Transmeta Corporation (Transmeta), incorporated in March 1995, develops and licenses computing, microprocessor and semiconductor technologies, and related intellectual property. The Company designs, develops and sells x86-compatible software-based microprocessors, which deliver a balance of low-power consumption, high performance, low cost and small size suited for diverse computing platforms. Transmeta also provides, through strategic alliances and under contract, engineering services that leverage its microprocessor design and development capabilities. In addition to its microprocessor product and services businesses, the Company also develops and licenses advanced power management technologies for controlling leakage and increasing power efficiency in semiconductor and computing devices. Licensing Business The Company began licensing certain of its intellectual property and advanced computing and semiconductor technologies to other companies during the year ended December 31, 2003. Transmeta has derived most of its revenue in this line of business from licensing and services agreements relating to its LongRun2 technologies for power management and transistor leakage control. Since March 2004, the Company has entered into and announced agreements granting licenses for its LongRun2 technologies to NEC Electronics, Fujitsu Limited, Sony Corporation and Toshiba Corporation. Those licensing agreements include deliverable-based technology transfer fees, maintenance and service fees, and subsequent royalties on products incorporating the licensed technologies. Services Business During the year ended December 31, 2005, Transmeta entered into two strategic alliance agreements with other companies to leverage its intellectual property rights and its microprocessor design and development capabilities, and to harvest value from certain of its legacy microprocessor products. Each of those two strategic alliances, and the respective agreements that govern them, is independent of and unrelated to the other. On March 31, 2005, Transmeta entered into a design services agreement with Sony Computer Entertainment Inc. and Sony Corporation (the Sony Group), under which agreement the Company provides the design and engineering services of approximately 140 Transmeta engineers to work on advanced projects for Sony Group. The term of this design services agreement extends to March 31, 2007, however, the services Transmeta provides are agreed upon pursuant to specific project agreements with terms of one year or less. On May 12, 2005, Transmeta entered into a series of related definitive development services agreements with Microsoft Corporation, under which agreements the Company provides the development services of approximately 30 Transmeta engineers to Microsoft relating to a Microsoft project. Transmeta has substantially completed the services to be provided under these development services agreements, and, upon Microsoft's acceptance thereof, the Company will recognize the related revenue and direct cost of sale, which it expects will occur in 2006. Transmeta is in negotiations with Microsoft regarding the provision of additional services. Product Business The Company's product business model focuses on designing, developing and selling x86-compatible microprocessor products, including products in both its Crusoe and Efficeon microprocessor families. Unlike traditional microprocessors that are built entirely with silicon hardware, Transmeta's microprocessor products utilize a combination of software and hardware technology. A portion of the functionality of the Company's microprocessors is implemented with software that allows the remaining functionality to be implemented in hardware with only a fraction of the number of logic transistors required in a conventional microprocessor. The Company's microprocessors consume less power and generate less heat. In 2005, Transmeta derived product revenue from sales of its Crusoe and Efficeon microprocessor products. However, the Company's product revenue from sales of the

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