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                                                                   EXHIBIT 10.07

                                  Attachment F

        Agreement for Purchase and Sale of Custom Semiconductor Products
                               (Reserved Capacity)

                         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 [*]. IBM agrees that it

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

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shall provide capacity to Customer such that if ordered, IBM would satisfy
Customer's forecasted requirements for the [*]of the [*].

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. IBM shall have
the right to reject a forecast if Customer changes the quantity of Products
forecasted for [*] of a previously accepted forecast, thereby holding Customer
to the most recently accepted forecast. For example, assume Customer submits a
forecast in February and said forecast designates [*] and IBM accepts that
forecast. Further assume that Customer's next forecast designates only [*]. IBM
has the right to reject that forecast and hold Customer to the accepted
forecast.

Customer shall submit a purchase order (placed in accordance with Section 3)
with each updated forecast (if one has not already been submitted), by which
Customer orders the quantity of Products forecast for the [*] of the forecast
([*] having already been committed under purchase order(s) pursuant to previous
forecast(s)). IBM agrees that it shall provide capacity to Customer such that if
ordered, IBM would satisfy Customer's forecasted requirements for the [*] of
each forecast, subject to the following paragraph. In consideration for IBM
agreeing to grant that capacity, Customer agrees that if it does not order
against previously accepted forecasts, as discussed in Section 11 of the Task
Order, then Customer shall be subject to cancellation charges as discussed in
said section. IBM agrees to consider, but is not obligated to accept, purchase
orders seeking upside (meaning, for a quantity of units in excess of [*] of the
forecast) and forecasts greater than that of a previously accepted forecast.

IBM will accept purchase orders for units forecasted to be delivered in [*] of
any accepted forecast, provided the orders are placed in accordance with Section
3 and the quantities requested are within [*] of the most recently accepted
forecast for said months. Customer is not obligated to submit said orders until
the aforesaid [*] roll into the [*] of a forecast. For example, assume Customer
submits a forecast and said forecast designates [*]. Once that month rolls into
the [*] of a forecast, IBM will accept a purchase order from Customer as long as
Customer actually orders between [*] for delivery during that [*]. By way of a
final example, assume that on January 5 Customer forecasts [*] and that IBM
accepts the forecast. Further assume that Customer changes the forecast to [*].
IBM may reject the [*] forecast, and thereby hold Customer to the January
forecast, or accept the [*] forecast of [*]. If IBM accepts the new forecast,
Customer is obligated to submit a purchase order [*] that is between [*].

[*] (or greater, if Customer submits forecasts beyond [*]) of each forecast are
non-binding on Customer and IBM, and provided for convenience purposes only.

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 Exchange Commission.

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The parties agree that the [*] will be manufactured initially in IBM's [*]
process technology. In addition, the parties agree that Customer will be offered
access to IBM's [*] CMOS [*] foundry process for a shrink of the [*] (where
Customer will be responsible for performing the design-related shrink effort) in
a time frame generally consistent with that provided to IBM's other foundry
customers. Customer acknowledges that the prices quoted in the initial Task
Order are for manufacturing in [*] process technology and that IBM will requote
for manufacturing in such follow on process. The specific details on the timing
of a shrink into such follow on process technology are subject to a good faith
negotiation between the parties to occur by September 30, 1998.

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.

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

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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
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). [*]. IBM also agrees to
accommodate any reasonable specific packaging and/or shipping requirements as
may be required to meet the requirements of Customer's end customers. In cases
where IBM is more than five (5) days late to agreed upon Product delivery dates,
due to IBM's sole fault, IBM shall pay the difference between overnight
expedited shipping and the normal carrier rates, if so requested by Customer. In
all other instances Customer shall pay for shipping costs. 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

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

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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. For the
situation where Customer grants any IBM business unit merchant market sales
rights to any Product under this Agreement, and IBM and Customer are selling the
said Product in the merchant market, [*].

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. IBM will use reasonable efforts to
cooperate with Customer in cases where Customer's end customers require specific
information regarding changes under this Section 8.

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.

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

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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 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.

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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 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.

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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. For warranty purposes only,
Products will be deemed delivered [*] after the date of shipment. This warranty
applies only to Customer, as the original purchaser from IBM, and Customer may
not transfer this warranty to any third party without first obtaining IBM's
written authorization, [*]. 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.

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.

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

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        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.

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.

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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.

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.

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          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.

IBM shall not change the place of manufacture of Products without prior written
notice to Customer.

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.
If the effect of a condition as stated above should continue for more than
ninety (90) days, either party may terminate this Agreement upon written notice
to the other party.

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.

[*].

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

                                       11
<PAGE>   12

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
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 CORPORATION        TRANSMETA CORPORATION

                                       12
<PAGE>   13

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

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

                                       13
<PAGE>   14

                                    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 December 12, 2000.

2.0  PRODUCT NAME AND DESCRIPTION:

Product Name:  [*]

Description: A very-long-instruction-word microprocessor containing a
combination of logic functions (e.g. integer unit, floating point unit,
peripheral control, etc) and memory functions (e.g. SRAM-cell type cache
memory).

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>
        GDSII Tape in CMOS [*] groundrule format          [*]
        Packaging Specification                           [*]
        P95 wafer test specification and vectors          5 weeks after GDS II tape out
        P95 module test specification and vectors         5 weeks after GDS II tape out
</TABLE>

3.2 IBM

<TABLE>
<CAPTION>
        Item                                              Date
        ------------------------------------------------------
<S>                                                       <C>
        CMOS [*] Design Manual                            Complete
        CMOS [*] Spice models                             Complete
</TABLE>

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

4.1 Product Specifications:

        Die Size:  [*]
        Package:  473 C4 CBGA -[*] 25mm x 32.5mm, [*]

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

                                       14
<PAGE>   15

4.2 Process Technology: The [*] will be manufactured in IBM's [*] process
technology with [*] levels of metal, using the process specification detailed in
the CMOS [*].

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 473 C4 CBGA package.

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.

 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.

<TABLE>
<CAPTION>
Year: 1998
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>
        [*]    [*]    [*]    [*]    [*]     [*]    [*]    [*]    [*]    [*]     [*]    [*]
</TABLE>

<TABLE>
<CAPTION>
Year: 1999
        1Q99          2Q99          3Q99           4Q99
        ----          ----          ----           ----
<S>                   <C>           <C>            <C>
        [*]           [*]           [*]            [*]
</TABLE>

<TABLE>
<CAPTION>
Year: 2000
        1Q00          2Q00
        ----          ----
<S>                   <C>
        [*]           [*]
</TABLE>

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 GDS II type tape (GDSII tape delivered in [*]
               Ground Rules)
               Mask build
               Delivery of [*] packaged and tested modules

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

                                       15
<PAGE>   16

        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                 [*] (Subject to a
                                                                good faith
                                                                negotiation to
                                                                occur within [*]
                                                                days of the
                                                                signing of this
                                                                Task Order)
                   - 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. Placement of purchase order for the mask set to be made
approximately [*].

8.0  PROTOTYPE UNIT PRICING AND DELIVERY:

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.

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

                                       16
<PAGE>   17

<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)

<TABLE>
<CAPTION>
                                    1998 Price     1999 Price    2000 Price
                                    ----------     ----------    ----------
<S>                                 <C>            <C>           <C>
CMOS [*]Wafer[*]
[*] wafers/year                     [*]            [*]           [*]
[*] wafers/year                     [*]            [*]           [*]
[*] wafers/year                     [*]            [*]           [*]
[*] wafers/year                     [*]            [*]           [*]
[*] wafers/year                     [*]            [*]           [*]

[*]                                                [*]           [*]

CMOS [*]                                           [*]           [*]

473 CBGA Package                                   [*]           [*]
[*]

Test [*]                                           [*]           [*]

[*] Burn-in                                        [*]           [*]
</TABLE>

  (1) The [*] die size estimate above is based on the utilization of IBM's CMOS
[*] process. If during the development cycle, changes warrant the use of a new
die size, packaging option or process technology, IBM will re-quote the prices
based upon such new information. The die size estimate used in calculating the
available gross die per wafer include the [*] in the chip data. Production
pricing was based on a ramp start during [*]. The estimated gross die per wafer
is [*]. The above [*] have been arrived at by an approximation of manufacturing
yield based upon [*] supplied by Customer. The above [*] prices have been
derived by dividing the above [*] prices by the above estimated [*]. An actual
targeted yield will be set by the Parties after the [*] production lots and will
be used by IBM to adjust the above [*] price accordingly. IBM will be
responsible for [*] issues. Customer will be responsible for [*] issues.

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 Exchange Commission.

                                       17
<PAGE>   18

Minimum Order Quantity (MOQ): MOQ is [*].

Minimum Ship Pack Quantity (SPQ): SPQ is [*]

Prototype: Delivery of the [*] prototype parts will be no later than [*]
calendar days from receipt of a [*] GDS II tape by IBM.

Wafer Production: Production lead time for the Product in tested wafer form
using the [*] process will be no later than [*]calendar days from receipt of
Customer's purchase order by IBM.

Module Production: Production lead time for finishing the product in tested
module form will be no later than [*] calendar days from the completion of the
[*]. Forecasts and purchase orders for tested modules will be placed per Section
2 and Section 3 of the Agreement.

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.

        I. Canceled or Changed Forecast

                a) If Customer fails to order forecasted quantities for [*] of
        any accepted forecast, as described in Section 2 of the Agreement,
        Customer will pay [*] for all Product not so ordered; however, there
        shall be no charge for a given month if Customer orders at least [*] of
        the forecasted quantities listed in the most recently accepted forecast,
        for that month.

        II. Canceled or Changed Purchase Orders

                a) If any purchase order is canceled prior to wafer start date,
        Customer shall pay [*],

                b) If any purchase order is canceled after wafer start, Customer
        shall pay [*].

12.0 TASK ORDER TECHNICAL COORDINATORS:

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

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

                                       18
<PAGE>   19

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
               Attention: Joe Larkins
               Fax: (650) 694-3157

AGREED TO AND ACCEPTED BY:

INTERNATIONAL BUSINESS MACHINES CORPORATION        TRANSMETA CORPORATION

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

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

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

                                       19
<PAGE>   20

                                    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: Tested wafers will be shipped
                               in containers using shipping methods approved by
                               the Customer, which approval will not be
                               unreasonably withheld.

                               2. Damaged Goods: The Customer will provide
                               feedback on wafers damaged during transit which
                               are related to inadequate packing. IBM will then
                               take reasonable corrective action if the damages
                               were caused by IBM. Customer may return the wafer
                               per Section 13 of the base foundry Agreement.

               B)   Wafer Yields:

                      a.   Circuit limited yield loss is solely the
                           responsibility of the Customer so long as IBM
                           manufactures the Product in accordance with the [*],
                           both parties will reasonably work together to
                           determine appropriate corrective actions.

                      b.   Minimum Yields: Wafers with process yields less than
                           [*] percent of the wafer target yield will not be
                           shipped, unless agreed to in writing by the Customer.

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

                                       20
<PAGE>   21

               C)   Visual Criteria:  The Customer's production Product will
                    meet the IBM's outgoing [*] criteria including [*].

               D)   Electrical Criteria:

                      a.   Parametrics: Product will be screened via [*]. For
                           products that require special processing [*], IBM and
                           Customer will [*].

               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:

                      a.   In order to assist in [*] problem solving efforts,
                           [*] documentation can be made available to the
                           Customer upon Customer's written request. The
                           specific documentation provided will be [*].
                           Documentation that is available includes, a [*].

               G) Test: Electrical test using functional, scan and memory based
               tests will be done as [*] IBM and Customer. 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 Exchange Commission.

                                       21
<PAGE>   22

                                   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 March 31, 2001.

2.0 PRODUCT NAME AND DESCRIPTION:

2.1 Product Name: [*]

Die Size:      [*]

Package:       474 C4 CBGA - [*], 25mm x 32.5mm, [*]

Process Technology: The P95 Processor will be manufactured in IBM's [*] process
technology with [*] levels of metal, using the process specification detailed in
the CMOS [*].

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>
               GDSII Tape in CMOS [*] groundrule format          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 Exchange Commission.

                                       22
<PAGE>   23

3.2     IBM

<TABLE>
<CAPTION>
               Item                                              Date
               --------------------------------------------------------------
<S>                                                              <C>
               CMOS [*] Design Manual                            Complete
               CMOS [*] Spice models                             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 474 C4 CBGA package, 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.

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:  1999

<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>
            [*]   [*]    [*]     [*]    [*]    [*]   [*]    [*]    [*]   [*]    [*]    [*]
</TABLE>

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

                                       23
<PAGE>   24

<TABLE>
<CAPTION>
        Year:  2000          1Q00           2Q00          3Q00          4Q00
                             -----------------------------------------------
<S>                          <C>            <C>           <C>           <C>
                             [*]            [*]           [*]           [*]
</TABLE>

<TABLE>
<CAPTION>
        Year:  2001          1Q01           2Q01
                             -------------------
<S>                          <C>            <C>
                             [*]            [*]
</TABLE>

Tested Wafers:

Year:  1999                                                           Year: 2000

<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>
             [*]    [*]    [*]   [*]    [*]    [*]    [*]   [*]    [*]   [*]    [*]     [*]
</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 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:  1999                                                          Year:  2000

<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       [*]    [*]    [*]   [*]    [*]    [*]   [*]    [*]     [*]   [*]   [*]     [*]
</TABLE>

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

                                       24
<PAGE>   25

<TABLE>
<S>                <C>     <C>   <C>    <C>   <C>    <C>    <C>    <C>    <C>    <C>   <C>    <C>
  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 GDS II type tape (GDSII tape delivered in
                      CMOS [*] Ground Rules)

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

                          -  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 Device Interface Board           [*]
                          -  Burn-in boards                          [*]

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

                                       25
<PAGE>   26

        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. Placement of purchase order for the mask set to
be made approximately [*].

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.

9.0 PRODUCTION PRICE/QUANTITY MATRIX (PRODUCT UNIT PRICE)

<TABLE>
<CAPTION>
                        1999 Price  Dec. 99 Price    2000 Price   Dec. 2000   2001 Price
<S>                     <C>         <C>              <C>          <C>         <C>
  CMOS [*] Wafer [*]
      Volume/Year
          [*]                  [*]              [*]         [*]          [*]          [*]
          [*]                  [*]              [*]         [*]          [*]          [*]
          [*]                  [*]              [*]         [*]          [*]          [*]
          [*]                  [*]              [*]         [*]          [*]          [*]
          [*]                  [*]              [*]         [*]          [*]          [*]
          [*]                  [*]              [*]         [*]          [*]          [*]
</TABLE>

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

                                       26
<PAGE>   27

474 CBGA Package
[*]

        SUBSTRATES

<TABLE>
<CAPTION>
      Volume/Year            1999           2000
<S>                          <C>            <C>
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
</TABLE>

BOND AND ASSEMBLY (includes shipping trays)

<TABLE>
<CAPTION>
      Volume/Year            1999           2000
<S>                          <C>            <C>
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
         [*]                      [*]             [*]
</TABLE>

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.

<TABLE>
<CAPTION>
  TEST*                   1Q99      2Q99     3Q99      4Q99      1Q00     2Q00     3Q00    4Q00
                          ----      ----     ----      ----      ----     ----     ----    ----
<S>                       <C>       <C>      <C>       <C>       <C>      <C>      <C>     <C>
            Per Wafer      [*]         [*]      [*]       [*]       [*]      [*]     [*]      [*]
            Per Module     [*]         [*]      [*]       [*]       [*]      [*]     [*]      [*]
            Burn-in        [*]         [*]      [*]       [*]       [*]      [*]     [*]      [*]
</TABLE>

* Dependencies:

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

        Wafer Test

<TABLE>
<CAPTION>
                             2Q99   3Q99    4Q99   1Q00    2Q00   3Q00    4Q00
                             ----   ----    ----   ----    ----   ----    ----
<S>                          <C>    <C>     <C>    <C>     <C>    <C>     <C>
Test Time (sec)             [*]     [*]    [*]     [*]    [*]     [*]    [*]
Data Log (sec)              [*]     [*]    [*]     [*]    [*]     [*]    [*]
</TABLE>

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

                                       27
<PAGE>   28

<TABLE>
<S>                          <C>    <C>     <C>    <C>     <C>    <C>     <C>
Data Log Sample/Wafer       [*]     [*]    [*]     [*]    [*]     [*]    [*]

        Module Test

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

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

<TABLE>
<CAPTION>
                             2Q99    3Q99     4Q99    1Q00    2Q00   3Q00    4Q00
                             ----    ----     ----    ----    ----   ----    ----
<S>                          <C>     <C>      <C>     <C>     <C>    <C>     <C>
Hours of [*] Burn In         [*]      [*]      [*]     [*]    [*]     [*]    [*]
</TABLE>

(1) The [*] mm die size estimate above is based on the utilization of IBM's CMOS
[*] process. If during the development cycle, changes warrant the use of a new
die size, packaging option or process technology, IBM will re-quote all of the
above prices based upon such new information and it is agreed that none of the
prices contained herein shall apply and that IBM shall have no obligation to
provide Product at such prices.

10.0 MANUFACTURING LEAD TIME (PURCHASE ORDER LEAD TIME):

Minimum Order Quantity (MOQ):

        Wafers:       [*]

        Modules:      the number of modules resulting from [*], whichever is
                      greater

Minimum Ship Pack Quantity (SPQ):

        Modules:      [*]

        Wafers:       [*]

Prototypes: Delivery of the [*] Prototypes will be no later than [*] calendar
days from receipt of a [*] GDS II tape by IBM.

Wafer Production: For tested wafers, Production lead time is listed in the
following table in calendar days from receipt of Customer's purchase order by
IBM. IBM will provide lead times for untested wafers if Customer so desires.

                     2Q99                [*]
                     3Q99                [*]

Substrate Production: For substrates the Production lead time is [*] calendar
days from the receipt of the Customer's purchase order by IBM.

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

                                       28
<PAGE>   29

BAT Services: Production lead time will be no later than [*] calendar days from
the [*].

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:

                          1) If Customer fails to order forecasted quantities
                      [*] of any accepted forecast, as described in Section 2 of
                      the Agreement, Customer will pay [*]; however, there shall
                      be no charge for a given month if Customer orders at least
                      [*] of the forecasted quantities listed in the most
                      recently accepted forecast, for that month.

               B.     Substrates:  [*].

               C.     Bond Assembly Test Services:  [*].

        II.    Canceled or Changed Purchase Orders

               A.     Wafers:

                          1) If any purchase order is canceled prior to wafer
                      start date, Customer shall pay [*].

                          2) If any purchase order is canceled after wafer
                      start, Customer shall pay [*].

        III.   Substrates*

                          1) Customer may cancel or reschedule an order for
                      substrates only upon the written agreement of IBM. In the
                      event of a

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

                                       29
<PAGE>   30

                      cancellation, Customer shall pay [*] as of the date the
                      cancellation notice is received by IBM. In addition to
                      such payment, for any substrates partially built as of the
                      date the cancellation notice is received by IBM, Customer
                      shall pay [*].

        IV.    Bond Assembly Test Services*

                          1) Customer may cancel or reschedule an order for
                      services only upon the written agreement of IBM. In the
                      event of a cancellation, Customer shall pay [*] as of the
                      date the cancellation notice is received by IBM. In
                      addition to such payment, for any services partially
                      performed as of the date the cancellation notice is
                      received by IBM, Customer shall pay [*].

* 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

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 Exchange Commission.

                                       30
<PAGE>   31

              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

                                       31
<PAGE>   32

                       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: Tested wafers will be shipped in containers
               using shipping methods approved by the Customer, which approval
               will not be unreasonably withheld.

               2. Damaged Goods: The Customer will provide feedback on wafers
               damaged during transit which are related to inadequate packing.
               IBM will then take reasonable corrective action if the damages
               were caused by IBM. If IBM determines that it was the cause of
               the damages, then Customer may return the wafer using IBM's RMA
               process, and IBM will provide a new wafer or credit for the
               wafer, at IBM's option. This is Customer's exclusive remedy
               against IBM for transit related damages caused by IBM.

2.      Wafer Yields:

        a. Circuit limited yield loss is solely the responsibility of the
        Customer; provided, however, that IBM agrees to [*] the CMOS process
        technology's [*].

        b. Minimum Yields: Wafers with process yields less than [*] percent of
        the wafer target yield will not be shipped.

3.      Visual Criteria:

        Product will meet IBM's [*].

4.      Electrical Criteria:

        Product will be screened via [*]. For Products that require special
        processing [*], IBM and Customer will [*]. (*see note below)

5.      Prototypes:

        Prototypes and other similar non-production material may not meet the
        criteria described in this Exhibit.

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

                                       32
<PAGE>   33

6.      Documentation:

        In order to assist in [*] problem solving efforts, [*] documentation can
        be made available to the Customer upon Customer's written request.
        Documentation that is available includes a [*].

7.      Test:

        Electrical test using functional, scan and memory based tests will be
        [*] IBM and Customer, 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 Exchange Commission.

                                       33
<PAGE>   34

                                     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:  CMOS [*]
Custom Design
Image x dim:  [*]
Package:  474 CBGA [*] 25x32mm
Reliability Grade:  [*]
This quote does not include product qualification
Wafer manufacturing:  Burlington
        This product will have plated C4s:  East Fishkill
Substrate manufacturing:  East Fishkill
Bond, Assembly and Test:  Bromont, Canada

Key Dates:

Purchase Order Place:  5/28/99
GL-1 Data Available:  [*]
Test Programs Available:  [*]
Assumptions:

Prototype Build
        [*]

Burn In
        [*].
        Burn In time of [*] hours.
        Tested good parts are required [*].
        Pattern delivery required [*].
        Customer [*].

Test
        Wafer test time of [*].
        Module test time of [*].
        Customer [*].

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

                                       34
<PAGE>   35

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>
2000     [*]    [*]    [*]    [*]    [*]   [*]    [*]    [*]    [*]    [*]   [*]    [*]
2001     [*]    [*]    [*]    [*]    [*]   [*]    [*]    [*]
</TABLE>

Early User Hardware:

This schedule will consume [*].

    Committed          Committed

       Date              Supply

       [*]                [*]

       [*]                [*]    Note: if there are enough good die to build [*]

NRE:

Prototypes:                                                      [*]
        Design center technical and logistical support Spice models CMOS process
        design rules Processing GDS II 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 Exchange Commission.

                                       35
<PAGE>   36

Minimum Order Quantity
Wafers:  [*]
Substrates:  [*]
Bond Assembly Services:  [*]

UNTESTED WAFER WITH C4
        Prices include:  [*]
Wafer Volume Tier             1999            2000             2001
          [*]            [*]             [*]              [*]

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

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

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

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

WAFER TEST
                          1999     2000      2001
per wafer                [*]      [*]      [*]

MODULE TEST (PER MODULE)
                          1999     2000     2001
per module test          [*]      [*]      [*]

Burn-in Price per Module
                          1999     2000     2001
[*]                      [*]      [*]      [*]

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

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

SUBSTRATE

         Volume Tier          1999         2000         2001

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

BOND AND ASSEMBLY (includes shipping trays)

         Volume Tier          1999         2000         2001

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

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

                                       36
<PAGE>   37

Productivity Estimates:

Raw chips per wafer:  [*]

Good chips per Wafer

                          1Q     2Q      3Q     4Q
[*]                                             [*]
[*]                      [*]     [*]    [*]     [*]
[*]                      [*]     [*]    [*]     [*]

Good Modules per Wafer

                         1Q      2Q      3Q     4Q
[*]                                             [*]
[*]                      [*]     [*]    [*]     [*]
[*]                      [*]     [*]    [*]     [*]

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 [*].

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

                                       37
<PAGE>   38

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 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

                                       38
<PAGE>   39

         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 topics) under a like
        designation within thirty (30) days after the date of disclosure unless
        there has been distributed contemporaneously with such disclosure a

                                       39
<PAGE>   40

        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 five (5) years from the date of
        disclosure ([*]) the receiving Party shall use the same efforts to 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.

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

                                       40
<PAGE>   41

        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:

        (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

                                       41
<PAGE>   42

        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 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

                                       42
<PAGE>   43

        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.

                                       43<PAGE>   1

                                                                   EXHIBIT 10.34

                    AMENDMENT TO LOAN AND SECURITY AGREEMENT

     THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is entered
into by and among MTI TECHNOLOGY CORPORATION ("Borrower"), SILICON VALLEY BANK
("SVB") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital") as co-lenders,
and SVB, as Servicing Agent for the Lenders. (SVB and GE Capital are sometimes
referred to herein, individually, as "Lender", and collectively, as the
"Lenders".)

     Borrower, the Lenders, and Servicing Agent are parties to that certain Loan
and Security Agreement, dated as of July 22, 1998 (as amended, restated,
supplemented, or otherwise modified from time to time, the "Loan Agreement"),
and hereby agree to further amend the Loan Agreement, as follows, effective as
of September 22, 2000. (Capitalized terms used but not defined in this
Amendment, shall have the meanings set forth in the Loan Agreement.)

    1. AMENDMENTS TO LOAN AGREEMENT.

        a. The definition of "Availability Reserves" in Section 1.1 of the Loan
Agreement hereby is amended and restated in its entirety to read as follows:

        "Availability Reserves" shall mean such amounts as the Requisite Lenders
    may from time to time establish and revise in their good faith business
    judgment, with written notice thereof to Borrower, to reflect (a) any
    material increase in dilution with respect to the Accounts or any material
    decline in the general creditworthiness of obligors on the Accounts
    (including without limitation a credit memo reserve of up to $5,300,000);
    and/or (b) events, conditions, contingencies or risks which may
    substantially affect either the Collateral or any other property which is
    security for the Obligations or its value, or the assets, business or
    prospects of Borrower or the security interests and other rights of the
    Lenders in the Collateral (including the enforceability, perfection and
    priority thereof) and/or (c) Requisite Lenders' good faith belief that any
    collateral report or financial information furnished by or on behalf of
    Borrower to Lenders was false or misleading in a material respect when made.

        b. The definition of "Credit Extension" in Section 1.1 of the Loan
Agreement hereby is amended and restated in its entirety to read as follows:

        "Credit Extension" means each Advance, Letter of Credit, Foreign
    Exchange Contract, or any other extension of credit by Servicing Agent or
    any Lender for the benefit of Borrower hereunder.

                                      -1-
<PAGE>   2

        c. The definition of "Requisite Lenders" in Section 1.1 of the Loan
Agreement hereby is amended and restated in its entirety to read as follows:

        "Requisite Lenders" means, at any time, Lenders then holding at least
     eighty percent (80.0%) of the then aggregate unpaid principal amount of all
     Advances then outstanding or, if no Advances are then outstanding, Lenders
     then having at least eighty percent (80.0%) of the aggregate Commitments;
     provided, however, that in the event there shall be only two (2) Lenders,
     then "Requisite Lenders" shall mean both of such Lenders.

        d. The definition of "Revolving Maturity Date" in Section 1.1 of the
Loan Agreement hereby is amended and restated in its entirety to read as
follows:

        "Revolving Maturity Date" means September 22, 2001.

        e. Section 1.1 of the Loan Agreement hereby is amended to add the
following definitions thereto, in proper alphabetical order:

        "FX Reserve" is defined in Section 2.1.2.

        "Letter(s) of Credit" is defined in Section 2.1.3.

        "Quick Assets" is, on any date, the Borrower's consolidated,
     unrestricted cash, cash equivalents, net billed accounts receivable and
     investments with maturities of less than 12 months determined according to
     GAAP.

        f. Section 2.1 of the Loan Agreement (including all subsections thereof)
hereby is amended and restated in its entirety to read as follows:

        2.1 THE REVOLVING ADVANCES. Subject to and upon the terms and conditions
     hereof, and in reliance upon the representations and warranties of Borrower
     set forth herein, each Lender severally agrees to make its Commitment
     Percentage of Revolving Advances to Borrower up to the amount of the
     Committed Revolving Line from time to time until the close of business on
     the Business Day immediately preceding the Revolving Maturity Date, in such
     sums as Borrower may request, provided that the aggregate principal amount
     of all Revolving Advances at any one time outstanding shall not exceed the
     result of (a) the lesser of (i) the Committed Revolving Line, and (ii) the
     Borrowing Base less any Availability Reserves, minus (b) the sum of (i) the
     aggregate amount due and payable to SVB in connection with the Cash
     Management Services furnished to Borrower by or through SVB, plus (ii) the
     amount of all outstanding Letters of Credit (including drawn but
     unreimbursed Letters of Credit), plus (iii) the FX Reserve. For purposes of
     this Agreement, "Borrowing Base" shall mean an amount equal to EIGHTY
     PERCENT (80%) of Eligible Accounts, plus up to SIXTY PERCENT (60%) (the
     "EMC Percentage Advance Rate") of the "Eligible EMC Payments" (as defined
     below). The EMC Percentage Advance Rate shall be subject to revision by
     Lenders based on their quarterly review of EMC, including its credit
     rating.

                                      -2-
<PAGE>   3

        As used above, "Eligible EMC Payments" means the minimum guaranteed
     payments ("Minimum EMC Payments") due to Borrower from EMC Corporation
     ("EMC") under that certain Asset Purchase Agreement dated February 9, 1996
     between Borrower and EMC (the "EMC Agreement").

        In the event of any dispute between Borrower and EMC, the amount in
     dispute shall be deducted from the "Eligible EMC Payments". In the event
     EMC shall assert any right to withhold any Minimum EMC Payment or shall
     assert any defense to the payment thereof, then the amount thereof shall be
     deducted from "Eligible EMC Payments". In addition, the amount of the
     Eligible EMC Payments shall be deemed to be zero if (i) EMC shall fail to
     make any Minimum EMC Payment within thirty days after the date due, or (ii)
     EMC shall be the subject of any Insolvency Proceeding.

        Subject to the terms and conditions of this Agreement and in reliance
     upon the representations and warranties set forth herein, amounts borrowed
     pursuant to this SECTION 2.1 may be repaid and reborrowed at any time
     during the term of this Agreement.

        On the Revolving Maturity Date, Borrower promises to pay to Servicing
     Agent for the account of each Lender, in lawful money of the United States
     of America, the aggregate unpaid principal amount of all Revolving Advances
     made by Servicing Agent and Lenders to Borrower. Borrower shall also pay
     interest on the aggregate unpaid principal amount of such Advances at the
     rates and in accordance with the terms hereof.

        The Committed Revolving Line (and all sublines thereof) shall terminate
     on the Revolving Maturity Date, at which time all Advances and other
     amounts due under this Agreement (except as otherwise expressly specified
     herein) and all other Obligations shall be immediately due and payable.

             2.1.1 CASH MANAGEMENT SUBLINE. Borrower may use up to $2,250,000
     for so-called "Cash Management Services" provided by SVB, which may include
     merchant services, direct deposit of payroll, business credit cards, and
     check cashing services, identified in the cash management services
     agreement between Borrower and SVB related to such services (collectively,
     the "Cash Management Services"). Borrower agrees to pay any and all amounts
     that are due and payable to Bank in connection with the Cash Management
     Services furnished to Borrower by or through Bank. Borrower agrees to
     execute and deliver to Bank all standard form applications and agreements,
     including without limitation, an indemnification and pledge agreement, of
     Bank in connection with the Cash Management Services and, without limiting
     any of the terms of such applications and agreements, Borrower will pay all
     standard fees and charges of Bank in connection with the credit card
     services and, without limiting any of the terms of such applications and
     agreements, Borrower will pay all standard fees and charges of Bank in
     connection with the Cash Management Services, and all such amounts due and
     payable by Borrower for any Cash Management Services may, at SVB's option,
     be treated as an Advance by SVB under the Committed Revolving Line. The
     Cash Management Services shall terminate on the Revolving Maturity Date.

             2.1.2 FOREIGN EXCHANGE CONTRACT; FOREIGN EXCHANGE SETTLEMENT. If
     there is availability under the Committed Revolving Line and the Borrowing
     Base, then

                                      -3-
<PAGE>   4

     Borrower may enter in foreign exchange forward contracts with SVB under
     which Borrower commits to purchase from or sell to SVB a set amount of
     foreign currency more than 1 business day after the contract date (the
     "Foreign Exchange Contracts"). Lender will subtract 10% of each outstanding
     Foreign Exchange Contract and apply it to the then extant foreign exchange
     reserve (the "FX Reserve"; which reserve shall not exceed $2,000,000); it
     being understood and agreed that, at such time as any such Foreign Exchange
     Contract is no longer outstanding and SVB does not have any outstanding
     obligations thereunder, the F/X Reserve shall be reduced by the 10% of such
     Foreign Exchange Contract previously so applied to such F/X Reserve.

     The total Foreign Exchange Contracts at any one time may not exceed 10
     times the amount of the FX Reserve.

     Bank may terminate the Foreign Exchange Contracts if an Event of Default
     occurs.

     Borrower will execute and deliver all SVB's standard applications and
     agreements in connection with Foreign Exchange Contracts and pay all SVB's
     standard fees and charges.

             2.1.3 LETTERS OF CREDIT. At the request of Borrower and subject to
     the terms and conditions of this Agreement, SVB will issue or have issued
     letters of credit for the account of Borrower, in each case in form and
     substance satisfactory to SVB in its sole discretion (collectively,
     "Letters of Credit") not exceeding, in the aggregate, the result of (a) the
     lesser of (i) the Committed Revolving Line, and (ii) the Borrowing Base
     less any Availability Reserves, minus (b) the sum of (i) the aggregate
     amount due and payable to SVB in connection with the Cash Management
     Services furnished to Borrower by or through SVB, plus (ii) the outstanding
     principal amount of all Advances, plus (iii) the FX Reserve; provided,
     however, but the aggregate face amount of outstanding Letters of Credit
     (including drawn but unreimbursed Letters of Credit) may not exceed
     $3,000,000. Each Letter of Credit will expire no later than 180 days after
     the Revolving Maturity Date provided Borrower's Letter of Credit
     reimbursement obligation is secured by cash on terms acceptable to SVB at
     any time after the Revolving Maturity Date if the term of this Agreement is
     not extended by the Lenders and Servicing Agent.

             Borrower shall pay all bank charges (including charges of SVB) for
     the issuance of Letters of Credit, together with such additional fee as
     SVB's letter of credit department shall charge in connection with the
     issuance of the Letters of Credit. Any payment by SVB under or in
     connection with a Letter of Credit shall constitute an Advance by SVB
     hereunder on the date such payment is made. Borrower hereby agrees to
     indemnify, save, and hold SVB harmless from any loss, cost, expense, or
     liability, including payments made by SVB, expenses, and reasonable
     attorneys' fees incurred by SVB, arising out of or in connection with any
     Letters of Credit; provided, however, that Borrower shall not be obligated
     hereunder to indemnify for any such loss, cost, expense, or liability that
     is proximately caused by the gross negligence or willful misconduct of SVB.
     Borrower agrees to be bound by the regulations and interpretations of the
     issuer of any Letters of Credit guarantied by SVB and opened for Borrower's
     account or by SVB's interpretations of any Letter of Credit issued by SVB
     for Borrower's account, and Borrower understands and agrees that SVB shall
     not be liable for any error, negligence,

                                      -4-
<PAGE>   5

     or mistake, whether of omission or commission (unless proximately arising
     from the gross negligence or willful misconduct of SVB), in following
     Borrower's instructions or those contained in the Letters of Credit or any
     modifications, amendments, or supplements thereto. Borrower understands
     that Letters of Credit may require SVB to indemnify the issuing bank for
     certain costs or liabilities arising out of claims by Borrower against such
     issuing bank. Borrower hereby agrees to indemnify and hold SVB harmless
     with respect to any loss, cost, expense, or liability incurred by SVB under
     any Letter of Credit as a result of SVB's indemnification of any such
     issuing bank. The provisions of this Agreement, as it pertains to Letters
     of Credit, and any other present or future documents or agreements between
     Borrower and SVB relating to Letters of Credit are cumulative.

             Borrower shall pay SVB a standby Letter of Credit fee (in addition
     to the charges, commissions, fees, and costs set forth above) that shall
     accrue at a rate equal to 1.75% per annum times the aggegate undrawn amount
     of all outstanding standby Letters of Credit during the month preceding the
     date such standby Letter of Credit fee is due and payable; provided,
     however, that upon the occurrence and during the continuation of an Event
     of Default, the standby Letter of Credit fee provided for above shall be
     increased to 3 percentage points above the per annum rate otherwise
     applicable hereunder.

             g. Section 2.2 of the Loan Agreement hereby is amended and restated
in its entirety to read as follows:

             2.2 OVERADVANCES. If, at any time or for any reason, the amount of
     Obligations owed by Borrower under Section 2.1 and Subsections 2.1.1,
     2.1.2, and 2.1.3 exceed the lesser of (a) the Commited Revolving Line, and
     (b) the Borrowing Base less any Availability Reserves, Borrower shall
     immediately pay to Servicing Agent, on behalf of the Lenders, in cash, the
     amount of such excess.

             h. Section 2.3.1 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

             2.3.1 INTEREST RATE. Except as set forth in SECTION 2.1.3 AND
     SECTION 2.3.2, any Credit Extension shall bear interest on the average
     Daily Balance at a rate per annum equal to the Prime Rate plus the
     Applicable Margin (as defined below). As used herein, the term "Applicable
     Margin" means 1 percentage point; provided, however, that from and after
     the date (if ever) that Servicing Agent and the Lenders timely receive
     Borrower's unaudited financial statements accurately and correctly
     reflecting that Borrower has achieved a positive net profit (determined in
     accordance with GAAP) for each of 2 consecutive fiscal quarters (that occur
     after the end of Borrower's fiscal year 2000) and if no Default or Event of
     Default then exists, the Applicable Margin shall equal 0.50 percentage
     point. The foregoing proviso notwithstanding, if any subsequently issued
     audited financial statements of Borrower for such relevant periods that are
     delivered to Servicing Agent and Lenders hereunder disclose that Borrower
     did not, in fact, achieve the positive net profit indicated in the
     above-described unaudited financial statements, then the interest rate
     automatically shall be retroactively adjusted to the rate that would have
     been in effect if the adjustment had not been made.

                                      -5-
<PAGE>   6

             i. Section 2.3.2 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

                2.3.2 DEFAULT RATE. All Obligations (other than Letters of
     Credit) shall bear interest, from and after the occurrence, and during the
     continuance, of an Event of Default, at a rate equal to three (3)
     percentage points above the interest rate applicable immediately prior to
     the occurrence of the Event of Default.

             j. Section 2.3.3 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

                2.3.3 PAYMENTS. Interest, Letter of Credit fees, and all other
fees hereunder shall be due and payable on the last day of each month during the
term hereof. Borrower hereby authorizes Servicing Agent to debit any accounts
with Servicing Agent, including, without limitation, Account Number 600415670
for payments of principal and interest due on the Obligations and any other
amounts owing by Borrower to Lenders. Servicing Agent shall notify Borrower of
all debits which Servicing Agent makes against Borrower's accounts. Any such
debits against Borrower's accounts in no way shall be deemed a set-off. Any
interest or Letter of Credit fees not paid when due shall be compounded by
becoming a part of the Obligations, and such interest or Letter of Credit fees
shall thereafter accrue interest at the rate then applicable hereunder.

             k. Section 2.3.4 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

                2.3.4 COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest and
Letter of Credit fees chargeable under the Loan Documents shall be computed on
the basis of a three hundred sixty (360) day year for the actual number of days
elapsed.

             l. Section 6.7 of the Loan Agreement hereby is amended and restated
in its entirety to read as follows:

             6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain all of its
     operating and investment accounts with SVB; provided, however, that the
     investment account of Borrower maintained at CS First Boston existing as of
     September 22, 2000 may continue to be maintained at CS First Boston.

             m. Section 6.9 of the Loan Agreement hereby is amended and restated
in its entirety to read as follows:

             6.9 QUICK RATIO. Borrower will maintain as of the last day of each
     month a ratio of Quick Assets to Current Liabilities of at least 1.00 to
     1.00.

             n. Section 6.12 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

                                       -6-
<PAGE>   7

             6.12 PROFITABILITY. Borrower shall have a net profit (as determined
     in accordance with GAAP) for the fourth fiscal quarter of its fiscal year
     2001 and each fiscal quarter thereafter.

             o. Section 6.13 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

             6.13 MAXIMUM NET LOSS. Borrower's maximum net loss (as determined
     in accordance with GAAP) shall not exceed: (a) for the second fiscal
     quarter of its fiscal year 2001, (i) $2,000,000 before non-cash writeoffs
     (in accordance with GAAP), and (ii) $3,000,000 after writeoffs (in
     accordance with GAAP); and (b) for the third fiscal quarter of its fiscal
     year, $1,000,000.

             p. From and after September 22, 2000, the Schedule to Loan and
Security Agreement setting forth the Lenders' respective Commitments and
Commitment Percentages hereby is amended and restated in its entirety to read as
follows:

                              REVOLVING COMMITMENTS
--------------------------------------------------------------------------------
                                                                Commitment
Lender                            Commitment                    Percentage
--------------------------------------------------------------------------------

Silicon Valley Bank               $10,000,000                   33 and 1/3%
--------------------------------------------------------------------------------
GE Capital Commercial
Finance, Inc.                     $20,000,000                   66 and 2/3%
--------------------------------------------------------------------------------

             q. Anything in Section 6.3 of the Loan Agreement to the contrary
notwithstanding, from and after the date (if ever) that the Daily Balance of
Advances outstanding under Section 2.1 of the Loan Agreement exceeds $3,000,000,
Servicing Agent shall have the right, but not the obligation, to require
Borrower to provide (and Borrower hereby agrees to so provide) to Lenders a
Borrowing Base Certificate, together with aged listings of accounts receivable
and accounts payable, as frequently as requested by Servicing Agent in its good
faith business judgment.

             r. Exhibit C (Form of Borrowing Base Certificate) attached to the
Loan Agreement hereby is amended and restated in its entirety to read as set
forth in Exhibit C (Form of Borrowing Base Certificate) attached to this
Amendment.

             s. Exhibit D (Form of Compliance Certificate) attached to the Loan
Agreement hereby is amended and restated in its entirety to read as set forth in
Exhibit D (Form of Compliance Certificate) attached to this Amendment.

                                      -7-
<PAGE>   8

     2. AMENDMENT FEE. In consideration for the Lenders and Servicing Agent
entering into this Amendment, Borrower shall concurrently pay Servicing Agent,
for the benefit of the Lenders, a fee in the amount of $125,000 (of which
$41,250 shall be payable to SVB and $83,750 shall be payable to GE Capital,
which shall be non-refundable and in addition to all interest and other fees
payable to Servicing Agent and the Lenders under the Loan Documents. Servicing
Agent is authorized to charge said fee to Borrower's loan account.

     3. REPRESENTATIONS TRUE. Borrower represents and warrants that its fiscal
year 2001 started on April 2, 2000. Borrower represents and warrants to
Servicing Agent and the Lenders that all representations and warranties set
forth in the Loan Agreement, as amended hereby, are true and correct.

     4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Borrower, the applicable
requisite Lenders, and Servicing Agent, and the other written documents and
agreements between or among Borrower, the applicable requisite Lenders, and
Servicing Agent set forth in full all of the representations and agreements of
Borrower, the Lenders, and Servicing Agent with respect to the subject matter
hereof and supersede all prior discussions, representations, agreements and
understandings between or among Borrower, the Lenders, and Servicing Agent with
respect to the subject hereof. Except as herein expressly amended, all of the
terms and provisions of the Loan Agreement, and all other documents and
agreements between or among Borrower, the Lenders, and Servicing Agent shall
continue in full force and effect and the same are hereby ratified and
confirmed.

      [remainder of page intentionally left blank; signature page follows]

                                      -8-
<PAGE>   9

This Amendment may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Amendment.

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

BORROWER:                                          LENDER:

MTI TECHNOLOGY CORPORATION                         SILICON VALLEY BANK

By                                                 By
   ------------------------                           --------------------------

Title                                              Title
     ----------------------                              -----------------------

LENDER:                                            SERVICING AGENT:

GENERAL ELECTRIC CAPITAL CORPORATION               SILICON VALLEY BANK

By                                                 By
   -----------------------------------                 -------------------------

Title                                              Title
      -------------------------------                    -----------------------

                                      -9-

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