Document:

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                                                                   EXHIBIT 10.07

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

                         AGREEMENT NUMBER: TM-MFG-121297

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

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

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

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

2. FORECASTS:

[*].

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

<PAGE>   2
                                      [*]

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

<PAGE>   3

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 shall only specify the
following items on their face unless otherwise mutually agreed to in writing by
duly authorized representatives of the parties:

            a)  PO NUMBER

            b)  TAX STATUS - EXEMPT OR NON-EXEMPT

            c)  SHIP TO LOCATION - COMPLETE ADDRESS

            d)  BILL TO LOCATION - COMPLETE ADDRESS

            e)  ORDER FROM LOCATION - COMPLETE ADDRESS

            f)  PRODUCT PART NUMBERS AND QUANTITIES BEING ORDERED;

            g)  THE PRODUCT'S APPLICABLE UNIT PRICE;

            h)  SHIPPING INSTRUCTIONS, INCLUDING PREFERRED CARRIER.

            i)  REQUESTED SHIPMENT DATES

            j)  THE AGREEMENT NUMBER OF THIS AGREEMENT.

            k)  NAME OF CUSTOMER CONTACT

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

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

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

<PAGE>   4

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.

[*].

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). [*].

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

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.

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

<PAGE>   5

        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: [*].

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) [*].

             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, [*].

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

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

9. CONFIDENTIAL INFORMATION EXCHANGES: Information containing the confidential
information of either party shall be identified as that party's confidential
information and shall be exchanged pursuant to the terms of the agreement for
exchange of confidential information (agreement number: V1290-01), between IBM
and Customer dated September 30, 1996 and any amendments thereto, [*].

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.

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

<PAGE>   6

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.

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

<PAGE>   7

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.

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

13. LIMITED WARRANTY: [*].

IBM warrants Product(s) to be free from defects in material and workmanship for
one (1) year after the date of delivery to Customer. Customer acknowledges that
the functionality of Products is contingent upon Customer's designs and,
therefore, no warranty applies to the functionality of Products manufactured for
or sold to Customer. [*].

                    This warranty applies only to Customer, as the original
purchaser from IBM, and Customer may not transfer this warranty to any third
party [*].

                                   If Customer believes that a Product is not as
warranted, Customer will: 1) promptly notify IBM in writing; and 2) at IBM's
request, return the Product freight prepaid to IBM's designated location. If IBM
reasonably determines that the Product does not meet its warranty, IBM will, at
IBM's option, repair or replace the Product, or issue a

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

<PAGE>   8

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) [*].

        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
[*] or the applicable unit price for the specific units of Product that caused
the damages or that are the subject matter of, or are directly related to, the
cause of action. This limitation will apply, except as otherwise stated in this
Section, regardless of the form of action, whether in contract or in tort,
including negligence. This limitation will not apply to the payment of costs,
damages and attorney's fees referred to in Section 12 (Intellectual Property
Indemnification). This limitation will also not apply to claims by Customer for
bodily injury or damage to real property or tangible personal property caused by
IBM's negligence.

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

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

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

        a) the nature of the default;

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

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

<PAGE>   9

        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.

[*].

16. ASSIGNMENT: [*].

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.
[*].

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

<PAGE>   10

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. [*].

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

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

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

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

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

[*].

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

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

<PAGE>   11

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, [*].

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.

[*].

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.

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

<PAGE>   12

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, [*],
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

BY: /s/ HANK J. GEIPEL                  BY: /s/  DAVID R. DITZEL
   -------------------------------         ---------------------------------

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

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

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

<PAGE>   13

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

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

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

2.0 PRODUCT NAME AND DESCRIPTION:

Product Name: [*]

Description: [*].

3.0 DELIVERABLE ITEMS:

3.1 Customer

        Item                                       Date
        ----------------------------------------------------------
        [*]

3.2 IBM

        Item                                       Date
        ----------------------------------------------------------
        [*]

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

4.1 Product Specifications:

        [*]

4.2 Process Technology: [*].

4.3 Wafer Acceptance Criteria: Exhibit B

4.4 Module Acceptance Criteria:
        [*].

5.0 SCHEDULE: ATTACHMENT 3

[*].

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

<PAGE>   14

6.0 PRODUCT DEMAND FORECAST:

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

[*].

7.0 ENGINEERING EFFORT AND ENGINEERING CHARGES (NRE CHARGES):

Engineering Effort:
        [*].

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

<PAGE>   15

8.0  PROTOTYPE UNIT PRICING AND DELIVERY:

[*].

9.0  PRODUCTION PRICE/QUANTITY MATRIX (PRODUCT UNIT PRICE)

[*].

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

<PAGE>   16

10.0  MANUFACTURING LEAD TIME (PURCHASE ORDER LEAD TIME):

[*].

11.0  CANCELLATION CHARGES:

        [*].

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:

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

<PAGE>   17

        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
         --------------------------------         ------------------------------

<PAGE>   18
                                   EXHIBIT B

WAFER ACCEPTANCE CRITERIA (FOR TESTED WAFERS)

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

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

            A)  Wafer Specifications

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

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

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

                d.  Packing:

                        1. Tested wafers: [*].

                        2. Damaged Goods: [*].

            B)  Wafer Yields:

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

                b.  Minimum Yields: [*].

[*]  Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.
<PAGE>   19
                                   EXHIBIT B

            C)  Visual Criteria: [*].

            D)  Electrical Criteria:

                    a.  Parametrics: [*].

            E)  Prototypes:

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

            F)  Documentation:

                    a.  [*].

            G)  Test: Electrical test using [*].

                The details to be identified after the completion of the first
                prototype wafers delivered 1Q98.

[*]  Confidential treatment has been requested for the bracketed portions. The
     confidential redacted portion has been omitted and filed separately with
     the Securities and Exchange Commission.<PAGE>   1

                                                                   EXHIBIT 10.08

                                 LEASE AGREEMENT             BLDG: Marriott 11
                                                             OWNER: 500
                                                             PROP: 111
                                                             UNIT: 101
                                                             TENANT: 11103

        THIS LEASE, made this 1st day of November, 1995 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as
amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated
7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and TRANSMETA CORPORATION, a California corporation,
hereinafter called Tenant.

                                   WITNESSETH:

        Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:

        All of that certain 22,500+ square foot, one-story building located at
3940 Freedom Circle, Santa Clara, California 95054. Said Premises is more
particularly shown within the area outlined in Red on Exhibit A. The entire
parcel, of which the Premises, is a part, is shown within the area outlined in
Green on Exhibit A attached hereto. The Premises is leased on an "as-is" basis,
in its present condition, and in the configuration as shown in Red on Exhibit B
to be attached hereto.

        The interior of the building leased hereunder shall be improved by
Landlord and leased by Tenant in the configuration as shown in Red and as
detailed on Exhibit B to be attached hereto.

        As used herein the Complex shall mean and include all of the land
outlined in Green and described in Exhibit "A", attached hereto, and all of the
buildings, improvements, fixtures and equipment now or hereafter situated on
said land.

        Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.

1.      USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the

<PAGE>   2

Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, or any of its contents, or will cause
a cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not knowingly do or permit to be done anything in,
on or about the Premises or the Complex which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Complex or injure
or annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant knowingly cause,
maintain or permit any nuisance in, on or about the Premises or the Complex. No
sale by auction shall be permitted on the Premises. Tenant shall not place any
loads upon the floors, walls, or ceiling, which endanger the structure, or place
any harmful fluids or other materials in the drainage system of the building, or
overload existing electrical or other mechanical systems. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the Premises
or outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorneys' fees, or liability arising out of
failure of Tenant to comply with any applicable law. Tenant shall comply with
any covenant, condition, or restriction ("CC&R's") affecting the Premises. The
provisions of this paragraph are for the benefit of Landlord only and shall not
be construed to be for the benefit of any tenant or occupant of the Complex.

2.      TERM*

        A.     The term of this Lease shall be for a period of seven (7) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs
2(B) and 3, shall commence on the 1st day of December, 1995 and end on the 30th
day November of 2002.

        B.     Possession of the Premises shall be deemed tendered and the term
of this Lease shall commence when the first of the following occurs:

               (a)    One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or

               (b)    Upon the occupancy of the Premises by any of Tenant's
operating personnel; or

--------

* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent scheduled for the projected commencement date as shown in Paragraph
43.

                                       2
<PAGE>   3

               (c)    When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or

               (d)    As otherwise agreed in writing.

3.      POSSESSION. If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay, of delivery of the Premises
shall not exceed 60 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.

4.      RENT.

        A.     Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
TWO MILLION SEVEN HUNDRED NINE THOUSAND SEVEN HUNDRED FIVE AND 15/100
($2,709,705.15) Dollars in lawful money of the United States of America, payable
as follows:

        See Paragraph 43 for Basic Rent Schedule

        B.     Time for Payment. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).

        C.     Late Charge. Notwithstanding any other provisions of this Lease,
if Tenant is in default in the payment of rental as set forth in this Paragraph
4 when due, or any part thereof, Tenant agrees to pay Landlord, in addition to
the delinquent rental due, a late charge for each rental payment in default ten
(10) days. Said late charge shall equal ten (10%) percent of each rental payment
so in default.

                                       3
<PAGE>   4

        D.     Additional Rent. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:

               (a)    Tenant's proportionate share of all Taxes relating to the
                      Complex as set forth in Paragraph 12, and

               (b)    Tenant's proportionate share of all insurance premiums
                      relating to the Complex, as set forth in Paragraph 15, and

               (c)    Tenant's proportionate share of expenses for the
                      operation, management, maintenance and repair of the
                      Building (including common areas of the Building) and
                      Common Areas of the Complex in which the Premises are
                      located as set forth in Paragraph 7, and

               (d)    All charges, costs and expenses, which Tenant is required
                      to pay hereunder, together with all interest and
                      penalties, costs and expenses including attorneys' fees
                      and legal expenses, that may accrue thereto in the event
                      of Tenant's failure to pay such amounts, and all damages,
                      reasonable costs and expenses which Landlord may incur by
                      reason of default of Tenant or failure on Tenant's part to
                      comply with the terms of this Lease. In the event of
                      nonpayment by Tenant of Additional Rent Landlord shall
                      have all the rights and remedies with respect thereto as
                      Landlord has for nonpayment of rent.

        The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within five days for taxes and insurance and within thirty
(30) days for all other Additional Rent items after presentation of invoice from
Landlord or Landlord's agent setting forth such Additional Rent and/or (ii) at
the option of Landlord, Tenant shall pay to Landlord monthly, in advance,
Tenant's prorata share of an amount estimated by Landlord to be Landlord's
approximate average monthly expenditure of such Additional Rent items, which
estimated amount shall be reconciled within 120 days of the end of each calendar
year or more frequently if Landlord so elects to do so at Landlord's sole and
absolute discretion, as compared to Landlord's actual expenditure for said
Additional Rent items, with Tenant paying to Landlord, upon demand, any amount
of actual expenses expended by Landlord in excess of said estimated amount, or
Landlord refunding to Tenant (providing Tenant is not in default in the
performance of any of the terms, covenants and conditions of this Lease) any
amount of estimated payments made by Tenant in excess of Landlord's actual
expenditures for said Additional Rent items.

        The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.

        E.     Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at

                                       4
<PAGE>   5

Peery/Arrillaga, File 1504, Box 60000, San Francisco, CA 94160 or to such other
person or to such other place as Landlord may from time to time designate in
writing.

        F.     Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of SEVENTY FOUR THOUSAND TWO
HUNDRED FIFTY AND NO/100 ($74,250.00) Dollars. Said sum shall be held by
Landlord as a Security Deposit for the faithful performance by Tenant of all of
the terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any provision
of this Lease, including but not limited to, the provisions relating to the
payment of rent and ay of the monetary sums due herewith, Landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
Deposit is so used or applied, Tenant shall, within ten (10) days after written
demand therefor, deposit cash with Landlord in the amount sufficient to restore
the Security Deposit to its original amount. Tenant's failure to do so shall be
a material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after Tenant has vacated the Premises. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said Deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.

5.      RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises are
located, and their respective employees, invitees, and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Complex in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area". This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of Common Area. Landlord further reserves the
right to promulgate such reasonable rules and regulations relating to the use of
the Common Area, and any part or parts thereof, as Landlord may deem appropriate
for the best interests of the occupants of the Complex. The Rules and
Regulations shall be binding upon Tenant upon delivery of a copy of them to
Tenant, and Tenant shall abide by them and cooperate in their observance. Such
Rules and Regulations may be amended by Landlord from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Tenant. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Complex of any of said
Rules and Regulations.

        Landlord shall operate, manage and maintain the Common Area. The manner
in which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.

                                       5
<PAGE>   6

6.      PARKING. Tenant shall have the right to use with other tenants or
occupants of the Complex 67 parking spaces in the common parking areas of the
Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives
and/or invitees shall not use parking spaces in excess of said 67 spaces
allocated to Tenant hereunder. Landlord shall have the right, at Landlord's sole
discretion, to specifically designate the location of Tenant's parking spaces
within the common parking areas of the Complex in the event of a dispute among
the tenants occupying the building and/or Complex referred to herein, in which
event Tenant agrees that Tenant, Tenant's employees, agents, representatives
and/or invitees shall not use any parking spaces other than those parking spaces
specifically designated by Landlord for Tenant's use. Said parking spaces, if
specifically designated by Landlord to Tenant, may be relocated by Landlord at
any time, and from time to time. Landlord reserves the right, at Landlord's sole
discretion, to rescind any specific designation of parking spaces, thereby
returning Tenant's parking spaces to the common parking area. Landlord shall
give Tenant written notice of any change in Tenant's parking spaces. Tenant
shall not, at any time, park, or permit to be parked, any trucks or vehicles
adjacent to the loading areas so as to interfere in any way with the use of such
areas, nor shall Tenant at any time park, or permit the parking of Tenant's
trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or
others, in any portion of the common area not designated by Landlord for such
use by Tenant. Tenant shall not park nor permit to be parked, any inoperative
vehicles or equipment on any portion of the common parking area or other common
areas of the Complex. Tenant agrees to assume responsibility for compliance by
its employees with the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00)
Dollars per day for each day or partial day each such vehicle is parked in any
area other than that designated. Tenant hereby authorizes Landlord at Tenant's
sole expense to tow away from the Complex any vehicle belonging to Tenant or
Tenant's employees parked in violation of these provisions, or to attached
violation stickers or notices to such vehicles. Tenant shall use the parking
areas for vehicle parking only, and shall not use the parking areas for storage.

7.      EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS
OF THE COMPLEX. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on
a square footage or other equitable basis as calculated by Landlord) of all
expenses of operation, management, maintenance and repair of the Common Areas of
the Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance of
landscaped areas, lakes, parking lots, sidewalks, driveways; maintenance, repair
and replacement of all fixtures and electrical, mechanical, and plumbing
systems; structural elements and exterior surfaces of the buildings; salaries
and employee benefits of personnel and payroll taxes applicable thereto;
supplies, materials, equipment and tools; the cost of capital expenditures which
have the effect of reducing operating expenses, provided, however, that in the
event Landlord makes such capital improvements, Landlord may amortize its
investment in said improvements (together with interest at the rate of fifteen
(15%) percent per annum on the unamortized balance) as an operating expenses in
accordance with standard accounting practices, provided, that such amortization
is not at a rate greater than the anticipated savings in the operating expenses.

                                       6
<PAGE>   7

        "Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.

8.      ACCEPTANCE AND SURRENDER OF PREMISES. Subject to Paragraphs 48 and 49,
and by entry hereunder, Tenant accepts the Premises as being in good and
sanitary order, condition and repair and accepts the building and improvements
included in the Premises in their present condition and without representation
or warranty by Landlord as to the condition of such building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be by
written agreement executed by Landlord and Tenant. Tenant agrees on the last day
of the Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly and peaceably to Landlord in good condition and repair (damage
by Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the airconditioning and heating equipment serviced by a reputable and
licensed service firm and in good operating condition (provided the maintenance
of such equipment has been Tenant's responsibility during the term of this
Lease) together with all alterations, additions, and improvements which may have
been made in, to, or on the Premises (except movable trade fixtures installed at
the expense of Tenant) except that Tenant shall ascertain from Landlord within
thirty (30) days before the end of the term of this Lease whether Landlord
desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and if
Landlord shall so desire, then Tenant shall restore said Premises or such part
or parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant's sole cost. If the Premises be not surrendered
at the end of the term or sooner termination of this Lease, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises including, without limitation, any claims made
by any succeeding tenant founded on such delay. Nothing contained herein shall
be construed as an extension of the term hereof or as a consent of Landlord to
any holding over by Tenant. The voluntary or other surrender of this Lease or
the Premises by Tenant ors mutual cancellation of this Lease shall not work as a
merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.

9.      ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant, but at the cost of
Tenant, and any addition to, or alteration of, the Premises, except moveable
furniture and trade fixtures, shall at once become a part of the Premises and
belong to Landlord. Landlord reserves the right to approve all contractors and
mechanics proposed by Tenant to make such alterations and additions. Tenant
shall retain title to all moveable furniture and trade fixtures placed in the
Premises. All heating,

                                       7
<PAGE>   8

lighting, electrical, airconditioning, floor to ceiling partitioning, drapery,
carpeting, and floor installations made by Tenant, together with all property
that has become an integral part of the Premises, shall not be deemed trade
fixtures. Tenant agrees that it will not proceed to make such alteration or
additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.

10.     TENANT MAINTENANCE. Tenant shall at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, all windows, window frames, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating
and air-conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and return
grills), store fronts, roofs, downspouts, all interior improvements within the
premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exteriors,
including closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942
of the California Civil Code and under any similar law, statute or ordinance now
or hereafter in effect.

11.     UTILITIES. Tenant shall pay promptly, as the same become due, all
charges for water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste pick-up and any other utilities,
materials or services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed.

        Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.

                                       8
<PAGE>   9

12.     TAXES

        A.     As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting, from reassessment caused by any change in ownership of
the Complex) now or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessment, which are levied or assessed against, or with respect to the value,
occupancy or use of, all or any portion of the Complex (as now constructed or as
may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein: any improvements located within the Complex
(regardless of ownership); the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located in the
Complex; or parking areas, public utilities, or energy within the Complex; (ii)
all charges, levies or fees imposed by reason of environmental regulation or
other governmental control of the Complex; and (iii) all costs and fees
(including attorneys' fees) incurred by Landlord in contesting any Real Property
Tax and in negotiating with public authorities as to any Real Property Tax. If
at any time during the term of this Lease the taxation or assessment of the
Complex prevailing as of the commencement date of this Lease shall be altered so
that in lieu of or in addition to any Real Property Tax described above there
shall be levied, assessed or imposed (whether by reason of a change in the
method of taxation or assessment, creation of a new tax or charge, or any other
cause) an alternate or additional tax or charge (i) on the value, use or
occupancy of the Complex or Landlord's interest therein or (ii) on or measured
by the gross receipts, income or rentals from the Complex, on Landlord's
business of leasing the Complex, or computed in any manner with respect to the
operation of the Complex, then any such tax or charge, however designated, shall
be included within the meaning of the term "Real Property Taxes" for purposes of
this Lease. If any Real Property Tax is based upon property or rents unrelated
to the Complex, then only that part of such Real Property Tax that is fairly
allocable to the Complex shall be included within the meaning of the term "Real
Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes"
shall not include estate, inheritance, gift or franchise taxes of Landlord or
the federal or state net income imposed on Landlord's income from all sources.

        B.     Taxes on Tenant's Property

               (a)    Tenant shall be liable for and shall pay ten days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant, Tenant shall upon
demand, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provided that in any such event Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation, to bring suit in any
court of competent jurisdiction to

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<PAGE>   10

recover the amount of any such taxes so paid under protest, and any amount so
recovered shall belong to Tenant.

               (b)    If the Tenant improvements in the Premises, whether
installed, and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real property
taxes and assessments levied against Landlord or the Complex by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of 12Ba, above. If
the records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether said Tenant improvements are assessed
at a higher valuation than standard office improvements in other space in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of construction
shall be used.

13.     LIABILITY INSURANCE. Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general insurance with
combined single limit coverage of not less than Two Million Dollars ($2,000,000)
for injuries to or death of persons occurring in, on or about the Premises or
the Complex, and property damage insurance, with limits of $500,000. The policy
or policies affecting such insurance, certificate of insurance of which shall be
furnished to Landlord, shall name Landlord as additional insureds, and shall
insure any liability of Landlord, contingent or otherwise, as respects acts or
omissions of Tenant, its agents, employees or invitees or otherwise by any
conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate. Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.

14.     TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value thereof.
The proceeds from any of such policies shall be used for the repair or
replacement of such items so insured.

        Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.

15.     PROPERTY INSURANCE. Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
reasonably calculated by Landlord) of the deductibles on

                                       10
<PAGE>   11

insurance claims and the cost of policy or policies of insurance covering loss
or damage to the Premises and Complex in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred (100%) percent of twelve (12) months Basic Rent, plus sums paid as
Additional Rent and any deductibles related thereto. If such insurance cost is
increased due to Tenant's use of the Premises or the Complex, Tenant agrees to
pay to Landlord the full cost of such increase. Tenant shall have no interest in
nor any right to the proceeds of any insurance procured by Landlord for the
Complex.

        Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.

16.     INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises or the
Complex by or from any cause whatsoever, including, without limitation, gas,
fire, oil, electricity or leakage of any character from the roof, walls,
basement or other portion of the Premises or the Complex but excluding, however,
the willful misconduct or negligence of Landlord, its agents, servants,
employees, invitees, or contractors of which negligence Landlord has knowledge
and reasonable time to correct. Except as to injury to persons or damage to
property to the extent arising from the willful misconduct or the negligence of
Landlord, its agents, servants, employees, invitees, or contractors. Tenant
shall hold Landlord harmless from and defend Landlord against any and all
expenses, including reasonable attorneys' fees, in connection therewith, arising
out of any injury to or death of any person or damage to or destruction of
property occurring in, on or about the Premises, or any part thereof, from any
cause whatsoever.

17.     COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental roles, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provision if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between landlord and Tenant. This paragraph shall not
be interpreted as requiring tenant to make structural changes or improvements,
except to the extent such changes or improvement are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply
with any and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.

                                       11
<PAGE>   12

18.     LIENS. Tenant shall keep the Premises and the Complex free from any
liens arising out of any work perfumed, materials furnished or obligation
incurred by Tenant. In the event that Tenant shall not within twenty (20) days
following the imposition or such lien, cause the same to be released of record.
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but no obligation, to cause the same to be released by such
means as it shall deem proper, including payment of the claim giving rise to
such lien. All sums paid by Landlord for such purpose, and all expenses incurred
by it in connection therewith, shall be payable to Landlord by Tenant on demand
with interest at the prime rate of interest as quoted by the Bank of America.

19.     ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease. or any interest herein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. As a
condition for granting this consent to any assignment, transfer, or subletting,
Landlord may require that Tenant agrees to pay to Landlord, as additional rent,
fifty percent (50%) of all rents or additional consideration received by Tenant
from its assignees, transferees. or subtenants in excess of the rent payable by
Tenant to Landlord hereunder. Tenant shall, by thirty (30) days written notice,
advise Landlord of its intent to assign or transfer Tenant's interest in the
Lease or sublet the Premises or any portion thereof for any part of the term
hereof. Within thirty (30) days after receipt of said written notice, Landlord
may, in its sole discretion, elect to terminate this Lease as to the portion of
the Premises described in Tenant's notice on the date specified in Tenant's
notice by giving written notice of such election to terminate. If no such notice
to terminate is given to Tenant within said thirty (30) day period, Tenant may
proceed to locate an acceptable sublessee, assignee, or other transferee for
presentment to Landlord for Landlord's approval, all in accordance with the
terms, covenants, and conditions of this paragraph 19. If Tenant intends to
sublet the entire Premises and Landlord elects to terminate this Lease, this
Lease shall be terminated on the date specified in Tenant's notice. If, however,
this Lease shall terminate pursuant to the foregoing with respect to less than
all the Premises, the rent, as defined and reserved hereinabove shall be
adjusted on a pro rata basis to the number of square feet retained by Tenant,
and this Lease as so amended shall continue in full force and effect. In the
event Tenant is allowed to assign, transfer or sublet the whole or any part of
the Premises, with the prior written consent of Landlord, no assignee,
transferee or subtenant shall assign or transfer this Lease, either in whole or
in part, or sublet the whole or any part of the Premises, without also having
obtained the prior written consent of Landlord which consent shall not be
unreasonably withheld. A consent of Landlord to one assignment, transfer,
hypothecation, subletting, occupation or use by any other person shall not
release Tenant from any of Tenant's obligations hereunder or be deemed to be a
consent to any subsequent similar or dissimilar assignment, transfer,
hypothecation, subletting, occupation or use by any other person. Any such
assignment, transfer, hypothecation, subletting, occupation or use without such
consent shall be void and shall constitute a breach of this Lease by Tenant and
shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to

                                       12
<PAGE>   13

assume in writing all of the obligations under this Lease and for Tenant to
remain liable to Landlord under the Lease.

20.     SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.

21.     ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers, or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the doors in an emergency in order to obtain entry to the Premises, and any
entry to the Premises obtained by Landlord by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord shall
also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder.

22.     BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.

        Within thirty (30) days after court approval of the assumption or this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate

                                       13
<PAGE>   14

assurance of future performance, as used herein, includes, but shall not be
limited to: (i) assurance of source and payment rent, and other consideration
due under this Lease; (ii) assurance that the assumption or assignment of this
Least will not breach substantially any provision, such as radius, location,
use, or exclusivity provision, in any agreement relating to the above described
Premises.

        Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent or Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.

        The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period or five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from Landlord within which to cure any other default under this Lease;
provided, however, that if the nature of Tenant's failure is such that more than
thirty (30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity;

        (a)    The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount or rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraphs
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and the three licensed real estate brokers so
selected shall determine the amount of the rental loss that could be reasonably
avoided from the balance of the term of this Lease after the time of award. The
decision of the majority of said licensed real estate brokers shall be final and
binding upon the parties hereto.

        (b)    The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all or its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession: acts of maintenance or preservation, efforts to select the

                                       14
<PAGE>   15

Premises, or the appointment of a receiver upon Landlord's initiative to protect
its interest under this Lease shall not constitute a termination of Tenant's
right to possession.

        (c)    The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.

        (d)    To the extent permitted by law, the right and power, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and other terms as Landlord in its sole discretion
may deem advisable, with the right to make alterations and repairs to the
Premises. Upon each subletting, (i) Tenant shall be immediately liable to pay
Landlord, in addition to indebtedness other than rent due hereunder, the cost of
such subletting, including, but not limited to, reasonable attorneys' fees, and
any real estate commissions actually paid, and the cost of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent hereunder
for the period of such subletting (to the extent such period does not exceed the
term hereof) exceeds the amount to be paid as rent for the Premises for such
period or (ii) at the option of Landlord, rents received from such subletting
shall be applied first to payment or indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any costs of such subletting
and of such alterations and repairs; third to payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenants), or if such
rentals received from such subletting under option (ii) during any month be less
than that to be paid during that month by Tenant hereunder. Tenant shall pay any
such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No taking possession of the Premises by Landlord, shall be construed as
an election on its part to terminate this Lease unless a written notice of such
intention be given to Tenant. Notwithstanding any such subletting without
termination, Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.

        (e)    The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises, and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d above (except that Tenant may
vacate so long as it pays rent, provides an on-site security guard during normal
business hours from Monday through Friday, and otherwise performs its
obligations hereunder).

24.     DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:

        (a)    Rebuild or restore the Premises to their condition prior to the
damage or destruction, or

                                       15

<PAGE>   16

        (b)    Terminate this Lease, (providing that the Premises is damaged to
the extent of 33 1/3% or more of the replacement cost).

        If landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Promises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or 60 days if the destruction occurs within the last eighteen (18) months
of the Lease Term, or if Landlord does not complete the rebuilding or
restoration within one hundred eighty (180) days (or sixty (60) days if the
destruction occurs within the last eighteen (18) months of the Lease Term)
following the date of destruction (such period of time to be extended for delays
caused by the fault or neglect of Tenant or because of Acts of God, acts of
public agencies, labor disputes, strikes, fires, freight embargoes, rainy or
stormy weather, inability to obtain materials, supplies or fuels, acts of
contractors or subcontractors, or delay of the contractors or subcontractors due
to such causes or other contingencies beyond the control of Landlord), then
Tenant shall have the right to terminate this Lease by giving fifteen (15) days
prior written notice to Landlord. Notwithstanding anything herein to the
contrary, Landlord's obligation to rebuild or restore shall be limited to the
building and interior improvements constructed by Landlord as they existed as of
the commencement date of the Lease and shall not include restoration of Tenant's
trade fixtures, equipment, merchandise, or any improvements, alterations or
additions made by Tenant to the Premises, which Tenant shall forthwith replace
or fully repair at Tenant's sole cost and expense provided this Lease is not
cancelled according to the provisions above.

        Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.

        In the event that the building in which the Premises arc situated is
damaged or destroyed to the extent of not less than 33 1/2% or the replacement
cost thereof. Landlord may elect to terminate this Lease, whether the Premises
be injured or not.

25.     EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which maybe paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.

        If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of

                                       16
<PAGE>   17

condemnation of its intention to condemn the premises or any portion thereof, or
(ii) any of the foregoing events occur with respect to the taking of any space
in the Complex not leased hereby, or if any such spaces so taken or conveyed in
lieu of such taking and Landlord shall decide to discontinue the use and
operation of the Complex, or decide to demolish, alter or rebuild the Complex,
then, in any of such events Landlord shall have the right to terminate this
Lease by giving Tenant written notice thereof within sixty (60) days of the date
of receipt of said written advice, or commencement of said action or proceeding,
or taking conveyance, which termination shall take place as of the first to
occur or the last day of the calendar month next following the month in which
such notice is given or the date on which title to the Premises shall vest in
the condemnor.

        In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.

        If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.

26.     SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of
the Complex or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned, Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Complex and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor.

27.     ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
Landlord in the land and buildings in which the leased Premises arc located
(whether such interest of Landlord is a fee title interest or a leasehold
interest is encumbered by deed of trust, and such interest is acquired by the
lender or any third party through judicial foreclosure or by exercise of a power
of sale at private trustee's foreclosure sale. Tenant hereby agrees to attorn to
the purchase at any such foreclosure sale and to recognize such purchaser as the
Landlord under this lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
lease shall nonetheless continue in full force and effect for the remainder of
the unexpired tern hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.

                                       17
<PAGE>   18

28.     HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.

29.     CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days' prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord, that there arc no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.

30.     CONSTRUCTION CHANGES. It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein are
subject to such minor changes as Landlord or Landlord's architect determines to
be desirable in the course of construction of the Premises, and no such changes,
or any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.

31.     RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of
this Lease to be performed or observed by Tenant shall be performed or observed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to pay any sum of money, or other rent, required to be paid
by it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may, but shall not be obligated
to, make any such payment or perform any such other term or covenant on Tenant's
part to be performed. All sums so paid by Landlord and all necessary costs of
such performance by Landlord together with Interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the date
of such payment or performance by Landlord, shall be paid (and Tenant covenants
to make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.

                                       18
<PAGE>   19

32.     ATTORNEYS' FEES.

        (A)    In the event that either Landlord or Tenant should bring suit for
the possession of the Premises, for the recovery of any sum due under this
Lease, or because of the breach of any provision of this Lease, or for any other
relief against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.

        (B)    Should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such
suit, including a reasonable attorney's fee.

33.     WAIVER. The waiver by either party of the other party's failure to
perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a waiver
of such term, covenant or condition or of any subsequent failure of the party
failing to perform or observe the same or any other such term, covenant or
condition therein contained, and no custom or practice which may develop between
the parties hereto during the term hereof shall be deemed a waiver of, or in
anyway affect, the right of either party to insist upon performance and
observance by the other party in strict accordance with the terms hereof.

34.     NOTICES. All notices, demands, requests, advices or designations which
may be or are required to be given by either party to the other hereunder shall
be in writing. All notices, demands, requests, advices or designations by
Landlord to Tenant shall be sufficiently given, made or delivered if personally
served on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at Peery/Arrillaga; 2560 Mission
College Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand,
advice or designation referred to in this paragraph shall be deemed received on
the date of the personal service or mailing thereof in the manner herein
provided, as the case may be.

35.     EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.

36.     DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have heretofore been furnished to Tenant
in writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature if Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord

                                       19
<PAGE>   20

commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.

37.     CORPORATE AUTHORITY. If Tenant is a corporation. (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.

38.     [Intentionally Deleted.]

39.     LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:

        (i)    the sole and exclusive remedy shall be against Landlord and
Landlord's assets;

        (ii)   no partner of Landlord shall be sued or named as a party in any
suitor action (except as maybe necessary to secure jurisdiction of the
partnership);

        (iii)  no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);

        (iv)   no partner of Landlord shall be required to answer or otherwise
plead to any service of process;

        (v)    no judgment will be taken against any partner of Landlord;

        (vi)   any judgment taken against any partner of landlord may be vacated
and set aside at any time without hearing;

        (vii)  no writ of execution will ever be levied against the assets of
any partner of Landlord;

        (viii) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.

        Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.

                                       20
<PAGE>   21

40.     MISCELLANEOUS AND GENERAL PROVISIONS.

        a.     Tenant shall not, without the written consent of Landlord, use
the name of the building for any purpose other than as the address or the
business conducted by Tenant in the Premises.

        b.     This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of this
Lease shall be invalid, unenforceable or ineffective for any reason whatsoever,
all other provisions hereof shall be and remain in full force and effect.

        c.     The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The term
"Landlord" or any pronoun used in place thereof includes the plural as well as
the singular and the successors and assigns of landlord. The term "Tenant" or
any pronoun used in place thereof includes the plural as well as the singular
and individuals, firms, associations, partnerships and corporations, and their
and each of their respective heirs, executors, administrators, successors and
permitted assigns, according to the context hereof, and the provisions of this
Lease shall inure to the benefit of and bind such heirs, executors,
administrators, successors and permitted assigns.

        The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.

        d.     Time is of the essence of this Lease and of each and all of its
provisions.

        e.     At the expiration or earlier termination of this Lease, Tenant
shall execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other document
required by any reputable title company, licensed to operate in the State of
California, to remove the cloud or encumbrance created by this Lease from the
real property of which Tenant's Premises are a part.

        f.     This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord and
Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves and their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this
agreement.

        g.     Neither Landlord nor Tenant shall record this Lease or a short
form memorandum hereof without the consent of the other.

        h.     Tenant further agrees to execute any amendments required by a
tender to enable Landlord to obtain financing, so long as Tenant's rights
hereunder arc not substantially affected.

                                       21
<PAGE>   22

        i.     Paragraphs 43 through 49 are added hereto and are included as a
part of this lease.

        j.     Clauses, plats and riders, if any, signed by Landlord and Tenant
and endorsed on or affixed to this Lease are a part hereof.

        k.     Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected (whether or
not by Landlord) shall in any way affect his Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to Tenant.

41.     BROKERS. Tenant warrants that it had dealings with only the following
real estate brokers or agents in connection with the negotiation or this Lease:
none and that it knows of no other real estate broker or agent who is entitled
to a commission in connection with this Lease.

42.     SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any unauthorized sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. If Tenant is allowed to print or affix
or in any way place a sign in, on, or about the Premises, upon expiration or
other sooner termination of this Lease, Tenant at Tenant's sole cost and expense
shall both remove such sign and repair all damage in such a manner as to restore
all aspects of the appearance of the Premises to the condition prior to the
placement of said sign.

        All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.

        Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.

        IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.

LANDLORD:                               TENANT:

ARRILLAGA FAMILY TRUST                  TRANSMETA CORPORATION
                                        a California corporation

By   /s/ JOHN ARRILLAGA                By   /s/ DAVID R. DITZEL
   --------------------------------        ----------------------------------
   John Arrillaga, Trustee

Dated: 11/13/95                         Title: President and CEO
                                               ------------------------------

RICHARD T. PERRY                        Print or Type Name: David R. Ditzel
SEPARATE PROPERTY TRUST                                     -----------------

By   /s/ RICHARD T. PEERY               Dated: Nov. 13, 1995
   --------------------------------            ------------------------------
     Richard T. Peery, Trustee

Dated: 11/14/95
       ----------------------------

                                       22
<PAGE>   23

Paragraphs 43 through 49 to Lease Agreement Dated November 1, 1995, By and
Between the Arrillaga Family Trust and the Richard T. Peery Separate Property
Trust, as Landlord, and TRANSMETA CORPORATION, a California corporation, as
Tenant for 22,500+ Square Feet of Space Located at 3940 Freedom Circle, Santa
Clara, California 95054.

43.     BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of TWO MILLION SEVEN HUNDRED NINE THOUSAND SEVEN HUNDRED FIVE AND 15/100
DOLLARS ($2,709,705.15), shall be payable as follows:

        On December 1, 1995, the sum of FIFTEEN THOUSAND ONE HUNDRED EIGHTY
SEVEN AND 50/100 DOLLARS ($15,187.50) shall be due, and a like sum due on the
first day of each month thereafter, through and including May 1, 1996.

        On June 1, 1996, the sum of TWENTY TWO THOUSAND SEVEN HUNDRED EIGHTY ONE
AND 25/100 DOLLARS ($22,781.25) shall be due, and a like sum due on the first
day of each month thereafter, through and including August 1, 1996.

        On September 1, 1996, the sum of TWENTY SIX THOUSAND FIVE HUNDRED
SEVENTY EIGHT AND 80/100 DOLLARS ($26,578.80) shall be due, and a like sum due
on the first day of each month thereafter, through and including November 1,
1996.

        On December 1, 1996, the sum of THIRTY ONE THOUSAND FIVE HUNDRED AND
NO/100 DOLLARS ($31,500.00) shall be due, and a like sum due on the first day of
each month thereafter, through and including November 1, 1997.

        On December 1, 1997, the sum of THIRTY TWO THOUSAND SIX HUNDRED TWENTY
FIVE AND NO/100 DOLLARS ($32,625.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 1998.

        On December 1, 1998, the sum of THIRTY THREE THOUSAND SEVEN HUNDRED
FIFTY AND NO/100 DOLLARS ($33,750.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 1999.

        On December 1, 1999, the sum of THIRTY FOUR THOUSAND EIGHT HUNDRED
SEVENTY FIVE AND NO/100 DOLLARS ($34,875.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including November 1, 2000.

        On December 1, 2000, the sum of THIRTY SIX THOUSAND AND NO/100 DOLLARS
($36,000.00) shall be due, and a like sum due on the first day of each month
thereafter, through and including November 1, 2001.

        On December 1, 2001, the sum of THIRTY SEVEN THOUSAND ONE HUNDRED TWENTY
FIVE AND NO/100 DOLLARS ($37,125.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including November 1, 2002; or
until the entire aggregate sum of TWO MILLION SEVEN HUNDRED NINE THOUSAND SEVEN
HUNDRED FIVE AND 15/100 DOLLARS ($2,709,705.15) has been paid.

                                       23
<PAGE>   24

44.     EARLY ENTRY: Tenant and its agents and contractors shall be permitted to
enter the Premises prior to the Commencement Date for the purpose of installing
at Tenant's sole cost and expense, Tenant's trade fixtures and equipment,
telephone equipment, security systems and cabling for computers. Such entry
shall be subject to all of the terms and conditions of this Lease, except that
Tenant shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 44 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless from any and all loss, damage,
liability, expense (including reasonable attorney's fees), claim or demand of
whatsoever character, direct or consequential, including, but without limiting
thereby the generality of the foregoing, injury to or death of persons and
damage to or loss of property arising out of the exercise by Tenant of any early
entry right granted hereunder. In the event Tenant's work in said Premises
delays the completion of the interior improvements to be provided by Landlord,
if any, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled Commencement Date, it is agreed between the
parties that this Lease will commence on the scheduled Commencement Date of
December 1, 1995 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord. It is the
intent of the parties hereto that the commencement of Tenant's obligation to pay
Rent under the Lease not be delayed by any of such causes or by any other act of
Tenant (except as expressly provided herein) and, in the event it is so delayed,
Tenant's obligation to pay Rent under the Lease shall commence as of the date it
would otherwise have commenced absent delay caused by Tenant.

45.     "AS-IS" BASIS: Subject only to Paragraphs 48 and 49 and to Landlord
making the improvements shown on Exhibit B to be attached hereto, it is hereby
agreed that the Premises leased hereunder is leased strictly on an "as-is" basis
and in its present condition, and in the configuration as shown on Exhibit B to
be attached hereto, and by reference made a part hereof. Except as noted herein,
it is specifically agreed between the parties that after Landlord makes the
interior improvements as shown on Exhibit B, Landlord shall not be required to
make, nor be responsible for any cost, in connection with any repair,
restoration, and/or improvement to the Premises in order for this Lease to
commence, or thereafter, throughout the Term of this Lease. Landlord makes no
warranty or representation of any kind or nature whatsoever as to the condition
or repair of the Premises, nor as to the use or occupancy which may be made
thereof.

46.     CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.

47.     HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of "Hazardous Materials" (as defined herein) on, in,
under or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property") and the Complex:

As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined

                                       24
<PAGE>   25

as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.

Subject to the terms of this Paragraph 47, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term of
the Lease) or other parties on the Property or Complex, as described below,
(during the term of this Lease) did not store, dispose, or transport in, use, or
cause to be on the Property or which Tenant, its agents, employees, contractors,
invitees or its future subtenants and/or assignees (if any) (during the Term of
this Lease), did not store, dispose, or transport in, use or cause to be on the
Complex in violation of applicable law.

Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, invitees or its future subtenants
and/or assignees (if any), or other parties on the Property, does store,
dispose, or transport in, use or cause to be on the Property, and which Tenant,
its agents, employees, contractors, invitees or its future subtenants and/or
assignees (if any) does store, dispose, or transport in, use or cause to be on
the Complex and (ii) any claims, including third party claims, resulting from
such Hazardous Materials contamination. Tenant shall indemnify Landlord and hold
Landlord harmless from any liabilities, demands, costs, expenses and damages,
including, without limitation, attorney fees incurred as a result of any claims
resulting from such Hazardous Materials contamination.

Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property or the Complex without first obtaining Landlord's written consent.
Tenant agrees to complete compliance with governmental regulations regarding the
use or removal or remediation of Hazardous Materials used, stored, disposed of,
transported or caused to be on the Property or the Complex as stated above, and
prior to the termination of said Lease Tenant agrees to follow the proper
closure procedures and will obtain a clearance from the local fire department
and/or the appropriate governing agency. If Tenant uses Hazardous Materials,
Tenant also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary. It is agreed that the
Tenant's responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 47.

48.     MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding
anything to the contrary in Paragraph 10, Landlord shall maintain the structural
shell, foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense provided Tenant has not caused such damage, in which event Tenant shall
be responsible for 100 percent of any such costs for repair or damage so caused
by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life-threatening, shall not be considered material, nor shall
Landlord be responsible for repair of same.

49.     PUNCH LIST: In addition to and notwithstanding anything to the contrary
in Paragraphs 8 and 45 of this Lease, Tenant shall have fifteen (15) days after
the Commencement Date to provide Landlord with a written "punch list" pertaining
to defects in the Building and in the interior improvements constructed by
Landlord for Tenant. As soon as reasonably possible thereafter, Landlord, or one
of Landlord's representatives (if so approved by Landlord), and Tenant shall
conduct a joint walk-through of the Premises (if Landlord so requires), and
inspect such Tenant Improvements, using their best efforts to agree on the
incomplete or defective construction related to the Tenant Improvements
installed by

<PAGE>   26

Landlord. After such inspection has been completed, Landlord shall prepare, and
both parties shall sign, a list of all "punch list" items which the parties
reasonably agree are to be corrected by Landlord (but which shall exclude any
damage or defects caused by Tenant, its employees, agents or parties Tenant has
contracted with to work on the Premises). Landlord shall have thirty (30) days
thereafter (or longer if necessary, provided Landlord is diligently pursuing the
completion of the same) to complete, at Landlord's expense, the "punch list"
items without the Commencement Date of the Lease and Tenant's obligation to pay
Rental thereunder being affected. Notwithstanding the foregoing, a crack in the
foundation, or exterior walls that does not endanger the structural integrity of
the building, or which is not life-threatening, shall not be considered
material, nor shall Landlord be responsible for repair of same. This Paragraph
shall be of no force and effect if Tenant shall fail to give any such notice to
Landlord within fifteen (15) days after the Commencement Date of this Lease.

                                       26

<PAGE>   27

                                 AMENDMENT NO. 1
                                    TO LEASE

        THIS AMENDMENT NO. 1 is made and entered into this 29th day of January,
1997, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated
7/20/77 (ARRILLAGA FAMILY TRUST) as amended, and RICHARD T. PEERY, Trustee, or
his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY
TRUST) as amended, collectively as LANDLORD, and TRANSMETA CORPORATION, a
California corporation, as TENANT.

                                    RECITALS

        A.     WHEREAS, by Lease Agreement dated November 1, 1995 Landlord
leased to Tenant all of that certain 22,500+ square foot building located at
3940 Freedom Circle, Santa Clara, California, the details of which are more
particularly set forth in said November 1, 1995 Lease Agreement, and

        B.     WHEREAS, said Lease was amended by the Commencement Letter dated
December 13, 1995 which confirmed the Commencement Date of the Lease of December
1, 1995, and confirmed the Termination Date November 30, 2002, and,

        C.     WHEREAS, it is now the desire of the parties hereto to amend the
Lease by adding a "Cross Default", a "Co-terminous", a "Choice of
Law/Severability", and an "Authority to Execute" Paragraph to said Lease
Agreement as hereinafter set forth.

                                    AGREEMENT

        NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:

        1.     CROSS DEFAULT: It is understood that concurrently with the
execution of this Amendment No. 1, Landlord and Tenant shall enter into another
lease, dated September 29, 1997, for premises located at 2540 Mission College
Blvd., Santa Clara, California (hereinafter referred to as the "Marriott B
Lease"), which property is contiguous to the Premises leased hereunder. As a
material part of the consideration for the execution of said Marriott B Lease by
Landlord, it is agreed between Landlord and Tenant that a default under this
Lease, or a default under said Marriott B Lease may, at the option of Landlord,
be considered a default under both leases, in which event Landlord shall be
entitled (but in no event required) to apply all rights and remedies of Landlord
under the terms of one lease to both leases including, but not limited to, the
right to terminate one or both of said leases by reason of a default under said
Marriott B Lease or hereunder.

        2.     LEASE TERMS CO-TERMINOUS: It is acknowledged that it is the
intention of the parties that the term of this Lease be co-terminous with the
term of the Marriott B Lease such that the terms of both leases expire on the
same date; provided, however, the termination of this Lease resulting from the
terms and conditions stated under Paragraph 22 "Bankruptcy and Default" (subject
to Landlord's option as stated above and in the Marriott B Lease's "Cross
Default" Paragraph) or Paragraph 24 "Destruction" or Paragraph 25 "Eminent
Domain" shall not result in a termination of the Marriott B Lease, unless
Landlord elects, at its sole and absolute discretion, to terminate either or
both of the leases.

                                       27
<PAGE>   28

        3.     CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provisions of this Lease shall be invalid, unenforceable, or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.

        4.     AUTHORITY TO EXECUTE. The parties executing this Agreement hereby
warrant and represent that they are properly authorized to execute this
Agreement and bind the parties on behalf of whom they execute this Agreement and
to all of the terms, covenants and conditions of this Agreement as they relate
to the respective parties hereto.

        EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of
said November 1, 1995 Lease Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1 to
Lease as of the day and year last written below.

LANDLORD:                               TENANT:

ARRILLAGA FAMILY TRUST                  TRANSMETA CORPORATION
                                        a California corporation

By   /s/ JOHN ARRILLAGA                 By   /s/ COLIN HUNTER
   --------------------------------        ----------------------------------
   John Arrillaga, Trustee

Date:   3/10/97                           Colin Hunter
      -----------------------------     -------------------------------------
                                        Print or Type Name

RICHARD T. PEERY SEPARATE               Title:   CFO
PROPERTY TRUST                                 ------------------------------

By   /s/ RICHARD T. PEERY               Date:   2/7/97
   --------------------------------           -------------------------------
   Richard T. Peery, Trustee

Date:   2/28/97
      -----------------------------

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                                 AMENDMENT NO. 2
                                    TO LEASE

        THIS AMENDMENT NO. 2 is made and entered into this 2nd day of April,
1998, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated
7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) (previously known as the "Arrillaga
Family Trust") as amended, and RICHARD T. PEERY, Trustee, or his Successor
Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended,
collectively as LANDLORD, and TRANSMETA CORPORATION, a California corporation,
as TENANT.

                                    RECITALS

        A.     WHEREAS, by Lease Agreement dated November 1, 1995 Landlord
leased to Tenant all of that certain 22,500+ square foot building located at
3940 Freedom Circle, Santa Clara, California, the details of which are more
particularly set forth in said November 1, 1995 Lease Agreement, and

        B.     WHEREAS, said Lease was amended by Commencement Letter dated
December 13, 1995 which confirmed the December 1, 1995 Lease Commencement Date
and the November 30, 2002 Lease Termination Date, and

        C.     WHEREAS, said Lease was amended by Amendment No. 1 dated January
29, 1997 which added paragraphs ("Cross Default"), ("Lease Terms Co-Terminous"),
("Choice of Law: Severability") and ("Authority to Execute"), and

        D.     WHEREAS, it is now the desire of the parties hereto to amend the
Lease by (i) extending the Term for five years and seven months, changing the
Termination Date from November 30, 2002 to June 30, 2008, (ii) amending the
Basic Rent schedule and Aggregate Rent accordingly, (iii) increasing the
Security Deposit required under the Lease, (iv) amending the Management Fee
charged to Tenant, (vii) amending Lease Paragraph 19 ("Assignment and
Subletting"), and (viii) replacing: Lease Paragraph 39 ("Limitation of
Liability"); Paragraph 1 to Amendment No. 1 ("Lease Terms Co-terminous"); and
Paragraph 2 to Amendment No. 1 ("Cross Default") as hereinafter set forth.

                                    AGREEMENT

        NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:

        1.     TERM OF LEASE: It is agreed between the parties that the Term of
said Lease Agreement shall be extended for an additional five (5) year seven (7)
month period, and the Lease Termination Date shall be changed from November 30,
2002 to June 30, 2008.

        2.     BASIC RENTAL FOR EXTENDED TERM OF LEASE: The monthly Basic Rental
for the Extended Term of Lease shall be as follows:

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<PAGE>   30

        On December 1, 2002, the sum of FIFTY NINE THOUSAND SIX HUNDRED TWENTY
FIVE AND NO/100 DOLLARS ($59,625.00) shall be due, and a like sum due on the
first day of each month thereafter through and including June 1, 2003.

        On July 1, 2003, the sum of SIXTY ONE THOUSAND EIGHT HUNDRED SEVENTY
FIVE AND NO/100 DOLLARS ($61,875.00) shall be due, and a like sum due on the
first day of each month thereafter through and including June 1, 2004.

        On July 1, 2004, the sum of SIXTY FOUR THOUSAND ONE HUNDRED TWENTY FIVE
AND NO/100 DOLLARS ($64,125.00) shall be due, and a like sum due on the first
day of each month thereafter through and including June 1, 2005.

        On July 1, 2005, the sum of SIXTY SIX THOUSAND THREE HUNDRED SEVENTY
FIVE AND NO/100 DOLLARS ($66,375.00) shall be due, and a like sum due on the
first day of each month thereafter through and including June 1, 2006.

        On July 1, 2006, the sum of SIXTY EIGHT THOUSAND SIX HUNDRED TWENTY FIVE
AND NO/100 DOLLARS ($68,625.00) shall be due, and a like sum due on the first
day of each month thereafter through and including June 1, 2007.

        On July 1, 2007, the sum of SEVENTY THOUSAND EIGHT HUNDRED SEVENTY FIVE
AND NO/100 DOLLARS ($70,875.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including June 1, 2008.

        The Aggregate Basic Rent for the Lease shall be increased by
$4,399,875.00 or from $2,709,705.15 to $7,109,580.15.

        3.     SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by
$67,500.00, or from $74,250.00 to $141,750.00, payable upon Tenant's execution
of this Amendment No. 1.

        4.     MANAGEMENT FEE: Beginning December 1, 2002, Tenant shall pay to
Landlord, in addition to the Basic Rent and Additional Rent, a fixed monthly
management fee ("Management Fee") equal to two percent (2%) of the Basic Rent
due for each month throughout the remaining Lease Term. Tenant shall remain
liable for the five percent (5%) management fee previously charged against
Additional Rent through November 30, 2002.

        5.     ASSIGNMENT AND SUBLETTING: Lease Paragraph 19 ("Assignment and
Subletting") shall be amended to include the following language:

        "Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:

               "If Landlord and Tenant jointly and voluntarily elect, for any
        reason whatsoever, to terminate the Master Lease prior to the scheduled
        Master Lease termination date, then this Sublease (if then still in
        effect) shall terminate concurrently with the termination of the Master
        Lease. Subtenant expressly acknowledges and

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<PAGE>   31

        agrees that (1) the voluntary termination of the Master Lease by
        Landlord and Tenant and the resulting termination of this Sublease shall
        not give Subtenant any right or power to make any legal or equitable
        claim against Landlord, including without limitation any claim for
        interference with contract or interference with prospective economic
        advantage, and (2) Subtenant hereby waives any and all rights it may
        have under law or at equity against Landlord to challenge such an early
        termination of the Sublease, and unconditionally releases and relieves
        Landlord, and its officers, directors, employees and agents, from any
        and all claims, demands, and/or causes of action whatsoever
        (collectively, "Claims"), whether such matters are known or unknown,
        latent or apparent, suspected or unsuspected, foreseeable or
        unforeseeable, which Subtenant may have arising out of or in connection
        with any such early termination of this Sublease. Subtenant knowingly
        and intentionally waives any and all protection which is or may be given
        by Section 1542 of the California Civil Code which provides as follows:
        "A general release does not extend to claims which the creditor does not
        know or suspect to exist in his favor at the time of executing the
        release, which if known by him must have materially affected his
        settlement with debtor.

               The term of this Sublease is therefore subject to early
        termination. Subtenant's initials here below evidence (a) Subtenant's
        consideration of and agreement to this early termination provision, (b)
        Subtenant's acknowledgment that, in determining the net benefits to be
        derived by Subtenant under the terms of this Sublease, Subtenant has
        anticipated the potential for early termination, and (c) Subtenant's
        agreement to the general waiver and release of Claims above.

               Initials: __________              Initials: __________"
                         Subtenant                           Tenant

               In no event will Landlord consent to a sub-sublease."

        6.     LIMITATION OF LIABILITY: Lease Paragraph 39 ("Limitation of
Liability") shall be deleted and replaced in its entirety by the following:

        "LIMITATION OF LIABILITY: In consideration of the benefits accruing
        hereunder, Tenant and all successors and assigns covenant and agree
        that, in the event of any actual or alleged failure, breach or default
        hereunder by Landlord:

        (i) the sole and exclusive remedy shall be against Landlord's interest
        in the Premises leased herein;

        (ii) no partner of Landlord shall be sued or named as a party in any
        suit or action (except as may be necessary to secure jurisdiction of the
        partnership);

        (iii) no service of process shall be made against any partner of
        Landlord (except as may be necessary to secure jurisdiction of the
        partnership);

        (iv) no partner of Landlord shall be required to answer or otherwise
        plead to any service of process;

        (v) no judgment will be taken against any partner of Landlord;

        (vi) any judgment taken against any partner of Landlord may be vacated
        and set aside at any time without hearing;

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        (vii) no writ of execution will ever be levied against the assets of any
        partner of Landlord;

        (viii) these covenants and agreements are enforceable both by Landlord
        and also by any partner of Landlord.

               Tenant agrees that each of the foregoing covenants and agreements
        shall be applicable to any covenant or agreement either expressly
        contained in this Lease or imposed by statute or at common law."

        7.     LEASE TERMS CO-TERMINOUS: Paragraph 1 to Amendment No. 1 ("Lease
Terms Co-terminous") is hereby deleted in its entirety and replaced with the
following:

        "LEASE TERMS CO-TERMINOUS: It is hereby acknowledged that (i) Landlord
and Tenant have previously executed a separate lease agreement, dated January
29, 1997, for premises located at 2540 Mission College Blvd., Santa Clara,
California (hereinafter referred to as the "Marriott B Lease"), (ii)
concurrently with the execution of this Amendment, Landlord and Tenant shall
execute two separate lease agreements, dated April 2, 1998, for premises located
at 2560 Mission College Blvd., Santa Clara California (the "Marriott C Lease")
and for premises located at 3990 Freedom Circle, Santa Clara, California (the
"Marriott D Lease") and (iii) it is the intention of the parties that the Term
of this Lease be co-terminous with the terms of the Marriott B Lease, the
Marriott C Lease and the Marriott D Lease (collectively the "Marriott B, C, and
D Leases") such that the terms of all leases expire on the same date; provided,
however, the termination of this Lease resulting from the terms and conditions
stated under Paragraph 22 ("Bankruptcy and Default") (subject to Landlord's
option as stated below and in the Marriott B, C and D Leases' "Cross Default
Paragraph) or Paragraph 24 ("Destruction") or Paragraph 25 ("Eminent Domain")
shall not result in a termination of the Marriott B, C or D Leases, unless
Landlord elects, at its sole and absolute discretion, to terminate any or all of
the Marriott B, C or D Leases."

        8.     CROSS DEFAULT: Paragraph 2 to Amendment No. 1 ("Cross Default")
is hereby deleted in its entirety and replaced with the following:

        "CROSS DEFAULT: As a material part of the consideration for the
execution of this Lease by Landlord, it is agreed between Landlord and Tenant
that a default under this Lease, or a default under said Marriott B, C and/or D
Lease may, at the option of Landlord, be considered a default under all four
leases, in which event Landlord shall be entitled (but in no event required) to
apply all rights and remedies of Landlord under the terms of one lease to all
four leases including, but not limited to, the right to terminate one or all of
said leases by reason of a default under said Marriott B, C and/or D Lease or
hereunder."

        EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of
said January 29, 1997 Lease Agreement shall remain in full force and effect.

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        IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
No. 1 to Lease as of the day and year last written below.

LANDLORD:                               TENANT:

JOHN ARRILLAGA SURVIVOR'S TRUST         TRANSMETA CORPORATION
                                        a California corporation

By   /s/ JOHN ARRILLAGA                 By   /s/ COLIN HUNTER
   --------------------------------        ---------------------------------
   John Arrillaga, Trustee

Date: 6/8/98                            Colin Hunter
      -----------------------------     ------------------------------------
                                        Print or Type Name

RICHARD T. PEERY SEPARATE               Title: CFO
PROPERTY TRUST                                 -----------------------------

By   /s/ RICHARD T. PEERY               Date: June 5, 1998
   --------------------------------           ------------------------------
   Richard T. Peery, Trustee

Date: 6/8/98
      -----------------------------

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