Document:

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                                                                    Exhibit 10.4

                           LYNUXWORKS, INCORPORATED

                                1997 STOCK PLAN

                                 (as amended)

    1.   Purposes of the Plan.  The purposes of this Stock Plan are to attract
         --------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.  Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant.  Stock
Purchase Rights may also be granted under the Plan.

    2.   Definitions.  As used herein, the following definitions shall apply:
         -----------

         (a) "Administrator" means the Board or any of its Committees as shall
              -------------
be administering the Plan in accordance with Section 4 hereof.

         (b) "Applicable Laws" means the requirements relating to the
              ---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.

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

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

         (e) "Committee"  means a committee of Directors appointed by the Board
              ---------
in accordance with Section 4 hereof.

         (f) "Common Stock" means the Common Stock of the Company.
              ------------

         (g) "Company" means Lynx Real-Time Systems, Incorporated, a California
              -------
corporation.

         (h) "Consultant" means any person who is engaged by the Company or any
              ----------
Parent or Subsidiary to render consulting or advisory services to such entity.

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

         (j) "Disability" means total and permanent disability as defined in
              ----------
Section 22(e)(3) of the Code.
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         (k) "Employee" means any person, including Officers and Directors,
              --------
employed by the Company or any Parent or Subsidiary of the Company.  A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.  If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

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

         (m) "Fair Market Value" means, as of any date, the value of Common
              -----------------
Stock determined as follows:

             (i)    If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

             (ii)   If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

             (iii)  In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.

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

         (o) "Nonstatutory Stock Option" means an Option not intended to qualify
              -------------------------
as an Incentive Stock Option.

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

         (q) "Option" means a stock option granted pursuant to the Plan.
              ------

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         (r)  "Option Agreement" means a written or electronic agreement between
               ----------------
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant.  The Option Agreement is subject to the terms and conditions of
the Plan.

         (s)  "Option Exchange Program" means a program whereby outstanding
               -----------------------
Options are exchanged for Options with a lower exercise price.

         (t)  "Optioned Stock" means the Common Stock subject to an Option or a
               --------------
Stock Purchase Right.

         (u)  "Optionee" means the holder of an outstanding Option or Stock
               --------
Purchase Right granted under the Plan.

         (v)  "Parent" means a "parent corporation," whether now or hereafter
               ------
existing, as defined in Section 424(e) of the Code.

         (w)  "Plan" means this 1997 Stock Plan.
               ----

         (x)  "Restricted Stock" means shares of Common Stock acquired pursuant
               ----------------
to a grant of a Stock Purchase Right under Section 11 below.

         (y)  "Section 16(b)" means Section 16(b) of the Securities Exchange Act
               -------------
of 1934, as amended.

         (z)  "Service Provider" means an Employee, Director or Consultant.
               ----------------

         (aa) "Share" means a share of the Common Stock, as adjusted in
               -----
accordance with Section 12 below.

         (bb) "Stock Purchase Right" means a right to purchase Common Stock
               --------------------
pursuant to Section 11 below.

         (cc) "Subsidiary" means a "subsidiary corporation," whether now or
               ----------
hereafter existing, as defined in Section 424(f) of the Code.

    3.   Stock Subject to the Plan.  Subject to the provisions of Section 12 of
        -------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 2,717,000 Shares, plus any shares which become
available for issuance under the 1988 Stock Option Plan and the 1992 Stock Plan.
The Shares may be authorized but unissued, or reacquired Common Stock.

                                      -3-
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         If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated).  However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.

    4.   Administration of the Plan.
         --------------------------

         (a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.

         (b) Powers of the Administrator.  Subject to the provisions of the Plan
             ---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:

             (i)    to determine the Fair Market Value;

             (ii)   to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;

             (iii)  to determine the number of Shares to be covered by each
such award granted hereunder;

             (iv)   to approve forms of agreement for use under the Plan;

             (v)    to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

             (vi)   to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;

             (vii)  to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;

             (viii) to initiate an Option Exchange Program;

                                      -4-
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             (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

             (x)    to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld.  The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined.  All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and

             (xi)   to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

         (c) Effect of Administrator's Decision.  All decisions, determinations
             ----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.

    5.   Eligibility.
         -----------

         (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Service Providers.  Incentive Stock Options may be granted only to Employees.

         (b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option.  However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options.  For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted.  The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

         (c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.

    6.   Term of Plan.  The Plan shall become effective upon its adoption by the
         ------------
Board.  It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.

    7.   Term of Option.  The term of each Option shall be stated in the Option
         --------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof.  In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is

                                      -5-
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granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.

    8.  Option Exercise Price and Consideration.
        ---------------------------------------

        (a)  The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

             (i)   In the case of an Incentive Stock Option

                   (A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.

                   (B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant .

             (ii)  In the case of a Nonstatutory Stock Option

                   (A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of the grant.

                   (B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.

             (iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.

        (b)  The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant).  Such consideration  may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment.  In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.

                                      -6-
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    9.    Exercise of Option.
          ------------------

          (a)  Procedure for Exercise; Rights as a Shareholder. Any Option
               -----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement, but in no case at a rate of less than 20% per year over
five (5) years from the date the Option is granted. Unless the Administrator
provides otherwise, vesting of Options granted hereunder shall be tolled during
any unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.

               An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

               Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

          (b)  Termination of Relationship as a Service Provider.  If an
               -------------------------------------------------
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

          (c)  Disability of Optionee.  If an Optionee ceases to be a Service
               ----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement).  In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's termination.  If,

                                      -7-
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on the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

          (d)  Death of Optionee.  If an Optionee dies while a Service Provider,
               -----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death.  In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination.  If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan.  The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution.  If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

          (e)  Buyout Provisions.  The Administrator may at any time offer to
               -----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

     10.  Non-Transferability of Options and Stock Purchase Rights.  Options and
          --------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

     11.  Stock Purchase Rights.
          ---------------------

          (a)  Rights to Purchase.  Stock Purchase Rights may be issued either
               ------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan.  After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer.  The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations.  The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.

          (b)  Repurchase Option.  Unless the Administrator determines
               -----------------
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by

                                      -8-
<PAGE>

cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.

          (c)  Other Provisions.  The Restricted Stock purchase agreement shall
               ----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

          (d)  Rights as a Shareholder.  Once the Stock Purchase Right is
               -----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company.  No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

     12.  Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
          ----------------------------------------------------------------

          (a)  Changes in Capitalization.  Subject to any required action by the
               -------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company.  The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration."  Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive.  Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

          (b)  Dissolution or Liquidation.  In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction.  The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable.  In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated.  To the extent it has
not been previously exercised, an

                                      -9-
<PAGE>

Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

          (c)  Merger or Asset Sale. In the event of a merger of the Company
               --------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. If, in such
event, an Option or Stock Purchase Right is not assumed or substituted for, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger or asset sale. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
asset sale, the option or right confers the right to purchase or receive, for
each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or asset sale, the consideration (whether stock,
cash, or other securities or property) received in the merger or asset sale by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or asset
sale is not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or asset sale.

     13.  Time of Granting Options and Stock Purchase Rights.  The date of grant
          --------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.

     14.  Amendment and Termination of the Plan.
          -------------------------------------

          (a) Amendment and Termination.  The Board may at any time amend,
              -------------------------
alter, suspend or terminate the Plan.

          (b) Shareholder Approval.  The Board shall obtain shareholder approval
              --------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.

          (c) Effect of Amendment or Termination.  No amendment, alteration,
              ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

                                      -10-
<PAGE>

     15.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance.  Shares shall not be issued pursuant to the
               ----------------
exercise of an Option  unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

          (b)  Investment Representations.  As a condition to the exercise of an
               --------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

     16.  Inability to Obtain Authority.  The inability of the Company to obtain
          -----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     17.  Reservation of Shares.  The Company, during the term of this Plan,
          ---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     18.  Shareholder Approval.  The Plan shall be subject to approval by the
          --------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted.  Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.

     19.  Information to Optionees and Purchasers.  The Company shall provide to
          ---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements.  The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.

                                      -11-
<PAGE>

                                1997 STOCK PLAN

                            STOCK OPTION AGREEMENT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I. NOTICE OF STOCK OPTION GRANT
   ----------------------------

[Optionee's Name and Address]

     The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:

     Grant Number                       _________________________

     Date of Grant                      _________________________

     Vesting Commencement Date          _________________________

     Exercise Price per Share           $________________________

     Total Number of Shares Granted     _________________________

     Total Exercise Price               $_________________________

     Type of Option:                    ___    Incentive Stock Option

                                        ___    Nonstatutory Stock Option

     Term/Expiration Date:              _________________________

     Vesting Schedule:
     ----------------

     This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:

     25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to Optionee's continuing to be a Service
Provider on such dates.

<PAGE>

    Merger or Asset Sale
    --------------------

    Notwithstanding anything to the contrary in the Plan or this Option
Agreement to the contrary, in the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation.  In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable.  If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully exercisable for a period of fifteen (15) days from
the date of such notice, and the Option or Stock Purchase Right shall terminate
upon the expiration of such period.  For the purposes of this paragraph, the
Option or Stock Purchase Right shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

    Termination Period:
    ------------------

    This Option shall be exercisable for three (3) months after Optionee ceases
to be a Service Provider.  Upon Optionee's death or disability, this Option may
be exercised for such longer period as provided in the Plan.  In no event may
Optionee exercise this Option after the Term/Expiration Date as provided above.

II. AGREEMENT
    ---------

    1.  Grant of Option.  The Plan Administrator of the Company hereby grants
        ---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference.  Except for Section 14(c) of the Plan and the
Merger or Asset Sale
<PAGE>

provision above, in the event of a conflict between the terms and conditions of
the Plan and this Option Agreement, the terms and conditions of the Plan shall
prevail.

         If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code.  Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").

     2.  Exercise of Option.
         ------------------

         (a) Right to Exercise.  This Option shall be exercisable during its
             -----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.

         (b) Method of Exercise.  This Option shall be exercisable by delivery
             ------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares.  This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.

         No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws.  Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.

     3.  Optionee's Representations.  In the event the Shares have not been
         --------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B, and shall read the applicable rules of the Commissioner of Corporations
attached to such Investment Representation Statement.

     4.  Lock-Up Period.  Optionee hereby agrees that, if so requested by the
         --------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act.  Such restriction shall apply only  to the first registration
statement of the Company to become effective under the Securities Act that
includes

                                      -3-
<PAGE>

securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act.  The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.

     5.  Method of Payment.  Payment of the aggregate Exercise Price shall be by
         -----------------
any of the following, or a combination thereof, at the election of the Optionee:

         (a)  cash or check;

         (b)  consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or

         (c)  surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.

     6.  Restrictions on Exercise.  This Option may not be exercised until such
         ------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.

     7.  Non-Transferability of Option.  This Option may not be transferred in
         -----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee.  The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

     8.  Term of Option.  This Option may be exercised only within the term set
         --------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.

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

         (a) Exercise of ISO.  If this Option qualifies as an ISO, there will be
             ---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.

                                      -4-
<PAGE>

         (b)  Exercise of ISO Following Disability.  If the Optionee ceases to
              ------------------------------------
be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.

         (c)  Exercise of Nonstatutory Stock Option.  There may be a regular
              -------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee 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 Optionee is
an Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.

         (d)  Disposition of Shares.  In the case of an NSO, if Shares are held
              ---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes.  In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes.  If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares.  Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.

         (e)  Notice of Disqualifying Disposition of ISO Shares.  If the Option
              -------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition.  Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.

     10. Entire Agreement; Governing Law.  The Plan is incorporated herein by
         -------------------------------
reference.  The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.  This agreement is governed by the internal substantive laws but not
the choice of law rules of California.

                                      -5-
<PAGE>

     11. No Guarantee of Continued Service.  OPTIONEE ACKNOWLEDGES AND AGREES
         ---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.

     Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof.  Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option.  Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.

OPTIONEE:                           LYNX REAL-TIME SYSTEMS,
INCORPORATED

_______________________________     ______________________________________
Signature                           By

_______________________________     ______________________________________
Print Name                          Name, Title

_______________________________
_______________________________
Residence Address

                                      -6-
<PAGE>

                                   EXHIBIT A
                                   ---------

                                1997 STOCK PLAN

                                EXERCISE NOTICE

Lynx Real-Time Systems, Incorporated
2239 Samaritan Drive
San Jose, CA 95124

Attention:  Chief Financial Officer

     1.  Exercise of Option.  Effective as of today, ___________, 19__, the
         ------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Lynx Real-Time Systems
(the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the
Stock Option Agreement dated ________, 19______ (the "Option Agreement").

     2.  Delivery of Payment.  Purchaser herewith delivers to the Company the
         -------------------
full purchase price of the Shares, as set forth in the Option Agreement.

     3.  Representations of Optionee.  Optionee acknowledges that Optionee has
         ---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

     4.  Rights as Shareholder.  Until the issuance of the Shares (as evidenced
         ---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option.  The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised.  No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in [Section 11] of the Plan.

     5.  Company's Right of First Refusal.  Before any Shares held by Optionee
         --------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").

         (a) Notice of Proposed Transfer.  The Holder of the Shares shall
             ---------------------------
deliver to the Company a written notice (the "Notice") stating:  (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee;
<PAGE>

and (iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).

         (b) Exercise of Right of First Refusal.  At any time within thirty (30)
             ----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.

         (c) Purchase Price.  The purchase price ("Purchase Price") for the
             --------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price.  If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.

         (d) Payment.  Payment of the Purchase Price shall be made, at the
             -------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.

         (e) Holder's Right to Transfer.  If all of the Shares proposed in the
             --------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee.  If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.

         (f) Exception for Certain Family Transfers.  Anything to the contrary
             --------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister.  In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
<PAGE>

         (g) Termination of Right of First Refusal.  The Right of First Refusal
             -------------------------------------
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.

     6.  Tax Consultation.  Optionee understands that Optionee may suffer
         ----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares.  Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

     7.  Restrictive Legends and Stop-Transfer Orders.
         --------------------------------------------

         (a) Legends.  Optionee understands and agrees that the Company shall
             -------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:

              THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
              REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
              "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
              TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
              UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION
              OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF
              THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
              PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

              THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
              SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A
              RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS
              ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
              BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
              SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
              PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
              RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING
              ON TRANSFEREES OF THESE 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

                                      -3-
<PAGE>

         CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS
         PERMITTED IN THE COMMISSIONER'S RULES.

         Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.

         (b) Stop-Transfer Notices.  Optionee agrees that, in order to ensure
             ---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company  transfers its own securities, it may make appropriate
notations to the same effect in its own records.

         (c) Refusal to Transfer.  The Company shall 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 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 shall have been so transferred.

     8.  Successors and Assigns.  The Company may assign any of its rights under
         ----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company.  Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.

     9.  Interpretation.  Any dispute regarding the interpretation of this
         --------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting.  The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.

     10. Governing Law; Severability.  This Agreement is governed by the
         ---------------------------
internal substantive laws but not the choice of law rules, of California.

                                      -4-
<PAGE>

     11. Entire Agreement.  The Plan and Option Agreement are incorporated
         ----------------
herein by reference.  This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.

Submitted by:                       Accepted by:

                     Lynx Real-Time Systems, Incorporated

___________________________         ___________________________________
Signature                           By

___________________________         ___________________________________
Print Name                          Its

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

___________________________         2239 Samaritan Drive
___________________________         San Jose, CA 95124

                                    __________________________________
                                    Date Received

                                      -5-
<PAGE>

                                   EXHIBIT B
                                   ---------

                      INVESTMENT REPRESENTATION STATEMENT

OPTIONEE:

COMPANY:      LYNX REAL-TIME SYSTEMS, INCORPORATED

SECURITY:     COMMON STOCK

AMOUNT:

DATE:

In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:

         (a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities.  Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

         (b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein.  In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.  Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available.  Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities.  Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
<PAGE>

         (c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions.  Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act.  In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including:  (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.

     In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.

         (d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.  Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.

         (e) Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California.  Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.

                                   Signature of Optionee:

                                      -2-
<PAGE>

                              _____________________________________

                              Date:__________________________, 19___

                                      -3-
<PAGE>

                                 ATTACHMENT 1
             STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
             ----------------------------------------------------

       Title 10.  Investment - Chapter 3.  Commissioner of Corporations

   260.141.11:  Restriction on Transfer.  (a)  The issuer of any security upon
   ----------   -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.

   (b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:

       (1)  to the issuer;

       (2)  pursuant to the order or process of any court;

       (3)  to any person described in Subdivision (i) of Section 25102 of the
   Code or Section 260.105.14 of these rules;

       (4)  to the transferor's ancestors, descendants or spouse, or any
   custodian or trustee for the account of the transferor or the transferor's
   ancestors, descendants, or spouse; or to a transferee by a trustee or
   custodian for the account of the transferee or the transferee's ancestors,
   descendants or spouse;

       (5)  to holders of securities of the same class of the same issuer;

       (6)  by way of gift or donation inter vivos or on death;

       (7)  by or through a broker-dealer licensed under the Code (either acting
   as such or as a finder) to a resident of a foreign state, territory or
   country who is neither domiciled in this state to the knowledge of the
   broker-dealer, nor actually present in this state if the sale of such
   securities is not in violation of any securities law of the foreign state,
   territory or country concerned;

       (8)  to a broker-dealer licensed under the Code in a principal
   transaction, or as an underwriter or member of an underwriting syndicate or
   selling group;

       (9)  if the interest sold or transferred is a pledge or other lien given
   by the purchaser to the seller upon a sale of the security for which the
   Commissioner's written consent is obtained or under this rule not required;

       (10) by way of a sale qualified under Sections 25111, 25112, 25113 or
   25121 of the Code, of the securities to be transferred, provided that no
   order under Section 25140 or subdivision (a) of Section 25143 is in effect
   with respect to such qualification;

       (11) by a corporation to a wholly owned subsidiary of such corporation,
   or by a wholly owned subsidiary of a corporation to such corporation;

       (12) by way of an exchange qualified under Section 25111, 25112 or 25113
   of the Code, provided that no order under Section 25140 or subdivision (a) of
   Section 25143 is in effect with respect to such qualification;

       (13) between residents of foreign states, territories or countries who
   are neither domiciled nor actually present in this state;

       (14) to the State Controller pursuant to the Unclaimed Property Law or to
   the administrator of the unclaimed property law of another state; or

       (15) by the State Controller pursuant to the Unclaimed Property Law or by
   the administrator of the unclaimed property law of another state if, in
   either such case, such person (i) discloses to potential purchasers at the
   sale that transfer of the securities is restricted under this rule, (ii)
   delivers to each purchaser a copy of this rule, and (iii) advises the
   Commissioner of the name of each purchaser;

       (16) by a trustee to a successor trustee when such transfer does not
   involve a change in the beneficial ownership of the securities;

       (17) by way of an offer and sale of outstanding securities in an issuer
   transaction that is subject to the qualification requirement of Section 25110
   of the Code but exempt from that qualification requirement by subdivision (f)
   of Section 25102; provided that any such transfer is on the condition that
   any certificate evidencing the security issued to such transferee shall
   contain the legend required by this section.

   (c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:

         "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."<PAGE>

                                                                    Exhibit 10.5

                   INTEGRATED SOFTWARE & DEVICES CORPORATION

                          2000 EQUITY INCENTIVE PLAN

                         As Adopted on January 1, 2000

     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 hereof.  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
               --------------------------
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 4,071,428 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, 5.10 and 17 hereof, 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:  (i)
cease to be subject to issuance upon exercise of an Option, other than due to
exercise of such Option; (ii) 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 (iii) 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 and outstanding 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 (i) the number of Shares reserved for issuance under
this Plan, (ii) the Exercise Prices of and number of Shares subject to
outstanding Options and (iii) the Purchase Prices 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 the 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 hereof) 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.  NQSOs (as defined in
Section 5 hereof) and Restricted Stock 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.

                                       1
<PAGE>

     4.   ADMINISTRATION.
          --------------

          4.1  Committee Authority.  This Plan will be administered by the
               -------------------
Committee or the Board if no Committee is created by the Board.  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:

          (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)  approve 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 awards under any other incentive
               or compensation plan of the Company or any Parent or Subsidiary
               of the Company;

          (g)  grant waivers of any conditions of this Plan or any Award;

          (h)  determine the terms of 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;

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

          (l)  extend the vesting period beyond a Participant's Termination
               Date.

          4.2  Committee Discretion.  Unless in contravention of any express
               --------------------
terms of this Plan or Award, any determination made by the Committee with
respect to any Award will be made in its sole discretion either (i) at the time
of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time.
Any 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, provided such officer or officers are members of the Board.

     5.   OPTIONS.  The Committee may grant Options to eligible persons
          -------
described in Section 3 hereof 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

                                       2
<PAGE>

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 a
later date is 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 but
               ---------------
subject to repurchase pursuant to Section 11 hereof or may be exercisable within
the times or upon the events determined by the 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 no less than
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
eighty-five percent (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 one
hundred percent (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 one hundred ten percent (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 hereof.

          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).  The Exercise Agreement will state (i) the number of Shares
being purchased, (ii) the restrictions imposed on the Shares purchased under
such Exercise Agreement, if any, and (iii) 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.  Participant shall execute and deliver to the
Company the Exercise Agreement together with payment in full of the Exercise
Price, and any applicable taxes, for the number of Shares being purchased.

                                       3
<PAGE>

          5.6  Termination.  Subject to earlier termination pursuant to Sections
               -----------
17 and 18 hereof 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 other than 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 or as otherwise determined
               by the Committee.  Such Options must be exercised by the
               Participant, if at all, as to all or some of the Vested Shares
               calculated as of the Termination Date or such other date
               determined by the Committee, within three (3) months after the
               Termination Date (or within such shorter time period, not less
               than thirty (30) days, or within 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 for Cause), then Participant's
               Options may be exercised only to the extent that such Options are
               exercisable by Participant on the Termination Date or as
               otherwise determined by the Committee.  Such options must be
               exercised by Participant (or Participant's legal representative
               or authorized assignee), if at all, as to all or some of the
               Vested Shares calculated as of the Termination Date or such other
               date determined by the Committee, within twelve (12) months after
               the Termination Date (or within such shorter time period, not
               less than six (6) months, or within such longer time period, not
               exceeding five (5) years, after the Termination Date as may be
               determined by the Committee, with any exercise beyond (i) 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 (ii)
               twelve (12) months after the Termination Date when the
               Termination is for Participant's 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 are 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 One Hundred

                                       4
<PAGE>

Thousand Dollars ($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 One Hundred Thousand Dollars
($100,000), then the Options for the first One Hundred Thousand Dollars
($100,000) worth of Shares to become exercisable in such calendar year will be
ISOs and the Options for the amount in excess of One Hundred Thousand Dollars
($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 hereof) 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.  Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants 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 hereof 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, to disqualify any Participant's ISO
under Section 422 of the Code.  In no event shall the total number of Shares
issued (counting each reissuance of a Share that was previously issued and then
forfeited or repurchased by the Company as a separate issuance) under the Plan
upon exercise of ISOs exceed 20,000,000 Shares (adjusted in proportion to any
adjustments under Section 2.2. hereof) over the term of the Plan.

     6.   RESTRICTED STOCK.  A Restricted Stock Award is an offer by the Company
          ----------------
to sell to an eligible person Shares that are subject to certain specified
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 such thirty (30) days, then
the offer will terminate, unless otherwise determined by the Committee.

                                       5
<PAGE>

          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
eighty-five percent (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 one hundred percent (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 must be made in accordance with
Section 7 hereof.

          6.3  Restrictions.  Restricted Stock Awards may be subject to the
               ------------
restrictions set forth in Section 11 hereof 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 owed to the
               Participant;

          (b)  by surrender of shares that:  (i) either (A) 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 (B) were
               obtained by Participant in the public market and (ii) are clear
               of all liens, claims, encumbrances or security interests;

          (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 from
               the Company 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:

               (i)  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 sufficient
                    to pay the total Exercise Price, and whereby the NASD Dealer
                    irrevocably commits upon receipt of such Shares to forward
                    the total Exercise Price directly to the Company; or

                                       6
<PAGE>

               (ii) 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 total Exercise
                    Price, and whereby the NASD Dealer irrevocably commits upon
                    receipt of such Shares to forward the total Exercise Price
                    directly to the Company; or

          (f)  by any combination of the foregoing.

          7.2  Loan Guarantees.  The Committee may, in its sole discretion,
               ---------------
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.

     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 by the Company, 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.  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 hereof.  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.

                                       7
<PAGE>

          9.2  Financial Statements.  The Company will provide financial
               --------------------
statements to each Participant annually during the period such Participant has
Awards outstanding, or as otherwise required 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 when issuance is limited to key employees 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, other than by
will or by the laws of descent and distribution, and may not be made subject to
execution, attachment or similar process.  During the lifetime of the
Participant an Award will be exercisable only by the Participant or
Participant's legal representative and any elections with respect to an Award
may be made only by the Participant or Participant's legal representative.

     11.  RESTRICTIONS ON SHARES.
          ----------------------

          11.1 Right of First Refusal.  At the discretion of the Committee, the
               ----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement 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 to an effective registration statement
filed under the Securities Act.

          11.2 Right of Repurchase.  At the discretion of the Committee, the
               -------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after the Participant's Termination Date and the date
the Participant purchases Shares under the Plan at the Participant's Exercise
Price or Purchase Price, as the case may be, provided that, unless the
Participant is 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 no
less than 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 set forth in Section 11 hereof, 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.
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

                                       8
<PAGE>

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.

     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 this 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
(i) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (ii) 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.

     17.  CORPORATE TRANSACTIONS.
          ----------------------

          17.1  Assumption or Replacement of Awards by Successor or Acquiring
                -------------------------------------------------------------
Company.  In the event of (i) a dissolution or liquidation of the Company, (ii)
-------
a merger or consolidation in which the Company is not the surviving corporation,
(iii) a merger in which the

                                       9
<PAGE>

Company is the surviving corporation but after which the shareholders of the
Company immediately prior to such merger (other than any shareholder which
merges with the Company in such merger, 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 (iv) the sale of all or
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor or acquiring corporation
(if any), which assumption, conversion or replacement will be binding on all
Participants. In the alternative, the successor or acquiring 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 or acquiring corporation may
also substitute by issuing, 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 Section 17.1. In the event such
successor or acquiring corporation (if any) refuses to assume, convert, replace
or substitute Awards, as provided above, pursuant to a transaction described in
this Section 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 hereof,
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 (i) granting an Award under this Plan in substitution of
such other company's award or (ii) 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:  (i) no Option may be
exercised prior to initial shareholder approval of this Plan; (ii) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; (iii) in the event that initial shareholder
approval is not obtained within the time period provided herein, all Awards
granted hereunder shall be canceled, any Shares issued pursuant to any Award

                                       10
<PAGE>

shall be canceled and any purchase of Shares issued hereunder shall be
rescinded; and (iv) Awards granted pursuant to an increase in the number of
Shares approved by the Board which increase is not timely approved by
shareholders shall be canceled, any Shares issued pursuant to any such Awards
shall be canceled, and any purchase of Shares subject to any such Award shall 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.

     20.  AMENDMENT OR TERMINATION OF PLAN.  Subject to Section 5.9 hereof, 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 Section 25102(o) of
the California Corporations Code or 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 and other equity awards 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, including the Stock Option Agreement and
Restricted Stock Agreement.

          "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, or any willful perpetration by the Participant of a common law fraud,
(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 or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, 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

                                       11
<PAGE>

duties required of such Participant as an employee, officer, 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 or a Parent or Subsidiary of the Company and the Participant, (iv)
Participant's disregard of the policies of the Company or any Parent or
Subsidiary 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 created and appointed by the Board to
administer this Plan, or if no committee is created and appointed, the Board.

          "Company" means Integrated Software & Devices Corporation, or any
successor corporation.

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

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

          "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.

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

          "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

                                       12
<PAGE>

owns stock representing fifty percent (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 Integrated Software & Devices Corporation 1999
Equity Incentive Plan, as amended from time to time.

          "Purchase Price" means 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 hereof.

          "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 hereof, 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
representing fifty percent (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 the Company
or a Parent or Subsidiary of the Company.  A Participant 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 ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company's Board 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 Company or a Parent or Subsidiary of the
Company 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.

                                       13
<PAGE>

                                                                     No. _______

                   INTEGRATED SOFTWARE & DEVICES CORPORATION

                          2000 EQUITY INCENTIVE PLAN

                            STOCK OPTION AGREEMENT

          This Stock Option Agreement (the "Agreement") is made and entered into
as of the date of grant set forth below (the "Date of Grant") by and between
Integrated Software & Devices Corporation, a California corporation (the
"Company"), and the participant named below (the "Participant").  Capitalized
terms not defined herein shall have the meaning ascribed to them in the
Company's 2000 Equity Incentive Plan (the " Plan").

Participant:                  ___________________________
Social Security Number:       ___________________________
Address:                      ___________________________
Total Option Shares:          ___________________________
Exercise Price Per Share:     ___________________________
Date of Grant:                ___________________________
First Vesting Date:           ___________________________
Expiration Date:              ___________________________
                              (unless earlier terminated under Section 5.6 of
                              the Executive Plan)

Type of Stock Option

(Check-one):                  [  ] Incentive Stock Option
                              [] Nonqualified Stock Option

     1.   Grant of Option. The Company hereby grants to Participant an option
          -----------------
(this "Option") to purchase the total number of shares of Common Stock of the
Company set forth above as Total Option Shares (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 and the Plan. If designated as an
Incentive Stock Option above, the Option is intended to qualify as an "incentive
stock option" (the "ISO") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").

     2.   Exercise Period.
          ----------------

          2.1  Exercise Period of Option.  Provided Participant continues to
               -------------------------
provide services to the Company or to any Parent or Subsidiary of the Company,
the Shares issuable upon

                                       1
<PAGE>

exercise of this Option will become vested and exercisable as to portions of the
shares as follows: (i) this Option shall not vest nor be exercisable with
respect to any of the shares until the First Vesting Date set forth on the first
page of this Agreement ( "First Vesting Date"); (ii) on the First Vesting Date
the Option will become vested and exercisable as to twenty-five percent (25%) of
the Shares and (iii) thereafter at the end of each full succeeding month the
Option will become vested and exercisable as to two and eighty three thousandth
percent (2.08333%) of the Shares until the Shares are vested with respect to one
hundred percent (100%) of the Shares. If application of the vesting percentage
causes a fractional share, such share shall be rounded down to the nearest whole
share for each month except for the last month in such vesting period, at the
end of which last month this Option shall become exercisable for the full
remainder of the Shares.

          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."

          2.3  Expiration.  The Option shall expire on the Expiration Date set
               ----------
forth above or earlier as provided in Section 3 below or pursuant to Section 5.6
of the Plan.

     3.   Termination.
          -----------

          3.1  Termination for Any Reason Except Death, Disability or Cause.  If
               ------------------------------------------------------------
Participant is Terminated for any reason, except death, Disability or for 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 when Termination is for any reason other
than Participant's Disability or for Cause), 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. Any exercise beyond (i) 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 (ii) twelve
(12) months after the Termination Date when the termination is for Participant's
disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be
an NQSO.

          3.3  Termination for Cause.  If Participant is Terminated for Cause,
               ---------------------
then the Option will expire on Participant's Termination Date, or at such later
time and on such conditions as are determined by the Committee.

          3.4  No Obligation to Employ.  Nothing in the Plan or 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

                                       2
<PAGE>

Company or any Parent or Subsidiary of the Company to terminate Participant's
employment or other relationship at any time, with or without Cause.

     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 , or in such other form as may be approved by the
                   --------
Committee from time to time (the "Exercise Agreement"), which shall set forth,
inter alia, (i) Participant's election to exercise the Option, (ii) the number
----- ----
of Shares being purchased, (iii) any restrictions imposed on the Shares and (iv)
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 verifying that such person has the legal 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)  by surrender of shares of the Company's Common Stock that
                    (i) either (A) 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 (B) were
                    obtained by Participant in the open public market; and (ii)
                    are clear of all liens, claims, encumbrances or security
                    interests;

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

               (d)  provided that a public market for the Company's stock
                    exists: (i) 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
                    sufficient to pay for the total Exercise Price

                                       3
<PAGE>

                    and whereby the NASD Dealer irrevocably commits upon receipt
                    of such Shares to forward the total Exercise Price directly
                    to the Company, or (ii) 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 total Exercise Price, and whereby the NASD Dealer
                    irrevocably commits upon receipt of such Shares to forward
                    the total Exercise Price directly to the Company; or

               (e)  any other form of consideration approved by the Committee;
                    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
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain the minimum number
of Shares with a Fair Market Value equal to the minimum amount of taxes required
to be withheld; but in no event will the Company withhold Shares if such
withholding would result in adverse accounting consequences to the Company. 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.   Notice of Disqualifying Disposition of ISO Shares.  If the Option is
          -------------------------------------------------
an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (i) the date two (2)
years after the Date of Grant, and (ii) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.

     6.   Compliance with Laws and Regulations.  The Plan and this Agreement are
          ------------------------------------
intended to comply with Section 25102(o) of the California Corporations Code and
any regulations relating thereto. Any provision of this Agreement which is
inconsistent with Section 25102(o) or any regulations relating thereto shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o) and any regulations relating
thereto. The exercise of the Option and the issuance and transfer of

                                       4
<PAGE>

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 SEC, any state securities commission or any stock exchange to
effect such compliance.

          7.  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 or in
the event of Participant's incapacity, by Participant's legal representative.
The terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.

          8.  Company's Right of First Refusal.  Before any Vested Shares held
              --------------------------------
by Participant or any transferee of such Vested Shares may be sold or otherwise
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) shall have an assignable right of first
refusal to purchase the Vested Shares to be sold or transferred on the terms and
conditions set forth in the Exercise Agreement (the "Right of First Refusal").
The Company's Right of First Refusal will terminate when the Company's
securities become publicly traded.

          9.  Tax Consequences.  Set forth below is a brief summary as of the
              ----------------
Effective Date of the Plan 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.

              9.1  Exercise of ISO.  If the Option qualifies as an ISO, there
                   ---------------
will be no regular federal or California income tax liability upon the exercise
of the Option, although the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal alternative minimum tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.

              9.2  Exercise of Nonqualified Stock Option.  If the Option does
                   -------------------------------------
not qualify as an ISO, 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 a current or former employee of the
Company, the Company may 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.

              9.3  Disposition of Shares.  The following tax consequences may
                   ---------------------
apply upon disposition of the Shares.

                                       5
<PAGE>

                         (a)  Incentive Stock Options.  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 an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as long term capital gain for federal and California income tax
purposes. If Shares purchased under an ISO are disposed of within the applicable
one (1) year or two (2) year period, any gain realized on such disposition will
be treated as compensation income (taxable at ordinary income rates) to the
extent of the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price.

                         (b)  Nonqualified Stock Options.  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 an NQSO, any gain realized on disposition of
the Shares will be treated as long term capital gain.

                         (c)  Withholding.  The Company may be required to
                              -----------
withhold from the Participant's compensation or collect from the Participant and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income.

     10.  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.

     11.  Interpretation.  Any dispute regarding the interpretation of this
          --------------
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.

     12.  Entire Agreement.  The Plan is incorporated herein by reference. This
          ----------------
Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.

     13.  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: (i) personal
delivery; (ii) three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); (iii) one (1) business
day after deposit with any return receipt express courier (prepaid); or (iv) one
(1) business day after transmission by facsimile, rapifax or telecopier.

     14.  Successors and Assigns.  The Company may assign any of its rights
          ----------------------
under this Agreement, including its rights to purchase Shares under the Right of
First Refusal. 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.

                                       6
<PAGE>

     15.  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 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.  Acceptance.  Participant hereby acknowledges receipt of a copy of the
          ----------
Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. 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.

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

INTEGRATED SOFTWARE &               PARTICIPANT
DEVICES CORPORATION
By:______________________           ________________________
                                    (Signature)

_________________________           ________________________
(Please print name)                 (Please print name)

_________________________
(Please print title)

                                       7
<PAGE>

                                   EXHIBIT A
                                   ---------

                    FORM OF STOCK OPTION EXERCISE AGREEMENT

                                       8
<PAGE>

                                    FORM OF

                                                                       No. _____

                   INTEGRATED SOFTWARE & DEVICES CORPORATION

                          2000 EQUITY INCENTIVE PLAN

                        STOCK OPTION EXERCISE AGREEMENT

     This Stock Option Exercise Agreement (the "Exercise Agreement") is made and
entered into as of _________________________ (the "Effective Date") by and
between Integrated Software & Devices Corporation, a California corporation (the
"Company"), and the purchaser named below (the "Purchaser").  Capitalized terms
not defined herein shall have the meanings ascribed to them in the Company's
2000 Equity Incentive Plan (the "Plan").

Purchaser:                    __________________________________________________

                              __________________________________________________

Social Security Number:       __________________________________________________

Address:                      __________________________________________________

                              __________________________________________________

Total Number of Shares:       __________________________________________________

Exercise Price Per Share:     __________________________________________________

Date of Grant:                __________________________________________________

First Vesting Date:           __________________________________________________

Expiration Date:              __________________________________________________
                              (Unless earlier terminated under Section 5.6 of
                              the Plan)

Type of Stock Option
(Check one):                  [_] Incentive Stock Option
                              [_] Nonqualified Stock Option

     1.   Exercise of Option.
          ------------------

          1.1  Exercise.  Pursuant to exercise of that certain option (the
               --------
"Option") granted to Purchaser under the Plan 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 (the "Shares") of the Company's Common
<PAGE>

Stock at the Exercise Price Per Share set forth above (the "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 (i)
in replacement of the Shares, (ii) as a result of stock dividends or stock
splits with respect to the Shares, and (iii) 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:

               _________________________________________________________________

               _________________________________________________________________

          Purchaser desires to take title to the Shares as follows:

               [_]  Individual, as separate property

               [_]  Husband and wife, as community property

               [_]  Joint Tenants

               [_]  Other; please specify:

          To assign the Shares to a trust, a stock transfer agreement must be
completed and executed.

          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 (by check) in the amount of $____________, receipt
                    of which is acknowledged by the Company;

               [_]  by cancellation of indebtedness of the Company owed to
                    Purchaser in the amount of $_______________;

               [_]  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;

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

                                      -2-
<PAGE>

     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,
---------
(iv) the Exercise Price and payment or other provision for any applicable tax
obligations in the form of _______________, a copy of which is attached hereto
as Exhibit 3.
   ---------

          2.2  Deliveries by the Company.  Upon its receipt of the Exercise
               -------------------------
Price, payment or other provision for any applicable tax obligations 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 expiration or termination of the Company's Right of First Refusal
described in Section 8.

     3.   Representations and Warranties of Purchaser.  Purchaser represents and
          -------------------------------------------
warrants to the Company that:

          3.1  Agrees to Terms of the Plan.  Purchaser has received a copy of
               ---------------------------
the Plan and the Stock Option Agreement, has read and understands the terms of
the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to
be bound by their terms and conditions.  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. 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

                                      -3-
<PAGE>

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.

     4.   Compliance with Securities Laws.
          -------------------------------

          4.1  Compliance with U.S. Federal Securities Laws. Purchaser
               --------------------------------------------
understands and acknowledges that the Shares have not been registered with the
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 Securities
Act and all applicable state securities laws.  Purchaser agrees to cooperate
with the Company to ensure compliance with such laws.  The Shares are being
issued under the Securities Act pursuant to the exemption provided by SEC Rule
701.

          4.2  Compliance with California Securities Laws.  THE PLAN, THE
               ------------------------------------------
STOCK OPTION AGREEMENT, AND THIS EXERCISE AGREEMENT ARE INTENDED TO COMPLY WITH
SECTION 25102(o) OF THE CALIFORNIA CORPORATIONS CODE AND ANY RULES (INCLUDING
COMMISSIONER RULES, IF APPLICABLE) OR REGULATIONS PROMULGATED THEREUNDER BY THE
CALIFORNIA DEPARTMENT OF CORPORATIONS (THE "REGULATIONS").  ANY PROVISION OF
THIS EXERCISE AGREEMENT 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).  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

                                      -4-
<PAGE>

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
(1) year, and in certain cases two (2) years, after they have been purchased and
                                                                             ---
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.

          5.3  SEC Rule 701.  The Shares are issued pursuant to SEC Rule 701
               ------------
promulgated under the Securities Act and may become freely tradeable by non-
affiliates (under limited conditions regarding the method of sale) ninety (90)
days after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to the lengthier market standoff agreement contained in Section 7
of this Exercise Agreement or any other agreement entered into by Purchaser.
Affiliates must comply with the provisions (other than the holding period
requirements) of Rule 144.

     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 actions 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) have 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 Regulations referred
to in Section 4.2 hereof.

                                      -5-
<PAGE>

          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 which are subject to the Company's Right of First Refusal
described below, except as permitted by this Exercise Agreement.

          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 Right of First Refusal
granted hereunder and (ii) the market stand-off provisions of Section 7 hereof,
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 one hundred eighty (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.
Purchaser further agrees to enter into any agreement reasonably required by the
underwriters to implement the foregoing.

     8.   Company's Right of First Refusal. Before any Shares held by Purchaser
          --------------------------------
or any transferee of such Shares (either sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including, without limitation, a
transfer by gift or operation of law), the Company and/or its assignee(s) will
have a right of first refusal to purchase the Shares to be sold or transferred
(the "Offered Shares") on the terms and conditions set forth in this Section
(the "Right of First Refusal").

          8.1  Notice of Proposed Transfer.  The Holder of the Offered Shares
               ---------------------------
will deliver to the Company a written notice (the "Notice") stating:  (i) the
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name and address of each proposed purchaser or other transferee (the
"Proposed Transferee"); (iii) the number of Offered Shares to be transferred to
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (the "Offered
Price"); and (v) that the Holder acknowledges this Notice is an offer to sell
the Offered Shares to the Company and/or its assignee(s) pursuant to the
Company's Right of First Refusal at the Offered Price as provided for in this
Exercise Agreement.

          8.2  Exercise of Right of First Refusal.  At any time within thirty
               ----------------------------------
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (or, with the
consent of the Holder, less than all) the Offered Shares proposed to be
transferred to any one or more of the Proposed Transferees named in the Notice,
at the purchase price, determined as specified below.

                                      -6-
<PAGE>

          8.3  Purchase Price.  The purchase price for the Offered Shares
               --------------
purchased under this Section will be the Offered Price, provided that if the
Offered Price consists of no legal consideration (as, for example, in the case
of a transfer by gift) the purchase price will be the fair market value of the
Offered Shares as determined in good faith by the Company's Board of Directors.
If the Offered Price includes consideration other than cash, then the value of
the non-cash consideration, as determined in good faith by the Company's Board
of Directors, will conclusively be deemed to be the cash equivalent value of
such non-cash consideration.

          8.4  Payment.  Payment of the purchase price for the Offered Shares
               -------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness owed by the Holder to the Company (or to such assignee, in the case
of a purchase of Offered Shares by such assignee) or by any combination thereof.
The purchase price will be paid without interest within sixty (60) days after
the Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.

          8.5  Holder's Right to Transfer.  If all of the Offered Shares
               --------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to each
Proposed Transferee at the Offered Price or at a higher price, provided that (i)
                                                               --------
such sale or other transfer is consummated within one hundred twenty (120) days
after the date of the Notice, (ii) any such sale or other transfer is effected
in compliance with all applicable securities laws, and (iii) each Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee.  If the
Offered Shares described in the Notice are not transferred to each Proposed
Transferee within such one hundred twenty (120) day period, then a new Notice
must be given to the Company pursuant to which the Company will again be offered
the Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.

          8.6  Exempt Transfers.  Notwithstanding anything to the contrary in
               ----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"Immediate Family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's Immediate Family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights of the
Company under this Section unless the agreement of merger or consolidation
expressly otherwise provides); or (iii) any transfer of Shares pursuant to the
winding up and dissolution of the Company.  As used herein, the term "Immediate
Family" will mean Purchaser's spouse, the lineal descendant or antecedent,
father, mother, brother or sister, child, adopted child, grandchild or adopted
grandchild of the Purchaser or the Purchaser's spouse, or the spouse of any
child, adopted child, grandchild or adopted grandchild of Purchaser or the
Purchaser's spouse or Spousal Equivalent, as defined herein.  As

                                      -7-
<PAGE>

used herein, a person is deemed to be a "Spousal Equivalent" provided the
following circumstances are true: (i) irrespective of whether or not the
Participant and the Spousal Equivalent are the same sex, they are the sole
spousal equivalent of the other for the last twelve (12) months, (ii) they
intend to remain so indefinitely, (iii) neither are married to anyone else, (iv)
both are at least 18 years of age and mentally competent to consent to contract,
(v) they are not related by blood to a degree of closeness that which would
prohibit legal marriage in the state in which they legally reside, (vi) they are
jointly responsible for each other's common welfare and financial obligations,
and (vii) they reside together in the same residence for the last twelve (12)
months and intend to do so indefinitely.

          8.7  Termination of Right of First Refusal.  The Right of First
               -------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).

          8.8  Encumbrances on Shares. Purchaser may grant a lien or security
               ----------------------
interest in, or pledge, hypothecate or encumber Shares only if each party to
whom such lien or security interest is granted, or to whom such pledge,
hypothecation or other encumbrance is made, agrees in a writing satisfactory to
the Company that: (i) such lien, security interest, pledge, hypothecation or
encumbrance will not apply to such Vested Shares after they are acquired by the
Company and/or its assignees under this Section; and (ii) the provisions of this
Section will continue to apply to such Vested Shares in the hands of such party
and any transferee of such party.

     9.   Rights as a 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 Right of First Refusal. Upon an
exercise of the Right of First Refusal, Purchaser will have no further rights as
a holder of the Shares so purchased upon such exercise, other than the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Exercise Agreement, 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 (the "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

                                      -8-
<PAGE>

or other document executed with 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 the Right of First Refusal].

     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 U.S. 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 AND TRANSFER, INCLUDING
          THE RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS
          ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT
          BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
          COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
          ISSUER.  SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS INCLUDING
          THE RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
          SHARES.

          THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180
          DAY MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN
          AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
          SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE
          OF THE ISSUER.  AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY
          NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE
          INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF.

                                      -9-
<PAGE>

          SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.

          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: (i) THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE. Set forth below is a brief summary as of the date the Plan
was adopted by the Board of some of the U.S. 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 HIS OR HER OWN TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.

          12.1    Exercise of Incentive Stock Option.  If the Option qualifies
                  ----------------------------------
as an ISO, there will be no regular U.S. Federal income tax liability or
California income tax liability upon the exercise of the Option, although the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price will be treated as a tax preference item for U.S.
Federal alternative minimum tax purposes and may subject Purchaser to the
alternative minimum tax in the year of exercise.

          12.2    Exercise of Nonqualified Stock Option.  If the Option does not
                  -------------------------------------
qualify as an ISO, there may be a regular U.S. 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 may 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.

          12.3    Disposition of Shares. The following tax consequences may
                  ---------------------
apply upon disposition of the Shares.

                                     -10-
<PAGE>

               (a)  Incentive Stock Options.  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 an ISO and are disposed of more than two (2) years after the
Date of Grant, any gain realized on disposition of the Shares will be treated as
long term capital gain for federal and California income tax purposes. If Shares
purchased under an ISO are disposed of within the applicable one (1) year or two
(2) year period, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price.

               (b)  Nonqualified Stock Options.  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 an NQSO, any gain realized on disposition of the
Shares will be treated as long term capital gain.

               (c)  Withholding.  The Company may be required to withhold from
                    -----------
the Purchaser's compensation or collect from the Purchaser and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.

     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 U.S. 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 purchase Shares under the
Right of First Refusal. 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, (i) three (3) days after deposit in the United States
mail by certified or registered mail (return receipt requested), (ii) one (1)
business day after its deposit with any return receipt express courier
(prepaid), or (iii) one (1) business day after transmission by rapifax or
telecopier.

                                     -11-
<PAGE>

     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 Plan, the Stock Option Agreement and this
          ----------------
Exercise Agreement, together with all Exhibits thereto, 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.

                                     -12-
<PAGE>

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

INTEGRATED SOFTWARE & DEVICES                PURCHASER
CORPORATION

By:____________________________              _________________________________
                                             (Signature)

_______________________________              _________________________________
(Please print name)                          (Please print name)

_______________________________
(Please print title)

                                     -13-
<PAGE>

                               LIST OF EXHIBITS
                               ----------------

Exhibit 1:     Stock Power and Assignment Separate from Stock Certificate

Exhibit 2:     Spouse Consent

Exhibit 3:     Copy of Purchaser's Check

                                     -14-
<PAGE>

                                   EXHIBIT 1
                                   ---------

                          STOCK POWER AND ASSIGNMENT
                          --------------------------
                        SEPARATE FROM STOCK CERTIFICATE
                        -------------------------------

                                     -15-
<PAGE>

                          Stock Power and Assignment
                          --------------------------
                        Separate from Stock Certificate
                        -------------------------------

     FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. ________ dated as of _______________, _____, (the "Agreement"),
the undersigned hereby sells, assigns and transfers unto ____________________,
__________ shares of the Common Stock of Integrated Software & Devices
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: ____________, _____

                                             PURCHASER

                                             ___________________________________
                                             (Signature)

                                             ___________________________________
                                             (Please Print Name)

                                             ___________________________________
                                             (Spouse's Signature, if any)

                                             ___________________________________
                                             (Please Print Spouse's Name)

Instructions to Purchaser:  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:  pursuant to its "Right of First Refusal" set
forth in the Exercise Agreement without requiring additional signatures on the
part of the Purchaser or Purchaser's Spouse.

                                     -16-
<PAGE>

                                   EXHIBIT 2
                                   ---------

                                SPOUSE CONSENT
                                --------------

                                     -17-
<PAGE>

                                Spouse Consent
                                --------------

     The undersigned spouse of ______________________________ (the "Purchaser")
has read, understands, and hereby approves the 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 I may have in
the Shares 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: ___________________

                                             ___________________________________
                                             Print Name of Purchaser's Spouse

                                             ___________________________________
                                             Signature of Purchaser's Spouse

                                   Address:  ___________________________________

                                             ___________________________________

                                             ___________________________________

                                     -18-
<PAGE>

                                   EXHIBIT 3
                                   ---------

                           COPY OF PURCHASER'S CHECK
                           -------------------------

                                      -1-

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