<PAGE>

                                                                   EXHIBIT 10.4

                          QUANTUM EFFECT DEVICES, INC.

                 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                            ADOPTED SEPTEMBER 1, 1999
                   APPROVED BY STOCKHOLDERS NOVEMBER 23, 1999

                 EFFECTIVE DATE: DATE OF INITIAL PUBLIC OFFERING
                             TERMINATION DATE: NONE

1.       PURPOSE.

          (a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive
Options are the Non-Employee Directors of the Company.

          (b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means
by which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.

          (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.       DEFINITIONS.

          (a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

          (b) "ANNUAL MEETING" means the annual meeting of the stockholders of
the Company.

          (c) "BOARD" means the Board of Directors of the Company.

          (d) "CODE" means the Internal Revenue Code of 1986, as amended.

          (e) "COMMON STOCK" means the common stock of the Company.

          (f) "COMPANY" means Quantum Effect Devices, Inc., a Delaware
corporation.

          (g) "CONSULTANT" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and who
is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.


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<PAGE>

          (h) "CONTINUOUS SERVICE" means that the Optionholder's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Optionholder's Continuous Service shall not
be deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.

          (i) "DIRECTOR" means a member of the Board of Directors of the
Company.

          (j) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

          (k) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.

          (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

          (m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

               (i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

               (ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

          (n) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.

          (o) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.

          (p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.


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          (q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (r) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

          (s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

          (t) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.

          (u) "PLAN" means this Quantum Effect Devices, Inc. 1999 Non-Employee
Directors' Stock Option Plan.

          (v) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.

          (w) "SECURITIES ACT" means the Securities Act of 1933, as amended.

3.       ADMINISTRATION.

          (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan.

          (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

               (i) To determine the provisions of each Option to the extent not
specified in the Plan.

               (ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

               (iii) To amend the Plan or an Option as provided in Section 12.

               (iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.

          (c) EFFECT OF BOARD'S DECISION. All determinations, interpretations
and constructions made by the Board in good faith shall not be subject to review
by any person and shall be final, binding and conclusive on all persons.


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4.       SHARES SUBJECT TO THE PLAN.

          (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate Two Hundred
Thousand (200,000) shares of Common Stock.

          (b) ADDITIONAL SHARES. The aggregate number of shares of Common Stock
that may be issued pursuant to Options granted under the Plan as specified in
subsection 4(a) shall automatically be increased as follows:

               (i) For a period of ten (10) years, commencing on June 30, 2000
and ending on June 30, 2009, the aggregate number of shares of Common Stock
specified in paragraph 4(a) hereof automatically shall be increased each June
(the "Calculation Date") by the greater of (1) five-tenths of one percent (0.5%)
of the Diluted Shares Outstanding on the Calculation Date, or (2) that number of
shares subject to Options granted under the Plan during the prior 12-month
period.

               (ii) For purposes of subsection 4(a)(i), "Diluted Shares
Outstanding" means the number of outstanding shares of Common Stock on the
Calculation Date, plus the number of shares of Common Stock issuable upon the
Calculation Date assuming the conversion of all outstanding Preferred Stock and
convertible notes, plus the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the prior 12-month period, calculated using the treasury
stock method.

          (c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.

          (d) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.

5.       ELIGIBILITY.

          The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.

6.       NON-DISCRETIONARY GRANTS.

          Without any further action of the Board, each Non-Employee Director
shall be granted the following Options:

          (a) ANNUAL MEETING GRANT. Each person who is elected or re-elected to
a three-year term of office as a Non-Employee Director at an Annual Meeting,
commencing with the Annual Meeting in 2000, automatically shall be granted, on
the day following such Annual Meeting, an Option to purchase Thirty Thousand
(30,000) shares of Common Stock.


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          (b) INTERIM GRANT. Each person who is elected or appointed to fill a
vacancy for less than a full three-year term of office as a Non-Employee
Director automatically shall be granted, on the following day of such election
or appointment, an Option to purchase that number of shares of Common Stock
equal to Thirty Thousand (30,000) shares divided by the number of remaining
months of such person's term of office as a Director, rounded up to the nearest
whole share and rounded up or down to the nearest whole month.

          (c) ADDITIONAL ANNUAL MEETING GRANT. Each person who is a Non-Employee
Director on the day following the Annual Meeting in 2000 but who is not eligible
for the Annual Meeting Grant specified in subsection 6(a) hereof automatically
shall be granted, on the day following such Annual Meeting, an Option to
purchase that number of shares of Common Stock equal to Thirty Thousand (30,000)
shares divided by the number of remaining months of such person's term of office
as a Director, rounded up to the nearest whole share and rounded up or down to
the nearest whole month.

          (d) TERMS AND CONDITIONS. The Options shall be made on the terms and
conditions set forth herein.

7.       OPTION PROVISIONS.

         Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

          (a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

          (b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

          (c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock, or (ii) by a "same day sale" program pursuant to
Regulation T of the Exchange Act. The purchase price of Common Stock acquired
pursuant to an Option that is paid by delivery to the Company of other Common
Stock acquired, directly or indirectly from the Company, shall be paid only by
shares of the Common Stock of the Company that have been held for more than six
(6) months (or such longer or shorter period of time required to avoid a charge
to earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's


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<PAGE>

"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.

         In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

          (d) TRANSFERABILITY. An Option is not transferable, except (i) by will
or by the laws of descent and distribution, (ii) by instrument to an inter vivos
or testamentary trust, in a form accepted by the Company, in which the Option is
to be passed to beneficiaries upon the death of the trustor (settlor) and (iii)
by gift, in a form accepted by the Company, to a member of the "immediate
family" of the Optionholder as that term is defined in 17 C.F.R. 240.16a-1(e).
In addition, Optionholder may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.

          (e) VESTING GENERALLY. Options shall vest and become exercisable in
equal monthly installments after the grant of the Option, the number of which
shall be determined by the number of months remaining of the Optionholder's term
of office as a Director at the time of the grant of the Option.

          (f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the expiration of the term of the
Option. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.

          (g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.

          (h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.


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          (i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate.

8.       COVENANTS OF THE COMPANY.

          (a) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.

          (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.

9.       USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.

10.      MISCELLANEOUS.

          (a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.

          (b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed
or Option granted pursuant thereto shall confer upon any Optionholder any right
to continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company


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<PAGE>

or an Affiliate, and any applicable provisions of the corporate law of the state
in which the Company or the Affiliate is incorporated, as the case may be.

          (c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as
a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (iv)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.

          (d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.

11.      ADJUSTMENTS UPON CHANGES IN STOCK.

          (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 6, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible


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securities of the Company shall not be treated as a transaction "without receipt
of consideration" by the Company.)

          (b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.

          (c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
any Options outstanding under the Plan or shall substitute similar Options
(including an option to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(c) for those outstanding
under the Plan). In the event any surviving corporation or acquiring corporation
refuses to assume such Options or to substitute similar Options for those
outstanding under the Plan, then with respect to Options held by Optionholders
whose Continuous Service has not terminated, the vesting of such Options (and
the time during which such Options may be exercised) shall be accelerated in
full, and the Options shall terminate if not exercised at or prior to such
event. With respect to any other Options outstanding under the Plan, such
Options shall terminate if not exercised prior to such event.

12.      AMENDMENT OF THE PLAN AND OPTIONS.

          (a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

          (b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval.

          (c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

          (d) AMENDMENT OF OPTIONS. The Board at any time, and from time to
time, may amend the terms of any one or more Options; provided, however, that
the rights under any Option shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.


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<PAGE>

13.      TERMINATION OR SUSPENSION OF THE PLAN.

          (a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.

          (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.

14.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

15.      CHOICE OF LAW.

         All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Delaware, without
regard to such state's conflict of laws rules.


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<PAGE>

                          QUANTUM EFFECT DEVICES, INC.
                 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
                           (NONSTATUTORY STOCK OPTION)


         Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Quantum Effect Devices, Inc. (the "Company") has granted
you an option under its 1999 Non-Employee Directors' Stock Option Plan (the
"Plan") to purchase the number of shares of the Company's Common Stock indicated
in your Grant Notice at the exercise price indicated in your Grant Notice.
Defined terms not explicitly defined in this Stock Option Agreement but defined
in the Plan shall have the same definitions as in the Plan.

         The details of your option are as follows:

          1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.

          2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for capitalization
adjustments, as provided in the Plan.

          3. METHOD OF PAYMENT. Payment of the exercise price is due in full
upon exercise of all or any part of your option. You may elect to make payment
of the exercise price in cash or by check or in one or more of the following:

               (a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.

               (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.


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<PAGE>

          4. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

          5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

          6. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:

               (a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three (3)-month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

               (b) twelve (12) months after the termination of your Continuous
Service due to your Disability;

               (c) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates;

               (d) the Expiration Date indicated in your Grant Notice; or

               (e) the day before the tenth (10th) anniversary of the Date of
Grant.

          7. EXERCISE.

               (a) You may exercise the vested portion of your option during its
term by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

               (b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.


                                       2
<PAGE>

          8. TRANSFERABILITY. Your option is not transferable, except (i) by
will or by the laws of descent and distribution, (ii) by instrument to an inter
vivos or testamentary trust, in a form accepted by the Company, in which the
option is to be passed to beneficiaries upon the death of the trustor (settlor)
and (iii) by gift, in a form accepted by the Company, to your "immediate family"
as that term is defined in 17 C.F.R. 240.16a-1(e). The term "immediate family"
is defined in 17 C.F.R. 240.16a-1(e) to mean any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes
adoptive relationships. Your option is exercisable during your life only by you
or a transferee satisfying the above-stated conditions. The right of a
transferee to exercise the transferred portion of your option after termination
of your Continuous Service shall terminate in accordance with your right to
exercise your option as specified in your option. In the event that your
Continuous Service terminates due to your death, your transferee will be treated
as a person who acquired the right to exercise your option by bequest or
inheritance. In addition to the foregoing, the Company may require, as a
condition of the transfer of your option to a trust or by gift, that your
transferee enter into an option transfer agreement provided by, or acceptable
to, the Company. The terms of your option shall be binding upon your
transferees, executors, administrators, heirs, successors, and assigns.
Notwithstanding the foregoing, by delivering written notice to the Company, in a
form satisfactory to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise your option.

          9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

          10. WITHHOLDING OBLIGATIONS.

               (a) At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.

               (b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding


                                       3
<PAGE>

obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such
exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

               (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.

          11. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

          12. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.


                                       4
<PAGE>

                          QUANTUM EFFECT DEVICES, INC.
                 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
                          NOTICE OF EXERCISE (POST-IPO)



Quantum Effect Devices, Inc.
3255-3 Scott Blvd., Suite 200
Santa Clara CA  95054                          Date of Exercise: _______________

Ladies and Gentlemen:

         This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.



         Stock option dated:                      ______________________________

         Number of shares being acquired:         ______________________________

         Certificates to be issued in name of:    ______________________________

         Total exercise price:                    $______________

         Cash payment delivered herewith:         $______________

         Value of ________ shares of common stock (1):  $______________



         By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1999 Non-Employee Directors' Stock
Option Plan, and (ii) to provide for the payment by me to you (in the manner
designated by you) of your withholding obligation, if any, relating to the
exercise of this option.

                                        Very truly yours,

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




------------------
1   Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate unless shares are tendered by attestation.