Document:

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                                                                    EXHIBIT 4.01

                                RIGHTS AGREEMENT

                                     BETWEEN

                              TRANSMETA CORPORATION

                                       AND

                          MELLON INVESTOR SERVICES LLC,

                                 AS RIGHTS AGENT

                          DATED AS OF JANUARY 15, 2002

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                                TABLE OF CONTENTS

<TABLE>
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                                                                           Page
                                                                           ----
<S>         <C>                                                            <C>
Section 1.  Certain Definitions                                              1

Section 2.  Appointment of Rights Agent                                      4

Section 3.  Evidence of Rights Before Distribution Date; Transfer; Legends   5

Section 4.  Evidence of Rights After Distribution Date; Form of Right        6
            Certificates; Countersignatures

Section 5.  Distribution of Certificates; Registration                       6

Section 6.  Transfer, Split Up, Combination and Exchange of Right            7
            Certificates; Mutilated, Destroyed, Lost or Stolen Right
            Certificates

Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights    7

Section 8.  Cancellation and Destruction of Right Certificates               9

Section 9.  Status and Availability of Preferred Shares                      9

Section 10. Preferred Shares Record Date                                    10

Section 11. Adjustment of Purchase Price, Number of Shares or Number of     10
            Rights

Section 12. Certificate of Adjusted Purchase Price or Number of Shares      16

Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning  16
            Power

Section 14. Fractional Rights and Fractional Shares                         17

Section 15. Rights of Action                                                18

Section 16. Agreement of Right Holders                                      18

Section 17. Right Certificate Holder Not Deemed a Stockholder               19

Section 18. Compensation and Indemnity of the Rights Agent                  19

Section 19. Merger or Consolidation or Change of Name of Rights Agent       20

Section 20. Rights and Duties of Rights Agent                               20

Section 21. Change of Rights Agent                                          23
</TABLE>

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<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>         <C>                                                            <C>
Section 22. Issuance of New Right Certificates                              23

Section 23. Redemption                                                      24

Section 24. Exchange                                                        24

Section 25. Notice of Certain Events                                        26

Section 26. Notices                                                         26

Section 27. Supplements and Amendments                                      27

Section 28. Successors                                                      27

Section 29. Benefits of this Agreement                                      27

Section 30. Severability                                                    27

Section 31. Governing Law                                                   28

Section 32. Counterparts                                                    28

Section 33. Descriptive Headings                                            28

Section 34. Entire Agreement                                                28

            Signatures                                                      29

Exhibit A - Form of Certificate of Designations of Series A Junior
            Participating Preferred Stock

Exhibit B - Summary of Rights to Purchase Preferred Shares

Exhibit C - Form of Right Certificate
</TABLE>

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                                RIGHTS AGREEMENT

        This Agreement, dated as of January 15, 2002, between Transmeta
Corporation, a Delaware corporation (the "COMPANY"), and Mellon Investor
Services LLC, a New Jersey limited liability company, as Rights Agent (the
"RIGHTS AGENT").

        The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "RIGHT") for each Common Share
(as hereinafter defined) of the Company outstanding at the Close of Business (as
hereinafter defined) on January 18, 2002 (the "RECORD DATE"), each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share that shall become outstanding (i) between the
Record Date and the earliest of the Distribution Date, the Redemption Date and
the Final Expiration Date (as such terms are hereinafter defined) or (ii)
following the Distribution Date and prior to the Redemption Date or Final
Expiration Date, pursuant to the exercise of stock options or under any employee
plan or arrangement or upon the exercise, conversion or exchange of other
securities of the Company, which options or securities were outstanding prior to
the Distribution Date.

        Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:

        SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:

            (a) "ACQUIRING PERSON" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% (the "DESIGNATED PERCENTAGE") or more of the Common Shares of the Company
then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of
the Company, (iii) any employee benefit plan of the Company or of any Subsidiary
of the Company or (iv) any entity holding Common Shares for or pursuant to the
terms of any such plan. Notwithstanding the foregoing,

                (A) No Person shall become an Acquiring Person if the Board of
Directors of the Company determines in good faith that a Person who would
otherwise be an Acquiring Person has become such inadvertently, and such Person
as promptly as practicable takes such actions as may be necessary so that such
Person would no longer be considered an Acquiring Person.

                (B) No Person shall become an Acquiring Person as the result of
an acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person and such Person's Affiliates and Associates to the
Designated Percentage or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person, together with such Person's
Affiliates and Associates, shall become the Beneficial Owner of the Designated
Percentage or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and such Person, together with its
Affiliates and Associates, shall, after public announcement of such share
purchases by the Company, become the Beneficial

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Owner of any additional Common Shares of the Company, then such Person shall be
deemed to be an "Acquiring Person."

            (b) "AFFILIATE" and "ASSOCIATE" shall have the following meanings:

                (i) An "AFFILIATE" of, or a Person "AFFILIATED" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified. For this purpose, "CONTROL" (including the terms
"CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise;

                (ii) The term "ASSOCIATE" used to indicate a relationship with
any Person shall mean (A) any corporation or organization (other than the
Company or a majority-owned subsidiary of the Company) of which such Person is
an officer or partner or is, directly or indirectly, the Beneficial Owner of 10%
or more of any class of equity securities, (B) any trust or other estate in
which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity, and (C) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person or who is a director or officer of the Company or of
any of its parents or Subsidiaries.

            (c) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be
deemed to "BENEFICIALLY OWN" any securities:

                (i) which such Person owns, directly or indirectly;

                (ii) which such Person has (A) the right to acquire (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities), written or otherwise, or upon the
exercise of conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person shall not be
deemed to be the Beneficial Owner of, or to beneficially own, securities
tendered pursuant to a tender or exchange offer made by or on behalf of such
Person until such tendered securities are accepted for purchase or exchange; or
(B) the right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security if the agreement, arrangement or understanding
to vote such security (1) arises solely from a revocable proxy or consent given
to such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or

                (iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person has any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), written or otherwise, for the purpose of acquiring,

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holding, voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.

        Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, (A) the phrase "THEN OUTSTANDING," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder, and (B) a Person who is a
director or officer of the Company or who is an Affiliate or Associate of a
director or officer of the Company (each, an "EXEMPTED PERSON") shall not be
deemed to "beneficially own" Common Shares held by another Exempted Person
solely by reason of any agreement, arrangement or understanding, written or
otherwise, entered into in opposition to a transaction that, at the time such
agreement, arrangement or understanding was entered into, has not been approved
or recommended by the Board of Directors to the stockholders of the Company.

            (d) "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the State of California.

            (e) "CLOSE OF BUSINESS" on any given date shall mean 5:00 p.m.,
California Time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 p.m., California Time, on the next succeeding
Business Day.

            (f) "COMMON SHARES" when used with reference to the Company shall
mean the shares of common stock, par value $0.00001 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
of the Person or Persons which ultimately control such first-mentioned Person.

            (g) "DESIGNATED PERCENTAGE" shall have the meaning set forth in
Section 1(a) hereof.

            (h) "DISTRIBUTION DATE" shall mean the earlier of (i) the tenth day
after the Shares Acquisition Date or (ii) the tenth Business Day (or such later
date as may be determined by action of the Board of Directors of the Company
prior to such time as any Person becomes an Acquiring Person) after the first
public announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) to commence a tender or exchange offer the
consummation of which would result in any such Person becoming an Acquiring
Person (including any such date which is after the date of this Agreement and
prior to the issuance of the Rights).

            (i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.

            (j) "FINAL EXPIRATION DATE" shall have the meaning set forth in
Section 7(a) hereof.

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            (k) "PERSON" shall mean any individual, firm, corporation,
partnership, limited partnership, business trust, limited liability company,
unincorporated association or any other entity, and shall include any successor
(by merger or otherwise) of such entity.

            (l) "PURCHASE PRICE" shall have the meaning set forth in Section
7(b) hereof.

            (m) "PREFERRED SHARES" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.00001 per share, of the Company
having the rights and preferences set forth in the Certificate of Designations
attached to this Agreement as Exhibit A.

            (n) "REDEMPTION DATE" shall have the meaning set forth in Section
7(a) hereof.

            (o) "RIGHTS" shall have the meaning set forth in the second
paragraph of this Agreement, provided, however, that none of the following shall
be deemed "Rights" or "outstanding Rights" for any purpose under this Agreement
from and after the effective time of the event indicated: (i) Rights which have
become Void Rights pursuant to Section 7(f) hereof, and upon such occurrence,
all Right Certificates therefor shall be null and void and shall not be deemed
"outstanding Right Certificates"; (ii) all rights which have been redeemed
pursuant to Section 23 hereof, and upon such occurrence, all Right Certificates
therefor shall represent only the right to receive the consideration provided in
Section 23 hereof and shall not be deemed "outstanding Right Certificates", and
(iii) any Rights which have been exchanged pursuant to Section 24 hereof, and
upon such occurrence, all Right Certificates therefor shall represent only the
right to receive the consideration provided in Section 24 and shall not be
deemed "outstanding Right Certificates".

            (p) "SHARES ACQUISITION DATE" shall mean the earlier of the date of
(i) the public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such or (ii) the public disclosure of facts by the
Company or an Acquiring Person indicating that an Acquiring Person has become
such.

            (q) "SUBSIDIARY" of any Person shall mean any Person of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.

            (r) A "SUCCESSOR" shall mean the estate or legal representative of a
deceased individual, the beneficiary of a deceased individual's estate, a trust
created by a deceased individual as grantor, or the beneficiary of a trust
created by a deceased individual as grantor.

            (s) "VOID RIGHTS" shall have the meaning set forth in Section 7(f).

        SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable upon ten (10) days' prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such co-Rights Agent.

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        SECTION 3. EVIDENCE OF RIGHTS BEFORE DISTRIBUTION DATE; TRANSFER;
LEGENDS.

            (a) From the Record Date until the earliest of the Distribution
Date, the Redemption Date or the Final Expiration Date, (x) Rights will be
evidenced by the certificates for Common Shares registered in the names of the
holders thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates (as defined below), and (y)
Rights will be transferable only in connection with the transfer of Common
Shares. On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Stock Purchase Rights, in substantially the
form of Exhibit B hereto (the "SUMMARY OF RIGHTS"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company. Until the earliest of the Distribution Date, the Redemption Date
or the Final Expiration Date, the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the surrender for
transfer of the Rights associated with the Common Shares represented thereby.

            (b) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this Section 3(b)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:

        THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
        CERTAIN RIGHTS (THE "RIGHTS") AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN
        TRANSMETA CORPORATION (THE "COMPANY") AND MELLON INVESTOR SERVICES LLC,
        AS RIGHTS AGENT, DATED AS OF JANUARY 15, 2002, AS SUCH MAY SUBSEQUENTLY
        BE AMENDED (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY
        INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
        PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. UNDER CERTAIN CIRCUMSTANCES,
        AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY
        SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
        CERTIFICATE. THE COMPANY WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A
        COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN
        REQUEST THEREFOR. AS DESCRIBED IN SECTION 7(F) OF THE RIGHTS AGREEMENT,
        RIGHTS BENEFICIALLY OWNED BY ANY PERSON WHO BECOMES AN ACQUIRING PERSON
        (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN OTHER PERSONS SHALL
        BECOME NULL AND VOID.

In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.

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        SECTION 4. EVIDENCE OF RIGHTS AFTER DISTRIBUTION DATE; FORM OF RIGHT
CERTIFICATES; COUNTERSIGNATURES.

            (a) From and after the Distribution Date until the earlier of the
Redemption Date or the Final Expiration Date, Rights will be evidenced solely by
Right Certificates which, together with and the forms of election to purchase
Preferred Shares and of assignment to be printed on the reverse thereof, shall
be substantially in the form set forth as Exhibit C hereto (each, a "RIGHT
CERTIFICATE"), which may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the Company may deem
appropriate and which do not affect the rights, duties or responsibilities of
the Rights Agent and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the other provisions of this Agreement, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the
Purchase Price, but the number of such one one-hundredths of a Preferred Share
and the Purchase Price shall be subject to adjustment as provided herein.

            (b) The Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or any Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent (unless
applicable exchange rules and law permit facsimile signature, in which case the
Rights Agent signature may be by facsimile) and shall not be valid for any
purpose unless countersigned. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the individual who signed such Right Certificates had not
ceased to be such officer of the Company; and any Right Certificate may be
signed on behalf of the Company by any individual who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such individual was not such an officer.

        SECTION 5. DISTRIBUTION OF CERTIFICATES; REGISTRATION.

            (a) As soon as practicable after the Distribution Date (and so long
as the Redemption Date and the Final Expiration Date shall not have occurred),
the Company will prepare and execute, the Rights Agent will countersign and the
Company will send or cause to be sent (and the Rights Agent will, if requested
and provided with all necessary information, send) by first-class, insured,
postage-prepaid mail to each record holder of Common Shares as of the Close of
Business on the Distribution Date (other than the holder of Void Rights (as
defined in Section 7(f) hereof), at the address of such holder shown on the
records of the Company, Rights Certificates evidencing one Right for each Common
Share so held.

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            (b) Following the Distribution Date and receipt by the Rights agent
of all relevant information, the Rights Agent will keep or cause to be kept, at
its office, books for registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the Right Certificates.

        SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.

            (a) Subject to the provisions of Section 14 hereof, at any time
after the Close of Business on the Distribution Date, and at or prior to the
Close of Business on the earlier of the Redemption Date or the Final Expiration
Date, any Right Certificate or Right Certificates (other than Right Certificates
representing Void Rights or Rights that have been exchanged pursuant to Section
24 hereof) may be transferred, split up, combined or exchanged for another Right
Certificate or Right Certificates, entitling the registered holder to purchase a
like number of one one-hundredths of a Preferred Share as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent. Thereupon the Company shall execute and the Rights Agent shall
countersign and deliver to the Person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient for all taxes and governmental charges that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates. The Rights Agent shall have no duty or obligation under this
Section 6 unless and until it is satisfied that all such taxes and/or charges
have been paid.

            (b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, at the Company's request, reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and, (i) in
case of loss, theft or destruction, of indemnity or security satisfactory to
them, or (ii) in the case of mutilation, upon surrender to the Rights Agent and
cancellation of the Right Certificate, then, in either such case, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.

        SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE; VOID
RIGHTS.

            (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the office of the Rights Agent, together
with payment of the Purchase Price for each one one-hundredth of a Preferred
Share as to which the Rights are exercised and payment of all transfer taxes and
governmental charges required to be paid by the holder of such Right Certificate
as provided in Section 9 hereof, at or prior to the earliest of (i) the Close of
Business on January 17, 2012 (the "FINAL EXPIRATION DATE"), (ii) the time at
which the Rights are redeemed as provided in Section 23 hereof (the

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"REDEMPTION DATE"), or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.

            (b) The purchase price for each one one-hundredth of a Preferred
Share pursuant to the exercise of a Right (the "PURCHASE PRICE") shall initially
be $21.00, shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with Section 7(c) hereof.

            (c) Upon receipt of a Right Certificate representing exercisable
Rights within the time permitted in Section 7(a), with the form of election to
purchase and certificate duly executed, accompanied by payment of the Purchase
Price for the shares to be purchased and an amount equal to all applicable taxes
and governmental charges required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
promptly (i)(A) requisition from any transfer agent of the Preferred Shares
certificates for the number of one-one hundredths of a Preferred Share to be
purchased, and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from any depositary agent for
the Preferred Shares depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent), and the Company
hereby directs the depositary agent to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional Preferred Shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates or depositary receipts, cause the same
to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.

            (d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to
such holder's duly authorized assigns, subject to the provisions of Section 6
and Section 14 hereof.

            (e) The Company covenants and agrees that it will cause to be
reserved and kept available, out of its authorized and unissued Preferred Shares
or any Preferred Shares held in its treasury, the number of Preferred Shares
that will be sufficient to permit the exercise in full of all Rights in
accordance with this Section 7.

            (f) From and after the time that any Person becomes an Acquiring
Person, (i) all Rights that are or were acquired or beneficially owned by such
Acquiring Person (and all Rights that are or were acquired or beneficially owned
by each Associate and by each Affiliate of such Acquiring Person) shall be null
and void without any further action on the part of the Company, the Rights Agent
or any other Person (all such Rights, "VOID RIGHTS") and (ii) any holder thereof
shall thereafter have no right to exercise such Void Rights under any provision
of this Agreement. No Right Certificate shall be issued pursuant to Sections 5
or 6 that represents Rights beneficially owned by an Acquiring Person whose
Rights have become Void Rights pursuant to the preceding sentence or by any
Associate or Affiliate thereof; no Right Certificate

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shall be issued at any time upon the transfer of any Rights to an Acquiring
Person whose Rights have become Void Rights pursuant to the preceding sentence
or to any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to the
Rights Agent for transfer to an Acquiring Person whose Rights have become Void
Rights pursuant to the preceding sentence or for transfer to any Associate or
Affiliate thereof shall be cancelled. This Section 7(f) shall apply not only to
an initial Acquiring Person, and each of its Affiliates and Associates, but also
to all subsequent Acquiring Persons, and each of their Affiliates and
Associates.

            (g) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) properly completed and signed the certificate following the form of election
to purchase set forth on the reverse side of the Right Certificate surrendered
for such exercise and (ii) provided such additional evidence of the identity of
the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights agent shall reasonably request.

        SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall cancel
and retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

        SECTION 9. STATUS AND AVAILABILITY OF PREFERRED SHARES. The Company
covenants and agrees that it will take all such action as may be necessary to
ensure that all Preferred Shares delivered upon valid exercise of Rights in
compliance with Section 7 shall, at the time of delivery of the certificates for
such Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and non-assessable shares.

        The Company further covenants and agrees that it will pay when due and
payable any and all taxes and governmental charges which may be payable in
respect of the issuance or delivery of the Right Certificates or of any
Preferred Shares upon the exercise of Rights. The Company shall not, however, be
required (i) to pay any tax or governmental charge which may be payable in
respect of any transfer or delivery of Right Certificates to a Person other
than, or the issuance or delivery of certificates or depositary receipts for the
Preferred Shares in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise or to issue or (ii)
to deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until all such taxes and governmental charges shall have
been paid (all such taxes and governmental charges being payable by the holder
of such Right Certificate at the time of surrender for exercise) or until it has
been established to the Company's reasonable satisfaction that no such tax or
governmental charge is due.

                                       9

<PAGE>

        SECTION 10. PREFERRED SHARES RECORD DATE. Each Person in whose name any
certificate for Preferred Shares is issued upon the valid exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable taxes and
governmental charges) was made. Prior to the exercise of the Rights evidenced
thereby, the holder of a Right Certificate shall not be entitled to any rights
of a holder of Preferred Shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

        SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11, provided, however, that no adjustment, payment
or distribution of securities or other change in the Rights or securities
issuable upon exercise of any Rights as provided in this Section 11 shall apply
to any Void Rights.

            (a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such dividend, subdivision, combination or reclassification, and the number and
kind of shares of capital stock which would be issuable upon exercise of a Right
on such date (if such Rights were then exercisable), shall be proportionately
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive the aggregate number and kind of shares of capital stock
which, if such Right had been exercised immediately prior to such date, such
holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of the class or
series of capital stock of the Company issuable upon exercise of one Right.

                (ii) Subject to Section 7(f) and Section 24 of this Agreement,
in the event that any Person shall become an Acquiring Person, unless the event
causing the Designated Percentage threshold to be crossed and the Person to
thereby become an Acquiring Person is a transaction set forth in Section 13
hereof, each holder of a Right shall thereafter have a right to receive, upon
exercise of such Right at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this Agreement and in
lieu of Preferred Shares, such number of Common Shares of the Company as shall
equal the result obtained by (x) multiplying the then current Purchase Price by
the number of one one-hundredths of a Preferred Share for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per share
market price of the Company's Common Shares (determined pursuant to Section
11(d) hereof) on the date such Person became an Acquiring Person.

                                       10

<PAGE>

                (iii) In the event that the number of Common Shares which are
authorized by the Company's certificate of incorporation and not outstanding or
subscribed for, or reserved or otherwise committed for issuance for purposes
other than upon exercise of the Rights, is not sufficient to permit the holder
of each Right to purchase the number of Common Shares to which such holder would
be entitled upon the exercise in full of the Rights in accordance with Section
11(a)(ii), the Company shall: (A) determine the excess of (1) the value of the
Common Shares issuable upon the exercise of a Right (calculated as provided in
the last sentence of this Section 11(a)(iii)) pursuant to Section 11(a)(ii)
hereof (the "CURRENT VALUE") over (2) the Purchase Price (such excess, the
"SPREAD"), and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or
other equity securities of the Company (including, without limitation, shares of
the Company's Preferred Stock, or units of shares of the Company's capital
stock) which the Board of Directors of the Company has determined to have the
same value as Common Shares (such equity securities, "COMMON STOCK
EQUIVALENTS")), (4) debt securities of the Company, (5) other assets or (6) any
combination of the foregoing, having an aggregate value equal to the Current
Value, where such aggregate value has been determined by the Board of Directors
of the Company in good faith; provided, however, if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) of this
paragraph within thirty (30) days following the first occurrence of an event
triggering the rights to purchase Common Shares described in Section 11(a)(ii)
(the "SECTION 11(a)(ii) TRIGGER DATE"), then the Company shall be obligated to
deliver, upon the surrender for exercise of a Right without requiring payment of
the Purchase Price, Common Shares (to the extent available) and then, if
necessary, cash, which shares and cash have an aggregate value equal to the
Spread. If the Board of Directors of the Company shall determine in good faith
that it is likely that sufficient additional Common Shares could be authorized
for issuance upon exercise in full of the Rights, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than ninety
(90) days after the Section 11(a)(ii) Trigger Date, in order that the Company
may seek stockholder approval for the authorization of such additional shares
(such period, as it may be extended, the "SUBSTITUTION PERIOD"). To the extent
that the Company determines that some action needs to be taken pursuant to the
first and/or second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(g) hereof, that such action shall apply uniformly
to all Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall make a public announcement, and
shall deliver to the Rights Agent a statement, stating that the exercisability
of the Rights has been temporarily suspended. At such time as the suspension is
no longer in effect, the Company shall make another public announcement, and
deliver to the Rights Agent a statement, so stating. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the current per
share market price (as determined pursuant to Section 11(d)(i) hereof) of the
Common Shares on the Section 11(a)(ii) Trigger Date and the value of any "common
stock equivalent" shall be deemed to have the same value as the Common Shares on
such date.

            (b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the

                                       11

<PAGE>

Preferred Shares ("EQUIVALENT PREFERRED SHARES")) or securities convertible into
Preferred Shares or equivalent preferred shares at a price per Preferred Share
or equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the then current per share market price of the Preferred Shares (as defined
in Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying (x) the Purchase Price in
effect immediately prior to such record date by (y) a fraction, (1) the
numerator of which shall be the sum of (A) number of Preferred Shares
outstanding on such record date plus (B) the number of Preferred Shares which
the aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and (2) the denominator of which shall be the sum
of (A) number of Preferred Shares outstanding on such record date plus (B) the
number of additional Preferred Shares and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the class or series of shares of capital stock of the
Company issuable upon exercise of one Right. In case such subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes. Preferred Shares owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

            (c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying (x) the Purchase Price in effect
immediately prior to such record date by (y) a fraction, (1) the numerator of
which shall be the difference of (A) then current per share market price of the
Preferred Shares on such record date, less (B) the fair market value (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and (2) the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the class or series of shares of capital
stock of the Company to be issued upon exercise of one Right. Such adjustments
shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.

                                       12

<PAGE>

            (d) (i) For the purpose of any computation hereunder, the "CURRENT
PER SHARE MARKET PRICE" of any security (a "SECURITY" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by The Nasdaq Stock Market
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. The term
"TRADING DAY" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.

                (ii) For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect each stock split, stock combination, stock
dividend or similar transaction occurring after the date hereof), multiplied by
one hundred. If neither the Common Shares nor the Preferred Shares are publicly
held or so listed or traded, "current per share market price" shall mean the
fair value per share thereof as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.

            (e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one one-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section

                                       13

<PAGE>

11 shall be made no later than three years from the date of the transaction
which, but for such sentence of this Section 11(e), would have required such
adjustment.

            (f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
the number of such other shares so receivable upon exercise of any Right shall
thereafter be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.

            (g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

            (h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.

            (i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights and outstanding thereafter shall become that
number of Rights (calculated to the nearest one one-thousandth) obtained by
dividing (x) the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by (y) the Purchase Price in effect immediately after adjustment
of the Purchase Price. The Company shall make a public announcement (with prompt
notice thereof to the Rights Agent) of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been distributed, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been distributed,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date, Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and

                                       14

<PAGE>

upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates to be so distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.

            (j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.

            (k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
non-assessable Preferred Shares at such adjusted Purchase Price.

            (l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer (and shall promptly notify the
Rights Agent of any such elections), until the occurrence of such event, the
issuing to the holder of any Right exercised after such record date, the
additional Preferred Shares and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the Preferred Shares
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.

            (m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) subdivision, combination or consolidation of the Preferred
Shares, (ii) issuance wholly for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares, (iii)
dividends on Preferred Shares payable in Preferred Shares or (iv) issuance of
any rights, options or warrants referred to hereinabove in Section 11(b),
hereafter made by the Company to holders of its Preferred Shares shall not be
taxable to such stockholders.

            (n) In the event that at any time after the date of this Agreement,
the Company shall (i) declare or pay any dividend on the Common Shares payable
in Common Shares or (ii) effect a subdivision, combination or consolidation of
the Common Shares (by reclassification or otherwise other than by payment of
dividends in Common Shares) into a greater or lesser number of Common Shares,
then in any such case (i) the number of one one-hundredths of a Preferred Share
purchasable after such event upon proper exercise of each Right shall be
determined by multiplying (x) the number of one one-hundredths of a Preferred
Share so purchasable immediately prior to such event by (y) a fraction, (1) the
numerator of which is the number of Common Shares outstanding immediately before
such event and (2) the denominator of which is

                                       15

<PAGE>

the number of Common Shares outstanding immediately after such event, and (ii)
each Common Share outstanding immediately after such event shall have issued
with respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.

            (o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Sections 23, 24 and 27, take (or
permit any Subsidiary to take) any action if the purpose of such action is to,
or if at the time such action is taken it is reasonably foreseeable that such
action will, diminish substantially or eliminate the benefits intended to be
afforded by the Rights.

        SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts and computations accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Common Shares or the Preferred Shares a copy of such certificate and (c) mail a
brief summary thereof to each holder of a Right Certificate in accordance with
Section 25 hereof. The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment therein contained and shall have no duty
with respect to and shall not be deemed to have knowledge of any adjustment
unless and until it shall have received such certificate.

        SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER. In the event that any Person shall become an Acquiring Person,
and, directly or indirectly, (a) the Company shall consolidate with, or merge
with and into, an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, (b) an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, shall consolidate with the Company, or merge with and into the Company
and the Company shall be the continuing or surviving corporation of such merger
and, in connection with such merger, all or part of the Common Shares shall be
changed into or exchanged for stock or other securities of any other Person (or
the Company) or cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (other than Rights which have become Void
Rights) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of the Person in the transaction (including the
Company as successor thereto or as the surviving corporation) who is issuing the
consideration with the greatest fair market value to the Company and its
stockholders in connection with such transaction (the "PRINCIPAL ISSUER") as
shall equal the result obtained by (A) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share for which a Right
is then exercisable and dividing that product by (B) 50% of the then current per
share market price of the Common Shares of the Principal Issuer (determined
pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (ii) the Principal Issuer shall be
liable for, and shall assume, by virtue of such

                                       16

<PAGE>

consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to the Principal Issuer; and (iv) the Principal Issuer shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its Common Shares in accordance with Section 9 hereof) in connection
with such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation to
the Common Shares thereafter deliverable upon the exercise of the Rights. The
Company covenants and agrees that it shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and the
Principal Issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.

        SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.

            (a) The Company shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.

            (b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such

                                       17

<PAGE>

agreement shall provide that the holders of such depositary receipts shall have
all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not integral multiples
of one one-hundredth of a Preferred Share, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fractions of the current
market value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.

            (c) The holder of a Right by the acceptance of the Right expressly
waives any right to receive fractional Rights or fractional shares upon exercise
of a Right (except as provided above).

        SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action of the Rights Agent and the Company,
are vested in the respective registered holders of the Rights; and any
registered holder of any Right may, without the consent of the Rights Agent or
of the holder of any other Right, in such holder's own behalf and for such
holder's own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
such holder's right to exercise the Rights in the manner provided in this
Agreement and in any issued and outstanding Right Certificate representing such
Right. Without limiting the foregoing or any remedies available to the holders
of Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and will be
entitled to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to, this Agreement.

        SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:

            (a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;

            (b) after the Distribution Date, the Right Certificates are
transferable only on the registry books maintained by the Rights Agent if
surrendered at the office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer and payment of taxes and governmental changes, all
as otherwise provided in Section 6; and

            (c) the Company and the Rights Agent shall deem and treat the Person
in whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice (other than notice provided by transfer documentation
properly completed and tendered in accordance with this Agreement) to the
contrary.

                                       18

<PAGE>

            (d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its failure to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree, judgment or ruling (whether interlocutory
final) issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority prohibiting or otherwise restraining performance of such obligation.

        SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right shall be entitled to vote, receive dividends or be
deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
such Rights nor shall anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Rights, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until such Right
shall have been properly exercised in accordance with the provisions hereof.

        SECTION 18. COMPENSATION AND INDEMNITY OF THE RIGHTS AGENT. (a) The
Company agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the preparation, delivery, amendment, administration and execution
of this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent (including employees,
directors, officers and agents of the Rights Agent (the Rights Agent together
with such Persons, the "AGENT INDEMNITEES")) for, and to hold each Agent
Indemnitee harmless against, any loss, liability, damage, judgment, fine,
penalty, claim, demand, settlement, cost or expense (each an "AGENT LOSS"),
incurred on the part of such Agent Indemnitee for any action taken, suffered or
omitted by any of the Agent Indemnitees in connection with the acceptance and
administration of this Agreement, including the costs and expenses of defending
against any claim of liability in the premises, provided, however, that the
Company shall not be required to indemnify any Agent Indemnitee hereunder for
any Agent Loss which resulted from any action taken, suffered or omitted by the
Agent Indemnitee in bad faith or through gross negligence or willful misconduct
of the Rights Agent or any other Agent Indemnity, as each is finally determined
by a court of competent jurisdiction, and the respective Agent Indemnitee shall
promptly refund to the Company all sums advanced to such Agent Indemnitee as or
against indemnification for Agent Losses upon such judicial determination. If an
Agent Indemnitee brings an action to enforce its right to indemnification under
this Section 18, the Company shall pay the costs of such action to the extent
that such Agent Indemnitee is a prevailing party in such litigation. Anything to
the contrary notwithstanding, in no event shall any Agent Indemnitee be liable
for special, punitive, indirect, consequential or incidental loss or damage of
any kind whatsoever (including but not limited to lost profits), even if such
Agent Indemnitee has been advised of the likelihood of such loss or damage. Any
liability of an Agent Indemnitee under this Rights Agreement will be limited to
the amount of fees paid by the Company to the Rights Agent. The provisions of
this Section 18 and Section 20 below shall survive the termination of this
Agreement, the exercise or expiration of the Rights and the resignation or
removal of the Rights Agent.

                                       19

<PAGE>

            (b) The Rights Agent shall be authorized to rely on, shall be
protected and shall incur no liability for or in respect of any action taken,
suffered or omitted by it in connection with the acceptance and administration
of this Agreement or the exercise or performance of its duties hereunder in
reliance upon any Right Certificate or certificate for Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, instruction, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.

        SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any Person into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any Person resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any Person succeeding to the shareholder service business
of the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
Person would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.

        In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

        SECTION 20. RIGHTS AND DUTIES OF RIGHTS AGENT. The Rights Agent
undertakes only the duties and obligations expressly imposed by this Agreement
upon the following terms and conditions, by all of which the Company and, by
their acceptance of Rights, the holders of Rights shall be bound:

            (a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the advice or opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent and the
Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it in good faith and in accordance with such advice or
opinion.

            (b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking, suffering or omitting any
action hereunder, such fact or matter

                                       20

<PAGE>

(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the General Counsel, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization and protection to the Rights Agent and the Rights
Agent shall incur no liability for or in respect of any action taken, suffered
or omitting in good faith by it under the provisions of this Agreement in
reliance upon such certificate.

            (c) The Rights Agent shall be liable hereunder only for its own bad
faith, gross negligence or willful misconduct as finally determined by a court
of competent jurisdiction. The Rights Agent makes no representation or warranty
with respect to and is not responsible or liable for the validity, value or
availability of the Rights, the Right Certificates or the Preferred Shares.

            (d) The Rights Agent shall be protected and shall incur no liability
for any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice or opinion of counsel as set forth in this Section 20.

            (e) The Rights Agent shall not be assumed to have knowledge of and
shall not be required to take note of or act upon any fact or circumstance
including, without limitation, the occurrence of facts or circumstances leading
to the Shares Acquisition Date or the Distribution Date, facts or circumstances
relating to whether any Person may be an Affiliate or an Associate of any other
Person, facts or circumstances relevant to an adjustment to the Purchase Price,
facts or circumstances relevant to events described in Section 13 (mergers,
etc.), Section 23 (redemption) and Section 24 (exchange) which may be relevant
to performance by the Rights Agent under this Agreement unless the Company has
provided written notice thereof to the Rights Agent; and the Company agrees that
it will (i) promptly notify the Rights Agent in writing of the occurrence of the
Shares Acquisition Date (including the identity of the Acquiring Person and the
date on which the Shares Acquisition Date occurred), the Distribution Date, the
Redemption Date, and of any events described in Section 13 (merger), and (ii)
promptly provide the Rights Agent with such other information as the Rights
Agent may reasonably request in connection with the performance of its duties
under this Agreement.

            (f) The Rights Agent shall not have any liability for or be under
any responsibility in respect of the validity of this Agreement or the execution
and delivery hereof (except the due authorization and execution hereof by the
Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming null
and void pursuant to Section 7(f) hereof) or any change or adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of

                                       21

<PAGE>

Rights evidenced by Right Certificates after receipt of the certificate
described in Section 12 hereof, upon which the Rights Agent may rely); nor shall
it by any act hereunder be deemed to make any representation or warranty as to
the authorization or reservation of any Preferred Shares will, when issued, be
validly authorized and issued, fully paid and nonassessable.

            (g) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.

            (h) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the General Counsel, the Secretary or the Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered by
it in good faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent with respect to its duties or obligations under this Rights
Agreement and the date on and/or after which such action shall be taken or
omitted and the Rights Agent shall not be liable for any action taken, suffered
or omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall not be less than three
Business Days after the date any such officer actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking or omitting any such action, the Rights
Agent has received written instructions in response to such application
specifying the action to be taken or omitted.

            (i) The Rights Agent and any stockholder, director, Affiliate,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other Person.

            (j) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and, with regard to acts performed through its
attorneys, the Rights Agent shall not be answerable or accountable for any act,
default, neglect or misconduct of any such attorneys or for any loss to the
Company resulting from any such act, default, neglect or misconduct, absent bad
faith, gross negligence or willful misconduct of the Rights Agent (as finally
determined by a court of competent jurisdiction) in the selection and continued
employment of such attorneys.

            (k) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it reasonably believes that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.

                                       22

<PAGE>

        SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right (who shall, with such
notice, submit such holder's Right Certificate or, before the Distribution Date,
certificate representing Common Shares, for inspection by the Company), then the
registered holder of any Right may apply to any court of the United States or of
any state thereof having competent jurisdiction over such matter for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (i) a Person organized and doing
business under the laws of the United States or of the State of California (or
of any other state of the United States), so long as such Person in good
standing, which is authorized under such laws to exercise shareholder service
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million dollars or (ii) an
Affiliate of a Person described in clause (i) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of Rights. Failure to give any notice provided for in this Section 21, however,
or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.

        SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights made in accordance with the
provisions of this Agreement. In addition, following the Distribution Date and
prior to the Redemption Date or Final Expiration Date, in connection with the
issuance or sale of Common Shares pursuant to the exercise of stock options or
under any employee plan or arrangement or upon the exercise, conversion or
exchange of other securities of the Company, in each case, which options or
securities are outstanding prior to the Distribution Date, the Board of
Directors shall issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
such Right Certificate shall be issued and this sentence shall be null and void
ab initio if, and to the extent that, such issuance or this

                                       23

<PAGE>

sentence would create a significant risk of or result in material adverse tax
consequences to the Company or the Person to whom such Right Certificate would
be issued or would create a significant risk of or result in such options' or
employee plans' or arrangements' failing to qualify for otherwise available
special tax treatment and (ii) no such Right Certificate shall be issued if, and
to the extent that, appropriate adjustment shall otherwise have been made in
lieu of the issuance thereof.

        SECTION 23. REDEMPTION.

            (a) The Board of Directors of the Company may, at its option, at any
time from and after the Record Date and prior to such time as any Person becomes
an Acquiring Person (the "REDEMPTION PERIOD"), redeem all but not less than all
the then outstanding Rights at a redemption price of $0.00001 per Right,
appropriately adjusted to reflect each stock split, stock combination, stock
dividend or similar transaction occurring after the date hereof (such redemption
price, as so adjusted, being hereinafter referred to as the "REDEMPTION PRICE").
After the Redemption Period has expired, the Board of Directors may not extend
the period for redemption of the Rights or otherwise provide for their
redemption. The redemption of the Rights by the Board of Directors may be made
effective at such time during the Redemption Period, on such basis and subject
to such conditions as the Board of Directors in its sole discretion may
establish.

            (b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to Section 23(a), and
without any further action and without any notice, the right to exercise all
then outstanding Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give notice to the Rights Agent and public notice of any such
redemption; provided, however, that the failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. Within 10 days
after such action of the Board of Directors ordering the redemption of the
Rights pursuant to Section 23(a), the Company shall mail a notice of redemption
to all the holders of the then outstanding Rights at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Any notice which is mailed in the manner herein provided shall be deemed
given upon mailing, whether or not the holder receives the notice. If the
payment of the Redemption Price is not included in such notice, each such notice
shall state the method by which the payment of the Redemption Price will be
made. Neither the Company nor any of its Affiliates or Associates may redeem,
acquire or purchase for value any Rights at any time in any manner other than
(i) as specifically set forth in this Section 23 or in Section 24 hereof, or
(ii) in connection with the purchase of Common Shares prior to the Distribution
Date.

        SECTION 24. EXCHANGE.

            (a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, authorize and direct the
exchange of all or part of the then outstanding and exercisable Rights (which
shall not include Rights that have become Void Rights) for Common Shares at an
exchange ratio (the "EXCHANGE RATIO") of one Common Share per Right,
appropriately adjusted to reflect each stock split, stock combination, stock
dividend or similar transaction occurring after the date hereof. Notwithstanding
the foregoing,

                                       24

<PAGE>

the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of a majority of the Common Shares then outstanding.

            (b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant Section 24(a) hereof and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The Company shall
promptly give notice to the Rights Agent and public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given when mailed,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become Void Rights) held by each
holder of Rights.

            (c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares (or common stock equivalents, as such
term is defined in Section 11(a)(iii) hereof) for Common Shares exchangeable for
Rights, at the initial rate of one one-hundredth of a Preferred Share (or common
stock equivalents) for each Common Share, as appropriately adjusted to reflect
adjustments in the voting rights of the Preferred Shares pursuant to the terms
thereof, so that the fraction of a Preferred Share delivered in lieu of each
Common Share shall have the same voting rights as one Common Share.

            (d) In the event that there shall not be sufficient Common Shares,
Preferred Shares or common stock equivalents authorized by the Company's
certificate of incorporation and not outstanding or subscribed for, or reserved
or otherwise committed for issuance for purposes other than upon exercise of
Rights, to permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares, Preferred Shares or common stock equivalents
for issuance upon exchange of the Rights.

            (e) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares. In
lieu of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable, an amount in cash equal to the same fraction
of the current per share market value of a whole Common Share. For the purposes
of this Section 24(e), the current per share market value of a whole Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.

                                       25

<PAGE>

        SECTION 25. NOTICE OF CERTAIN EVENTS.

            (a) In case the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to the Rights Agent and each holder of a Right Certificate, in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, or distribution
of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution or winding up is
to take place and the date of participation therein by the holders of the Common
Shares and/or Preferred Shares, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i) or (ii) above
at least 10 days prior to the record date for determining holders of the
Preferred Shares for purposes of such action, and in the case of any such other
action, at least 10 days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.

            (b) If any event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.

        SECTION 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:

            Transmeta Corporation
            3940 Freedom Circle
            Santa Clara, California 95054
            Attention: Corporate Secretary

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right to or on the Rights Agent shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:

                                       26

<PAGE>

            Mellon Investor Services LLC
            400 South Hope Street, Fourth Floor
            Los Angeles, CA  90071
            Attention: Client Administration

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

        SECTION 27. SUPPLEMENTS AND AMENDMENTS. The Company may, by resolution
of its Board of Directors, from time to time, and the Rights Agent shall, if the
Company directs, supplement or amend this Agreement without the approval of any
holders of Rights in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions or changes with respect to
the Rights which the Company may deem necessary or desirable, including, without
limitation, to modify or amend the definition of Acquiring Person set forth in
Section 1(a) hereof, to change the Purchase Price set forth in Section 7(b), or
to extend or shorten the period for redemption of the Rights; provided, however,
that from and after such time as any Person becomes an Acquiring Person, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights (other than Void Rights of an Acquiring
Person and its Affiliates and Associates), including, without limitation, to
extend the period for redemption of the Rights, or otherwise provide for their
redemption, or to provide for an earlier Final Expiration Date. Any such
supplement or amendment will be evidenced by a writing signed by the Company and
the Rights Agent. Upon the delivery of a certificate from an appropriate officer
of the Company and, if requested by the Rights Agent, an opinion of counsel,
that states that the proposed supplement or amendment complies with this Section
27, the Rights Agent shall execute such supplement or amendment, provided,
however, the Rights Agent shall not be obligated to enter into any amendment or
supplement to this Agreement which in the opinion of the Rights Agent, may
adversely affect the rights, duties, liabilities of the Rights Agent.

        SECTION 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

        SECTION 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights.

        SECTION 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, then such term, provision,
covenant or restriction shall be enforced to the maximum extent permissible, and
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.

                                       27

<PAGE>

        SECTION 31. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.

        SECTION 32. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

        SECTION 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

        SECTION 34. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof.

                         [Signatures on Following Page]

                                       28

<PAGE>

        IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement
to be duly executed and attested, all as of the day and year first above
written.

Company:
-------

TRANSMETA CORPORATION

By: /s/ Murray A. Goldman
    ------------------------------
Name: Murray A. Goldman
      ----------------------------
Title: Chief Executive Officer
       ---------------------------

Rights Agent:

MELLON INVESTOR SERVICES LLC

By: /s/ Michael E. Dzieciolowski
    ------------------------------
Name: Michael E. Dzieciolowski
      ----------------------------
Title: Assistant Vice President
       ---------------------------

                      [SIGNATURE PAGE TO RIGHTS AGREEMENT]

                                       29

<PAGE>

                                                                       EXHIBIT A

                                      FORM

                                       OF

                           CERTIFICATE OF DESIGNATIONS

                                       OF

                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                                       OF

                              TRANSMETA CORPORATION

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)

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

        Transmeta Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"CORPORATION"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on January 10, 2002:

        RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "BOARD OF
DIRECTORS" or the "BOARD") in accordance with the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $0.00001 per share (the "PREFERRED STOCK"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:

        Series A Junior Participating Preferred Stock:

        SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK" (the "SERIES A
PREFERRED STOCK") and the number of shares constituting the Series A Preferred
Stock shall be 2,000,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.

        SECTION 2. DIVIDENDS AND DISTRIBUTIONS.

            (A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any other stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,

                                       1

<PAGE>

quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount (if any) per share (rounded to the
nearest cent), subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of Common Stock,
par value $0.00001 per share (the "COMMON STOCK"), of the Company or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying (x) such amount by (y) a
fraction, (1) the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and (2) the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

            (B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).

            (C) Dividends due pursuant to paragraph (A) of this Section shall
begin to accrue and be cumulative on outstanding shares of Series A Preferred
Stock from the Quarterly Dividend Payment Date next preceding the date of issue
of such shares, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.

        SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:

                                       2

<PAGE>

            (A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying (x) such number by (y) a fraction, (1) the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and (2) the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

            (B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.

            (C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.

        SECTION 4. CERTAIN RESTRICTIONS.

            (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:

                (i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;

                (ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled; or

                (iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (as to dividends and upon dissolution, liquidation or winding up) to the
Series A Preferred Stock.

                                       3

<PAGE>

            (B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.

        SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.

        SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.

            (A) Upon any liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of any assets of the
Corporation to the holders of Common Stock, the amount of $1.00 per share for
each share of Series A Preferred Stock then held by them. Thereafter, the
holders of shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying (x) such amount by (y) a
fraction (1) the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and (2) the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

            (B) If the assets of the Corporation legally available for
distribution to the holders of shares of Series A Preferred Stock upon
liquidation, dissolution or winding up of the Corporation are insufficient to
pay the full preferential amount set forth in the first sentence of paragraph
(A) above, then the entire assets of the Corporation legally available for
distribution to the holders of Series A Preferred Stock shall be distributed
among such holders in proportion to the shares of Series A Preferred Stock then
held by them.

            (C) The foregoing rights upon liquidation, dissolution or winding up
provided to the holders of Series A Preferred Stock shall be subject to the
rights of the holders of any other series of Preferred Stock (or any other
stock) ranking prior and superior to the Series A Preferred Stock upon
liquidation, dissolution or winding up.

        SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or other property, then in

                                       4

<PAGE>

any such case each share of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying (x) such amount by (y) a fraction, (1) the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and (2) the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

        SECTION 8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.

                                       5

<PAGE>

        IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation this __ day of January, 2002.

TRANSMETA CORPORATION

By:
    -----------------------------------
    Murray A. Goldman
    Chief Executive Officer

                 [SIGNATURE PAGE TO CERTIFICATE OF DESIGNATIONS]

                                       6

<PAGE>

                                                                       EXHIBIT B

                        SUMMARY OF STOCK PURCHASE RIGHTS

        On January 10, 2002, the Board of Directors of Transmeta Corporation
(the "COMPANY") declared a dividend of one (1) stock purchase right (a "RIGHT")
for each outstanding share of common stock, par value $0.00001 per share (the
"COMMON SHARES"), of the Company. The dividend is payable to stockholders of
record on January 18, 2002 (the "RECORD DATE"). In addition, one Right will be
issued with each share of Company common stock that becomes outstanding (i)
between the Record Date and the earliest of the Distribution Date (as defined
below), the date the Rights are redeemed and the date the Rights expire or (ii)
following the Distribution Date and prior to the date the Rights are redeemed
and the date the Rights expire, pursuant to the exercise of employee stock
options or upon the exercise, conversion or exchange of other securities of the
Company, outstanding prior to the Distribution Date. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
the Company's Series A Junior Participating Preferred Stock (the "PREFERRED
SHARES") at a price of $21.00 per one one-hundredth of a Preferred Share (the
"PURCHASE PRICE"), subject to adjustment. A complete description of the terms of
the Rights are set forth in a Rights Agreement between the Company and Mellon
Investor Services LLC, as Rights Agent.

        Until the earlier to occur of (i) 10 days following a public
announcement or disclosure that a person or group of affiliated or associated
persons (an "ACQUIRING PERSON"), has acquired beneficial ownership of 15% or
more of the Company's outstanding common stock or (ii) 10 business days (or a
later date determined by the Company's Board of Directors before a person or
group becomes an Acquiring Person), following the announcement of an intention
to make a tender offer or exchange offer the consummation of which would result
in a person or group becoming an Acquiring Person (the earlier of such dates
being called the "DISTRIBUTION DATE"), the Rights will be represented by common
stock certificates with a copy of this Summary of Rights attached. No person or
group will become an Acquiring Person if the Company's Board of Directors
determines that such person crossed the ownership threshold inadvertently, and
such person or group promptly sells shares of Company common stock until they
own less than 15% of the outstanding common stock.

        The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred only with Company common stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
common stock certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the transfer of any common
stock certificates, even without such notation or a copy of this Summary of
Rights being attached, will also constitute the transfer of the Rights
associated with the Company common stock represented by such certificate. After
the Distribution Date, separate certificates representing the Rights will be
mailed to record holders of Company common stock on the Distribution Date and
such separate certificates alone will evidence the Rights. If shares of Company
common stock are issued or sold after the Distribution Date (but prior to the
redemption or expiration of the Rights) in connection with the exercise of stock
options or upon the exercise, conversion or exchange of other securities of the
Company outstanding prior to the Distribution Date, the Company shall issue the
appropriate number of Rights in connection with such issuance or sale.

                                       1

<PAGE>

        The Rights are not exercisable until the Distribution Date. The Rights
will expire on January 17, 2012, unless the expiration date is extended or
unless the Rights are earlier redeemed or exchanged by the Company, as described
below. Until a Right is exercised, the holder of a Right, as such, will have no
rights as a stockholder of the Company.

        The purchase price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution. The number of Rights and the
number of one one-hundredths of a Preferred Share issuable upon exercise of each
Right are also subject to adjustment upon certain events occurring before the
Distribution Date.

        The Preferred Shares have been structured so that each Preferred Share
has dividend, liquidation and voting rights equal to those of 100 shares of
Company common stock. Because of this, the value of the one one-hundredth
interest in a Preferred Share purchasable upon exercise of each Right should
approximate the value of one Common Share. The Preferred Shares are not
redeemable.

        In the event that any person owns more than 15% of the Company's
outstanding common stock and thereby becomes an Acquiring Person, unless the
event causing the person to become an Acquiring Person is a merger, acquisition
or other business combination described in the next paragraph, each holder of a
Right, other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise and
payment of the exercise price that number of shares of common stock having a
market value of two times the exercise price of the Right. If the Company does
not have enough authorized but unissued shares of common stock to satisfy this
obligation to issue common shares, the Company will deliver upon payment of the
exercise price of a Right an amount of cash or other securities equivalent in
value to the common stock issuable upon exercise of a Right.

        In the event that any person or group becomes an Acquiring Person and
the Company merges into or engages in certain other business combinations with
an Acquiring Person, or 50% or more of its consolidated assets or earning power
are sold to an Acquiring Person, each holder of a Right, other than Rights owned
by an Acquiring Person, will thereafter have the right to receive, upon exercise
and payment of the exercise price, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right.

        At any time after a person or group becomes an Acquiring Person and
prior to such person acquiring a majority of the outstanding Company common
stock, the Company Board of Directors may exchange all or some of the Rights
(other than Rights owned by the Acquiring Person), at an exchange ratio of one
common share, or one one-hundredth of a Preferred Share (or other equivalent
securities), per Right.

        At any time before a person or group becomes an Acquiring Person, the
Company Board of Directors may redeem all (but not some) of the Rights at a
price of $0.00001 per Right and on such terms and conditions as the Board of
Directors may establish. After the period for redemption of the Rights has
expired, the Board may not amend the Rights Agreement to extend the period for
redemption of the Rights. Immediately upon any redemption of the Rights, the

                                       2

<PAGE>

right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the redemption price.

        The terms of the Rights may be amended by a resolution of the Board of
Directors without the consent of the holders of the Rights, except that after a
person or group becomes an Acquiring Person, no such amendment may adversely
affect the interests of the holders of the Rights (other than an Acquiring
Person).

        A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
January 16, 2002. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is deemed to be incorporated into this summary.

                                       3

<PAGE>

                                                                       EXHIBIT C

                            FORM OF RIGHT CERTIFICATE

Certificate No. R-                                                  _____ Rights

        NOT EXERCISABLE AFTER JANUARY 17, 2012, OR EARLIER IF REDEMPTION OR
        EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.00001 PER
        RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.

                                RIGHT CERTIFICATE

                              TRANSMETA CORPORATION

        This certifies that ____________________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of January 15, 2002 (the "RIGHTS AGREEMENT"), between
Transmeta Corporation, a Delaware corporation (the "COMPANY"), and Mellon
Investor Services LLC (the "RIGHTS AGENT"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 p.m., Pacific Time, on January 17, 2012 at the
office of the Rights Agent, or at the office of its successor as Rights Agent,
one one-hundredth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $0.00001 per share (the "PREFERRED
SHARES"), of the Company, at a purchase price of __________ Dollars ($_____) per
one one-hundredth (1/100) of a Preferred Share (the "PURCHASE PRICE"), upon
presentation and surrender of this Right Certificate with the Certification and
the Form of Election to Purchase duly executed. The number of Rights evidenced
by this Right Certificate (and the number of one one-hundredths of a Preferred
Share which may be purchased upon exercise hereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of
_________, based on the Preferred Shares as constituted at such date. As
provided in the Rights Agreement, the Purchase Price and the number of one
one-hundredths of a Preferred Share which may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.

        This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.

        This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall

                                       1

<PAGE>

be exercised in part, the holder shall be entitled to receive upon surrender
hereof another Right Certificate or Right Certificates for the number of whole
Rights not exercised.

        Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate (i) may be redeemed by the Company at a redemption price of
$0.00001 per Right or (ii) may be exchanged in whole or in part for Preferred
Shares or shares of the Company's Common Stock, par value $0.00001 per share.

        No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

        No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.

        This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

        WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.

Dated as of _________________________

ATTEST:

                                                   TRANSMETA CORPORATION

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

Countersigned:

MELLON INVESTOR SERVICES LLC

By:
    --------------------------------
    Authorized Signature

                                       2

<PAGE>

                    Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

                (To be executed by the registered holder if such
                holder desires to transfer the Right Certificate)

        FOR VALUE RECEIVED ___________________________________ hereby sells,
assigns and transfers unto ___________________________________________________
(Please print name and address of transferee) this Right Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________________________________________,
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.

Dated:
       ---------------------

                                               ---------------------------------
                                               Signature

Signature(s) Guaranteed:

        SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15

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

        The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).

                                               ---------------------------------
                                               Signature

<PAGE>

              Form of Reverse Side of Right Certificate--continued

                          FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                         exercise the Right Certificate)

To _______________________:

        The undersigned hereby irrevocably elects to exercise _____________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:

Please insert social security
or other identifying number_______________________

__________________________________________________
(Please print name and address)

__________________________________________________

__________________________________________________

If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number_______________________

__________________________________________________
(Please print name and address)

__________________________________________________

__________________________________________________

Dated: ____________________________________

                                                   _____________________________
                                                   Signature

Signature(s) Guaranteed:

        SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15

<PAGE>

              Form of Reverse Side of Right Certificate--continued

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

        The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement).

                                               --------------------------------
                                               Signature

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

                                     NOTICE

        The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Right Certificate in every
particular, without alteration or any change whatsoever.

        In the event the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.<PAGE>

                                                                    EXHIBIT 4.05

                            THE KERNEL GROUP, INC.,

                              A TEXAS CORPORATION,

                           1997 INCENTIVE EQUITY PLAN

<PAGE>

                  THE KERNEL GROUP, INC., A TEXAS CORPORATION,

                           1997 INCENTIVE EQUITY PLAN

1.      GENERAL

        1.1     PURPOSE OF THE PLAN

            1.1(a) The Kernel Group, Inc., 1997 Incentive Equity Plan (the
                "Plan") is intended to promote the interests of all of its
                subsidiaries and, in turn, the interests of The Kernel Group,
                Inc. Unless the context indicates otherwise, the term "Company"
                means The Kernel Group, Inc.

            1.1(b) The Plan has several objectives. One of them is to provide
                the officers (including directors who are also officers) and
                employees of the Company (and of its parent and subsidiaries),
                all of whom are responsible for the management, growth and
                financial success of the Company, with the opportunity to
                acquire an economic stake through equity ownership in the
                Company's business and, thereby, generate an increased personal
                interest in the continued financial success and progress of the
                Company. A second objective of the Plan is to encourage officers
                and employees to remain in the service of the Company or its
                parent or subsidiaries. Another objective is to assist in the
                recruitment of the best available individuals for positions of
                responsibility to assist in the expansion of its business
                operations and financial growth of the Company and its parent
                and subsidiaries.

        1.2     DEFINITIONS

            1.2(a) "Administrator" means the Board or any committee appointed
                pursuant to Section 2 of the Plan.

            1.2(b) "Board" means the Board of Directors of the Company.

            1.2(c) "Code" means the Internal Revenue Code of 1986, as amended.

            1.2(d) "Common Stock" means the Common Stock of the Company without
                par value.

            1.2(e) "Consultant" means any person who is engaged by the Company,
                its parent or any of its subsidiaries to render consulting or
                advisory services and is compensated for such services. The term
                does not include Directors who are not compensated for their
                services or paid only a Director's fee to serve in such
                capacity.

            1.2(f) "Continuous Status as an Employee or Consultant" means that
                the employment or consulting relationship with the Company, its
                parent or subsidiaries is not interrupted or terminated.
                Continuous Status as an Employee or Consultant shall not be
                considered interrupted in the case of (i) any leave of absence
                approved by the Company, parent or subsidiary or (ii) transfers
                between location of the Company or between the Company, parent
                or subsidiaries, or any successor. An

<PAGE>

                approved leave of absence shall include sick leave, military
                leave or any other personal leave approved by an authorized
                representative of the Company, parent or subsidiary. For
                purposes of Incentive Stock Options, no such leave may exceed 90
                days, unless reemployment upon expiration of such leave is
                guaranteed by statute or contract, including Company policies.
                If reemployment upon expiration of an authorized leave of
                absence is not guaranteed as provided in the preceding sentence,
                on the 91st day of such leave any Incentive Stock Option held by
                the Optionee shall cease to be treated as an Incentive Stock
                Option and shall be treated for tax purposes as a Non Statutory
                Stock Option.

            1.2(g) "Director" means a member of the Board of Directors of the
                Company, its parent or subsidiaries.

            1.2(h) "Employee" means officers, Directors and employees of the
                Company, its parent or subsidiaries.

            1.2(i) "Incentive Stock Option" means an Option intended to qualify
                as an incentive stock option within the meaning of Section 422
                of the Code.

            1.2(j) "Nonstatutory Stock Option" means an Option not intended to
                qualify as an Incentive Stock Option.

            1.2(k) "Option" means a stock option granted under the Plan.

            1.2(1) "Optionee" means an Employee or Consultant who receives
                Performance Stock, an Option, Stock Purchase Right or other
                award under the Plan.

            1.2(m) "Permanent Disability" with respect to Options shall have the
                meaning prescribed in Section 22(e) of the Code; otherwise this
                term shall have the meaning prescribed in the agreements used
                with the Plan.

        1.3     EQUITY SUBJECT TO THE PLAN

            1.3(a) Subject to the adjustments permitted under the Plan, the
                maximum number of shares of Common Stock authorized for issuance
                under the Plan is 6,000,000 shares.

            1.3(b) Common Stock which is subject to Options which have expired
                without them being exercised, or which have been surrendered to
                the Company, shall become available for future grants or sale
                under the Plan (unless the Plan has terminated).

            1.3(c) The number of shares of Common Stock authorized for issuance
                under the plan may be changed by the Board of Directors of the
                Company, subject to the constraints on total number of
                authorized shared defined in the Company's articles of
                incorporation.

                                       2

<PAGE>

        1.4     TERM OF THE PLAN

            1.4(a) The Plan shall become effective upon its adoption by the
                Board, and shall continue in effect for a term often (10) years
                unless sooner terminated under Section 12.1.

            1.4(b) The Plan shall be submitted to the Company's stockholders for
                their approval within 12 months of the adoption date of the
                Plan. No option granted under the Plan will become exercisable
                unless the Plan is approved by the stockholders as provided in
                the preceding sentence. If stockholder approval is not obtained
                as set forth herein, all options that may be granted after the
                Plan is adopted shall automatically terminate and be null and
                void, and no further options will be granted under the Plan.

        1.5     RESERVATION OF STOCK SUBJECT TO THE PLAN

        During the term of the Plan, the Company shall at all times reserve and
keep available such number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan.

        1.6     NO LIABILITY

        The inability of the Company to obtain any regulatory or governmental
approvals which the Company's counsel deems are necessary to the lawful issuance
of any right including the sale of shares of Common Stock under the Plan, shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares of Common Stock as to which such requisite approvals shall not have
been obtained.

2.      ADMINISTRATION OF THE PLAN

        2.1     PROCEDURE

            2.1(a) The Board shall administer the Plan. The Board, however, may
                at anytime pursuant to written resolution appoint a committee of
                two (2) or more members of the Board and delegate to such
                committee one or more of the administrative powers allocated to
                the Board pursuant to the provisions of the Plan.

            2.1(b) Members of the committee shall serve on the committee for
                such period of time as the Board determines. Committee members
                serve at the pleasure of the Board and are subject to removal by
                the Board at anytime for any reason or for no reason at all.

            2.1(c) The Board may also at any time terminate the functions of the
                committee and re-assume all powers and authority previously
                delegated to the committee.

                                       3

<PAGE>

        2.2     POWERS OF THE ADMINISTRATOR

        Subject to the provisions of the Plan and, in the case of a committee,
the specific duties delegated by the Board to such committee, the Administrator
shall have authority in its discretion to:

            2.2(a) Determine the fair market value of the Common Stock, in
                accordance with Section 7 of the Plan.

            2.2(b) Select the specific Consultants and Employees to whom Options
                may be granted under the Plan.

            2.2(c) Determine the number of shares of Common Stock to be covered
                in the award of Options granted under the Plan.

            2.2(d) Approve the agreement forms for the use under the Plan.

            2.2(e) Determine the terms and conditions, not inconsistent with the
                terms of the Plan, of any award granted hereunder. Such terms
                and conditions include, but are not limited to, the type of
                consideration to be paid for an award, the exercise price, the
                times or times when Options granted under the Plan may be
                exercised (which may be based on performance criteria), any
                vesting acceleration or waiver of forfeiture restrictions, and
                any restrictions, or limitations regarding any Option granted
                hereunder or the shares of Common Stock relating thereto, based
                in each case on such factors as the Administrator, in its sole
                discretion, shall determine.

            2.2(f) Reduce the exercise price of any Option if the fair market
                value of the Common Stock covered by the Option shall have
                declined since the date the was granted.

            2.2(g) Construe and interpret the terms of the Plan, awards granted
                under the Plan and agreements used under the Plan.

            2.2(h) Prescribe, amend and rescind guidelines, rules and
                regulations relating to the Plan.

            2.2(i) Modify or amend Options including the discretionary authority
                to extend the post-termination exercisability period of Options
                longer than is otherwise provided for m the Plan or agreements
                used in the Plan, subject to any limitations imposed by the Code
                with respect to Options.

            2.2(j) Determine the terms and conditions and restrictions
                applicable to Options.

            2.2(k) Determine whether granted Options are to be Incentive Stock
                Options or Nonstatutory Options.

            2.2(1) Amend the Plan from time to time to conform it with
                applicable requirements under the Code, SEC Rule 16-3 and state
                securities laws.

                                       4

<PAGE>

            2.2(m) Make all other determinations and/or take all other actions
                deemed necessary or advisable by the Plan Administrator to
                effect the purposes of the Plan and for its administration.

        2.3     EFFECT OF ADMINISTRATOR'S DECISION

        All decisions, determinations and interpretations of the Administrator
shall be final and binding on all holders of Options granted under the Plan.

        2.4     TERMS AND CONDITIONS IMPOSED ON AWARDS BY ADMINISTRATOR

        Terms, conditions or limitations imposed by the Administrator as
conditions of the award of Options granted under the Plan need not be identical
and may vary from time to time.

3.      ELIGIBILITY

        3.1     OPTION ELIGIBILITY

        Incentive Stock Options may only be granted to Employees. Nonstatutory
Stock Options may be granted to Employees and Consultants selected by the
Administrator.

        3.2     EMPLOYMENT

        Neither the Plan nor the grant of any Option under the Plan shall confer
upon any holder of the Option any right to continue his employment or consulting
relationship with the Company, nor shall it interfere in any way with the
holder's right or the right of the Company, its parent or its subsidiary to
terminate his employment or consulting relationship at any time, with or without
reason.

        3.3     SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 16b-3
                OF THE SECURITIES AND EXCHANGE COMMISSION

        In the event any of the Company's securities are registered under the
Securities Exchange Act of 1934, any rights granted to Employees or Consultants
who, at the time of the grant, may be subject to certain reporting and liability
provisions of the aforementioned act, such rights shall be granted subject to
such additional terms and conditions as may be required thereunder and under
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the
aforementioned act.

4.      STOCK OPTIONS

        4.1     GRANTS OF INCENTIVE STOCK OPTIONS AND NONSTATUTORY OPTIONS

            4.1(a) Each Option granted under the Plan shall be designated in the
                written agreement as either an Incentive Stock Option or a
                Nonstatutory Stock Option.

            4.1(b) After the Administrator has determined that awards of Options
                will be granted, the Administrator shall advise the Employee or
                Consultant in writing of the terms,

                                       5

<PAGE>

                conditions and restriction related to the granting of the award
                of Option, including the number of shares of Common Stock
                subject to the Option, the fair market value of the shares of
                Common Stock on the effective date of the grant, and
                restrictions and limitations placed on the exercise of the
                Option and/or the related shares of Common Stock.

            4.1(c) With respect to Incentive Stock Options, the aggregate fair
                market value (determined as of the respective date or dates of
                grant) of the Common Stock for which one or more Options granted
                to any Employee under the Plan (or any other option plan of the
                Company or its parent or subsidiaries) may for the first time
                become exercisable as Incentive Stock Options under the Code
                during any one calendar year shall not exceed the sum of
                $100,000. To the extent the Employee holds two or more Incentive
                Stock Options which become exercisable for the first time in the
                same calendar year, the foregoing limitation on the extent to
                which Incentive Stock Options can be exercised shall be applied
                on the basis of the order in which such options are granted.

        4.2     OPTION EXERCISE PRICE AND CONSIDERATION

            4.2(a) The Option (exercise) price per share of Common Stock subject
                to a Non-Statutory Stock Option shall not be less than 85 % of
                the fair market value of the Common Stock on the date of the
                Option grant.

            4.2(b) The Option (exercise) price per share of Common Stock subject
                to an Incentive Stock Option shall in no event be less than 100%
                of the fair market value of the Common Stock on the date of the
                Option grant.

            4.2(c) If any Employee to whom an Incentive Stock Option is to be
                granted is on the date of grant the owner of stock (as
                determined under Section 425(d) of the Code) is deemed a 10%
                Stockholder (as defined in the Plan), the exercise price per
                share shall not be less than 110% of the fair market value per
                share of Common Stock on the date of grant.

            4.2(d) The Option price shall become immediately due and payable
                upon exercise of the Option.

            4.2(e) The consideration to be paid for the Common Stock subject to
                the Option, including the method of payment, shall be determined
                by the Administrator at the time the Option is granted. The
                consideration may consist of:

                        (1)     Cash or check in an amount equal to the Option
                                price;

                        (2)     Shares of Common Stock held by the Option holder
                                for the requisite period necessary to avoid a
                                charge to the Company's earnings for financial
                                reporting purposes and valued at the fair market
                                value on the exercise date of the Option; or

                                       6

<PAGE>

                        (3)     A combination of shares of Common Stock held by
                                the option holder for the requisite period
                                necessary to avoid a charge to the Company's
                                earnings for financial reporting purposes and
                                valued at fair market value on the exercise date
                                of the Option, and cash or check in an amount
                                equal to the exercise price which is not being
                                paid by delivering shares of Common Stock; or

                        (4)     A reduction in the amount of any Company
                                liability to the Option holder; or

                        (5)     A promissory note; or

                        (6)     Service rendered; or

                        (7)     Any combination of the foregoing methods of
                                payment.

            4.2(f) In making its determination as to the type of consideration
                to accept, the Administrator shall consider if acceptance of
                such consideration may be reasonably expected to benefit the
                Company.

        4.3     TERM OF OPTIONS

            4.3(a) Subject to the provisions set forth below, each Option
                granted under the Plan shall become exercisable at such time or
                times, during such period, and for such number of shares as
                shall be determined by the Administrator and as set forth in the
                stock option agreement evidencing the grant of the option.

            4.3(b) No Option granted under the Plan shall have a term in excess
                of ten (10) years, determined as of the Option grant date.

            4.3(c) Notwithstanding Section 4.3(b) above, no Option granted to an
                Employee or Consultant whom is deemed a 10% Stockholder shall
                have a term in excess of 5 years, determined as of the Option
                grant date.

            4.3(d) No Option shall be exercisable by anyone other than the
                individual to whom it was granted.

            4.3(e) Options are not assignable or transferable by the Option
                holder otherwise than by will or by the laws of descent and
                distribution.

            4.3(f) In the event that an Option is transferred to the spouse of
                an employee upon termination of the marital relationship of the
                employee, the Company shall have the right to repurchase the
                Option from the ex-spouse of the employee for $0.01 per each
                share of stock for which the Option may be exercised. The
                Company may exercise its right to repurchase options which have
                been transferred upon termination of the marital relationship
                within thirty (30) days after it receives written notice of
                termination of such marital relationship by delivering payment
                in full of the repurchase price to the ex-spouse, or any other
                party to whom the

                                       7

<PAGE>

                option has been transferred. Upon delivery of the repurchase
                price to the holder of an Option which has been transferred upon
                termination of a marital relationship, the Option shall expire
                and become void. An option which has been transferred upon
                termination of a marital relationship shall not be exercisable
                until the expiration sixty (60) days after notice of the
                transfer has been delivered to the Company by the person to whom
                the Option has been transferred.

        4.4     EXERCISE OF OPTION

            4.4(a) Any Option granted under the Plan shall be exercisable at
                such times and under such conditions as determined by the
                Administrator, including performance criteria with respect to
                the Company or its subsidiary and/or the individual selected to
                be awarded an Option, and as shall be permissible under the
                terms of the Plan.

            4.4(b) An Option may not be exercised for a fraction of a share of
                Common Stock.

            4.4(c) An Option shall be deemed to be exercised upon the following:
                (i) when written notice of the exercise has been given to the
                Company in accordance with the terms of the Option by the
                individual entitled to exercise the Option and (ii) when full
                payment for the Common Stock underlying the Option has been
                received by the Company.

            4.4(d) Unless and until a certificate representing the Common Stock
                subject to the Option exercised has been duly registered in the
                stockholder register of the Company in the name of the
                individual who has exercised the Option, the holder of the
                Option has no rights to vote, receive dividends or any other
                rights as a stockholder with respect to the Common Stock
                underlying the Option.

            4.4(e) The Company shall issue or cause to be issued one or more
                stock certificates promptly upon the exercise of any outstanding
                Option.

        4.5     EFFECT OF TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP

            4.5(a) The Option Agreement may provide for the automatic expiration
                of an Option, in the event an Option holder's Continuous Status
                as an Employee or Consultant is terminated, with or without
                cause, for reasons other than retirement, Permanent Disability
                or death. If the Option Agreement does not provide for automatic
                expiration of an Option in the event an Option holder's
                Continuous Status as an Employee or Consulted is terminated for
                reasons other than retirement, Permanent Disability or death,
                the individual may, but only within such period of time as is
                determined by the Administrator (and in the case of an Incentive
                Stock Option, with such determination not exceeding three (3)
                months after the date of termination and in no event later than
                the expiration date of the term of the respective Option),
                exercise his Option to the extent that the holder of the Option
                was entitled to exercise it at the date of termination.

                                       8

<PAGE>

            4.5(b) A change of status from an Employee to a Consultant or from a
                Consultant to an Employee does not terminate an individual's
                Continuous Status as an Employee or Consultant.

            4.5(c) With respect to Incentive Stock Options, if there is a change
                of status from an Employee to a Consultant, an Employee's
                Incentive Stock Options shall automatically convert to a
                Nonstatutory Stock Option on the 91stday following such change
                in status.

            4.5(d) In case the holder of an Option fails to exercise an Option
                within the time specified herein, or in case the holder of an
                Option is not entitled to exercise the Option at the date of his
                termination, the Option shall terminate.

        4.6     EFFECT OF TERMINATION ON ACCOUNT OF DISABILITY

        If termination occurs on account of Permanent Disability, the holder of
the Option may exercise the Option to the extent it was exercisable at the date
of termination within twelve (12) months from the date of such termination (and
in no event later than the expiration term of the Option as set forth in the
stock option agreement).

        4.7     EFFECT OF TERMINATION ON ACCOUNT OF DEATH

        If termination occurs on account of death, the Option may be exercised
at anytime within twelve (12) months following the date of death (but in no
event later than the expiration of the term of the Option). The Option may be
exercised by the decedent's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Employee or Consultant would have been entitled to exercise the Option as of the
date of the holder's death.

        4.8     CANCELLATION AND NEW GRANT OF OPTIONS

        The Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan, and to grant in
substitution therefor, new options under the Plan covering the same or different
numbers of shares of Common Stock but having an Option puce per share not less
than 85 % of the fair market value per share of Common Stock on the new grant
date (or 100% of fair market value in the case of an Incentive Stock Option or,
in the case of a 10% Stockholder, not less than 110% of the fair market value.

5.      REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL

        5.1     COMPANY'S REPURCHASE RIGHTS

        The stock option agreements, shareholders' agreements, and other
agreements used in connection with any rights granted under the Plan may grant
the Company rights to repurchase shares of Common Stock acquired pursuant to
grants of Performance Stock, upon the exercise of outstanding Options, upon the
exercise of Stock Purchase Rights or upon the exercise of SARs payable in the
form of Common Stock, including but not limited to repurchase of Common Stock

                                       9

<PAGE>

upon termination of the employment relationship and right of first refusal to
purchase Common Stock which an employee proposed to transfer to a third party,
as set forth in those agreements from time to time.

6.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER

        6.1     CHANGES IN CAPITALIZATION

            6.1(a) The number of shares of Common Stock covered by each
                outstanding Option or Stock Purchase Right and the purchase
                price related thereto, and the number of shares of Common Stock
                which are available under the Plan for future grants shall be
                proportionately adjusted for any increase or decrease in the
                number of issued shares of Common Stock resulting from a stock
                split, reverse stock split, stock dividend, combination or
                reclassification of the Common Stock, or any other increase or
                decrease in the number of issued shares of Common Stock effected
                without receipt of consideration by the Company.

            6.1(b) The adjustments permitted hereunder shall be made by the
                Board, whose determination in that respect shall be final,
                binding and conclusive.

            6.1(c) The conversion of any convertible securities of the Company
                shall not be deemed to have been effected without receipt of
                consideration.

        6.2     MERGER OR ASSET SALE

            6.2(a) In the event of a merger of the Company with or into another
                corporation, or the sale of substantially all of the assets of
                the Company, each outstanding right to acquire shares -of Common
                Stock shall be assumed or an equivalent right substituted by the
                successor corporation or a parent or subsidiary of the successor
                corporation.

            6.2(b) If the successor corporation refuses to assume or substitute
                the rights outstanding under the Plan, the holder of the
                outstanding rights shall be entitled to exercise the rights as
                to all of the shares of Common Stock covered by such rights.

            6.2(c) If the outstanding rights become exercisable as provided
                above, the Administrator shall notify the holders of such rights
                that such rights are fully exercisable for a period of thirty
                (30) days from the date of the Administrator's notice, and the
                rights (if not exercised within the time prescribed) shall
                terminate on the last day of the exercise period.

7.      DETERMINATION OF FAIR MARKET VALUE

        The fair market value of the Common Stock on any relevant date shall be
determined in accordance with the provisions set forth in this Section.

                                       10

<PAGE>

        7.1     DETERMINATION BY BOARD

        If the Common Stock is neither listed nor admitted to trading on any
stock exchange nor traded in the over-the-counter market, the fair market value
shall be determined by the Board after taking into account such factors as the
Board shall deem appropriate.

        7.2     COMMON STOCK LISTED FOR TRADING ON STOCK EXCHANGE

        If the Common Stock is listed or admitted to trading on any stock
exchange, the fair market value shall be the closing selling price of the Common
Stock reported on the date of grant or award by the primary market for the
Common Stock, and in case no closing selling price was reported on that date,
then the fair market value shall be the selling closing price of the Common
Stock on the date preceding the grant date of the option or award.

        7.3     COMMON STOCK LISTED FOR TRADING ON THE OVER-THE-COUNTER MARKET

        If the Common Stock is not listed or admitted to trading on any
exchange, but is traded in the over-the-counter market, the fair market value
shall be the mean between the highest bid and lowest asked price, or the closing
selling price, of the Common Stock reported by the National Association of
Securities Dealers on NASDAQ (or successor system) on the date of the option
grant or award. If there are no reported bid or asked prices, or closing selling
price, for the Common Stock on the granted or award date, then the fair market
value of the Common Stock shall be the mean between the highest bid price and
lowest asked price, or the closing selling price, on the last preceding date for
which such quotations exist.

8.      COMPANY LOANS

        8.1     DISCRETION

        The Administrator may, in its sole discretion, assist any Participant
with the exercise of any right granted under the Plan which is then exercisable
or with the purchase of shares under the Plan by authorizing the extension of a
Company loan to any Employee or Consultant who has been granted either Options
or Stock Purchase Rights under the Plan.

        8.2     TERMS

        The terms of any loan (including the interest rate and terms of
repayment) shall be established by the Administrator in its sole discretion.
Loans may be granted with or without security or collateral, but the maximum
credit available to the Employee or Consultant may not exceed the sum of the
aggregate option price or purchase price payable for the shares of Common Stock
purchased plus any federal and state income and employment tax liability
incurred by the holder of the Plan rights in connection with the exercise of the
Option or the Stock Purchase Rights.

9.      USE OF PROCEEDS

        Any cash proceeds received by the Company from the issuance of shares of
Common Stock under the Plan shall be used for general corporate purposes.

                                       11

<PAGE>

10.     WITHHOLDINGS

        The Company's obligation to deliver shares of Common Stock upon the
exercise or surrender of any right granted, or upon the award or purchase of any
shares, under the Plan shall be subject to the satisfaction of all applicable
federal, state and local income and employment tax withholding requirements.

11.     REGULATORY APPROVALS

        11.1    SECURITIES COMPLIANCE

        The implementation of the Plan, the granting of any Performance Shares
or stock options, or the sale of any shares under the Plan, and the issuance of
any Common Stock upon the exercise of outstanding Options shall be subject to
the Company's compliance with regulatory requirements under applicable
securities laws.

        11.2    STOCK LEGENDS

            11.2(a) Each stock certificate representing shares of Common Stock
                (or other securities) issued under the Plan shall bear any
                transfer restrictions or legends required under applicable
                securities laws.

12.     AMENDMENT OF THE PLAN AND TERMINATION

        12.1    AMENDMENT AND TERMINATION

        The Board may at any time, amend, alter, suspend or discontinue the
Plan, but no amendment, alteration, suspension or discontinuation shall be made
which would impair the rights of any holder of any right granted prior to the
amendment or suspension or discontinuation of the Plan without the consent of
the holder of such rights affected. In addition, to the extent necessary and
desirable to comply with Rule lbb-3 under the Exchange Act or with Section 422
of the Code or to comply with applicable securities laws, the Company shall
obtain stockholder approval of any Plan amendments in such manner and to such
degree as required.

        12.2    EFFECT OF AMENDMENT OR TERMINATION

        Amendments or termination of the Plan shall not affect outstanding
rights granted prior to the date of the amendment or termination, and such
rights shall remain in force and effect as if the Plan had not been amended or
terminated, unless mutually agreed otherwise between the holder of the
outstanding right and the Administrator.

13.     NO CORPORATE OR BUSINESS IMPAIRMENT

        The grant of Performance Stock, Options or other rights or the sale of
shares of Common Stock under the Plan shall in no way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital
structure or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

                                       12

<PAGE>

14.     AGREEMENTS

        Rights granted under the Plan shall be evidenced, by written agreements
in such form as the Administrator shall approve from time to time.

                                       13

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           PAGE

<S>                                                                                        <C>
1.      GENERAL.............................................................................1

        1.1    Purpose of the Plan..........................................................1

        1.2    Definitions..................................................................1

        1.3    Equity Subject to the Plan...................................................2

        1.4    Term of the Plan.............................................................3

        1.5    Reservation of Stock Subject to the Plan.....................................3

        1.6    No Liability.................................................................3

2.      ADMINISTRATION OF THE PLAN..........................................................3

        2.1    Procedure....................................................................3

        2.2    Powers of the Administrator..................................................4

        2.3    Effect of Administrator's Decision...........................................5

        2.4    Terms and Conditions Imposed On Awards by Administrator......................5

3.      ELIGIBILITY.........................................................................5

        3.1    Option Eligibility...........................................................5

        3.2    Employment...................................................................5

        3.3    Section 16 of the Securities Exchange Act of 1934 and Rule 16b-3 of the
               Securities and Exchange Commission...........................................5

4.      STOCK OPTIONS.......................................................................5

        4.1    Grants of Incentive Stock Options and Nonstatutory Options...................5

        4.2    Option Exercise Price and Consideration......................................6

        4.3    Term of Options..............................................................7

        4.4    Exercise of Option...........................................................8

        4.5    Effect of Termination of Employment or Consulting Relationship...............8

        4.6    Effect of Termination on Account of Disability...............................9

        4.7    Effect of Termination on Account of Death....................................9

        4.8    Cancellation and New Grant of Options........................................9

5.      REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL.......................................9

        5.1    Company's Repurchase Rights..................................................9

6.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER...............................10

        6.1    Changes in Capitalization...................................................10
</TABLE>

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<PAGE>

                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<CAPTION>
                                                                                          PAGE

<S>                                                                                       <C>
        6.2    Merger or Asset Sale........................................................10

7.      DETERMINATION OF FAIR MARKET VALUE.................................................10

        7.1    Determination by Board......................................................11

        7.2    Common Stock Listed for Trading on Stock Exchange...........................11

        7.3    Common Stock Listed for Trading on the Over-the-Counter Market..............11

8.      COMPANY LOANS......................................................................11

        8.1    Discretion..................................................................11

        8.2    Terms.......................................................................11

9.      USE OF PROCEEDS....................................................................11

10.     WITHHOLDINGS.......................................................................12

11.     REGULATORY APPROVALS...............................................................12

        11.1   Securities Compliance.......................................................12

        11.2   Stock Legends...............................................................12

12.     AMENDMENT OF THE PLAN AND TERMINATION..............................................12

        12.1   Amendment and Termination...................................................12

        12.2   Effect of Amendment or Termination..........................................12

13.     NO CORPORATE OR BUSINESS IMPAIRMENT................................................12

14.     AGREEMENTS.........................................................................13
</TABLE>

ss

                                      -ii-

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