Document:

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                                                                     EXHIBIT 4.2

                          INVESTORS RIGHTS AGREEMENT

    This Agreement is made and entered into as of September 28, 1999 (the
"Effective Date"), by and among Lexar Media, Inc., a California corporation (the
"Company"), certain existing shareholders of the Company who are listed on
Schedule 1 attached hereto (the "Shareholders") and such other persons executing
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this Agreement who are listed on Schedule 2, attached hereto and as amended from
                                 ----------
time to time (collectively referred to as the "Investors").

                                    RECITALS

    WHEREAS, the Company and the Investors have entered into a Series E
Preferred Stock Purchase Agreement, of even date herewith as such agreement may
be amended (the "Purchase Agreement"), pursuant to which the Company has agreed
to issue and sell shares of the Company's Series E Convertible Preferred Stock,
no par value ("Series E Preferred"), to the purchasers signatory to the Purchase
Agreement at any closing thereunder (the "Investors"), to the extent and in such
amounts as set forth therein.

    WHEREAS, as a condition to the obligations of the Investors under the
Purchase Agreement and in consideration of the consent of the Shareholders to
the transactions contemplated by the Purchase Agreement, the Company has agreed
to grant the Shareholders and the Investors (who collectively are referred to as
the "Holders") certain rights, including without limitation: (i) certain
information and inspection rights, (ii) rights to designate members of the
Company's Board of Directors, (iii) rights of first refusal, and (iv)
registration rights, on the terms and conditions set forth herein.

    WHEREAS, the Company and the Holders intend that this Agreement will
supersede all previous and contemporaneous oral negotiations, commitments,
writings and understandings between the parties concerning the matters addressed
in this Agreement, including without limitation: (i) the Investors' Rights
Agreement dated as of November 18, 1998 among the Company and the investor
parties thereto, and (ii) the Summary of Proposed Principal Terms dated August
18, 1999.

                                   AGREEMENT

     NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and the Holders hereby agree as follows.

     Section 1.  Definitions.
                 -----------

     As used in this Agreement, the following terms shall have the meanings as
set forth herein:

     1.1.  "Affiliate" means any Person which controls, is controlled by or is
            ---------
under common control with any other Person or Persons.  For the purposes of this
definition, "control"

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has the meaning specified as of the date of this Agreement for that word in Rule
405 promulgated by the Commission under the Securities Act.

     1.2.  "Board" means the Board of Directors of the Company.
            -----
     1.3.  "Bridge Loan Warrant" means the warrant to purchase 88,241 shares of
            -------------------
the Company's Series E Preferred Stock granted to certain of the Investors as of
August 6, 1999.

     1.4.  "Commission" means the United States Securities and Exchange
            ----------
Commission, and any successor thereto.

     1.5.  "Common Stock" means the Company's common stock, no par value.
            ------------

     1.6.  "Exchange Act" means the Securities Exchange Act of 1934, as amended,
            ------------
and the rules and regulations promulgated from time to time thereunder.

     1.7.  "Holders" means (a) holders as of the date of this Agreement of
            -------
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Series E Preferred, who either purchased such shares of Preferred Stock from
the Company or are transferees of such Preferred Stock under Section 7.10 of
this Agreement, and each of whom is a party to this Agreement, (b) any
additional holders of Series E Preferred who acquire Series E Preferred from the
Company pursuant to the Purchase Agreement; and (c) any subsequent legal or
beneficial owner of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred, Series E Preferred or Registrable Common who has become a
party to this Agreement in accordance with Section 7.10.

     1.8.  "Person" means an individual, partnership, limited partnership,
            ------
corporation, business trust, limited liability company, an association, joint
stock company, a trust, unincorporated organization, joint venture, or other
entity of whatever nature.

     1.9.  "Preferred Stock" means shares of Series A Preferred, Series B
            ---------------
Preferred, Series C Preferred, Series D Preferred and Series E Preferred and all
shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, as the case may be, issued in exchange or
substitution therefor.

     1.10. "Purchase Agreement" has the meaning specified in the Recitals.
            ------------------

     1.11. "Registrable Common" means (a) any shares of Common Stock which have
            ------------------
been issued or are issuable upon the conversion of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred, (b) any shares of Common Stock which have been issued or are issuable
upon exercise of the Warrants, the Series C Warrant, the Series E Warrant or the
Bridge Loan Warrant, and (c) any share of Common Stock issued as a dividend,
stock split, reclassification, recapitalization or other distribution with
respect to or in exchange for replacement of any Registrable Common, provided,
however, that shares of Common Stock shall no longer be Registrable Common when
they shall have been effectively

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registered under the Securities Act and sold by the Holder thereof in accordance
with such registration or sold by the Holder pursuant to Rule 144.

     1.12.  "Register," "registered" and "registration" refer to a registration
             -----------------------------------------
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of such
Registration Statement.

     1.13.  "Rule 144" means Rule 144 promulgated by the Commission under the
             --------
Securities Act, as such rule may be amended from time to time, or any successor
rule thereto.

     1.14.  "Securities Act" means the Securities Act of 1933, as amended, and
             --------------
the rules and regulations promulgated from time to time thereunder.

     1.15.  "Series A Preferred" means (a) up to 3,000,000 outstanding shares of
             ------------------
the Company's Series A Convertible Preferred Stock, no par value, and any shares
of Series A Preferred issued in payment of a dividend upon any share of Series A
Preferred and (b) any other Registrable Common issued as a dividend or other
distribution with respect to, or in replacement of, any Series A Preferred.

     1.16.  "Series B Preferred" means (a) up to 3,000,048 outstanding shares of
             ------------------
the Company's Series B Convertible Preferred Stock, no par value, and any shares
of Series B Preferred issued in payment of a dividend upon any share of Series B
Preferred and (b) any other Registrable Common issued as a dividend or other
distribution with respect to, or in replacement of, any Series B Preferred.

     1.17.  "Series C Preferred" means (a) up to 11,443,750 outstanding shares
             ------------------
of the Company's Series C Convertible Preferred Stock, no par value, and any
shares of Series C Preferred issued in payment of a dividend upon any share of
Series C Preferred, (b) any shares of Series C Preferred which have been issued
or are issuable upon exercise of the Series C Warrant, and (c) any other
Registrable Common issued as a dividend or other distribution with respect to,
or in replacement of, any Series C Preferred.

     1.18.  "Series C Warrant" means the warrant to purchase 100,000 shares of
             ----------------
the Company's Series C Preferred Stock granted to Micro-Comp Industries as of
February 23, 1998.

     1.19.  "Series D Preferred" means (a) up to 6,943,618 outstanding shares of
             ------------------
the Company's Series D Convertible Preferred Stock, no par value, and any shares
of Series D Preferred issued in payment of a dividend upon any share of Series D
Preferred, and (b) any other Registrable Common issued as a dividend or other
distribution with respect to, or in replacement of, any Series D Preferred.

     1.20.  "Series E Preferred" means (a) up to 11,583,011 outstanding shares
             ------------------
of the Company's Series E Convertible Preferred Stock, no par value, and any
shares of Series E Preferred issued in payment of a dividend upon any share of
Series E Preferred, (b) any shares of Series E Preferred which have been issued
or are issuable upon exercise of the Bridge Loan Warrant or the Series E
Warrant, (c) any shares of Series E Preferred which have been issued or

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are issuable upon the conversion of the convertible promissory note issued by
the Company on or about May 13, 1999 in the principal amount of $150,000, (d)
any shares of Series E Preferred which have been issued or are issuable upon the
conversion of the convertible promissory notes issued by the Company on or about
August 6, 1999 in the aggregate principal amount of $2,285,449.38, (e) up to
200,000 shares of Series E Preferred which have been issued or are issuable to
unaffiliated parties providing the Company with equipment leases, real property
leases, loans, credit line, guaranties of indebtedness, cash price reductions or
similar financing and (f) any other Registrable Common issued as a dividend or
other distribution with respect to, or in replacement of, any Series E
Preferred.

     1.21.  "Series E Warrant" means the warrant to purchase 231,660 shares of
             ----------------
the Company's Series E Preferred Stock granted to SG Cowen Securities
Corporation as of an even date herewith.

     1.22.  "Warrants" means the warrants to purchase 125,000 shares of the
             --------
Company's Common Stock granted to certain of the Investors as of January 16,
1998 and the warrant granted to SMART Modular Technologies, Inc. as of an even
date herewith to purchase up to a certain number of shares of the Company's
Common Stock as set forth in the warrant.

     Section 2.  Affirmative Covenants.  Subject to the provisions of Section 6,
                 ---------------------
the Company covenants and agrees as follows:

     2.1.  Corporate Existence.  The Company will maintain its corporate
           -------------------
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or political subdivision thereof and of any
government authority where failure to so comply would have a material adverse
effect on the business, properties, prospects or condition, financial or
otherwise, of the Company (a "Material Adverse Effect").

     2.2.  Books of Account and Reserves.  The Company will keep books of record
           -----------------------------
and account in which full, true and correct entries are made of all of its
dealings, business and affairs, in accordance with generally accepted accounting
principles.  The Company will employ certified public accountants from one of
the "Big 5" firms as selected by the Board of Directors of the Company who are
"independent" within the meaning of the accounting regulations of the Commission
(the "Accountants").  Commencing with the year ending December 31, 1997, the
Company will have annual audits made by such Accountants in the course of which
such Accountants shall make such examinations, in accordance with generally
accepted auditing standards, as will enable them to give such reports or
opinions with respect to the financial statements of the Company as will satisfy
the requirements of the Commission in effect at such time with respect to
reports or opinions of accountants.

     2.3.  Furnishing of Financial Statements and Information. The Company will
           --------------------------------------------------
deliver to each Holder owning at least 500,000 shares of Preferred Stock (or
equivalent number of shares of Common Stock issued upon conversion of the
Preferred Stock subject to appropriate adjustment to reflect stock splits, stock
dividends, reorganizations and other capitalization changes effected after the
Effective Date):

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          2.3.1.  as soon as available, but in any event within forty-five (45)
     calendar days after the end of each of the first three (3) quarters of each
     fiscal year of the Company, an unaudited balance sheet of the Company,
     together with the related statements of operations, retained earnings and
     cash flow statements for such quarter (provided, however, that such
     statements need not include footnotes, but otherwise shall comply with
     generally accepted accounting principles (subject to normal year-end
     adjustments));

          2.3.2.  as soon as available, but in any event within ninety (90)
     calendar days after the end of each fiscal year, a balance sheet of the
     Company, as of the end of such fiscal year, together with the related
     statements of operations, retained earnings and cash flow statements for
     such fiscal year, all in reasonable detail and duly certified by the
     Accountants, who shall have given the Company an opinion, unqualified as to
     the scope of the audit, regarding such statements;

          2.3.3.  within ten (10) business days after the Company learns of the
     commencement or written threats of the commencement of any material
     lawsuit, legal or equitable, or of any material administrative, arbitration
     or other proceeding against the Company or its business, assets or
     properties, written notice of the nature and extent of such suit or
     proceeding;

          2.3.4.  promptly upon transmission thereof, copies of all reports,
     proxy statements, registration statements and notifications filed by it
     with the Commission pursuant to any act administered by the Commission or
     furnished to shareholders of the Company or to any national securities
     exchange;

          2.3.5.  with reasonable promptness, notice of any default in any
     agreement involving obligations of or payments to the Company in excess of
     Fifty Thousand Dollars ($50,000) in the aggregate;

          2.3.6.  at least thirty (30) calendar days before the beginning of
     each fiscal year, management will prepare and submit to the Board of
     Directors and each Holder owning at least 625,000 shares of Preferred Stock
     (or equivalent number of shares of Common Stock issued upon the conversion
     of the Preferred Stock subject to appropriate adjustment to reflect stock
     splits, stock dividends, reorganizations and other capitalization changes
     effected after the Effective Date) the operating plan and budget for the
     upcoming year, and as soon as available, but in any event within thirty
     calendar (30) days after the end of each month, the Company will prepare
     and deliver to each such Holder an unaudited balance sheet of the Company
     as of the end of such month, together with the related statements of
     operations, retained earnings and cash flow statements for each such month,
     and on a year to date basis (provided, however, that such statements need
     not include footnotes, but otherwise shall comply with generally accepted
     accounting principles (subject to normal year-end adjustments)), which
     shall also include a comparison of the Company's actual performance against
     the Company's operating plan and budget for such period; and

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          2.3.7.  with reasonable promptness, such other financial information
     and projections relating to the business, affairs and financial condition
     of the Company as is available to the Company and as from time to time the
     Holders may reasonably request.

          2.3.8.  With respect to any financial projections submitted to the
     Holders, the Company represents and warrants only that such financial
     projections were prepared in good faith based on reasonable assumptions and
     are not inconsistent with any other projections prepared by or for the
     Company or reflected in any internal Company plans, budgets or forecasts.

     2.4.  Inspection. The Company will permit each Holder owning at least
           ----------
625,000 shares of Preferred Stock (or equivalent number of shares of Common
Stock issued upon the conversion of the Preferred Stock subject to appropriate
adjustment to reflect stock splits, stock dividends, reorganizations and other
capitalization changes effected after the Effective Date), or any other
representatives designated by each Holder and reasonably satisfactory to the
Company, to visit and inspect, at such Holders' expense, any of the properties
of the Company, including its books and records (and to make photocopies thereof
or make extracts therefrom), and to discuss its affairs, finances and accounts
with its officers, lawyers and accountants, all to such reasonable extent and at
such reasonable times and intervals as such Holder may reasonably request;
provided, however, that the Holder's foregoing rights are limited to exercising
such rights only for purposes related to such Holder's stock ownership in the
Company and nothing herein will require the Company to take action or provide
information (i) that would be subject to attorney-client privilege or (ii) to a
party with which the Company is at the time engaged in a dispute or litigation.
The Holders shall maintain, and shall require their representatives to maintain,
all confidential information obtained from the Company on a confidential basis.

     2.5.  Attendance at Board Meetings.  For so long as Toshiba America
           ----------------------------
Electronic Components, Inc. ("Toshiba") holds (of record and beneficially) at
least 1,000,000 shares of Series A Preferred Stock, Toshiba shall, at its own
expense, be entitled to reasonable notice of and to attend all meetings of the
Board of Directors of the Company as an observer.  If GE Capital Equity
Investments, Inc. ("GE Capital") appoints an independent director to the Board
of Directors pursuant to Section 5.5 of Article VI of the Company's Restated
Articles of Incorporation, so long as GE Capital holds (of record and
beneficially) at least 500,000 shares of Series E Preferred Stock, GE Capital
shall be entitled to reasonable notice of and to attend all meetings of the
Board of Directors of the Company as an observer.  The Board of Directors may,
however, exclude Toshiba or GE Capital, without prior notice, from attending any
part of any meeting of the Board of Directors if the Board of Directors
reasonably determines that the matters being discussed or to be discussed during
such part of such meeting (i) are of such a competitively sensitive or
confidential nature that disclosure to Toshiba or GE Capital could materially
affect the Company's business, plans, or relationships, or (ii) are subject to
the attorney-client privilege.

     2.6.  Subsidiaries.  The Company shall cause each of its subsidiary
           ------------
corporations to comply with the applicable covenants set forth in this Section 2
and Sections 3, 4 and 5 of this Agreement.

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     2.7.  Key Person Insurance.  The Company will use commercially reasonable,
           --------------------
good faith efforts to obtain, own and maintain prior to the Effective Date, but
in no event later than January 1, 2000, (i) directors' and officers' liability
insurance in the amount of $3,000,000 and (ii) term life insurance policies on
the following individuals and in the following face amounts, with the proceeds
of such insurance policies payable to the Company:  John Reimer ($1,000,000) and
Petro Estakhri ($750,000).  Copies of such directors' and officers' liability
insurance and key person life insurance policies shall be delivered to any
Holder upon written request.

     Section 3.  Board of Directors.
                 -------------------

     3.1.  Indemnification of Directors. The Bylaws of the Company will, at all
           ----------------------------
times, require the Company to indemnify its directors to the full extent
permitted by applicable law.

     3.2.  Board Committees. In the event the Board of Directors creates an
           ----------------
Audit Committee or Compensation Committee of the Board, each of such committees
shall include at least one (1) representative who is one of the two directors
elected by holders of a majority interest of the Series C Preferred, voting as a
separate class, pursuant to Subsection 5.5 of Article VI of the Company's
Restated Articles of Incorporation (the "Series C Directors").

     3.3.  Reimbursement of Expenses. The Company agrees to pay for the
           -------------------------
reasonable out-of-pocket expenses incurred by (i) GE Capital when attending a
meeting of the Board of Directors pursuant to Section 2.5 of this Agreement and
(ii) the Series C Directors, GE Capital and any director nominated by 1267104
Ontario, Ltd. pursuant to the Voting Agreement of even date herewith among the
Company and the investor parties thereto when conducting the Company's business,
including attending meetings of the Board of Directors and its committees.

     Section 4.  Right of First Refusal.
                 -----------------------

     4.1.  Right of First Refusal.  In the event that the Company issues any
           ----------------------
additional shares of its capital stock, except as set forth in Section 4.2
hereof, each Holder of at least 625,000 shares of Preferred Stock (subject to
appropriate adjustment to reflect stock splits, stock dividends, reorganizations
and other capitalization changes effected after the Effective Date) shall have a
right of first refusal on the terms and conditions specified herein.  Each such
Holder of Preferred Stock shall have a right of first refusal, for a period of
thirty (30) days after notice from the Company, to purchase all or any portion
of such Holder's Pro Rata Share (as defined below) of any "New Securities" as
defined in Section 4.2 that the Company may from time to time issue after the
date of this Agreement.  The purchase price for such additional shares of
capital stock under this right of first refusal shall be the price offered to or
proposed to be paid to the Company by any purchasers, and such Holder's right to
purchase its Pro Rata Share of any New Securities shall not be subject to
increase if any other holder of such right of first refusal elects not to
participate.  "Pro Rata Share" shall be determined by multiplying the total
number of New Securities by a fraction, the numerator of which shall be the
number of shares of Common Stock (on an as-if-converted basis) owned by such
holder of the right of first refusal; such number to be determined on a fully
diluted basis with all securities, whether or not then convertible, exercisable
or exchangeable, being deemed to be converted, exercised or exchanged; and the
denominator of which shall be the total number of shares of Common Stock of the

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Company outstanding on a fully diluted basis.  Holders of two-thirds (2/3rds) of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, voting together on an as-if-converted basis as
a single class, may agree in writing to waive this right of first refusal as to
all Holders.  A Holder's failure to respond in writing to the Company's written
notice of such sale, within the 30-day period shall be deemed to be a waiver of
this right of first refusal as to such Holder.

     4.2.  New Securities.  "New Securities" shall mean any shares of Common
           --------------
Stock or Preferred Stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such shares of Common Stock or Preferred
Stock, and securities of any type whatsoever that are, or may become,
convertible or exchangeable into such shares of Common Stock or Preferred Stock;
provided, however, that the term "New Securities" does not include:
                                                  ---- --- -------

          (i)   any shares of the Company's Common Stock (and/or options or
     warrants therefor) issued or issuable to employees, officers, directors, or
     bona fide contractors, advisors or consultants of the Company pursuant to
     incentive agreements or plans approved by a majority of the disinterested
     members of the Board of Directors of the Company;

          (ii)  any shares of Series A Preferred issued under the Series A
     Purchase Agreement dated as of May 9, 1997 or any shares of Series B
     Preferred issued or issuable under the Note Purchase Agreement dated August
     8, 1997 or any shares of Series C Preferred issued under the Series C
     Purchase Agreement dated as of February 23, 1998 or any shares of Series D
     Preferred issued under the Series D Purchase Agreement dated as of November
     18, 1998 or any shares of Series E Preferred issued under the Purchase
     Agreement, as such agreements may be amended from time to time;

          (iii) any securities issuable upon conversion of or with respect to
     any of the Preferred Stock;

          (iv)  any securities issuable upon exercise of the Warrants, the
     Series C Warrants, the Series E Warrants and the Bridge Loan Warrants (the
     "Warrant Securities") and any securities issuable upon the conversion of
     any Warrant Securities;

          (v)   shares of the Company's Common Stock or Preferred Stock issued
     in connection with any stock split or stock dividend;

          (vi)  any shares of Common Stock offered by the Company in connection
with a public offering of the Company's Common Stock;

          (vii) any shares of Series E Preferred Stock issued or issuable upon
(A) the conversion of the convertible promissory note issued by the Company on
or about May 13, 1999 in the principal amount of $150,000 or (B) the conversion
of the convertible promissory notes issued by the Company on or about August 6,
1999 in the aggregate principal amount of $2,285,449.38;

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          (viii) up to 200,000 shares of Common Stock or Preferred Stock (and/or
options or warrants therefor) approved by the Company's Board of Directors and
issued or issuable to unaffiliated parties providing the Company with equipment
leases, real property leases, loans, credit lines, guaranties of indebtedness,
cash price reductions or similar financing, such number of shares being subject
to proportional adjustment to reflect subdivisions, combinations and stock
dividends affecting the number of outstanding shares of such stock; or

          (ix)   securities issued pursuant to the acquisition of another
corporation or entity by the Company, as approved by the Company's Board of
Directors, by consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a single
transaction or series of related transactions, all or substantially all of the
assets of such other corporation or entity or fifty percent (50%) or more of the
voting power of such other corporation or entity or fifty percent (50%) or more
of the equity ownership of such other entity.

Section 5.  Registration Rights.
            -------------------

5.1.  Required Registration.
      ---------------------

      5.1.1.  If, at any time after the earlier of: (i) six (6) months after the
Company's initial public offering of its Common Stock, or (ii) June 1, 2001, the
Company shall receive a written request for registration under the Securities
Act from (a) the record Holder or Holders of an aggregate of at least a majority
of the then Registrable Common not previously registered under the Securities
Act and sold or (b) the record Holder or Holders of an aggregate of at least
one-fifth (1/5th) of the then outstanding Series E Preferred; provided that at
least 500,000 shares of Series E Preferred remain outstanding (a "Registration
Request"):

              (a) the Company shall promptly give written notice to all other
       record Holders of Registrable Common not previously registered under the
       Securities Act and sold that such registration is to be effected
       ("Registration Notice"); and

              (b) subject to the limitations and requirements set forth in this
       Section 5.1, the Company shall use its best efforts to prepare and file a
       registration statement under the Securities Act, covering the Registrable
       Common which is the subject of the Registration Request and such
       additional Registrable Common for which it has received written requests
       to register by such other record Holders: (i) within twenty (20) days
       after the delivery of the Registration Notice if the Company is subject
       to the reporting requirements of the Exchange Act or (ii) within forty-
       five (45) days after the delivery of the Registration Notice if the
       Company is not subject to such reporting requirements; and the Company
       shall use its best efforts to cause such registration statement to become
       effective as soon as is practicable after receipt of the Registration
       Request, but not later than sixty (60) days after receipt of such
       request.

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          5.1.2.  The Company shall be obligated (a) to proceed with filing the
     Registration Statement only if the anticipated gross offering proceeds
     based upon the public offering price per share proposed by the underwriters
     is at least $5,000,000, (b) to prepare, file and cause to become effective
     no more than two (2) registration statements pursuant to Registration
     Requests made by Holders of the Registrable Common under this Section 5.1
     and no more than one (1) additional registration statement pursuant to a
     Registration Request made by the Holders of Series E Preferred under this
     Section 5.1 and (c) notwithstanding the provisions of Subsection 5.1.2(b)
     above, to prepare, file and cause to become effective no more than one (1)
     registration statement pursuant to a Registration Request made under this
     Section 5.1 during any six-month period.

          5.1.3.  If the Company shall furnish to such Holder(s) within thirty
     (30) days of a Registration Notice a certificate signed by the President of
     the Company stating that (i) the Company pursuant to an action approved by
     the Board of Directors has already a present plan to commence preparation
     of a Registration Statement and to file the same within sixty (60) days, or
     (ii) in the good faith judgment of the Board of Directors of the Company it
     would be detrimental to the Company and its shareholders for such
     registration statement to be filed on or before the date filing would be
     required and it is therefore essential to defer the filing of such
     registration statement, the Company shall have the right to defer such
     filing for a period ending not later than ninety (90) days from receipt of
     the request for registration.  The Company may exercise its rights under
     this Section 5.1.3 not more than once in any one (1) year period.

          5.1.4. If the Holders submitting the Registration Request (the
     "Initiating Holders") intend to distribute the Registrable Common covered
     by such request by means of an underwriting, the Registration Request shall
     so indicate and the Company shall include such information in the
     Registration Notice.  A majority in interest of the Initiating Holders
     shall select the underwriter, with the approval of the Company, which
     approval shall not be unreasonably withheld.  Notwithstanding any other
     provision of this Section 5.1, if the managing underwriter advises the
     Initiating Holders in writing that marketing factors require reducing the
     number of shares to be underwritten, then the number of shares of
     Registrable Common included in the underwriting shall be reduced pro rata
     among all participating Holders in proportion (as nearly as practicable) to
     the amount of Registrable Common owned by each participating Holder;
     provided, that, if in connection with a Registration Request made by the
     Holders of Series E Preferred, Registrable Common is being included in the
     underwriting pursuant to a Holder's incidental registration rights under
     Section 5.2, such reduction shall be made: (i) first, from the number of
     Registrable Common requested to be included in the underwriting pursuant to
     Section 5.2, on a pro rata basis, based on the number of Registrable Common
     requested to be included in the registration by Holders pursuant to Section
     5.2, and (ii) second, from the number of Registrable Common requested to be
     included in such underwriting by the applicable Initiating Holders, on a
     pro rata basis, based on the number of Registrable Common requested to be
     included in the registration by such Initiating Holders; provided, however
                                                              --------  -------
     that such reduction shall be made only if all other

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     securities (other than Registrable Common) to be included already have been
     entirely excluded from the underwriting.

          5.1.5.  In the event that the Initiating Holders determine for any
     reason not to proceed with a registration at any time before a registration
     statement has been declared effective by the Commission, and such
     registration statement, if theretofore filed with the Commission, is
     withdrawn with respect to the Registrable Common covered thereby, and,
     unless the withdrawal is based on a materially adverse change in the
     condition, business or prospects of the Company from that known to the
     Holders at the time of their registration request, the Holders of such
     Registrable Common agree to bear their own expenses incurred in connection
     therewith and to reimburse the Company for the expenses incurred by it
     attributable to the registration of such Registrable Common, and, if such
     Holders in fact so reimburse the Company, then the Holders of such
     Registrable Common shall not be deemed to have exercised their right to
     require the Company to register Registrable Common pursuant to this Section
     5.1.

          5.1.6.  If, at the time a Registration Request is received by the
     Company, the Company has already determined to proceed with the actual
     preparation and filing of a registration statement under the Securities Act
     in connection with the Company's proposed offer and sale for cash of its
     securities and such registration is delayed pursuant to Section 5.1.3, the
     Registration Request shall be deemed to have been given pursuant to Section
     5.2 rather than this Section 5.1, and the rights and obligations of the
     Holders and the Company with respect to the Registration Request shall be
     governed by Section 5.2 hereof.

     5.2.  Incidental Registration.
           -----------------------

          5.2.1. Each time the Company shall determine to proceed with the
     actual preparation and filing of a registration statement under the
     Securities Act in connection with the proposed offer and sale for cash of
     any of its securities by it or any of its security holders (other than a
     registration on a form that does not permit the inclusion of shares by its
     security holders, but including a registration in response to a
     Registration Request), the Company shall give written notice of its
     determination to all record Holders of Registrable Common not theretofore
     registered under the Securities Act and sold (a "Participation Notice").
     Upon the written request of a record Holder of any Registrable Common given
     within twenty (20) days after receipt of a Participation Notice, the
     Company will, except as herein provided, cause all such Registrable Common,
     the record Holders of which have so requested registration thereof, to be
     included in such registration statement, provided that all shares of
     Preferred Stock for which registration is requested shall be converted into
     Common Stock in such registration statement or such Holder shall deliver a
     written commitment to the Company to convert such Preferred Stock into
     shares of Common Stock simultaneously with the effective date of such
     registration statement, all to the extent requisite to permit the sale or
     other disposition by the prospective seller or sellers of the Registrable
     Common to be so registered.  If any registration pursuant to this Section
     5.2 shall be underwritten in whole or in part, the

                                       11
<PAGE>

     Company may require that the Registrable Common requested for inclusion
     pursuant to this Section 5.2 be included in the underwriting on the same
     terms and conditions as the securities otherwise being sold through the
     underwriters.

          5.2.2.  Nothing contained in this Agreement shall prevent the Company
     from, at any time, abandoning or delaying any such registration initiated
     by it.  If the Company determines not to proceed with a registration after
     the registration statement has been filed with the Commission and the
     Company's decision not to proceed is primarily based upon the anticipated
     public offering price of the securities to be sold by the Company, the
     Company shall promptly complete the registration for the benefit of those
     selling security Holders who wish to proceed with a public offering of
     their securities and who bear all expenses incurred by the Company as the
     result of such registration arising after the Company has decided not to
     proceed.

          5.2.3.  If in the good faith judgment of the managing underwriter of
     such public offering, marketing factors require the number of securities
     otherwise to be included in the underwritten public offering to be reduced
     or excluded such number may be reduced pro rata (by number of shares) or
     excluded among the Holders thereof requesting such registration; provided,
     however, that, (i) in connection with an offering initiated by the Company,
     such reduction shall be made: (a) first, from the number of securities
     requested to be included in such offering by Holders exercising incidental
     registration rights pursuant to this Section 5.2, on a pro rata basis,
     based on the number of Registrable Common requested to be included in the
     offering by such Holders and (b) second, from the number of securities to
     be offered for the account of the Company and (ii) in connection with a
     Registration Request made by the Holders of Series E Preferred, such
     reduction shall be made: (a) first, from the number of securities requested
     to be included in such offering by Holders exercising incidental
     registration rights pursuant to this Section 5.2, on a pro rata basis,
     based on the number of Registrable Common requested to be included in the
     offering by such Holders and (b) second, from the number of securities to
     be offered by the Initiating Holders, on a pro rata basis, based on the
     number of Registrable Common requested to be included in the offering by
     such Initiating Holders under Section 5.1 or 5.3; and, provided, further,
                                                            --------  -------
     that the number of Registrable Common included in any such registration is
     not reduced below 10 percent (10%) of the shares included in the
     registration, except for a registration relating to the Company's initial
     public offering, from which all Registrable Common may be excluded.

          5.2.4.  The right of any Holder to include Registrable Common in any
     underwritten registration pursuant to this Agreement shall be conditioned
     upon such Holder's participation in such underwriting and the inclusion of
     such Holder's Registrable Common in the underwriting.  All Holders
     proposing to distribute their securities through such underwriting shall
     (together with the Company) enter into an underwriting agreement in
     customary form with the underwriter or underwriters selected.

      5.3.  Registration on Form S-3.  In case the Company shall receive from
            ------------------------
 any Holder of Registrable Common a written request that the Company effect a
 registration on Form S-3

                                       12
<PAGE>

and any related qualification or compliance with respect to all or a part of the
Registrable Common owned by such Holder, then the Company will: (i) promptly
give written notice of the proposed registration and the Holder's request
therefor, and any related qualification or compliance, to all other Holders of
Registrable Common and (ii) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's Registrable Common as are specified in such request, together with all
or such portion of the Registrable Common of any other Holders joining in such
request as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company. Whenever the Company
files a registration statement on Form S-3 in response to a Holder's written
request pursuant to this Section 5.3, the Company shall be obligated (a) to
proceed with filing the registration statement on Form S-3 only if Form S-3 is
available for the offering and the anticipated gross offering proceeds based
upon the public offering price per share proposed by the underwriters, if any,
is at least $500,000, and (b) to prepare, file and cause to become effective no
more than two (2) registration statements pursuant to requests made under this
Section 5.3 during any twelve-month period. Except as otherwise provided in this
Section 5.3, the provisions of Section 5.2 shall govern Registration Requests
pursuant to this Section 5.3.

     5.4. Registration Procedures. When the Company is required by the terms of
          -----------------------
this Agreement to effect the registration of Registrable Common under the
Securities Act, the Company will do the following:

          5.4.1.  As promptly as practicable, and in any event within ninety
(90) days, prepare and file with the Commission a registration statement with
respect to such securities, and use its best efforts to cause such registration
statement to become and remain effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed six (6) months or
until the distribution described in the registration statement has been
completed.

          5.4.2.  As promptly as practicable, prepare and file with the
Commission such amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed six (6) months or until the distribution
described in the registration statement has been completed.

          5.4.3.  Within a reasonable time not to exceed ten (10) business days
prior to filing a registration statement or prospectus or any amendment or
supplement thereto (other than any amendment or supplement in the form of a
filing which the Company makes pursuant to the Exchange Act) under Section 5.1
or 5.2, furnish to the Initiating Holders participating in such registration and
to the underwriters of the securities being registered copies of such
registration statement or prospectus as proposed to be filed, which documents
will be subject to the reasonable review and comments of the Holders (and one
legal counsel to be mutually agreed upon by the Holders) during such period.
Thereafter, the Company shall furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final

                                       13
<PAGE>

prospectus and such other documents as they may reasonably request in order to
facilitate the disposition of such securities.

          5.4.4.  Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders may reasonably request
in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified.

          5.4.5.  Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed.

          5.4.6.  Notify such Holders promptly of any request by the Commission
for the amending or supplementing of such registration statement or prospectus
or for additional information.

          5.4.7.  Prepare and file with the Commission any amendments or
supplements to such registration statement or prospectus which are required
under the Securities Act or the rules and regulations thereunder in connection
with the distribution of all securities covered by such registration statements.

          5.4.8.  Notify such Holders of Registrable Common covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of an event
with respect to the Company requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Common, such prospectus will not contain, with respect to
the Company, an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were make, not misleading.
The Company shall prepare and promptly file a supplement to or an amendment of
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Common, such prospectus will not contain, with respect to the
Company, any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.

          5.4.9.  Advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.

         5.4.10.  Not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such Holders shall
have reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the

                                       14
<PAGE>

requirements of the Securities Act or the rules and regulations promulgated
thereunder, after having been furnished with a copy thereof at least two (2)
business days prior to the filing thereof, unless in the opinion of counsel for
the Company the filing of such amendment or supplement is reasonably necessary
to protect the Company from any liabilities under any applicable federal or
state law and such filing will not violate applicable law.

         5.4.11.  At the request of any such Holder, furnish: (i) an opinion,
dated as of the closing date of the offering, of the counsel representing the
Company for the purposes of such registration, addressed to the underwriters, if
any, and to the Holder or Holders making such request; and (ii) letters, dated
as of the effective date of the registration statement and as of the closing
date of the offering, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to the Holder or Holders
making such request, in each case in form and substance as is customary in an
underwritten public offering.

         5.4.12.  Use commercially reasonable efforts to cause the Registrable
Common covered by such registration statement to be listed on the principal
exchange or exchanges or qualified for trading on the principal over the counter
market on which securities of the same class and series as the Registrable
Common are then listed or traded upon the sale of such Registrable Common
pursuant to such Registration Statement.

         5.4.13.  In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.  Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

     5.5.  Expenses.  All expenses incurred in connection with a registration
           --------
pursuant to Sections 5.1 and 5.3 hereof (except as otherwise provided in such
Section) and with respect to each inclusion of Registrable Common in a
registration statement pursuant to Section 5.2 hereof (except as otherwise
provided in such Section), including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
special counsel for the selling security Holders (but excluding underwriters'
discounts and commissions), shall be borne by the Company.  Each Holder
participating in a registration pursuant to this Section 5 shall bear such
Holder's proportionate share of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering.

     5.6.  Indemnification. In the event that any Registrable Common is included
           ---------------
in a registration statement under Section 5.1, 5.2 or 5.3 hereof:

           5.6.1.  To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder of Registrable Common which are included
in a registration statement pursuant to the provisions hereof, its respective
directors and officers, and any underwriter (as defined in the Securities Act)
for such Holder and each Person, if any, who controls such Holder or such
underwriter within the meaning of the Securities Act, from and against, and will
reimburse such Holder and each such underwriter and controlling Person with
respect to, any and all loss, damage, liability (collectively, "Losses") to
which such Holder or any such underwriter

                                       15
<PAGE>

or controlling Person may become subject under the Securities Act, state
securities laws or otherwise, and the Company will pay to each such Holder,
underwriter or controlling person any legal or other costs or expenses
reasonably incurred by such person in connection with investigating or defending
any such Loss, insofar as such Losses are caused by any untrue statement or
alleged untrue statement of material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that the Company will not be liable in any
such case to the extent that any such Loss arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Holder, such underwriter
or such controlling Person in writing specifically for use in the preparation of
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, provided however, that the indemnity agreement in this
Section 5.6 shall not apply to amounts paid in settlement of any such Loss if
such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, and that the foregoing indemnity obligation
with respect to any preliminary prospectus shall not inure to the benefit of any
Holder on account of any Loss whatsoever arising from the sale of any
Registrable Common by such Holder to any person if (A) a copy of the prospectus
(as amended or supplemented if such amendments or supplements shall have been
furnished to such Holder prior to the confirmation of the sale involved) shall
not have been sent or given by or on behalf of such Holder to such person, if
required by law, with or prior to the written confirmation of the sale involved,
and (B) the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such preliminary prospectus from which
such Loss arose was corrected in the prospectus (as amended or supplemented if
such amendments or supplements thereto shall have been furnished as aforesaid).

          5.6.2.  Each Holder of Registrable Common which is included in a
registration statement pursuant to the provisions hereof will indemnify and hold
harmless the Company, each of its directors and officers, each Person, if any,
who controls the Company within the meaning of the Securities Act, any other
Holder selling securities pursuant to such registration statement, any
controlling Person of any such selling Holder, any underwriter and any
controlling Person of any such underwriter (each, an "Indemnitee") from and
against, and will reimburse any Indemnitee with respect to, any and all Losses
to which such Indemnitee may become subject under the Securities Act, state
securities laws or otherwise, and the Company will pay to each such Holder,
underwriter or controlling person any legal or other costs or expenses
reasonably incurred by such person in connection with investigating or defending
any such Loss, insofar as (but only insofar as) such Losses are caused by any
untrue or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in conformity with written
information furnished by such Holder specifically for use in the preparation
thereof, and

                                       16
<PAGE>

provided, however, that the indemnity agreement in this Section 5.6 shall not
apply to amounts paid in settlement of any such Loss if such settlement is
effected without the consent of the indemnifying Holder, which consent shall not
be unreasonably withheld, and that the foregoing indemnity obligation with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnitee on account of any Loss whatsoever arising from the sale of any
securities by any Indemnitee to any person if (A) a copy of the prospectus (as
amended or supplemented if such amendments or supplements shall have been
furnished to such Indemnitee prior to the confirmation of the sale involved)
shall not have been sent or given by or on behalf of such Indemnitee to such
person, if required by law, with or prior to the written confirmation of the
sale involved, and (B) the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such preliminary
prospectus from which such Loss arose was corrected in the prospectus (as
amended or supplemented if such amendments or supplements thereto shall have
been furnished as aforesaid); provided, further that the obligations of
Indemnifying Holders under this Section 5.6 shall be limited to an amount equal
to the proceeds to such Indemnifying Holder of Registrable Common sold as
contemplated herein.

          5.6.3.  Promptly after receipt by a party entitled to indemnification
pursuant to this Section 5.6 (each, an "Indemnified Party") of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such Indemnified Party will, if a claim is to be made
against the party obligated to provide indemnification pursuant to this section
(each, an "Indemnifying Party"), promptly notify the Indemnifying Party of the
commencement thereof; but the omission to provide such notice will not relieve
the Indemnifying Party from any liability hereunder, except to the extent that
the delay in giving, or failing to give, such notice has a material adverse
effect upon the ability of the Indemnifying Party to defend against the claim.
In case such action is brought against an Indemnified Party, the Indemnifying
Party shall have the right to participate in and, at the Indemnifying Party's
option, to assume the defense thereof, singly or jointly with any other
Indemnifying Party similarly notified, with counsel satisfactory to the
Indemnified Party; provided, however, that if the defendants in any action
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to any Indemnified Parties that are different from or
additional to those available to the Indemnifying Party, or if there is a
conflict of interest which would prevent counsel for the Indemnifying Party from
also representing the Indemnified Party, the Indemnified Party shall have the
right to select counsel to participate in the defense of such action on behalf
of such Indemnified Party at the expense of the Indemnifying Party; provided
that the Indemnifying Party shall be responsible for the expense of only one
such special counsel selected jointly by the Indemnified Parties, if there is
more than one Indemnified Party.  After notice from an Indemnifying Party to any
Indemnified Party of such Indemnifying Party's election to assume the defense or
the action, the Indemnifying Party will not be liable to such Indemnified Party
pursuant to this Section 5.6 for any legal or other expense subsequently
incurred by such Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation, unless (i) the Indemnified Party shall
have employed counsel in accordance with the proviso of the preceding sentence,
or (ii) the Indemnifying Party shall not have employed counsel satisfactory to
the Indemnified Party to represent the Indemnified Party within a reasonable
time after the notice of the commencement of the action, or (iii) the
Indemnifying

                                       17
<PAGE>

Party has authorized the employment of counsel for the Indemnified Party at the
expense of the Indemnifying Party.

     5.7.  Exceptions to and Termination of Registration Obligations. The
           ---------------------------------------------------------
Company shall not be obligated to effect a registration (i) during the one
hundred eighty (180) day period commencing with the date of the Company's
initial public offering or (ii) if the Company delivers to the Holders of the
Registrable Common within thirty (30) days of any Registration Request the
notice permitted by Section 5.1.3 and so files with such period described in the
notice.  Section 5 of this Agreement, and the registration rights set forth
herein, shall terminate upon the earlier to occur of (a) the expiration of five
(5) years following the Company's initial public offering or (b) with respect to
any holder of less than one percent (1%) of the Company's Common Stock on an as-
if-converted basis, that time following the Company's initial public offering
that such holder is able to sell all of such holder's Preferred Stock and Common
Stock during any ninety (90) day period.

     5.8.  Cooperation.  Any Holder whose Registrable Common are to be included
           -----------
in a Registration Statement either filed pursuant to a demand or as part of a
Company registration agrees to cooperate with all reasonable requests by the
Company necessary to effectuate the purposes of this Section 5, including by
timely providing the Company with all information necessary to file a
registration statement.

     5.9.  "Market Stand-Off" Agreement.  Each Holder hereby agrees that,
           ----------------------------
following the effective date of a registration statement of the Company's
initial sale of securities under the Securities Act, for the period of time and
to the extent reasonably requested by the underwriter(s) and the Company, such
Holder shall not sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of any securities of the Company held by such Holder, directly or
indirectly, except securities covered by the registration statement and
transfers to donees who agree to be similarly bound) for the period; provided
however, that (i) the executive officers and directors of the Company, as well
as any holder of at least five percent (5%) of the Company's Preferred Stock or
Common Stock, shall have agreed to be bound by substantially the same terms and
conditions, (ii) the time period requested for such market stand-off shall not
exceed one hundred eighty (180) days, and (iii) the restriction shall not apply
to a registration relating solely to employee, consultant or advisor benefit
plans on Form S-1 or Form S-8 (or similar forms promulgated after the date
hereof) or a registration relating solely to a transaction pursuant to Rule 145
promulgated under the Securities Act on Form S-4 (or similar forms promulgated
after the date hereof).  The Company may impose stop-transfer instructions
during such stand-off period with respect to the securities of each Holder
subject to this restriction if necessary to enforce such restrictions.

     5.10. Limitations on Additional Registration Rights.  From and after the
           ---------------------------------------------
date of this Agreement, unless holders of at least two-thirds (2/3rds) of the
Registrable Common have consented, the Company shall not enter into any
agreement granting any holder or prospective holder of any securities of the
Company registration rights with respect to such securities except for
agreements granting new registration rights which are subordinate to the
registration rights granted to Holders herein.

                                       18
<PAGE>

     Section 6.  Termination of Certain Covenants.  The obligations of the
                 --------------------------------
Company under Sections 2, 3 and 4 of this Agreement, notwithstanding any
provisions hereof apparently to the contrary, shall terminate and shall be of no
further force or effect (i) immediately prior to the closing date of a
consolidation with or merger of the Company into another company or entity if
such merger or consolidation would result in the shareholders of the Company
immediately prior to such consolidation or merger holding less than a majority
of the voting power of the stock of the surviving corporation (or its parent
corporation if the surviving corporation is wholly owned by the parent
corporation) immediately after such consolidation or merger or (ii) on the
closing date of a Qualified Public Offering.  The term "Qualified Public
Offering" means a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act, the public offering
price of which is not less than $6.18 per share (as adjusted for any stock
dividends, recapitalizations, combinations or splits with respect to such
shares) with gross proceeds to the Company of $20,000,000 in the aggregate
before deduction of underwriters commissions and expenses.

     Section 7.  Miscellaneous.
                 --------------

     7.1.  Waivers, Amendments and Approvals.  In each case in which approval of
           ---------------------------------
the Holders is required by the terms of this Agreement, such requirement shall
be satisfied by a vote or the written action of Holders owning at least two-
thirds (2/3rds) of the Registrable Common, voting together on an as-if-converted
basis and as a separate class, unless otherwise provided herein.  Unless
otherwise provided herein, any term or provision of this Agreement requiring
performance by or binding upon the Company or Holders may be amended, and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only by a
writing signed by the Company and the Holders of at least two-thirds (2/3rds) of
the Registrable Common, voting together on an as-if-converted basis and as a
separate class.  Notwithstanding the previous sentence and in lieu of the vote
required therein, no such amendment or waiver shall (i) adversely affect the
rights of a Holder, to (A) attend Board meetings pursuant to Section 2.5 or (B)
receive expense reimbursement pursuant to Section 3.3 without the written
consent of the affected Holder, or (ii) adversely affect the rights of the
Holders of Series E Preferred to make a Registration Request pursuant to
Sections 5.1.1 and 5.1.2 without the written consent of four-fifths (4/5ths) of
the Series E Preferred.  Any amendment or waiver effected in accordance with
this Section 7.1 shall be binding upon the Holders (including permitted assigns
pursuant to Section 7.10 hereof).  Written notice of any such waiver, consent or
agreement of amendment, modification or supplement shall be given to the Holders
who have not previously consented thereto in writing.

     7.2.  Written Changes, Waivers, Etc.  Neither this Agreement nor any
           ------------------------------
provision hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, except to the extent
provided in Section 7.1.

     7.3.  Notices. All notices, requests, consents and other communications
           -------
required or permitted hereunder shall be in writing and shall be personally
delivered or mailed first-class

                                       19
<PAGE>

postage prepaid, registered or certified mail or dispatched by a recognized
delivery service or via facsimile, as follows:

          7.3.1.  to a Holder, addressed to such Holder at the address(es) set
     forth on Schedule 1 as to the Shareholders and Schedule 2 as to the
              ----------                            ----------
     Investors; and

          7.3.2.  to the Company, to:

                  Lexar Media, Inc.
                  47421 Bayside Parkway
                  Fremont, California 94538
                  Attention:  President
                  Fax: 510-413-1255

and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.  Any party may change its
address for such communications by giving notice thereof to the other parties in
conformity with this Section.

     7.4.  Survival of Representations, Warranties, Agreements, Etc. All
           --------------------------------------------------------
representations, warranties, covenants and agreements contained herein or in any
certificate delivered pursuant to this Agreement shall survive the execution and
delivery of this Agreement or such certificate, as the case may be, any
investigation at any time made by the Holders or on their behalf, and the
closing of the transactions contemplated by the Purchase Agreement.  All
statements contained in any certificate, instrument or other writing prepared by
or on behalf of the Company and delivered by the Company pursuant to this
Agreement (other than legal opinions) or in connection with or in contemplation
of the transactions herein contemplated shall constitute representations and
warranties by the Company hereunder.

     7.5.  Delays or Omissions.  Except as expressly provided herein, no delay
           -------------------
or omission to exercise any right, power or remedy accruing to any party under
this Agreement shall impair any such right, power or remedy of such party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence thereto, or of a similar breach of default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring.  Any waiver,
permit, consent or approval of any kind or character on the part of any party
hereto of any breach of default under the Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing.

     7.6.  Other Remedies.  Any and all remedies herein expressly conferred upon
           --------------
a party shall be deemed cumulative with, and not exclusive of, any other remedy
conferred hereby or by law on such party, and the exercise of any one remedy
shall not preclude the exercise of any other.

                                       20
<PAGE>

     7.7.  Attorneys' Fees.  Should suit be brought to enforce or interpret any
           ---------------
part of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal).  The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment.  A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees.  No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.

     7.8.  Entire Agreement.  This Agreement, the schedules hereto, the Purchase
           ----------------
Agreement and the exhibits thereto, including the Right of First Refusal and Co-
Sale Agreement attached thereto as Exhibit E and the Voting Agreement attached
thereto as Exhibit F, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto, including, without limitation, (i) the
Investors' Rights Agreement dated November 18, 1998, among the Company and the
investor parties thereto and (ii) the Summary of Proposed Principal Terms dated
August 18, 1999.  The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.

     7.9.  Severability.  Should any one or more of the provisions of this
           ------------
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.

     7.10. Successors and Assigns.  The terms and conditions of this Agreement
           ----------------------
shall inure to the benefit of and be binding upon and be enforceable by the
successors and assigns of the parties hereto; provided, however, that the rights
of a Holder under this Agreement may be assigned only (i) to a partner or
retired partner of the assigning Holder if such assigning Holder is a
partnership, provided that such assignee is an accredited investor within the
meaning of the Securities Act, (ii) to any Affiliate of the assigning Holder, if
such assignee is an accredited investor within the meaning of the Securities
Act, (iii) to any family member of, or trust for the benefit of, the assigning
Holder or (iv) concurrent with the sale or transfer to such assignee of at least
250,000 shares (subject to adjustment for any stock dividend, stock split,
subdivision, combination or other recapitalization of the Company) of the
Preferred Stock (including, for such purpose, on a proportionate basis, any
shares of Common Stock into which any shares of Preferred Stock have been
converted) or Registrable Common then held by such Holder.  Unless otherwise
provided in this Agreement, any Holder making an assignment in connection with
the sale or transfer of only a portion of its shares shall retain its rights
under this Agreement for the shares not sold or transferred; provided that GE
Capital shall not make an assignment of its rights under Section 5.1.1 or 5.1.2
of this Agreement except upon the sale or transfer of all of the shares of
Registrable Common held by GE Capital.  Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto or
their respective successors and

                                       21
<PAGE>

assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement. Notwithstanding
any provision contained elsewhere in this Agreement, upon the transfer of shares
by any of the parties hereto, no claims or causes of action arising out of or
related to this Agreement existing as of the transfer date shall be transferred
by such party to any respective heir, successor, assign or permitted transferee,
provided that the transfer of shares shall not be deemed a waiver by the
transferring party of any such claim or cause of action.

     7.11.  Governing Law.  This Agreement shall be governed by and construed
            -------------
under the laws of the State of California.

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

     7.13.  WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO KNOWINGLY,
            --------------------
VOLUNTARILY, AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
INVESTORS ENTERING INTO THIS AGREEMENT.

     7.14.   New Investors.  Notwithstanding anything herein to the contrary, if
             -------------
pursuant to Section 3.2 of the Purchase Agreement, additional parties purchase
shares of Series E Preferred as "New Investors" thereunder, then each such new
Investor shall become a party to this Agreement as an "Investor" hereunder,
without the need for any consent, approval or signature of any Investor;
provided, however, that such New Investor has: (i) purchased shares of Series E
Preferred under the Purchase Agreement and paid the Company all consideration
payable for such shares and (ii) executed one or more counterpart signature
pages to this Agreement as an "Investor", with the Company's consent.

                  (Balance of Page intentionally left blank.)

                                       22
<PAGE>

IN WITNESS WHEREOF, this Agreement is hereby executed as of the date first
written above.

COMPANY:                      LEXAR MEDIA, INC.

                              By: ____________________________________________
                                 Name:  Mr. John Reimer
                                 Title:  President and Chief Executive Officer

HOLDERS:                      GE CAPITAL EQUITY INVESTMENTS, INC.
                              a Delaware corporation

                              By: ____________________________________________
                                 Name: _______________________________________
                                 Title: ______________________________________

                              VAN WAGONER CAPITAL MANAGEMENT

                              By: _____________________________________________
                                 Name:  Mr. Garret Van Wagoner
                                 Title: _______________________________________

                              LAGUNITAS PARTNER, LP ($700,000)

                              By: _____________________________________________
                                 Name:  Mr. Jon D. Gruber
                                 Title: _______________________________________

                 (Signature Page to Investors Rights Agreement)

                                       23
<PAGE>

                              GRUBER & McBAINE INTERNATIONAL
                              ($200,000)

                              By: _____________________________________________
                                 Name:  Mr. Jon D. Gruber
                                 Title: _______________________________________

                              JON D. GRUBER ($100,000)

                              By: _____________________________________________
                                 Name:  Mr. Jon D. Gruber
                                 Title: _______________________________________

                              SUN AMERICA INC.

                              By OKGBD & Co.
                              Its Nominee

                              By: _____________________________________________
                                 Name:  Mr. Rafael Fogel
                                 Title: _______________________________________

                              OLYMPUS OPTICAL CO., LTD.

                              By: _____________________________________________
                                 Name:  Masanori Tom Nakashima
                                 Title:________________________________________

             (Second Signature Page to Investors Rights Agreement)

                                       24
<PAGE>

                              MELLON VENTURES, L.P.

                              By MVMA, L.P.
                              Its General Partner

                                    By MVMA, Inc.
                                    Its General Partner

                                    By: _______________________________________
                                      Name:  Mr. Jeffrey H. Anderson
                                      Title: __________________________________

                              1267104 ONTARIO, LTD.

                              By: _____________________________________________
                                 Name: ________________________________________
                                 Title: _______________________________________

                              ST. PAUL VENTURE CAPITAL V, LLC

                              By: _____________________________________________
                                 Name: ________________________________________
                                 Title: _______________________________________

              (Third Signature Page to Investors Rights Agreement)

                                       25
<PAGE>

                               ST. PAUL VENTURE CAPITAL AFFILIATES
                               FUND I, LLC

                               By St. Paul Venture Capital, Inc.
                               Its Manager

                               By: ____________________________________________
                                  Name: _______________________________________
                                  Title: ______________________________________

                               APV TECHNOLOGY PARTNERS II, L.P.

                               By APV Management Co. II, LLC,
                               Its Managing General Partner

                               By: ____________________________________________
                                  Name: _______________________________________
                                  Title: ______________________________________

                               THOMVEST HOLDINGS, INC.

                               By: ____________________________________________
                                  Name: _______________________________________
                                  Title: ______________________________________

                               THE JOHN TU AND MARY TU TRUST,
                               DATED JUNE 16, 1995

                               By: ____________________________________________
                                  Name:  John Tu
                                  Title:  Trustee

             (Fourth Signature Page to Investors Rights Agreement)

                                       26
<PAGE>

                              DECLARATION OF TRUST OF DAVID
                              SUN AND DIANA SUN,
                              DATED FEBRUARY 26, 1986

                              By: _____________________________________________
                                 Name: David Sun
                                 Title: Co-Trustee

                              By: _____________________________________________
                                 Name: Diana Sun
                                 Title: Co-Trustee

                              TOSHIBA AMERICA ELECTRONIC
                              COMPONENTS, INC.

                              By: _____________________________________________
                                 Name: ________________________________________
                                 Title: _______________________________________

                              JOHN A. ROLLWAGEN REVOCABLE
                              TRUST U/A DATED SEPTEMBER 13, 1991

                              By: _____________________________________________
                                 Name: John A. Rollwagen
                                 Title: Co-Trustee

                              By: _____________________________________________
                                 Name: Beverly J. Rollwagen
                                 Title: Co-Trustee

              (Fifth Signature Page to Investors Rights Agreement

                                       27
<PAGE>

                                   SCHEDULE 1
                              List of Shareholders
                              --------------------

Toshiba America Electronic Components, Inc.
9775 Toledo Way
Irvine, CA 92718

F&W Investments 1997
c/o Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94806

Norwest Bank Minnesota, N.A.
fbo John Rollwagen SEP IRA
Sixth and Marquette
Minneapolis, MN 55402
Attn:  William Bard

1267104 Ontario, Ltd.
65 Queen Street West, Suite 2400
Toronto M5H ZM8
Canada

SIP Global I, L.P.
c/o Maples and Calder
P.O. Box 309 Ugland House
South Church Street, Grand Cayman
Cayman Islands, British West Indies
<PAGE>

                                   SCHEDULE 2
                               List of Investors
                               -----------------

GE Capital Equity Investments, Inc.
c/o GE Equity Investments, Inc.
185 Berry Street
Suite 3600
San Francisco, CA 94107

Van Wagoner Capital Management
345 California Street
Suite 2450
San Francisco, CA 94104

Lagunitas Partner, LP
c/o Jon D. Gruber
50 Osgood Place
Penthouse
San Francisco, CA 94133

Gruber & McBaine International
c/o Jon D. Gruber
50 Osgood Place
Penthouse
San Francisco, CA 94133

Jon D. Gruber
c/o Jon D. Gruber
50 Osgood Place
Penthouse
San Francisco, CA 94133

SunAmerica Investments Inc.
c/o OKGBD & Co.
1999 Avenue of the Stars
Suite 3800
Los Angeles, CA 90067

Olympus Optical Co., Ltd.
San-Ei Building
22-2 Nishi-Shinjuku 1-chome
Shinjuku-ku
Tokyo 163-8610 Japan
<PAGE>

Mellon Ventures, L.P.
c/o MVMA, Inc.
400 S. Hope Street
5th Floor
Los Angeles, CA 90071-2806

St. Paul Venture Capital V, LLC
c/o St. Paul Venture Capital, Inc.
10400 Viking Drive,
Suite 550
Eden Prairie, MN 55344

St. Paul Venture Capital Affiliates Fund I, LLC
c/o St. Paul Venture Capital, Inc.
10400 Viking Drive
Suite 550
Eden Prairie, MN 55344

APV Technology Partners II, L.P.
c/o APV Management Co. II, LLC
535 Middlefield Road, Suite 150
Menlo Park, CA 94025

The John Tu and Mary Tu Trust, dated June 16, 1995
c/o Kingston Technology Corporation
17150 Newhope Street
Suite 503
Fountain Valley, CA 92708

Declaration of Trust of David Sun and Diana Sun,
dated February 26, 1986
c/o Kingston Technology Corporation
17150 Newhope Street
Suite 503
Fountain Valley, CA 92708

Thomvest Holdings, Inc.
65 Queen Street West, Suite 2400
Toronto, Ontario
Canada
M5H 2M8

John Rollwagen Revocable Trust U/A
dated September 13, 1991
c/o John A. Rollwagen
1315 Foshay Tower
Minneapolis, MN 55402
<PAGE>

                              AMENDMENT NO. 1 TO
                          INVESTORS RIGHTS AGREEMENT

     This AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT dated December __, 1999
(this "Amendment") amends a certain Investors Right Agreement dated as of
       ---------
September 28, 1999 by and among Lexar Media, Inc., a California corporation (the
"Company"), certain existing shareholders of the Company who are listed on
 -------
Schedule 1 attached thereto and certain investors listed on Schedule 2 thereto
----------                                                  ----------
(the "Investors Rights Agreement").  Capitalized terms not otherwise defined
      --------------------------
herein have the respective meanings given them in the Investors Rights
Agreement.

                                    RECITALS

     A.   Section 7.1 of the Investor Rights Agreement states in part that any
          term or provision of the Investors Rights Agreement may be amended by
          a writing signed by the Company and holders of at least two-thirds
          (2/3rds) of the Registrable Common.

     B.   The undersigned parties include the Company and the holders of at
          least two-thirds (2/3rds) of the Registrable Common.

     C.   The Board of Directors of the Company has approved this Amendment at a
          meeting of the Board of Directors on December __, 1999.

                                   AGREEMENTS

     NOW, THEREFORE, in consideration of the mutual promises made herein and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree to amend the Investors Rights
Agreement as follows:

     1.  Section 1.22 of the Investors Rights Agreement is amended by adding a
reference to the Warrant to Purchase Common Stock of the Company granted to
Fenwick and West LLP  as of an even date herewith.  Section 1.22 shall read in
its entirety as follows:

          1.22.  "Warrants" means the warrants to purchase 125,000 shares of the
                  --------
     Company's Common Stock granted to certain of the Investors as of January
     16, 1998, the warrant granted to SMART Modular Technologies, Inc. as of an
     even date herewith to purchase up to a certain number of shares of the
     Company's Common Stock as set forth in the warrant and the warrant granted
     to Fenwick & West LLP as of December __, 1999 to purchase up to a certain
     number of shares of the Company's Common Stock as set forth in the warrant.
<PAGE>

     2.  Section 4.2(i) is amended to exclude certain securities from the
definition of the "New Securities" that are subject to each Holders' right of
first refusal.  Section 4.2(i) shall read in its entirety as follows:

          (i) any shares of the Company's Common Stock (and/or options, warrants
          or rights therefor) issued or issuable to employees, officers, or
          directors, or bona fide contractors, consultants or legal, financial
          or other advisers to, the Company or any of its subsidiaries pursuant
          to stock purchase or stock option plans, stock bonuses or awards,
          warrants, contracts or other arrangements that are approved by a
          majority of the disinterested members of the Board of Directors of the
          Company.

     3.  Except as expressly modified by this Amendment, all terms of the
Investors Rights Agreement shall remain in full force and effect.
<PAGE>

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

COMPANY:                         LEXAR MEDIA, INC.

                                 By: ___________________________________________
                                    Name: Mr. John Reimer
                                    Title: President and Chief Executive Officer

SHAREHOLDERS:
                                 _______________________________________________
                                 John Reimer

                                 _______________________________________________
                                 Petro Estakhri

                                 _______________________________________________
                                 Mahmud ("Mike") Assar

SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>

INVESTORS:                         GE CAPITAL EQUITY INVESTMENTS, INC.
                                   a Delaware corporation

                                   By: _________________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>

                                          ST. PAUL VENTURE CAPITAL IV, LLC

                                          By: __________________________________
                                             Name: _____________________________
                                             Title: ____________________________

                                          ST. PAUL VENTURE CAPITAL V, LLC

                                          By: __________________________________
                                             Name: _____________________________
                                             Title: ____________________________

                                          ST. PAUL VENTURE CAPITAL AFFILIATES
                                          FUND I, LLC

                                          By St. Paul Venture Capital, Inc.,
                                          Its Manager

                                          By: __________________________________
                                             Name: _____________________________
                                             Title: ____________________________

        SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>

                                           APV TECHNOLOGY PARTNERS II, L.P.

                                           By APV Management Co. II, LLC,
                                           Its Managing General Partner

                                           By: _________________________________
                                              Name: ____________________________
                                              Title: ___________________________

SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>

                                    THE JOHN TU AND MARY TU TRUST,
                                    DATED JUNE 16, 1995

                                    By: ________________________________________
                                       Name: John Tu
                                       Title: Trustee

SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT
<PAGE>

                               DECLARATION OF TRUST OF DAVID SUN
                               AND DIANA SUN, DATED FEBRUARY 26, 1986

                               By: _____________________________________________
                                  Name: David Sun
                                  Title: Co-Trustee

                               By: _____________________________________________
                                  Name: Diana Sun
                                  Title: Co-Trustee

SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT

<PAGE>

                                  THOMVEST HOLDINGS, INC.

                                  By: __________________________________________
                                      Name: ____________________________________
                                      Title: ___________________________________

SIGNATURE PAGE TO AMENDMENT NO. 1 TO INVESTORS RIGHTS AGREEMENT<PAGE>

                                                                    EXHIBIT 10.1

                              INDEMNITY AGREEMENT

     This Indemnity Agreement (this "Agreement"), dated as of February ___,
2000, is made by and between Lexar Media, Inc. (Delaware), a Delaware
corporation (the "Company"), and _________________________, a director and/or
officer of the Company (the "Indemnitee").

                                   RECITALS

     A.  The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;

     B.  Based on their experience as business managers, the Board of Directors
of the Company (the "Board of Directors") has concluded that, to retain and
attract talented and experienced individuals to serve as officers and directors
of the Company, and to encourage such individuals to take the business risks
necessary for the success of the Company, it is necessary for the Company
contractually to indemnify officers and directors and to assume for itself
maximum liability for expenses and damages in connection with claims against
such officers and directors in connection with their service to the Company;

     C.  Section 145 of the General Corporation Law of Delaware, under which the
Company is organized (the "Delaware Law"), empowers the Company to indemnify by
agreement its officers, directors, employees, agents and persons who serve, at
the request of the Company, as directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provided by the Law is not exclusive; and

     D.  The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.

     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

     1.  Definitions.
         -----------

          1.1  Agent.  For the purposes of this Agreement, "agent" of the
               -----
Company means any person who (a) is or was a director or officer of the Company
or a subsidiary of the Company, (b) is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
Company; or (c) was a director or officer of a foreign or domestic corporation
which was a predecessor corporation of the Company, including, without
limitation, Lexar Media, Inc., a California corporation, or was a director or
officer of another enterprise or affiliate of the Company at the request of, for
the convenience of, or to represent the interests of such

                                       1
<PAGE>

predecessor corporation. The term "enterprise" includes any employee benefit
plan of the Company, its subsidiaries, affiliates and predecessor corporations.

          1.2  Expenses.  For purposes of this Agreement, "expenses" includes
               --------
all direct and indirect costs of any type or nature whatsoever, including,
without limitation, all attorneys' fees and related disbursements and other out-
of-pocket costs actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification or advancement of expenses under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
                                     --------  -------
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.

          1.3  Proceeding.  For the purposes of this Agreement, "proceeding"
               ----------
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever arising on or after the date of this Agreement, regardless of when
the act of Indemnities or failure to act occurred.

          1.4  Subsidiary.  For purposes of this Agreement, "subsidiary" means
               ----------
any corporation of which more than fifty percent (50%) of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more of its subsidiaries or by one or more subsidiaries of the Company.

     2.  Agreement to Serve.  The Indemnitee agrees to serve and/or continue to
         ------------------
serve as an agent of the Company, at the will of the Company, or under separate
agreement, if such agreement exists, in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
                --------  -------
any reason resign from such position, subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement, and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.

     3.  Directors' and Officers' Insurance.  The Company shall, to the extent
         ----------------------------------
that the Board of Directors determines it to be economically reasonable,
maintain a policy of directors' and officers' liability insurance ("Director and
Officer Insurance"), on such terms and conditions as may be approved by the
Board of Directors, but in no event less than $[   ].

     4.  Mandatory Indemnification.  Subject to Section 9 below, the Company
         -------------------------
shall indemnify the Indemnite as provided in this Agreement, and to the fullest
extent permitted by law.

          4.1  Third Party Actions.  If the Indemnitee is a person who was or is
               -------------------
a party or is threatened to be made a party to any proceeding other than an
action by or in the right of the Company, by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify Indemnitee against any and all
expenses and liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding if he acted in
good faith and in a manner he reasonably believed to

                                       2
<PAGE>

be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Notwithstanding the preceding, it is the intention of the
parties hereto that Indemnitee shall be indemnified to the full extent
authorized or permitted by Delaware Law and, therefore, to the extent Delaware
Law shall permit broader contractual indemnification, this contract shall be
deemed amended to incorporate such broader indemnification.

          4.2  Derivative Actions.  If the Indemnitee is a person who was or is
               ------------------
a party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, the Company shall indemnify the Indemnitee against any
amounts paid in settlement of any such proceeding and all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of such proceeding if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Company; provided, however, that no indemnification under this subsection
             --------  -------
shall be made in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable to the Company by a court of
competent jurisdiction due to willful misconduct of a culpable nature in the
performance of his duty to the Company, unless and only to the extent that the
Court of Chancery or the court in which such proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such amounts which the Court of Chancery or such other
court shall deem proper.  Notwithstanding the preceding, it is the intention of
the parties hereto that Indemnitee shall be indemnified to the full extent
authorized or permitted by Delaware Law and, therefore, to the extent Delaware
Law shall permit broader contractual indemnification, this contract shall be
deemed amended to incorporate such broader indemnification.

          4.3  Exception for Amounts Covered by Insurance.  Notwithstanding the
               ------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever, including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement, to the extent such have been paid directly to the Indemnitee by
Director and Officer Insurance.

     5.   Partial Indemnification and Contribution.
          ----------------------------------------

          5.1  Partial Indemnification.  If the Indemnitee is entitled under any
               -----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.

          5.2  Contribution.  If the Indemnitee is not entitled to the
               ------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware Law, then in respect of any threatened,
pending or completed proceeding in which the Company

                                       3
<PAGE>

is jointly liable with the Indemnitee, or would be if joined in such proceeding,
the Company shall contribute to the amount of expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the Indemnitee on the other hand from the transaction from which
such proceeding arose and (ii) the relative fault of the Company on the one hand
and of the Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.

     6.   Mandatory Advancement of Expenses.
          ---------------------------------

          6.1  Advancement.  Subject to Section 9 below, the Company shall
               -----------
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity.  The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the Delaware Law or
otherwise.  The advances to be made hereunder shall be paid by the Company to
the Indemnitee within thirty (30) days following delivery of a written request
therefor by the Indemnitee to the Company.

          6.2  Exception.  Notwithstanding the foregoing provisions of this
               ---------
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith.  If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith.  The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control.  For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at least
twenty (20) percentage points without advance approval by the Board of
Directors.

                                       4
<PAGE>

     7.   Notice and Other Indemnification Procedures.
          -------------------------------------------

          7.1  Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

          7.2  If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7.1 hereof, the Company has Director and
Officer Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies.  The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such D&O Insurance policies.

          7.3  In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, which approval shall not be unreasonably withheld,
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided,
                                                                --------
however, that:  (a) the Indemnitee shall have the right to employ his own
-------
counsel in any such proceeding at the Indemnitee's expense; (b) the Indemnitee
shall have the right to employ his own counsel in connection with any such
proceeding, at the expense of the Company, if such counsel serves in a review,
observer, advice and counseling capacity and does not otherwise materially
control or participate in the defense of such proceeding; and (c) if (i) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (ii) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense or (iii) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of the
Indemnitee's counsel shall be at the expense of the Company.

     8.   Determination of Right to Indemnification.
          -----------------------------------------

          8.1  To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the investigation, defense or appeal of such
proceeding, or such claim, issue or matter, as the case may be.

          8.2  In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.

                                       5
<PAGE>

          8.3  The Indemnitee shall be entitled to select the forum in which the
validity of the claim under Section 8.2 hereof that the Indemnitee is not
entitled to indemnification will be heard from among the following, provided,
                                                                    --------
however, that the Indemnitee can select a forum consisting of the stockholders
-------
of the Company only with the approval of the Company:  (a) a quorum of the Board
of Directors consisting of directors who are not parties to the proceeding for
which indemnification is being sought; (b) the stockholders of the Company; (c)
independent legal counsel mutually agreed upon by the Indemnitee and the Board
of Directors, which counsel shall make such determination in a written opinion;
(d) a panel of three arbitrators, one of whom is selected by the Company,
another of whom is selected by the Indemnitee and the last of whom is selected
by the first two arbitrators so selected; or (e) the Court of Chancery of
Delaware or other court having jurisdiction of subject matter and the parties.

          8.4  As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.

          8.5  If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the claim for
indemnification by the Indemnitee is or was pending or any other court of
competent jurisdiction, for the purpose of appealing the decision of such forum,
provided, however, that such right is executed within sixty (60) days after the
--------  -------
final decision of such forum is rendered.  If the forum selected in accordance
with Section 8.3 hereof is a court, then the rights of the Company or the
Indemnitee to appeal any decision of such court shall be governed by the
applicable laws and rules governing appeals of the decision of such court.

          8.6  Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement, unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.

     9.  Exceptions.  Any other provision herein to the contrary
         ----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

          9.1  Claims Initiated by Indemnitee.  To indemnify or advance expenses
               ------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, other than with respect
to proceedings specifically authorized by the Board of Directors or brought to
establish or enforce a right to indemnification and/or advancement of expenses
arising under this Agreement, the charter documents of the Company or any
subsidiary or any statute or law or otherwise, but such indemnification or

                                       6
<PAGE>

advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate; or

          9.2  Unauthorized Settlements.  To indemnify the Indemnitee hereunder
               ------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or

          9.3  Securities Law Actions.  To indemnify the Indemnitee on account
               ----------------------
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or

          9.4  Unlawful Indemnification.  To indemnify the Indemnitee if a final
               ------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.  In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and, therefore, is unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.

     10.  Non-Exclusivity.  The provisions for indemnification and advancement
          ---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Certificate of Incorporation or Bylaws of the Company, the vote of the
stockholders or disinterested directors of the Company, other agreements or
otherwise, both as to action in the official capacity of the Indemnitee and to
action in another capacity while occupying his position as an agent of the
Company, and the rights of the Indemnitee hereunder shall continue after the
Indemnitee has ceased acting as an agent of the Company and shall inure to the
benefit of the heirs, executors and administrators of the Indemnitee.

     11.  General Provisions.
          ------------------

          11.1  Interpretation of Agreement.  It is understood that the parties
                ---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.

          11.2  Severability.  If any provision or provisions of this Agreement
                ------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then:  (a) the validity, legality and enforceability of the remaining provisions
of this Agreement, including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable, shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement, including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable that are not themselves invalid, illegal
or unenforceable, shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.

                                       7
<PAGE>

          11.3  Modification and Waiver.  No supplement, modification or
                -----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto.  No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof,
whether or not similar, nor shall such waiver constitute a continuing waiver.

          11.4  Subrogation.  In the event of full payment under this Agreement,
                -----------
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary or desirable to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.

          11.5  Counterparts.  This Agreement may be executed in one or more
                ------------
counter-parts, which shall together constitute one agreement.

          11.6  Successors and Assigns.  The terms of this Agreement shall bind,
                ----------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.

          11.7  Notice.  All notices, requests, demands and other communications
                ------
under this Agreement shall be in writing and shall be deemed duly given (a) if
delivered by hand and signed for by the party addressee or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date.  The addresses for notice to either party are as shown
on the signature page of this Agreement or as subsequently modified by written
notice.

          11.8  Governing Law.  This Agreement shall be governed exclusively by
                -------------
and construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.

          11.9  Consent to Jurisdiction.  The Company and the Indemnitee each
                -----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.

          11.10  Attorneys' Fees.  In the event Indemnitee is required to bring
                 ---------------
any action to enforce rights under this Agreement, including, without
limitation, the expenses of any proceeding described in Section 3, the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.

                                       8
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.

LEXAR MEDIA, INC. (DELAWARE)             INDEMNITEE:

By:____________________________          ______________________________

Name: John Reimer

Title: President

                                         Address:______________________

                                         ______________________________

                                       9

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