Document:

EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT dated as of July 19, 2000, (the "Agreement") among
Atlantic Express  Transportation  Group Inc., a New York corporation  ("Group"),
Atlantic Express  Transportation  Corp., a New York corporation (the "Company"),
and Nathan Schlenker (the "Executive").

         WHEREAS,  the Executive is presently  employed by the Company, a wholly
owned subsidiary of Group,  under an amended and restated  employment  agreement
dated as of November 4, 1998, (the "Prior Agreement");

         WHEREAS,  the Executive has had a prominent role in the  development of
the business and goodwill of Group and the Company and has established relations
and contacts with principal customers and suppliers of Group and the Company;

         WHEREAS,  the Executive  possesses  valuable  knowledge and skills that
will contribute to the successful  operation of the Company's business following
the Transaction; and

         WHEREAS,  the Company  desires to secure the continued  services of the
Executive,  and the  Executive  desires to  continue  in the  employment  of the
Company  following  the  expiration  of the  employment  term  under  the  Prior
Agreement  and, in connection  therewith,  the Company,  Group and the Executive
desire to enter into an employment  agreement to, among other things,  set forth
the terms of such continued employment.

         NOW,  THEREFORE,  in  consideration of the foregoing and the respective
covenants and agreements  hereinafter  set forth and for other good and valuable
consideration, the Company, Group and the Executive hereby agree, as follows:

         1.   EMPLOYMENT AND DUTIES

         1.1  General.  The  Company  hereby  employs  the  Executive,  and  the
Executive  agrees to serve, as Chief  Financial  Officer of the Company upon the
terms and conditions  herein  contained  during the Employment Term, and in such
capacities the Executive agrees to serve the Company  faithfully and to the best
of his ability  under the direction of the Board.  The Executive  also agrees to
serve,  if elected,  at no compensation in addition to that provided for in this
Agreement,  in the position of director of the Company or officer or director of
Group and of any subsidiary of Group or the Company during the Employment Term.

         1.2 Exclusive Services. For so long as the Executive is employed by the
Company,  he shall devote his full-time  working hours to his duties  hereunder.
The Executive  shall not directly or  indirectly,  render  services to any other
person or organization for which he receives  compensation without the unanimous
consent of the Board of Directors of the Company (the "Board") or otherwise

<PAGE>

engage in  activities  which would  interfere  significantly  with his  faithful
performance of his duties hereunder.

         1.3 Term of Employment. The Executive's employment under this Agreement
shall commence on November 4, 2000 (the "Effective Date") and shall terminate on
the earliest of (i) the first  anniversary of the Effective Date, (ii) the death
of the Executive or (iii) the termination of the Executive's employment pursuant
to  this  Agreement;  provided,  however,  that  the  term  of  the  Executive's
employment under this Agreement may be extended on the terms hereof for a period
of up to one year by notice of approval from the Board to the Executive at least
60 days  prior to the  expiration  of the then  effective  Employment  Term (the
period  during  which the  Executive  is employed  pursuant  to this  Agreement,
including any extension  thereof in accordance  with this Section 1.3,  shall be
referred to as the "Employment Term").

         2.  SALARY

         2.1 Base  Salary.  From the  Effective  Date,  the  Executive  shall be
entitled to receive a base  salary  ("Base  Salary")  at a rate of $240,000  per
annum,  payable  monthly  on or  about  the  15th  day of each  month  in  equal
installments  in accordance  with the  Company's  payroll  practices,  with such
increases  as  may be  provided  in  accordance  with  the  terms  hereof.  Once
increased,  such higher  amount shall  constitute  the  Executive's  annual Base
Salary.

         2.2 Annual Increases.  Commencing one year from the Effective Date, and
annually on each  anniversary  thereafter,  the Executive's base salary shall be
increased by the same  percentage by which the regional  consumer price index as
of the June  immediately  preceding such  anniversary  date shall have increased
over such consumer price index as of June of the prior year; provided,  however,
that in no event shall such annual  increase be more than five  percent (5%) nor
less than three percent (3%) of such base salary.  Regional consumer price index
shall mean the index as determined by the United States  Department of Labor for
the New York, New York -  Northeastern  New Jersey area based upon the index for
all urban consumers.

         3.  EMPLOYEE BENEFITS

         3.1  General  Benefits.  The  Executive  shall  receive  the  following
benefits during the Employment Term:

         (a) the Executive will be eligible to  participate in benefit  programs
of the Company  consistent with those benefit programs  provided to other senior
executives of the Company;

         (b) an  automobile  allowance  of $250 per month plus a company car (as
approved by the Board);

         (c) a life insurance  premium  allowance of $2,500 payable  annually in
February of each year of the term hereof,

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         (d) a travel allowance not to exceed $15,000 annually; and

         (e) bonus at an annual rate not less than $2,500 as  determined  by the
Board.

         3.2 Vacation. The Executive shall be entitled to 20 days' paid vacation
each year in accordance with the applicable policies of the Company.

         3.3 Reimbursement of Expenses. The Company will reimburse the Executive
for reasonable,  ordinary and necessary business expenses incurred by him in the
fulfillment  of his duties  hereunder upon  presentation  by the Executive of an
itemized  account of such  expenditures,  in accordance  with Company  practices
consistently applied.

         3.4  Non-Renewal of Agreement.  Subject to Section 4.1.1,  in the event
this  Agreement is not renewed by the Company  following  the  expiration of the
initial  term as provided in Section  1.3,  the  Executive  shall be entitled to
twelve months of his Base Salary as severance,  payable in equal installments on
the same terms as at the end of the Employment Term (such severance, "NonRenewal
Severance Pay").

         4.   TERMINATION OF EMPLOYMENT

         4.1  Termination for Causes: Termination Without Cause:
              Termination Permanent-Disability- Resignation

         4.1.1 General.  (a) If, prior to the expiration of the Employment Term,
the Executive's employment is terminated by the Company for Cause, the Executive
shall be entitled  only to (i) his  accrued  but unpaid Base Salary  through and
including the date of termination  ("Accrued Base Salary"),  and (ii) six months
of his Base Salary as severance, payable in equal installments on the same terms
as at  the  end  of  the  Employment  Term,  unless  such  termination  is for a
Disloyalty Termination Event, in which case the Executive shall be entitled only
to payment of his Accrued Base Salary.

         (b) If, prior to the expiration of the  Employment  Term, the Executive
is terminated by the Company Without Cause, the Executive shall be entitled only
to (i) his Accrued Base  Salary,  and (ii)(1) his Base Salary from the day after
the termination  date through the normal  expiration date of the Employment Term
(but  in  no  event  for  less  than  a  six-month  period),  payable  in  equal
installments  on the  same  terms as at the end of the  Employment  Term and the
benefits set forth under Section 3.1 of this  Agreement  during such period,  as
severance,  and (2) in the event of a termination  by the Company  Without Cause
prior to the first anniversary of the Effective Date, the Non-Renewal  Severance
Pay as severance,  payable in equal installments on the same terms as at the end
of the Employment Term, any severance  payable pursuant to clause (ii) (2) to be
paid, in  installments,  commencing  immediately  after the payment of severance
pursuant to clause (ii) (1).

         (c) If, prior to the expiration of the Employment Tenn, the Executive's
employment is terminated by the Company for Permanent  Disability (as defined in
Section 5), the Executive shall

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<PAGE>

be entitled only to the payments and benefits provided for in Section 5 hereof.

         (d) If  the  Executive  resigns  from  his  employment  hereunder,  the
Executive shall be entitled only to payment of his Accrued Base Salary.

         (e) Except as otherwise  provided  herein,  the Executive shall have no
further right to receive any other compensation,  or to participate in any other
plan,  arrangement,   or  benefit,  after  any  termination  or  resignation  of
employment, subject to the terms of such plans or arrangements.

         (f)  Notwithstanding  anything to the contrary herein,  the Company may
elect, in its sole discretion, to pay any remaining installments of severance or
other payments hereunder in a lump sum rather than in installments over time.

         4.1.2 Date of  Termination/Resignation.  The date of termination  for a
termination  by the Company for Cause shall be the date of the written notice of
termination  provided  for in  Section  4.1.3.  The  date of  termination  for a
Termination  Without  Cause shall be as provided in Section  4.1.4.  The date of
termination for a termination for Permanent  Disability  shall be as provided in
Section 5. The date of  resignation  shall be the date  specified in the written
notice  of  resignation  from the  Executive  to the  Company,  or if no date is
specified  therein,  10  business  days after  receipt by the Company of written
notice of resignation from the Executive.

         4.1.3 Notice of Termination  for Cause.  Termination of the Executive's
employment  by the  Company for Cause shall be effected by delivery of a written
notice of  termination  from the Company to the  Executive,  which  notice shall
specify  the  event or events  set  forth in  Section  4.2  giving  rise to such
termination.

         4.1.4  Notice  of  Termination   Without  Cause.   Termination  of  the
Executive's  employment  for a  Termination  Without  Cause shall be effected by
written  notice of termination  from the Company to the Executive,  specifying a
termination  date no earlier than 10 business  days after the date on which such
notice is given.

         4.2  Termination   for  Cause.   Termination  for  "Cause"  shall  mean
termination by the Company of the Executive's  employment  because the Executive
(a) has  engaged  in  fraudulent  or  criminal  conduct in  connection  with the
performance  of his duties  hereunder,  which conduct  materially  and adversely
affects  Group,  the Company or any of their  respective  affiliates (a "Conduct
Termination  Event"), (b) admits to, has been convicted of or has entered into a
plea of nolo contendere to a crime  punishable by imprisonment for more than one
year (a "Felony Termination  Event"),  (c) has failed to perform in all material
respects (following a written warning specifying such deficiency) the normal and
customary  duties  required  of  his  position  of  employment  (a  "Performance
Termination Event"), (d) has been disloyal to Group, the Company or any of their
respective  affiliates by assisting  competitors of Group, the Company or any of
their respective  affiliates to the disadvantage of Group, the Company or any of
their  respective  affiliates by a breach of Section 6 or by otherwise  actively
assisting  competitors to the disadvantage of Group, the Company or any of their
respective affiliates (a "Disloyalty Termination Event"), or (g) has been

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identified  by the  Board of  Education  of the City of New York in a notice  to
Group, the Company or any of their  respective  affiliates (a "BOE notice") that
the  Board  of  Education   has  elected   either  not  to  extend  an  existing
transportation  contract or that it will not accept bids from Group, the Company
or any of their respective  affiliates for a new transportation  contract unless
the employment of the Executive is terminated  together with  divestiture of the
Executive's stock ownership in Group (a "BOE Termination Event").

         4.3 Termination Without Cause.  "Termination  Without Cause" shall mean
any termination by the Company of the Executive's  employment at any time during
the  Employment  Term for any  reason  other  than  Cause,  death  or  Permanent
Disability.

         5.  PERMANENT DISABILITY

         If, prior to the expiration of the Employment Term, the Executive shall
fail because of illness, physical or mental disability or other incapacity,  for
a period of six  consecutive  months,  or for shorter  periods  aggregating  six
months during any twelve-month  period,  to render the services  provided for by
this  Agreement,  then the Company may, by written notice to the Executive after
the last day of the six consecutive months of disability or the day on which the
shorter  periods of disability  equal an aggregate of six months,  terminate the
Executive's employment for "Permanent Disability", specifying a termination date
no earlier  than 10 business  days after the date on which such notice is given.
The  determination of the Executive's  Permanent  Disability shall be made by an
independent  physician  who is  reasonably  acceptable  to the Executive and the
Company  and shall be final  and  binding  and shall be based on such  competent
medical  evidence  as  shall  be  presented  to it by  the  Executive  or by any
physician or group of physicians or other competent  medical experts employed by
the Executive and/or the Company to advise such independent physician.

         In the event of a  termination  of the  Executive's  employment  by the
Company for Permanent  Disability,  the Executive  shall be entitled only to (i)
his  Accrued  Base  Salary,  (1i) six  months of his Base  Salary as  severance,
payable in equal  installments on the same terms as at the end of the Employment
Term and  (iii)  receive  the  benefits  set  forth  under  Section  3.1 of this
Agreement during the six-month severance period. Except as otherwise provided in
this Section 5,  following  the effective  date of a  termination  for Permanent
Disability,  the Company shall have no further obligation to the Executive under
this Agreement.

         6.   NONCOMPETITION/NONSOLICITATION AND CONFIDENTIALITY

         6.1  Noncompetition/Nonsolicitation.  The Executive shall not, directly
or indirectly,  as a sole  proprietor,  member of a partnership,  stockholder or
investor,  officer or director of a corporation,  or as an employee,  associate,
consultant or agent of any person,  partnership,  corporation  or other business
organization  or entity  other  than the  Company:  (a) engage in, or acquire an
interest in any entity or  enterprise  which engages in, any business that is in
competition with any business actively conducted by Group, the Company or any of
their respective  subsidiaries within (i) the counties then served by Group, the
Company or their respective  subsidiaries as well as adjacent counties, and (ii)
any other counties in which Group, the Company or their respective subsidiaries

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has made a bid within 24 months  prior to the  Executive's  termination  and any
adjacent  counties in which Group, the Company or their respective  subsidiaries
conducts  business;  (b) solicit or  endeavor  to entice  away from  Group,  the
Company or any of their respective subsidiaries any person who is, or was during
the then most recent 24-month period,  employed by or associated with Group, the
Company or any of their  respective  subsidiaries;  or solicit  or  endeavor  to
entice away from Group, the Company or any of their respective subsidiaries,  or
otherwise interfere with the business  relationship of Group, the Company or any
of their  respective  subsidiaries  with,  any  person or entity  who is, or was
within the then most recent 24-month period,  a customer,  client or prospect of
Group, the Company or any of their respective  subsidiaries.  The obligations of
this Section 6.1 shall apply for 24 months after  termination  of  employment of
the Executive as well as during  employment and shall be extended by a period of
time equal to any period during which the  Executive  shall be in breach of such
obligations.

         6.2  Confidentiality.  The  Executive  covenants  and  agrees  with the
Company that he will not at any time,  except in performance of his  obligations
to the  Company  hereunder  or with the prior  written  consent of the  Company,
directly or indirectly,  disclose any secret or confidential information that he
may learn or has learned by reason of his association with Group, the Company or
any of their  respective  subsidiaries  and affiliates.  The term  "confidential
information"  includes  information not previously disclosed to the public or to
the trade by the  Company's  or Group's  management,  or otherwise in the public
domain,  with respect to the  Company's or Group's,  or any of their  respective
affiliates' or subsidiaries',  products, services, facilities,  applications and
methods,  trade secrets and other intellectual  property,  systems,  procedures,
manuals,  confidential reports,  product or service price lists, customer lists,
technical information,  financial information (including the revenues,  costs or
profits  associated  with any of the  Company's or Group's  products),  business
plans, prospects or opportunities.

         6.3 Exclusive  Property.  The Executive  confirms that all confidential
information is and shall remain the exclusive property of Group and the Company.
All  business  records,  papers  and  documents  kept or  made by the  Executive
relating to the business of Group, the Company or their respective  subsidiaries
shall be and remain the property of Group and the Company.

         6.4  Injunctive  Relief.   Without  intending  to  limit  the  remedies
available to Group and the Company, the Executive  acknowledges that a breach of
any of the  covenants  contained  in this  Section 6 may result in material  and
irreparable  injury to Group,  the  Company or their  respective  affiliates  or
subsidiaries  for which there is no adequate  remedy at law, that it will not be
possible to measure  damages for such injuries  precisely and that, in the event
of such a breach or threat  thereof,  Group and the Company shall be entitled to
obtain  a  temporary   restraining  order  and/or  a  preliminary  or  permanent
injunction  restraining the Executive from engaging in activities  prohibited by
this Section 6 or such other relief as may be required  specifically  to enforce
any of the  covenants in this  Section 6. If for any reason a final  decision of
any  court  determines  that  the  restrictions  under  this  Section  6 are not
reasonable or that consideration therefor is inadequate, such restrictions shall
be  interpreted,  modified or  rewritten by such court to include as much of the
duration and scope identified in this Section 6 as will render such restrictions
valid and enforceable.

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         7.   MISCELLANEOUS

         7.1  Notices.  All  notices  or  communications  hereunder  shall be in
writing, addressed as follows:

To the Company or Group, to it at:

Atlantic Express Transportation Corp.
7 North Street
Staten Island, NY 10302
Attention: Corporate Secretary

with a copy to each of:

GSCP II Holdings (AE), LLC
c/o Greenwich Street Capital Partners, Inc.
12 East 49th Street, Suite 3200
New York, NY  10017
Fax: (212) 884-6184
Attention: Thomas V. Inglesby

and

Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Fax: (212) 909-6836
Attention: Andrew L. Sommer

To the Executive:

Nathan Schlenker
357 Horning Road
Palatine Bridge, NY 13428
Fax: (518) 673-5071

with a copy to:

Silverman, Collura & Chernis
381 Park Avenue South
Suite 1601
New York, NY  10016
Fax: (212) 779-8858
Attention: Peter R. Silverman

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<PAGE>

         Any such notice or communication  shall be sent certified or registered
mail, return receipt  requested,  or by telefax,  addressed as above (or to such
other address as such party may designate in writing from time to time), and the
actual date of receipt shall determine the time at which notice was given.

         7.2 Severability.  If a court of competent jurisdiction determines that
any term or  provision  hereof is invalid or  unenforceable,  (a) the  remaining
terms and  provisions  hereof shall be unimpaired  and (b) such court shall have
the authority to replace such invalid or unenforceable  term or provision with a
term or  provision  that is valid and  enforceable  and that  comes  closest  to
expressing the intention of the invalid or unenforceable term or provision.

         7.3 Assignment.  This Agreement shall inure to the benefit of the heirs
and  representatives  of the  Executive  and the assigns and  successors  of the
Company, but neither this Agreement nor any rights hereunder shall be assignable
or otherwise  subject to hypothecation  by the Executive.  Each of Group and the
Company  may  assign  this  Agreement  without  prior  written  approval  of the
Executive upon the transfer of all or  substantially  all of its business and/or
assets (whether by purchase, merger, consolidation or otherwise),  provided that
the successor to such business and/or assets shall expressly assume and agree to
perform this Agreement.

         7.4 Entire Agreement:  Amendment.  This Agreement represents the entire
agreement  of the parties with  respect to the subject  matter  hereof and shall
supersede any and all previous contracts, arrangements or understandings between
or among Group,  the Company and the  Executive,  regarding  the subject  matter
hereof.  The Agreement may be amended at any time by mutual written agreement of
the parties hereto.

         7.5 Withholding. The Company shall be entitled to withhold, or cause to
be withheld,  from payment any amount of withholding  taxes required by law with
respect to payments  made to the  Executive in  connection  with his  employment
hereunder.

         7.6 Governing Law. This Agreement shall be construed,  interpreted, and
governed in accordance with the laws of the State of New York without  reference
to principles of conflict of laws.

         7.7 Survival.  Sections 3.4 (relating to non-renewal),  4.1.1 (relating
to early  termination),  5 (relating  to Permanent  Disability),  6 (relating to
noncompetition,  nonsolicitation  and  confidentiality)  and  7.6  (relating  to
governing law) shall survive the termination  hereof,  whether such  termination
shall be by expiration of the Employment Term or an early  termination  pursuant
to Sections 4 or 5 hereof.

         7.8  Headings.  Headings  to  sections  in this  Agreement  are for the
convenience  of the  parties  only  and are not  intended  to be a part of or to
affect the meaning or interpretation hereof.

         7.9 Counterparts.  This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together shall  constitute
one and the same instrument.

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         IN WITNESS WHEREOF, the Company and Group have caused this Agreement to
be duly  executed by their  authorized  representatives  and the  Executive  has
hereunto set his hand, in each case effective as of the day and year first above
written.

                                             ATLANTIC EXPRESS
                                             TRANSPORTATION GROUP INC.

                                             By:   /s/ Domenic Gatto
                                                -------------------------------
                                                      Name:  Domenic Gatto
                                                      Title: Domenic Gatto

                                             ATLANTIC EXPRESS
                                             TRANSPORTATION CORP.

                                             By:   /s/ Domenic Gatto
                                                -------------------------------
                                                      Name:  Domenic Gatto
                                                      Title: Domenic Gatto

                                             EXECUTIVE:

                                             /s/ Natahan Schlenker
                                                -------------------------------
                                                 Nathan Schlenker

                                        9<PAGE>   1
                                                                   EXHIBIT 10.07

        Agreement for Purchase and Sale of Custom Semiconductor Products
                                       [*]

                         AGREEMENT NUMBER: TM-MFG-121297

This Agreement is entered into by and between International Business Machines
Corporation ("IBM"), incorporated under the laws of the State of New York and
with an address for purposes of this Agreement of 1000 River Street, Essex
Junction, Vermont, 05452 and Transmeta Corporation ("Customer"), incorporated
under the laws of the State of California with an address for purposes of this
Agreement of 3940 Freedom Circle, Santa Clara, CA. 95054. IBM and Customer agree
as follows:

The parties acknowledge that work required by this Agreement has occurred prior
to the date of execution of this Agreement. Both parties agree that the terms
and conditions of this Agreement shall apply to all such work.

This Agreement is a master purchase agreement for the manufacture and sale of
custom integrated circuit foundry products ("Products(s)"). Unless the parties
agree otherwise in writing, this Agreement, and its work orders ("Task Orders")
issued under this Agreement, shall define Product deliveries by part number and
shall solely govern IBM's manufacture and sale of Products to Customer. A Task
Order is not binding unless and until it has been mutually agreed upon and shall
become subject to this Agreement when it has been signed by IBM and Customer.
Task Orders shall describe the respective responsibilities of the parties (e.g.,
deliverable materials and specifications, Product description(s), manufacture
and qualification of Product prototypes, as well as technical responsibilities)
with regard to specific Product(s), as well as specific purchasing information
(e.g., manufacturing lead times, Product pricing and ordering, as well as
billing locations). Task Orders shall be in the form as set forth in Exhibit A.
The term of a Task Order shall run from the effective date on the Task Order
until the earlier of: 1) the completion of the Task Order; 2) the expiration
date stated in the Task Order; or 3) termination of this Agreement or the Task
Order. In the event of an inconsistency between the terms and conditions of this
Agreement and those of a Task Order, the Task Order will prevail.

1. TERM OF AGREEMENT: This Agreement is effective on December 12, 1997 (the
"Commencement Date"). This Agreement will expire on the later of December 30,
2003 or upon completion of the last Task Order, subject to Section 15
(Termination Rights).

2. FORECASTS:

First Task Order Forecast. Each Task Order shall contain a forecast of
Customer's anticipated unit production demand requirements for Product(s) for at
least the twelve (12) month period immediately following execution of the Task
Order. Customer shall submit a purchase order with said forecast (placed in
accordance with Section 3), by which Customer orders the quantity of Products
forecast for the first [*], at a minimum, of the [*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       1
<PAGE>   2

Subsequent Forecasts. Customer shall provide an updated forecast to IBM, on a
monthly basis, in writing, and by no later than the fifth (5th) day of each
month during the term of the Task Order. Each such forecast will cover at least
a rolling twelve (12) month period (not to exceed the term of the Task Order),
and will be reviewed for acceptance by IBM, acceptance not to be unreasonably
withheld. IBM shall notify Transmeta of whether said forecast has been accepted
or rejected, within ten (10) business days after receipt by IBM. [*].

[*].

[*].

[*].

All forecasts shall be in the same format as set forth in the Task Order.
Forecasts shall be provided to IBM's Technical Coordinator identified in the
applicable Task Order. On a regular basis, as mutually agreed to in writing, the
parties will meet to review the historical Product unit volumes, manufacturing
cycle times, and foundry Product pricing.

[*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

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<PAGE>   3

Customer may purchase Product in the form of finished goods (which are fully
assembled, tested and marked), or in wafer form (either bumped or umbumped, and
probed or unprobed).

3. ORDERS: After the parties have executed a Task Order, Customer will request
delivery of Products by issuing written purchase orders to IBM's Technical
Coordinator by the fifth (5th) day of each calendar month. As set forth in
Section 2, Customer will maintain a minimum of four (4) months rolling purchase
orders on IBM and may place purchase order(s) for months five (5) and six (6) of
each forecast. Purchase orders are subject to, and IBM will accept and ship
against purchase orders that comply with, the terms and conditions of this
Agreement and the applicable Task Order, and are consistent with the most
recently accepted forecasts and the most recent Customer credit limit as granted
by IBM. Purchase orders shall only specify the following items on their face
unless otherwise mutually agreed to in writing by duly authorized
representatives of the parties:

                      a) PO NUMBER

                      b) TAX STATUS - EXEMPT OR NON-EXEMPT

                      c) SHIP TO LOCATION - COMPLETE ADDRESS

                      d) BILL TO LOCATION - COMPLETE ADDRESS

                      e) ORDER FROM LOCATION - COMPLETE ADDRESS

                      f)  PRODUCT PART NUMBERS AND QUANTITIES BEING ORDERED;

                      g) THE PRODUCT'S APPLICABLE UNIT PRICE;

                      h)  SHIPPING INSTRUCTIONS, INCLUDING PREFERRED CARRIER.

                      i) REQUESTED SHIPMENT DATES

                      j)  THE AGREEMENT NUMBER OF THIS AGREEMENT.

                      k)  NAME OF CUSTOMER CONTACT

In accordance with the above language in this Section 3, provided IBM accepts a
purchase order, IBM shall issue a written sales acknowledgment within a maximum
of ten (10) business days after IBM's receipt of Customer's purchase order,
which shall recite the Agreement Number, Product and Customer's shipping
instructions, as well as establish the quantities being sold, the Product's
applicable unit price and the estimated shipment dates.

This Agreement shall take precedence over and govern in case of any additional,
different or conflicting terms and conditions in any purchase order(s) or any
other form of either party. Purchase orders and other forms of either party may
not vary the terms of this Agreement. Additional, different or conflicting terms
and conditions on a purchase order or other form shall be of no effect unless
specifically agreed to in writing by the parties. This Agreement does not

                                       3
<PAGE>   4

constitute a purchase order. No verbal communications shall result in a
financial obligation by Customer or IBM.

4. LEAD TIMES, SHIPMENT, TITLE AND RISK OF LOSS: The Product's manufacturing
lead times shall be as set forth in the applicable Task Order. IBM will use
reasonable efforts to set shipment dates in accordance with the lead time
specified for Product as stated in the Task Order. Customer will keep at least a
rolling four (4) months worth of purchase orders placed on IBM to support IBM's
efforts to schedule and supply Product to Customer's requirements. Customer may
request shipment dates with lead times less than those agreed to in the relevant
Task Order, and IBM, at its option, may use reasonable efforts to set a shipment
date that is coincident with the shipment date requested by Customer. Customer
acknowledges that it may be required to pay additional charges for expedited
shipment.

IBM agrees to set delivery lead times for the Product in a manner that is
generally consistent for other OEM customers using the same manufacturing and
technology process.

Products shall be shipped from the manufacturing location FOB for domestic U.S.
destinations and ExWorks (as defined in the 1990 INCO Terms) for international
shipments. Title and risk of loss for a Product passes to Customer when IBM
delivers the Product to the Customer-specified carrier for shipment (said
carrier to be identified in Customer's purchase order). [*]. Customer is
responsible for all packaging costs.

5. PRICES, INVOICING, PAYMENT TERMS AND TAXES: The engineering charges and the
price/quantity matrix in the applicable Task Order will apply to the Products.
IBM will invoice Customer for engineering charges associated with Products in
accordance with such Task Order. IBM will invoice Customer for Products upon
shipment. All payments owed by Customer to IBM under this Agreement, including,
without limitation, cancellation and engineering charges, as well as payment for
Products purchased, are payable in U.S. dollars and receipt of payment by IBM
will be due net thirty (30) days after the date of the invoice; provided,
however, that if Customer's account becomes in arrears or if Customer exceeds a
credit limit agreed to by IBM, in addition to any other right under this
Agreement, IBM reserves the right to cease manufacturing or stop shipment to
Customer or ship to Customer on a cash-in-advance basis until Customer's account
is again current. Customer will be liable for interest on any overdue payment
under this Agreement, up to the prime interest rate as reported by Citibank of
New York on the date the payment was due, plus three percent. Customer is
responsible for all taxes actually charged related to Products. However, in no
event will Customer be liable for taxes based on IBM's net income. [*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       4
<PAGE>   5

6. ORDER CHANGES:

        a) For a purchase order which is more than thirty (30) days, but less
than sixty (60) days, from its scheduled shipment date, Customer may request in
writing a onetime deferral of the scheduled shipment date not to exceed thirty
(30) days, with no cancellation charge imposed.

        b) If Customer cancels an order or reduces an order or exceeds the
foregoing Product shipment rescheduling rights in this Section 6, Customer
agrees to pay the Product cancellation charges as described in the relevant Task
Order.

7. SUPPLY CONSTRAINTS: If IBM's ability to supply Product(s) to Customer is
constrained for any reason, including, without limitation, availability of
manufacturing materials or tools, and any IBM agreed-to Product shipment date
will be missed, IBM will reduce the quantities of Product(s) supplied to
Customer in proportion to the reduction in quantities of products of the same
technology or utilizing the same manufacturing process to be supplied to satisfy
others. [*]. Receipt of such allocated supply and later delivery of all
undelivered ordered quantities (unless canceled as set forth above) after the
constraint ends constitutes IBM's entire liability and Customer's exclusive
remedy in the event of such Product supply constraint.

8. ENGINEERING CHANGES: IBM may implement engineering changes required to
satisfy governmental standards, or for environmental, health or safety reasons
("Mandatory Engineering Changes").

For all previously shipped Product not incorporating Mandatory Engineering
Changes, IBM may provide replacement Products (including parts, materials and
documentation) at the expense of the party at fault. Customer must use
reasonable efforts to install Mandatory Engineering Changes on all Customer
installed Products and Products in its inventory. If IBM requests the return of
Products displaced by installation of replacement Products, Customer will
promptly return any displaced Products to IBM after installation of such
replacement Products, at IBM's expense. [*].

In addition to Mandatory Engineering Changes, IBM may implement engineering
changes that result in cost reductions to the Product ("Elective Engineering
Changes") with prior approval from Customer. Such approval from Customer shall
not be unreasonably withheld. IBM shall give Customer prompt notice of proposed
Elective Engineering Changes.

IBM may make available other Engineering Changes ("Optional Engineering
Changes"). The cost of any Optional Engineering Changes that Customer desires to
implement will be borne by Customer and will be determined through a request for
quote process.

9. CONFIDENTIAL INFORMATION EXCHANGES: Information containing the confidential
information of either party shall be identified as that party's confidential
information and shall be exchanged pursuant to the terms of the agreement for
exchange of confidential information (agreement number: V1290-01), between IBM
and Customer dated September 30, 1996 and any amendments thereto, until or
unless the Technology License Agreement is executed by both parties. If the
Technology License agreement is so executed, the terms and conditions of Section
5.0 of that Agreement shall control all of which are hereby incorporated by
reference. All other information exchanged by the parties shall be deemed
non-confidential, except that the parties agree that the specific terms and
conditions of this Agreement constitute mutual confidential information of the
parties.

10. CUSTOMER REPRESENTATIONS: Customer warrants it is the originator, rightful
owner or licensee of all designs, information, and materials supplied to IBM
hereunder, and that no part of such

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       5
<PAGE>   6

materials knowingly infringes the intellectual property rights of any third
party. All computer data provided to IBM by Customer will have gone through
Customer's best efforts to ensure that it is free from any virus, worm or other
routines that would permit unauthorized access or otherwise harm software,
hardware or data. Best efforts shall include, but not be limited to,
establishing and following a documented process to prevent its computer data
from being infected with such virus, worm or other routine. Customer will
provide IBM with the process upon request. Customer will be responsible for any
damages caused by any virus, worm or other routine.

Customer will not utilize Products in conjunction with any medical implantation
or other direct life support applications where malfunction may result in
injury, harm or death to persons, or used in conjunction with aviation, nuclear
materials, or other ultra-hazardous activities (collectively, "Ultra-hazardous
Uses"). Customer agrees to incorporate the foregoing restriction in all
contracts or sale documents under which Customer sells the Product or a device
incorporating the Product to Customer's customers.

Customer agrees to defend, indemnify and hold IBM harmless from and against all
claims, whether based in contract, tort or otherwise for any losses, expenses,
damages and liabilities which may arise out of Customer's use, distribution or
sale of Products, except those caused solely by Product defects in materials or
workmanship as warranted under Section 13 (Limited Warranty) or by the sole
negligence of IBM .

11. INTELLECTUAL PROPERTY RIGHTS: For the purposes of this Agreement,
"intellectual property rights" shall mean all legally cognizable rights with
regards to applicable patent laws, copyright laws and trade secret laws. IBM
shall own any physical masks made by IBM using data provided by Customer.
Notwithstanding the foregoing sentence, unless otherwise agreed to in writing,
IBM's sole use of such physical masks shall be to perform its obligations under
this Agreement. IBM will use tangible GDS II (or any other file format as agreed
to by the parties) data received from Customer or generated exclusively for
Customer hereunder, and any masks made from such data, only to manufacture
Products for sale to Customer. In addition, to the extent that Customer has
ownership rights and excluding any rights IBM has in its semiconductor
technology or any IBM technology licensed to Customer under the Technology
License Agreement, the Customer retains and reserves to itself all rights in,
and ownership of, all intellectual property in and to the P95 Processor and
other Products manufactured pursuant to Task Orders under this Agreement.

The purchase, receipt or possession of Products from or through IBM carries no
license or immunity, express or implied, under any patent of IBM covering the
combination of such Products with other products purchased from others or the
use of any such combination, or under any patent or other intellectual property
right of any third party relating to such Products or their combinations with
any other products.

However, IBM intends that its sale of Products to Customer will, to the extent
under law, exhaust the patent rights of IBM as to such Products and the patent
rights of third party licensors to IBM.

Neither this Agreement, nor the sale of Products hereunder, shall be deemed to
give either party any right to use the other party's trademarks or any of the
other party's trade names without specific, prior written consent.

12. INTELLECTUAL PROPERTY INDEMNIFICATION: IBM shall indemnify Customer from and
against any damages finally settled or awarded by a court of competent
jurisdiction resulting from any direct infringement of any intellectual property
rights of a third party in any country in which IBM sells similar products,
arising as a result of any of IBM's manufacturing process, equipment or testing,
that

                                       6
<PAGE>   7

is not specifically required by Customer's designs, specifications or
instructions. IBM shall defend at its own expense, including attorney's fees,
any suit brought against Customer alleging such infringement. In the event that
Customer becomes enjoined from using Product in its inventory or possession due
to such infringement, IBM at its option and expense, will secure for Customer
the right to continue to use and market the Product, or modify or replace the
Product with a non-infringing product. If IBM determines that neither of the
foregoing alternatives is reasonably available, Customer may return the Product
in Customer's inventory or possession to IBM for a credit equal to the price
paid for units of Product affected. IBM shall have no obligation regarding any
claim based upon modification of the Product by Customer or its customers, use
of the Product in other than its intended operating environment or the
combination, operation or use of the Product with non-IBM products or equipment.

Customer shall indemnify IBM from and against any damages finally settled or
awarded by a court of competent jurisdiction resulting from any direct
infringement of any intellectual property rights of a third party in any country
where Customer uses or distributes the Product, arising as a result of IBM's
compliance with any of Customer's design, specifications, instructions or
modifications of the Product by Customer and shall defend at its own expense,
including attorney's fees, any suit brought against IBM alleging any such
infringement.

The rights provided in this Section 12 are contingent upon the party seeking to
enforce indemnification giving prompt written notice to the indemnifying party
regarding any claim, demand or action for which the indemnified party seeks
indemnification. The indemnified party is required to fully cooperate with the
indemnifying party at the indemnifying party's expense and shall allow the
indemnifying party to control the defense or settlement of any such claim,
demand or action, including obtaining the written consent of the indemnifying
party prior to any settlement proposal or settlement. IBM shall have the right
to waive Customer's obligations under this Section 12 and provide for its own
defense, at IBM's sole discretion and expense.

Except as expressly stated in this Agreement, this Section 12 states the entire
liability of the parties and their exclusive remedies with respect to
infringement of third party rights and all other warranties against infringement
of any intellectual property rights, statutory, express or implied are hereby
disclaimed.

13. LIMITED WARRANTY: [*]. IBM warrants Product(s) to be free from defects in
material and workmanship for one (1) year after the date of delivery to
Customer. Customer acknowledges that the functionality of Products is contingent
upon Customer's designs and, therefore, no warranty applies to the functionality
of Products manufactured for or sold to Customer. [*]. This warranty applies
only to Customer, as the original purchaser from IBM, and Customer may not
transfer this warranty to any third party [*]. If Customer believes that a
Product is not as warranted, Customer will: 1) promptly notify IBM in writing;
and 2) at IBM's request, return the Product freight prepaid to IBM's designated
location. If IBM reasonably determines that the Product does not meet its
warranty, IBM will, at IBM's option, repair or replace the Product, or issue a
credit or refund of the purchase price. This warranty will not include credit,
repair, or replacement of a Product which has a defect due to Customer's or a
third party's actions or omissions.

PRODUCT PROTOTYPES PROVIDED TO CUSTOMER BY IBM ARE PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OR USE FOR A PARTICULAR PURPOSE.

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       7
<PAGE>   8

THE FOREGOING PRODUCT WARRANTIES AS STATED IN THIS SECTION 13 (LIMITED WARRANTY)
ARE IN LIEU OF ALL OTHER PRODUCT WARRANTIES FROM IBM, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS OR USE FOR A PARTICULAR PURPOSE.

14. LIMITED LIABILITY: The following sets forth IBM's entire liability and
Customer's exclusive remedy:

        a) In all situations involving claims for non-conforming or defective
Products furnished under this Agreement, Customer's exclusive remedy is the
replacement or repair of the Products or a credit or refund to Customer of the
purchase price paid for such units by Customer, at IBM's sole discretion; as
provided in Section 13.

        b) IBM's liability for actual damages for any cause whatsoever (other
than as set forth in Section 14 a. above), shall be limited to the greater of
fifty thousand dollars ($50,000) or the applicable unit price for the specific
units of Product that caused the damages or that are the subject matter of, or
are directly related to, the cause of action. This limitation will apply, except
as otherwise stated in this Section, regardless of the form of action, whether
in contract or in tort, including negligence. This limitation will not apply to
the payment of costs, damages and attorney's fees referred to in Section 12
(Intellectual Property Indemnification). This limitation will also not apply to
claims by Customer for bodily injury or damage to real property or tangible
personal property caused by IBM's negligence.

        c) In no event will either party be liable to the other party for any
lost profits, lost savings, incidental damages or other consequential damages,
except as provided in Section 12. In addition, IBM will not be liable for any
claim based on any third-party claim, except as provided in Section 12. In no
event will a party be liable for any damages caused by the other party's failure
to perform its responsibilities hereunder.

        d). In addition, IBM shall have no liability when the Products are used
in conjunction with any Ultra-hazardous Uses.

15. TERMINATION RIGHTS: If either party is in default of any material provision
of this Agreement, the party not in default may provide a termination notice to
the defaulting party. The termination notice shall specify:

        a) the nature of the default;

        b) the date, at least thirty (30) days from the date of such notice, by
which the defaulting party shall demonstrate a cure of the default; and

        c) the date upon which the Agreement will terminate if the defaulting
party does not cure the default.

In addition, either party may terminate this Agreement immediately upon written
notice if the other party: becomes insolvent, files a petition in bankruptcy,
becomes dissolved or liquidated, files a petition for dissolution or
liquidation, makes an assignment for benefit of creditors, or has a receiver
appointed for its business; or is subject to property attachment or court
injunction or court order which has a substantial negative effect on its ability
to fulfill its obligations under this Agreement.

                                       8
<PAGE>   9

In addition, IBM may terminate this Agreement on nine (9) months prior written
notice if Customer transfers all or substantially all of its business or assets
to a third party, or undergoes any change of control as defined in the
Technology License Agreement between the two parties, to which this Foundry
Agreement is appended.

IBM may cease manufacturing Product and shall be under no further obligation
with respect to the relevant Task Order(s) if IBM receives a well founded and/or
substantiated charge or claim that any of Customer's deliverable items (which
include, without limitation, GDS II tape, specifications, instructions, test
data, as well as those items described under "Customer Deliverable Items" of the
applicable Task Order) infringes third party intellectual property rights. IBM
shall thereafter provide Customer's Technical Coordinator with a written
statement of the reasons why IBM has ceased production. If Customer fails to
reach a resolution satisfactory to IBM regarding such actual or potential
infringement after ninety (90) days, IBM may terminate the relevant Task
Order(s) upon written notice.

If this Agreement is terminated, all Task Orders still in effect shall be deemed
terminated on the effective date of the Agreement's termination. Any Products
ordered by Customer and which IBM commences to manufacture under this Agreement
are non-cancelable after wafer start and Customer agrees to pay the Production
Price (as stated in the applicable Task Order) for all such Product upon receipt
of IBM's invoice in the event that this Agreement or Task Order(s) are either
terminated or will be terminated.

All amounts due for Prototypes or Product or NRE Services performed under this
Agreement prior to termination or expiration shall be paid in accordance with
the terms and conditions of this Agreement, notwithstanding any termination or
expiration of this Agreement.

If any event triggers a termination under both this Agreement and the
aforementioned Technology License Agreement, and a specific right or remedy for
such termination are inconsistent between the agreements, the terminating Party
has the right to choose which right or remedy will apply in that case.

16. ASSIGNMENT: Neither party to this Agreement may assign its rights or
delegate its duties in whole or in part without the prior written consent of the
other except that if the assets or stock of that portion of IBM to which this
Agreement pertains hereafter becomes owned or controlled, directly or
indirectly, by a third party, IBM may assign its entire right, title and
interest in this Agreement to such third party (so long as such third party
remains bound to the obligations of IBM herein), without Customers consent. Any
other assignments or delegations will be void.

17. RELATIONSHIP OF THE PARTIES: Each party hereto is an independent contractor
and is not an agent of the other party for any purpose whatsoever. Neither party
shall make any warranties or representations on the other party's behalf, nor
shall it assume or create any other obligations on the other party's behalf. For
the term of this Agreement, each party agrees not to solicit or recruit
engineers of the other party who have been or are assigned to perform work under
this Agreement. This does not restrict any employee of one party, on that
employee's own initiative or in response to general solicitations, to seek
employment from the other party.

18. COMPETITIVE PRODUCTS AND SERVICES: Neither this Agreement, nor any Task
Orders issued hereunder, will impair any right of IBM or Customer to design,
develop, manufacture, market, service, or otherwise deal in, directly or
indirectly, other products or services, including, without limitation, those
which are competitive with those offered by IBM or Customer; provided, however,
that nothing in this Agreement or any Task Order authorizes either party to use
any of the other party's intellectual property accept as expressly provided
herein.

                                       9
<PAGE>   10

19. PROMOTIONAL ACTIVITY: Press releases and other like publicity, advertising
or promotional material which mention the other party by name, this Agreement or
any term hereof shall not be released without the prior written consent of both
parties. Notwithstanding the immediately prior sentence, however, no permission
will be required by Customer pursuant to its disclosing under appropriately
protective confidentiality agreements to potential and actual customers,
financiers, acquirers or joint venture partners that IBM is manufacturing
Products for Customer.

20. NOTICES: All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be sent by a traceable means of
delivery. Such communications shall be deemed delivered when received by the
party's designee referenced below. Each party may change its designee upon
written notice to the other party's designee.

           IBM                                     Transmeta Corporation
           Dept.  VLZV/862-1                       Dept.
           1000 River Street                       3940 Freedom Circle
           Essex Junction, VT 05452                Santa Clara, CA. 95054
           FAX: 802-769-3988                       FAX:  (408) 327-9840
           Attn: Contract Administrator            Attn: Chief Financial Officer

Day to day activities under Task Orders will be directed by technical
coordinators who will be responsible for maintaining technical liaison between
the parties ("Technical Coordinators"). Task Orders shall designate a Technical
Coordinator for each party. Either party may change its respective individual
designated for receipt of notices, and/or Technical Coordinator and their
addresses designated for notices by notifying the other party's Technical
Coordinator.

21. GENERAL: This Agreement may be executed in any number of identical
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument when each party has
signed one such counterpart.

The activities of each party and its employees, agents or representatives while
on the other party's premises (including any design center) shall comply with
the host company's policies and procedures for such facilities, including
security procedures and visitation guidelines.

[*].

If any provision of this Agreement is found to be invalid, illegal or
unenforceable under any applicable statute or rule of law, they are to that
extent to be deemed omitted from this Agreement . The validity, legality and
enforceability of such provision and the remainder of this Agreement shall
continue in effect in every other respect, so long as the remaining provisions
of this Agreement still expresses the intent of the parties. If the intent of
the parties cannot be preserved, this Agreement shall be either renegotiated or
terminated.

Except for Customer's obligation to pay amounts due under this Agreement,
neither party will be responsible for any failure or delay in its performance
under this Agreement due to causes, including, without limitation, acts of God,
natural disasters, fire, acts of civil or military authority, insurrections,
epidemics, riots, wars, sabotage, labor shortages and governmental actions,
which are beyond such party's reasonable control, provided that the affected
party: (a) gives the other party prompt written notice of such cause; and (b)
uses its reasonable efforts to correct such failure or delay in its performance.
[*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       10
<PAGE>   11

This Agreement shall be construed, and the legal relations between the parties
hereto shall be determined, in accordance with the substantive laws of the State
of New York, without regard to the conflict of laws principles thereof. Any
proceedings to resolve disputes relating to this Agreement shall be commenced in
the State of New York. The parties hereto expressly waive any right they may
have to a jury trial and agree that any proceeding under this Agreement shall be
tried by a judge without a jury.

[*].

No actions arising out of this Agreement may be brought by either party more
than two (2) years after the cause of action has arisen, except those seeking to
enforce indemnification rights, or, in the case of nonpayment, more than two (2)
years from the date the last payment was due.

Each party will comply with all applicable federal, state and local laws,
regulations and ordinances including, without limitation, the regulations of the
U.S. Government relating to the export of commodities and technical data insofar
as they relate to the activities under this Agreement. Customer agrees that
Products, and technical data provided under this Agreement are subject to
restrictions under the export control laws and regulations of the United States
of America and other country or country group, laws and regulations, including,
without limitation, the U.S. Export Administration Act and the U.S. Export
Administration Regulations. Customer hereby gives its written assurance that
neither Products nor technical data provided by IBM under this Agreement, nor
the direct product thereof, will be exported, or re-exported, directly or
indirectly, to prohibited countries or nationals thereof without first obtaining
applicable government approval. Customer agrees it is responsible for obtaining
required government documents and approvals prior to export of any Product, or
technical data.

All obligations and duties which by their nature survive the expiration or
termination of this Agreement shall remain in effect beyond expiration or
termination and remain in effect and apply to respective successors and assigns
until they have been fulfilled. A waiver or failure by a party to demand
performance or to exercise a right, when entitled, will not prejudice the
party's ability to enforce such performance or right.

The United Nations Convention on Contracts for the International Sale of Goods
does not apply to this Agreement.

The headings in this Agreement are for reference only. They will not affect the
meaning or interpretation of this Agreement.

This Agreement, as well as any Task Orders issued hereunder, may only be
modified by a written amendment signed by both parties. This Agreement shall not
be supplemented or modified by any course of dealing, course of performance or
trade usage. The term "this Agreement" as used herein includes any applicable
Attachments or future written amendment(s) made in accordance with this Section.

22. SOLE AGREEMENT: Each party acknowledges that it has read this Agreement,
understands it, and agrees to be bound by its terms and conditions. Further, the
parties agree that this Agreement, any mutually agreed to Confidentiality
Disclosure Agreements relating to this Agreement, Task Orders, amendments, and
the Technology License Agreement (as it affects this Agreement), represent the

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       11
<PAGE>   12

entire and complete agreement between the parties, which supersedes all prior
proposals, agreements, and all other communications (whether oral or written)
between the parties relating to the subject matter hereof.

AGREED TO AND ACCEPTED BY:

INTERNATIONAL BUSINESS MACHINES              TRANSMETA CORPORATION
CORPORATION

BY:  /S/ HANK J. GEIPEL                      BY:  /S/ DAVID R. DITZEL

    NAME:  HANK J. GEIPEL                        NAME:  DAVID R. DITZEL
    TITLE: VP, ADVANCED STANDARD                 TITLE: PRESIDENT AND CEO
           PRODUCTS IBM
           MICROELECTRONICS

    DATED: DECEMBER 17, 1997                     DATED: DECEMBER 18, 1997

                                       12

<PAGE>   13

                                    EXHIBIT A

                                   TASK ORDER
                          (TASK ORDER #TASK-121297-P95)

This Task Order is governed by the terms and conditions of Agreement Number:
TM-MFG-121297

1.0 TERM OF TASK ORDER: This Task Order will be effective on December 12 1997
and will expire on [*].

2.0 PRODUCT NAME AND DESCRIPTION:

Product Name:  [*]

[*].

Customer may purchase the Product as untested wafers, tested wafers, untested
modules or tested modules.

3.0   DELIVERABLE ITEMS:

3.1 Customer

<TABLE>
<CAPTION>
        Item                                          Date
        ------------------------------------------------------------------------
<S>                                                   <C>
        [*]
        Packaging Specification                       [*]
        P95 wafer test specification and vectors      5 weeks after [*] tape out
        P95 module test specification and vectors     5 weeks after [*] tape out
</TABLE>

3.2 IBM

<TABLE>
<CAPTION>
        Item                                          Date
        ------------------------------------------------------------------------
<S>                                                   <C>
        [*]                                           Complete
        [*]                                           Complete
</TABLE>

4.0 PRODUCT SPECIFICATIONS, PROCESS TECHNOLOGY, WAFER ACCEPTANCE CRITERIA, YIELD
AND COST REDUCTION INCENTIVES, ASSUMPTIONS:

4.1 Product Specifications:

        Die Size:  [*]
        Package:   [*]

4.2 Process Technology:  [*]

4.3 Wafer Acceptance Criteria:  Exhibit B

4.4  Module Acceptance Criteria:
        The product will be tested according to the Customer's test
specification and test vectors, as identified in Section 3 of this Exhibit A.
The Product will be packaged according to the module physical outline drawing
for the [*].

5.0 SCHEDULE: ATTACHMENT 3

Yield and Cost Reduction Incentives: IBM and Customer will work together from
time to time to attempt to put in place mutually agreed upon programs whereby
both parties are financially interested in reducing the manufacturing cost,
reducing and eliminating burn in, improving the yield of the Products and
lowering the price of the Products to Customer.

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       13
<PAGE>   14

6.0 PRODUCT DEMAND FORECAST:

The Parties anticipate that they will meet approximately once per calendar
quarter to review forecasts under this Task Order. The forecast listed below is
for tested modules.

[*].

7.0 ENGINEERING EFFORT AND ENGINEERING CHARGES  (NRE CHARGES):

Engineering Effort:

        1)  Prototypes NRE is [*] and includes the following:
               Design center technical and logistical support
               Spice models CMOS process design rules
               Processing of [*] type tape [*]
               Mask build
               Delivery of [*] packaged and tested modules

        2)  Packaging NRE
               Electrical, thermal and mechanical modeling              [*]
               Package design                                           [*]
               Fabricate masks                                          [*]
               Fixtures (volume dependent)                              [*]

        3)  Test NRE:
               Wafer Test:
                   - Customer will supply the test specifications
                     and vectors
                   - IBM will write, compile, simulate and debug
                     the manufacturing test program for the [*]         [*]
                   - IBM will develop the  software required to
                     implement memory cell redundancy                   [*]
                   - Probe cards                                        [*]

               Module Test:
                   - Customer will supply the test specifications
                     and vectors
                   - IBM will write, compile, simulate and debug
                     the manufacturing                                  [*]
                     test program for the                               [*]
                   - Module DIB                                         [*]
                   - Burn-in boards                                     [*]

        4)  Metal mask revisions NRE
                   - Per mask                                           [*]
                   - Engineering Charge per  Revision (RIT)             [*]

NRE Charges payable 50% at placement of purchase order and 50% upon delivery of
prototypes. [*].

8.0  PROTOTYPE UNIT PRICING AND DELIVERY:

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       14
<PAGE>   15

The NRE Engineering Charges include delivery of [*] prototype parts per design.
These prototypes will be delivered having been tested to and successfully passed
test vectors provided by Customer and mutually agreed upon process control
monitors. Customer is responsible to insure the test program is correctly
testing the prototypes.

Additional [*] prototypes off of the initial lots (up to the quantity listed
below) can be purchased at the price quoted below. The additional order must be
placed at least [*] prior to the delivery of the original [*] prototypes.

<TABLE>
<CAPTION>
                             Quantity          Price
                             --------          -----
<S>                          <C>               <C>
CMOS 6X3 5LM Die             [*]

CMOS 6X3 5LM Wafer           [*]
</TABLE>

Any further quantities beyond the initial prototype lots above may be purchased
by Customer using the [*] price quoted below.

9.0  PRODUCTION PRICE/QUANTITY MATRIX (PRODUCT UNIT PRICE)

[*].

10.0  MANUFACTURING LEAD TIME (PURCHASE ORDER LEAD TIME):

[*].

[*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       15
<PAGE>   16

[*].

[*].

11.0  CANCELLATION CHARGES:

        In accordance with Sections 2 and 6 of the Agreement, the following
        charges will apply for failure to order against accepted forecasts and
        for any canceled Customer order or portion thereof.

        [*].

12.0 TASK ORDER TECHNICAL COORDINATORS:

        International Business Machines            Transmeta Corporation
        Corporation                                Dept.
        Dept.  DZOV                                3940 Freedom Circle
        1000 River Street                          Santa Clara, CA. 95054
        Essex Jct., VT 05452                       PH: (408) 327-9830 x 244
        PH: (802) 769-3519                         FAX: (408) 327-9840
        FAX: (802) 769-6800                        EMAIL: dal@transmeta.com
        EMAIL: wslatter@us.ibm.com                 Attn: Doug Laird, VP VLSI
        Attn: Bill Slattery                              Engineering

13.0 SHIPPING/BILLING/ORDERING LOCATIONS:

        Customer's Ship to Location: To be specified in individual purchase
        orders

        Customer's Bill to Location:
               Transmeta Corporation
               3940 Freedom Circle
               Santa Clara, CA. 95054
               Attention: Accounts Payable
               ph: (408) 327-9830
               fax: (408) 327-9840

        IBM's Ordering Location:

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       16
<PAGE>   17

               International Business Machines Corporation
               1055 Joaquin Rd.
               Mountain View, CA 94043
               Attention: Joe Larkins
               Fax: (650) 694-3157

AGREED TO AND ACCEPTED BY:

INTERNATIONAL BUSINESS MACHINES              TRANSMETA CORPORATION
CORPORATION

BY:  /S/ HANK J. GEIPEL                      BY:  /S/ DAVID R. DITZEL

      NAME:  HANK J. GEIPEL                        NAME:  DAVID R. DITZEL
      TITLE: VP, ADVANCED STANDARD                 TITLE: PRESIDENT AND CEO
             PRODUCTS IBM
             MICROELECTRONICS

      DATED: DECEMBER 17, 1997                     DATED: DECEMBER 18, 1997

                                       17
<PAGE>   18

                                    EXHIBIT B

WAFER ACCEPTANCE CRITERIA (FOR TESTED WAFERS)

        1.     Nothing in this Exhibit modifies or expands Customer's warranty
               rights under the Agreement.

        2.     IBM Products, with the reasonable cooperation of the Customer,
               will be subject to the following quality standards.

               A)  Wafer Specifications

                      a.  Wafer Size: IBM will ship 8 inch diameter wafers.

                      b.  Wafer Thickness and Finish: IBM and Customer will
                          agree upon specifications for wafer thickness and back
                          finish.

                      c.  Die Layout: IBM will be responsible for the reticle
                          layout and stepping of the Customer's die, consistent
                          with IBM's normal defect monitoring strategy

                      d.  Packing:

                               1. Tested wafers: [*].

                               2. Damaged Goods: [*].

               B)   Wafer Yields:

                      a.  Circuit limited yield loss is solely the
                          responsibility of the Customer [*].

                      b.  Minimum Yields: [*].

               C)   Visual Criteria: [*].

               D)   Electrical Criteria:

                      a.  Parametrics: [*].

               E)    Prototypes:

                      a.  Prototypes and other similar non-production material
                          will be accepted by the Customer and may not meet the
                          quality criteria described herein. Customer may not
                          use this material for production shipments.

               F)   Documentation:

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       18
<PAGE>   19

                      a.  [*].

               G)   Test: Electrical test using [*]. The details to be
               identified after the completion of the first prototype wafers
               delivered 1Q98.

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       19
<PAGE>   20

                                   TASK ORDER

                          (TASK ORDER #TASK-043099-P95)

This Task Order is governed by the terms and conditions of Agreement Number
TM-MFG-121297 (the "Agreement").

1.0     TERM OF TASK ORDER: This Task Order will be effective on April 30, 1999
and will expire on [*].

2.0     PRODUCT NAME AND DESCRIPTION:

2.1     Product Name: [*]

Die Size:      [*]

Package:       [*]

Process Technology:  [*].

Customer may purchase the Product as untested wafers or tested wafers; provided,
however, that Customer may only purchase Product in the form forecasted by
Customer, under forecasts accepted by IBM (meaning, for example, that if
Customer forecasts tested wafers, and IBM accepts such forecasts, then Customer
may purchase such Product; if Customer does not forecast tested wafers, then
Customer may not purchase such Product).

Customer may also purchase substrates and Bond, Assembly and Test Services ("BAT
Services") under this Task Order. As discussed above, Customer's forecasts must
identify the form in which Customer will purchase Product; if Customer wants
modules, whether tested or not, then Customer must submit forecasts for BAT
Services that identify the quantity of substrates and BAT Services requested by
Customer, on a monthly basis.

3.0     DELIVERABLE ITEMS:

3.1     Customer

<TABLE>
<CAPTION>
         Item                                              Date
         -----------------------------------------------------------
<S>                                                        <C>
         [*]                                               Complete
         Packaging Specification                           Complete
         P95 wafer test specification and vectors          Complete
         P95 module test specification and vectors         Complete
</TABLE>

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       20

<PAGE>   21

3.2     IBM

<TABLE>
<CAPTION>
         Item                                              Date
         ----------------------------------------------------------
<S>                                                        <C>
         [*]                                               Complete
         [*]                                               Complete
</TABLE>

4.0     PRODUCT INSPECTION AND RELATED INFORMATION

4.1     Wafer Inspection Criteria: Attached hereto as Exhibit 1 to this Task
        Order.

4.2     Module Testing and Packaging Criteria: The Product will be tested by IBM
according to Customer's test specification and test vectors, as identified in
Section 3 of this Task Order. The Product will be packaged by IBM according to
the module physical outline drawing for the [*], presently in IBM's possession.

4.3     CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY PRODUCT RELATED DEFECT IS
THE WARRANTY PROVISION IN THE AGREEMENT (SEE SECTION 13 OF THE AGREEMENT).
CUSTOMER HAS NO RECOURSE AGAINST IBM FOR ANY BREACH BY IBM OF ANY OF THE
FOREGOING CRITERIA, UNLESS CUSTOMER WOULD OTHERWISE HAVE A WARRANTY CLAIM UNDER
SECTION 13 OF THE AGREEMENT RESULTING FROM SUCH BREACH. HOWEVER, IN NO EVENT
SHALL ANY OF THE CRITERIA IN ANY WAY EXPAND, MODIFY, CHANGE OR EXTEND THE
WARRANTY PROVIDED BY IBM IN SECTION 13 OF THE AGREEMENT.

5.0     SCHEDULE: ATTACHMENT 3

Yield and Cost Reduction Incentives: IBM and Customer agree to discuss the
possibility of implementing programs whereby both parties would be financially
interested in reducing the manufacturing cost of Product, reducing and
eliminating burn in, improving Product yield and lowering Product price;
provided, however, that neither party shall have any obligation to the other
unless such obligation is set forth in a mutually agreed upon writing, signed by
authorized representatives of both parties.

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       21
<PAGE>   22

6.0     PRODUCT DEMAND FORECAST:

The parties anticipate that they will meet approximately once per calendar
quarter to review forecasts under this Task Order.

Tested Modules:

Year:  [*]

<TABLE>
<CAPTION>
  Month:    Jan.  Feb.  March   April   May   June   July  Aug.   Sept.  Oct.   Nov.   Dec.
<S>         <C>   <C>   <C>     <C>     <C>   <C>    <C>   <C>    <C>    <C>    <C>    <C>
            [*]   [*]    [*]     [*]    [*]   [*]    [*]   [*]    [*]    [*]    [*]    [*]
</TABLE>

        Year:  [*]           [*]            [*]           [*]           [*]
                             [*]            [*]           [*]           [*]

        Year:  [*]           [*]            [*]
                             [*]            [*]

Tested Wafers:

Year:  [*]                                                           Year:  [*]

<TABLE>
<CAPTION>
  Month:   April  May    June   July    Aug.  Sept.  Oct.  Nov.   Dec.   Jan.   Feb.  March
<S>         <C>   <C>   <C>     <C>     <C>   <C>    <C>   <C>    <C>    <C>    <C>    <C>
            [*]   [*]    [*]     [*]    [*]   [*]    [*]   [*]    [*]    [*]    [*]    [*]
</TABLE>

For the avoidance of doubt, Customer acknowledges and agrees that each forecast
for Product, which is accepted by IBM, creates binding purchase obligations for
Customer, pursuant to Sections 2 and 3 of the Agreement. As such, the above
forecasts each create separate and independent Customer obligation to purchase
Products.

Forecasts for substrates and BAT Services:

        In addition to providing forecasts for Products, Customer shall provide
        IBM's customer account representative with a forecast for substrates and
        BAT Services, which shall each cover a minimum of [*] broken out by
        month. The initial accepted forecasts for substrates and BAT Services
        are set forth below. By the fifth (5th) calendar day of every month
        during the term of this Task Order, Customer will provide IBM's customer
        account representative with updated demand forecasts (in writing, fax or
        email) covering a rolling [*] period (not to extend beyond the term of
        this Task Order), which will be reviewed for acceptance by IBM. IBM
        shall notify Customer whether the forecast has been accepted or rejected
        within [*] after receipt. Such forecasts shall constitute good faith
        estimates of Customer's anticipated requirements but shall not
        contractually

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       22
<PAGE>   23

        obligate IBM to supply, not contractually obligate Customer to purchase,
        the quantities of substrates and BAT Services set forth therein;
        provided, however, that Customer is committed to its forecasts for
        Products, as set forth in Sections 2 and 3 of the Agreement, and the
        failure of Customer to order the required quantity of Products shall
        lead to a charge being assessed against Customer, consistent with
        Section 11 of this Task Order.

        No Product will be started based on substrate forecasts.

Year:  [*]                                                            Year:  [*]

<TABLE>
<CAPTION>
     Month:        April   May   June   July  Aug.   Sept.  Oct.   Nov.   Dec.   Jan.  Feb.   March
     -----         -----   ---   ----   ----  ----   -----  ----   ----   ----   ----  ----   -----
<S>                <C>     <C>   <C>    <C>   <C>    <C>    <C>    <C>    <C>    <C>   <C>    <C>
   Substrates       [*]    [*]    [*]   [*]    [*]    [*]   [*]    [*]     [*]   [*]   [*]     [*]
  BAT Services      [*]    [*]    [*]   [*]    [*]    [*]   [*]    [*]     [*]   [*]   [*]     [*]
    (modules)
</TABLE>

7.0     ENGINEERING EFFORT AND ENGINEERING CHARGES (NRE CHARGES):

Engineering Effort:

        1)     Prototype NRE is [*] and includes the following:

                      Design center technical and logistical support (in an
                      amount determined by IBM)

                      Spice models

                      CMOS process design rules

                      Processing of [*] type tape [*]

                      Mask build

                      Delivery of [*] Prototypes

        2)     Packaging NRE

                      Package design                                 [*]
                      Fabricate masks                                [*]

        3) Test NRE:

                      Wafer Test:
                          -  Customer will supply the test specifications and
                             vectors

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       23
<PAGE>   24

                  - IBM will write, compile, simulate and debug
                    the manufacturing test program for the
                    [*]                                                    [*]

                  - Probe cards                                            [*]

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       24
<PAGE>   25

                      Module Test:
                          - Customer will supply the test specifications and
                            vectors
                          - IBM will write, compile, simulate and debug
                            the manufacturing test program for the
                            [*]                                             [*]
                          - Module Device Interface Board                   [*]
                          - Burn-in boards                                  [*]

        4) Metal mask revisions NRE:

                          - Per mask                                        [*]
                          - Engineering Charge per Revision (RIT)           [*]

For Prototype NRE: NRE Charges payable 50% at placement of purchase order and
50% upon delivery of Prototypes. [*].

For Packaging, Test and Metal mask revisions NRE: NRE Charges payable 50% at
placement of relevant purchase order and 50% upon completion of the services at
issue [*].

8.0     PROTOTYPE UNIT PRICING AND DELIVERY:

The Prototype NRE includes delivery of [*] Prototypes. The balance of the
remaining die on the wafers from which the Prototypes were taken are the
property of the Customer. Should Customer so request that IBM package these
additional die, then the cost of packaging these additional Prototypes will be
[*] the sum of the low volume price tiers [*] for substrates and BAT services
set forth in Section 9.0.

        Prototypes are preliminary versions of a Product which may or may not be
        functional, are intended for internal use and testing, are not for
        resale, and are not suitable for production in commercial quantities.
        ALL PROTOTYPES ARE PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND. IBM
        EXPRESSLY DISCLAIMS ALL WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF
        MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       25
<PAGE>   26

9.0     PRODUCTION PRICE/QUANTITY MATRIX (PRODUCT UNIT PRICE)

[*]

[*]

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       26
<PAGE>   27

[*]

[*]

[*]

If Customer desires Modules, whether tested or untested, then the pricing is
that of the applicable wafer price, plus the applicable substrate and BAT
Services prices.

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       27
<PAGE>   28

<TABLE>
<S>     <C>              <C>      <C>       <C>      <C>       <C>       <C>     <C>      <C>
  TEST*                  [*]      [*]       [*]      [*]       [*]       [*]     [*]      [*]
                         ---      ---       ---      ---       ---       ---     ---      ---

        Per Wafer        [*]       [*]      [*]       [*]       [*]      [*]     [*]      [*]
        Per Module       ---       [*]      [*]       [*]       [*]      [*]     [*]      [*]
        Burn-in          ---       [*]      [*]       [*]       [*]      [*]     [*]      [*]
</TABLE>

* Dependencies:

1) Test prices are based on the following matrix of parameters (tested on a
[*]).

        Wafer Test

                            [*]     [*]    [*]     [*]    [*]     [*]    [*]
                            ---     ---    ---     ---    ---     ---    ---
Test Time (sec)             [*]     [*]    [*]     [*]    [*]     [*]    [*]
Data Log (sec)              [*]     [*]    [*]     [*]    [*]     [*]    [*]
Data Log Sample/Wafer       [*]     [*]    [*]     [*]    [*]     [*]    [*]

        Module Test

Test Time (sec)             [*]     [*]    [*]    [*]    [*]   [*]    [*]
Data Log (sec)              [*]     [*]    [*]    [*]    [*]   [*]    [*]
Data Log Sample (%)         [*]     [*]    [*]    [*]    [*]   [*]    [*]
Number of Times tested      [*]     [*]    [*]    [*]    [*]   [*]    [*]

2) Burn-in price includes burn-in per module as set forth below:

                             [*]      [*]      [*]     [*]    [*]     [*]   [*]
                            ---------------------------------------------------
Hours of [*] Burn In         [*]      [*]      [*]     [*]    [*]     [*]   [*]

[*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       28
<PAGE>   29

10.0    MANUFACTURING LEAD TIME (PURCHASE ORDER LEAD TIME):

Minimum Order Quantity (MOQ):

        Wafers:       [*]

        Modules:      [*]

Minimum Ship Pack Quantity (SPQ):

        Modules:      [*]

        Wafers:       [*]

Prototypes: [*].

Wafer Production: [*]. IBM will provide lead times for untested wafers if
Customer so desires.

                      [*]                [*]
                      [*]                [*]

Substrate Production: [*].

BAT Services: [*].

11.0    CANCELLATION CHARGES:

        In accordance with Sections 2 and 6 of the Agreement, the following
        charges will apply for failure to order against accepted forecasts and
        for any canceled Customer order or portion thereof. The rescheduling
        rights set forth in Section 6 of the Agreement do not apply to
        Substrates and BAT Services. The terms governing rescheduling and
        cancellation of Substrates and BAT Services are set forth below.

        I.     Canceled or Changed Forecast

               A.     Wafers:

                         [*]

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       29
<PAGE>   30

               B.     Substrates: [*].

               C.     Bond Assembly Test Services: [*].

        II.    Canceled or Changed Purchase Orders

               A.     Wafers:

                         [*]

        III.   Substrates*

                         [*].

        IV.    Bond Assembly Test Services*

                         [*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       30
<PAGE>   31

* Cancellation of Substrates and BAT Services are governed by Section 6.0 of the
Agreement.

12.0    TASK ORDER TECHNICAL COORDINATORS:

           International Business Machines         Transmeta Corporation
           Corporation                             Dept.
           Dept. DZOV                              3940 Freedom Circle
           1000 River Street                       Santa Clara, CA  95054
           Essex Jct., VT  05452                   PH: (408) 327-9830 x 244
           PH: (802) 769-3519                      FAX: (408) 327-9840
           FAX: (802) 769-6800                     EMAIL: dal@transmeta.com
           EMAIL: wslatter@us.ibm.com              Attn:  Doug Laird, VP VLSI
           Attn:  Bill Slattery                    Engineering

                                       31
<PAGE>   32

13.0    SHIPPING/BILLING/ORDERING LOCATIONS:

        Customer's Ship to Location: To be specified in individual purchase
        orders.

        Customer's Bill to Location:

              Transmeta Corporation
              3940 Freedom Circle
              Santa Clara, CA  95054
              Attention:  Accounts Payable
              ph: (408) 327-9830
              fax: (408) 327-9840

        IBM's Ordering Location:

              International Business Machines Corporation
              1055 Joaquin Rd.
              Mountain View, CA  94043
              Attn:  Joe Larkins
              Fax: (650) 694-3157

Agreed To And Accepted By:
International Business Machines
Corporation                                 Transmeta Corporation

By:                                         By:
Authorized Signature                        Authorized Signature
Name:   Peter Hansen                        Name:   David R. Ditzel
Title:  V.P. North America Sales            Title:  President and Ceo
        IBM Microelectronics                        Transmeta Corporation
Dated:  June 23, 1999                       DATED:  JUNE 1, 1999

                                       32
<PAGE>   33

                       EXHIBIT 1 TO TASK ORDER #043099-P95

PRODUCT INSPECTION CRITERIA - TESTED WAFERS

1.      WAFERS:

        A.     WAFER SIZE: IBM WILL SHIP 8 INCH DIAMETER WAFERS.

        B.     WAFER THICKNESS AND FINISH: IBM AND CUSTOMER WILL AGREE UPON
        SPECIFICATIONS FOR WAFER THICKNESS AND BACK FINISH. (*SEE NOTE BELOW)

        C.     DIE LAYOUT: IBM WILL BE RESPONSIBLE FOR THE RETICLES LAYOUT AND
        STEPPING OF THE CUSTOMER'S DIE, CONSISTENT WITH IBM'S NORMAL DEFECT
        MONITORING STRATEGY.

        D.     PACKING:

               1.     TESTED WAFERS:  [*].

               2.     DAMAGED GOODS:  [*].

2.      WAFER YIELDS:

        A.     CIRCUIT LIMITED YIELD LOSS IS SOLELY THE RESPONSIBILITY OF THE
               CUSTOMER; [*].

        B.     MINIMUM YIELDS: [*].

3.      VISUAL CRITERIA:
        [*]

4.      ELECTRICAL CRITERIA:
        [*]

5.      PROTOTYPES:
        PROTOTYPES AND OTHER SIMILAR NON-PRODUCTION MATERIAL MAY NOT MEET THE
        CRITERIA DESCRIBED IN THIS EXHIBIT.

6.      DOCUMENTATION:
        [*].

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       33
<PAGE>   34

7.      TEST:
        ELECTRICAL TEST USING [*] THE DETAILS TO BE IDENTIFIED AFTER COMPLETION
        OF THE FIRST PROTOTYPE WAFERS.

(*Note: Failure of the parties to arrive at mutually acceptable specifications,
data, and/or tests within [*] after execution of this Task Order by both
parties, will result in IBM, at its sole discretion, determining the
specifications, data and/or tests.)

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       34
<PAGE>   35

INTERNATIONAL BUSINESS MACHINES CORPORATION                1000 RIVER ST.
                                                           ESSEX JCT. VT.  05452
APRIL 28, 1999

TRANSMETA CORPORATION
LARRY SLADOWSKI
3940 FREEDOM CIRCLE
SANTA CLARA, CA 95054

SUBJECT:  [*]

General Information:

PRODUCT NAME:  [*]
TECHNOLOGY:  [*]
CUSTOM DESIGN
IMAGE X DIM:  [*]
PACKAGE:  [*]
RELIABILITY GRADE:  [*]
THIS QUOTE DOES NOT INCLUDE PRODUCT QUALIFICATION
WAFER MANUFACTURING:  [*]
        THIS PRODUCT WILL HAVE PLATED [*]  [*]
SUBSTRATE MANUFACTURING:  [*]
BOND, ASSEMBLY AND TEST:  [*]

Key Dates:

PURCHASE ORDER PLACE:  5/28/99
GL-1 DATA AVAILABLE:  [*]
TEST PROGRAMS AVAILABLE:  [*]

Assumptions:

PROTOTYPE BUILD
        [*]
BURN IN
        [*]

TEST
[*]

MANUFACTURING RAMP

<TABLE>
<CAPTION>
         JAN    FEB    MAR    APR    MAY   JUN    JUL    AUG    SEP    OCT   NOV    DEC
<S>      <C>    <C>    <C>    <C>    <C>   <C>    <C>    <C>    <C>    <C>   <C>    <C>
</TABLE>

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       35
<PAGE>   36

<TABLE>
<S>      <C>    <C>    <C>    <C>    <C>   <C>    <C>    <C>    <C>    <C>   <C>    <C>    <C>
         [*]    [*]    [*]    [*]    [*]   [*]    [*]    [*]    [*]    [*]   [*]    [*]    [*]
         [*]    [*]    [*]    [*]    [*]   [*]    [*]    [*]    [*]
</TABLE>

Early User Hardware:

THIS SCHEDULE WILL CONSUME [*].

    COMMITTED          COMMITTED

       DATE              SUPPLY

       [*]                [*]

       [*]                [*]         NOTE:  [*].

NRE:

PROTOTYPES:                                                      [*]
        DESIGN CENTER TECHNICAL AND LOGISTICAL SUPPORT
        SPICE MODELS
        CMOS PROCESS DESIGN RULES
        PROCESSING [*] TYPE TAPE
        MASK BUILD [*]
        DELIVERY OF 30 PACKAGED AND TESTED MODULES
PACKAGING:                                                       [*]
        PACKAGE DESIGN
        MASK BUILD [*]
TEST:                                                            [*]
        PROBES CARDS
        MODULE DIBS
        PROGRAM SUPPORT

BURN IN:                                                         [*]
        DEVELOPMENT SUPPORT
                                            TOTAL                [*]

[*]
        PROCESS DEVELOPMENT
UNIQUE MARKING NRE:                         TBD
B RIT:
        EACH MASK LEVEL                     [*]
        ENGINEERING SUPPORT                     [*]
        PER WAFER CHARGE                    [*]
        ROCKET SLOT CHARGE                  [*]

Volume Production:

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       36
<PAGE>   37

MINIMUM ORDER QUANTITY
WAFERS:  [*]
SUBSTRATES:  [*]
BOND ASSEMBLY SERVICES:  [*]

UNTESTED WAFER WITH [*]
        PRICES INCLUDE:  [*]
[*]

WAFER TEST
                           [*]      [*]       [*]
PER WAFER                [*]      [*]      [*]

MODULE TEST (PER MODULE)
                           [*]      [*]      [*]
PER MODULE TEST          [*]      [*]      [*]

Burn-in Price per Module
[*]

SUBSTRATE
[*]

BOND AND ASSEMBLY (includes shipping trays)
[*]

Productivity Estimates:

RAW CHIPS PER WAFER:  [*]

Good chips per Wafer

[*]

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       37
<PAGE>   38

Good Modules per Wafer

[*]

Principal Terms and Conditions (FULL CONTRACT T'S AND C'S AVAILABLE UPON
REQUEST)

1    IBM WILL SHIP TO WITHIN [*] WAFER OF THE ORDERED QUANTITY, WHICHEVER IS
     GREATER.

2    IBM RESERVES THE RIGHT TO SCHEDULE THE DELIVERY ACCORDING TO FACTORY
     CAPACITY.

3    SHIPMENTS ARE FOB FACTORY. COST OF SHIPMENT IS BORNE BY CUSTOMER.

4    WAFERS TO BE SHIPPED ACCORDING TO IBM'S WAFER ACCEPTANCE CRITERIA,
     AVAILABLE UPON REQUEST.

5    STANDARD AND MINIMUM YIELD TARGETS ARE MUTUALLY AGREED BY IBM AND CUSTOMER
     AFTER FIRST [*].

6    IBM RESERVES THE RIGHT TO TEMPORARILY SUSPEND SHIPMENT OF PRODUCTS AT THESE
     PRICES AND VOLUMES IF THE YIELD SHOULD FALL BELOW [*] OF THE EXPECTED
     TARGET YIELD FOR AN EXTENDED TIME. THE CUSTOMER WILL PROVIDE PRODUCT AND
     YIELD IMPROVEMENT RESOURCES TO RESOLVE.

7    CUSTOMER TO PROVIDE [*] FIRM ORDERS (ROLLING). WITH AN ADDITIONAL [*]
     ROLLING FORECAST THAT IS NON-BINDING ON THE CUSTOMER AND IBM.

8    NRE PAYMENTS ARE DUE 50% AT INITIATION AND 50% AT COMPLETION OF THE NRE
     WORK ITEM PENDING ADEQUATE CREDIT. LICENSE NRE IS DUE 100% AT DELIVERY OF
     THE INTELLECTUAL PROPERTY.

9    PAYMENT TERM IS NET 30 DAYS ASSUMING ADEQUATE CREDIT LIMIT HAS BEEN
     ESTABLISHED. IBM WILL STOP SHIPMENT IF ACCOUNT IS IN ARREARS.

10   CUSTOMER ASSUMES FULL RESPONSIBILITY FOR, AND INDEMNIFIES IBM AGAINST ANY
     CLAIMS BEYOND WARRANTY.

11   MINIMUM ORDER QUANTITY IS [*].

Warranty
IBM WARRANTS PRODUCT(S) TO BE FREE FROM DEFECTS IN MATERIAL AND WORKMANSHIP FOR
ONE (1) YEAR AFTER THE DATE OF DELIVERY TO CUSTOMER. CUSTOMER ACKNOWLEDGES THAT
THE FUNCTIONALITY OF PRODUCTS IS CONTINGENT UPON CUSTOMER'S DESIGNS AND,
THEREFORE, NO WARRANTY APPLIES TO THE FUNCTIONALITY OF PRODUCTS MANUFACTURED FOR
OR SOLD TO CUSTOMER.

8.0  General
THIS BUDGETARY FOUNDRY QUOTATION IS FOR INFORMATION PURPOSES ONLY AND SHALL NOT
BE CONSTRUED AS AN OFFER TO SELL. THIS INFORMATION IS CONTINGENT UPON THE
EXECUTION, BY CUSTOMER AND IBM, OF A WRITTEN AGREEMENT FOR THE PURCHASE

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       38
<PAGE>   39

BY CUSTOMER OF IBM MANUFACTURED PRODUCTS. THIS INFORMATION IS VALID FOR A PERIOD
OF THIRTY (30) DAYS FROM THE DATE OF ISSUE AND IS SUBJECT TO EXTENSION OR
REVOCATION BY IBM UPON WRITTEN NOTICE TO CUSTOMER. THIS INFORMATION IS EXPRESSLY
LIMITED TO THE PRODUCT(S) AND/OR SERVICE(S) DESCRIBED ABOVE. IBM CONSIDERS THIS
INFORMATION TO BE CONFIDENTIAL AND REQUESTS THAT YOU NOT REVEAL ITS CONTENTS TO
THIRD PARTIES WITHOUT IBM'S PRIOR WRITTEN CONSENT.

/S/ W. J. SLATTERY

WILLIAM J. SLATTERY
TECHNICAL COORDINATOR
IBM MICROELECTRONICS

                                       39
<PAGE>   40

         SECTION 5 OF THE AGREEMENT BEING REFERENCED IN SECTION 9 ABOVE.

5.0     INFORMATION TRANSFERS / TRANSFER OF LICENSED TECHNOLOGY

5.1     Deliverables. The IBM Deliverables and Transmeta Deliverables, discussed
        in Section 2.0 and deliverables disclosed under a Section 4.0 project
        agreement, contain Information which may or may not be confidential
        Information of the Party disclosing the Information. Such Information
        shall be treated in accordance with this Section 5.0.

5.2     Additional Confidential Information Disclosure: IBM or Transmeta may
        have at its disposal Information, other than as set forth in Section
        5.1, developed independent of this Agreement which may be useful for the
        development of Microprocessors or otherwise of interest to the other
        Party. In the event that the Party that has such information, in its
        sole discretion, chooses to disclose any such Information to the other
        Party, upon written agreement by the Technical Coordinators, such
        information may be so transferred to the other Party, who shall treat
        such information as part of the confidential Information of the
        disclosing Party (so long as such Information is disclosed pursuant to
        the requirements of Section 5.4).

5.3     Status of Disclosed Information: Unless otherwise agreed to in a project
        agreement or in this Agreement, all disclosures of Information by a
        Party will be deemed to be non-confidential, unless specifically
        designated at the time of disclosure, pursuant to Section 5.4, as
        including Information which is confidential to the disclosing Party.
        With respect to all Information, except any such Information which is
        designated as being confidential to the disclosing Party, the disclosing
        Party grants to the receiving Party and its Subsidiaries, to the extent,
        if any, of its interest therein, a nonexclusive, paid-up, irrevocable,
        unrestricted, and worldwide license, subject to the applicable
        copyrights (whether or not registered) and Patent rights of the
        disclosing Party, to use, have used, disclose to others, and dispose of
        such non-confidential Information in any manner it determines, including
        the use of such non-confidential Information in the development,
        manufacture, marketing, and maintenance of products and services
        incorporating such non-confidential Information.

5.4     Identification of Confidential Information:

        (a) Any confidential Information disclosed by one Party to the other in
        performance of this Agreement or any project related work shall be
        clearly designated (in writing, orally or otherwise), at the time of
        disclosure, as confidential to the disclosing Party (such as "IBM
        Confidential" or "Transmeta Confidential", for example). Any such
        disclosure which is made orally or visually shall be confirmed in
        summary written form (e.g. a listing of descriptive

                                       40
<PAGE>   41

        topics) under a like designation within thirty (30) days after the date
        of disclosure unless there has been distributed contemporaneously with
        such disclosure a written document or slide identifying that the meeting
        topics were confidential, so long as the written document or slide
        provides a summary of the confidential Information discussed. An
        occasional and unintentional failure to designate particular Information
        as confidential shall not signify that the Information is not
        confidential, so long as that Information is routinely, and in the
        ordinary course, appropriately designated confidential or is
        subsequently identified as confidential within a reasonable period of
        time, not to exceed ninety (90) days from the date of disclosure,
        sufficient so that the Technical Coordinator of the Receiving Party can
        identify and notify all recipients. Notwithstanding the foregoing
        sentence, a Receiving Party will not be responsible for (i) disclosures
        that may have occurred prior to such identification and notification;
        and (ii) disclosures that occur subsequent to such identification and
        notification provided that the Receiving Party has made reasonable
        attempts to notify recipients of the confidential nature of such
        Information.

        (b) The Technical Coordinators shall be responsible for monitoring
        disclosure of confidential Information. The Technical Coordinators may
        mutually agree in writing that certain narrowly defined Information
        exchanges may be declared "IBM or Transmeta Confidential", with the
        result that future disclosures of such narrowly defined Information no
        longer require such markings (e.g., in the event both Parties are
        working jointly under exigent circumstances, on the discovery and fix of
        a chip bug, then the two Technical Coordinators may agree that
        subsequent Information disclosures pertaining to the chip bug are
        confidential).

5.5     Jointly Developed Information: Jointly developed Information shall be
        deemed by each Party to be the confidential Information of both Parties,
        shall be marked with both "IBM Confidential" and "Transmeta
        Confidential" legends, and shall be subject to the confidentiality
        restrictions referred to in this Section 5.0. However, each Party shall
        be deemed the owner of such confidential Information for disclosure
        purposes and may disclose and use it in the ordinary course of business
        in the manner it does its own confidential Information. Notwithstanding
        the foregoing, IBM and Transmeta will each continue to own, under their
        respective Intellectual Property Rights, their respective confidential,
        preexisting or independently developed Information, disclosed to the
        other Party which may be incorporated into any jointly developed
        Information. Accordingly, to the extent any jointly developed
        Information contains preexisting or independently developed confidential
        Information of either Party, such portions of the jointly developed
        Information shall be subject to the rights and obligations regarding
        such confidential Information of the other Party contained in this
        Section 5.0 and Section 6.0.

5.6     Restrictions on Confidentiality and Use: Except as otherwise provided in
        this Agreement, for a period of [*] the receiving Party shall use the
        same efforts to

*    Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.

                                       41
<PAGE>   42

        avoid publication or dissemination of confidential Information of the
        other Party as it employs with respect to Information of its own which
        it does not desire to be published or disseminated. In addition to the
        foregoing restrictions on disclosure, the use of confidential
        Information is subject to the rights and licenses granted in this
        Agreement.

5.7     Limited Disclosure to Customers: Transmeta may disclose IBM confidential
        Information relating to Category I Products to its customers in the
        process of selling and marketing those products. IBM may disclose
        Transmeta confidential Information relating to Category II and III
        Products to its customers in the process of selling and marketing those
        products. Such disclosures shall be to the extent required for such
        sales and marketing efforts, and to the extent permitted under the
        license rights of Section 6.0 and under confidentiality terms no less
        restrictive than those set forth in this Section 5.0. This does not
        include the disclosure of any Source Code of x86-CMS or Design Databases
        or process technology that either Party may disclose to the other.

5.8     Residual Information: Notwithstanding anything to the contrary in
        Section 5.6 and in Section 6.0, the receiving Party and its Subsidiaries
        shall be free to use all Residual Information which is retained by the
        receiving Party in non-tangible form, for any purpose it may deem
        appropriate, subject only to the copyrights (whether or not registered)
        and Patent rights of the other Party and subject to the confidential
        Information of the other Party not being disclosed to third parties
        except as provided for in this Section 5.0. It is understood that
        receipt of any confidential Information under this Agreement shall not
        create any obligation in any way limiting or restricting the assignment
        and/or reassignment of employees within the receiving Party or to or
        from or within any Subsidiary of the receiving Party.

5.9     Supporting Documentation and Publication: The announcement, marketing,
        and support of any product or service by either Party or its
        Subsidiaries, including any supporting documentation thereof, which
        inherently discloses confidential Information of either Party required
        for the use or support of the product or service shall not in itself be
        deemed publication or disclosure of such Information prevented by
        Section 5.6 of this Agreement. The term "supporting documentation" as
        used in this Section shall not, however, include any semiconductor
        development, process, manufacturing or testing documentation, or Source
        Code of x86-CMS or Design Databases. Notwithstanding the above, both
        Parties agree that prior written approval is required for technical
        topics being published in technical journals or otherwise disclosed to
        the public through conferences, interviews or publications, where
        information contained therein discloses the confidential Information of
        the other Party.

5.10    Non-Disclosure Exceptions: Disclosure of confidential Information shall
        not be precluded, if such disclosure is:

                                       42
<PAGE>   43

        (a) in response to a valid order of a court or other governmental body
        of the United States or any political subdivision thereof; provided,
        however that the receiving Party shall first have given notice to the
        disclosing Party and made a reasonable effort to obtain a protective
        order requiring that the Information and/or documents so disclosed be
        used only for the purposes for which the order was issued;

        (b) otherwise required by law; or

        (c) necessary to establish rights under this Agreement.

5.11    Applicable Confidential Information: Notwithstanding any other
        provisions of this Agreement, the nondisclosure obligations specified in
        Section 5.6 shall not apply to any Information which:

        (a) is, at the time of an alleged breach of Section 5.6, already in the
        possession of the receiving Party without obligation of confidentiality;

        (b) is, at the time of an alleged breach of Section 5.6, publicly
        available without breach of this Agreement;

        (c) has been, at the time of an alleged breach of Section 5.6, released
        for public disclosure by the disclosing Party with its written consent;

        (d) can be shown by the receiving Party, as of the time of an alleged
        breach of Section 5.6, to have been rightfully received independently of
        this Agreement from a third party without any obligation of
        confidentiality; or

        (e) can be shown by the receiving Party to have been internally
        developed by it completely independently of this Agreement prior to the
        date of an alleged breach of Section 5.6.

5.12    Effect of Disclosures under Prior Agreement. Any disclosures made under
        the Prior Agreement shall be governed by the confidentiality terms in
        the Prior Agreement; however, the Parties acknowledge that those terms
        are the same as those in this amended Agreement and that confidential
        Information delivered under the Prior Agreement shall also be treated as
        confidential Information under this amended Agreement for purposes of
        exploitation of license rights under this amended Agreement.

5.13    Intentionally omitted.

5.14    Disclosures to Partners/Subcontractors. Notwithstanding the
        confidentiality obligations set forth herein, each Party and its
        Subsidiaries may release

                                       43
<PAGE>   44

        confidential Information to third party design sources, IBM Alliance
        Partners (but excluding release of Source Code for x86-CMS, except to
        the extent that such an IBM Alliance Partner is only acting in the
        capacity of a development subcontractor to IBM), have-made
        manufacturers, subcontractors, and original equipment manufacturer's
        ("OEM's") under confidentiality obligations no less restrictive than
        those contained herein where the purpose is to have the third party
        assist in the design, in-kind services or development work to be
        performed for a Party to this Agreement that has made the disclosure or
        in furtherance of that Party's rights and licenses under this Agreement.

5.15    Use of Tools, Tests and Models. Notwithstanding the foregoing, Design
        Tools embodying Transmeta's confidential Information (other than
        Genesys-x86 licensed pursuant to Attachment H hereto) delivered by
        Transmeta to IBM shall be used by IBM only for the purpose of exploiting
        the rights licensed under this Agreement or on a project sanctioned by
        this Agreement. Notwithstanding the foregoing, x86-Tests and Transmeta's
        x86 Architecture Simulator Model delivered by Transmeta to IBM, shall be
        used by IBM solely as provided for in Attachment H.

5.16    Removal of Information from Sites. Each Party agrees that its employees
        shall not remove any tangible Information from the premises of the other
        Party without first obtaining permission from the other Party's
        Technical Coordinator and giving the other Party's Technical Coordinator
        the opportunity to mark Information as confidential if appropriate.

                                       44

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