Transmeta Corporation (NDAQ:TMTA) shares are up over 200 percent today on news that the company finally struck a deal with Intel (NDAQ:INTC) to settle all claims between them and to license its patent portfolio for use in current and future Intel products. The move follows several years of patent disputes between the two companies related to processor design.

"We are very pleased to have reached this agreement with Intel," said Les Crudele, president and CEO of Transmeta. "We believe that this arrangement will create value for Transmeta stockholders both by realizing immediate financial value for our intellectual property rights and by supporting our technology development and licensing business going forward."

The agreement grants Intel a perpetual non-exclusive license to all Transmeta patents and applications now and during the next ten years. Transmeta will also transfer technology and grant Intel a non-exclusive license to its LongRun and LongRun2 technologies along with any future improvements. However, Intel will not be able to sue Transmeta for developing and licensing these technologies to third parties.

So, why are shares up so much today? Well, the new agreement calls for Intel to make an initial $150 million payment to Transmeta as well as to pay Transmeta an annual license fee of $20 million for each of the next five years. Given the fact that the company's current market cap (even after today's jump) is $140 million, this is great news for shareholders and investors. The move also removes any concerns about selling its microprocessors and technologies in the future.

In the end, Transmeta is potentially still undervalued given the magnitude of this deal that promises to result in a payment greater than its existing market cap plus ongoing royalties for ten years. It also removes a legal cloud that has been impacting the company's shares for some time now. Combined, these factors make TMTA a stock worth watching!

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