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                                                                   EXHIBIT 10.03

                             TRANSMETA CORPORATION

                           1997 EQUITY INCENTIVE PLAN

                            AS ADOPTED JULY 11, 1997
                          AS AMENDED FEBRUARY 20, 1998
                          AS AMENDED FEBRUARY 19, 1999

        1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options and Restricted Stock. Capitalized
terms not defined in the text are defined in Section 22. This Plan is intended
to be a written compensatory benefit plan within the meaning of Rule 701
promulgated under the Securities Act.

        2. SHARES SUBJECT TO THE PLAN.

                2.1 Number of Shares Available. Subject to Sections 2.2 and 17,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 9,000,000 Shares or such lesser number of Shares
as permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations. Subject to Sections 2.2 and 17, Shares subject to Awards previously
granted will again be available for grant and issuance in connection with future
Awards under this Plan to the extent such Shares: (a) cease to be subject to
issuance upon exercise of an Option, other than due to exercise of such Option,
(b) are subject to an Award granted hereunder but the Shares subject to such
Award are forfeited or repurchased by the Company at the original issue price or
(c) are subject to an Award that otherwise terminates without Shares being
issued. At all times the Company will reserve and keep available a sufficient
number of Shares as will be required to satisfy the requirements of all Awards
granted under this Plan.

                2.2 Adjustment of Shares. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan, (b) the Exercise Prices of and number of Shares subject to
outstanding Options, and (c) the Purchase Price of and number of Shares subject
to other outstanding Awards will be proportionately adjusted, subject to any
required action by the Board or the shareholders of the Company and compliance
with applicable securities laws; provided, however, that fractions of a Share
will not be issued but will either be paid in cash at Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee.

        3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors and consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
this Plan.

        4. ADMINISTRATION.

                4.1 Committee Authority. This Plan will be administered by the
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:

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        (a) construe and interpret this Plan, any Award Agreement and any other
            agreement or document executed pursuant to this Plan;

        (b) prescribe, amend and rescind rules and regulations relating to this
            Plan;

        (c) select persons to receive Awards;

        (d) determine the form and terms of Awards;

        (e) determine the number of Shares or other consideration subject to
            Awards;

        (f) determine whether Awards will be granted singly, in combination
            with, in tandem with, in replacement of, or as alternatives to,
            other Awards under this Plan or any other incentive or compensation
            plan of the Company or any Parent or Subsidiary of the Company;

        (g) grant waivers of Plan or Award conditions;

        (h) determine the vesting, exercisability and payment of Awards;

        (i) correct any defect, supply any omission, or reconcile any
            inconsistency in this Plan, any Award, any Award Agreement, any
            Exercise Agreement or any Restricted Stock Purchase Agreement;

        (j) determine whether an Award has been earned; and

        (k) make all other determinations necessary or advisable for the
            administration of this Plan.

                4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, and subject to Section 5.9, at any later time, and such
determination will be final and binding on the Company and on all persons having
an interest in any Award under this Plan. The Committee may delegate to one or
more officers of the Company the authority to grant an Award under this Plan to
Participants who are not Insiders of the Company.

        5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

                5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.

                5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

                5.3 Exercise Period. Options may be exercisable immediately
(subject to repurchase pursuant to Section 11 of this Plan) or may be
exercisable within the times or upon the events determined by the

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Committee as set forth in the Stock Option Agreement governing such Option;
provided, however, that no Option will be exercisable after the expiration of
ten (10) years from the date the Option is granted; and provided further that no
ISO granted to a person who directly or by attribution owns more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any Parent or Subsidiary of the Company ("TEN PERCENT
SHAREHOLDER") will be exercisable after the expiration of five (5) years from
the date the ISO is granted. The Committee also may provide for Options to
become exercisable at one time or from time to time, periodically or otherwise,
in such number of Shares or percentage of Shares as the Committee determines.
Subject to earlier termination of the Option as provided herein, each
Participant who is not an officer, director or consultant of the Company or of a
Parent or Subsidiary of the Company shall have the right to exercise an Option
granted hereunder at the rate of at least twenty percent (20%) per year over
five (5) years from the date such Option is granted.

                5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO will not be less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any
Option granted to a Ten Percent Shareholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 of this Plan.

                5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.

                5.6 Termination. Subject to earlier termination pursuant to
Sections 17 and 18 and notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option will always be subject to the
following:

        (a) If the Participant is Terminated for any reason except death,
            Disability or for Cause, then the Participant may exercise such
            Participant's Options, only to the extent that such Options are
            exercisable upon the Termination Date, no later than three (3)
            months after the Termination Date (or such shorter time period, not
            less than thirty (30) days, as may be specified in the Stock Option
            Agreement) or such longer time period not exceeding five (5) years
            after the Termination Date as may be determined by the Committee,
            with any exercise beyond three (3) months after the Termination Date
            deemed to be an NQSO, but in any event, no later than the expiration
            date of the Options.

        (b) If the Participant is Terminated because of Participant's death or
            Disability (or the Participant dies within three (3) months after a
            Termination other than because of Participant's death or Disability
            or Cause), then Participant's Options may be exercised only to the
            extent that such Options are exercisable by Participant on the
            Termination Date and must be exercised by Participant (or
            Participant's legal representative or authorized assignee), no later
            than twelve (12) months after the Termination Date (or such shorter
            time period, not less than six (6) months, as may be specified in
            the Stock Option Agreement) or such longer time period not exceeding
            five (5) years after the Termination Date as may be determined by
            the Committee, with any exercise beyond (a) three (3) months after
            the Termination Date when the Termination is for any reason other
            than the Participant's death or disability, within the meaning of
            Section 22(e)(3) of the Code, or (b) twelve (12) months after the
            Termination Date when the

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            Termination is for Participant's death or disability, within the
            meaning of Section 22(e)(3) of the Code, deemed to be an NQSO, but
            in any event no later than the expiration date of the Options.

        (c) If the Participant is terminated for Cause, then Participant's
            Options shall expire on such Participant's Termination Date, or at
            such later time and on such conditions as determined by the
            Committee.

                5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.

                5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date (as defined in Section 18 below) to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, then such different limit will be automatically incorporated herein and
will apply to any Options granted after the effective date of such amendment.

                5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.

                5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

        6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject, and all other terms and conditions of the Restricted Stock
Award, subject to the following:

                6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The Restricted Stock Award will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.

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                6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee and will be at
least 85% of the Fair Market Value of the Shares on the date the Restricted
Stock Award is granted or at the time the purchase is consummated, except in the
case of a sale to a Ten Percent Shareholder, in which case the Purchase Price
will be 100% of the Fair Market Value on the date the Restricted Stock Award is
granted or at the time the purchase is consummated. Payment of the Purchase
Price may be made in accordance with Section 7 of this Plan.

                6.3 Restrictions. Restricted Stock Awards may be subject to the
restrictions set forth in Section 11 of this Plan or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.

        7. PAYMENT FOR SHARE PURCHASES.

                7.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:

        (a) by cancellation of indebtedness of the Company to the Participant;

        (b) by surrender of shares that either: (1) have been owned by
            Participant for more than six (6) months and have been paid for
            within the meaning of SEC Rule 144 (and, if such shares were
            purchased from the Company by use of a promissory note, such note
            has been fully paid with respect to such shares); or (2) were
            obtained by Participant in the public market;

        (c) by tender of a full recourse promissory note having such terms as
            may be approved by the Committee and bearing interest at a rate
            sufficient to avoid imputation of income under Sections 483 and 1274
            of the Code; provided, however, that Participants who are not
            employees or directors of the Company will not be entitled to
            purchase Shares with a promissory note unless the note is adequately
            secured by collateral other than the Shares.

        (d) by waiver of compensation due or accrued to the Participant for
            services rendered;

        (e) with respect only to purchases upon exercise of an Option, and
            provided that a public market for the Company's stock exists:

            (1) through a "same day sale" commitment from the Participant and a
                broker-dealer that is a member of the National Association of
                Securities Dealers (an "NASD DEALER") whereby the Participant
                irrevocably elects to exercise the Option and to sell a portion
                of the Shares so purchased to pay for the Exercise Price, and
                whereby the NASD Dealer irrevocably commits upon receipt of such
                Shares to forward the Exercise Price directly to the Company; or

            (2) through a "margin" commitment from the Participant and an NASD
                Dealer whereby the Participant irrevocably elects to exercise
                the Option and to pledge the Shares so purchased to the NASD
                Dealer in a margin account as security for a loan from the NASD
                Dealer in the amount of the Exercise Price, and whereby the NASD
                Dealer irrevocably commits upon receipt of such Shares to
                forward the Exercise Price directly to the Company; or

        (f) by any combination of the foregoing.

                7.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.

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        8. WITHHOLDING TAXES.

                8.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.

                8.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee for such elections and be in writing in a form
acceptable to the Committee.

        9. PRIVILEGES OF STOCK OWNERSHIP.

                9.1 Voting and Dividends. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased pursuant to Section 11.

                The Company will comply with Section 260.140.1 of Title 10 of
the California Code of Regulations with respect to the voting rights of Common
Stock.

                9.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding, or as otherwise required or permitted under
Section 260.140.46 of Title 10 of the California Code of Regulations.
Notwithstanding the foregoing, the Company will not be required to provide such
financial statements to Participants whose services in connection with the
Company assure them access to equivalent information.

        10. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution. During the lifetime of the
Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.

        11. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
provided, that such right of first refusal terminates upon the Company's initial
public offering of Common Stock pursuant an effective registration statement
filed under the Securities Act and/or (b) a right to repurchase Unvested Shares
held by a Participant following such Participant's Termination at any time
within ninety (90) days after Participant's Termination Date (or, in the case of
securities issued upon exercise of an Option after the Participant's Termination
Date, within 90 days after the date of such exercise) for cash and/or
cancellation of purchase money indebtedness, at the Participant's Exercise Price
or

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Purchase Price, as the case may be, provided, that to the extent the Participant
is not an officer, director or consultant of the Company or of a Parent or
Subsidiary of the Company, such right of repurchase lapses at the rate of at
least twenty percent (20%) per year over five (5) years from: (A) the date of
grant of the Option or (B) in the case of Restricted Stock, the date the
Participant purchases the Shares.

        12. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.

        13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.

        14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, shares of Common
Stock of the Company (including restricted stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.

        15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is
intended to comply with Section 25102(o) of the California Corporations Code.
Any provision of the Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be effective
unless such Award is in compliance with all applicable federal and state
securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) compliance with any exemption, completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemption, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.

        16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.

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        17. CORPORATE TRANSACTIONS.

                17.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges, or which owns or controls another
corporation which merges, with the Company in such merger) cease to own their
shares or other equity interests in the Company, or (d) the sale of
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor corporation (if any),
which assumption, conversion or replacement will be binding on all Participants.
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to Participants as was provided
to shareholders (after taking into account the existing provisions of the
Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Subsection 17.1. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 17.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will expire on such transaction at such time and on such
conditions as the Board will determine.

                17.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation or sale of assets.

                17.3 Assumption of Awards by the Company. The Company, from time
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under this Plan in substitution of
such other company's award or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.

        18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective
on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan
will be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve (12)
months before or after the Effective Date. Upon the Effective Date, the Board
may grant Awards pursuant to this Plan; provided, however, that no Option may be
exercised prior to shareholder approval of this Plan. In the event that
shareholder approval is not obtained within twelve (12) months before or after
the date this Plan is adopted by the Board, all Awards granted hereunder will be
canceled, any Shares issued pursuant to any Award will be canceled and any
purchase of Shares hereunder will be rescinded.

        19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.

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<PAGE>   9

        20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9, the Board
may at any time terminate or amend this Plan in any respect, including without
limitation amendment of any form of Award Agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Board will not, without the
approval of the shareholders of the Company, amend this Plan in any manner that
requires such shareholder approval pursuant to the Code or the regulations
promulgated thereunder as such provisions apply to ISO plans.

        21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.

        22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:

                "AWARD" means any award under this Plan, including any Option or
Restricted Stock Award.

                "AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.

                "BOARD" means the Board of Directors of the Company.

                "CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, any willful perpetration by the Participant of a common law fraud or
any unlawful use by the Participant of drugs or other controlled substances,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company and the Participant regarding the terms of the Participant's service as
an employee, director or consultant to the Company or a Parent or Subsidiary of
the Company, including without limitation, the willful and continued failure or
refusal of the Participant to perform the material duties required of such
Participant as an employee, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company and the Participant, (iv) Participant's
disregard of the policies of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.

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

                "COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no committee is appointed, the Board.

                "COMPANY" meanS Transmeta Corporation, or any successor
corporation.

                "DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.

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

                "EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.

                                       9
<PAGE>   10

                "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:

        (a) if such Common Stock is then quoted on the Nasdaq National Market,
            its closing price on the Nasdaq National Market on the date of
            determination as reported in The Wall Street Journal;

        (b) if such Common Stock is publicly traded and is then listed on a
            national securities exchange, its closing price on the date of
            determination on the principal national securities exchange on which
            the Common Stock is listed or admitted to trading as reported in The
            Wall Street Journal;

        (c) if such Common Stock is publicly traded but is not quoted on the
            Nasdaq National Market nor listed or admitted to trading on a
            national securities exchange, the average of the closing bid and
            asked prices on the date of determination as reported by The Wall
            Street Journal (or, if not so reported, as otherwise reported by any
            newspaper or other source as the Board may determine); or

        (d) if none of the foregoing is applicable, by the Committee in good
            faith.

        "INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.

        "OPTION" means an award of an option to purchase Shares pursuant to
Section 5.

        "PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.

        "PARTICIPANT" means a person who receives an Award under this Plan.

        "PLAN" means this Transmeta Corporation 1997 Equity Incentive Plan, as
amended from time to time.

        "PURCHASE PRICE" the price at which a Participant may purchase
Restricted Stock.

        "RESTRICTED STOCK" means Shares purchased pursuant to a Restricted Stock
Award.

        "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6.

        "SEC" means the Securities and Exchange Commission.

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

        "SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17, and any
successor security.

        "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

        "TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to

                                       10
<PAGE>   11

the Company or a Parent or Subsidiary of the Company. An employee will not be
deemed to have ceased to provide services in the case of (i) sick leave, (ii)
military leave, or (iii) any other leave of absence approved by the Committee,
provided that such leave is for a period of not more than 90 days unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated in writing. In the case
of any Participant on (i) sick leave, (ii) military leave or (iii) an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Stock Option
Agreement. The Committee will have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "TERMINATION DATE").

        "UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.

        "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement.

                                       11<PAGE>   1

                                                                   EXHIBIT 10.06

                              TRANSMETA CORPORATION

                         NON-PLAN STOCK OPTION AGREEMENT

               This Non-Plan Stock Option Agreement ("AGREEMENT") is made and
entered into as of the date of grant set forth below (the "DATE OF GRANT") by
and between Transmeta Corporation, a California corporation (the "COMPANY"), and
the participant named below ("PARTICIPANT").

PARTICIPANT:                  Mark Allen

SOCIAL SECURITY NUMBER:       _________________________________________________

ADDRESS:                      _________________________________________________

                              _________________________________________________

TOTAL OPTION SHARES:          1,000,000

EXERCISE PRICE PER SHARE:     $6.00

DATE OF GRANT:                January 4, 2000

FIRST VESTING DATE:           January 4, 2001

EXPIRATION DATE:              January 3, 2010
                              (unless earlier terminated under Section 3 below)

               1.     GRANT OF OPTION. The Company hereby grants to Participant
a nonqualified stock option (the "OPTION") to purchase the total number of
shares of Common Stock of the Company set forth above (the "SHARES") at the
Exercise Price Per Share set forth above (the "EXERCISE PRICE"), subject to all
of the terms and conditions of this Agreement.

               2.     EXERCISE PERIOD.

                      2.1    Exercise Period of Option. This Option is
exercisable in full on the date hereof; provided, that the Shares issued upon
exercise of the Option will be subject to the repurchase option set forth in
Section 7 below and the right of first refusal set forth in the Company's
Bylaws. Provided Participant continues to provide services to the Company or to
any Parent or Subsidiary of the Company, the Shares issuable upon exercise of
this Option will become vested with respect to twenty-five percent (25%) of the
Total Option Shares (as set forth on the first page of this Agreement) on
January 4, 2001 (the "FIRST VESTING DATE") and thereafter at the end of each
full succeeding month after the First Vesting Date an additional two and eight
hundred thirty-three ten thousandths percent (2.0833%) of the Total Option
Shares will become vested until the Shares are vested with respect to 100% of
the Shares, provided that if application of the vesting percentage causes a
fractional share, such share shall be rounded down to the nearest whole share.
Notwithstanding anything in this Agreement to the contrary, an additional 50% of
the Total Option Shares will become vested (which accelerated vesting will be in
addition to the vesting occurring in accordance with the preceding provisions of
this paragraph) immediately prior to the occurrence of a Non-Justifiable
Termination (as defined below) that occurs during the period beginning on the
date of consummation of a Change of Control (as defined in Section 16.1 below)
and ending twelve months thereafter. Notwithstanding any provision in this
Agreement to the contrary, the Option will not be exercisable for Unvested
Shares (as defined in Section 2.2 of this Agreement) on or after Participant's
Termination Date.

"NON-JUSTIFIABLE TERMINATION" means any Termination of Participant by the
Company other than for Cause (as defined below) or any Termination of
Participant by Participant for Good Reason (as defined below). "CAUSE" means
Termination because of (i) any willful participation by Participant in acts of
either material fraud or material dishonesty against the Company or any
Subsidiary or Parent of the Company; (ii) any indictment or conviction of

<PAGE>   2

Participant of any felony (excluding drunk driving); (iii) any willful act of
gross misconduct by Participant which is materially and demonstrably injurious
to the Company or any Subsidiary or Parent of the Company; or (iv) the death or
Disability of Participant. "GOOD REASON" means any of the following conditions
which occurs without Participant's written consent, which condition remains in
effect ten (10) days after written notice to the Company from Participant of
such condition: (i) a decrease in Participant's base salary from the Company
(or, as applicable, any Subsidiary or Parent of the Company) from that in effect
immediately prior to the Change of Control; (ii) the relocation of Participant's
work place for the Company (or, as applicable, any Subsidiary or Parent of the
Company) to a location more than 50 miles from the location of Participant's
work place prior to the Change of Control; or (iii) the assignment of
responsibilities and duties with the Company (or, as applicable, any Subsidiary
or Parent of the Company) that are not the Substantive Functional Equivalent (as
defined below) of the position which Participant occupied immediately prior to
the Change of Control. "SUBSTANTIVE FUNCTIONAL EQUIVALENT" means an employment
position that: (i) is in a substantive area of competence (such as, accounting;
engineering management; executive management; finance; human resources;
marketing, sales and service; operations and manufacturing; etc.) that is
consistent with Participant's experience; (ii) requires Participant to serve in
a role and perform duties, respecting a business substantially similar to that
of the Company's prior to the Change in Control, that are functionally
equivalent to those performed by Participant for the Company prior to the Change
in Control, and (iii) does not otherwise constitute a material, adverse change
in Participant's responsibilities or duties, as measured against Participant's
responsibilities or duties for the Company prior to the Change in Control, in
each case, causing it to be of materially lesser rank or responsibility.
Notwithstanding the foregoing, any change in role, responsibilities or duties
that is solely attributable to the change in the Company's status from that of
an independent company to that of a subsidiary of a buyer of the Company shall
not constitute a change in role, responsibilities or duties for purposes of
items (ii) or (iii) in the preceding sentence. "PARENT" means any corporation
(other than the Company) in an unbroken chain of corporations ending with the
Company if each of such corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. "SUBSIDIARY" means any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

                      2.2    Vesting of Options. Shares that are vested pursuant
to the schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are
not vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED
SHARES." Unvested Shares may not be sold or otherwise transferred by Participant
without the Company's prior written consent.

                      2.3    Expiration. The Option shall expire on the
Expiration Date set forth above or earlier as provided in Section 3 below.

               3.     TERMINATION.

                      3.1    Termination for Any Reason Except Death, Disability
or Cause. If Participant is Terminated for any reason, except death, Disability
or Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the Termination Date, may be exercised by
Participant no later than three (3) months after the Termination Date, but in
any event no later than the Expiration Date.

                      3.2    Termination Because of Death or Disability. If
Participant is Terminated because of death or Disability of Participant (or
Participant dies within three (3) months of Termination other than for Cause or
because of Participant's death or Disability), the Option, to the extent that it
is exercisable by Participant on the Termination Date, may be exercised by
Participant (or Participant's legal representative) no later than twelve (12)
months after the Termination Date, but in any event no later than the Expiration
Date.

                      3.3    Termination for Cause. If Participant is Terminated
for Cause (excluding for death or Disability of Participant), then the Option
will expire on Participant's Termination Date, or at such later time and on such
conditions as determined by the Company's Board of Directors.

                                      -2-
<PAGE>   3

                      3.4    No Obligation to Employ. Nothing in this Agreement
shall confer on Participant any right to continue in the employ of, or other
relationship with, the Company or any Parent or Subsidiary of the Company, or
limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Participant's employment or other relationship at any time,
with or without Cause.

                      3.5    Definitions. The following terms used in this
Agreement will have the meanings set forth in this Section. "TERMINATION" or
"TERMINATED" means, for purposes of this Agreement with respect to Participant,
that the Participant has for any reason ceased to provide services as an
employee, officer, director or consultant to the Company or a Parent or
Subsidiary of the Company. An employee will not be deemed to have ceased to
provide services in the case of (i) sick leave, (ii) military leave, or (iii)
any other leave of absence approved by the Company's Board of Directors,
provided that such leave is for a period of not more than 90 days unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated in writing. In the case
of Participant on (i) sick leave, (ii) military leave or (iii) an approved leave
of absence, the Company's Board of Directors may make such provisions respecting
suspension of vesting of the Shares while on leave from the employ of the
Company or a Subsidiary as it may deem appropriate, except that in no event may
the Option be exercised after the expiration of the term set forth herein. The
Company's Board of Directors will have sole discretion to determine whether
Participant has ceased to provided services and the effective date on which
Participant ceased to provided services (the "TERMINATION DATE"). "DISABILITY"
means a disability, whether temporary or permanent, partial or total, as
determined by the Company's Board of Directors.

               4.     MANNER OF EXERCISE.

                      4.1    Stock Option Exercise Agreement. To exercise this
Option, Participant (or in the case of exercise after Participant's death or
incapacity, Participant's executor, administrator, heir or legatee, as the case
may be) must deliver to the Company an executed stock option exercise agreement
in the form attached hereto as Exhibit A, or in such other form as may be
approved by the Company from time to time (the "EXERCISE AGREEMENT"), which
shall set forth, inter alia, Participant's election to exercise the Option, the
number of Shares being purchased, any restrictions imposed on the Shares and any
representations, warranties and agreements regarding Participant's investment
intent and access to information as may be required by the Company to comply
with applicable securities laws. If someone other than Participant exercises the
Option, then such person must submit documentation reasonably acceptable to the
Company that such person has the right to exercise the Option.

                      4.2    Limitations on Exercise. The Option may not be
exercised unless such exercise is in compliance with all applicable federal and
state securities laws, as they are in effect on the date of exercise. The Option
may not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which the Option is then exercisable.

                      4.3    Payment. The Exercise Agreement shall be
accompanied by full payment of the Exercise Price for the shares being purchased
in cash (by check), or where permitted by law:

               (a)    by cancellation of indebtedness of the Company to the
                      Participant;

               (b)    at the discretion of the Company's Board of Directors, by
                      surrender of shares of the Company's Common Stock that
                      either: (1) have been owned by Participant for more than
                      six (6) months and have been paid for within the meaning
                      of SEC Rule 144 (and, if such shares were purchased from
                      the Company by use of a promissory note, such note has
                      been fully paid with respect to such shares); or (2) were
                      obtained by Participant in the open public market; and (3)
                      are clear of all liens, claims, encumbrances or security
                      interests;

               (c)    at the discretion of the Company's Board of Directors, by
                      tender of a full recourse promissory note having such
                      terms as may be approved by the Company's Board of
                      Directors and bearing interest at a rate sufficient to
                      avoid imputation of income under

                                      -3-
<PAGE>   4

                      Sections 483 and 1274 of the Code; provided, however, that
                      Participant who is not an employee or director of the
                      Company shall not be entitled to purchase Shares with a
                      promissory note unless the note is adequately secured by
                      collateral other than the Shares;

               (d)    by waiver of compensation due or accrued to Participant
                      for services rendered;

               (e)    provided that a public market for the Company's stock
                      exists, (1) through a "same day sale" commitment from
                      Participant and a broker-dealer that is a member of the
                      National Association of Securities Dealers (an "NASD
                      DEALER") whereby Participant irrevocably elects to
                      exercise the Option and to sell a portion of the Shares so
                      purchased to pay for the Exercise Price and whereby the
                      NASD Dealer irrevocably commits upon receipt of such
                      Shares to forward the Exercise Price directly to the
                      Company, or (2) through a "margin" commitment from
                      Participant and an NASD Dealer whereby Participant
                      irrevocably elects to exercise the Option and to pledge
                      the Shares so purchased to the NASD Dealer in a margin
                      account as security for a loan from the NASD Dealer in the
                      amount of the Exercise Price, and whereby the NASD Dealer
                      irrevocably commits upon receipt of such Shares to forward
                      the Exercise Price directly to the Company; or

               (f)    by any combination of the foregoing.

                      4.4    Tax Withholding. Prior to the issuance of the
Shares upon exercise of the Option, Participant must pay or provide for any
applicable federal, state and local withholding obligations of the Company. If
the Company's Board of Directors permits, Participant may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a fair market value (as determined in good faith by the
Company's Board of Directors) equal to the minimum amount of taxes required to
be withheld. In such case, the Company shall issue the net number of Shares to
the Participant by deducting the Shares retained from the Shares issuable upon
exercise.

                      4.5    Issuance of Shares. Provided that the Exercise
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall issue the Shares registered in the name of
Participant, Participant's authorized assignee, or Participant's legal
representative, and shall deliver certificates representing the Shares with the
appropriate legends affixed thereto.

               5.     COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the
Option and the issuance and transfer of Shares shall be subject to compliance by
the Company and Participant with all applicable requirements of federal and
state securities laws and with all applicable requirements of any stock exchange
on which the Company's Common Stock may be listed at the time of such issuance
or transfer. Participant understands that the Company is under no obligation to
register or qualify the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.

               6.     NONTRANSFERABILITY OF OPTION. The Option may not be
transferred in any manner other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of Participant only by
Participant. The terms of the Option shall be binding upon the executors,
administrators, successors and assigns of Participant.

               7.     COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The
Company, or its assignee, shall have the option to repurchase Participant's
Unvested Shares (as defined in Section 2.2 of this Agreement) on the terms and
conditions set forth in the Exercise Agreement (the "REPURCHASE OPTION") if
Participant is Terminated for any reason, or no reason, including without
limitation Participant's death, Disability, voluntary resignation or termination
by the Company with or without Cause. Notwithstanding the foregoing, the Company
shall retain the Repurchase Option for Unvested Shares only as to that number of
Unvested Shares (whether or not exercised) that exceeds the number of shares
which remain exercisable.

                                      -4-
<PAGE>   5

               8.     TAX CONSEQUENCES. Set forth below is a brief summary as of
the date hereof of some of the federal and California tax consequences of
exercise of the Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES.

                      8.1    Exercise of Option. There may be a regular federal
and California income tax liability upon the exercise of the Option. Participant
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price. If Participant is or was
an employee of the Company, the Company will be required to withhold from
Participant's compensation or collect from Participant and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.

                      8.2    Disposition of Shares. If the Shares are held for
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of the Option for Vested Shares, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal
and California income tax purposes.

                      8.3    Section 83(b) Election for Unvested Shares. With
respect to Unvested Shares, which are subject to the Repurchase Option, unless
an election is filed by Participant with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
of the Unvested Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Exercise Price of the Unvested Shares
and their fair market value on the date of purchase, there may be a recognition
of taxable income (including, where applicable, alternative minimum taxable
income) to Participant, measured by the excess, if any, of the fair market value
of the Unvested Shares at the time they cease to be Unvested Shares, over the
Exercise Price of the Unvested Shares.

               9.     PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have
any of the rights of a shareholder with respect to any Shares until the Shares
are issued to Participant.

               10.    INTERPRETATION. Any dispute regarding the interpretation
of this Agreement shall be submitted by Participant or the Company to the
Company's Board of Directors for review. The resolution of such a dispute by the
Company's Board of Directors shall be final and binding on the Company and
Participant.

               11.    ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties and supersedes all prior undertakings and agreements
with respect to the subject matter hereof.

               12.    NOTICES. Any notice required to be given or delivered to
the Company under the terms of this Agreement shall be in writing and addressed
to the Corporate Secretary of the Company at its principal corporate offices.
Any notice required to be given or delivered to Participant shall be in writing
and addressed to Participant at the address indicated above or to such other
address as such party may designate in writing from time to time to the Company.
All notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile, rapifax or telecopier.

               13.    SUCCESSORS AND ASSIGNS. The Company may assign any of its
rights under this Agreement including its right to repurchase Shares under the
Repurchase Option. This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the Company. Subject to the restrictions on
transfer set forth herein, this Agreement shall be binding upon Participant and
Participant's heirs, executors, administrators, legal representatives,
successors and assigns.

               14.    GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as such laws
are applied to agreements between California residents entered into and to be
performed entirely within California. If any provision of this Agreement is
determined by a court of law

                                      -5-
<PAGE>   6

to be illegal or unenforceable, then such provision will be enforced to the
maximum extent possible and the other provisions will remain fully effective and
enforceable.

               15.    TAX CONSEQUENCES. Participant acknowledges that there may
be adverse tax consequences upon exercise of the Option or disposition of the
Shares and that Participant should consult a tax adviser prior to such exercise
or disposition.

               16.    CORPORATE TRANSACTIONS.

                      16.1   Assumption or Replacement of Option by Successor.
In the event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative stock
holdings and the Option is assumed, converted or replaced by the successor
corporation, which assumption will be binding on Participant), (c) a merger in
which the Company is the surviving corporation but after which the shareholders
of the Company immediately prior to such merger (other than any shareholder
which merges, or which owns or controls another corporation which merges, with
the Company in such merger) cease to own their shares or other equity interests
in the Company, or (d) the sale of substantially all of the assets of the
Company (events described in items (a), (b), (c) or (d) being referred to herein
as a "CHANGE OF CONTROL"), the Option may be assumed, converted or replaced by
the successor corporation (if any), which assumption, conversion or replacement
will be binding on Participant. In the alternative, the successor corporation
may substitute an equivalent Option or provide substantially similar
consideration to Participant as was provided to shareholders (after taking into
account the existing provisions of the Option). The successor corporation may
also issue, in place of outstanding Shares of the Company held by the
Participant, substantially similar shares or other property subject to
repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Subsection 16.1. In the event such
successor corporation (if any) refuses to assume or substitute the Option, as
provided above, pursuant to a transaction described in this Subsection 16.1,
then notwithstanding any other provision in this Agreement to the contrary, the
Option will expire on such transaction at such time and on such conditions as
the Company's Board of Directors will determine.

                      16.2   Other Treatment of Option or Shares. Subject to any
greater rights granted to Participant under the foregoing provisions of this
Section 16, in the event of the occurrence of any transaction described in
Section 16.1, the Option and the Shares will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation
or sale of assets.

               17.    REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF
PARTICIPANT. Participant hereby represents and warrants to, and agrees with, the
Company that:

                      17.1   AUTHORIZATION. This Agreement constitutes
Participant's valid and legally binding obligation, enforceable in accordance
with its terms except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the availability of equitable remedies.

                      17.2   PURCHASE FOR OWN ACCOUNT. The Option will be
acquired for investment for Participant's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
and Participant has no present intention of selling, granting any participation
in, or otherwise distributing the same.

                      17.3   DISCLOSURE OF INFORMATION. Participant has received
or has had full access to all the information Participant considers necessary or
appropriate to make an informed investment decision with respect to the Option.
Participant further has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Option and to obtain additional information (to

                                      -6-
<PAGE>   7

the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to
Participant or to which Participant had access.

                      17.4   INVESTMENT EXPERIENCE. Participant understands that
the Option involves substantial risk. Participant: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that Participant is able to fend for itself, can bear the economic risk of
Participant's investment in the Option and has such knowledge and experience in
financial or business matters that Participant is capable of evaluating the
merits and risks of this investment in the Option and protecting Participant's
own interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables
Participant to be aware of the character, business acumen and financial
circumstances of such persons.

                      17.5   RESTRICTED SECURITIES. Participant understands that
the Option is characterized as "restricted securities" under the Securities Act
inasmuch as it is being acquired from the Company in a transaction not involving
a public offering and that under the Securities Act and applicable regulations
thereunder such securities may be resold without registration under the
Securities Act only in certain limited circumstances. In this connection,
Participant represents that Participant is familiar with Rule 144 of the U.S.
Securities and Exchange Commission (the "SEC"), as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Participant understands that the Company is under no obligation to register any
of the securities sold hereunder. Participant understands that no public market
now exists for the Option or the Shares and that it is uncertain whether a
public market will ever exist for the Options or the Shares.

               18.    ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then the Exercise Price of and number of Shares subject
to the Option will be proportionately adjusted, subject to any required action
by the Company's Board of Directors or shareholders and compliance with
applicable securities laws; provided, however, that fractions of a Share will
not be issued but will either be paid in cash at fair market value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Company's Board of Directors.

               19.    VOTING AND DIVIDENDS. Participant will not have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Unvested Shares, then the Participant will have no right to retain
any new, additional or different securities securities the Participant may
become entitled to receive with respect to such Unvested Shares by virtue of a
stock dividend, stock split or any other change in the corporate or capital
structure of the Company with respect to Unvested Shares that are repurchased
pursuant to Section 7.

                                      -7-
<PAGE>   8

            IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in duplicate as of the Date of Grant.

TRANSMETA CORPORATION                   PARTICIPANT

By:   /s/ DAN E. STEIMLE                  /s/ MARK K. ALLEN
    -------------------------------     -------------------------------
                                        (Signature)

    Dan E. Steimle                          Mark K. Allen
-----------------------------------     -------------------------------
(Please print name)                     (Please print name)

        CFO
-----------------------------------
(Please print title)

                                      -8-
<PAGE>   9

                                    EXHIBIT A

                    NON-PLAN STOCK OPTION EXERCISE AGREEMENT

<PAGE>   10

                              TRANSMETA CORPORATION

                    NON-PLAN STOCK OPTION EXERCISE AGREEMENT

             This Non-Plan Stock Option Exercise Agreement (this "EXERCISE
AGREEMENT") is made and entered into as of January 17, 2000 (the "EFFECTIVE
DATE") by and between Transmeta Corporation, a California corporation (the
"COMPANY"), and the purchaser named below (the "PURCHASER"). Capitalized terms
not defined herein shall have the meaning ascribed to them in that certain
Non-Plan Stock Option Agreement, dated as of January 4, 2000, entered into by
the Company and Purchaser (the "STOCK OPTION AGREEMENT").

PURCHASER:                         Mark K. Allen
                                   ---------------------------------------

SOCIAL SECURITY NUMBER:
                                   ---------------------------------------

ADDRESS:
                                   ---------------------------------------

TOTAL NUMBER OF SHARES:            1,000,000
                                   ---------------------------------------

EXERCISE PRICE PER SHARE:          $6.00
                                   ---------------------------------------

TOTAL EXERCISE PRICE:              $6,000,000
                                   ---------------------------------------

OPTION DATE OF GRANT:              January 4, 2000
                                   ---------------------------------------

               1.     EXERCISE OF OPTION.

                      1.1    Exercise. Pursuant to exercise of the option
granted under the Stock Option Agreement ("OPTION") and subject to the terms and
conditions of this Exercise Agreement, Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, the Total Number of Shares
set forth above ("SHARES") of the Company's Common Stock at the Exercise Price
Per Share set forth above ("EXERCISE PRICE"). As used in this Exercise
Agreement, the term "SHARES" refers to the Shares purchased under this Exercise
Agreement and includes all securities received (a) in replacement of the Shares,
(b) as a result of stock dividends or stock splits with respect to the Shares,
and (c) all securities received in replacement of the Shares in a merger,
recapitalization, reorganization or similar corporate transaction.

                      1.2    Title to Shares. The exact spelling of the name(s)
under which Purchaser will take title to the Shares is:

                      Mark K. Allen
               -----------------------------------------------------------------

                      Valerie Allen
               -----------------------------------------------------------------

Purchaser desires to take title to the Shares as follows:

                                      -10-
<PAGE>   11

               [ ] Individual, as separate property
               [ ] Husband and wife, as community property
               [ ] Joint Tenants
               [X] With spouse as trustee(s) of the
                      following trust (including date):

                             The Allen Living Trust
                      ----------------------------------------------------------
                             9-22-92
                      ----------------------------------------------------------

               [ ] Other; please specify:
                                          --------------------------------------

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

                      1.3    Payment. Purchaser hereby delivers payment of the
Exercise Price in the manner permitted in the Stock Option Agreement as follows
(check and complete as appropriate):

               [ ]    in cash in the amount of $____________, receipt of which
                      is acknowledged by the Company;

               [ ]    by cancellation of indebtedness of the Company to
                      Purchaser in the amount of $__________;

               [ ]    at the discretion of the Company's Board of Directors,
                      by delivery of _________ fully-paid, nonassessable and
                      vested shares of the Common Stock of the Company owned by
                      Purchaser for at least six (6) months prior to the date
                      hereof which have been paid for within the meaning of SEC
                      Rule 144, (if purchased by use of a promissory note, such
                      note has been fully paid with respect to such vested
                      shares), or obtained by Purchaser in the open public
                      market, and owned free and clear of all liens, claims,
                      encumbrances or security interests, valued at the current
                      fair market value of $___________ per share;

               [X]    at the discretion of the Company's Board of Directors, by
                      tender of a Full Recourse Promissory Note in the principal
                      amount of $6,000,000.00, having such terms as may be
                      approved by the Company's Board of Directors and bearing
                      interest at a rate sufficient to avoid imputation of
                      income under Sections 483 and 1274 of the Code and secured
                      by a Pledge Agreement herewith; provided, however, that
                      Participants who are not employees or directors of the
                      Company shall not be entitled to purchase Shares with a
                      promissory note unless the note is adequately secured by
                      collateral other than the Shares;

               [ ]    by the waiver hereby of compensation due or accrued for
                      services rendered in the amount of $_________.

               2.     DELIVERY.

                      2.1    Deliveries by Purchaser. Purchaser hereby delivers
to the Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock
Power and Assignment Separate from Stock Certificate in the form of Exhibit 1
attached hereto (the "STOCK POWERS"), both executed by Purchaser (and
Purchaser's spouse, if any), (iii) if Purchaser is married, a Consent of Spouse
in the form of Exhibit 2 attached hereto (the "SPOUSE CONSENT") executed by
Purchaser's spouse, and (iv) the Exercise Price and, if all or part of the
exercise price is paid with a note, by delivery of a Secured Full Recourse
Promissory Note in the form of Exhibit 3 and (v) if all or part of the exercise
price is paid with a note, a Stock Pledge Agreement in the form of Exhibit 4
executed by Purchaser (the "Pledge Agreement").

                      2.2    Deliveries by the Company. Upon its receipt of the
Exercise Price and all the documents to be executed and delivered by Purchaser
to the Company under Section 2.1, the Company will issue a duly executed stock
certificate evidencing the Shares in the name of Purchaser, to be placed in
escrow as provided in Section 10 to secure payment of Purchaser's obligation to
the Company under the promissory note and until

                                      -11-
<PAGE>   12

expiration or termination of the Company's Repurchase Option described in
Section 8 and right of first refusal set forth in the Company's Bylaws.

               3.     REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company that:

                      3.1    Tax Consequences. Purchaser acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares, and that Purchaser should consult a tax adviser prior to such
exercise or disposition.

                      3.2    Purchase for Own Account for Investment. Purchaser
is purchasing the Shares for Purchaser's own account for investment purposes
only and not with a view to, or for sale in connection with, a distribution of
the Shares within the meaning of the Securities Act of 1933, as amended (the
"SECURITIES ACT"). Purchaser has no present intention of selling or otherwise
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.

                      3.3    Access to Information. Purchaser has had access to
all information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.

                      3.4    Understanding of Risks. Purchaser is fully aware
of: (i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualifications and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares. Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.

                      3.5    No General Solicitation. At no time was Purchaser
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.

                      3.6    Investment Experience. Purchaser understands that
the purchase of the Shares involves substantial risk. Purchaser: (i) has
experience as an investor in securities of companies in the development stage
and acknowledges that Purchaser is able to fend for itself, can bear the
economic risk of Purchaser's investment in the Shares and has such knowledge and
experience in financial or business matters that Purchaser is capable of
evaluating the merits and risks of this investment in the Shares and protecting
Purchaser's own interests in connection with this investment and/or (ii) has a
preexisting personal or business relationship with the Company and certain of
its officers, directors or controlling persons of a nature and duration that
enables Purchaser to be aware of the character, business acumen and financial
circumstances of such persons.

                      3.7    Restricted Securities. Purchaser understands that
the Shares are characterized as "restricted securities" under the Securities Act
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the Securities Act and applicable
regulations thereunder such securities may be resold without registration under
the Securities Act only in certain limited circumstances.

               4.     COMPLIANCE WITH SECURITIES LAWS.

                      4.1    Compliance with Federal Securities Laws. Purchaser
understands and acknowledges that the Shares have not been registered with the
Securities and Exchange Commission ("SEC") under the Securities Act and that,
notwithstanding any other provision of the Stock Option Agreement to the
contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the

                                      -12-
<PAGE>   13

Securities Act and all applicable state securities laws. Purchaser agrees to
cooperate with the Company to ensure compliance with such laws.

                      4.2    Compliance with California Securities Laws. THE
SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT
YET QUALIFIED WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT
FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF
SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR
TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.

               5.     RESTRICTED SECURITIES.

                      5.1    No Transfer Unless Registered or Exempt. Purchaser
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act or qualified under applicable state
securities laws or unless, in the opinion of counsel to the Company, exemptions
from such registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.

                      5.2    SEC Rule 144. In addition, Purchaser has been
advised that SEC Rule 144 promulgated under the Securities Act, which permits
certain limited sales of unregistered securities, is not presently available
with respect to the Shares and, in any event, requires that the Shares be held
for a minimum of one year, and in certain cases two years, after they have been
purchased and paid for (within the meaning of Rule 144). Purchaser understands
that Shares paid for with a Note may not be deemed to be fully "paid for" within
the meaning of Rule 144 unless certain conditions are met and that, accordingly,
the Rule 144 holding period of such Shares may not begin to run until such
Shares are fully paid for within the meaning of Rule 144. Purchaser understands
that Rule 144 may indefinitely restrict transfer of the Shares so long as
Purchaser remains an "affiliate" of the Company or if "current public
information" about the Company (as defined in Rule 144) is not publicly
available.

               6.     RESTRICTIONS ON TRANSFERS.

                      6.1    Disposition of Shares. Purchaser hereby agrees that
Purchaser shall make no disposition of the Shares (other than as permitted by
this Exercise Agreement) unless and until:

                             (a)    Purchaser shall have notified the Company of
the proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition;

                             (b)    Purchaser shall have complied with all
requirements of this Exercise Agreement applicable to the disposition of the
Shares;

                             (c)    Purchaser shall have provided the Company
with written assurances, in form and substance satisfactory to counsel for the
Company, that (i) the proposed disposition does not require registration of the
Shares under the Securities Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the Securities Act or of any
exemption from registration available under the Securities Act (including Rule
144) has been taken; and

                             (d)    Purchaser shall have provided the Company
with written assurances, in form and substance satisfactory to the Company, that
the proposed disposition will not result in the contravention of any transfer
restrictions applicable to the Shares pursuant to the provisions of the
Commissioner Rules identified in Section 4.2.

                                      -13-
<PAGE>   14

                      6.2    Restriction on Transfer. Purchaser shall not
transfer, assign, grant a lien or security interest in, pledge, hypothecate,
encumber or otherwise dispose of any of the Shares which are subject to (i) the
Company's Repurchase Option set forth in this Exercise Agreement, except as
permitted by this Exercise Agreement, or (ii) the Company's right of first
refusal set forth in the Company's Bylaws, except as permitted thereby.

                      6.3    Transferee Obligations. Each person (other than the
Company) to whom the Shares are transferred by means of one of the permitted
transfers specified in this Exercise Agreement must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred Shares are subject to (i) both the Company's Repurchase Option
granted hereunder and right of first refusal set forth in the Company's Bylaws
and (ii) the market stand-off provisions of Section 7, to the same extent such
Shares would be so subject if retained by the Purchaser.

               7.     MARKET STANDOFF AGREEMENT. Purchaser agrees in connection
with any registration of the Company's securities that, upon the request of the
Company or the underwriters managing any public offering of the Company's
securities, Purchaser will not sell or otherwise dispose of any Shares without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180 days) after the effective date of
such registration requested by such managing underwriters and subject to all
restrictions as the Company or the underwriters may specify.

               8.     COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. The
Company, or its assignee, shall have the option to repurchase Purchaser's
Unvested Shares (as defined in Section 2.2 of the Stock Option Agreement) on the
terms and conditions set forth in this Section (the "REPURCHASE OPTION") if
Purchaser is Terminated for any reason, or no reason, including without
limitation Purchaser's death, Disability, voluntary resignation or termination
by the Company with or without cause. Notwithstanding the foregoing, the Company
shall retain the Repurchase Option for Unvested Shares only as to that number of
Unvested Shares (whether or not exercised) that exceeds the number of shares
which remain exercisable.

                      8.1    Termination and Termination Date. In case of any
dispute as to whether Purchaser is Terminated, the Company's Board of Directors
shall have discretion to determine whether Purchaser has been Terminated and the
effective date of such Termination (the "TERMINATION DATE").

                      8.2    Exercise of Repurchase Option. At any time within
ninety (90) days after the Purchaser's Termination Date (or, in the case of
securities issued upon exercise of an Option after the Purchaser's Termination
Date, within ninety (90) days after the date of such exercise), the Company, or
its assignee, may elect to repurchase the Purchaser's Unvested Shares by giving
Purchaser written notice of exercise of the Repurchase Option.

                      8.3    Calculation of Repurchase Price for Unvested
Shares. The Company or its assignee shall have the option to repurchase from
Purchaser (or from Purchaser's personal representative as the case may be) the
Unvested Shares at the Purchaser's Exercise Price, proportionately adjusted for
any stock dividend, recapitalization, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the capital
structure of the Company without consideration.

                      8.4    Payment of Repurchase Price. The repurchase price
shall be payable, at the option of the Company or its assignee, by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Company or such assignee, or by any combination thereof. The repurchase
price shall be paid without interest within sixty (60) days after exercise of
the Repurchase Option.

                      8.5    Right of Termination Unaffected. Nothing in this
Exercise Agreement shall be construed to limit or otherwise affect in any manner
whatsoever the right or power of the Company (or any Parent or Subsidiary of the
Company) to terminate Purchaser's employment or other relationship with Company
(or the Parent or Subsidiary of the Company) at any time, for any reason or no
reason, with or without cause.

                                      -14-
<PAGE>   15

               9.     RIGHTS AS SHAREHOLDER. Subject to the terms and conditions
of this Exercise Agreement, Purchaser will have all of the rights of a
shareholder of the Company with respect to the Shares from and after the date
that Shares are issued to Purchaser until such time as Purchaser disposes of the
Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option
set forth in this Exercise Agreement or right of first refusal set forth in the
Company's Bylaws. Upon an exercise of the Repurchase Option or right of first
refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Exercise Agreement or the
Company's Bylaws, and Purchaser will promptly surrender the stock certificate(s)
evidencing the Shares so purchased to the Company for transfer or cancellation.

               10.    ESCROW. As security for Purchaser's faithful performance
of this Exercise Agreement, Purchaser agrees, immediately upon receipt of the
stock certificate(s) evidencing the Shares, to deliver such certificate(s),
together with the Stock Powers executed by Purchaser and by Purchaser's spouse,
if any (with the date and number of Shares left blank), to the Secretary of the
Company or other designee of the Company ("ESCROW HOLDER"), who is hereby
appointed to hold such certificate(s) and Stock Powers in escrow and to take all
such actions and to effectuate all such transfers and/or releases of such Shares
as are in accordance with the terms of this Exercise Agreement. Purchaser and
the Company agree that Escrow Holder will not be liable to any party to this
Exercise Agreement (or to any other party) for any actions or omissions unless
Escrow Holder is grossly negligent or intentionally fraudulent in carrying out
the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may
rely upon any letter, notice or other document executed by any signature
purported to be genuine and may rely on the advice of counsel and obey any order
of any court with respect to the transactions contemplated by this Exercise
Agreement. The Shares will be released from escrow upon termination of both the
Repurchase Option set forth in this Exercise Agreement and right of first
refusal set forth in the Company's Bylaws; provided, however, that the Shares
will be retained in escrow so long as they are subject to the Pledge Agreement.

               11.    RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

                      11.1   Legends. Purchaser understands and agrees that the
Company will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:

               THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
               THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
               UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
               SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
               BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
               ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
               REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
               THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
               INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
               SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
               SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
               PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES
               ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

               THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
               RESTRICTIONS ON PUBLIC RESALE, TRANSFER, RIGHT OF REPURCHASE AND
               RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
               ASSIGNEE(S) AND/OR THE COMPANY'S SHAREHOLDERS AS SET FORTH IN A
               NON-PLAN STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND
               THE ORIGINAL HOLDER OF THESE SHARES AND THE BYLAWS OF THE ISSUER,
               A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
               ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS, RIGHT OF
               REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
               OF THESE SHARES.

                                      -15-
<PAGE>   16

               The California Commissioner of Corporations may require that the
following legend also be placed upon the share certificate(s) evidencing
ownership of the Shares:

               IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
               OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
               THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER
               OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED
               IN THE COMMISSIONER'S RULES.

                      11.2   Stop-Transfer Instructions. Purchaser agrees that,
to ensure compliance with the restrictions imposed by this Exercise Agreement,
the Company may issue appropriate "stop-transfer" instructions to its transfer
agent, if any, and if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.

                      11.3   Refusal to Transfer. The Company will not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Exercise
Agreement or (ii) to treat as owner of such Shares, or to accord the right to
vote or pay dividends to any purchaser or other transferee to whom such Shares
have been so transferred.

               12.    TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY
SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR
DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED
WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE
OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE. IN PARTICULAR, IF UNVESTED SHARES ARE SUBJECT TO REPURCHASE
BY THE COMPANY, PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH
PURCHASER'S TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION
WITH THE INTERNAL REVENUE SERVICE. Set forth below is a brief summary as of the
date of the Stock Option Agreement of some of the federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION
OR DISPOSING OF THE SHARES.

                      12.1   Exercise of Option. There may be a regular federal
income tax liability and a California income tax liability upon the exercise of
the Option. Purchaser will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the fair
market value of the Shares on the date of exercise over the Exercise Price. If
Purchaser is or was an employee of the Company, the Company will be required to
withhold from Purchaser's compensation or collect from Purchaser and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.

                      12.2   Disposition of Shares. If the Shares are held for
more than twelve (12) months after the date of the acquisition of the Shares
pursuant to the exercise of the Option for Vested Shares, any gain realized on
disposition of the Shares will be treated as long term capital gain for federal
and California income tax purposes.

                      12.3   Section 83(b) Election for Unvested Shares. With
respect to Unvested Shares, which are subject to the Repurchase Option, unless
an election is filed by the Purchaser with the Internal Revenue Service (and, if
necessary, the proper state taxing authorities), within 30 days of the purchase
of the Unvested Shares, electing pursuant to Section 83(b) of the Internal
Revenue Code (and similar state tax provisions, if applicable) to be taxed
currently on any difference between the Exercise Price of the Unvested Shares
and their fair market value on the date of purchase, there may be a recognition
of taxable income (including, where applicable, alternative minimum taxable
income) to the Purchaser, measured by the excess, if any, of the fair market
value of the Unvested Shares at the time they cease to be Unvested Shares, over
the Exercise Price of the Unvested Shares.

                                      -16-
<PAGE>   17

               13.    COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and
transfer of the Shares will be subject to and conditioned upon compliance by the
Company and Purchaser with all applicable state and federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's Common Stock may be listed or quoted at
the time of such issuance or transfer.

               14.    SUCCESSORS AND ASSIGNS. The Company may assign any of its
rights under this Exercise Agreement including its rights to repurchase Shares
under the Repurchase Option. This Exercise Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Exercise Agreement will be
binding upon Purchaser and Purchaser's heirs, executors, administrators, legal
representatives, successors and assigns.

               15.    GOVERNING LAW; SEVERABILITY. This Exercise Agreement shall
be governed by and construed in accordance with the internal laws of the State
of California as such laws are applied to agreements between California
residents entered into and to be performed entirely within California. If any
provision of this Exercise Agreement is determined by a court of law to be
illegal or unenforceable, then such provision will be enforced to the maximum
extent possible and the other provisions will remain fully effective and
enforceable.

               16.    NOTICES. Any notice required to be given or delivered to
the Company shall be in writing and addressed to the Corporate Secretary of the
Company at its principal corporate offices. Any notice required to be given or
delivered to Purchaser shall be in writing and addressed to Purchaser at the
address indicated above or to such other address as Purchaser may designate in
writing from time to time to the Company. All notices shall be deemed
effectively given upon personal delivery, three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested),
one (1) business day after its deposit with any return receipt express courier
(prepaid), or one (1) business day after transmission by rapifax or telecopier.

               17.    FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Exercise Agreement.

               18.    HEADINGS. The captions and headings of this Exercise
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Exercise Agreement. All references herein to
Sections will refer to Sections of this Exercise Agreement.

               19.    ENTIRE AGREEMENT. The Stock Option Agreement and this
Exercise Agreement, together with all its Exhibits, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Exercise Agreement, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof.

                                      -17-
<PAGE>   18

             IN WITNESS WHEREOF, the Company has caused this Exercise Agreement
to be executed in duplicate by its duly authorized representative and Purchaser
has executed this Exercise Agreement in duplicate as of the Effective Date.

TRANSMETA CORPORATION                   PURCHASER

By:    /s/ Dan E. Steimle                    /s/ Mark K. Allen
   --------------------------------     --------------------------------
                                        (Signature)

    Dan E. Steimle
-----------------------------------
(Please print Name)                         Mark K. Allen
                                        --------------------------------
                                        (Please print name)

    CFO
-----------------------------------
(Please print title)

                [SIGNATURE PAGE TO TRANSMETA CORPORATION NON-PLAN
                        STOCK OPTION EXERCISE AGREEMENT]

                                      -18-
<PAGE>   19

                                LIST OF EXHIBITS

Exhibit 1:   Stock Power and Assignment Separate from Stock Certificate
Exhibit 2:   Spouse Consent
Exhibit 3:   Copy of Purchaser's Check [AND/OR SECURED FULL RECOURSE PROMISSORY
             NOTE]
Exhibit 4:   Section 83(b) Election
Exhibit 5:   Stock Pledge Agreement

<PAGE>   20

                                    EXHIBIT 1
                           STOCK POWER AND ASSIGNMENT
                         SEPARATE FROM STOCK CERTIFICATE

<PAGE>   21

                           STOCK POWER AND ASSIGNMENT
                         SEPARATE FROM STOCK CERTIFICATE

             FOR VALUE RECEIVED and pursuant to that certain Non-Plan Stock
Option Exercise Agreement dated as of _______________, 20___, (the "AGREEMENT"),
the undersigned hereby sells, assigns and transfers unto
_______________________________, _______ shares of the Common Stock of Transmeta
Corporation, a California corporation (the "COMPANY"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
______ delivered herewith, and does hereby irrevocably constitute and appoint
the Secretary of the Company as the undersigned's attorney-in-fact, with full
power of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS
THERETO.

Dated:  _______________, 20____
                                        PURCHASER

                                           /s/ Mark K. Allen
                                        --------------------------------------
                                        (Signature)

                                          Mark K. Allen
                                        --------------------------------------
                                        (Please Print Name)

                                           /s/ Valerie Allen
                                        --------------------------------------
                                        (Spouse's Signature, if any)

                                          Valerie Allen
                                        --------------------------------------
                                        (Please Print Spouse's Name)

INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this Stock Power and Assignment is to enable the Company to
acquire the shares upon a default under Purchaser's Note and to exercise the
Repurchase Option set forth in the Agreement and/or right of first refusal set
forth in the Company's Bylaws without requiring additional signatures on the
part of the Purchaser or Purchaser's Spouse (if any).

<PAGE>   22

                                    EXHIBIT 2
                                 SPOUSE CONSENT

<PAGE>   23

                                 SPOUSE CONSENT

             The undersigned spouse of Purchaser has read, understands, and
hereby approves the Non-Plan Stock Option Exercise Agreement between Purchaser
and the Company (the "AGREEMENT"). In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, the
undersigned hereby agrees to be irrevocably bound by the Agreement and further
agrees that any community property interest shall similarly be bound by the
Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.

Date:    January 17, 2000                      /s/ Valerie Allen
      -----------------------                ----------------------------------
                                             Signature of Purchaser's Spouse

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

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

<PAGE>   24

                                    EXHIBIT 3
                        COPY OF PURCHASER'S CHECK [AND/OR
                     SECURED FULL RECOURSE PROMISSORY NOTE]

<PAGE>   25

                      SECURED FULL RECOURSE PROMISSORY NOTE

                             Santa Clara, California

$6,000,000.00                                                   January 17, 2000
----------------                                            --------------------

               1.     OBLIGATION. In exchange for the issuance to the
undersigned ("PURCHASER") of 1,000,000 shares (the "SHARES") of the Common Stock
of Transmeta Corporation, a California corporation (the "COMPANY"), receipt of
which is hereby acknowledged, Purchaser hereby promises to pay to the order of
the Company on or before the date which is five (5) years after the date first
set forth above, at the Company's principal place of business at 3940 Freedom
Circle, Santa Clara, California 95054, or at such other place as the Company may
direct, the principal sum of Six Million & no/100's ---- Dollars
($6,000,000.00) together with interest compounded semi-annually on the unpaid
principal at the rate of six and twelve/100ths percent (6.12%), which rate is
equal to the minimum rate established pursuant to Section 1274(d) of the
Internal Revenue Code of 1986, as amended, on the earliest date on which there
was a binding contract in writing for the purchase of the Shares; provided,
however, that the rate at which interest will accrue on unpaid principal under
this Note will not exceed the highest rate permitted by applicable law.

               2.     SECURITY. Payment of this Note is secured by a security
interest in the Shares granted to the Company by Purchaser under a Stock Pledge
Agreement dated of even date herewith between the Company and Purchaser (the
"PLEDGE AGREEMENT"). This Note is being tendered by Purchaser to the Company as
all or part of the Exercise Price of the Shares pursuant to that certain
Non-Plan Stock Option Exercise Agreement between Purchaser and the Company dated
of even date with this Note (the "PURCHASE AGREEMENT").

               3.     DEFAULT; ACCELERATION OF OBLIGATION. Purchaser will be
deemed to be in default under this Note and the principal sum of this Note,
together with all interest accrued thereon, will immediately become due and
payable in full: (a) upon Purchaser's failure to make any payment when due under
this Note; (b) in the event Purchaser is Terminated (as defined in the Purchase
Agreement) for any reason; (c) upon any transfer of any of the Shares (except a
transfer to the Company); (d) upon the filing by or against Purchaser of any
voluntary or involuntary petition in bankruptcy or any petition for relief under
the federal bankruptcy code or any other state or federal law for the relief of
debtors; or (e) upon the execution by Purchaser of an assignment for the benefit
of creditors or the appointment of a receiver, custodian, trustee or similar
party to take possession of Purchaser's assets or property.

               4.     REMEDIES ON DEFAULT. Upon any default of Purchaser under
this Note, the Company will have, in addition to its rights and remedies under
this Note and the Pledge Agreement, full recourse against any real, personal,
tangible or intangible assets of Purchaser, and may pursue any legal or
equitable remedies that are available to it.

               5.     PREPAYMENT. Prepayment of principal and/or interest due
under this Note may be made at any time without penalty. Unless otherwise agreed
in writing by the Company, all payments will be made in lawful tender of the
United States and will be applied first to the payment of accrued interest, and
the remaining balance of such payment, if any, will then be applied to the
payment of principal. If Purchaser prepays all or a portion of the principal
amount of this Note, the Shares paid for by the portion of principal so paid
will continue to be held in pledge under the Pledge Agreement to serve as
independent collateral for the outstanding portion of this Note for the purpose
of commencing the holding period under Rule 144(d) of the Securities and
Exchange Commission with respect to other Shares purchased with this Note unless
Purchaser notifies the Company in writing otherwise and the Company consents to
release of the Shares from the Pledge Agreement.

               6.     GOVERNING LAW; WAIVER. The validity, construction and
performance of this Note will be governed by the internal laws of the State of
California, excluding that body of law pertaining to conflicts of law. Purchaser
hereby waives presentment, notice of non-payment, notice of dishonor, protest,
demand and diligence.

<PAGE>   26

               7.     ATTORNEYS' FEES. If suit is brought for collection of this
Note, Purchaser agrees to pay all reasonable expenses, including attorneys'
fees, incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.

               8.     RULE 144 HOLDING PERIOD. PURCHASER UNDERSTANDS THAT THE
HOLDING PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE
COMMISSION WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE
UNTIL EITHER (A) THE EXERCISE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY
OTHER PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY
COLLATERAL, OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR, HAVING A
FAIR MARKET VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING
OBLIGATION UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).

               IN WITNESS WHEREOF, Purchaser has executed this Note as of the
date and year first above written.

     Mark K. Allen                             /s/ Mark K. Allen
-----------------------------------        ------------------------------------
Purchaser's Name [type or print]           Purchaser's Signature

              [SIGNATURE PAGE TO TRANSMETA CORPORATION SECURED FULL
                            RECOURSE PROMISSORY NOTE]

<PAGE>   27

                                    EXHIBIT 4
                             SECTION 83(b) ELECTION

<PAGE>   28

[FOR REGULAR INCOME TAX - NONQUALIFIED OPTIONS]
[FOR AMT AND DISQUALIFYING DISPOSITION PURPOSES - INCENTIVE STOCK OPTION]

            ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE

The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include the excess, if any, of the
fair market value of the property described below at the time of transfer over
the amount paid for such property, as compensation for services in the
calculation of: (1) regular gross income; (2) alternative minimum taxable income
or (3) disqualifying disposition gross income, as the case may be.

1.      TAXPAYER'S NAME:                  Mark K. Allen
                                        ---------------------------------------
        TAXPAYER'S ADDRESS:
                                        ---------------------------------------

                                        ---------------------------------------
        SOCIAL SECURITY NUMBER:
                                        ---------------------------------------

2.      The property with respect to which the election is made is described as
        follows: 1,000,000 shares of Common Stock of Transmeta Corporation, a
        California corporation which were transferred upon exercise of an option
        (the "COMPANY"), which is Taxpayer's employer or the corporation for
        whom the Taxpayer performs services.

3.      The date on which the shares were transferred pursuant to the exercise
        of the option was January 17, 2000 and this election is made for
        calendar year 2000.

4.      The shares received upon exercise of the option are subject to the
        following restrictions: The Company may repurchase all or a portion of
        the shares at the Taxpayer's original purchase price under certain
        conditions at the time of Taxpayer's termination of employment or
        services.

5.      The fair market value of the shares (without regard to restrictions
        other than restrictions which by their terms will never lapse) was $6.00
        per share at the time of exercise of the option.

6.      The amount paid for such shares upon exercise of the option was $6.00
        per share.

7.      The Taxpayer has submitted a copy of this statement to the Company.

THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE IRS.

Dated:   1/16/00                          /s/ MARK K. ALLEN
       ----------------------           --------------------------------------
                                        Taxpayer's Signature

<PAGE>   29

                                    EXHIBIT 5
                             STOCK PLEDGE AGREEMENT

<PAGE>   30

                             STOCK PLEDGE AGREEMENT

        This Agreement is made and entered into as of January 17, 2000 between
Transmeta Corporation, a California corporation (the "COMPANY"), and Mark K.
Allen ("PLEDGOR").

                                 R E C I T A L S

               A.     In exchange for Pledgor's Secured Full Recourse Promissory
Note to the Company of even date herewith (the "NOTE"), the Company has issued
and sold to Pledgor 1,000,000 shares of its Common Stock (the "SHARES") pursuant
to the terms and conditions of that Non-Plan Stock Option Exercise Agreement
between the Company and Pledgor of even date herewith (the "PURCHASE
AGREEMENT").

               B.     Pledgor has agreed that repayment of the Note will be
secured by the pledge of the Shares pursuant to this Agreement.

               NOW, THEREFORE, the parties agree as follows:

               1.     CREATION OF SECURITY INTEREST. Pursuant to the provisions
of the California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a first and present security interest in the Shares as
collateral to secure the payment of Pledgor's obligation to the Company under
the Note. Pledgor herewith delivers to the Company Common Stock certificate(s)
No(s). _________, representing all the Shares, together with one stock power for
each certificate in the form attached as an Exhibit to the Purchase Agreement,
duly executed (with the date and number of shares left blank) by Pledgor and
Pledgor's spouse, if any. For purposes of this Agreement, the Shares pledged to
the Company hereby, together with any additional collateral pledged pursuant to
Sections 5 and 6 hereof, will hereinafter be collectively referred to as the
"COLLATERAL." Pledgor agrees that the Collateral pledged to the Company will be
deposited with and held by the Escrow Holder (as defined in the Purchase
Agreement) and that, notwithstanding anything to the contrary in the Purchase
Agreement, for purposes of carrying out the provisions of this Agreement, Escrow
Holder will act solely for the Company as its agent.

               2.     REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents
and warrants to the Company that Pledgor has good title (both record and
beneficial) to the Collateral, free and clear of all claims, pledges, security
interests, liens or encumbrances of every nature whatsoever, and that Pledgor
has the right to pledge and grant the Company the security interest in the
Collateral granted under this Agreement. Pledgor further agrees that, until the
entire principal sum and all accrued interest due under the Note has been paid
in full, Purchaser will not, without the Company's prior written consent, (i)
sell, assign or transfer, or attempt to sell, assign or transfer, any of the
Collateral, or (ii) grant or create, or attempt to grant or create, any security
interest, lien, pledge, claim or other encumbrance with respect to any of the
Collateral.

               3.     RIGHTS ON DEFAULT. In the event of default (as defined in
the Note) by Pledgor under the Note, the Company will have full power to sell,
assign and deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of the Company,
in order to satisfy any part of the obligations of Pledgor now existing or
hereinafter arising under the Note. On any such sale, the Company or its assigns
may purchase all or any part of the Collateral. In addition, at its sole option,
the Company may elect to retain all the Collateral in full satisfaction of
Pledgor's obligation under the Note, in accordance with the provisions and
procedures set forth in the California Commercial Code.

               4.     ADDITIONAL REMEDIES. The rights and remedies granted to
the Company herein upon default under the Note will be in addition to all the
rights, powers and remedies of the Company under the California Commercial Code
and applicable law and such rights, powers and remedies will be exercisable by
the Company with respect to all of the Collateral. Pledgor agrees that the
Company's reasonable expenses of holding the Collateral, preparing it for resale
or other disposition, and selling or otherwise disposing of the Collateral,
including attorneys' fees and other legal expenses, will be deducted from the
proceeds of any sale or other disposition and will be included in the amounts
Pledgor must tender to redeem the Collateral. All rights, powers

<PAGE>   31

and remedies of the Company will be cumulative and not alternative. Any
forbearance or failure or delay by the Company in exercising any right, power or
remedy hereunder will not be deemed to be a waiver of any such right, power or
remedy and any single or partial exercise of any such right, power or remedy
hereunder will not preclude the further exercise thereof.

               5.     DIVIDENDS; VOTING. All dividends hereinafter declared on
or payable with respect to the Collateral during the term of this pledge
(excluding only ordinary cash dividends, which will be payable to Pledgor so
long as Pledgor is not in default under the Note) will be immediately delivered
to the Company to be held in pledge under this Agreement. Notwithstanding this
Agreement, so long as Pledgor owns the Shares and is not in default under the
Note, Pledgor will be entitled to vote any shares comprising the Collateral,
subject to any proxies granted by Pledgor.

               6.     ADJUSTMENTS. In the event that during the term of this
pledge, any stock dividend, reclassification, readjustment, stock split or other
change is declared or made with respect to the Collateral, or if warrants or any
other rights, options or securities are issued in respect of the Collateral,
then all new, substituted and/or additional shares or other securities issued by
reason of such change or by reason of the exercise of such warrants, rights,
options or securities, will be immediately pledged to the Company to be held
under the terms of this Agreement in the same manner as the Collateral is held
hereunder.

               7.     RIGHTS UNDER PURCHASE AGREEMENT. Pledgor understands and
agrees that the Company's rights to repurchase the Collateral under the Purchase
Agreement, if any, will continue for the periods and on the terms and conditions
specified in the Purchase Agreement, whether or not the Note has been paid
during such period of time, and that to the extent that the Note is not paid
during such period of time, the repurchase by the Company of the Collateral may
be made by way of cancellation of all or any part of Pledgor's indebtedness
under the Note.

               8.     REDELIVERY OF COLLATERAL. Upon payment in full of the
entire principal sum and all accrued interest due under the Note, and subject to
the terms and conditions of the Purchase Agreement, the Company will immediately
redeliver the Collateral to Pledgor and this Agreement will terminate; provided,
however, that all rights of the Company to retain possession of the Shares
pursuant to the Purchase Agreement will survive termination of this Agreement.

               9.     SUCCESSORS AND ASSIGNS. This Agreement will inure to the
benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto.

               10.    GOVERNING LAW; SEVERABILITY. This Agreement will be
governed by and construed in accordance with the internal laws of the State of
California, excluding that body of law relating to conflicts of law. Should one
or more of the provisions of this Agreement be determined by a court of law to
be illegal or unenforceable, the other provisions nevertheless will remain
effective and will be enforceable.

               11.    MODIFICATION; ENTIRE AGREEMENT. This Agreement will not be
amended without the written consent of both parties hereto. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
related to such subject matter.

                                      -2-
<PAGE>   32

               IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.

TRANSMETA CORPORATION                              PLEDGOR

By:    /s/ DAN E. STEIMLE                       /s/ MARK K. ALLEN
    -------------------------------          -------------------------------
                                             (Signature)

  Dan E. Steimle                               Mark K. Allen
-----------------------------------          -------------------------------
(Please print name)                          (Please print name)

     CFO
-----------------------------------
(Please print title)

        [SIGNATURE PAGE TO TRANSMETA CORPORATION STOCK PLEDGE AGREEMENT]

                                      -3-

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