exv10w1






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



 









 




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;




2









 








          (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




4









 







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;



5









 





               (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




6









 







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:



7









 






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,




8









 








          (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.



9









 





     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



10









 




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.



[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]




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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]




 









 








	 	 	 	 	 
	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]




 









 








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.





 









 










EXHIBIT B




PRESS RELEASE




 









 





     



	 	 	 
	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




 









 







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




 









 







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.