Exhibit 10.1
SETTLEMENT AGREEMENT AND RELEASES
     THIS SETTLEMENT AGREEMENT AND RELEASES (this “Agreement”), dated as of
July 11, 2008, is made by and among Transmeta Corporation, a Delaware
corporation (the “Company”), and the other persons and entities that are
signatories hereto (collectively, the “Riley Group,” and each, individually, a
“member” of the Riley Group) which presently are or may be deemed to be members
of a “group” with respect to the common stock of the Company, $0.00001 par value
per share (the “Common Stock”), pursuant to Rule 13d-5 promulgated by the
Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). The Company and the Riley Group are
each sometimes referred to herein as a “Party.”
RECITALS
     WHEREAS, the Riley Group is the beneficial owner of 1,357,364 shares of
Common Stock and in addition possesses shared voting and dispositive power over
117,634 shares of Common Stock, over which beneficial ownership is disclaimed;
     WHEREAS, on January 31, 2008, Riley Investment Partners Master Fund L.P.
and Riley Investment Management LLC (collectively, the “Plaintiffs”) filed a
derivative stockholder action against the directors and certain officers of the
Company in the Superior Court of California, in and for the County of Santa
Clara (“the Court”), in the action captioned Riley Investment Partners Master
Fund, L.P., et al. v. Horsley, et al. (Transmeta Corp.), Case No. 1:08-CV-104667
(referred to as the “Litigation”);
     WHEREAS, on May 15, 2008, the Riley Investment Partners Master Fund L.P.
delivered to the Company a letter (the “Nomination Letter”) regarding the
nomination of directors for election to the Company’s board of directors (the
“Board”) at the 2008 annual meeting of stockholders of the Company (the “2008
Annual Meeting”) and concurrently filed a Schedule 14A with the SEC announcing
its intent to solicit proxies for the election of its own opposition slate of
nominees (the “Proxy Solicitation”) for election to the Board at the 2008 Annual
Meeting; and
     WHEREAS, the Company and the members of the Riley Group have determined
that the interests of the Company and its stockholders would be best served at
this time by, among other things, avoiding the Proxy Solicitation and further
litigation, and the expense and disruption that may result therefrom and forever
discharging all claims, demands, liabilities, and causes of action which have or
could have been asserted by the Riley Group, either on their own behalf or on
behalf of the Company, that relate in any way to, arise out of, or could have
arisen out of any statements, representations, omissions, acts, failures to act,
conduct, events or occurrences alleged in the Litigation.
AGREEMENT
     NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the

 

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receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, hereby, agree as follows:
     1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Riley Group that:
          (a) this Agreement has been duly authorized, executed and delivered by
the Company, and is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws generally affecting the rights of
creditors and subject to general equity principles;
          (b) neither the execution of this Agreement nor the consummation of
any of the transactions contemplated hereby nor the fulfillment of the terms
hereof, in each case in accordance with the terms hereof, will conflict with, or
result in a breach or violation of, or result in the imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to the terms of, any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject;
          (c) the execution and delivery by the Company of this Agreement and
the performance by the Company of its obligations hereunder do not and will not
violate the Certificate of Incorporation, Bylaws or any policy, procedure,
charter or code of the Company, each as amended to date; and
          (d) the execution and delivery by the Company of this Agreement and
the performance by the Company of its obligations hereunder do not and will not
violate in any material respect any law, rule, regulation or order of any court
or other agency of government that is applicable to the Company.
     2. REPRESENTATIONS AND WARRANTIES OF THE RILEY GROUP. Each member of the
Riley Group represents and warrants to the Company that:
          (a) this Agreement has been duly authorized, executed and delivered by
each member of the Riley Group, and is a valid and binding obligation of each
such member, enforceable against each such member in accordance with its terms,
except as enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
generally affecting the rights of creditors and subject to general equity
principles;
          (b) the execution and delivery by each member of the Riley Group of
this Agreement and the performance by each such member of its obligations
hereunder do not and will not violate, any governing partnership agreement,
membership agreement and/or any other governing instruments of such member, or
any policy, procedure, charter or code of such member, each as amended to date;

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          (c) the execution and delivery by each member of the Riley Group of
this Agreement and the performance by each such member of its obligations
hereunder do not and will not violate in any material respect any law, rule,
regulation or order of any court or other agency of government that is
applicable to such member;
          (d) each of Bryant R. Riley (“Mr. Riley”) and J. Michael Gullard
(“Mr. Gullard,” and together with Mr. Riley, the “Riley Directors”) is
“independent” as “independence” is defined by the listing standards of The
NASDAQ Stock Market LLC;
          (e) the Riley Group is the beneficial owner of, in the aggregate, more
than five percent (5%) of the outstanding Common Stock, as of the date hereof,
and such ownership is set forth on Exhibit A hereto; and
          (f) no member of the Riley Group has previously assigned or conveyed
to any third person (including by operation of law) any right, claim or cause of
action that is the subject of this Agreement (including the releases contained
in this Agreement).
     3. COVENANTS OF THE COMPANY.
          (a) Subject to, and effective upon, the filing with the Court a
stipulation requesting that the Court enter an order dismissing the Litigation
with prejudice (as set forth in Section 4(c), below), the authorized size of the
Board shall be increased to nine (9) directors divided evenly into the three
classes of directors, and Mr. Gullard shall be elected to the Board as a Class I
director of the Company.
          (b) Upon his election, the Board shall appoint Mr. Gullard to the
Compensation Committee of the Board for the duration of Mr. Gullard’s service on
the Board; provided Mr. Gullard is then qualified to serve on the Compensation
Committee under applicable legal requirements and listing standards. If at such
time as Mr. Gullard is not so qualified, he may be removed from the Compensation
Committee by the Board. Based solely upon information provided by, and
representations from, Mr. Gullard, the Company believes that Mr. Gullard is
currently qualified to serve on the Compensation Committee under applicable
legal requirements and listing standards. The Company has no reasonable basis to
presently believe that Mr. Gullard is not qualified to serve on the Compensation
Committee under applicable legal requirements and listing standards.
          (c) Subject to the Court entering an order dismissing the Litigation
with prejudice (as set forth in Section 4(c), below), the Company shall include
Mr. Riley in the Board’s slate of nominees for election as a Class II director
of the Company at the 2008 Annual Meeting and use its reasonable best efforts to
cause the election of Mr. Riley at the 2008 Annual Meeting, including, without
limitation, recommending that the Company’s stockholders vote in favor of the
election of Mr. Riley at the 2008 Annual Meeting and voting the shares of Common
Stock represented by all proxies granted by stockholders in connection with the
solicitation of proxies by the Board in connection with the 2008 Annual Meeting
in favor of Mr. Riley, except for such proxies that specifically indicate a vote
to withhold authority with respect to Mr. Riley.

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Neither the Board nor the Company shall take any position, make any statements
or take any action inconsistent with such recommendation. Based solely upon
information provided by, and representations from (excluding Section 2(d)
hereof), Mr. Riley, the Company believes that Mr. Riley is currently
“independent” as defined by the listing standards of The NASDAQ Stock Market
LLC.
          (d) The Riley Directors, upon election to the Board, will serve as
full members of the Board and be governed by the same protections and
obligations regarding confidentiality, conflicts of interests, fiduciary duties,
trading and disclosure policies and other governance guidelines as are
applicable to all directors of the Company, and shall have the same rights and
benefits as are applicable to all independent directors of the Company,
including (but not limited to) insurance, indemnification, compensation and
fees.
          (e) In the event a Riley Director shall resign prior to the expiration
of the term for which he is elected to serve on the Board, then the Riley Group
shall have the right to nominate for election by the Board a replacement solely
to serve the remainder of such Riley Director’s term on the Board. The Riley
Group hereby agrees that such nominee shall be “independent” as “independence”
is defined by the listing standards of The NASDAQ Stock Market LLC. In addition,
such nominee shall provide all information required of shareholder nominees as
set forth in the Company’s proxy statements filed with the SEC and such further
information as reasonably requested by the Nominating and Corporate Governance
Committee to determine the qualifications and independence of such nominee. The
appointment of such nominee shall be subject to the approval of the Board. All
references in this Agreement to the Riley Directors shall also be deemed to mean
such persons as may be appointed a member of the Board pursuant to this
Section 3(e).
     4. COVENANTS OF THE RILEY GROUP.
          (a) Subject to the inclusion of Mr. Riley in the Board’s slate of
nominees for election as a Class II director of the Company at the 2008 Annual
Meeting, the Riley Group agrees to vote in favor of the Board’s slate of
nominees for election as directors of the Company at the 2008 Annual Meeting and
all future annual meetings of the stockholders of the Company; provided that the
Riley Group is not otherwise specifically instructed by their client(s) to vote
in another manner. The Riley Group further agrees to vote in favor of the
proposals submitted by the Board at all annual meetings of the stockholders of
the Company after the 2008 Annual Meeting; provided that Mr. Riley (or his
successor nominated pursuant to Section 3(e) hereof) has voted in favor of such
proposal as a member of the Board and the Riley Group is not otherwise
specifically instructed by their client(s) to vote in another manner.
Notwithstanding anything in this Agreement to the contrary, this Section 4(a)
shall terminate on the first date after the 2008 Annual Meeting that Mr. Riley
(or his successor nominated pursuant to Section 3(e) hereof) is not or ceases to
be a director on the Board.
          (b) Immediately prior to the issuance of the press release
contemplated in Section 9 hereof, the Riley Group shall, subject to Section 22
hereof: (i) irrevocably withdraw the Nomination Letter and shall take all action
necessary or appropriate to terminate the Proxy Solicitation and (ii) file a
Schedule 13D/A notifying the SEC of the termination of the Proxy

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Solicitation. The Riley Group shall make all other necessary filings with the
SEC to accomplish such withdrawal and termination and at its own expense.
          (c) Promptly following the execution of this Agreement, and in any
event within five (5) business days thereof, the Plaintiffs and the parties
named in the Litigation as defendants shall file with the Court a stipulation
requesting that the Court enter an order dismissing the Litigation with
prejudice. The stipulation and proposed order shall specify that each party is
to bear his or its own costs and attorneys fees.
     5. STANDSTILL PERIOD.
          (a) Each member of the Riley Group agrees that until the first day
following the earlier of (x) the date of the 2010 annual meeting of stockholders
of the Company and (y) September 30, 2010 (such period, the “Standstill
Period”), without the prior written consent of the Board specifically expressed
in a written resolution adopted by a majority vote of the entire Board, neither
it nor any of its Affiliates (as such term is defined below) under its control
or direction will, directly or indirectly, or in conjunction with any other
person or entity:
               (i) effect or seek to effect (including, without limitation, by
entering into any discussions, negotiations, agreements or understandings),
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in, or in way knowingly assist or facilitate any other person to
effect or seek, offer or propose to effect any (x) tender offer or exchange
offer, merger, acquisition or other business combination involving the Company
or any of its subsidiaries; (y) any form of business combination or acquisition
or other transaction relating to a material amount of assets or securities of
the Company or any of its subsidiaries or (z) any form of restructuring,
recapitalization or similar transaction with respect to the Company or any of
its subsidiaries;
               (ii) acquire, offer or propose to acquire any voting securities
(or beneficial ownership thereof), or rights or options to acquire any voting
securities (or beneficial ownership thereof) of the Company if after any such
case, immediately after the taking of such action the Riley Group, together with
its respective Affiliates, would in the aggregate, beneficially own more than
13% of the then outstanding Common Stock;
               (iii) engage in any solicitation of proxies or consents to vote
any voting securities of the Company in opposition to the recommendation of the
Board with respect to any matter, including the election of directors;
               (iv) knowingly seek to influence any person with respect to the
voting of any securities of the Company in opposition to the recommendation of
the Board with respect to any matter, including but not limited to the election
of members of the Board, unless requested to do so by the Company;
               (v) otherwise act, alone or in concert with others, to knowingly
seek to control or influence the Board or the management or policies of the
Company;

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               (vi) otherwise act, alone or in concert with others, to seek to
control the Board or initiate or take any action to obtain representation on the
Board, or seek the removal of any director from the Board, except as permitted
expressly by this Agreement;
               (vii) take any action to seek to amend any provision of the
Company’s Certificate of Incorporation or Bylaws except as may be approved by
the Board;
               (viii) grant any proxy rights with respect to the Common Stock to
any person not designated by the Company, except for Riley Investment Management
LLC and only where it shares voting power pursuant to arrangements that exist on
the date of this Agreement or agreements substantially similar to such existing
arrangements;
               (ix) call or seek to have called any meeting of the stockholders
of the Company;
               (x) propose any matter for submission to a vote of the
stockholders of the Company;
               (xi) execute any written consents, waiver or demand with respect
to the Common Stock;
               (xii) unless required by law, make or issue or cause to be made
or issued any public disclosure, announcement or statement (including without
limitation the filing of any document with the SEC or any other governmental
agency or any disclosure to any journalist, member of the media or securities
analyst) (x) in support of any proxy solicitation other than a proxy
solicitation by the Company, (y) concerning any matter described in (i) through
(x) above, or (z) negatively commenting upon the Company, including the
Company’s management, the Board and the Company’s strategy, business, or
corporate activities;
               (xiii) enter into any agreements with any third party with
respect to any of the foregoing or take any action which might force the Company
to make a public announcement regarding any of the foregoing, except, in each
case, as contemplated by this Agreement; or
               (xiv) form, join or in any way participate in a “group” (as
defined in Section 13(d)(3) of the Exchange Act) for or in connection with any
of the foregoing purposes.
The provisions of this Section 5 shall not limit in any respect: (1) the actions
of any Riley Director solely in his capacity as a director of the Company,
recognizing that such actions are subject to such Riley Director’s fiduciary
duties to the Company and its stockholders; (2) non-public discussions between
the Riley Directors (whether or not Mr. Riley is a director of the Company); or
(3) statements that may be made in research reports of B. Riley & Co., LLC that
address the Company’s industry in general or that are specific to the Company
and related client communications, so long as the Riley Directors have not
directed, prepared, reviewed or otherwise participated in the preparation of
such research report. The provisions of this Section

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5 shall not limit in any respect the ability of Mr. Riley to (i) instruct or
advise the investment clients over which he possesses sole or shared voting
power solely to take the action of voting against the recommendation of the
Board to the stockholders or (ii) subject to and without prejudice to Section
4(a) hereof, the ability of any member of the Riley Group or any Affiliate
thereof solely to vote as a stockholder on any matter submitted by the Board or
any stockholder other than a member of the Riley Group or any Affiliate thereof
at any meeting of the stockholders of the Company; provided, in the case of
clause (i), that so long as Mr. Riley (or his replacement pursuant to Section
3(e) hereof) is a director on the Board, Mr. Riley voted against such
recommendation as a member of the Board and, in each case, no member of the
Riley Group or any Affiliate thereof makes or issues or causes to be made or
issued any public disclosure, announcement or statement in connection with such
instruction, advice or vote.
          (b) As used in this Agreement, the term “Affiliate” shall have the
respective meanings set forth in Rule 12b-2 promulgated by the SEC under the
Exchange Act; the terms “beneficial owner” and “beneficial ownership” shall have
the respective meanings as set forth in Rule 13d-3 promulgated by the SEC under
the Exchange Act; and the terms “person” or “persons” shall mean any individual,
corporation (including not-for-profit), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization or
other entity of any kind or nature.
     6. GENERAL RELEASES. The members of the Riley Group and the Company, on
their own behalf and on behalf of each of their officers, directors, agents,
employees, shareholders, partners, parents, subsidiaries, affiliates, trustees,
trustors, beneficiaries, joint venturers, insurers, attorneys, representatives,
family members, predecessors, successors and assigns, respectively, hereby
release and discharge each other and each of their current and former officers,
directors, agents, employees, stockholders, partners, parents, subsidiaries,
affiliates, trustees, trustors, beneficiaries, joint venturers, insurers,
attorneys, representatives, family members, predecessors, successors and
assigns, from any and all claims, suits, demands, obligations, liabilities,
attorneys fees, costs, and causes of action of any kind whatsoever, whether
known or unknown, suspected or unsuspected, claimed or unclaimed, asserted or
unasserted, direct or derivative, individually or on behalf of the Company, that
relate in any way to, arise out of, or could have arisen out of any statements,
representations, omissions, acts, failures to act, conduct, events or
occurrences alleged in the Litigation. These releases apply to all claims in
contract, tort, or otherwise, and under any statute or common law, in law or in
equity. The foregoing releases shall not affect, waive, limit, modify or in any
other way change in any manner any obligation or liability of any Party under
this Agreement, any instrument or agreement executed and delivered pursuant to
this Agreement, or any breaches of fiduciary duty or similar claims on or after
the date of this Agreement.
     7. WAIVER OF CIVIL CODE SECTION 1542. The members of the Riley Group, and
each of them, expressly acknowledge that they have been informed of and are
familiar with the provisions of Section 1542 of the California Civil Code, which
provides as follows:

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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
     The members of the Riley Group, and each of them, being aware of
Section 1542, hereby expressly waive any rights they may have thereunder, as
well as under any other statutes or common law principles of similar effect.
     8. VOLUNTARY AGREEMENT. By signing below, the undersigned representatives
of the Parties agree and acknowledge they have read and understand the binding
nature of this Agreement, that it represents a final and binding settlement
according to its terms, and that they are entering into the Agreement
voluntarily and with full knowledge of its significance and legal effect.
     9. PUBLIC ANNOUNCEMENT. The Riley Group and the Company shall announce this
Agreement and the material terms hereof within two (2) business days of the date
hereof by means of a joint press release in the form attached as Exhibit B
hereto.
     10. DISCLOSURE. The Riley Group acknowledges that this Agreement shall be
filed with the SEC within four (4) business days of execution on a Current
Report on Form 8-K. The Company shall provide the Riley Group with a copy of
such Current Report in advance of such filing for review. The Company shall also
provide the Riley Group with a copy of the proposed proxy statement for the 2008
Annual Meeting in advance of the filing of the proxy statement with the SEC.
Such proxy statement will also contain a description of this Agreement.
     11. SPECIFIC PERFORMANCE. Each member of the Riley Group, on the one hand,
and the Company, on the other hand, acknowledges and agrees that irreparable
injury to the other Party would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached and that such injury would not be adequately compensable in
damages. It is accordingly agreed that the members of the Riley Group or any of
them, on the one hand, and the Company, on the other hand (the “Moving Party”),
shall each be entitled to specific enforcement of, and injunctive relief to
prevent any violation of, the terms hereof, and the other Party will not take
action, directly or indirectly, in opposition to the Moving Party seeking such
relief on the grounds that any other remedy or relief is available at law or in
equity.
     12. JURISDICTION; APPLICABLE LAW. Each of the parties hereto:
          (a) consents to submit itself to the personal jurisdiction of federal
or state courts of the State of California in the event any dispute arises out
of this Agreement or the transactions contemplated by this Agreement,
          (b) agrees that it shall not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court,

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          (c) agrees that it shall not bring any action relating to this
Agreement or the transactions contemplated by this Agreement in any court other
than federal or state courts of the State of California,
          (d) agrees to waive any bonding requirement under any applicable law,
in the case the other Party seeks to enforce the terms by way of equitable
relief and
          (e) irrevocably consents to service of process by first class
certified mail, return receipt requested, postage prepaid, to the address of
such Party’s principal place of business or as otherwise provided by applicable
law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH STATE.
     13. NO ADMISSION OF LIABILITY. The parties to this Agreement agree that
nothing in this Agreement is intended or shall be construed as an admission of
liability.
     14. NO CONSTRUCTION AGAINST DRAFTER. For purposes of any action arising out
of the application, interpretation, or alleged breach of this Agreement, each
Party waives any statutory or common law principle, and any judicial
interpretation of this Agreement, which would create a presumption against the
other Party as a result of its having drafted any provision of this Agreement.
Counsel for the respective parties have reviewed and revised this Agreement, and
there shall not be applied any rule construing ambiguities against the drafting
party.
     15. ADDITIONAL DOCUMENTS. Each Party agrees that it will execute and
provide, at the request of the other Party, any and all such other documents or
other written instruments as may be reasonably necessary to effectuate the
purposes of the Agreement.
     16. THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement shall
create any rights in, or be deemed to have been executed for the benefit of any
person or entity that is not a party hereto or a successor or permitted assignee
of such party.
     17. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement contains the
entire understanding of the parties hereto with respect to its subject matter.
There are no restrictions, agreements, promises, representations, warranties,
covenants or undertakings between the parties other than those expressly set
forth herein. This Agreement may be amended only by a written instrument duly
executed by the parties hereto, or their respective successors or assigns. No
failure on the part of any Party to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of such right, power or remedy by such Party
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.

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     18. SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by the
parties hereto and their respective successors, heirs, executors, legal
representatives, and assigns; provided, however, that no Party may assign,
delegate or otherwise transfer any of its obligations under this Agreement
without the prior written consent of the other Party hereto.
     19. NOTICES. All notices, consents, requests, instructions, approvals and
other communications provided for herein and all legal process in regard hereto
shall be in writing and delivered by overnight courier or facsimile or
electronic mail and shall be deemed duly given on the date of delivery. All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the Party to receive such
notice:

  (a)   If to the Company:         Transmeta Corporation
2540 Mission College Boulevard
Santa Clara, CA 95054
Attention: President         With a copy to (which shall not constitute notice):
        Fenwick & West LLP
801 California Street
Mountain View, CA 94041
Attention: Mark A. Leahy, Esq.     (b)   If to the Riley Group:         c/o
Riley Investment Management LLC
11100 Santa Monica Boulevard, Suite 810
Los Angeles, CA 90025
Attention: Bryant R. Riley         With a copy to (which shall not constitute
notice):         Paul, Hastings, Janofksy & Walker LLP
695 Town Center Drive
Seventeenth Floor
Costa Mesa, CA 92626
Attention: Peter J. Tennyson, Esq.

     20. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated and the parties shall

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use their best efforts to agree upon and substitute a valid and enforceable
term, provision, covenant or restriction for any of such that is held invalid,
void or unenforceable by a court of competent jurisdiction.
     21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, which together shall constitute a single agreement.
     22. TERMINATION. The provisions of this Agreement may be terminated by the
non-breaching Party in the event of a material breach by the other Party of any
of the terms of this Agreement; provided, however, that the non-breaching Party
shall first provide written notice to the breaching Party of the facts and
circumstances giving rise to such breach, after which the breaching Party shall
have five (5) business days from receipt of such notice to fully cure such
breach. If the Company’s definitive proxy statement is not filed with the SEC on
or prior to August 31, 2008 with Mr. Riley as a nominee and the 2008 Annual
Meeting is not held by September 30, 2008, then this Agreement shall be
terminated and the Nomination Letter and the request from Riley Investment
Partners Master Fund, L.P. for books and records dated June 3, 2008 shall be
deemed to have not been withdrawn. Any termination of this Agreement as provided
herein will be without prejudice to the rights of any Party arising out of the
breach by the other Party of any provision of this Agreement. Sections 1, 2 and
8 through 22 shall survive any such termination.
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     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized signatories of the parties as of the date hereof.

         
TRANSMETA CORPORATION
  RILEY INVESTMENT PARTNERS MASTER FUND, L.P.    
 
       
/s/ Lester M. Crudele
 
Lester M. Crudele
President and Chief Executive Officer
  By: Riley Investment Management LLC,
its General Partner    

                  /s/ Bryant R. Riley       Bryant R. Riley, Managing Member   
          RILEY INVESTMENT MANAGEMENT LLC
      /s/ Bryant R. Riley       Bryant R. Riley, Managing Member              B.
RILEY & CO. RETIREMENT TRUST
      /s/ Bryant R. Riley       Bryant R. Riley, Trustee              B. RILEY &
CO., LLC
      /s/ Bryant R. Riley       Bryant R. Riley, Chairman              BRYANT R.
RILEY
      /s/ Bryant R. Riley                  

[SIGNATURE PAGE TO SETTLEMENT AGREEMENT AND RELEASE]

 

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          APPROVED AS TO FORM:

PAUL HASTINGS JANOFSKY & WALKER LLP
    By   /s/ Jay C. Gandhi         Jay C. Gandhi        Attorneys for the Riley
Group        FENWICK & WEST LLP
      By   /s/ Kevin Muck         Attorneys for Transmeta Corporation           
   

[SIGNATURE PAGE TO SETTLEMENT AGREEMENT AND RELEASE]

 

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EXHIBIT A
BENEFICIAL OWNERSHIP OF THE RILEY GROUP

              Shares Beneficially Held
Riley Investment Partners Master Fund, L.P.
    639,674  
Riley Investment Management LLC
    1,273,364 *
B. Riley & Co., LLC
    79,000  
B. Riley & Co. Retirement Trust
    5,000  
Bryant Riley
    1,357,364 *

 

*   Excludes 117,634 shares held by an investment advisory account of Riley
Investment Management LLC, with respect to which beneficial ownership is
disclaimed.

 

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EXHIBIT B
PRESS RELEASE

 

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     (TRANSMETA CORPORATION LOGO) [f42174f4217401.gif]

     
Contacts:
Sujan Jain
Transmeta Corporation
(408) 919-3000
  Investors:
Kristine Mozes
Mozes Communications LLC
(781) 652-8875

TRANSMETA ANNOUNCES AGREEMENT WITH RILEY INVESTMENT MANAGEMENT, LLC
SANTA CLARA, CA. — July 15, 2008 — Transmeta Corporation (NASDAQ: TMTA) today
announced that it has entered into a settlement agreement and release with the
entities and persons affiliated with Riley Investment Management, LLC, resolving
all proxy matters and other issues relating to Transmeta.
The agreement provides, among other things, for the following:

  •   Transmeta will promptly increase the total number of directors on its
Board of Directors from seven to nine, divided evenly among its three Classes  
  •   Transmeta’s Board of Directors will promptly elect J. Michael Gullard to
join the Board as a director in Class I and appoint him to its Compensation
Committee     •   Transmeta will include Bryant R. Riley in its proxy materials
as a nominee for election to the Board of Directors as a director in Class II
and use its reasonable best efforts to cause Mr. Riley’s election to the Board
at its 2008 annual meeting, which has not been scheduled but is expected to be
held on or before September 30, 2008     •   the Riley entities will vote their
shares in favor of Transmeta’s slate of nominees for election to the Board of
Directors at the company’s 2008 annual meeting, and will not solicit proxies in
connection with that meeting     •   the Riley entities will abide by certain
confidentiality and standstill obligations through the completion of Transmeta’s
2010 annual meeting, including an agreement not to acquire an aggregate
beneficial ownership position of more than 13% of Transmeta’s outstanding common
stock. The Riley entities currently own approximately 1,357,364 shares of
Transmeta common stock, representing approximately 11.2 percent of Transmeta’s
outstanding shares.     •   the Riley entities and Transmeta will file a joint
stipulation to dismiss with prejudice the RIM shareholder derivative litigation
against Transmeta’s directors and officers, with each party to bear its own fees
and costs     •   the Riley entities and Transmeta entered into a general mutual
release of claims.

“We are pleased to have achieved this agreement with the Riley Group and believe
that it best serves the interests of Transmeta and its shareholders,” said Les
Crudele, president and CEO of

 

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Transmeta. “Through this agreement, Transmeta and RIM will avoid a costly and
disruptive proxy contest at a time when the company is exploring a full range of
strategic alternatives to enhance shareholder value. We look forward to working
with both Mr. Gullard and Mr. Riley.”
J. Michael Gullard has served since 1984 as a general partner of Cornerstone
Management, a venture capital and consulting firm that provides strategic focus
and direction for technology companies, primarily in the software and data
communications industries. He also serves on the board of directors of Alliance
Semiconductor, JDA Software Group, Inc., Proxim Wireless, Inc. and Planar
Systems, Inc., each a Nasdaq listed company, and DynTek, Inc. From 1992 to 2004,
he served as Chairman of NetSolve, Incorporated, a provider of IT infrastructure
management services on an outsourced basis. From 1996 to 2004, Mr. Gullard also
served as Chairman of Merant PLC (formerly Micro Focus Group Ltd.), a provider
of change management software tools. Earlier in his career, Mr. Gullard held
several executive and management positions at Telecommunications Technology Inc.
and Intel Corporation. Mr. Gullard holds a B.A. degree in economics from
Stanford University and an M.B.A. degree from the Stanford Graduate School of
Business.
Bryant R. Riley is both founder and Chairman of B. Riley & Co., Inc., a Southern
California based brokerage firm providing research and trading ideas primarily
to institutional investors. Mr. Riley is also the founder and Chairman of Riley
Investment Management, LLC, an investment adviser which provides investment
management services. He also serves on the board of directors of Alliance
Semiconductor, Aldila, Inc., DDi Corporation, and Silicon Storage Technology,
Inc., each a Nasdaq listed company. Prior to 1997, Mr. Riley held a variety of
positions in the brokerage industry, primarily as an Institutional Salesman and
Trader. From October 1993-January 1997 he was a co-head of Equity at
Dabney-Resnick, Inc., a Los Angeles based brokerage firm. From 1991-1993 he was
a co-founder of Huberman-Riley, a Texas based brokerage firm. Mr. Riley
graduated from Lehigh University in 1989 with a B.S. in finance.
“I appreciate the opportunity to be elected to the Board of Transmeta,” said
Bryant R. Riley. “During the past several weeks, I have met the independent
directors and feel confident that we can work together to enhance value for
Transmeta shareholders. I look forward to working closely with the other
directors to benefit the company and its shareholders.”
About Transmeta Corporation
Transmeta Corporation develops and licenses innovative computing, microprocessor
and semiconductor technologies and related intellectual property. Founded in
1995, we first became known for designing, developing and selling our highly
efficient x86-compatible software-based microprocessors, which deliver a balance
of low power consumption, high performance, low cost and small size suited for
diverse computing platforms. We are presently focused on developing and
licensing our advanced power management technologies for controlling leakage and
increasing power efficiency in semiconductor and computing devices, and in
licensing our computing and microprocessor technologies to other companies. To
learn more about Transmeta, visit www.transmeta.com.
Safe Harbor Statement
This release contains forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
statements speak only as of the date of this release, and we will not
necessarily provide updates of our projections or other forward-looking
statements. Investors are cautioned that such forward-looking statements are

 

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subject to many risks and uncertainties, and may differ materially or adversely
from our actual results or future events.
Important risk factors that could have material or adverse effects on our
results include practical operational challenges following our recent
restructuring and change of business model, the potential loss of key technical
and business personnel, uncertainty about the adoption and market acceptance of
our technology offerings by current and potential customers and licensees, our
inability to predict or ensure that third parties will license our technologies
or use our technologies to generate royalties, difficulties in developing our
technologies in a timely and cost effective manner, patents and other
intellectual property rights, and other risk factors. We urge investors to
review our filings with the Securities and Exchange Commission, including our
most recent reports on Forms 10-K, 10-Q and 8-K, which describe these and other
important risk factors that could have an adverse effect on our results. We
undertake no obligation to revise or update publicly any forward-looking
statement for any reason.
Transmeta and LongRun2 are trademarks of Transmeta Corporation. All other
product or service names mentioned herein are the trademarks of their respective
owners.