unless the modification,
waiver or discharge is agreed to in writing and signed by the Employee and by an
authorized officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.

                      (c) WHOLE AGREEMENT. No other agreements, representations
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. This
Agreement shall supersede the offer letter dated September 16, 1999, executed by
the Employee and Siara Systems.

                      (d) WITHHOLDING TAXES. All payments made under this
Agreement shall be subject to reduction to reflect taxes or other charges
required to be withheld by law.

                      (e) CHOICE OF LAW AND SEVERABILITY. This Agreement shall
be interpreted in accordance with the laws of the State of California (except
their provisions governing the choice of law). If any provision of this
Agreement becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision shall be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot be
so amended without materially altering the intention of the parties, then such
provision shall be stricken and the remainder of this Agreement shall continue
in full force and effect. Should there ever occur any conflict between any
provision contained in this Agreement and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, then the latter shall prevail but the provision of this Agreement
affected thereby shall be curtailed and limited only to the extent necessary to
bring it into compliance with applicable law. All the other terms and provisions
of this Agreement shall continue in full force and effect without impairment or
limitation.

                      (f) ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement or the breach thereof, or the Employee's
Employment or the termination thereof, with the exception of any controversy or
claim arising out of or relating to Section 8, shall be settled in Palo Alto,
California, by arbitration in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association. The
decision of the arbitrator shall be final and binding on the parties, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The parties hereby agree that the arbitrator shall
be empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Employee shall share equally all
fees and expenses of the arbitrator. Any controversy or claim arising out of or
relating to Section 8 shall be settled in the appropriate federal or state court
in the State of California. The Company and the Employee hereby consent to
personal jurisdiction of the state

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and federal courts located in the State of California for any action or
proceeding arising from or relating to this Agreement or relating to any
arbitration in which the parties are participants.

                      (g) NO ASSIGNMENT. This Agreement and all rights and
obligations of the Employee hereunder are personal to the Employee and may not
be transferred or assigned by the Employee at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of the Company's assets to such entity.

                      (h) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

               IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.

                                            -------------------------------
                                            PANKAJ PATEL

                                            REDBACK NETWORKS INC.

                                            By
                                              -----------------------------
                                            Title:
                                                  --------------------------

                                       7<PAGE>   1
                                                                    EXHIBIT 10.7

                              REDBACK NETWORKS INC.

                            1999 STOCK INCENTIVE PLAN

               (AS AMENDED AND RESTATED EFFECTIVE ______ __, 2000)

<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>                                                                                              <C>
ARTICLE 1.  INTRODUCTION....................................................................       1

ARTICLE 2.  ADMINISTRATION..................................................................       1
        2.1  Committee Composition..........................................................       1
        2.2  Committee Responsibilities.....................................................       1
        2.3  Committee for Non-Officer Grants...............................................       2

ARTICLE 3.  SHARES AVAILABLE FOR GRANTS.....................................................       2
        3.1  Basic Limitation...............................................................       2
        3.2  Annual Increase in Shares......................................................       2
        3.3  Additional Shares..............................................................       2

ARTICLE 4.  ELIGIBILITY.....................................................................       3
        4.1  Nonstatutory Stock Options and Restricted Shares...............................       3
        4.2  Incentive Stock Options........................................................       3

ARTICLE 5.  OPTIONS.........................................................................       3
        5.1  Stock Option Agreement.........................................................       3
        5.2  Number of Shares...............................................................       3
        5.3  Exercise Price.................................................................       3
        5.4  Exercisability and Term........................................................       4
        5.5  Effect of Change in Control....................................................       4
        5.6  Modification or Assumption of Options..........................................       4
        5.7  Buyout Provisions..............................................................       4
        5.8  Salary Reduction Option Grants.................................................       4

ARTICLE 6.  PAYMENT FOR OPTION SHARES.......................................................       5
        6.1  General Rule...................................................................       5
        6.2  Surrender of Stock.............................................................       5
        6.3  Exercise/Sale..................................................................       5
        6.4  Exercise/Pledge................................................................       6
        6.5  Promissory Note................................................................       6
        6.6  Other Forms of Payment.........................................................       6

ARTICLE 7.  RESTRICTED SHARES...............................................................       6
        7.1  Restricted Stock Agreement.....................................................       6
        7.2  Payment for Awards.............................................................       6
        7.3  Vesting Conditions.............................................................       6
        7.4  Voting and Dividend Rights.....................................................       7

ARTICLE 8.  PROTECTION AGAINST DILUTION.....................................................       7
        8.1  Adjustments....................................................................       7
</TABLE>

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<TABLE>
<S>                                                                                               <C>
        8.2  Dissolution or Liquidation.....................................................       7
        8.3  Reorganizations................................................................       7

ARTICLE 9.  DEFERRAL OF DELIVERY OF SHARES..................................................       8

ARTICLE 10.  AWARDS UNDER OTHER PLANS.......................................................       8

ARTICLE 11.  LIMITATION ON RIGHTS...........................................................       8
        11.1  Retention Rights..............................................................       8
        11.2  Stockholders' Rights..........................................................       8
        11.3  Regulatory Requirements.......................................................       9

ARTICLE 12.  WITHHOLDING TAXES..............................................................       9
        12.1  General.......................................................................       9
        12.2  Share Withholding.............................................................       9

ARTICLE 13.  LIMITATION ON PAYMENTS.........................................................       9
        13.1  Scope of Limitation...........................................................       9
        13.2  Basic Rule....................................................................      10
        13.3  Reduction of Payments.........................................................      10
        13.4  Overpayments and Underpayments................................................      10
        13.5  Related Corporations..........................................................      11

ARTICLE 14.  FUTURE OF THE PLAN.............................................................      11
        14.1  Term of the Plan..............................................................      11
        14.2  Amendment or Termination......................................................      11

ARTICLE 15.  DEFINITIONS....................................................................      11

ARTICLE 16.  EXECUTION......................................................................      14
</TABLE>

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<PAGE>   4
                              REDBACK NETWORKS INC.
                            1999 STOCK INCENTIVE PLAN

        ARTICLE 1. INTRODUCTION.

                The Plan was adopted by the Board effective as of the date of
the Company's initial public offering. The purpose of the Plan is to promote the
long-term success of the Company and the creation of stockholder value by (a)
encouraging Employees, Outside Directors and Consultants to focus on critical
long-range objectives, (b) encouraging the attraction and retention of
Employees, Outside Directors and Consultants with exceptional qualifications and
(c) linking Employees, Outside Directors and Consultants directly to stockholder
interests through increased stock ownership. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares or Options
(which may constitute incentive stock options or nonstatutory stock options).

                The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).

        ARTICLE 2. ADMINISTRATION.

        2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:

                (a) Such requirements as the Securities and Exchange Commission
        may establish for administrators acting under plans intended to qualify
        for exemption under Rule 16b-3 (or its successor) under the Exchange
        Act; and

                (b) Such requirements as the Internal Revenue Service may
        establish for outside directors acting under plans intended to qualify
        for exemption under section 162(m)(4)(C) of the Code.

        2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it

<PAGE>   5
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.

        2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards. Within the limitations of this Section 2.3, any reference in the Plan to
the Committee shall include such secondary committee.

        ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

        3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options and Restricted Shares awarded under the Plan shall not exceed (a)
8,000,000(1) plus (b) the aggregate number of Common Shares remaining available
for grants under the Predecessor Plan on the date of the Company's initial
public offering plus (c) the additional Common Shares described in Sections 3.2
and 3.3. No additional grants shall be made under the Predecessor Plan after the
date of the Company's initial public offering. The limitations of this Section
3.1 and Section 3.2 shall be subject to adjustment pursuant to Article 8.

        3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing
with the year 2001, the aggregate number of Options and Restricted Shares that
may be awarded under the Plan shall automatically increase by a number equal to
the lesser of (a) five percent of the total number of Common Shares then
outstanding or (b) 5,000,000.(2)

        3.3 ADDITIONAL SHARES. If Options granted under this Plan or the
Predecessor Plan are forfeited or terminate for any other reason before being
exercised, then the corresponding Common Shares shall again become available for
the grant of Options or Restricted Shares under this Plan. If Common Shares
issued upon the exercise of Options granted under this Plan or the Predecessor
Plan are forfeited, then such Common Shares shall again become available for the
grant of NSOs and Restricted Shares under this Plan. If Restricted Shares issued
under this Plan or the Predecessor Plan are forfeited, then the corresponding
Common Shares shall again become available for the grant of NSOs and Restricted
Shares under this Plan. The aggregate number of Common Shares that may be issued

-----------------

(1) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999. Also reflects increase from 5,000,000 shares approved by
stockholders on ______ __, 2000.

(2) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999. Also reflects increase from 3,000,000 shares approved by
stockholders on ______ __, 2000.

                                       2

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under the Plan upon the exercise of ISOs shall not be increased when Restricted
Shares or other Common Shares are forfeited.

        ARTICLE 4. ELIGIBILITY.

        4.1 NONSTATUTORY STOCK OPTIONS AND RESTRICTED SHARES. Only Employees,
Outside Directors and Consultants shall be eligible for the grant of NSOs and
Restricted Shares.

        4.2 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(6) of the Code are satisfied.

        ARTICLE 5. OPTIONS.

        5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. A Stock Option Agreement may provide that a new Option
will be granted automatically to the Optionee when he or she exercises a prior
Option and pays the Exercise Price in the form described in Section 6.2.

        5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 8. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than two
million(3) Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than four million(4) Common Shares. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 8.

        5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 30% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may

------------------------

(3) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.

(4) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.

                                        3

<PAGE>   7
specify an Exercise Price that varies in accordance with a predetermined formula
while the NSO is outstanding.

        5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service.

        5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company, subject to
the following limitations:

                (a) In the case of an ISO, the acceleration of exercisability
        shall not occur without the Optionee's written consent.

                (b) If the Company and the other party to the transaction
        constituting a Change in Control agree that such transaction is to be
        treated as a "pooling of interests" for financial reporting purposes,
        and if such transaction in fact is so treated, then the acceleration of
        exercisability shall not occur to the extent that the Company's
        independent accountants and such other party's independent accountants
        separately determine in good faith that such acceleration would preclude
        the use of "pooling of interests" accounting.

In addition, acceleration of exercisability may be required under Section 8.3.

        5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.

        5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

        5.8 SALARY REDUCTION OPTION GRANTS. The Committee, at its sole
discretion, may offer one or more Employees, Outside Directors and Consultants
an opportunity to receive NSOs in consideration of a voluntary reduction in
their cash compensation from the Company, a Parent or a Subsidiary. The

                                       4

<PAGE>   8
Committee shall determine the maximum and minimum amounts of the reduction that
an Employee, Outside Director or Consultant may elect. If an Employee, Outside
Director or Consultant designated by the Committee wishes to receive NSOs under
this Section 5.8, then he or she shall file a written and irrevocable election
with the Company prior to the close of a calendar year. Such election shall
specify the dollar amount by which the compensation of the Employee, Outside
Director or Consultant shall be reduced during the next following calendar year
(within the limitations prescribed by the Committee). On the first trading day
of the calendar year next following the receipt of an election by the Company,
the Employee, Outside Director or Consultant who filed such election shall
automatically receive an NSO. Such NSO shall cover a number of Common Shares
equal to (a) the amount of the compensation reduction elected by the Optionee
divided by (b) two-thirds of the Fair Market Value of one Common Share on the
date of grant. The Exercise Price of such NSO shall be equal to one-third of the
Fair Market Value of one Common Share on the date of grant. Such NSO shall
become exercisable in 12 equal monthly installments over the calendar year in
which the grant occurred, but no portion of such NSO shall become exercisable
after the Optionee's service has terminated for any reason. The term of such NSO
shall be 10 calendar years, commencing with the calendar year in which the grant
occurred (regardless of whether the Optionee's service has terminated). Except
as provided in this Section 5.8, the NSOs granted under this Section 5.8 shall
be subject to the provisions applicable to other NSOs granted under the Plan.

        ARTICLE 6. PAYMENT FOR OPTION SHARES.

        6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:

                (a) In the case of an ISO granted under the Plan, payment shall
        be made only pursuant to the express provisions of the applicable Stock
        Option Agreement. The Stock Option Agreement may specify that payment
        may be made in any form(s) described in this Article 6.

                (b) In the case of an NSO, the Committee may at any time accept
        payment in any form(s) described in this Article 6.

        6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.

        6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be

                                       5

<PAGE>   9
paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Common Shares being purchased under the Plan and to deliver all or part of
the sales proceeds to the Company.

        6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.

        6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the Common Shares being purchased under the
Plan, if newly issued, shall be paid in cash or cash equivalents.

        6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.

        ARTICLE 7. RESTRICTED SHARES.

        7.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.

        7.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the consideration
shall consist exclusively of cash, cash equivalents or past services rendered to
the Company (or a Parent or Subsidiary) or, for the amount in excess of the par
value of such newly issued Restricted Shares, full-recourse promissory notes, as
the Committee may determine.

        7.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events. The Committee
may determine, at the time of

                                       6

<PAGE>   10
granting Restricted Shares or thereafter, that all or part of such Restricted
Shares shall become vested in the event that a Change in Control occurs with
respect to the Company, except as provided in the next following sentence. If
the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of interests"
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of vesting shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.

        7.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.

        ARTICLE 8. PROTECTION AGAINST DILUTION.

        8.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options and Restricted Shares
available for future Awards under Article 3, (b) the limitations set forth in
Section 5.2, (c) the number of Common Shares covered by each outstanding Option
or (d) the Exercise Price under each outstanding Option. Except as provided in
this Article 8, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.

        8.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.

        8.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Options and Restricted Shares shall
be subject to the agreement of merger or reorganization. Such agreement shall
provide for (a) the continuation of the outstanding Awards by the Company, if
the Company is a surviving corporation, (b) the assumption of the outstanding
Awards by the surviving corporation or its parent or subsidiary, (c) the
substitution by the surviving corporation or its parent or subsidiary of its own
awards for the outstanding Awards, (d) full exercisability or

                                       7

<PAGE>   11
vesting and accelerated expiration of the outstanding Awards or (e) settlement
of the full value of the outstanding Awards in cash or cash equivalents followed
by cancellation of such Awards.

        ARTICLE 9. DEFERRAL OF DELIVERY OF SHARES.

                The Committee (in its sole discretion) may permit or require an
Optionee to have Common Shares that otherwise would be delivered to such
Optionee as a result of the exercise of an Option converted into amounts
credited to a deferred compensation account established for such Optionee by the
Committee as an entry on the Company's books. Such amounts shall be determined
by reference to the Fair Market Value of such Common Shares as of the date when
they otherwise would have been delivered to such Optionee. A deferred
compensation account established under this Article 9 may be credited with
interest or other forms of investment return, as determined by the Committee. An
Optionee for whom such an account is established shall have no rights other than
those of a general creditor of the Company. Such an account shall represent an
unfunded and unsecured obligation of the Company and shall be subject to the
terms and conditions of the applicable agreement between such Optionee and the
Company. If the conversion of Options is permitted or required, the Committee
(in its sole discretion) may establish rules, procedures and forms pertaining to
such conversion, including (without limitation) the settlement of deferred
compensation accounts established under this Article 9.

        ARTICLE 10. AWARDS UNDER OTHER PLANS.

                The Company may grant awards under other plans or programs. Such
awards may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Restricted
Shares and shall, when issued, reduce the number of Common Shares available
under Article 3.

        ARTICLE 11. LIMITATION ON RIGHTS.

        11.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).

        11.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, in the case of an Option, the time when he or

                                       8

<PAGE>   12
she becomes entitled to receive such Common Shares by filing a notice of
exercise and paying the Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.

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

        ARTICLE 12. WITHHOLDING TAXES.

        12.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.

        12.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when they are withheld or surrendered.

        ARTICLE 13. LIMITATION ON PAYMENTS.

        13.1 SCOPE OF LIMITATION. This Article 13 shall apply to an Award only
if:

                (a) The independent auditors most recently selected by the Board
        (the "Auditors") determine that the after-tax value of such Award to the
        Participant, taking into account the effect of all federal, state and
        local income taxes, employment taxes and excise taxes applicable to the
        Participant (including the excise tax under section 4999 of the Code),
        will be greater after the application of this Article 13 than it was
        before the application of this Article 13; or

                (b) The Committee, at the time of making an Award under the Plan
        or at any time thereafter, specifies in writing that such Award shall be

                                       9

<PAGE>   13
        subject to this Article 13 (regardless of the after-tax value of such
        Award to the Participant).

If this Article 13 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.

        13.2 BASIC RULE. In the event that the Auditors determine that any
payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 13, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.

        13.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 13, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 13 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.

        13.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in

                                       10

<PAGE>   14
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.

        13.5 RELATED CORPORATIONS. For purposes of this Article 13, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.

        ARTICLE 14. FUTURE OF THE PLAN.

        14.1 TERM OF THE PLAN. The Plan shall become effective on the date of
the Company's initial public offering. The Plan shall remain in effect until it
is terminated under Section 14.2, except that no ISOs shall be granted on or
after the 10th anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of Common Shares available under Article 3 which was approved by the
Company's stockholders.

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

        ARTICLE 15. DEFINITIONS.

        15.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.

        15.2 "AWARD" means any award of an Option or a Restricted Share under
the Plan.

        15.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.

        15.4 "CHANGE IN CONTROL" shall mean:

                (a) The consummation of a merger or consolidation of the Company
        with or into another entity or any other corporate reorganization, if
        persons who were not stockholders of the Company immediately prior to
        such merger,

                                       11

<PAGE>   15
        consolidation or other reorganization own immediately after such merger,
        consolidation or other reorganization 50% or more of the voting power of
        the outstanding securities of each of (i) the continuing or surviving
        entity and (ii) any direct or indirect parent corporation of such
        continuing or surviving entity;

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

                (c) A change in the composition of the Board, as a result of
        which 50% or fewer of the incumbent directors are directors who either
        (i) had been directors of the Company on the date 24 months prior to the
        date of the event that may constitute a Change in Control (the "original
        directors") or (ii) were elected, or nominated for election, to the
        Board with the affirmative votes of at least a majority of the aggregate
        of the original directors who were still in office at the time of the
        election or nomination and the directors whose election or nomination
        was previously so approved; or

                (d) Any transaction as a result of which any person is the
        "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
        directly or indirectly, of securities of the Company representing at
        least 50% of the total voting power represented by the Company's then
        outstanding voting securities. For purposes of this Subsection (d), the
        term "person" shall have the same meaning as when used in sections 13(d)
        and 14(d) of the Exchange Act but shall exclude (i) a trustee or other
        fiduciary holding securities under an employee benefit plan of the
        Company or of a Parent or Subsidiary and (ii) a corporation owned
        directly or indirectly by the stockholders of the Company in
        substantially the same proportions as their ownership of the common
        stock of the Company.

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

        15.5 "CODE" means the Internal Revenue Code of 1986, as amended.

        15.6 "COMMITTEE" means a committee of the Board, as described in Article
2.

        15.7 "COMMON SHARE" means one share of the common stock of the Company.

        15.8 "COMPANY" means Redback Networks Inc., a Delaware corporation.

        15.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.2.

        15.10 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.

                                       12

<PAGE>   16
        15.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

        15.12 "EXERCISE PRICE" means the amount for which one Common Share may
be purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.

        15.13 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.

        15.14 "ISO" means an incentive stock option described in section 422(b)
of the Code.

        15.15 "NSO" means a stock option not described in sections 422 or 423 of
the Code.

        15.16 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.

        15.17 "OPTIONEE" means an individual or estate who holds an Option.

        15.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.

        15.19 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.

        15.20 "PARTICIPANT" means an individual or estate who holds an Award.

        15.21 "PREDECESSOR PLAN" means the Redback Networks Inc. 1997 Stock
Plan.

        15.22 "PLAN" means this Redback Networks Inc. 1999 Stock Incentive Plan,
as amended from time to time.

        15.23 "RESTRICTED SHARE" means a Common Share awarded under the Plan.

        15.24 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.

        15.25 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.

        15.26 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined

                                       13

<PAGE>   17
voting power of all classes of stock in one of the other corporations in such
chain. A corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.

        ARTICLE 16. EXECUTION.

        To record the amendment and restatement of the Plan by the Board on
______ __, 2000, the Company has caused its duly authorized officer to execute
this document in the name of the Company.

                                               REDBACK NETWORKS INC.

                                               By:
                                                    -------------------------

                                               Title:
                                                       ----------------------

                                       14

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