Document:

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                                                                    EXHIBIT 4.03

                    PIGGYBACK REGISTRATION RIGHTS AGREEMENT

        This Piggyback Registration Rights Agreement (this "Agreement") is made
and entered into as of _______________ by and among Transmeta Corporation, a
California corporation (the "Company"), and _______________ ("_________").

R E C I T A L S

        A. In connection with certain _______________ being made available by
_______ to the Company pursuant to that certain _______________ Agreement
between the Company and _______, the Company has agreed to grant to _______ that
certain Warrant, of even date herewith (the "Warrant"), to purchase
_______________ shares of the Company's Common Stock ("Common Stock") and to
grant _______ certain piggyback registration rights with respect to such shares
of Common Stock.

        NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:

        1 Definitions.

                (a) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration or ordering of effectiveness of such
registration statement.

                (b) Registrable Securities. The term "Registrable Securities"
means (i) all the shares of Common Stock issued or issuable upon the exercise of
the Warrant, in each case that are now owned or may hereafter be acquired by
Holder or any of Holder's permitted successors and assigns; (ii) any shares of
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
shares of Common Stock described in clause (i) of this subsection (b); excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which rights under this Agreement are not assigned in accordance
with this Agreement or any Registrable Securities sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act.

                (c) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities then outstanding" will mean the number of
shares of Common Stock which are Registrable Securities and (i) are then issued
and outstanding or (ii) are then issuable pursuant to the exercise or conversion
of then outstanding and then exercisable options, warrants or convertible
securities, including without limitation the Warrant.

                (d) Holder. The term "Holder" means any person (i) owning of
record (A) the Warrant or (B) Registrable Securities that have not been sold to
the public or pursuant to Rule 144 promulgated under the Securities Act and (ii)
if such person is not _______, then who is an assignee of record of such Warrant
or Registrable Securities to whom rights under this Agreement have been duly
assigned in accordance with this Agreement.

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                (e) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.

        2. Piggyback Registrations. The Company will notify all Holders in
writing at least thirty (30) days prior to filing any registration statement
under the Securities Act for purposes of effecting a public offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder will, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
will inform the Company of the number of Registrable Securities such Holder
wishes to include in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder will nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.

                (a) Underwriting. If a registration statement under which the
Company gives notice under this Section 2 is for an underwritten offering, then
the Company will so advise the Holders. In such event, the right of any Holder
to be included in a registration pursuant to this Section 2 will be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through
such underwriting will enter into an underwriting agreement in customary form
with the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude any and all shares (including Registrable Securities)
from the registration and the underwriting; provided, however, that the right of
the underwriters to exclude shares (including Registrable Securities) in any
proportion from the registration and underwriting as described above will be
restricted so that all shares that are not Registrable Securities and are held
of record by persons who are employees or directors of the Company (or any
subsidiary of the Company) will first be excluded from such registration and
underwriting before any Registrable Securities are so excluded. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting will be excluded and withdrawn from the registration.

                (b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, will be borne by the Company.

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        3. Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
will, as expeditiously as reasonably possible:

                (a) Registration Statement. Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to
ninety (90) days.

                (b) Amendments and Supplements. Prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.

                (c) Prospectus. Furnish to the Holders such number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.

                (d) Blue Sky. Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as will be reasonably requested by the
Holders, provided that the Company will not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

                (e) Underwriting. 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 will also enter into
and perform its obligations under such an agreement.

                (f) Notification. Notify each Holder of Registrable Securities
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
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.

                (g) Opinion and Comfort Letter. Furnish, at the request of any
Holder requesting registration of Registrable Securities, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a

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"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.

        4. Furnish Information. It will be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2 hereof that
the selling Holders will furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as will be required to timely effect the
registration of their Registrable Securities.

        5. Delay of Registration. No Holder will have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.

        6. Indemnification. In the event any Registrable Securities are included
in a registration statement under Section 2 hereof:

                (a) By the Company. To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the l934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):

        (i) any untrue statement or alleged untrue statement of a material fact
        contained in such registration statement, including any preliminary
        prospectus or final prospectus contained therein or any amendments or
        supplements thereto;

        (ii) the omission or alleged omission to state therein a material fact
        required to be stated therein, or necessary to make the statements
        therein not misleading, or

        (iii) any violation or alleged violation by the Company of the
        Securities Act, the 1934 Act, any federal or state securities law or any
        rule or regulation promulgated under the Securities Act, the 1934 Act or
        any federal or state securities law in connection with the offering
        covered by such registration statement;

and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 6 will not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably

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withheld), nor will the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, underwriter or
controlling person of such Holder.

        (b) By Selling Holders. To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, partner, officer, director or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 6 will not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent will not
be unreasonably withheld; and provided further, that the total amounts payable
in indemnity by a Holder under this Section 6 in respect of any Violation will
not exceed the net proceeds received by such Holder in the registered offering
out of which such Violation arises.

        (c) Notice. Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party will have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party will
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, will relieve such indemnifying party of any liability to the indemnified
party under this Section 6, but the omission to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 6.

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                (d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus), such indemnity agreement will not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.

                (e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
6; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.

                (f) Survival. The obligations of the Company and Holders under
this Section 6 will survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.

        7. "Market Stand-Off" Agreement. _______ and each Holder hereby agrees
that it will not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company, or subject to
options, warrants or other rights, then owned by such _______ or Holder (other
than to donees or partners of _______ or the Holder who agree to be similarly
bound) for up to one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that all executive officers and directors of the Company then holding
Common Stock of the Company enter into similar agreements. In order to enforce
the foregoing covenant, the Company will have the right to place restrictive
legends on the certificates representing the shares subject to this Section and
to impose stop transfer instructions with respect to the Registrable Securities
and such other shares of stock

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of _______ and each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.

        8. Termination of the Company's Obligations. The Company will have no
obligations pursuant to Section 2 with respect to: (a) any request or requests
for registration made by any Holder on a date more than five (5) years after the
closing date of the Company's initial public offering of its Common Stock
pursuant to an effective registration statement filed under the Securities Act;
or (b) any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Section 2 hereof if, in the opinion of counsel to the
Company, all such Registrable Securities proposed to be sold by a Holder may be
sold in a three-month period without registration under the Securities Act
pursuant to Rule 144 under the Securities Act and such Holder holds less than
one percent (1%) of the outstanding stock of the Company.

        9. Assignment. Notwithstanding anything herein to the contrary, the
rights of a Holder under this Agreement may be assigned only to a party who
acquires the Warrant or at least 10,000 shares of Registrable Securities;
provided, however that no party may be assigned any of the foregoing rights
unless the Company is given written notice by the assigning party at the time of
such assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee will receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 9.

        10. Miscellaneous.

                (a) Termination of this Agreement. This Agreement may be
terminated voluntarily by written agreement of (1) the Company and (2) the
Holders of the Warrant and/or then outstanding shares of Common Stock issued
upon exercise of the Warrant representing at least sixty-six and two-thirds
percent (66.67%) of the voting power of all shares of Common Stock then issuable
upon exercise of the Warrant and such outstanding shares of Common Stock
together. Such termination will be binding upon all Holders, if any, of the
Warrant and/or Registrable Securities who do not sign such termination
agreement.

                (b) Notices. Unless otherwise provided, any notice required or
permitted under this Agreement will be given in writing and will be deemed
effectively given upon personal delivery to the party to be notified, or three
(3) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, or by deposit with a nationally recognized
courier service such as FedEx, or by facsimile with confirmed receipt and
addressed to the party to be notified at the address indicated for the Company
and _______ on the signature page hereof, or at such other address as any party
may designate by giving at least ten (10) days advance written notice to all
other parties, pursuant to this Section 10(b).

                (c) Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior negotiations, correspondence,
agreements, understandings duties or obligations between the parties with
respect to the subject matter hereof.

                (d) Amendment and Waiver. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance

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and either retroactively or prospectively) only with the written consent of (1)
the Company and (2) the Holders of the Warrant and/or then outstanding shares of
Common Stock issued upon exercise of the Warrant representing at least sixty-six
and two-thirds percent (66.67%) of the voting power of all shares of Common
Stock then issuable upon exercise of the Warrant and such outstanding shares of
Common Stock together; provided that no such amendment or waiver will increase
the obligation of Holder or any Holder hereunder without the specific written
consent of such Holder or Holder, as applicable. Any amendment or waiver
effected in accordance with this Section 10(d) will be binding upon Holder, each
Holder, each permitted successor or assignee of Holder or such Holder, and the
Company.

                (e) Governing Law. This Agreement will be governed by and
construed under the internal laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California, without reference to principles of conflict of laws or choice
of laws.

                (f) Severability. If any provision of this Agreement is held to
be unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.

                (g) Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.

                (h) Successors And Assigns. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and assigns of the parties.

                (i) Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.

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

                (k) Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party will
recover all of such party's costs and reasonable attorneys' fees incurred in
each such action, suit or other proceeding, including any and all appeals or
petitions therefrom.

                (l) No Finder's Fees. Each party represents that it neither is
nor will be obligated for any finder's or broker's fee or commission in
connection with this transaction. _______ will indemnify and hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' or broker's fee (and any asserted liability) for which _______ or any
of its officers, partners, employees, or representatives is responsible. The

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Company will indemnify and hold _______ harmless from any liability for any
commission or compensation in the nature of a finder's or broker's fee (and any
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.

                (m) Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock or
other securities of the Company, then, upon the occurrence of any subdivision,
combination or stock dividend of such class or series of stock, the specific
number of shares so referenced in this Agreement will automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.

                (n) Aggregation of Stock. All shares held or acquired by
affiliated entities or persons will be aggregated together for the purpose of
determining the availability of any rights under this Agreement.

                (o) Further Assurances. From and after the date of this
Agreement, upon the request of _______ or the Company, the Company and _______
will execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.

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

Transmeta Corporation,                      _______
a California corporation

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

Name:                                       Name:
     ------------------------------              -------------------------------

Title:                                      Title:
      -----------------------------               ------------------------------

Address:                                    Address:
         3940 Freedom Circle
         Santa Clara, CA 95054
         Attention:  President                Attention:  President
         Facsimile:  408-327-9840             Facsimile:  (___) ___-____

           [SIGNATURE PAGE TO PIGGYBACK REGISTRATION RIGHTS AGREEMENT]

                                       9<PAGE>   1

                                                                   EXHIBIT 10.02

                             TRANSMETA CORPORATION

                           1995 EQUITY INCENTIVE PLAN

                       As Adopted As Of September 5, 1995
                       And As Amended As Of June 19, 1996
                       And As Amended As Of July 19, 1996

        1. PURPOSE. The purpose of the Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.

        2. SHARES SUBJECT TO THE PLAN.

                2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to the Plan shall be 2,000,000 Shares. Subject to Sections 2.2 and 18,
Shares shall again be available for grant and issuance in connection with future
Awards under the Plan that: (a) are subject to issuance upon exercise of an
Option but cease to be subject to such Option for any reason other than exercise
of such Option, (b) are subject to an Award granted hereunder but are forfeited
or are repurchased by the Company at the original issue price, or (c) are
subject to an Award that otherwise terminates without Shares being issued.

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

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

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        4. ADMINISTRATION.

                4.1 Committee Authority. The Plan shall be administered by the
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of the Plan, and to the direction of the Board, the
Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:

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

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

        (c) select persons to receive Awards;

        (d) determine the form and terms of Awards;

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

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

        (g) grant waivers of Plan or Award conditions;

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

        (i) correct any defect, supply any omission, or reconcile any
            inconsistency in the Plan, any Award or any Award Agreement;

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

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

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

                                      -2-
<PAGE>   3

                4.3 Exchange Act Requirements. If the Company is subject to the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested director requirements of Section 16(b) of the Exchange Act,
including but not limited to, the appointment by the Board of a Committee
consisting of not less than two persons (who are members of the Board), each of
whom is a Disinterested Person.

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

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

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

                5.3 Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement; provided, however, that no Option shall be exercisable after
the expiration of ten (10) years from the date the Option is granted, and
provided further that no Option granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines.

                5.4 Exercise Price. The Exercise Price shall be determined by
the Committee when the Option is granted and may be not less than 85% of the
Fair Market Value of the Shares on the date of grant; provided that (i) the
Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of
the Shares on the date of grant and (ii) the Exercise Price of any Option
granted to a Ten Percent Shareholder shall not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of the Plan.

                                      -3-
<PAGE>   4

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

                5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option shall always be subject to
the following:

        (a) If the Participant is Terminated for any reason except death or
            Disability, then Participant may exercise such Participant's Options
            only to the extent that such Options would have been exercisable
            upon the Termination Date no later than three (3) months after the
            Termination Date (or such shorter time period as may be specified in
            the Stock Option Agreement), but in any event, no later than the
            expiration date of the Options.

        (b) If the Participant is terminated because of death or Disability (or
            the Participant dies within three months of such termination), then
            Participant's Options may be exercised only to the extent that such
            Options would have been exercisable by Participant on the
            Termination Date and must be exercised by Participant (or
            Participant's legal representative or authorized assignee) no later
            than twelve (12) months after the Termination Date (or such shorter
            time period as may be specified in the Stock Option Agreement), but
            in any event no later than the expiration date of the Options;
            provided, however, that in the event of termination due to
            Disability other than as defined in Section 22(e)(3) of the Code,
            any ISO that remains exercisable after 90 days after the date of
            termination shall be deemed a NQSO.

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

                5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
the Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of

                                      -4-
<PAGE>   5

the Company) shall not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISOs are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, the Options for the
first $100,000 worth of Shares to become exercisable in such calendar year shall
be ISOs and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year shall be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
the Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be automatically
incorporated herein and shall apply to any Options granted after the effective
date of such amendment.

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

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

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

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

                                      -5-
<PAGE>   6

Agreement along with full payment for the Shares to the Company within thirty
(30) days, then the offer shall terminate, unless otherwise determined by the
Committee.

                6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award shall be determined by the Committee and shall be at
least 85% of the Fair Market Value of the Shares on the date the Restricted
Stock Award is granted, except in the case of a sale to a Ten Percent
Shareholder, in which case the Purchase Price shall be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
the Plan.

                6.3 Restrictions. Restricted Stock Awards shall be subject to
such restrictions as the Committee may impose. The Committee may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or part, based on length of service, performance or such
other factors or criteria as the Committee may determine.

        7. STOCK BONUSES.

                7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded
for past services already rendered to the Company, or any Parent, Subsidiary or
Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. A Stock Bonus may
be awarded upon satisfaction of such performance goals as are set out in advance
in Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that shall be in such form (which need not be the same for each
Participant) as the Committee shall from time to time approve, and shall comply
with and be subject to the terms and conditions of the Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent, Subsidiary or Affiliate
and/or individual performance factors or upon such other criteria as the
Committee may determine; provided, however, that performance-based bonuses shall
be restricted to individuals earning at least $60,000 per year and of adequate
sophistication and sufficiently empowered to achieve the performance goals.

                7.2 Terms of Stock Bonuses. The Committee shall determine the
number of Shares to be awarded to the Participant and whether such Shares shall
be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee shall determine: (a) the nature, length and starting date of any
period during which performance is to be measured (the "Performance Period") for
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses

                                      -6-
<PAGE>   7

have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.

                7.3 Form of Payment. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee shall determine.

                7.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
shall be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.

        8. PAYMENT FOR SHARE PURCHASES.

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

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

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

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

                                      -7-
<PAGE>   8

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

        (e) by tender of property;

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

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

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

                or

                (g) by any combination of the foregoing.

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

        9. WITHHOLDING TAXES.

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

                9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that

                                      -8-
<PAGE>   9

is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:

        (a) the election must be made on or prior to the applicable Tax Date;

        (b) once made, then except as provided below, the election shall be
            irrevocable as to the particular Shares as to which the election is
            made;

        (c) all elections shall be subject to the consent or disapproval of the
            Committee;

        (d) if the Participant is an Insider and if the Company is subject to
            Section 16(b) of the Exchange Act: (1) the election may not be made
            within six (6) months of the date of grant of the Award, except as
            otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and
            (2) either (A) the election to use stock withholding must be
            irrevocably made at least six (6) months prior to the Tax Date
            (although such election may be revoked at any time at least six (6)
            months prior to the Tax Date) or (B) the exercise of the Option or
            election to use stock withholding must be made in the ten (10) day
            period beginning on the third day following the release of the
            Company's quarterly or annual summary statement of sales or
            earnings; and

        (e) in the event that the Tax Date is deferred until six (6) months
            after the delivery of Shares under Section 83(b) of the Code, the
            Participant shall receive the full number of Shares with respect to
            which the exercise occurs, but such Participant shall be
            unconditionally obligated to tender back to the Company the proper
            number of Shares on the Tax Date.

        10. PRIVILEGES OF STOCK OWNERSHIP.

                10.1 Voting and Dividends. No Participant shall have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such

                                      -9-
<PAGE>   10

Shares; provided, that if such Shares are Restricted Stock, then any new,
additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock split
or any other change in the corporate or capital structure of the Company shall
be subject to the same restrictions as the Restricted Stock; provided, further,
that the Participant shall have no right to retain such stock dividends or stock
distributions with respect to Shares that are repurchased at the Participant's
original Purchase Price pursuant to Section 12.

                10.2 Financial Statements. The Company shall provide financial
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.

                11. TRANSFERABILITY. Awards granted under the Plan, and any
interest therein, shall not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or as consistent with
the specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award shall be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.

                12. RESTRICTIONS ON SHARES. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
(a) a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase all Shares held by a Participant following such
Participant's Termination at any time within ninety (90) days after the later of
Participant's Termination Date or the date Participant purchases Shares under
the Plan, for cash or cancellation of purchase money indebtedness, at: (A) with
respect to Shares that are "Vested" (as defined in the Award Agreement), the
higher of: (l) Participant's original Purchase Price, or (2) the Fair Market
Value of such Shares on Participant's Termination Date, provided, such right of
repurchase terminates when the Company's securities become publicly traded; or
(B) with respect to Shares that are not "Vested" (as defined in the Award
Agreement), at the Participant's original Purchase Price, provided, that the
right to repurchase at the original Purchase Price lapses at the rate of at
least 20% per year over 5 years from the date the Shares were purchased, and if
the right to repurchase is assignable, the assignee must pay the Company, upon
assignment of the right to repurchase, cash equal to the excess of the Fair
Market Value of the Shares over the original Purchase Price.

                13. CERTIFICATES. All certificates for Shares or other
securities delivered under the Plan shall be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and

                                      -10-
<PAGE>   11

other requirements of the SEC or any stock exchange or automated quotation
system upon which the Shares may be listed.

        14. ESCROW; PLEDGE OF SHARES. To enforce the Company's right of
repurchase set forth in Section 12 on a Participant's Shares that are not Vested
(as defined in the Award Agreement), the Committee may require the Participant
to deposit all certificates representing Shares, together with stock powers or
other instruments of transfer approved by the Committee, appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such right of repurchase shall have lapsed or terminated (provided,
however, that such Shares will be retained in escrow so long as such Shares
secure any debts to the Company), and the Committee may cause a legend or
legends referencing such restrictions to be placed on the certificates. Any
Participant who is permitted to execute a promissory note as partial or full
consideration for the purchase of Shares under the Plan shall be required to
pledge and deposit with the Company all or part of the Shares so purchased as
collateral to secure the payment of Participant's obligation to the Company
under the promissory note; provided, however, that the Committee may require or
accept other or additional forms of collateral to secure the payment of such
obligation and, in any event, the Company shall have full recourse against the
Participant under the promissory note notwithstanding any pledge of the
Participant's Shares or other collateral. In connection with any pledge of the
Shares, Participant shall be required to execute and deliver a written pledge
agreement in such form as the Committee shall from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
prorata basis as the promissory note is paid.

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

        16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state

                                      -11-
<PAGE>   12

securities laws, stock exchange or automated quotation system, and the Company
shall have no liability for any inability or failure to do so.

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

        18. CORPORATE TRANSACTIONS.

                18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Awards may be assumed
or replaced by the successor corporation (if any), which assumption or
replacement shall be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to shareholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant.

                In the event such successor corporation (if any) refuses to
assume or substitute Options, as provided above, pursuant to a transaction
described in this Subsection 18.1, such Options shall expire on such transaction
at such time and on such conditions as the Board shall determine.

                18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."

                18.3 Assumption of Awards by the Company. The Company, from time
to time, also may substitute or assume outstanding awards granted by another

                                      -12-
<PAGE>   13

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

        19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective
on the date that it is adopted by the Board (the "Effective Date"). The Plan
shall be approved by the shareholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve months
before or after the Effective Date. Upon the Effective Date, the Board may grant
Awards pursuant to the Plan; provided, however, that: (a) no Option may be
exercised prior to initial shareholder approval of the Plan; (b) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; and (c) in the event that shareholder approval is
not obtained within the time period provided herein, all Awards granted
hereunder shall be cancelled, any Shares issued pursuant to any Award shall be
cancelled and any purchase of Shares hereunder shall be rescinded. After the
Company becomes subject to Section 16(b) of the Exchange Act, the Company will
comply with the requirements of Rule 16b-3 (or its successor), as amended, with
respect to shareholder approval.

        20. TERM OF PLAN. The Plan will terminate ten (10) years from the
Effective Date or, if earlier, the date of shareholder approval.

        21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; provided, however, that the Board shall not, without the approval
of the shareholders of the Company, amend the Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor), as amended, thereunder.

        22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem

                                      -13-
<PAGE>   14

desirable, including, without limitation, the granting of stock options and
bonuses otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.

        23. DEFINITIONS. As used in the Plan, the following terms shall have the
following meanings:

                "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.

                "Award" means any award under the Plan, including any Option,
Restricted Stock or Stock Bonus.

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

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

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

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

                "Company" means Transmeta Corporation, a corporation organized
under the laws of the State of California, or any successor corporation.

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

                "Disinterested Person" means a director who has not, during the
period that person is a member of the Committee and for one year prior to
service as a member of the Committee, been granted or awarded equity securities
pursuant to the Plan or any other plan of the Company or any Parent, Subsidiary
or Affiliate of the Company, except in accordance with the requirements set
forth in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as
promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is
amended from time to time and as interpreted by the SEC.

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

                                      -14-
<PAGE>   15

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

        "Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

        (a) if such Common Stock is then quoted on the Nasdaq National Market,
            its last reported sale price on the Nasdaq National Market or, if no
            such reported sale takes place on such date, the average of the
            closing bid and asked prices;

        (b) if such Common Stock is publicly traded and is then listed on a
            national securities exchange, the last reported sale price or, if no
            such reported sale takes place on such date, the average of the
            closing bid and asked prices on the principal national securities
            exchange on which the Common Stock is listed or admitted to trading;

        (c) if such Common Stock is publicly traded but is not quoted on the
            Nasdaq National Market nor listed or admitted to trading on a
            national securities exchange, the average of the closing bid and
            asked prices on such date, as reported by The Wall Street Journal,
            for the over-the-counter market; or

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

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

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

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

        "Participant" means a person who receives an Award under the Plan.

        "Plan" means this Transmeta Corporation 1995 Equity Incentive Plan, as
amended from time to time.

                                      -15-

<PAGE>   16

        "Restricted Stock Award" means an award of Shares pursuant to Section 6.

        "SEC" means the Securities and Exchange Commission.

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

        "Shares" means shares of the Company's Common Stock reserved for
issuance under the Plan, as adjusted pursuant to Sections 2 and 15, and any
successor security.

        "Stock Bonus" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.

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

        "Termination" or "Terminated" means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant or adviser, to the Company or a Parent,
Subsidiary or Affiliate of the Company, except in the case of sick leave,
military leave, or any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than ninety (90) days, or
reinstatement upon the expiration of such leave is guaranteed by contract or
statute. The Committee shall have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").

                                      -16-

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