10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 2, 2010

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

COMMISSION FILE NO.: 0-33213

MAGMA DESIGN AUTOMATION, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	77-0454924
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1650 Technology Drive

San Jose, California 95110

(408) 565-7500

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class:	Name of Each Exchange on Which Registered:
COMMON STOCK, par value $0.0001 per share	The Nasdaq Stock Market LLC (Nasdaq Global Market)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨    (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock on October 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the Nasdaq Global Market, was $104,368,370. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.

As of July 12, 2010, the registrant had outstanding 52,847,341 shares of Common Stock, $0.0001 par value.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates by reference certain information from the registrant’s definitive proxy statement (the “Proxy Statement”) for the 2010 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of the end of the 2010 fiscal year. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.

MAGMA DESIGN AUTOMATION, INC.

ANNUAL REPORT ON FORM 10-K

Year ended May 2, 2010

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	29
Item 4.	Removed and Reserved	29
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 8.	Financial Statements and Supplementary Data	61
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	112
Item 9A.	Controls and Procedures	112
Item 9B.	Other Information	112
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	113
Item 11.	Executive Compensation	113
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	113
Item 13.	Certain Relationships and Related Transactions, and Director Independence	113
Item 14.	Principal Accountant Fees and Services	113
PART IV
Item 15.	Exhibits and Financial Statement Schedules	114
Signatures		115
Exhibit Index		116

Magma, Blast Fusion, Blast Noise, QuickCap, SiliconSmart, Talus and YieldManager are registered trademarks, and ArchEvaluator, Blast Power, Blast Plan, Blast Rail, Blast Create, Quartz, Blast Yield, Camelot, “The Fastest Path from RTL to Silicon,” FineSim, Native Parallel Technology, “Sign-off in the Loop”, Tekton and Titan are trademarks of Magma Design Automation, Inc. All other product and company names are trademarks and registered trademarks of their respective companies.

PART I

ITEM 1.    BUSINESS

Overview

Magma Design Automation, Inc., also referred to as “we,” “us” or “Magma” in this Form 10-K, provides electronic design automation (“EDA”) software products and related services. Our software enables chip designers to reduce the time it takes to design and produce complex integrated circuits used in the communications, computing, consumer electronics, networking and semiconductor industries. Our flagship products comprise a digital integrated solution for the chip development cycle, from initial design through physical implementation.

Our software products allow chip designers to meet critical time-to-market objectives, improve chip performance and handle chip designs involving millions of components. Our flagship Talus family of products, our new Tekton static timing analyzer and QCP extractor and our Quartz family of sign-off and verification tools combine into one integrated chip design and verification flow, from what traditionally had been separate logic design, physical design, and analysis and sign-off processes. This integrated flow significantly reduces design iterations, allowing our customers to accelerate the time it takes to design and produce deep submicron integrated circuits. Our Titan platform for custom integrated chip design provides an integrated chip-finishing solution for mixed-signal designs.

We provide consulting, training and services to help our customers more rapidly adopt our technology. We also provide post-contract support, or maintenance, for our products.

Evolution of the Electronic Design Automation Market

The trend toward deep submicron and system-on-chip designs has driven demand for improved electronic design automation software that enables the efficient design and implementation of these complex chips. Limitations in traditional electronic design automation technology could slow the adoption of deep submicron processes due to the difficulty in implementing designs at these small feature sizes. Historically, electronic design automation companies developed software for use by separate engineering groups to address either the front-end chip design or back-end chip implementation processes.

In the front-end design process, the chip design is conceptualized and written as a register transfer level computer program, or RTL file, that describes the required functionality of the chip. For large chips, the design is often divided into a number of individual blocks, each with its own associated RTL file. This is often done because of capacity limitations in existing electronic design automation tools. The designer also develops constraints for the design that are used to describe the desired timing performance of the chip. Finally, a target library is specified that contains detailed information about the basic functional building blocks, or logic gates, which will be used in the design. This library is typically provided by the semiconductor vendor or a third-party library vendor. The next step is to run the RTL files through synthesis software that generates a netlist. The netlist describes the circuit in terms of logic gates selected from the target library and connected such that the functionality specified in the RTL files is realized. The synthesis software also performs optimizations to attempt to meet the timing constraints specified by the designer.

A critical objective of chip design is to minimize total circuit delay, which is comprised of gate delay and wire delay. Front-end software was initially developed when the gate delay, or the time it takes for an electrical signal to travel through a logic gate, was the most significant component of total circuit delay. Wire delay, or the time it takes for a signal to travel through a wire connecting two or more gates, was negligible and designers could use simple estimates and still meet targeted circuit speeds. In recent times, minimization of power consumption has become a key objective of our chip design and is considered during the front-end process of the design flow.

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In the back-end implementation process, physical design software is used to transform the netlist generated by the front-end process into a physical layout of the chip. The resulting physical layout is usually output in the binary file format Graphics Data System II, commonly referred to as GDSII, that is used to generate the photomasks used to manufacture the integrated circuit. The two primary functions provided by traditional physical design software are placement and routing. Placement determines the optimal physical location for the logic gates on the integrated circuit. After placement is completed, routing connects the logic gates with wires to achieve the desired circuit functionality. After the layout is completed, timing analysis is run to verify that the chip will run at the desired circuit speed. If circuit speeds are slower than the speeds reported by the synthesis software, the design must often be iterated back through the synthesis step in an attempt to improve the timing. Since each timing closure iteration cycle can take one or more weeks, successive iterations of the design process can significantly lengthen the time it takes to design and produce new chips.

Integrated circuit (“IC”) designs, which are both large and highly integrated, require advanced technology to create and maintain chip floor plans. Creating hierarchical chip floor plans traditionally has been a manual error-prone task with less optimal quality of results in terms of chip die area and performance. Alternative flat chip design methodologies simplify floor plan creation but can suffer from long turnaround times making them unacceptable.

Deep Submicron Challenges

The trend toward deep submicron technology has rendered traditionally separate front-end and back-end electronic design automation processes less effective for rapid, cost-effective and reliable chip designs. As integrated circuits have increased in complexity and feature sizes have dropped, the problems faced by chip designers have changed. Wire delay now accounts for the majority of total circuit delay and has become the most significant factor in circuit performance for deep submicron technologies. Front-end estimates of wire delay may vary considerably from actual wire delays measured in the final layout. As a result, the front-end timing might meet the design requirements, but the final layout timing at the completion of the back-end process may be unacceptable, requiring time-consuming iterations back through the front-end process.

Deep submicron process technologies bring additional complexities to the design and implementation process that can cause chip failures. These complexities include, among others, signal integrity problems such as electrical interference from wires in close proximity, commonly referred to as crosstalk or noise that can affect both circuit performance and functionality. Using existing design flows and software, designers must contend with analyzing and fixing these problems manually after the layout is completed. These adjustments often change the chip timing and further contribute to the timing closure problem.

These deep submicron challenges make it difficult to efficiently design chips using separate front-end and back-end processes. Semiconductor manufacturers and electronic products companies are currently seeking alternatives to older generation electronic design automation software to shorten design time, improve circuit speed, and handle larger chip designs. As a result, we believe that a significant opportunity exists for newer electronic design automation approaches to chip design that can enable the design of more complex deep submicron integrated circuits, improve performance, reduce power consumption and significantly reduce the time it takes to design and produce next-generation electronic products.

Our Solution

The important technical foundations for our software products are found within our unified data model architecture, platform logic synthesis, interconnect synthesis, physical implementation, verification, design-for-manufacturability (“DFM”), silicon sign-off and our Titan mixed-signal design platform, which allow our customers to reduce the number of iterations that are often required in conventional integrated circuit design processes.

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Logic Design

Our fast, high-capacity logic synthesis provides a common front-end to standard cell application-specific integrated circuit (“ASIC”) and structured ASIC IC implementation platforms. A single RTL representation of the design is synthesized to technology-independent netlist and taken through architecture-specific mapping and physical synthesis to predict the area, performance, power, testability and routability during physical implementation.

Design Implementation

Unified Data Model Architecture

Conventional electronic design automation flows are typically based on a collection of software programs that have their own associated data models, often resulting in cumbersome design flows. We believe that we are the only electronic design automation vendor that offers a complete integrated circuit design implementation flow based on a unified data model. Our unified data model architecture is a key enabler for our ability to deliver automated signal integrity detection and correction, and integrated power optimization and analysis. The unified data model contains all the logical and physical information about the design and is resident in core memory during execution. The various functional elements of our software, such as the implementation engines for synthesis, placement and routing, and our analysis software for timing, RC and delay extraction, power, and signal integrity, all operate directly on this data model. Because the data model is concurrently available to all the engines and analysis software, it is possible to analyze the design and make rapid tradeoff decisions during the physical design process, thereby reducing design iterations.

Interconnect Synthesis

Interconnect Synthesis is a relatively recent addition to our integrated circuit implementation design flow. With Interconnect Synthesis, optimization for timing, crosstalk, on-chip variation (“OCV”), power and yield are performed in the routing phase, rather than relying on logic optimization during logic synthesis as has historically been done. Optimization in logic synthesis alone was insufficient as wireload models started failing at 180 nanometers and below. At 90 nanometers and below, wire delay and the effect of their neighbors contribute to almost all deep-submicron effects. Accordingly, optimization has to be done as wires are assigned to tracks and are being routed. This move to combine optimization and routing requires a flow with a relatively new approach—Interconnect Synthesis.

Physical Verification and Design for Manufacturability

Every completed physical layout must be analyzed and manipulated before final manufacturing. This process—commonly called physical verification—has increased in complexity and importance as manufacturing technology has moved from 130 nanometers to 90 nanometers, and now to 65 nanometers and below. Moreover, new physical phenomena at these manufacturing nodes—including optical proximity correction (“OPC”) and chemical-mechanical-polishing (“CMP”) effects—have introduced the need for new design-for-manufacturing technologies.

Our physical verification products, including Quartz DRC^™ and Quartz LVS^™, were designed specifically to address the challenges at 90 nanometers and 65 nanometers and below. Quartz DRC^™ and Quartz LVS^™ have been designed to be highly scalable. By using techniques that enable fine-grain parallelism, Quartz DRC^™ and Quartz LVS^™ are able to use a large number (up to 100) of separate Linux machines on a standard computer network. This ability to do distributed processing on a standard Linux machine provides the ability to linearly increase the speed of processing—doubling the number of processors doubles the speed—for design rule checking. This scalability is essential to achieving a fast turnaround time.

We have a strong position in design for manufacturability as we now offer both a leading physical design system and a leading physical verification system.

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Silicon Sign-off

Design teams have traditionally relied upon one set of tools for implementation and another set of tools for sign-off analysis. While this separation enables an advantageous tradeoff with respect to accuracy versus runtime, it also requires corrective iteration loops when discrepancies are found during sign-off analysis. With the increased analysis challenges that the 90- and 65-nanometer and smaller processes present, such as combining noise analysis with OCV, across ever-increasing process corners and operating modes, the use of separate point sign-off tools becomes a primary bottleneck in the drive to improve design cycle time. Our “Sign-off in the Loop” flow breaks the sign-off iteration bottleneck by making sign-off-level analysis directly available during the implementation flow. The capabilities of Quartz RC^™ are augmented by the integration of QuickCap technology into the extractor. QuickCap is an industry standard for reference parasitic extraction. The inclusion of this technology into a full-chip extractor enables users to attain the highest possible accuracy for the most timing-critical nets on a chip.

Custom/Mixed-Signal

Analog design flows and teams historically have been isolated from digital design. Analog integrated circuits have typically been full-custom and painstakingly crafted by hand. In addition to being time-consuming and prone to error, this transistor-level design style does not allow an existing design to be easily transferred to a new foundry or process/technology node. With Magma’s Titan platform, analog designers can apply their expertise in defining the first circuit topology, but porting to new geometry nodes is easier.

Products

Below is a description of our major products.

Talus^® Design^™ is a key component of the next-generation RTL-to-GDSII Talus^® platform. This product enables logic designers to synthesize, evaluate, and improve the quality of their RTL code, design constraints, testability requirements and floorplan. The physical netlist generated by Talus^® Design™ provides a clean handoff between the RTL designer and layout engineer, eliminating back-to-front iterations necessary for timing closure in conventional flows.

Talus^® Vortex^™ is our place and route product within the next-generation Talus^® platform. Talus^® Vortex™ flow begins with design netlist, target library, and design constraints. It utilizes state-of-the-art implementation automation to produce a physical layout and routing connection of the design to meet timing, area, power, clock, and routing requirements for manufacture.

Talus^® Power Pro^™ is an optimization option to Talus^® Design^™ and Talus^® Vortex^™ for advanced low-power needs. By using Talus^® Power Pro™, dynamic and leakage power can be minimized while meeting design performance, area, and manufacturing requirements. Multiple techniques are employed and embodied in a design flow to maximize the automation required to meet aggressive design schedules.

Tekton^™ is our new standalone static timing analyzer. Tekton™ provides both standard timing analysis and signoff analysis (crosstalk and on-chip variation). In addition to being architected for fast execution and capacity, Tekton^™ includes the native capability to run multi-mode / multi-corner timing analysis – a key requirement in analyzing designs at 40 nanometers and below.

QCP™ is our new standalone SoC (system-on-chip) parasitic extractor. QCP™ is architected for high capacity and fast execution with accuracy within a few percent of our gold standard QuickCap product. QCP™ provides a complete multi-corner extraction solution that adds only a minimal amount of runtime overhead for each additional PVT (process, temperature, voltage) corner.

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Talus^® qDRC™ is an integrated-physical-design verification tool for direct use during implementation. Using foundry-certified design-rule runsets, Talus^® qDRC™ increases productivity by providing sign-off-quality DRC from within the implementation environment.

Hydra™ is an auto-interactive floorplanning and hierarchical design-planning solution featuring a physical optimization capability that enables accurate floorplan handoff. It is a standalone solution that is also fully integrated into Magma’s RTL-to-GDSII flow.

QuickCap^® is the industry’s leading parasitic extraction technology. QuickCap^® is a highly accurate 3D-field solver used in parameter extraction and rules generation, library cell extraction, critical cell analysis, and critical net analysis.

QuickCap^® NX™ is an enhanced version of the QuickCap^® tool, targeted to address specific design challenges that occur in 90-nanometer and smaller process technologies.

Quartz Rail™ is a manufacturing sign-off analysis tool for ‘static’ and ‘transient’ voltage drop within a chip. Using industry-standard input for design logic, layout, and activity, and including an interface to our FineSim SPICE™ product for silicon-accurate measurement, Quartz Rail™ provides a reliable and comprehensive voltage-drop analysis for design implementation. Quartz Rail™ is integrated in the Talus^® implementation platform to simplify the flow for design analysis to influence design decisions early in the implementation process for best quality of results.

Quartz RC™ provides sign-off-quality parasitic extraction and can operate as either a standalone tool or integrated with the Blast Fusion system, where it underlies the “Sign-off in the Loop” flow.

Quartz Time™ combines the proven static timer in Blast Fusion™ with advanced timing capabilities to create a standalone sign-off timing system.

Quartz DRC™ and Quartz LVS™ are targeted to provide the fastest turnaround time of any physical verification tools, with full sign-off accuracy.

SiliconSmart^® products provide robust timing, power, and signal integrity models in a variety of industry standard formats.

FineSim Pro™ is a next-generation, highly accurate fast circuit simulator with full-chip analysis capabilities, including advanced post-layout simulation features, high accuracy with low memory usage and high performance.

FineSim SPICE™ is a unique, native parallel, true SPICE simulator that enables the simulation of analog and mixed signal circuits with full SPICE accuracy, which previously could only be simulated with fast-SPICE simulators.

FineSim Fast Monte Carlo™ is an innovative technology that provides a significant improvement over traditional Monte Carlo methods by providing a faster, more accurate statistical analysis for analog and mixed signal circuits.

FineWave™ is a waveform viewer and analyzer capable of displaying digital, analog and mixed-mode signals.

Titan Mixed-Signal Design Platform™ is a unified mixed-signal design cockpit with a very high capacity and a very fast database access mechanism. Titan™ comprises user-friendly full-custom schematic and layout editors, an analog simulation environment integrated with the FineSim™ simulator, correct-by-design schematic-

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driven layout and integration with Magma’s tools for physical verification and digital implementation. By fully embedding Talus for digital design, Titan combines full-custom analog design tools with a digital flow for high-level mixed-signal chip design efficiency. Titan™ supports OpenAccess and emerging industry integration standards.

In addition to traditional base platform, Titan™ platform also provides design and layout accelerators, which are targeted solutions that provide new options to analog designers. Each accelerator can be used to augment an existing tool flow, or combined with the Titan Mixed-Signal Platform™ to create a comprehensive mixed-signal design solution.

Titan ADX™ (Analog Design Accelerator) is a model-based analog design and optimization solution that enables reuse of analog blocks. It is available with pre-built FlexCell libraries of design models.

Titan AVP™ (Analog Virtual Prototyper) is a layout-aware schematic design that integrates physical implementation with design intent.

Titan SBR™ (Shape-Based Router) automates difficult routing tasks for a tenfold improvement in productivity. It is used for analog routing, clock/DDR routing and chip-level assembly routing.

Titan ALX™ (Analog Layout Accelerator) automates migration of analog cell layouts between processes while preserving design intent.

SiliconSmart^® ACE™, with its embedded FineSim SPICE™ and FineSim Pro™ simulators products, provide robust IP characterization and modeling in timing, power, and signal integrity models in a variety of industry standard formats.

Camelot™ performs failure analysis, fault diagnostics and design debug. Camelot™ imports CAD design data from layout versus schematic (LVS) packages to provide visual representation and cross-mapping of circuits. Linked to analytical tools, Camelot™ automatically drives to an exact location for viewing and analysis. In addition, Camelot™ promotes an expanding base of options for failure analysis, circuit debug, and DFM applications.

YieldManager^® is a fab-wide defect and yield management system collecting defect, image, review classification, binsort, bitmap, parametric, and equipment/manufacturing execution system data into a single unified database. Powerful extraction and engineering analysis tools make it easy to find the source(s) contributing to yield problems. Additional options available provide for an expanding base of automation and advanced analysis capability.

LogicMap™ is a fully-automated yield-enhancement software solution that identifies the precise circuit trace on failing chips by overlaying failing nets with in-line defect inspection data by layer. Benefits include the ability to perform failure analysis without the need for packaging or probing, and providing real-time statistically meaningful yield fallout and design sensitivity data.

Merlin’s Framework™ is a navigation software tool for technologies and techniques including flip chips and back side fault isolation and analysis.

Smart Sampling™ provides an automated method for inline defect sampling of wafer inspection data in conjunction with inline review tools within the semiconductor manufacturing environment.

Services

We provide consulting and training to help our customers more rapidly adopt our technology. We also provide post-contract support, or maintenance, for our products.

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Customers

We license our software products to semiconductor manufacturers and electronic products companies around the world. Our major customers include Toshiba, Samsung, Qualcomm, Broadcom, NEC, Marvell, Texas Instruments, LSI Logic, and NVIDIA. No individual customer accounted for 10% or more of our consolidated revenues during fiscal 2010.

Product Backlog

As of May 2, 2010 and May 3, 2009, we had greater than $300 million and $291 million, respectively, in backlog, which represents contractual commitments by our customers through purchase orders or contracts. As of May 2, 2010 and May 3, 2009, approximately 20% of the backlog in each year is variable based on volume of usage of our products by the customers. We have estimated variable usage, for the purposes of determining our backlog, based on information from customers’ forecasts available at contract execution date. It is possible that customers from whom we expect to derive revenue from backlog will cancel, defer or default on their orders and as a result we may not be able to recognize expected revenue from backlog on a timely basis or at all.

Change in Fiscal Year End

Prior to fiscal 2009, we had a 52-53 week fiscal year ending on the first Sunday subsequent to March 31. On January 28, 2008, our Board of Directors approved a change of fiscal year from a fiscal year ending on the first Sunday subsequent to March 31 to a fiscal year ending on the Sunday closest to April 30 (except for any given year in which April 30 is a Sunday, in which case the fiscal year will end on April 30), starting with fiscal 2009. Our fiscal years consist of four quarters of 13 weeks each except for each fifth or sixth fiscal year, which includes one quarter with 14 weeks.

Our 2009 fiscal year began on May 5, 2008 and ended on May 3, 2009, resulting in a one-month transition period that began on April 7, 2008 and ended on May 4, 2008. The separate audited financial statements required for the transition period were included on our Form 10-K for the fiscal year ended May 3, 2009, which was filed with the SEC on July 20, 2009.

References in this Form 10-K to fiscal 2010 represent the 52 weeks ended May 2, 2010, references to fiscal 2009 represent the 52 weeks ended May 3, 2009 and references to fiscal 2008 represent the 52 weeks ended, April 6, 2008. We have not submitted financial information for the 52 weeks ended April 5, 2009 in this Form 10–K because the information is not practical or cost-effective to prepare. We believe that the 52 weeks of fiscal 2008 provide a meaningful comparison to the 52 weeks of fiscal 2009 and fiscal 2010 presented in this Form 10-K. We do not believe that there are any significant factors, seasonal or otherwise, that would impact the comparability of information or trends if results for the 52 weeks ended April 5, 2009 were presented in lieu of results for the 52 weeks ended May 3, 2009. We did not experience an unusual amount of business activity or product shipment in the transition month and have reported the loss incurred in that month in our consolidated statements of operations in Item 8 of this Form 10-K.

Revenue and Orders Mix

Our license revenue in any given quarter depends on the volume of short-term licenses shipped during the quarter and the amount of long-term, ratable and cash receipts revenue from deferred revenue that is recognized out of backlog and recognized on orders received during the quarter. We set our revenue targets for any given period based, in part, upon an assumption that we will achieve a certain level of orders and a certain mix of short-term licenses. The precise mix of orders is subject to substantial fluctuation in any given quarter or multiple quarter periods, and the actual mix of licenses sold affects the revenue we recognize in the period. Even if we achieve the target level of total orders, we may not meet our revenue targets if we are unable to achieve our target license mix. In particular, we may fall short of our revenue targets if we deliver more long-term or ratable licenses than expected, or we may exceed our revenue targets if we deliver more short-term licenses than expected.

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Unbilled Accounts Receivable

Unbilled accounts receivable represent revenue that has been recognized in advance of contractual invoicing to the customer. We typically generate invoices 45 days in advance of contractual due dates and invoice the entire amount of the unbilled accounts receivable within one year from the contract inception. As of May 2, 2010 and May 3, 2009, unbilled accounts receivable were approximately $2.9 million for both the fiscal years. These amounts were included in accounts receivable on our consolidated balance sheets for these periods.

Revenue by Geographic Areas

We generated 41% of our total revenue from sales outside the United States for fiscal 2010, compared to 41% in fiscal 2009 and 40% in fiscal 2008. Additional disclosure regarding financial information on geographic areas is included in Note 16, Segment Information, to our consolidated financial statements in Item 8 of this Form 10-K.

Sales and Marketing

We license our products primarily through a direct sales force focused primarily on industry leaders in the communications, computing, consumer electronics, networking and semiconductor industries. We have North American sales offices in California, North Carolina, Texas, and Canada. Internationally, we have European offices in Germany and the United Kingdom, an office in Israel, and Asian offices in China, India, Japan, South Korea and Taiwan. Our direct sales force is supported by a larger group of field application engineers that work closely with the customers’ technical chip design professionals.

As of May 2, 2010, we had 266 employees in our marketing, sales and technical sales support organizations.

Competition

The electronic design automation industry is highly competitive and characterized by technological change, evolving standards, and price erosion. Major competitive factors in the market we address include technical innovation, product features and performance, level of integration, reliability, price, total system cost, reduction in design cycle time, customer support and reputation.

We currently compete with companies that hold dominant shares in the electronic design automation market. In particular, Cadence Design Systems, Inc. (“Cadence”) and Synopsys, Inc. (“Synopsys”) are continuing to broaden their product lines to provide an integrated design flow, and we continue to compete with Mentor Graphics Corporation (“Mentor”) in certain product areas, such as physical verification tools. Each of these companies has a longer operating history and significantly greater financial, technical and marketing resources than we do, as well as greater name recognition and a larger installed customer base. These companies also have established relationships with our current and potential customers and can devote substantial resources aimed at preventing us from establishing or enhancing our customer relationships. Our competitors are better able to offer aggressive discounts on their products, a practice that they often employ. Our competitors offer a more comprehensive range of products than we do. For example, we do not offer logic simulation, which can sometimes be an impediment to our winning a particular customer order. In addition, our industry has traditionally viewed acquisitions as an effective strategy for growth in products and market share, and our competitors’ greater cash resources and higher market capitalization would likely give them a relative advantage over us in acquiring companies with promising new chip design products or companies that may be too large for us to acquire without a strain on our resources and liquidity. Further consolidation in the electronic design automation market could result in an increasingly-competitive environment. Competitive pressures may prevent us from increasing market share or require us to reduce the price of products and services, which could harm our business. To execute our business strategy successfully, we must continue to increase our sales worldwide. If we fail to do so in a timely manner or at all, we may not be able to gain market share and our business and operating results could suffer.

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Also, a variety of small companies continue to emerge, developing and introducing new products. Any of these companies could become a significant competitor in the future. We also compete with the internal chip design automation development groups of our existing and potential customers. Therefore, these customers may not require, or may be reluctant to purchase, products offered by independent vendors.

Our competitors may develop or acquire new products or technologies that have the potential to replace our existing or new product offerings. The introduction of these new or additional products by competitors may cause potential customers to either defer purchases of our products or decide against purchasing our products. If we fail to compete successfully, we will not gain market share and our business may fail.

Research and Development

We devote a substantial portion of our resources to developing new products and enhancing our existing products, conducting product testing and quality assurance testing, improving our core technology and strengthening our technological expertise in the electronic design automation market. Our research and development expenditures for fiscal 2010, 2009 and 2008 were $47.0 million, $68.8 million and $76.9 million, respectively. There have not been any customer-sponsored research activities since our inception.

As of May 2, 2010, our research and development group consisted of 332 employees. We have engineering centers in California and Texas in the United States, and in China, India, the Netherlands and the United Kingdom. Our engineers are focused in the areas of product development, advanced research, product engineering and design services. Our product development group develops our common core technology and is responsible for ensuring that each product fits into this common architecture. Our advanced research group works independently from our product development group to assess and develop new technologies to meet the evolving needs of integrated circuit design automation. Our product engineering group is primarily focused on product releases and customization. Our design services group is specifically focused on, and assists in completing, customer designs for commercial applications.

Intellectual Property

As of May 2, 2010, we held, directly or indirectly, more than 70 issued patents. Patent protection affords only limited protection for our technology. Our patents will expire on various dates through June 2026. We have filed, and plan to file, applications for additional patents. We do not know if our patent applications or any future patent application will result in a patent being issued with the scope of the claims we seek, if at all, or whether any patents we may receive will be challenged or invalidated. Rights that may be granted under our patent applications that may issue in the future may not provide us competitive advantages. Further, patent protection in foreign jurisdictions where we may need this protection may be limited or unavailable.

It is difficult to monitor and prevent unauthorized use of technology, particularly in foreign countries where local laws may not protect our proprietary rights as fully as do laws in the United States. In addition, our competitors may independently develop technology similar to ours. We will continue to assess appropriate occasions for seeking patent and other intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages.

Our success depends in part upon our rights in proprietary software technology. We have patent applications pending for some of our proprietary software technology. In addition to patents, we rely on a combination of trademark, copyright and, trade secret laws, and contractual restrictions such as confidentiality agreements and licenses, to establish and protect our proprietary rights. We routinely require our employees, customers and potential business partners to enter into confidentiality and nondisclosure agreements before we will disclose any sensitive aspects of our products, technology or business plans. We require employees to agree to surrender to us any proprietary information, inventions or other intellectual property they generate while employed by us. Despite our efforts to protect our proprietary rights through confidentiality and license agreements, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. These precautions may not prevent misappropriation or infringement of our intellectual property.

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Some of our products and technology include software or other intellectual property licensed from other parties. In addition, we also license software and other intellectual property from other parties for internal use. We may be required or choose to obtain new licenses or renew licenses in the future.

Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. Many of our contracts contain provisions indemnifying our customers from third-party intellectual property infringement claims. Third parties may assert infringement claims against us and/or our customers. Our products may be found by a court to infringe issued patents that may relate to or are required for our products. In addition, because patent applications in the United States are sometimes not publicly disclosed until the patent is issued, applications may have been filed that relate to our software products. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties. Intellectual property litigation is expensive and time consuming and could divert management’s attention away from running our business. If there is a successful claim of infringement, we may be ordered to pay substantial monetary damages, we may be prevented from distributing some of our products, and/or we may be required to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms, if at all. Our failure to develop non-infringing technology or license the proprietary rights on a timely basis would harm our business.

Foreign Operations

As indicated above and in Item 2 below, we have offices, including sales offices and engineering centers, located around the world. For additional information regarding risks attendant to our foreign operations, see the discussions under Item 1A, “Risk Factors” including discussion under the headings stating: “Because much of our business is international, we are exposed to risks inherent in doing business internationally that could harm our business. We also intend to expand our international operations. If our revenue from this expansion does not exceed the expenses associated with this expansion, our business and operating results could suffer,“ “We are subject to risks associated with changes in foreign currency exchange rates,“ and “Failure to obtain export licenses could harm our business by preventing us from licensing or transferring our technology outside of the United States.”

Employees

As of May 2, 2010, we had 677 full-time employees, including 332 in research and development, 266 in sales and marketing and 79 in general and administrative. None of our employees are covered by collective bargaining agreements. We believe our relations with our employees are good.

Corporate Information

We were incorporated in Delaware in 1997. Our principal executive offices are located at 1650 Technology Drive, San Jose, California 95110, and our telephone number is (408) 565-7500. Our common stock is traded on the Nasdaq Global Market under the ticker symbol LAVA. Our Web site address is www.magma-da.com. The information on or accessible through our Web site is not incorporated by reference into this Annual Report. Through a link on the Investor Relations section of our Web site, we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Additionally, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at the following Internet site: http://www.sec.gov. Financial information about us is set forth in the financial statements below.

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ITEM 1A.    RISK FACTORS

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

We have a substantial amount of indebtedness, which could adversely affect our business, operating results or financial condition.

We currently have, and will continue to have for the foreseeable future, a substantial amount of indebtedness. As of May 2, 2010, we had an aggregate principal amount of approximately $78.3 million in outstanding debt, $23.2 million of which were the 2% Convertible Senior Notes due 2010 (the “2010 Notes”). On September 11, 2009, we completed a tender offer and registration to exchange our 2010 Notes for new 6% Convertible Senior Notes due 2014 (the “2014 Notes”). As a result of the exchange, approximately $23.2 million principal amount of the 2010 Notes remained outstanding and approximately $26.7 million principal amount of newly issued 2014 Notes were issued and are outstanding. On May 15, 2010, we repaid the $23.2 million outstanding 2010 Notes. In addition, as of May 2, 2010, we had outstanding borrowings of $15.0 million of term loans and two letters of credit totaling $1.7 million under our credit facility with Wells Fargo Capital Finance, LLC, which expires on March 19, 2014. If cash on hand and cash flow from operations are not sufficient to meet our working capital needs, capital requirements, and debt repayment obligations, we may need to incur additional indebtedness. Our outstanding indebtedness will also require us to use a substantial portion of our cash flow from operations to make debt service payments. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of our indebtedness, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity of the indebtedness and which could cause a default under any other indebtedness then outstanding. Any default under our indebtedness would have a material adverse effect on our business, operating results and financial condition.

In addition, our substantial indebtedness may:

• make it difficult for us to satisfy our financial obligations;

• limit our ability to use our cash flow in our operations, use our available financings to the fullest extent possible, or obtain additional financing for future working capital, capital expenditures, acquisitions or other general corporate purposes

• limit our flexibility to plan for, or react to, changes in our business and industry;

• place us at a competitive disadvantage compared to our less leveraged competitors and our competitors with greater access to capital resources;

• increase our vulnerability to the impact of adverse economic and industry conditions;

• increase our vulnerability in the event of an increase in interest rates if we must incur new debt to satisfy our obligations under our current indebtedness; and

• cause our business to go into bankruptcy or cause our business to fail.

General economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control, may affect our future performance, which may affect our ability to make principal and interest payments on our indebtedness. If we cannot generate sufficient cash flow from operations in the future to service our debt, we may, among other things:

• seek additional financing in the debt or equity markets, and the documentation governing any future financing may contain covenants that limit or restrict our strategic, operating or financing activities;

• attempt to refinance or restructure all or a portion of our indebtedness;

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• attempt to sell selected assets;

• reduce or delay planned capital expenditures; or

• reduce or delay planned research and development expenditures.

These measures may not be successful, may not be sufficient to enable us to service our indebtedness and may harm our business and prospects. In addition, any financing, refinancing or sale of assets might not be available, or available on economically favorable terms.

If we cannot generate sufficient operating cash flow or obtain additional external financing, our business and financial condition may be materially adversely affected, and our business may fail.

As of May 2, 2010, we had cash and cash equivalents, excluding restricted cash, of $57.5 million. Our short-term investments of $16.8 million as of May 2, 2010, consisted of auction rate securities, which we liquidated on July 2, 2010. After repaying the $11.2 million, we received $5.6 million from the auction rate securities.

We experienced a decrease in revenue during fiscal 2010 and fiscal 2009. If adverse semiconductor industry or general economic conditions persist or worsen, we could experience further decreases in revenue. We continued our cost-cutting efforts initiated in fiscal 2009, including reducing the number of employees, capital spending, research and development projects and administrative expenses, closing some offices and consolidating other offices. We cannot assure you that we will be able to achieve anticipated expense reductions or that we will not be required to make further cost reductions. Some cost-cutting activities may require initial cost outlays before the cost reductions are realized. If our revenue continues to decrease, or if our expense reduction efforts are unsuccessful, our operating results and business may be materially adversely affected, and our business may fail.

We will be required to generate cash sufficient to conduct our business operations and pay our indebtedness and other liabilities, including all amounts, both principal and interest, as they become due on the 2014 Notes and under our credit facility with the Wells Fargo Bank, N.A. We may not generate sufficient cash flow from operations to cover our anticipated debt service obligations, including making payments on any outstanding notes or our credit facility. Our ability to meet our future debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. Accordingly, we cannot assure you that we will be able to make required principal and interest payments on our notes when due in the absence of additional sources of equity or debt financing. In addition, if our customers believe that we are not financially sound, they may choose to stop doing business with us, which would materially adversely affect our business and financial condition.

We may try to access private and public sources of external financing, including debt and equity, to repay our existing indebtedness. We are also currently exploring and may explore in the future sources of external financing in order to achieve growth or other business objectives. Such financing may not be available in sufficient amounts, when needed or on terms acceptable to us, or at all. In addition, any equity financing may not be desirable because of resulting dilution to our stockholders, which may be significant in light of the current trading price of our common stock and the size of our market capitalization compared to our outstanding debt. We also may, from time to time, redeem, tender for, exchange for, or repurchase our securities in the open market or in privately-negotiated transactions depending upon availability of our cash resources, market conditions and other factors. Moreover, the availability of funds under our existing $30.0 million credit facility may be adversely affected by our financial condition, results of operations and incurrence or maintenance of additional debt. If we are unable to obtain needed financing or generate sufficient cash from operations, our ability to expand, develop or enhance our services or products, fund our working capital requirements or respond to competitive pressures would be limited, which would materially adversely affect our business and financial condition.

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We are currently party to and may enter into debt arrangements in the future, each of which may subject us to restrictive covenants which could limit our ability to operate our business.

We are party to a $30.0 million credit facility with Wells Fargo Capital Finance, LLC, which consists of a $15.0 million term loan and a $15.0 million revolving loans. The new credit facility replaced the earlier $15.0 million credit facility we entered into with Wells Fargo in October 2009. The new $30.0 million credit facility imposes various restrictions and covenants on us that limit our ability to incur or guarantee indebtedness, make investments, declare dividends or make distributions, acquire or merge into other entities, sell substantial portions of our assets and grant security interests in our assets. In the future, we may incur additional indebtedness through arrangements such as credit agreements or term loans that may also impose similar restrictions and covenants. These restrictions and covenants limit, and any future covenants and restrictions may limit, our ability to respond to market conditions, make capital investments or take advantage of business opportunities. Any debt arrangements we enter into may require us to make regular interest or principal payments, which would adversely affect our results of operations.

We cannot assure you that we will be able to satisfy or comply with the provisions, covenants, financial tests and ratios of our debt instruments, which can be affected by events beyond our control. If we fail to satisfy or comply with such provisions, covenants, financial tests and ratios, or if we disagree with our lenders about whether or not we are in compliance, we cannot assure you that we will be able to obtain waivers from our lenders for any failures to comply with our financial covenants or any other terms of the debt instruments. We also may not be able to obtain amendments that will prevent a failure to comply in the future. A breach of any of the provisions, covenants, financial tests or ratios under our debt instruments could result in a default under the applicable agreement, which in turn could accelerate the timing of our repayment obligations such that our indebtedness would become immediately due and payable and could trigger cross-defaults under our other debt instruments, any of which would materially adversely affect our business and financial condition and could make it difficult for us to obtain other credit facilities or bank lines on comparable terms in the future.

Financial market conditions may impede access to or increase the cost of financing operations and investments.

The volatility and disruption in the capital and credit markets has reached unprecedented levels over the past several quarters. These changes in U.S. and global financial and equity markets, including market disruptions and tightening of the credit markets, may make it more difficult for us to obtain additional sources of financing to repay or restructure our indebtedness or to obtain financing for our operations or investments or may increase the cost of obtaining financing.

Customer payment defaults may cause us to be unable to recognize revenue from backlog, and changes in the type of orders comprising backlog could affect the proportion of revenue recognized from backlog each quarter, which could have a material adverse effect on our financial condition and results of operations.

Twenty percent of our revenue backlog, for both fiscal 2009 and fiscal 2010, is variable based on volume of usage of our products by customers or includes specific future deliverables or is recognized as revenue on a cash receipts basis. Management has estimated variable usage based on customers’ forecasts, but there can be no assurance that these estimates will be realized. In addition, it is possible that customers from whom we expect to derive revenue from backlog will default, and, as a result, we may not be able to recognize revenue from backlog as expected. Moreover, existing customers may seek to renegotiate preexisting contractual commitments due to adverse changes in their own businesses, which may be increasingly likely given the current economic conditions. If a customer defaults and fails to pay amounts owed, or if the level of defaults increases, our bad debt expense is likely to increase. Any material payment default by our customers could have a material adverse effect on our financial condition and results of operations.

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We rely on a relatively small number of customers for a significant portion of our revenue, and our revenue could decline if customers delay orders or fail to renew licenses or if we are unable to maintain or develop relationships with current or potential customers.

Our business depends on sales to a relatively small number of customers. Although no single customer accounted for 10% or more of our consolidated revenue for the fiscal year ended May 2, 2010, we expect that we will generally continue to depend upon a relatively small number of customers for a substantial portion of our revenue for the foreseeable future. If we fail to sell sufficient quantities of our products and services to one or more customers in any particular period, or if a large customer reduces purchases of our products or services, defers orders, defaults on its payment obligations to us, or fails to renew licenses, our business and operating results could be harmed. In addition, if our customers believe that we are not financially sound, they may choose to stop doing business with us, which would materially adversely affect our business and financial condition.

Most of our customers license our software under time-based licensing agreements, with terms that typically range from 15 months to 48 months. Most of our license agreements automatically expire at the end of the term unless the customer renews the license with us or purchases a perpetual license. If our customers do not renew their licenses or renew their licenses with shorter terms, we may not be able to maintain our current revenue or may not generate additional revenue. Some of our license agreements allow customers to terminate an agreement prior to its expiration under limited circumstances—for example, if our products do not meet specified performance requirements or goals. If these agreements are terminated prior to expiration or we are unable to collect under these agreements, our revenue may decline.

Some contracts with extended payment terms provide for payments that are weighted toward the latter part of the contract term. Accordingly, for bundled agreements, as the payment terms are extended, the revenue from these contracts is not recognized evenly over the contract term, but is recognized as the lesser of the cumulative amounts due and payable or ratably. For unbundled agreements, as the payment terms are extended, the revenue from these contracts is recognized as amounts become due and payable. Revenue recognized under these arrangements will be higher in the latter part of the contract term, which potentially puts our future revenue recognition at greater risk of the customer’s continued credit-worthiness. In addition, some of our customers have extended payment terms, which create additional credit risk.

To gain market share and maintain revenue, we must compete successfully against companies that hold a large share of the EDA market and competition is increasing among EDA vendors as customers tightly control their EDA spending and use fewer vendors to meet their needs.

We currently compete with companies that hold dominant shares in the EDA market, such as Cadence, Synopsys and Mentor. Each of these companies has a longer operating history and significantly greater financial, technical and marketing resources than we do, as well as greater name recognition and a larger installed customer base. Our competitors are better able to offer aggressive discounts on their products, a practice they often employ. Competition and corresponding pricing pressures among EDA vendors or other factors could cause the overall market for EDA products to have low growth rates, remain relatively flat or even decrease in terms of overall dollars. Our competitors offer a more comprehensive range of products than we do. For example, we do not offer logic simulation, which can sometimes be an impediment to our winning a particular customer order. In addition, our industry has traditionally viewed acquisitions as an effective strategy for growth in products and market share, and our competitors’ greater cash resources and higher market capitalization would likely give them a relative advantage over us in acquiring companies with promising new chip design products or companies that may be too large for us to acquire without a strain on our resources and liquidity.

Competition in the EDA market has increased as customers rationalized their EDA spending by using products from fewer EDA vendors. Continued consolidation in the EDA market could intensify this trend. In addition, gaining market share in the EDA market can be difficult as it may take years for a customer to move from a competitor. Many of our competitors, such as Cadence, Synopsys and Mentor, have established relationships with our current and potential customers and can devote substantial resources aimed at preventing

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us from establishing or enhancing our customer relationships. Competitive pressures may prevent us from obtaining new customers and gaining market share, may require us to reduce the price of products and services or cause us to lose existing customers, which could harm our business. To execute our business strategy successfully, we must continue our efforts to increase our sales worldwide. If we fail to do so in a timely manner or at all, we may not be able to gain market share and our business and operating results could suffer.

Also, a variety of small companies continue to emerge, developing and introducing new products that may compete with our products. Any of these companies could become a significant competitor in the future. We also compete with the internal chip design automation development groups of our existing and potential customers. Therefore, these customers may not require, or may be reluctant to purchase, products offered by independent vendors.

Our competitors may develop or acquire new products or technologies that have the potential to replace our existing or new product offerings. The introduction of these new or additional products by competitors may cause potential customers to defer purchases of our products or decide against purchasing our products. If we fail to compete successfully, we will not gain market share, or our market share may decrease, and our business may fail.

If the industries into which we sell our products continue to experience a recession or other cyclical effects affecting our customers’ research and development budgets, our revenue would likely decline further.

Demand for our products is driven by new integrated circuit design projects. The demand from semiconductor and systems companies is uncertain and difficult to predict. A continued sharp downturn (such as that currently being experienced in the semiconductor and systems industries), a reduced number of design starts, a reduction in the complexity of integrated circuits, a reduction in our customers’ EDA budgets or consolidation among our customers would accelerate the decrease in revenue we have experienced during the fiscal years ended May 3, 2009 and May 2, 2010, and would harm our business and financial condition.

The primary customers for our products are companies in the communications, computing, consumer electronics, networking and semiconductor industries. A continued downturn in our customers’ markets or in general economic conditions that results in the cutback of research and development budgets or the delay of software purchases would likely result in lower demand for our products and services and could harm our business. The continuing threat of terrorist attacks in the United States and worldwide, the ongoing events in Afghanistan, Iraq, Iran, the Middle East, North Korea and other parts of the world, recent problems with the financial system, such as problems involving banks as well as the mortgage markets and the recent financial crisis, and other worldwide events have increased uncertainty in the United States and global economies. If the global economic decline continues, existing customers may decrease their purchases of our software products or delay their implementation of our software products, and prospective customers may decide not to adopt our software products, any of which could negatively impact our business and operating results.

Our industry is subject to cyclical fluctuation, which could affect our operating results.

The electronics industry has historically been subject to cyclical fluctuations in demand for its products, and this trend may continue in the future. These industry downturns have been and may continue to be characterized by diminished product demand, excess manufacturing capacity and subsequent erosion of average selling prices. Any such cyclical industry downturns could harm our operating results.

Our lengthy and unpredictable sales cycle and the large size of some orders make it difficult for us to forecast revenue and increase the magnitude of quarterly fluctuations, which could harm our stock price.

Customers for our software products typically commit significant resources to evaluate available software. The complexity of our products requires us to spend substantial time and effort to assist potential customers in evaluating our software and in benchmarking our products against those of our competitors. As the complexity of

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the products we sell increases, we expect our sales cycle to lengthen. In addition, potential customers may be limited in their current spending by existing time-based licenses with their legacy vendors. In these cases, customers delay a significant new commitment to our software until the term of the existing license has expired. Also, because our products require our customers to invest significant time and incur significant costs, we must target those individuals within our customers’ organizations who are able to make these decisions on behalf of their companies. These individuals tend to be senior management in an organization, typically at the vice president level. We may face difficulty identifying and establishing contact with such individuals. Even after those individuals decide to purchase our products, the negotiation and documentation processes can be lengthy and could lead the decision-maker to reconsider the purchase. Consequently, we may incur substantial expense and devote significant management time and effort to develop potential relationships that do not result in agreements or revenues and that may prevent us from pursuing other opportunities.

Our sales cycle typically ranges between three and nine months but can be longer. Any delay in completing sales in a particular quarter could cause our operating results to fall below expectations. Furthermore, economic downturns, technological changes, litigation risk or other competitive factors could cause some customers to shorten the terms of their licenses significantly, and such shorter terms could in turn have an impact on our total results for orders for this fiscal year. In addition, the precise mix of orders is subject to substantial fluctuation in any given quarter or multiple quarter periods, and the actual mix of licenses sold affects the revenue we recognize in the period. Even if we achieve the target level of total orders, we may not meet our revenue targets if we are unable to achieve our target license mix. In particular, we may fall short of our revenue targets if we deliver more long-term or ratable licenses than expected, or we may exceed our revenue targets if we deliver more short-term licenses than expected.

Our quarterly results are difficult to predict, and if we fail to reach certain quarterly financial expectations, our stock price is likely to decline.

Our quarterly revenue and operating results fluctuate from quarter to quarter and are difficult to predict. It is likely that our operating results in some periods will be below investor expectations. If this happens, the market price of our common stock is likely to decline. Fluctuations in our future quarterly operating results may be caused by many factors, including:

• size and timing of customer orders, which are received unevenly and unpredictably throughout a fiscal year;

• the mix of products licensed and types of license agreements;

• our ability to recognize revenue in a given quarter;

• timing of customer license payments;

• the relative mix of time-based licenses bundled with maintenance, unbundled time-based license agreements and perpetual license agreements, each of which requires different revenue recognition practices;

• size and timing of revenue recognized in advance of actual customer billings and customers with graduated payment schedules which may result in higher accounts receivable balances and days sales outstanding (“DSO”);

• changes in accounting rules and practices related to revenue recognition;

• the relative mix of our license and services revenue;

• our ability to win new customers and retain existing customers;

• changes in our pricing and discounting practices and licensing terms and those of our competitors;

• changes in the level of our operating expenses, including general compensation levels as well as increases in incentive compensation payments that may be associated with future revenue growth;

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• higher-than-anticipated costs in connection with litigation;

• the timing of product releases or upgrades by us or our competitors; and

• the integration, by us or our competitors, of newly-developed or acquired products or businesses.

We have a history of losses, except for fiscal 2003 and fiscal 2004, and had an accumulated deficit of approximately $383.8 million as of May 2, 2010. If we continue to incur losses, the trading price of our stock may decline.

We had an accumulated deficit of approximately $383.8 million as of May 2, 2010. Except for fiscal 2003 and fiscal 2004, we incurred losses in all other fiscal years since our incorporation in 1997. If we continue to incur losses, or if we fail to achieve profitability at levels expected by securities analysts or investors, the market price of our common stock may decline. If we continue to incur losses, we may not be able to maintain or increase our number of employees or our investment in capital equipment, sales, marketing, and research and development programs.

We have faced lawsuits related to patent infringement and other claims, and we may face additional intellectual property infringement claims or other litigation. Lawsuits can be costly to defend, can take the time of our management and employees away from day-to-day operations, and could result in our losing important rights and paying significant damages.

We have faced lawsuits related to patent infringement and other claims in the past. For example, Synopsys previously filed various suits, including actions for patent infringement, against us. In addition, a putative stockholder class action lawsuit and a putative derivative lawsuit were filed against us. All claims brought against us by Synopsys have been fully resolved by a settlement and a license under the asserted patents, although other similar litigation involving Synopsys or other parties may follow. For another example, we currently face a lawsuit in which one of our insurers, Genesis Insurance Company, seeks the return of $5 million it paid towards the settlement of the putative stockholder and derivative lawsuits that arose out of the Synopsis patent infringement lawsuit. The case is pending and described in more detail in Item 3. Legal Proceedings. In the future, other parties may assert intellectual property infringement claims against us or our customers. We may have acquired or may in the future acquire software as a result of our acquisitions, and we could be subject to claims that such software infringes the intellectual property rights of third parties. We also license technology from certain third parties and could be subject to claims if the software that we license is deemed to infringe the rights of others. In addition, we are often involved in or threatened with commercial litigation unrelated to intellectual property infringement claims such as labor litigation and contract claims, and we may acquire companies that are actively engaged in such litigation.

Our products may be found to infringe intellectual property rights of third parties, including third-party patents. In addition, many of our contracts contain provisions in which we agree to indemnify our customers against third-party intellectual property infringement claims that are brought against them based on their use of our products. Also, we may be unaware of filed patent applications that relate to our software products. We believe that the patent portfolios of our competitors generally are far larger than ours. This disparity between our patent portfolio and the patent portfolios of our competitors may increase the risk that they may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses.

The outcome of intellectual property litigation and other types of litigation could result in our loss of critical proprietary rights and unexpected operating costs and substantial monetary damages. Intellectual property litigation and other types of litigation are expensive and time-consuming and could divert our management’s attention from our business. If there is a successful claim against us for infringement, we may be ordered to pay substantial monetary damages (including punitive damages), be prevented from distributing all or some of our products, and be required to develop non-infringing technology or enter into royalty or license agreements, which may not be available on acceptable terms, if at all. Our failure to develop non-infringing technologies or license any required proprietary rights on a timely basis could harm our business.

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Publicly announced developments in litigation matters, as well as other factors, may cause our stock price to decline sharply and suddenly, and we are subject to ongoing risks of securities class action litigation related to volatility in the market price for our common stock.

We may not be successful in defending some or all claims that may be brought against us. Regardless of the outcome, litigation can result in substantial expense and could divert the efforts of our management and technical personnel from our business. In addition, the ultimate resolution of the lawsuits could have a material adverse effect on our financial position, results of operations and cash flow, and harm our ability to execute our business plan.

Our operating results will be harmed if chip designers do not adopt or continue to use Blast Fusion, Talus, FineSim, the Quartz family of products, Titan or our other current and future products.

Blast Fusion and its successor product Talus have accounted for the largest portion of our revenue since our inception, and we believe that revenue from Talus, Tekton, FineSim, the Quartz family of products and Titan will account for most of our revenue for the foreseeable future. To the extent that our customer base discontinues use of Blast Fusion and does not upgrade to our Talus products, our operating results may be significantly harmed. In addition, we have dedicated significant resources to developing and marketing Talus, Titan and other products. We must gain market penetration of Talus, Tekton, FineSim, the Quartz family of products, Titan and other products in order to achieve our growth strategy and financial success. Moreover, if integrated circuit designers do not continue to adopt or use Talus, Tekton, FineSim, the Quartz family of products, Titan or our other current and future products, our operating results will be significantly harmed.

Our operating results may be harmed if our customers do not adopt, or are slow to adopt, 65-nanometer and smaller design geometries on a large scale.

Our customers are currently working on a range of design geometries, including 45-nanometer, 65-nanometer and 90-nanometer designs. We continue to work toward developing and enhancing our product line in anticipation of increased customer demand for 65-nanometer and other smaller-design geometries. Notwithstanding our efforts to support 65-nanometer and other smaller design geometries, customers may fail to adopt, or may face technical difficulties in adopting, these geometries on a large scale and we may be unable to persuade our customers to purchase our related software products. Accordingly, any revenue we receive from enhancements to our products or acquired technologies may be less than the development or acquisition costs. If customers fail to adopt or delay the adoption of 65-nanometer and other smaller design geometries on a large scale, our operating results may be harmed. In addition, if customers are not able successfully to generate profits as they adopt smaller geometries, demand for our products may be adversely affected, and our operating results may be harmed.

Difficulties in developing and achieving market acceptance of new products and delays in planned release dates of our software products and upgrades may harm our business and cause our operating results to decline.

The semiconductor industry is characterized by rapid technology developments, changes in industry standards and customer requirements and frequent new product introductions and improvements. For our business to be successful, we will need to develop or acquire innovative new products. We may not have the financial resources necessary to fund all required future innovations. Expanding into new technologies or extending our product line into areas we have not previously addressed may be more costly or difficult than we presently anticipate. Also, any revenue that we receive from enhancements or new generations of our proprietary software products may be less than the costs that we incur to develop or acquire those technologies and products. If we fail to develop and market new products in a timely manner, or if new products do not meet performance features as marketed, our reputation and our business could suffer.

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In particular, the semiconductor industry has recently made significant technological advances in deep sub-micron technology, which have required EDA companies to develop or acquire new products and enhance existing products continuously. The evolving nature of our industry could render our existing products and services obsolete. Our success will depend, in part, on our ability to:

• enhance our existing products and services;

• develop and introduce new products and services in a timely and cost-effective manner that will keep pace with technological developments and evolving industry standards;

• address the increasingly sophisticated needs of our customers; and

• acquire other companies that have complementary or innovative products.

If we are unable, for technical, legal, financial or other reasons, to respond in a timely manner to changing market conditions or customer requirements, our business and operating results could be seriously harmed.

Our research and development expenditures have decreased in recent years, and we may not be able to develop new products or update existing products, which may reduce our revenue growth and net income for several years.

Developing EDA technology and integrating acquired technology into existing platforms is expensive, and these investments often require a long time to generate returns. We devote a substantial portion of our resources to developing new products and enhancing our existing products, conducting product testing and quality assurance testing, improving our core technology and strengthening our technological expertise in the EDA market. We believe that we must continue to devote substantial resources to our research and development efforts to maintain and improve our competitive position. Our research and development expenditure for fiscal 2010 was $47.0 million, compared to $68.8 million and $76.9 million for fiscal 2009 and fiscal 2008, respectively. If we are required to invest significantly greater resources than anticipated in research and development efforts in the future, our operating expenses would increase. If these increased efforts do not result in a corresponding increase in revenue, or if our recent decrease in research and development expenditure results in a corresponding decrease in revenue, our operating results could decline. Further, research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development, and these investments may be independent of our level of revenue, which could negatively affect our financial results.

Our costs of customer engagement and support are high, so our gross margin may decrease if we incur higher-than-expected costs associated with providing support services in the future or if we reduce our prices.

Because of the complexity of our products, we typically incur high field application engineering support costs to engage new customers and assist them in their evaluations of our products. If we fail to manage our customer engagement and support costs, our operating results could suffer. In addition, our gross margin may decrease if we are unable to manage support costs associated with the services revenue we generate or if we reduce prices in response to competitive pressure.

If chip designers and manufacturers do not integrate our software into existing design flows, or if other software companies do not cooperate in working with us to interface our products with their design flows, demand for our products may decrease.

To implement our business strategy successfully, we must provide products that interface with the software of other EDA software companies. Our competitors may not support efforts by us or by our customers to integrate our products into their existing design flows. We must develop cooperative relationships with competitors so that they will work with us to integrate our software into customers’ design flow. Currently, our

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software is designed to interface with the existing software of Cadence, Synopsys and others. If we are unable to persuade customers to adopt our software products instead of those of competitors (including competitors offering a broader set of products), or if we are unable to persuade other software companies to work with us to interface our software to meet the demands of chip designers and manufacturers, our business and operating results will suffer.

Product defects could cause us to lose customers and revenue, or to incur unexpected expenses.

Our products depend on complex software, which we either developed internally or acquired or licensed from third parties. Our customers may use our products with other companies’ products, which also contain complex software. If our software does not meet our customers’ performance requirements or meet the performance features as marketed, our customer relationships may suffer. Also, a limited number of our contracts include specified ongoing performance criteria. If our products fail to meet these criteria, it may lead to termination of these agreements and loss of future revenue. Complex software often contains errors. Any failure or poor performance of our software or the third-party software with which it is integrated could result in:

• delayed market acceptance of our software products;

• delays in product shipments;

• unexpected expenses and diversion of resources to identify the source of errors or to correct errors;

• loss of customers and damage to our reputation;

• increased service costs:

• delayed or lost revenue; and

• product liability claims.

Our product functions are often critical to our customers, especially because of the resources our customers expend on the design and fabrication of integrated circuits. Many of our licensing agreements contain provisions to provide a limited warranty. In addition, some of our licensing agreements provide the customer with a right of refund for the license fees if we are unable to correct errors reported during the warranty period. If our contractual limitations are unenforceable in a particular jurisdiction or if we are exposed to claims that are not covered by insurance, a successful claim could harm our business. We currently carry insurance coverage and limits that we believe are consistent with similarly situated companies within the EDA industry; however, our insurance coverage may prove insufficient to protect against any claims that we may experience.

We may not be able to hire or retain the number of qualified personnel required for our business, particularly engineering personnel, which would harm the development and sales of our products and limit our ability to grow.

Competition in our industry for senior management, technical, sales, marketing and other key personnel is intense. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, our growth may be limited due to a lack of capacity to develop and market our products.

Our success depends on our ability to identify, hire, train and retain qualified engineering personnel with experience in integrated circuit design. Specifically, we may need to continue to attract and retain field application engineers to work with our direct sales force to qualify new sales opportunities technically and perform design work to demonstrate our products’ capabilities to customers during the benchmark evaluation process. Competition for qualified engineers is intense, particularly in the Silicon Valley area where our headquarters are located. If we lose the services of a significant number of our employees or if we cannot hire additional employees of the same caliber, we will be unable to increase our sales or implement or maintain our growth strategy.

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Our success is highly dependent on the technical, sales, marketing and managerial contributions of key individuals whom we may be unable to recruit and retain.

We depend on our senior executives and certain key research and development and sales and marketing personnel, who are critical to our business. We do not have long-term employment agreements with our key employees, and we do not maintain any key person life insurance policies. Furthermore, our larger competitors may be able to offer more generous compensation packages to executives and key employees, and therefore we risk losing key personnel to those competitors. If we lose the services of any of our key personnel, our product development processes and sales efforts could be harmed. We may also incur increased operating expenses and be required to divert the attention of our senior executives to search for their replacements. The integration of new executives or new personnel could disrupt our ongoing operations.

If we fail to offer and maintain competitive compensation packages for our employees, or if our stock price declines materially for a protracted period of time, we might have difficulty retaining our employees and our business may be harmed.

If the compensation of our employees is not competitive or satisfactory to the employees, we may have difficulty in retaining our employees and our business may be harmed. In today’s competitive technology industry, employment decisions of highly skilled personnel are influenced by equity compensation packages. Our stock price has declined significantly for many years due to market conditions and other factors. In addition, our stock price has declined significantly in light of our recent financial results.

Even though we recently exchanged certain stock options of employees for restricted stock units as a means to try to retain employees, such exchange might not be sufficient to retain employees. Therefore, we may be forced to grant additional options or other equity to retain employees. This in turn could result in:

• immediate and substantial dilution to investors resulting from the grant of additional options or other equity necessary to retain employees; and

• compensation charges against us, which would negatively impact our operating results.

In addition, the NASDAQ Marketplace Rules require stockholder approval for new equity compensation plans and significant amendments to existing equity compensation plans, including increases in shares available for issuance under such plans, and prohibit brokers holding shares of our common stock in customer accounts from giving a proxy to vote on equity compensation plans unless the beneficial owner of the shares has given voting instructions. These regulations could make it more difficult for us to grant equity compensation to employees in the future. To the extent that these regulations make it more difficult or expensive to grant equity compensation to employees, we may incur increased compensation costs or find it difficult to attract, retain and motivate employees, which could adversely affect our business.

If our sales force compensation arrangements are not designed effectively, we may lose sales personnel and resources.

Designing an effective incentive compensation structure for our sales force is critical to our success. We have experimented, and continue to experiment, with different systems of sales force compensation. If our incentives are not well designed, we may experience reduced revenue generation, and we may also lose the services of our more productive sales personnel, either of which would reduce our revenue or potential revenue.

We have had to implement a series of restructuring efforts recently. In the event that these efforts result in ineffective interoperability between our products or ineffective collaboration among our employees, or we are unable to continue to manage the pace of our growth, our business could be harmed.

The recent global economic downturn has negatively affected the semiconductor industry and our business, and in response to these adverse conditions we have had to implement a series of restructuring efforts. We initiated a restructuring plan in May 2008 for which we incurred restructuring charges of $10.7 million in fiscal

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2009, and $2.7 million in fiscal 2010, primarily for employee termination and facility closure costs. It is possible we will make adjustments to our restructuring accrual based on the information we receive during fiscal 2011. This reduction in force might harm operating results by making it more difficult for the reduced workforce to take advantage of business opportunities and reach revenue goals. Furthermore, if our organizational structure or restructuring plan results in ineffective interoperability between our products or ineffective collaboration among our employees, then our operating results may be harmed. For example, we could experience delays in new product development that could cause us to lose customer orders, which could harm our operating results. To pace the growth of our operations with the growth in our revenue, we must continue to improve administrative, financial and operations systems, procedures and controls. Failure to improve our internal procedures and controls could hinder our efforts to manage our growth adequately, disrupt operations, lead to additional expenses associated with restructurings, lead to deficiencies in our internal controls and financial reporting and otherwise harm our business.

We may be unable to make payments to satisfy our indemnification obligations.

We enter into standard license agreements in the ordinary course of business. Pursuant to these agreements, we agree to indemnify certain of our customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to our products. These indemnification obligations have perpetual terms. Our normal business practice is to limit the maximum amount of indemnification to the amount received from the customer. On occasion, the maximum amount of indemnification we may be required to make may exceed our normal business practices. We estimate that the fair value of our indemnification obligations are insignificant, based upon our historical experience concerning product and patent infringement claims. Accordingly, we have no liabilities recorded for indemnification under these agreements as of May 2, 2010. If an indemnification event were to occur, we might not have enough funds to pay our indemnification obligations. Further, any material indemnification payment could have a material adverse effect on our financial condition and the results of our operations.

We have entered into certain indemnification agreements whereby certain of our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. Additionally, in connection with certain of our recent business acquisitions, we agreed to assume, or cause our subsidiaries to assume, indemnification obligations to the officers and directors of the acquired companies. While we have directors and officers insurance that reduces our exposure and enables us to recover a portion of any future amounts paid pursuant to our indemnification obligations to our officers and directors, the maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, as a result of our directors and officers insurance coverage and our belief that our estimated potential exposure to our officers and directors for indemnification liabilities is minimal, no liabilities have been recorded for these agreements as of May 2, 2010. Therefore, if an indemnification event were to occur, we might not have enough funds to pay our indemnification obligations. Further, any material indemnification payment could have a material adverse effect on our financial condition and the results of our operations.

Acquisitions are an important element of our strategy. We may not find suitable acquisition candidates and we may not be successful in integrating the operations of acquired companies and acquired technology.

Part of our growth strategy is to pursue acquisitions. We expect to continuously evaluate the possibility of accelerating our growth through acquisitions, as is customary in the EDA industry. The recent decline in the price of our common stock, our focus on cash management and our need to reduce our debt levels may impact our ability to pursue acquisitions for some period of time. Achieving the anticipated benefits of past and possible future acquisitions will depend in part upon whether we can integrate the operations, products and technology of acquired companies with our operations, products and technology in a timely and cost-effective manner. The process of integrating acquired companies and acquired technology is complex, expensive and time consuming,

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and may cause an interruption of, or loss of momentum in, the product development and sales activities and operations of both companies. In addition, the earnout arrangements we use, and expect to continue to use, to consummate some of our acquisitions, pursuant to which we agreed to pay additional amounts of contingent consideration based on the achievement of certain revenue, bookings or product development milestones, can sometimes complicate integration efforts. We cannot be sure that we will find suitable acquisition candidates or that acquisitions we complete will be successful. Assimilating previously acquired companies such as Sabio Labs, Inc. (“Sabio”), Knights Technology, Inc. (“Knights”), ACAD Corporation (“ACAD”), Mojave, Silicon Metrics Corporation, or any other companies we have acquired or may seek to acquire in the future, involves a number of other risks, including, but not limited to:

• adverse effects on existing customer relationships, such as cancellation of orders or the loss of key customers;

• adverse effects on existing licensor or supplier relationships, such as termination of certain license agreements;

• difficulties in integrating or retaining key employees of the acquired company;

• the risk that earnouts based on revenue will prove difficult to administer due to the complexities of revenue recognition accounting;

• the risk that actions incentivized by earnout provisions will ultimately prove not to be in our best interest if our interests change over time;

• difficulties in integrating the operations of the acquired company, such as information technology resources, manufacturing processes, and financial and operational data;

• difficulties in integrating the technologies of the acquired company into our products;

• diversion of our management’s attention;

• potential incompatibility of business cultures;

• post-acquisition discovery of previously unknown liabilities assumed with the acquired business;

• unanticipated litigation in connection with or as a result of an acquisition;

• potential dilution to existing stockholders if we incur debt or issue equity securities to finance acquisitions; and

• additional expenses associated with the amortization of intangible assets.

Because much of our business is international, we are exposed to risks inherent in doing business internationally that could harm our business. We also intend to expand our international operations. If our revenue from this expansion does not exceed the expenses associated with this expansion, our business and operating results could suffer.

During fiscal 2010 and fiscal 2009, we generated 41% of our total revenue from sales outside North America.

To the extent that we expand our international operations, we may need to continue to maintain offices in Europe, the Middle East, and the Asia Pacific region. If our revenue from international operations does not exceed the expense of establishing and maintaining our international operations, our business could suffer. Additional risks we face in conducting business internationally include:

• difficulties and costs of staffing and managing international operations across different geographic areas;

• changes in currency exchange rates and controls;

• uncertainty regarding tax and regulatory requirements in multiple jurisdictions;

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• the possible lack of financial and political stability in foreign countries, preventing overseas sales growth;

• current events in North Korea, the Middle East, and other parts of the world;

• the effects of terrorist attacks in the United States or against U.S. interests overseas;

• recent problems with the financial system, such as problems involving banks as well as the mortgage markets and the recent financial crisis; and

• any related conflicts or similar events worldwide.

Failure to obtain export licenses could harm our business by preventing us from licensing or transferring our technology outside of the United States.

We are required to comply with U.S. Department of Commerce regulations when shipping our software products and/or transferring our technology outside of the United States or to certain foreign nationals. We believe we have complied with applicable export regulations; however, these regulations are subject to change, and future difficulties in obtaining export licenses for current, future developed and acquired products and technology, or any failure (if any) by us to comply with such requirements in the past, could harm our business, financial conditions and operating results.

We are subject to risks associated with changes in foreign currency exchange rates.

While most of our international sales to date have been denominated in U.S. dollars, our international operating expenses have been denominated in foreign currencies. As a result, a decrease in the value of the U.S. dollar relative to such foreign currencies could increase the relative costs of our overseas operations, which could reduce our operating margins. This exposure is primarily related to a portion of revenue in Japan and operating expenses in Europe, Japan and Asia-Pacific, which are denominated in the respective local currencies. As of May 2, 2010, we had approximately $6.3 million of cash and money market funds in foreign currencies. During the third quarter of fiscal 2008, we started entering into foreign exchange forward contracts to mitigate the effects of our currency exposure risk for foreign currency transactions in Japanese Yen. While we assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis, our assessments may prove incorrect. Therefore, movements in exchange rates could negatively impact our business operating results and financial condition.

Forecasting our tax rates is complex and subject to uncertainty.

Our management must make significant assumptions, judgments and estimates to determine our current provision for income taxes, deferred tax assets and liabilities, and any valuation allowance that may be recorded against our deferred tax assets. These assumptions, judgments and estimates are difficult to make due to their complexity, and the relevant tax law is often changing.

Our future effective tax rates could be adversely affected by the following:

• an increase in expenses that are not deductible for tax purposes, including stock-based compensation and write-offs of acquired in-process research and development;

• changes in the valuation of our deferred tax assets and liabilities;

• future changes in ownership that may limit realization of certain assets;

• changes in forecasts of pre-tax profits and losses by jurisdiction used to estimate tax expense by jurisdiction;

• assessment of additional taxes as a result of federal, state, or foreign tax examinations; or

• changes in tax laws or interpretations of such tax laws.

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Future changes in accounting standards, specifically changes affecting revenue recognition, could cause unexpected adverse revenue fluctuations for us.

Future changes in accounting standards or interpretations thereof, specifically those changes affecting software revenue recognition, could require us to change our methods of revenue recognition. These changes could result in deferral of revenue recognized in current periods to subsequent periods or in accelerated recognition of deferred revenue to current periods, each of which could cause shortfalls in meeting the expectations of investors and securities analysts. Our stock price could decline as a result of any shortfall.

Our ability to use our net operating losses (“NOLs”) and other tax attributes to offset future taxable income could be limited by an ownership change and/or decisions by California and other states to suspend the use of NOLs.

We have significant NOLs, research and development (“R&D”) tax credits, available to offset our future U.S. federal and state taxable income. Those NOLs are subject to limitations imposed by Section 382 of the Internal Revenue Code (and applicable state law). In addition, our ability to utilize any of our NOLs and other tax attributes may be subject to significant limitations under Section 382 of the Internal Revenue Code (and applicable state law) if we undergo an ownership change. In the event of an ownership change, Section 382 imposes an annual limitation (based upon our value at the time of the ownership change, as determined under Section 382 of the Internal Revenue Code) on the amount of taxable income a corporation may offset with NOLs. If we undergo an ownership change, Section 382 would also limit our ability to use R&D tax credits. In addition, if the tax basis of our assets exceeded the fair market value of our assets at the time of the ownership change, Section 382 could also limit our ability to use amortization of capitalized R&D and goodwill to offset taxable income for the first five years following an ownership change. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOLs. As a result, our inability to utilize these NOLs, credits or amortization as a result of any ownership changes could adversely impact our operating results and financial condition.

In addition, California and certain states have suspended use of NOLs for certain taxable years, and other states are considering similar measures. As a result, we may incur higher state income tax expense in the future. Depending on our future tax position, continued suspension of our ability to use NOLs in states in which we are subject to income tax could have an adverse impact on our operating results and financial condition.

We have incurred and will continue to incur significant costs as a result of being a public company.

As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the Nasdaq Global Market, required changes in the corporate governance practices of public companies, which increased our legal and financial compliance costs. In particular, we have incurred and will continue to incur administrative expenses relating to compliance with Section 404 of the Sarbanes-Oxley Act, which requires that we implement and maintain an effective system of internal controls and annual certification of our compliance by our independent registered public accounting firm.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), we are required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting. Our assessment of the effectiveness of our internal control over financial reporting must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. We have an ongoing program to perform the system and process evaluation and

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testing necessary to comply with these requirements. Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, there could be an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact our stock price.

In addition, we must continue to monitor and assess our internal control over financial reporting because a failure to comply with Section 404 could cause us to delay filing our public reports, potentially resulting in de-listing by the Nasdaq Global Market and penalties or other adverse consequences under our existing contractual arrangements. In particular, pursuant to the indenture for the 2014 Notes, if we fail to file our annual or quarterly reports in accordance with the terms of that indenture, or if we do not comply with certain provisions of the Trust Indenture Act specified in the indenture, after the passage of certain periods of time at the election of a certain minimum number of holders of the 2014 Notes, we may be in default under the indenture unless we pay a fee equal to 1% per annum of the aggregate principal amounts of the 2014 Notes, or the extension fee, to extend the default date. Even if we pay the applicable extension fee, we will eventually be in default for these filing failures if sufficient time passes and we have not made the applicable filing.

The effectiveness of disclosure controls is inherently limited.

We do not expect that our disclosure controls and procedures, or our internal control over financial reporting, will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system objectives will be met. The design of a control system must also reflect applicable resource constraints, and the benefits of controls must be considered relative to their costs. As a result of these inherent limitations, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Failure of the control systems to prevent error or fraud could materially adversely impact our financial results and our business.

We may not obtain sufficient patent protection, which could harm our competitive position and increase our expenses.

Our success and ability to compete depends to a significant degree upon the protection for our software and other proprietary technology. We currently have a number of issued patents in the United States, but this number is relatively small in comparison to our competitors. Patents afford only limited protection for our technology. In addition, rights that may be granted under any patent application that may issue in the future may not provide competitive advantages to us. Further, patent protection in foreign jurisdictions where we may need this protection may be limited or unavailable. It is possible that:

• our pending U.S. and non-U.S. patents may not be issued;

• competitors may design around our present or future issued patents or may develop competing non-infringing technologies;

• present and future issued patents may not be sufficiently broad to protect our proprietary rights; and

• present and future issued patents could be successfully challenged for validity and enforceability.

We believe the patent portfolios of our competitors are far larger than ours, and this may increase the risk that they may sue us for patent infringement and may limit our ability to counterclaim for patent infringement or settle through patent cross-licenses.

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In addition to patents, we rely on trademark, copyright and trade secret laws and contractual restrictions to protect our proprietary rights. If these rights are not sufficiently protected, it could harm our ability to compete and generate income.

In addition to patents, we rely on a combination of trademark, copyright and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. Our ability to compete and grow our business could suffer if these rights are not adequately protected. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. We license our software pursuant to agreements, which impose certain restrictions on the licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. Our proprietary rights may not be adequately protected because:

• laws and contractual restrictions in U.S. and foreign jurisdictions may not prevent misappropriation of our technologies or deter others from developing similar technologies;

• competitors may independently develop similar technologies and software;

• for some of our trademarks, federal U.S. trademark protection may be unavailable to us;

• our trademarks might not be protected or protectable in some foreign jurisdictions;

• the validity and scope of our U.S. and foreign trademarks could be successfully challenged; and

• policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the extent of this unauthorized use.

The laws of some countries in which we market our products may offer little or no protection for our proprietary technologies. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for them, which would harm our competitive position and market share.

Our use of open source software could negatively impact our ability to sell our products.

The products, services or technologies we acquire, license, provide or develop may incorporate or use open source software. We monitor our use of open source software in an effort to avoid unintended consequences, such as reciprocal license grants, patent retaliation clauses, and the requirement to license our products at no cost. There is little or no legal precedent for interpreting the terms of these open source licenses, therefore we may be subject to unanticipated obligations regarding our products that incorporate open source software. In addition, disclosing the content of our source code could limit the intellectual property protection we can obtain or maintain for that source code or the products containing that source code and could facilitate intellectual property infringement claims against us.

The price of our common stock may fluctuate significantly, which may make it difficult for our stockholders to resell our stock at attractive prices.

Our common stock trades on the Nasdaq Global Market under the symbol “LAVA”. There have been previous quarters in which we have experienced shortfalls in revenue and earnings from levels expected by securities analysts and investors, which have had an immediate and significant adverse effect on the trading price of our common stock. Furthermore, the price of our common stock has fluctuated significantly in recent periods.

The market price of our stock is subject to significant fluctuations in response to a number of factors, including the risk factors set forth in this Annual Report on Form 10-K, many of which are beyond our control. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of our common stock.

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In addition, equity markets in general and technology companies’ equities in particular have recently experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These fluctuations have in the past and may in the future adversely affect the price of our common stock, regardless of our operating performance. Recent problems with the financial system, such as problems involving banks as well as the mortgage markets, might increase such market fluctuations.

Our certificate of incorporation and bylaws, and Delaware corporate law contain anti-takeover provisions which could delay or prevent a change in control even if the change in control would be beneficial to our stockholders. We could also adopt a stockholder rights plan, which could also delay or prevent a change in control.

Delaware law, as well as our certificate of incorporation and bylaws, contain anti-takeover provisions that could delay or prevent a change in control of our company, even if the change in control would be beneficial to the stockholders. These provisions could lower the price that future investors might be willing to pay for shares of our common stock. These anti-takeover provisions:

• authorize our Board of Directors to create and issue, without prior stockholder approval, preferred stock that can be issued, increasing the number of outstanding shares and deter or prevent a takeover attempt;

• prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

• establish a classified Board of Directors requiring that not all members of the board be elected at one time;

• prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; and

• limit the ability of stockholders to call special meetings of stockholders;

Section 203 of the Delaware General Corporation Law and the terms of our stock option plans also may discourage, delay or prevent a change in control of our company. Section 203 generally prohibits a Delaware corporation from engaging in a business combination with an interested stockholder for three years after the date the stockholder became an interested stockholder. Our stock option plans include change-in-control provisions that allow us to grant options or stock purchase rights that will become vested immediately upon a change in control.

Our board of directors also has the power to adopt a stockholder rights plan, which could delay or prevent a change in control of us even if the change in control is generally beneficial to our stockholders. These plans, sometimes called “poison pills,” are sometimes criticized by institutional investors or their advisors and could affect our rating by such investors or advisors. If our board were to adopt such a plan, it might have the effect of reducing the price that new investors are willing to pay for shares of our common stock.

There may be dilution to our current stockholders upon achievement of various milestones pursuant to our mergers and acquisitions.

There may be dilution to our current stockholders upon achievement of various milestones pursuant to our mergers and acquisitions. Such dilution would also dilute the voting power and ownership interest of our existing stockholders and could cause the market price of our common stock to decline and could increase the fluctuations in our stock price.

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Our business operations may be adversely affected in the event of an earthquake or other natural disaster.

Our corporate headquarters and much of our research and development operations are located in San Jose, California, in California’s Silicon Valley region, which is an area known for its seismic activity. An earthquake, fire or other significant natural disaster, whether the result of global climate change or other factors, could have a material adverse impact on our business, financial condition and/or operating results.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None

ITEM 2.       PROPERTIES

Our corporate headquarters are located in San Jose, California, where we occupy approximately 106,854 square feet under two leases, both of which expire on October 31, 2011. We have North American sales offices in California, North Carolina and Texas. In addition, we have European offices in Germany, the Netherlands and the United Kingdom, an office in Israel, and Asian offices in China, India, Japan, South Korea and Taiwan. We believe our current facilities are adequate to support our current and near-term operations. However, if we need additional space, adequate space may not be available on commercially reasonable terms or at all.

ITEM 3.       LEGAL PROCEEDINGS

We are subject to certain legal proceedings described below and from time to time, we are also involved in other disputes that arise in the ordinary course of business. The number and significance of these legal proceedings and disputes may increase as our size changes. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. As a result, these legal proceedings and disputes could harm our business and have an adverse effect on its consolidated financial statements. However, the results of any litigation or dispute are inherently uncertain and, at this time, no estimate could be made of the loss or range of loss, if any, from such litigation matters and disputes unless they are or are close to being settled. Liabilities are recorded when a loss is probable and the amount can be reasonably estimated. No accrued legal settlement liabilities are recorded on the consolidated balance sheet as of May 2, 2010. Litigation settlement and legal fees are expensed in the period in which they are incurred.

In Genesis Insurance Company v. Magma Design Automation, et al., Case No. 06-5526-JW, in the United States District Court for the Northern District of California, Genesis seeks a declaration of its rights and obligations under an excess directors and officers liability policy for defense and settlement costs arising out of the securities class action against the Company, in re Magma Design Automation, Inc. Securities Litigation, as well as a related derivative lawsuit. Genesis seeks a return of $5 million it paid towards the settlement of the securities class action and derivative lawsuits from the Company or from another of the Company’s excess directors and officers liability insurers, National Union. The Company contends that either Genesis or National Union owes the settlement amounts, but not the Company. The trial court granted summary judgment for the Company and National Union, finding that Genesis owed the settlement amount. Genesis appealed to the Ninth Circuit Court of Appeals, and the Company cross-appealed. On July 12, 2010, the court of appeal reversed, ruling that Genesis does not owe the settlement amount under its policy, and remanded the case to the trial court for further proceedings. While there can be no assurance as to the ultimate disposition of the litigation, we do not believe that its resolution will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 4.       REMOVED AND RESERVED

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Market under the symbol “LAVA”. Public trading in our common stock commenced on November 20, 2001. Prior to that, there was no public market for our common stock. As of July 12, 2010, there were 236 holders of record (not including beneficial holders of stock held in street names) of our common stock.

The following table sets forth, for the periods indicated, the high and low per share sale prices of our common stock, as reported by the Nasdaq Global Market.

	High		Low
Fiscal 2010
Fourth quarter	$	3.88	$	2.24
Third quarter	$	2.80	$	2.01
Second quarter	$	2.64	$	1.35
First quarter	$	2.23	$	1.08
Fiscal 2009
Fourth quarter	$	1.98	$	0.68
Third quarter	$	3.20	$	0.85
Second quarter	$	7.00	$	1.53
First quarter	$	7.67	$	5.92

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The following graph compares the cumulative 5-year total return to holders of our common stock relative to the cumulative total returns of the NASDAQ Composite Index and the NASDAQ Computer & Data Processing Index. The graph assumes that the value of the investment in our common stock and in each index was $100 on March 31, 2005 and tracks it (including reinvestment of dividends) through May 2, 2010. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of the common stock.

	March 31, 2005	April 02, 2006	April 01, 2007	April 06, 2008	May 4, 2008	May 3, 2009	May 2, 2010
Magma Design Automation, Inc.	100.00	72.87	100.76	85.26	58.97	22.05	44.33
NASDAQ Composite	100.00	117.95	122.89	121.37	126.84	85.16	122.88
NASDAQ Computer & Data	100.00	117.76	128.49	131.42	139.81	97.34	141.03

* $100 invested on 3/31/05 in stock or index, including reinvestment of dividends. Indexes calculated on month-end basis.

The above performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that section and shall not be deemed to be incorporated by reference into any filing of Magma under the Securities Act of 1933, as amended, or the Exchange Act.

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Dividend Policy

We have not declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Our credit facility restricts our ability to pay dividends. We expect to retain future earnings, if any, to fund the development and growth of our business. Our Board of Directors will determine future dividends, if any.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer

None.

ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated financial data are qualified by reference to, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and the Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report. The selected consolidated balance sheet data as of May 2, 2010 and May 3, 2009 and selected consolidated statements of operations data for the years ended May 2, 2010, May 3, 2009 and April 6, 2008, are derived from our audited consolidated financial statements included elsewhere in this Annual Report. The selected consolidated balance sheet data as of April 6, 2008, April 1, 2007 and April 2, 2006 and the selected consolidated statements of operations data for the years ended April 1, 2007 and April 2, 2006 were derived from audited consolidated financial statements not included in this Annual Report. Our historical results are not necessarily indicative of our future results.

	Fiscal Year Ended
	May 2, 2010			May 3, 2009 (as adjusted)1			April 6, 2008 (as adjusted)1			April 1, 2007 (as adjusted)1			April 2, 2006
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue	$	123,077		$	146,957		$	214,419		$	178,153		$	164,044
Cost of Revenue	$	20,553		$	48,329		$	49,354		$	54,579		$	41,715
Operating income (loss)(1)(2)(3)(6)	$	(7,825	)	$	(124,198	)	$	(24,732	)	$	(67,773	)	$	(26,529	)
Other income (expense), net(4)(5)	$	(2,251	)	$	(4,280	)	$	(2,436	)	$	7,269		$	8,141
Net income (loss)	$	(3,334	)	$	(129,242	)	$	(33,808	)	$	(61,185	)	$	(20,937	)
Net income (loss) per share—basic	$	(0.07	)	$	(2.89	)	$	(0.83	)	$	(1.67	)	$	(0.61	)
Net income (loss) per share—diluted	$	(0.07	)	$	(2.89	)	$	(0.83	)	$	(1.67	)	$	(0.61	)
	As of
	May 2, 2010			May 3, 2009 (as adjusted)1			April 6, 2008 (as adjusted)1			April 1, 2007 (as adjusted)1			April 2, 2006
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents, short-term and long-term investments	$	74,355		$	50,796		$	67,508		$	56,038		$	97,158
Total assets	$	122,123		$	127,033		$	237,310		$	239,517		$	284,064
Convertible notes, net	$	51,469		$	47,600		$	45,291		$	58,408		$	105,500
Other non-current liabilities	$	16,090		$	12,889		$	11,264		$	1,689		$	5,727
Total stockholders’ equity	$	(4,282	)	$	(13,111	)	$	106,448		$	87,307		$	113,903

(1) We adopted ASC 718, Debt with Conversion and Other Options, on April 3, 2006 using the modified prospective transition method, under which we began recognizing compensation expense for stock-based awards granted on or after April 3, 2006 and unvested awards granted prior to April 3, 2006.

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(2) Includes a charge of $12.5 million relating to litigation settlement expense for fiscal 2007.

(3) Includes charges of $2.3 million, $1.3 million, and $0.5 million for fiscal 2008, 2007, and 2006 respectively, for in-process research and development.

(4) Includes gains on extinguishment of convertible notes of $6.5 million and $8.8 million for fiscal 2007 and 2006, respectively.

(5) Includes charges on adoption of ASC 470-20, Debt with Conversion and Other Options, of $1.5 million, $1.4 million and $0.1 million for fiscal 2009, 2008 and 2007 respectively.

(6) Fiscal 2009 operating income (loss) includes a $60.1 million charge for goodwill impairment.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with “Selected Consolidated Financial Data” and our consolidated financial statements and results appearing elsewhere in this Annual Report. Throughout this section, we make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can often identify these and other forward-looking statements by terms such as “becoming,” “may,” “will,” “should,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “estimates,” “seeks,” “expects,” “plans,” “intends,” the negative of such terms or other comparable terminology, or the use of future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. These forward-looking statements include, but are not limited to:

• our belief that our current facilities are adequate to support our current and near-term operations

• our expectations about future revenue and our belief that revenue fluctuations are a result of timing of customer purchases of service

• our expectation that our research and development, sales and marketing and general and administrative expenses will remain at levels comparable to prior years as a percentage of revenue

• our expectation that we will attain a certain level of cash flow from license sales, maintenance agreements, consulting contracts, customer contracts, acquired workforce and acquired developed technologies and patents

• our expectation that our sales cycle will lengthen

• our expectation that our backlog orders are firm

• our belief that we have sufficient capital resources to fund our anticipated operating and working capital requirements, capital investments and debt service

• our belief that our acquisitions will enable us to compete successfully in the EDA industry and our expectation that we will be able to make acquisitions in the future

• our expectation that we will be able to continue to use earnout arrangements to consummate our acquisitions and our belief that these arrangements will not complicate integration efforts

• our expected costs to develop in-process research and development from an acquired company into commercially viable products

• our stock price volatility

Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, and we have based these expectations on our beliefs and assumptions, such expectations may prove to be incorrect. Our actual results of operations and financial performance could differ significantly from those expressed in or implied by our forward-looking statements. These statements involve certain known and unknown risks and uncertainties. Factors that could cause or contribute to such differences include, but are not limited to,

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the risks discussed under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this Annual Report on Form 10-K to reflect actual results or future events or circumstances.

Change in Fiscal Year End

Prior to fiscal 2009, we had a 52-53 week fiscal year ending on the first Sunday subsequent to March 31. On January 28, 2008, our Board of Directors approved a change of fiscal year from a fiscal year ending on the first Sunday subsequent to March 31 to a fiscal year ending on the Sunday closest to April 30 (except for any given year in which April 30 is a Sunday, in which case the fiscal year will end on April 30), starting with fiscal 2009. Our fiscal years consist of four quarters of 13 weeks each except for each fifth or sixth fiscal year, which includes one quarter with 14 weeks.

Our 2009 fiscal year began on May 5, 2008 and ended on May 3, 2009, resulting in a one-month transition period that began on April 7, 2008 and ended on May 4, 2008. The separate audited financial statements required for the transition period were included on Form 10-K for the fiscal year ended May 3, 2009, which was filed with the SEC on July 20, 2009.

References in this Form 10-K to fiscal 2010 represent the 52 weeks ended May 2, 2010, references to fiscal 2009 represent the 52 weeks ended May 3, 2009 and references to fiscal 2008 represent the 52 weeks ended April 6, 2008. We have not submitted financial information for the 52 weeks ended April 5, 2009 in this Form 10–K because the information is not practical or cost effective to prepare. We believe that the 52 weeks of fiscal 2008 provide a meaningful comparison to the 52 weeks of fiscal 2009 and fiscal 2010 presented in this Form 10-K. We do not believe that there are any significant factors, seasonal or otherwise, that would impact the comparability of information or trends if results for the 52 weeks ended April 5, 2009 were presented in lieu of results for the 52 weeks ended May 3, 2009. We did not experience an unusual amount of business activity or product shipment in the transition month and have reported the loss incurred in that month in our consolidated statements of operations in Item 8 of this Form 10-K. Accordingly, we have not included the results of the one-month transition period that began on April 7, 2008 and ended on May 4, 2008 in this management’s discussion and analysis of financial condition and results of operations.

Executive Summary

We provide EDA software products and related services. Our software enables chip designers to reduce the time it takes to design and produce complex integrated circuits (“IC”) used in the communications, computing, consumer electronics, networking and semiconductor industries. Our products are used in all major phases of the chip development cycle, from initial design through physical implementation. Our focus is on software used to design the most technologically-advanced integrated circuits, specifically those with minimum feature sizes of 0.13 micron and smaller. See Item 1, “Business” for a more complete description of our business.

As an EDA software provider, we generate substantially all our revenue from the semiconductor and electronics industries. Our customers typically fund purchases of our software and services out of their research and development (“R&D”) budgets. As a result, our revenue is heavily influenced by our customers’ long-term business outlook and willingness to invest in new chip designs.

The semiconductor industry is highly volatile and cost-sensitive. Our customers focus on controlling costs and reducing risk, lowering R&D expenditures, cutting back on design starts, purchasing from fewer suppliers, and requiring more favorable pricing and payment terms from suppliers. In addition, intense competition among suppliers of EDA products has resulted in pricing pressure on EDA products.

To support our customers, we have focused on providing technologically-advanced products to address each step in the IC design process, as well as integrating these products into broad platforms, and expanding our product offerings. Our goal is to be the EDA technology supplier of choice for our customers as they pursue longer-term, broader and more flexible relationships with fewer suppliers.

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Our accomplishments during fiscal 2010 include:

• Validation by Taiwan Semiconductor Manufacturing Company (“TSMC”) of the Titan Mixed-Signal Design Platform^™, and FineSim SPICE^™ and FineSim Pro^™ circuit simulation products, for TSMC’s first Analog/Mixed-Signal Reference Flow targeting TSMC’s most advanced 28-nanometer process technology in addition to Titan^™ platform support for TSMC 40-nm and 65-nm iPDK.

• Release of Titan ALX^™ and Titan AVP^™, layout productivity improvement products within the Titan^™ platform for Analog/Mixed-Signal Design.

• Release of Tekton^™ , a new standalone timing analysis platform that leverages breakthrough technology to addresses complex sign-off challenges and is uniquely suited for today’s most challenging designs.

• Release of QCP^™, a new standalone extractor that provides fast, high capacity, high accuracy extraction for the most complex SoC designs.

• Availability of Talus^® 1.1, latest release of our RTL-to-GDSII chip implementation system, which utilizes the new Talus^® COre^™ technology.

• Availability of SiliconSmart ACE^™, a next-generation intellectual property characterization and modeling tool that sets a new standard in IP characterization and modeling for designs targeted at 28-nm and smaller process nodes.

• TSMC Integrated Sign-off Flow support for Magma’s Quartz DRC^™ and Quartz LVS^™.

• Release of FineSim Fast Monte Carlo^™, a statistical simulation and Monte Carlo analysis product delivering up to 100 times speed improvement over traditional Monte Carlo analysis

• Release of BoardView^™, a new software that extends CAD navigation and circuit debug from integrated circuits (ICs) to printed circuit boards (“PCB”) and multichip modules (“MCM”s). BoardView^™ is the only commercially available tool to integrate IC and PCB circuit debug with online signal trace and CAD navigation.

• Announcement of YieldManager^® Solar^™, a yield enhancement software system customized for solar fabs which reduces the manufacturing costs of solar cells.

Below is a summary of our operations for fiscal 2010:

• Revenue for fiscal 2010 was $123.1 million, a decrease of 16% from the prior year. Licenses and bundled licenses and services sales for fiscal 2010 and 2009 accounted for approximately 76% and 75%, respectively, of our revenue.

• In fiscal 2010 cash provided from operating, investing and financing activities, as shown on our consolidated statement of cash flows, was $16.0 million, $3.7 million and $4.8 million, respectively, as compared to cash used in operating and investing activities of $5.4 million and $2.4 million and cash provided by financing activities was $0.8 million in fiscal 2009.

• Basic and Diluted net loss per share decreased from $2.89 per share in fiscal 2009 to $0.07 per share in fiscal 2010.

• Our employee headcount decreased to 677 as of May 2, 2010, down from 732 as of May 3, 2009. Most of the decrease in employees represents reductions to research and development and sales and marketing personnel.

Global Markets

Recent market and economic conditions have been unprecedented and challenging with tighter credit conditions and slower growth through fiscal 2010. Continued concerns about the global financial and banking

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system, systemic impact of inflation (or deflation), energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the U.S. have contributed to increased market volatility and diminished expectations for the global economy generally. These concerns, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have recently contributed to volatility of unprecedented levels. In particular, the semiconductor industry continues to be materially adversely affected by the macroeconomic environment.

As a result of these market conditions, the availability and cost of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the financial markets has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. Continued turbulence in the U.S. and global markets and economies has adversely affected our liquidity and financial condition, and the liquidity and financial condition of our customers. If these market conditions continue, they may continue to limit our ability to access the capital markets to meet liquidity needs, resulting in an adverse effect on our financial condition and results of operations.

Recent Acquisitions

In fiscal 2010 and fiscal 2009, we did not acquire any companies and did not make any material asset purchases.

During fiscal 2008, we acquired companies and purchased technologies that enable us to expand into new markets. We believe that these acquisitions will be a significant factor in our ability to compete successfully in the EDA industry and we expect to make similar acquisitions in the future.

On February 26, 2008, we acquired Sabio Labs, Inc., (“Sabio”) a privately-held developer of analog design solutions for mixed-signal designers. Sabio’s software enables designers to create robust analog designs, efficiently port complex circuits to new process technologies in foundries, and explore system design trade-offs early in the design process. The total purchase price for the acquisition was $16.5 million, consisting of approximately 1,574,000 shares of our common stock valued at $16.2 million and transaction costs of $270,000. As part of the initial consideration, 127,000 shares of our common stock valued at $1.3 million was associated with employee retention and is being earned and recorded as compensation expenses in accordance with such employees’ vesting schedules. In addition, we agreed to pay up to $7.5 million of contingent consideration in the form of cash or shares of Magma common stock, at our discretion, to the former Sabio stockholders upon achieving certain product integration and booking milestones.

During fiscal 2010 and fiscal 2009, a total of $0.4 million and $3.6 million, respectively in gross contingent cash consideration and a total of $1.1 million in gross contingent stock consideration in fiscal 2009 were earned by various acquired businesses upon their achievement of certain milestones under various prior asset purchase and business combination agreements.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the most significant potential impact on our financial statements, so we consider these to be our critical accounting policies. We consider the following accounting policies related to revenue recognition, stock-based compensation, unbilled accounts receivable, allowance for doubtful accounts, cash equivalent, short-term and long-term investments, strategic investments, asset purchases and business combinations, valuation of long-lived assets and income taxes to be our most critical policies due to the estimation processes involved in each.

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Revenue recognition

We recognize revenue in accordance with ASC 985-605, Software-Revenue Recognition (“ASC 985-605”), which generally requires revenue earned on software arrangements involving multiple elements (such as software products, upgrades, enhancements, maintenance, installation and training) to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence that is specific to us. If evidence of fair value does not exist for each element of a license arrangement and maintenance is the only undelivered element, then all revenue for the license arrangement is recognized over the term of the agreement. If evidence of fair value does exist for the elements that have not been delivered, but does not exist for one or more delivered elements, then revenue is recognized using the residual method, under which recognition of revenue for the undelivered elements is deferred and the residual license fee is recognized as revenue immediately.

Our revenue recognition policy is detailed in Note 1, The Company and Summary of Significant Accounting Policies, to the Consolidated Financial Statements in Item 8 of this Form 10-K. Management has made significant judgments related to revenue recognition. Specifically, in connection with each transaction involving our products (referred to as an “arrangement” in the accounting literature) we must evaluate whether our fee is “fixed or determinable” and we must assess whether “collectability is probable.” These judgments are discussed below.

The fee is fixed or determinable.    With respect to each arrangement, we must make a judgment as to whether the arrangement fee is fixed or determinable. If the fee is fixed or determinable, then revenue is recognized upon delivery of software (assuming other revenue recognition criteria are met). If the fee is not fixed or determinable, then the revenue is recognized when customer installments are due and payable.

In order for an arrangement to be considered to have fixed or determinable fees, 100% of the license, services and initial post contract support fee is to be paid within one year or less from the order date. We have a history of collecting fees on such arrangements according to contractual terms. Arrangements with payment terms extending beyond twelve months are considered not to be fixed or determinable.

Collectability is probable.    In order to recognize revenue, we must make a judgment about the collectability of the arrangement fee. Our judgment of the collectability is applied on a customer-by-customer basis pursuant to our credit review policy. We typically sell to customers for which there is a history of successful collection. New customers are subjected to a credit review process, which evaluates the customers’ financial positions and ability to pay. If it is determined from the outset of an arrangement that collectability is not probable based upon our credit review process, revenue is recognized on a cash receipts basis (as each payment is collected).

Licenses revenue and bundled licenses and services revenue

We derive license revenue primarily from licenses of our design and implementation software and, to a lesser extent, from licenses of our analysis and verification products. We license our products under time-based and perpetual licenses whereby license revenue is recognized after the execution of a license agreement and the delivery of the product to the customer, provided that there are no uncertainties surrounding the product acceptance, fees are fixed or determinable, collection is probable and there are no remaining obligations other than maintenance.

For perpetual licenses and unbundled time-based license arrangements, where maintenance is included for the first period of the license term, with maintenance thereafter renewable by the customer at the substantive rates stated in their agreements with us, the stated rate for maintenance renewal is vendor-specific objective evidence (“VSOE”) of the fair value of maintenance in these arrangements. For these arrangements, license revenue is recognized using the residual method in the period in which the license agreement is executed

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assuming all other revenue recognition criteria are met. Where an arrangement involves extended payment terms, revenue recognized using the residual method is limited to amounts due and payable.

For transactions that include bundled maintenance for the entire license term we have no VSOE of fair value of maintenance. Therefore, we recognize license revenue ratably over the maintenance period. If an arrangement involves extended payment terms—that is, where payment for less than 100% of the arrangement fee is due within one year of the contract date—we recognize revenue to the extent of the lesser of the amount due and payable or the ratable portion. We classify the revenue recognized from these transactions separately as bundled licenses and services revenue in our consolidated statements of operations.

If we were to change any of these assumptions or judgments, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. Amounts invoiced relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized over time as the applicable revenue recognition criteria are satisfied.

Services revenue

We derive services revenue primarily from consulting and training for our software products and from maintenance fees for our products. Most of our license agreements include maintenance, generally for a one-year period, renewable annually. Services revenue from maintenance arrangements is recognized on a straight-line basis over the maintenance term. Because we have VSOE of fair value for consulting and training services, revenue is recognized as these services are performed or completed. Our consulting and training services are generally not essential to the functionality of the software. Our products are fully functional upon delivery of the product. Additional factors considered in determining whether the revenue should be accounted for separately include, but are not limited to: degree of risk, availability of services from other vendors, timing of payments and impact of milestones or acceptance criteria on our ability to recognize the software license fee.

Stock-based compensation

We account for stock based compensation in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”). Under ASC 718, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of estimated forfeitures, over the vesting period of the award.

Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. We established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have estimated life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of our historical weekly stock price volatility and average implied volatility. These input factors are subjective and are determined using management’s judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially affected.

Unbilled accounts receivable

Unbilled accounts receivable represent revenue that has been recognized in advance of being invoiced to the customer. In all cases, the revenue and unbilled receivables are for contracts that are non-cancelable, in which there are no contingencies and where the customer has taken delivery of both the software and the encryption key required to operate the software. We typically generate invoices 45 days in advance of contractual due dates, and we invoice the entire amount of the unbilled accounts receivable within one year from the contract inception.

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Allowances for doubtful accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We regularly review the adequacy of our accounts receivable allowance after considering the size of the accounts receivable balance, each customer’s expected ability to pay and our collection history with each customer. We review significant invoices that are past due to determine if an allowance is appropriate using the factors described above. We also monitor our accounts receivable for concentration in any one customer, industry or geographic region.

As of May 2, 2010 and as of May 3, 2009, none of our customers accounted for more than 10% of total receivables. The allowance for doubtful accounts represents our best estimate, but changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. If actual losses are significantly greater than the allowance we have established, our general and administrative expenses and reported net loss would increase. Conversely, if actual credit losses are significantly less than our allowance, our general and administrative expenses would decrease and our reported net income would increase.

Fair value option for financial assets and financial liabilities

We account for financial instruments in accordance with ASC 825, Financial Instruments Overall Recognition (“ASC 825”). ASC 825 permits entities to choose to measure many financial instruments and certain other items at fair value, with changes in fair value recognized in earnings each reporting period. The election, called the fair value option, enables entities to achieve an offset accounting effect for changes in fair value of certain related assets and liabilities without having to apply complex hedge accounting provisions.

We adopted ASC 825 in the first quarter of fiscal 2009. Our adoption of ASC 825 permits us to elect to carry certain financial instruments at fair value with corresponding changes in fair value reported in the results of operations. The election to carry an instrument at fair value is made at the individual contract level and can be made only at origination or inception of the instrument, or upon the occurrence of an event that results in a new basis of accounting. Our election is on a prospective basis and is irrevocable.

During the second quarter of fiscal 2009, we elected fair value accounting for the purchased put option recorded in connection with the settlement agreement signed with UBS Financial Services, Inc. (“UBS”). This election was made in order to mitigate volatility in earnings caused by accounting for the purchased put option and underlying Auction Rate Securities (“ARS”) under different methods.

Total net gain on the ARS of $1.8 million was offset by loss on the put option $1.4 million resulted in a net gain of $0.4 million reported in valuation gain (loss) in the consolidated statement of operations for the fiscal year ended May 2, 2010, respectively.

Cash equivalent, short-term investments and long-term investments

We account for our investments in accordance with ASC 320, Investments in Debt and Equity Securities (“ASC 320”). These investments are typically classified as trading, and the gains or losses are recorded in other income or expense on the statement of operations or available-for-sale, and are recorded on the balance sheet at fair value as of the balance sheet date, with gains or losses considered to be temporary in nature reported as a component of other comprehensive income (loss) within the stockholders’ equity on our consolidated balance sheets. As of May 2, 2010, investments in ARS have been classified as trading, and are recorded on the balance sheet at fair value as of the balance sheet date, with gains or losses recorded as other income or expense on our consolidated statements of operations.

We measure fair value in accordance with the provisions in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value and establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs,

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such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Short-term investments on the consolidated balance sheet as at May 2, 2010 consist of ARS that are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education and the UBS purchased put option. The ARS investments were classified as long-term investments on the consolidated balance sheet as at May 3, 2009. Historically, liquidity for investors in ARS was provided via an auction process that reset the applicable interest rate generally every 28 days, allowing investors to either roll over their investments or sell them at par. Beginning in the fourth quarter of fiscal 2008, there was insufficient demand for these types of investments during the auctions and, as a result, these securities are not currently liquid.

In October 2008, we entered into an agreement with UBS that provided us with Auction Rate Securities Rights (“Rights”) to sell our ARS at par value to UBS at any time during the period from June 30, 2010 through July 2, 2012. These Rights are a separate freestanding instrument accounted for separately from the ARS, and are registered, nontransferable securities accounted for as a purchased put option initially recorded at fair value. Under the Rights agreement, UBS could, at its discretion, sell the ARS at any time through July 2, 2012 without prior notice to us and be required to pay us par value for the ARS within one day of the sale transaction settlement. Additionally, UBS offered a “no net cost” secured line of credit to us up to 75% of the market value of the ARS as determined by UBS that expired on June 30, 2010. Due to our entering into this agreement with UBS and enabling UBS to sell the ARS at any time, the ARS previously reported as available-for-sale have been transferred to trading securities as of May 2, 2010.

On July 2, 2010, we exercised our put option and liquidated the $16.8 million ARS and repaid the outstanding $11.2 million secured line of credit to UBS.

As of May 2, 2010 there was insufficient observable market information available to determine the fair value of our ARS. Prior to November 2, 2008, we estimated Level 3 fair values for these securities based on the investment bank’s valuations. The investment bank valued student loan ARSs as floating rate notes with three pricing inputs: the coupon, the current discount margin or spread, and the maturity. The coupon was generally assumed to equal the maximum rate allowed under the terms of the instrument, the current discount margin was based on an assessment of observable yields on instruments bearing comparable risks, and the maturity was based on an assessment of the terms of the underlying instrument and the potential for restructuring the ARS. The primary unobservable input to the valuation was the maturity assumption, which was set at four years for the majority of ARS instruments. Through January 6, 2008, the ARS were valued at par value due to the frequent resets that historically occurred through the auction process.

As of May 2, 2010, we engaged a third party valuation service to model Level 3 fair value using an income approach and two scenarios: one based on a 0.2 year term and no put option, and a second based on a 4.0 year term with a put option. We reviewed the methodologies employed by the third party models. This included a review of all relevant data inputs and the appropriateness of key model assumptions.

The pricing assumptions for the ARS included the coupon rate, the estimated time to liquidity, current market rates for publicly traded student loans of similar credit rating and an adjustment for lack of liquidity. The student loans are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education, and have maturities ranging from 2031 to 2047. The coupon rate was assumed to equal the stated maximum auction rate being received, which is determined based on the applicable 91-day U.S. Treasury rate plus 1.20% premium according to provisions outlined in each security’s agreement. The estimated time to liquidity was 4.0 years based on (i) expectations from industry brokers for liquidity in the market and (ii) the period over which UBS and other broker-dealers that had issued ARS have agreed to redeem certain ARS at par value.

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The purchased put option gives us the right to sell the ARS to UBS for a price equal to par value during the period June 30, 2010 to July 2, 2012, providing liquidity for the ARS sooner than the estimated 4.0 years. As we planned to exercise the purchased put option on or around June 30, 2010, the value of the purchased put option was determined based on (i) the ability to sell the securities thereby creating liquidity approximately 0.2 year before the ARS market is expected to become liquid and (ii) the avoidance of receiving below-market coupon rate while the security is illiquid and auctions are failing. The fair value of the purchased put option represents the difference between the ARS with an estimated time to liquidity of 4.0 years and the ARS with an estimated time to liquidity of 0.2 year as the purchased put option allows for the acceleration of liquidity and the avoidance of a below-market coupon rate over the two year time period.

Based on the Level 3 valuation and the transfer of the ARS from the available-for-sale category to the trading category, we recorded an other-than-temporary loss of $2.8 million in valuation gain (loss), net in the second quarter of fiscal 2009 including the transfer of accumulated temporary losses of $0.9 million from other comprehensive loss previously recorded as a component of stockholder equity. For fiscal 2009, the total loss on the ARS, including the other than temporary loss of $0.3 million, was reported in the valuation gain (loss), net in the consolidated statement of operations, this loss was offset by gains related to the purchase put option of $0.7 million. For the year ended May 2, 2010, we recorded a gain on the ARS of $1.8 million offset by losses related to the purchased put option of $1.4 million.

Accounting for asset purchases and business combinations

We are required to allocate the purchase price of acquired assets and business combinations to the tangible and intangible assets acquired and liabilities assumed, as well as in-process research and development based on their estimated fair values. Such a valuation requires management to make significant estimates and assumptions, especially with respect to the value of intangible assets.

Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from license sales, maintenance agreements, consulting contracts, customer contracts, acquired workforce and acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; the acquired company’s brand awareness and market position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Other estimates associated with the accounting for business combinations may change as additional information becomes available regarding the assets acquired and liabilities assumed, which could result in changes in the purchase price allocation.

Goodwill impairment

ASC 350-20, Goodwill (“ASC 350-20”), requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests in certain circumstances. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of the reporting units. We have determined that we have one reporting unit (see Note 16, Segment Information, to our consolidated financial statements in Item 8). Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting units. Any impairment losses recorded in the future could have a material adverse impact on our financial condition and results of operations.

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ASC 350-20 provides for a two-step approach to determining whether and by how much goodwill has been impaired. The first step requires a comparison of the fair value of the Company (reporting unit) to its net book value. To determine the fair value, we use a market approach. Under the market approach, the fair value of the reporting unit is based on quoted market prices and the number of shares outstanding of our common stock. If the fair value is greater than net book value, no impairment is deemed to have occurred. If the fair value is less, then the second step must be performed to determine the amount, if any, of actual impairment. We use the income method for the second step. The income method is based on a discounted future cash flow approach that uses estimates, including the following for the reporting unit: revenue, based on assumed market growth rates and our assumed market share; estimated costs; and appropriate discount rates based on the particular business’s weighted average cost of capital. Our estimates of market segment growth, market segment share and costs are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates that we use to manage the underlying business. Our business consists of both established and emerging technologies and our forecasts for emerging technologies are based upon internal estimates and external sources rather than historical information.

During fiscal 2010, we conducted our annual goodwill impairment test at December 31, 2009 using the market approach for the first step. At December 31, 2009, we determined that the fair value of the reporting unit is greater than the book value of the net assets of the reporting unit and therefore concluded there is no impairment of goodwill. Accordingly we did not proceed to the second step.

During fiscal 2009, we conducted this test during the third quarter and concluded that events had occurred and circumstances had changed during the third fiscal quarter of fiscal 2009 that showed the existence of impairment indicators, including a significant decline in our stock price and continued deterioration in the EDA software products market and the related impact on our revenue forecasts. Consistent with our approach in our annual impairment testing, in assessing the fair value of the reporting unit, we considered both the market approach and income approach. At December 31, 2008, using the step one market approach, we determined that the fair value of our reporting units was less than the book value of the net assets of the reporting unit and accordingly, we performed step two of the impairment test.

In step two of the impairment test, we determined the implied fair value of the goodwill and compared it to the carrying value of the goodwill. With the assistance of a third party valuation firm, we allocated the fair value of the reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is the implied fair value of goodwill. Our step two analysis resulted in a reduction in fair value of goodwill, and therefore, we recognized an impairment charge of $60.1 million in the third quarter of fiscal 2009.

Valuation of intangibles and long-lived assets

Our intangible assets include acquired intangibles, excluding goodwill. Acquired intangibles with definite lives are amortized on a straight-line basis over the remaining estimated economic life of the underlying products and technologies (original lives assigned are one to six years). We review our long-lived assets for impairment in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). For assets to be held and used, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. If it is determined that an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset exceeds its fair value. Based on our review, no impairment is indicated.

Income taxes

We account for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Significant judgment is required in determining our provision for income taxes. In the ordinary course of business, there are

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many transactions and calculations where the ultimate tax outcome is uncertain. The amount of income taxes we pay could be subject to audits by federal, state, and foreign tax authorities, which could result in proposed assessments. Although we believe that our estimates are reasonable, no assurance can be given that the final outcome of these tax matters will not be different from what was reflected in our historical income tax provisions.

Deferred tax assets and liabilities result primarily from temporary timing differences between book and tax valuation of assets and liabilities, as well as federal and state net operating loss and credit carryforwards. We assess the likelihood that our net deferred tax assets will be recovered from future taxable income and, to the extent we believe that the recovery is not likely, we establish a valuation allowance. We consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent fiscal years, future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. As of May 2, 2010, we believe a valuation allowance against our U.S. net deferred tax assets is required. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis. Future reversals or increases to our valuation allowance could have a significant impact on our future earnings.

Strategic investments in privately-held companies

Our strategic equity investments consist of preferred stock and convertible notes that are convertible into preferred or common stock of several privately-held companies. The carrying value of our portfolio of strategic equity investments totaled $1.3 million at May 2, 2010. Our ability to recover our investments in private, non-marketable equity securities and convertible notes and to earn a return on these investments is primarily dependent on how successfully these companies are able to execute on their business plans and how well their products are accepted, as well as their ability to obtain additional capital funding to continue operations.

Under our accounting policy, the carrying value of a non-marketable investment is the amount paid for the investment unless it has been determined to be other than temporarily impaired, in which case we write the investment down to its estimated fair value. For equity investments where our ownership interest is between 20% to 50%, or where we can exercise significant influence on the investee’s operating or financial decisions, we record our share of net equity income (loss) of the investee based on our proportionate ownership.

During the first quarter of fiscal 2009 we made an additional investment in Zerosoft, Inc of $1.0 million, which increased our ownership in that company to 35% as of May 3, 2009. We also invested $0.8 million in Helic Inc. during the first quarter of fiscal 2009, bringing our ownership in Helic to 8% as of May 3, 2009. In addition, one of our executives is a member of the board of directors of Helic, which permits us to exercise significant influence on Helic’s operating decisions. We have recorded our share of net equity income (loss) of these investments based on our proportionate ownership in our consolidated statements of operations.

During the fourth quarter of fiscal 2010, Synopsys, Inc. purchased 100% of the outstanding stock of Zerosoft, Inc., for $24.0 million in cash and future contingent cash payments. Our 35% ownership interest in Zerosoft, Inc. at the time of the sale resulted in $4.7 million in cash at closing and $4.3 million in contingent proceeds. The contingent proceeds consist of a holdback amount equal to 10% of the initial consideration to be held in escrow and released for payment 15 months from the date of the agreement to secure the indemnification obligations of the sellers, and earnout consideration based upon the achievement of certain annual product performance improvement milestones for the three years subsequent to the sale agreement. The proceeds (net of expenses) of $4.6 million offset against the net book value of the investment of $1.4 million on the date of sale of the investment resulted in a net gain of $3.2 million, which was recorded in the Statement of Operations in Other Income.

The holdback amount and earnout consideration are gain contingencies each representing incremental income and will be recognized when all contingencies are resolved per ASC 450-30, Contingencies.

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We review all of our investments periodically for impairment; however, for non-marketable equity securities, the fair value analysis requires significant judgment. This analysis includes assessment of each investee’s financial condition, the business outlook for its products and technology, its projected results and cash flows, the likelihood of obtaining subsequent rounds of financing and the impact of any relevant contractual equity preferences held by us or others. If an investee obtains additional funding at a valuation lower than our carrying amount, we presume that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise, such as when we hold contractual rights that give us a preference over the rights of other investors. As the equity markets have experienced volatility over the past few years, we have experienced substantial impairments in our portfolio of non-marketable equity securities. If equity market conditions do not improve, as companies within our portfolio attempt to raise additional funds, the funds may not be available to them, or they may receive lower valuations, with more onerous investment terms than in previous financings, and the investments will likely become impaired. However, we are not able to determine at the present time which specific investments are likely to be impaired in the future, or the extent or timing of individual impairments. We recorded impairment charges related to these non-marketable equity investments of $0.2 million in fiscal 2009. We did not record impairment charges related to these non-marketable equity investments in fiscal 2010.

Results of Operations

Revenue overview

Revenue is comprised of licenses revenue, bundled licenses and services revenue, and services revenue. Licenses revenue consists of fees for time-based or perpetual licenses of our software products. Bundled licenses and services revenue consists of fees for software licenses and post-contract customer support (“PCS”) where we do not have Vendor Specific Objective Evidence (“VSOE”) of fair value of PCS. Services revenue consists of fees for services, such as customer training, consulting and PCS associated with licenses where we have established VSOE to account for services separately. We recognize revenue based on the specific terms and conditions of the license contracts with our customer for our products and services as described in detail above under the caption “Critical Accounting Policies and Estimates.”

In our consolidated financial statements, we classify our license arrangements as either bundled or unbundled. Bundled license contracts include maintenance with the license fee and do not include optional maintenance periods. Unbundled license contracts have separate maintenance fees and include optional maintenance periods. The Company offers various contractual terms to its customers in designing license agreements to accommodate customer preferences, which are unrelated to product performance and service requirements, order volume, or pricing. The contractual terms that result in the recognition of bundled licenses and services revenue are subject to customer preferences and have historically been inconsistently elected by customers. Moreover, revenue from existing long-term contracts frequently shifts between revenue categories, with no change in the aggregate revenues recognized from such contracts. In light of the foregoing, the Company has concluded that changes in results of the bundled licenses and services revenue category generally do not indicate a material trend in the Company’s historical or future performance and therefore are not discussed below.

For management reporting and analysis purposes we classify our revenue as either licenses or services. Bundled licenses and services are divided into their component parts and included with either licenses or services for management analysis.

Licenses revenue is divided into the following categories:

• Ratable

• Due & Payable

• Up-Front

• Cash Receipts

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Services revenue is analyzed separately from the licenses revenue portion.

We use these classifications of revenue to provide greater insight into the reporting and monitoring of trends in the components of our revenue and to assist us in managing our business. The characterization of an individual contract may change over time. For example, a contract originally characterized as Ratable may be redefined as Cash Receipts if that customer has difficulty in making payments in a timely fashion. In cases where a contract has been re-characterized for management reporting and analysis purposes, prior periods are not restated to reflect that change.

Licenses revenue

Ratable.    For bundled time-based licenses, we recognize license revenue ratably over the contract term, or as customer payments become due and payable, if less. In our statements of operations the revenue for these bundled arrangements for both license and service is classified as bundled licenses and services. For management reporting and analysis purposes we separate the licenses portion from the services portion of the revenue. For unbundled time-based licenses, we recognize license revenue ratably over the license term. We generally refer to these licenses as “Ratable” and we generally refer to all time-based licenses recognized on a ratable basis as “Long-Term,” independent of the actual length of term of the license.

Due & Payable.    For unbundled time-based licenses where the payment terms extend greater than one year from the arrangement effective date, we recognize license revenue on a due and payable basis. For management reporting and analysis purposes, we generally refer to this type of license as “Due & Payable.”

Up-Front.    For unbundled time-based and perpetual licenses, we recognize license revenue upon shipment if the payment terms require the customer to pay 100% of the license fee and the initial period of PCS within one year from the agreement date and payments are generally linear. In all of these cases, the contracts are non-cancelable, and the customer has taken delivery of both the software and the encryption key required to operate the software. For management reporting and analysis purposes, we generally refer to this type of license as “Up-Front,” where the license is either perpetual or time-based.

Cash Receipts.    We recognize revenue from customers who have not met our predetermined credit criteria on a cash receipts basis to the extent that revenue has otherwise been earned. We recognize license revenue as we receive cash payments from these customers. For management reporting and analysis purposes, we refer to this type of license revenue as “Cash Receipts.”

Our license revenue in any given quarter depends upon the mix and volume of perpetual or short-term licenses ordered during the quarter and the amount of long-term ratable, due & payable, and cash receipts license revenue recognized during the quarter. In general, we refer to license revenue recognized from perpetual or time-based licenses during the quarter as “Up-Front” revenue, for management reporting and analysis purposes. All other types of revenue are generally referred to as revenue from backlog. We set our revenue targets for any given period based, in part, upon an assumption that we will achieve a certain level of orders and a certain mix of short-term licenses. The precise mix of orders fluctuates substantially from period to period and affects the revenue we recognize in the period. If we achieve our target level of total orders but are unable to achieve our target license mix, we may not meet our revenue targets (if we have more-than-expected long-term licenses) or may exceed them (if we have more-than-expected short-term or perpetual licenses). If we achieve the target license mix but the overall level of orders is below the target level, then we also may not meet our revenue targets as described in the risk factors in Item 1A of this Form 10-K.

Services revenue

Services revenue is primarily from consulting and training for our software products and from maintenance fees for our products. Most of our license agreements include maintenance, generally for a one-year period, renewable annually. Services revenue from maintenance arrangements is recognized ratably over the

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maintenance term. Because we have VSOE of fair value for consulting and training services, revenue is recognized as these services are performed or completed.

Revenue, cost of revenue and gross profit

The table below sets forth the fluctuations in revenue, cost of revenue and gross profit data by category as defined for management reporting and analysis purposes for fiscal 2010, fiscal 2009 and fiscal 2008 (in thousands, except for percentage data):

	Year Ended:												% Change
	May 2, 2010		% of Revenue		May 3, 2009		% of Revenue		April 6, 2008		% of Revenue		2010 / 2009		2009 / 2008
Revenue
Licenses revenue
Ratable	$	25,453	21	%	$	29,040	20	%	$	35,176	16	%	(12	)%	(17	)%
Due & Payable		47,642	39	%		44,871	31	%		81,327	38	%	6	%	(45	)%
Up-Front*		7,946	6	%		23,376	16	%		48,741	23	%	(66	)%	(52	)%
Cash Receipts		6,017	5	%		6,537	4	%		6,291	3	%	(8	)%	4	%
Total Licenses revenue		87,058	71	%		103,824	71	%		171,535	80	%	(16	)%	(39	)%
Services revenue		36,019	29	%		43,133	29	%		42,884	20	%	(16	)%	1	%
Total Revenue		123,077	100	%		146,957	100	%		214,419	100	%	(16	)%	(31	)%
Cost of Revenue
License		4,424	4	%		26,382	18	%		23,562	11	%	(83	)%	12	%
Services		16,129	13	%		21,947	15	%		25,792	12	%	(27	)%	(15	)%
Total cost of sales		20,553	17	%		48,329	33	%		49,354	23	%	(57	)%	(2	)%
Gross Profit	$	102,524	83	%	$	98,628	67	%	$	165,065	77	%	4	%	(40	)%

* Includes $7,778 or 6% of total revenue from new contracts for fiscal 2010, $12,832 or 9% of total revenue from new contracts for fiscal 2009 and $40,278 or 19% of total revenue from new contracts for fiscal 2008.

** Bundled licenses and services in the consolidated statement of operations consists of $24,833 of license revenue and $6,767 of service revenue for fiscal 2010, $27,350 of license revenue and $6,081 of service revenue for fiscal 2009, and $32,473 of license revenue and $8,042 of service revenue for fiscal 2008.

We market our products and related services to customers in four geographic regions: North America, Europe (including Europe, the Middle East and Africa), Japan, and Asia-Pacific (including India, South Korea, Taiwan, Hong Kong and the People’s Republic of China). Internationally, we market our products and services primarily through our subsidiaries and various distributors. Revenue is attributed to geographic areas based on the country in which the customer is domiciled. The table below sets forth geographic distribution of revenue data for fiscal 2010, fiscal 2009 and fiscal 2008 (in thousands, except for percentage data):

	Year Ended:												% Change
	May 2, 2010		% of Revenue		May 3, 2009		% of Revenue		April 6, 2008		% of Revenue		2010 / 2009		2009 / 2008
Domestic	$	72,100	59	%	$	86,576	59	%	$	127,664	60	%	(17	)%	(32	)%
International
Europe		12,927	11	%		17,893	12	%		26,539	12	%	(28	)%	(33	)%
Japan		14,637	12	%		24,975	17	%		35,150	16	%	(41	)%	(29	)%
Asia-Pacific (excluding Japan)		23,413	19	%		17,513	12	%		25,066	12	%	34	%	(30	)%
Total International		50,977	41	%		60,381	41	%		86,755	40	%	(16	)%	(30	)%
Total Revenue	$	123,077	100	%	$	146,957	100	%	$	214,419	100	%	(16	)%	(31	)%

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Revenue

Revenue for fiscal 2010 was $123.1 million, down 16% from fiscal 2009.

Licenses revenue. We analyzed the license purchasing trends of our key customers, those that make up 70% or more of revenue.

License revenue decreased by 16% in fiscal 2010 compared to fiscal 2009. The decrease in the license revenue was due to the continued downturn in the semiconductor and systems industries, which caused customers to reduce spending. Although license revenue in fiscal 2010 decreased as compared to fiscal 2009, license revenue as percentage of total revenue remained the same due to the enhanced versions of several existing products gaining initial market acceptance.

Licenses revenue decreased by 39% in fiscal 2009 compared to fiscal 2008. Licenses revenue as a percentage of total revenue decreased by 9% in fiscal 2009 compared to fiscal 2008. The decrease in licenses revenue was primarily the result of a sharp downturn in the semiconductor and systems industries, a reduced number of design starts, a reduction of electronic design automation budgets and customers experiencing continued end-market softness in demand and reduced visibility in forecasting their business, which caused customers to reduce spending.

• Ratable revenue decreased $3.6 million for fiscal 2010 compared to fiscal 2009. This decrease in ratable revenue was to due to the overall decrease in the total revenue as compared to the fiscal 2009, which was due to the continued downturn in the economic conditions. Although ratable revenue decreased by $3.6 million from fiscal 2010 as compared to fiscal 2009, ratable revenue as a percentage of total revenue increased from 20% to 21% due to our intent to increase the portion of revenue based on backlog to 90% or more of total revenue to reduce volatility and increase the predictability of our revenues, and thereby reduce up-front revenues to 10% or less of total revenue. Ratable revenue decreased $6.1 million for fiscal 2009 compared to fiscal 2008. This decrease was partially offset as a result of our intent to increase the portion of revenue based on backlog to 90% or more of total revenue to reduce volatility and increase the predictability of our revenues, and thereby reduce due & payable and up-front revenues to 10% or less of total revenue, which resulted in ratable revenue increasing from 16% of total revenue in fiscal 2008 to 20% in fiscal 2009.

• Due & Payable revenue increased $2.8 million for fiscal 2010 compared to fiscal 2009, an increase of 6%. The increase in the due & payable revenue was due to our intent to increase the portion of revenue based on backlog to 90% or more revenue and thereby reduce up-front revenues to 10% or less of total revenue. In addition, the increase in the due & payable revenue is also due to customer preference.

Ratable and due & payable revenue, as a percent of total fiscal 2010 revenue, increased 9%., This was a result of our efforts to increase the portion of revenue based on backlog to 90% or more of total revenue to reduce volatility.

• Up-Front revenue decreased $15.4 million in fiscal 2010 compared to fiscal 2009, a decrease of 66%. Up-Front revenue decreased $25.4 million in fiscal 2009 compared to fiscal 2008, a decrease of 52%. The decreases were attributable to our efforts to reduce up-front revenue and increase ratable and due & payable revenue.

• Cash Receipts revenue decreased during fiscal 2010 by $0.5 million compared to fiscal 2009. The decrease is due to fewer customers being classified as cash receipt customers in fiscal 2010 compared to fiscal 2009. Cash receipts revenue increased during fiscal 2009 by $0.2 million compared to fiscal 2008. Additional customers had been classified as cash receipts customers. This increase is the result of the impact of a deterioration of economic conditions in the industry and with respect to some of our customers.

Services revenue decreased by 7.1 million in fiscal 2010 as compared to fiscal 2009, which was generally proportionate to the decrease in the total revenues during the periods. Service revenue as a percentage of total

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revenue remained the same in fiscal 2010 and fiscal 2009 and increased by 1% in fiscal 2009 as compared to fiscal 2008. We believe the fluctuations were a result of timing of customers purchase of services. Although customers delayed license purchases in response to the end-market softness in the demand, customers did continue to purchase maintenance contracts and other services to support their ongoing activities.

Domestic revenue decreased 17% during fiscal 2010 compared to fiscal 2009, and decreased 32% during fiscal 2009 compared to fiscal 2008. International revenue decreased by 16 % and 30% for fiscal 2010 compared to fiscal 2009 and for fiscal 2009 compared fiscal 2008, respectively. The decrease in domestic and international revenue was primarily the result of the global impact of a sharp downturn in the semiconductor and systems industries, a reduced number of design starts, a reduction of electronic design automation budgets and customers experiencing continued end-market softness in demand and reduced visibility in forecasting their business. The decreases in revenues were generally proportionate to the decreases in total revenues during the periods and were primarily due to decreased customer orders. Domestic and international revenue as a percentage of total revenue remained the same for fiscal year 2010 and fiscal year 2009.

No individual customer accounted for 10% or more of total revenue during the fiscal years 2010, 2009 and 2008.

Cost of Revenue

Cost of licenses revenue primarily consists of amortization of acquired developed technology and other intangible assets that are fixed in nature and variable expenses such as royalties, and allocated outside sales representative expenses.

Cost of licenses revenue decreased by $22.0 million or 83% during fiscal 2010, compared to fiscal 2009. Amortization charges related to acquired developed technology and intangible assets decreased during 2010 by $21.4 million compared to fiscal 2009 primarily due to the complete amortization of intangibles acquired on the Mojave acquisition, which were fully amortized at the end of fiscal 2009. In addition, the decrease in the cost of license revenue was due to the decrease in third party distributor commissions by $0.2 million, and decrease of $0.3 million in costs related to expensed equipment. The remainder of the fluctuation in cost of licenses revenue was accounted for by other individually insignificant items.

Cost of licenses revenue increased by $2.8 million or 12% during fiscal 2009, compared to fiscal 2008. Amortization charges related to intangible assets from acquisitions and contingent acquisition earnouts increased during 2009 by $3.0 million compared to fiscal 2008. This increase was offset by a decrease in royalty expense by $0.2 million during fiscal 2009 as compared to 2008.

Cost of services revenue primarily consists of personnel and related costs to provide product support, training and consulting services. Cost of services revenue also includes stock-based compensation expenses and asset depreciation.

Cost of services revenue decreased by $5.8 million or 27% for fiscal 2010 compared to fiscal 2009. The change was primarily due to a net decrease of $5.7 million in the allocation of pre-sale costs (primarily application engineering costs) from sales and marketing costs which were a result of staff reductions under the fiscal 2009 restructuring plan. The remainder of the fluctuation in cost of licenses revenue was accounted for by other individually insignificant items.

Cost of services revenue decreased by $3.8 million or 15% for fiscal 2009 compared to fiscal 2008. The change was primarily due to a net decrease of $3.8 million in the allocation of pre-sale costs (primarily application engineering costs) from sales and marketing costs which were a result of staff reductions under the fiscal 2009 restructuring plan.

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Operating expenses

The table below sets forth the fluctuations in operating expenses from fiscal 2009 to fiscal 2010 and from fiscal 2008 to fiscal 2009 (in thousands, except percentage data):

										% Change
Year Ended:	May 2, 2010			May 3, 2009			April 6, 2008			2010 / 2009		2009 / 2008
Operating Expenses
Research and development	$	47,024		$	68,751		$	76,920		(32	)%	(11	)%
Sales and marketing		41,247			56,024			70,711		(26	)%	(21	)%
General and administrative		18,214			24,307			31,576		(25	)%	(23	)%
Impairment of goodwill		—			60,089			—		(100	)%	100	%
Amortization of intangible assets		1,134			2,994			8,043		(62	)%	(63	)%
In-process research and development		—			—			2,256		—		(100	)%
Restructuring charge		2,730			10,661			291		(74	)%	3564	%
Total operating expenses	$	110,349		$	222,826		$	189,797		(50	)%	17	%
Percent of total revenue
Research and development		38	%		47	%		36	%
Sales and marketing		34	%		38	%		33	%
General and administrative		15	%		17	%		15	%
Impairment of goodwill		—			41	%		—
Amortization of intangible assets		1	%		2	%		4	%
In-process research and development		—			—			1	%
Restructuring charge		2	%		7	%		—
Total operating expenses		90	%		152	%		89	%

• Research and development expense decreased by $21.7 million in fiscal 2010 as compared to fiscal 2009 primarily due to a decrease in employee compensation expense and the related benefits by $12.9 million as a result of lower headcount and employee salary reductions implemented mid-year in fiscal 2009. The decrease in research and development expense in fiscal 2010 was also attributable to a decrease in travel and entertainment costs of $0.4 million, decrease in software maintenance costs of $0.3 million due to the maintenance costs being fully amortized, decrease in consulting costs of $1.5 million, decrease in the stock based compensation expense by $2.8 million and a decrease in the allocations of common expenses, such as information technology and facility related expenses, of $3.6 million.

Research and development expense decreased by $8.2 million in fiscal 2009 as compared to fiscal 2008 primarily due to a decrease in compensation expense and the related benefits by $2.9 million as a result of lower headcount and employee salary reductions implemented mid-year. The decrease in research and development expense in fiscal 2009 was also attributable to a decrease in bonus expense of $3.6 million, decrease in software maintenance costs of $0.7 million due to the maintenance costs being fully amortized and a decrease in the allocations of common expenses, such as information technology and facility related expenses, of $1.2 million.

We expect our research and development expense in fiscal 2011 to increase moderately, but to remain at levels comparable to fiscal 2010 as a percentage of revenue.

• Sales and marketing expense decreased by $14.8 million in fiscal 2010 as compared to fiscal 2009 primarily due to a decrease in compensation expense and related benefits by $12.4 million as a result of lower headcount and employee salary reductions implemented mid-year in fiscal 2009. The decrease in sales and marketing expense in fiscal 2010 was also attributable to a $0.9 million decrease in bad debt expense, decrease in the stock based compensation by $1.3 million, decrease in marketing related activities by $1.0 million and a decrease in the allocation of common expenses, such as information technology and facility related expenses of $2.9 million. The decrease in sales and marketing expense was offset by a decrease in the allocation of pre-sale costs (primarily application engineering costs) to cost of services revenue of $5.7 million.

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Sales and marketing expense decreased by $14.7 million in fiscal 2009 as compared to fiscal 2008 primarily due to a decrease in compensation expense and related benefits by $7.8 million as a result of lower headcount and employee salary reductions implemented mid-year. The decrease in sales and marketing expense in fiscal 2009 was also attributable to a decrease in bonus expense of $1.6 million, a decrease in commission expense of $3.9 million due to decreased bookings, a decrease in travel and entertainment costs of $2.7 million due to lower spending on reduced sales, and a decrease in the allocation of common expenses, such as information technology and facility related expenses of $1.9 million. The decrease in sales and marketing expense was offset by decrease in the allocation of pre-sale costs (primarily application engineering costs) to cost of services revenue of $3.8 million.

We expect our sales and marketing expense in fiscal 2011 to increase moderately, but to remain at levels comparable to fiscal 2010 as a percentage of revenue.

• General and administrative expense decreased by $6.1 million in fiscal 2010 compared to fiscal 2009 primarily due to a decrease in compensation expense and the related benefits of $2.9 million, decrease of $0.5 million in legal fees due to settlement of the derivatives litigation, a decrease of $1.2 million in stock-based compensation expense due to our option exchange program, and a decrease of $1.2 million in consulting expense due to our cost reduction efforts. The remaining decreases were due to a decrease in other discretionary operating expenses.

General and administrative expense decreased by $7.3 million in fiscal 2009 compared to fiscal 2008 primarily due to a decrease in compensation expense and bonuses of $2.4 million. The decrease in general and administrative expense in fiscal 2009 was also the result of a decrease of $2.2 million in legal fees due to settlement of the derivatives complaint in October, 2008 and shareholder’s class action lawsuit in March 2009, a decrease of $0.5 million in stock-based compensation expense due to our option exchange program, a decrease of $0.4 million in travel and entertainment expense due to our cost reduction efforts, and a decrease of $1.2 million in depreciation expense as a result of certain assets being fully depreciated in prior periods. These decreases were partially offset by an increase in the related benefits of $0.8 million and an increase in consulting expenses of $0.7 million.

We expect our general and administrative expense in fiscal 2011 to increase moderately, but to remain at levels comparable to fiscal 2010 as a percentage of revenue.

• Amortization of intangible assets decreased by 62% in fiscal 2010 compared to fiscal 2009; and 63% in fiscal 2009 compared to fiscal 2008 primarily due to several existing developed technologies and patents having been fully amortized.

The intangible assets amortized include licensed technology, customer relationship or base, patents, customer contracts, assembled workforces, no shop rights, non-competition agreements and trademarks that were identified in the purchase price allocation for each business combination and asset purchase transaction.

• In-process research and development (“IPR&D”) charges were recorded based on management’s final purchase price allocation and were related to acquired technologies for which commercial feasibility had not been established and had no alternative future use. We did not have any material acquisitions in fiscal 2010 and fiscal 2009.

IPR&D expense of $2.3 million in fiscal 2008 consisted of charges of $1.6 million and $0.7 million recorded in connection with our acquisitions of Sabio and Rio, respectively. The in-process technology projects related to Sabio was completed in fiscal 2009.

• Restructuring costs of $2.7 million in fiscal 2010 represents the charges related to our continued realignment of business objectives and adjustments to our previously determined restructuring estimates.

Restructuring costs of $10.7 million in fiscal 2009 represented employee termination and facility consolidation and closure charges resulting from our realignment to current business objectives.

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Other items

The table below sets forth the fluctuations in other items from fiscal 2009 to fiscal 2010 and from fiscal 2008 to fiscal 2009 (in thousands, except percentage data):

										% Change
Year Ended:	May 2, 2010			May 3, 2009			April 6, 2008			2010 / 2009		2009 / 2008
Operating income (expense), net
Interest income	$	256		$	637		$	2,021		(60	)%	(68	)%
Interest and amortization of debt discount/ premium		(4,397	)		(4,357	)		(3,866	)	1	%	13	%
Valuation gain (loss), net		404			(442	)		—		(191	)%	100	%
Other income (expense), net		1,486			(118	)		(591	)	(1359	)%	(80	)%
Total other income (expense), net	$	(2,251	)	$	(4,280	)	$	(2,436	)	(47	)%	76	%
Benefit from (provision for) income taxes	$	6,742		$	(764	)	$	(6,640	)	(982	)%	(88	)%

• Interest income decreased by 60% in fiscal 2010 compared to fiscal 2009 primarily due to lower interest rates in fiscal 2010 on investments.

Interest income decreased by 68% in fiscal 2009 compared to fiscal 2008 primarily due to our lower average cash and investments balance resulting from our use of $15.2 million in cash to repurchase our Zero Coupon Convertible Subordinated Notes that were due May 15, 2008 (the “2008 Notes”). In addition to the lower cash and investment balance, interest income also decreased due to the lower interest rates earned on the investments in fiscal 2009 as compared to fiscal 2008.

• Interest expense primarily represents amortization of debt discount/premium and issuance costs in connection with the 2010 Notes, the 2014 Notes, and interest on our line of credit facility. Interest expense increased in fiscal 2010 compared to fiscal 2009 primarily due to an additional $0.1 million interest expense related to line of credit facility, $0.7 million increase in the interest expense on the 2014 Notes; the 2014 Notes have a higher interest rate as compared to the 2010 Notes. The above was offset by decrease of $0.7 million on the debt discount/premium amortization related to the 2010 Notes net of amortization of premium related to the 2014 Notes.

Interest expense in fiscal 2009 primarily represents amortization of debt discount and issuance costs in connection with our 2010 Notes and our 2008 Notes and interest on our line of credit facility. Interest expense increased in fiscal 2009 compared to fiscal 2008 by $0.5 million primarily due to the adoption of ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) in fiscal 2010. The remainder of the fluctuation in interest expense was accounted for by other individually insignificant items, such as changes in interest expenses on capital leases.

• Valuation gain (loss), net increased by $0.8 million in fiscal 2010 as compared to fiscal 2009 primarily due to the recognition of a gain of $1.8 million on the ARS securities offset by a loss on put option of $1.4 million in fiscal 2010 as compared to a fiscal 2009 loss of $0.3 million on the ARS securities offset by a gain of $0.7 million on the put option on the ARS securities.

• Other income (expense), net increased by $1.6 million in fiscal 2010 as compared to fiscal 2009 due to the increase in the foreign exchange gain by $1.2 million, gain on sale of strategic investment, net of losses, of $2.9 million and a gain of $0.3 million on extinguishment of debt. The increase was offset by an increase in the unrealized foreign exchange loss of $2.8 million.

Other income (expense), net decreased by $0.5 million in fiscal 2009 compared to fiscal 2008 primarily due to a decrease in realized foreign exchange losses of $1.8 million and a decrease in losses from strategic investments of $0.1 million offset by unrealized foreign exchange gains of $1.4 million.

During fiscal 2008, we entered into foreign currency forward contracts to mitigate exposure in movements between the U.S. dollar and Japanese Yen. The derivatives do not qualify for hedge

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accounting treatment under ASC 815, Derivative and Hedging (“ASC 815”). We recognize the gain and loss on foreign currency forward contracts in the same period as the remeasurement loss and gain of the related foreign currency-denominated exposures.

• Provision for (benefit from) income taxes. Our effective tax rate was (65.8)%, 0.6% and 19.7% in the fiscal years ended May 2, 2010, May 3, 2009 and April 6, 2008 respectively. Our effective tax rates vary from the U.S. statutory rate primarily due to changes in our U.S. valuation allowance, goodwill impairment, state taxes, foreign income taxed at other than U.S. rates, stock compensation expenses, research and development tax credits, reserves for uncertain tax positions, and foreign withholding taxes for which no U.S. tax benefits were received due to our full U.S. valuation allowance. Worldwide income tax expense (benefit) was $(6.7) million, $0.8 million and $6.6 million, in fiscal years ended May 2, 2010, May 3, 2009 and April 6, 2008, respectively.

During fiscal 2010, we received new information related to the unrecognized tax benefit related to withholding taxes in South Korea. This information was not available to us in previous financial reporting periods and is considered new information for purposes of assessing the Company’s uncertain tax positions. We considered this new information collectively with all other information available and concluded that it is more-likely-than-not the license revenue sourced in South Korea is not subject to withholding tax, and therefore, that the full amount of the tax position will ultimately be realized. Accordingly, a $7.8 million tax benefit related to South Korean withholding tax was recognized into income, and a corresponding decrease in long term tax liabilities was recorded. The recognition of the tax benefit is a discrete item and does not have any current period or future period cash impact.

We are in a net deferred tax asset position, for which a full valuation allowance has been recorded against our U.S. net deferred tax assets. We will continue to provide a valuation allowance against our U.S. net deferred tax assets until it becomes more likely than not that the deferred tax assets are realizable. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.

We are subject to income taxes in the United States and in numerous foreign jurisdictions and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. The statute of limitations for adjustments to our historic tax obligations will vary from jurisdiction to jurisdiction. The tax years 1999 to 2008 remain open to examination by the major tax jurisdictions where we operate. At May 2, 2010, we do not anticipate that our total unrecognized tax benefits will significantly change due to any settlement of examination or expiration of statute of limitations within the next twelve months. In addition, we do not believe that the ultimate settlement of these obligations will materially affect our liquidity.

Liquidity and Capital Resources

As of	May 2, 2010		May 3, 2009			April 6, 2008
Cash, cash equivalents	$	57,518	$	32,888		$	46,970
Short term investments		16,837		—			3,000
Long term investments		—		17,908			17,538
Cash, cash equivalents, short term and long term investments	$	74,355	$	50,796		$	67,508
For the year ended:
Net cash flows provided by (used in) operating activities	$	16,004	$	(5,419	)	$	13,214
Net cash flows provided by/(used in) investing activities	$	3,745	$	(2,415	)	$	(22,564	)
Net cash provided by financing activities	$	4,762	$	766		$	10,932

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As of May 2, 2010, our total cash, cash equivalents, short-term investments and long-term investments, excluding restricted cash, was $74.4 million as compared to $50.8 million as of May 3, 2009 and $67.5 million as of April 6, 2008. In fiscal 2010 our primary sources of cash consisted of cash from operations, release of restricted cash related to our line of credit and acquisition related earnouts, sale of strategic investment, proceed from term debt and proceeds from issuance of common stock to employees. Our primary uses of cash in fiscal 2010 were repayment of the revolving note and secured credit line, repayment of lease obligations, payments related to prior acquisitions, and purchases of property and equipment. In fiscal 2009 our primary sources of cash consisted of proceeds from issuance of common stock to employees, cash borrowed under our line of credit and revolving note and proceeds from maturities and sale of investments. Our primary uses of cash in fiscal 2009 consisted of cash used in operating activities, the repurchase of a portion of the 2008 Notes, payments related to contingent consideration related to business combination and intangible asset acquisitions, purchases of property and equipment, setting aside restricted cash for the revolving note and setting aside cash for escrow arrangements pursuant to various business combinations pursuant to their respective agreements. In fiscal 2008, our primary sources of cash consisted of cash provided by operating activities, proceeds from issuance of common stock to employees, and a reduction in restricted cash set aside for the revolving note. In fiscal 2008, our primary uses of cash consisted of net purchases of available-for-sale investments, the repayment of lease obligation and line of credit, payments related to business combination and intangible asset acquisitions, purchases of property and equipment, and repurchase of our common stock.

Short-term investments on the consolidated balance sheet as at May 2, 2010 consist of ARS that are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education and the UBS purchased put option. The ARS investments were classified as long-term investments on the consolidated balance sheet as at May 3, 2009. Historically, liquidity for investors in ARS was provided via an auction process that reset the applicable interest rate generally every 28 days, allowing investors to either roll over their investments or sell them at par. Beginning in the fourth quarter of fiscal 2008, there was insufficient demand for these types of investments during the auctions and, as a result, these securities are not currently liquid.

In October 2008, we entered into an agreement with UBS which provides us with Auction Rate Securities Rights (“Rights”) to sell our ARS at par value to UBS at any time during the period June 30, 2010 through July 2, 2012. These Rights are a separate freestanding instrument accounted for separately from the ARS, and are registered, nontransferable securities accounted for as a purchased put option initially recorded at fair value. Under the Rights agreement, UBS may, at its discretion, sell the ARS at any time through July 2, 2012 without prior notice to us and must pay us par value for the ARS within one day of the sale transaction settlement. Additionally, UBS offered a “no net cost” secured line of credit to us up to 75% of the market value of the ARS as determined by UBS until June 30, 2010. Due to our entering into this agreement with UBS and enabling UBS to sell the ARS at any time, the ARS previously reported as available-for-sale have been transferred to trading securities.

On July 2, 2010, we exercised our put option and liquidated the $16.8 million ARS and repaid the outstanding $11.2 million secured line of credit to UBS.

As of May 2, 2010 there was insufficient observable market information available to determine the fair value of our ARS. Prior to November 2, 2008, we estimated Level 3 fair values for these securities based on the investment bank’s valuations. The investment bank valued student loan ARSs as floating rate notes with three pricing inputs: the coupon, the current discount margin or spread, and the maturity. The coupon was generally assumed to equal the maximum rate allowed under the terms of the instrument, the current discount margin was based on an assessment of observable yields on instruments bearing comparable risks, and the maturity was based on an assessment of the terms of the underlying instrument and the potential for restructuring the ARS. The primary unobservable input to the valuation was the maturity assumption which was set at four years for the majority of ARS instruments. Through January 6, 2008, the ARS were valued at par value due to the frequent resets that historically occurred through the auction process.

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As of May 2, 2010, we engaged a third party valuation service to model Level 3 fair value using an income approach and two scenarios: one based on a 0.2 year term and no put option, and a second based on a 4.0 year term with a put option. We reviewed the methodologies employed by the third party models. This included a review of all relevant data inputs and the appropriateness of key model assumptions.

The pricing assumptions for the ARS included the coupon rate, the estimated time to liquidity, current market rates for publicly traded student loans of similar credit rating and an adjustment for lack of liquidity. The student loans are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education, and have maturities ranging from 2031 to 2047. The coupon rate was assumed to equal the stated maximum auction rate being received, which is determined based on the applicable 91-day U.S. Treasury rate plus 1.20% premium according to provisions outlined in each security’s agreement. The current estimated time to liquidity was 4.0 years based on (i) expectations from industry brokers for liquidity in the market and (ii) the period over which UBS and other broker-dealers that had issued ARS have agreed to redeem certain ARS at par value.

The purchased put option gives us the right to sell the ARS to UBS for a price equal to par value during the period June 30, 2010 to July 2, 2012, providing liquidity for the ARS sooner than the currently estimated 4.0 years. As we plan to exercise the purchased put option on or around June 30, 2010, the value of the purchased put option lies in (i) the ability to sell the securities thereby creating liquidity approximately 0.2 year before the ARS market is expected to become liquid and (ii) the avoidance of receiving below-market coupon rate while the security is illiquid and auctions are failing. The fair value of the purchased put option represents the difference between the ARS with an estimated time to liquidity of 4.0 years and the ARS with an estimated time to liquidity of 0.2 year as the purchased put option allows for the acceleration of liquidity and the avoidance of a below-market coupon rate over the two year time period.

Based on the Level 3 valuation and the transfer of the ARS from the available-for-sale category to the trading category, we recorded an other-than-temporary loss of $2.8 million in valuation gain (loss), net in the second quarter of fiscal 2009 including the transfer of accumulated temporary losses of $0.9 million from other comprehensive loss previously recorded as a component of stockholder equity. For fiscal 2009, the total loss on the ARS, including the other than temporary loss of $0.3 million, was reported in the valuation gain (loss), net in the consolidated statement of operations, this loss was offset by gains related to the purchase put option of $0.7 million. For the year ended May 2, 2010, we recorded an unrealized gain on the ARS of $1.8 million offset by losses related to the purchased put option of $1.4 million.

Net cash provided by/used in operating activities

Net cash provided by operating activities increased by $21.4 million in fiscal 2010 compared to fiscal 2009. The increase was primarily due to a decrease in cost and expenses of $19.9 million, a decrease in the use of cash for accounts payable and accrued liabilities of $15.5 million, and a decrease in prepaid expenses of $0.8 million, offset by decrease in cash from customers of $14.7 million. The decrease in cash from customers was due to the lower revenues, while cost and expenses decreased due to the reduction in force and the closure of various facilities as part of our fiscal 2009 restructuring plan. The decrease in the use of cash for accounts payable, accrued liabilities and prepaid expenses was mainly due to the reduction in costs and expenses in fiscal 2010 as compared to fiscal 2009.

Net cash provided by operating activities decreased by $18.6 million in fiscal 2009 compared to fiscal 2008. The decrease was primarily due to a decrease in cash from customers of $49.9 million, offset primarily by a decrease in cost and expenses of $23.6 million, a decrease in the use of cash for accounts payable and accrued liabilities of $4.0 million, and a decrease in prepaid expenses of $2.3 million. The decrease in cash from customers was due to the lower revenues, while cost and expenses decreased due to the reduction in force and the closure of various facilities as part of our fiscal 2009 restructuring plan. The decrease in the use of cash for accounts payable, accrued liabilities and prepaid expenses was mainly due to the reduction in costs and expenses in fiscal 2009 as compared to fiscal 2008.

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Net cash provided by/used in investing activities

Net cash provided by investing activities was $3.7 million in fiscal 2010. In fiscal 2010, we sold an investment in a privately held technology company for business and strategic purposes for $4.6 million, released $1.5 million of restricted cash related to acquisition related earnouts, and received $1.5 million from sale of marketable investments. This was offset by cash used to purchase property and equipment for $1.9 million and payment of $1.9 million relating to prior acquisitions.

Net cash used in investing activities was $2.4 million in fiscal 2009. In fiscal 2009, we made cash earnout payments of $4.5 million relating to prior acquisitions, and we made an aggregate investment of $1.8 million in privately held technology companies for business and strategic purposes. We also purchased property and equipment totaling $1.1 million. The primary source of cash was $5.0 million from the sale and maturity of marketable investments.

We expect to make capital expenditures of approximately $3.0 million to $4.0 million during fiscal 2011. These capital expenditures will be used to support selling, marketing and product development activities. We will use capital lease financing as well as our cash and cash equivalents to fund these purchases. In addition, we may make earnout payments related to prior acquisitions and acquire additional technologies and strategic equity investments in the future using our cash and cash equivalents.

Net cash provided by financing activities

Net cash provided by financing activities was $4.8 million in fiscal 2010. The primary source of cash was cash drawn against the term debt with Wells Fargo for $15.0 million, release of restricted cash of $7.5 million maintained for the Wells Fargo Line of Credit, and proceeds from exercise of common stock for $2.2 million. We used $12.2 million for repayment of line of credit from Wells Fargo, repayment of lease obligations of $2.6 million, and issuance costs of $1.9 million for the 2014 Notes and $0.8 million issuance costs related to the Term Debt from Wells Fargo.

Net cash provided by financing activities was $0.8 million in fiscal 2009. The primary source of cash was cash drawn on the line of credit with Wells Fargo Bank for $12.2 million, cash drawn against the auction rate securities with UBS bank for $12.6 million, and cash received on exercise of common stock of $3.8 million. In addition, we used $15.2 million to repay the 2008 Notes and $9.2 million to maintain restricted cash, of which $7.5 million was for the line of credit with Wells Fargo Bank and $1.5 million was for amounts held back in connection with the Sabio acquisition.

Capital resources

Cash and cash equivalents available for use aggregated a total of $57.5 million at May 2, 2010.

As more fully described in Note 9, Convertible Notes, on September 11, 2009 we completed an exchange offer pursuant to which an aggregate principal amount of $26.7 million of our 2010 Notes were exchanged for $26.7 million principal amount of newly issued 2014 Notes. As a result of the exchange, approximately $23.2 million principal amount of the 2010 Notes remained outstanding as of May 2, 2010. These notes were subsequently paid on May 17, 2010 (see Note 19, Subsequent Events).

In July 2010, we repurchased $2.75 million of aggregate principal amount of its 2014 Notes, representing approximately 10.3% of the previously outstanding aggregate principal amount of Notes, in private transactions. These purchases were funded from our working capital. (see Note 19, Subsequent Events)

We negotiated a New Credit Facility with Wells Fargo Bank on March 19, 2010 replacing the old credit facility of $15.0 million. The New Credit Facility is comprised of $15.0 in term debt and $15.0 revolving loans with an expiration date of March 19, 2014. We had drawn down the $15.0 million of term debt that was used to repay the outstanding revolving note of $12.2 million.

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We have taken action to receive liquidity from our $16.8 million invested in auction rate securities (“ARS”) as of May 2, 2010, which had been illiquid since February 2008. We entered into a settlement agreement with UBS Financial Services, Inc. (“UBS”) that allowed us to recover the par value of the ARS on or about June 30, 2010 (see Note 3, Fair Value of Financial Instruments). Concurrently, we entered into a “no net cost” secured line of credit with UBS offered as part of the total settlement agreement (see Note 11, Secured Credit Line). This secured line of credit provided us with cash of $11.2 million until the ARS could be sold back to UBS at par value in 2010. On July 2, 2010, we exercised our put option and liquidated the $16.8 million ARS and repaid the outstanding $11.2 million secured line of credit to UBS.

In recent years, we have funded our operations primarily through operating cash flows and through the issuance of convertible debt and equity securities. In the first quarter of fiscal 2009, we began implementing cost reduction measures that continued through the end of fiscal 2010. Given the current adverse economic conditions generally, and in the semiconductor industry in particular, the credit market crisis and our own liquidity position, we have increased our focus on cash management and identifying and taking actions to sustain and enhance our liquidity position. These actions include operational expense reduction initiatives and re-timing or eliminating certain capital spending or research and development projects. As a result of these efforts and other factors, we generated positive cash flow of $16.0 million of cash from operations in fiscal 2010.

We have been successful in refinancing our current debt as of May 2, 2010. Our ability to fund our cash needs over the short and long term will also depend on our ability to continue to generate cash from operations, which is subject to general economic and financial market conditions, competition, maintaining our existing credit facility, and other factors. We believe we have sufficient capital resources to fund our working capital requirements and operations, capital investments, and debt service during the next twelve months. However any of these factors could have a materially adverse impact on our financial position and results of operations. For a complete discussion of the risks facing our business, including our liquidity, please see Part II, Item 1A, “Risk Factors.”

Revolving Loans and Term Debt

Effective as of October 31, 2008, we entered into a secured revolving line of credit facility with Wells Fargo Bank, N.A. (the “Credit Facility”). As amended by the First Amendment dated March 11, 2009, the Second Amendment dated May 21, 2009, and the Third Amendment dated October 1, 2009. The Credit Facility (i) provided for a single revolving line of credit note of up to $15 million replacing the two previous $7.5 million revolving line of credit notes, (ii) eliminated the requirement that Magma maintain a minimum accounts receivable borrowing base and cash collateral, and (iii) extended the term of the line of credit to September 30, 2010. The note bears an annual interest rate equal to a fluctuating rate of 3.5% above the one month LIBOR rate on outstanding borrowings. The Credit Facility also, among other things, required that we provide certain financial statements to Wells Fargo, restricted our ability to pay dividends or make other distributions on our stock and required that we maintain certain financial conditions. In connection with the Third Amendment to the Credit Facility we released a $7.5 million collateralized certificate of deposit classified as restricted cash as of May 3, 2009.

On March 19, 2010, we entered into a new credit facility with Wells Fargo Capital Finance, LLC (the “New Credit Facility”), which replaced our existing $15.0 million Credit Facility. The New Credit Facility provides for a revolving loan not to exceed $15.0 million and a term loan of $15.0 million. The New Credit Facility expires March 19, 2014, and is secured by a first priority interest in all of our assets. The term loan will be repaid in equal quarterly installments of $0.6 million, beginning October 31, 2010.

Under the terms of the New Credit Facility, outstanding borrowings and letter of credit liabilities may not, at any time, exceed the greater of $30.0 million or 40% of all “post-contract support” revenues and “time based license fee” revenues for the preceding twelve-month period. These requirements could, but to date have not, limited our borrowing availability.

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The revolving and term loans bear interest at either a LIBOR Rate or a Base Rate, at managements election, in each case determined as follows and plus a margin of 4.50 percentage points: (A) if at a LIBOR Rate, at a per annum rate equal to the LIBOR Rate of the greater of (i) 1.00% per annum or (ii) the one, two or three month LIBOR rate quoted by Bloomberg and (B) if at the Base Rate the greatest of (i) the Federal Funds Rate plus 1/2%, (ii) the three month LIBOR Rate plus 1 percentage point and (iii) the Wells Fargo prime rate. In addition, we are required to pay fees of 0.5% per annum on the unused amount of the New Credit Facility, 2.5% per annum for each letter of credit issued and quarterly administrative fees of $10,000.

We are required to pay interest and fees monthly, with the outstanding principal amount plus all accrued but unpaid interest and fees payable in full at the maturity date of March 19, 2014.

The proceeds of the credit facility are intended to refinance some of our existing indebtedness, including repayment of the Credit Facility, a portion of our 2010 Notes, finance general corporate purposes, including permitted acquisitions and permitted investments, capital expenditures, working capital, letters of credit, and fees and expenses associated with the New Credit Facility. As of May 2, 2010, we had withdrawn $15.0 million of term debt, and used the proceeds to pay off the outstanding revolving note of $12.2 million under the Credit Facility, with the balance retained in cash to fund other corporate needs.

The New Credit Facility contains covenants that, among other things, limit our ability to create liens, merge, consolidate, dispose of assets, incur indebtedness and guarantees, repurchase or redeem capital stock and indebtedness, make certain investments, acquisitions and capital expenditures, enter into certain transactions with affiliates or change the nature of our business. Events of Default under the Credit Agreement include, but are not limited to, payment defaults, covenant defaults, breaches of representations and warranties, cross defaults to certain other material agreements and indebtedness, bankruptcy and other insolvency events, actual or asserted invalidity of security interests or loan documents, and certain change of control events.

The credit facility restricts our ability to pay dividends or make other distributions on our stock and requires that we maintain certain financial conditions. As of May 2, 2010, we were in compliance with the financial conditions.

Convertible notes

On September 11, 2009 we completed an exchange offer pursuant to which an aggregate principal amount of $26.7 million of our 2010 Notes were exchanged for $26.7 million principal amount of newly issued 2014 Notes. As a result of the exchange, approximately $23.2 million principal amount of the 2010 Notes remained outstanding as of May 2, 2010. On May 15, 2010, we repaid the $23.2 million remaining outstanding balance of the 2010 Notes.

Our 2014 Notes mature on May 15, 2014 and bear interest at 6% per annum, with interest payable on May 15 and November 15 of each year, commencing May 15 2010. The 2014 Notes are convertible into shares of our common stock at an initial conversion price of $1.80 per share, for an aggregate of approximately 14.83 million shares. Upon conversion, the holders of the 2014 Notes will receive our shares. The 2014 Notes are unsecured senior indebtedness, which rank equally in right of payment to our Wells Fargo credit facility and the 2010 Notes. The 2014 Notes are effectively subordinated in right of payment to the Wells Fargo credit facility to the extent of the security interest held by Wells Fargo Bank in our assets. After May 15, 2013, we have the option to redeem the 2014 Notes for cash in an amount equal to 100% of the aggregate outstanding principal amount at the time of such redemption.

As of May 2, 2010, we were in compliance with all financial conditions included in the indentures for the 2010 Notes and the 2014 Notes.

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In July 2010, we repurchased $2.75 million of aggregate principal amount of its 2014 Notes, representing approximately 10.3% of the previously outstanding aggregate principal amount of Notes, in private transactions. These purchases were funded from our working capital. (see Note 19, Subsequent Events)

Repurchases of common stock

On February 21, 2008, we announced that our Board of Directors authorized us to repurchase up to $20.0 million of our common stock. In March 2008, we used approximately $5.0 million to repurchase 499,500 shares of our common stock in the open market. The repurchased shares are to be used for general corporate purposes. We did not repurchase any of our common stock during 2010.

Contractual obligations

As of May 2, 2010, our principal contractual obligations consisted of $77.7 million from fiscal 2011 through fiscal 2014 for office facilities, repayments of $23.2 million of the 2010 Notes due in May 2010, $26.7 million of the 2014 Notes due in May 2014 and $6.0 million in capital lease obligations for computer equipment and purchase obligations. Although we have no material commitments for capital expenditures, we do not anticipate an increase in our capital expenditures and lease commitments with cost reduction plans that were initiated in fiscal 2009. Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the normal course of business for which we have not received the goods or services as of May 2, 2010. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services. In addition, we have other obligations for goods and services entered into in the normal course of business. These obligations, however, either are not enforceable or legally binding or are subject to change based on our business decisions.

Our acquisition agreements related to certain business combination and asset purchase transactions obligate us to pay certain contingent cash consideration based on meeting certain financial or project milestones and continued employment of certain employees. The total amount of contingent cash consideration that could be paid under our acquisition agreements, assuming all contingencies are met, was $4.5 million as of May 2, 2010. Subject to the uncertainties further described in “Capital resources” above, these contingent consideration obligations are not expected to affect our estimate that our existing cash and cash equivalents will be sufficient to meet our anticipated operating and working capital expenditure requirements in the ordinary course of business for at least the next 12 months.

The table below summarizes our significant contractual obligations at May 2, 2010, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions). The operating lease obligations and purchase obligations were not recorded in our consolidated balance sheets as of May 2, 2010.

	Payment due by period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating lease obligations	$	6.8	$	4.0	$	2.6	$	0.2	$	—
Capital lease obligations		2.2		1.6		0.6		—		—
Convertible notes		49.9		23.2		—		26.7		—
Purchase obligations		3.8		3.1		0.7		—		—
Term Debt		15.0		1.7		4.5		8.8		—
Total	$	77.7	$	33.6	$	8.4	$	35.7	$	—

58

Income taxes

As of May 2, 2010 and May 3, 2009, we recorded unrecognized tax benefits of $18.4 million, and $27.1 million, respectively, of which $1.6 million and $8.8 million, respectively, are included in our long-term tax liabilities on our consolidated balance sheet. We are not able to estimate the amount or timing of any cash payments required to settle these liabilities; however, we do not anticipate the settlement of the liabilities will require payment of cash within the next twelve months and do not believe that the ultimate settlement of these obligations will materially affect our liquidity.

Off-balance sheet arrangements

As of May 2, 2010, we did not have any significant “off-balance-sheet arrangements,” as defined in Item 303(a)(4)(ii) of Regulation S-K.

Indemnification Obligations

We enter into standard license agreements in the ordinary course of business. Pursuant to these agreements, we agree to indemnify our customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to our products. These indemnification obligations have perpetual terms. Our normal business practice is to limit the maximum amount of indemnification to the amount received from the customer. On occasion, the maximum amount of indemnification we may be required to make may exceed our normal business practices. We estimate the fair value of our indemnification obligations as insignificant, based on our historical experience concerning product and patent infringement claims. Accordingly, we have no liabilities recorded for indemnification under these agreements as of May 2, 2010.

We have agreements whereby our officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we retain directors and officers insurance that reduces our exposure and enables us to recover portions of amounts paid. As a result of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal. Accordingly, no liabilities have been recorded for these agreements as of May 2, 2010.

In connection with certain of our recent business acquisitions, we have also agreed to assume, or cause our subsidiaries to assume, the indemnification obligations of those companies to their respective officers and directors. No liabilities have been recorded for these agreements as of May 2, 2010.

Warranties

We warrant to our customers that our products will conform to the documentation provided. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, we have no liabilities recorded for these warranties as of May 2, 2010. We assess the need for a warranty accrual on a quarterly basis, and there can be no guarantee that a warranty accrual will not become necessary in the future.

59

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing in widely diversified short-term and long-term investments, consisting primarily of investment grade securities. As of May 2, 2010, a hypothetical 100 basis point increase in interest rates would not result in a material impact on the fair value of our cash equivalents and short-term investments.

The fair value of our fixed rate long-term debt is sensitive to interest rate changes. Interest rate changes would result in increases or decreases in the fair value of our debt, due to differences between market interest rates and rates in effect at the inception of our debt obligation. Changes in the fair value of our fixed rate debt have no impact on our cash flows or consolidated financial statements.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company’s cash, cash equivalents and short-term investments generally consist of government agencies, municipal obligations and money market funds with high-quality financial institutions. Accounts receivable are typically unsecured and are derived from license and service sales. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts.

Foreign Currency Exchange Rate Risk

A majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we transact some portions of our business in various foreign currencies, primarily related to a portion of revenue in Japan and operating expenses in Europe, Japan and Asia-Pacific. Accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. As of May 2, 2010, we had approximately $6.3 million of cash and money market funds in foreign currencies. During the third quarter of fiscal 2008, we entered into foreign currency forward contracts to mitigate exposure in movements between the U.S. dollar and Japanese yen. The derivatives do not qualify for hedge accounting treatment under ASC 815. We recognize the gain and loss on foreign currency forward contracts in the same period as the remeasurement loss and gain of the related foreign currency-denominated exposures. In fiscal 2010 and 2009, net foreign exchange loss totaled $1.4 million and gain totaled $0.2 million, respectively, and was included in “Other (expense), net” in our consolidated statements of operations.

60

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements and Financial Statement Schedules

	Page
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm	62
Consolidated Balance Sheets as of May 2, 2010 and May 3, 2009	64
Consolidated Statements of Operations for the fiscal years ended May 2, 2010, May  3, 2009 and April 6, 2008, and the one month ended May 4, 2008	65
Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss) for each of the three fiscal years ended May 2, 2010, May 3, 2009 and April 6, 2008, and the one month ended May 4, 2008	66
Consolidated Statements of Cash Flows for the fiscal years ended May 2, 2010, May  3, 2009 and April 6, 2008, and the one month ended May 4, 2008	68
Notes to Consolidated Financial Statements	70
Financial Statement Schedules:
II—Valuation and Qualifying Accounts	111
Supplementary Financial Data:
Selected Consolidated Quarterly Financial Data (Unaudited)	111

61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Magma Design Automation, Inc.

We have audited the accompanying consolidated balance sheets of Magma Design Automation, Inc. and subsidiaries (a Delaware corporation) as of May 2, 2010 and May 3, 2009, and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for each of the years ended May 2, 2010 and May 3, 2009, the month ended May 4, 2008 and the year ended April 6, 2008. Our audits of the basic financial statements included the financial statement schedules listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Magma Design Automation, Inc. and subsidiaries as of May 2, 2010 and May 3, 2009, and the results of their operations and their cash flows for each of the years ended May 2, 2010 and May 3, 2009, the month ended May 4, 2008 and the year ended April 6, 2008 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 9 to the consolidated financial statements, effective May 4, 2009 Magma Design Automation, Inc. and subsidiaries adopted FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Magma Design Automation, Inc.’s internal control over financial reporting as of May 2, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated July 14, 2010, expressed an unqualified opinion on the effective operation of internal control over financial reporting.

/S/    GRANT THORNTON LLP

San Jose, California

July 15, 2010

62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Magma Design Automation, Inc.

We have audited Magma Design Automation, Inc. and subsidiaries’ (a Delaware Corporation) internal control over financial reporting as of May 2, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Magma Design Automation, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Magma Design Automation Inc.’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Magma Design Automation, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of May 2, 2010, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Magma Design Automation, Inc. and subsidiaries as of May 2, 2010 and May 3, 2009 and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive income (loss), and cash flows for the years ended May 2, 2010 and May 3, 2009, the month ended May 4, 2008 and the year ended April 6, 2008. Our audits of the basic financial statements included the financial statement schedules listed in the index appearing under Item 15(a)(2). Our report dated July 14, 2010 expressed an unqualified opinion on those financial statements and financial statement schedules.

/S/    GRANT THORNTON LLP

San Jose, California

July 15, 2010

63

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	May 2, 2010			May 3,2009 (as adjusted)1
ASSETS
Current assets:
Cash and cash equivalents	$	57,518		$	32,888
Restricted cash		250			9,215
Short-term investments, pledged as collateral for secured credit line		16,837			—
Accounts receivable, net		17,401			26,635
Prepaid expenses and other current assets		4,472			5,443
Total current assets		96,478			74,181
Property and equipment, net		5,979			10,443
Intangible assets, net		7,487			12,170
Goodwill		7,093			6,666
Long-term investments, pledged as collateral for secured credit line		—			17,908
Other assets		5,086			5,665
Total assets	$	122,123		$	127,033
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable	$	2,220		$	1,212
Accrued expenses		16,347			15,353
Secured credit line		11,162			12,451
Revolving note		—			12,181
Current portion of term debt		1,688			—
Current portion of other long-term liabilities		1,901			2,679
Deferred revenue		25,528			35,779
Convertible notes, net of debt discount of $44 at May 2, 2010		23,206			—
Total current liabilities		82,052			79,655
Convertible notes, net of debt (premium) discount of ($1,574) and $2,339 at May 2, 2010 and May 3, 2009, respectively		28,263			47,600
Long-term portion of term debt		13,312			—
Long-term tax liabilities, less current portion		1,856			9,729
Other long-term liabilities		922			3,160
Total liabilities		126,405			140,144
Commitments and contingencies (Note 15)
Stockholders deficit:
Common stock (par value $0.0001, 150,000,000 shares authorized; 55,025,286 and 51,988,272 shares issued and outstanding, respectively, at May 2, 2010 and 50,259,862 and 47,222,848 shares issued and outstanding, respectively, at May 3, 2009)		6			5
Additional paid-in capital		417,131			405,342
Accumulated deficit		(383,824	)		(380,490	)
Treasury stock at cost (3,037,014 shares at May 2, 2010 and May 3, 2009, respectively)		(32,615	)		(32,615	)
Accumulated other comprehensive loss		(4,980	)		(5,353	)
Total stockholders deficit		(4,282	)		(13,111	)
Total liabilities and stockholders deficit	$	122,123		$	127,033

1 May 3, 2009 adjusted for adoption of ASC 470-20. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

64

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Fiscal Year Ended									One month ended May 4, 2008 (as adjusted)1
	May 2, 2010			May 3, 2009 (as adjusted)1			April 6, 2008 (as adjusted)1
Revenue:
Licenses	$	62,225		$	76,474		$	139,062		$	1,822
Bundled licenses and services		31,600			33,431			40,515			641
Services		29,252			37,052			34,842			2,404
Total revenue		123,077			146,957			214,419			4,867
Cost of revenue:
Licenses		3,142			19,416			19,151			1,536
Bundled licenses and services		4,282			10,459			9,474			517
Services		13,129			18,454			20,729			2,010
Total cost of revenue		20,553			48,329			49,354			4,063
Gross profit		102,524			98,628			165,065			804
Operating expenses:
Research and development		47,024			68,751			76,920			7,595
Sales and marketing		41,247			56,024			70,711			6,061
General and administrative		18,214			24,307			31,576			2,418
Impairment of goodwill		—			60,089			—			—
Amortization of intangible assets		1,134			2,994			8,043			534
In-process research and development		—			—			2,256			—
Restructuring charge		2,730			10,661			291			—
Total operating expenses		110,349			222,826			189,797			16,608
Operating loss		(7,825	)		(124,198	)		(24,732	)		(15,804	)
Other income (expense):
Interest income		256			637			2,021			108
Interest and amortization of debt discount/ premium		(4,397	)		(4,357	)		(3,866	)		(250	)
Valuation gain (loss), net		404			(442	)		—			—
Other income (expense), net		1,486			(118	)		(591	)		(24	)
Other, net		(2,251	)		(4,280	)		(2,436	)		(166	)
Net loss before income taxes		(10,076	)		(128,478	)		(27,168	)		(15,970	)
Benefit from (provision for) income taxes		6,742			(764	)		(6,640	)		(375	)
Net (loss)	$	(3,334	)	$	(129,242	)	$	(33,808	)	$	(16,345	)
Net (loss) per share, basic and diluted	$	(0.07	)	$	(2.89	)	$	(0.83	)	$	(0.38	)
Shares used in per share calculation, basic and diluted		49,639			44,698			40,518			42,812

1 Years ended May 3, 2009, April 6, 2008 and one month ended May 4, 2008 adjusted for adoption of ASC 470-20. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

65

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share data)

	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Treasury Stock					Accumulated Other Comprehensive Loss			Total Stockholders’ Equity (Deficit)			Comprehensive Loss
	Shares		Amount								Shares		Amount
BALANCES AT APRIL 1, 2007	38,533,351		$	5	$	315,453		$	(197,896	)	(2,679,426	)	$	(29,162	)	$	(1,092	)	$	87,308
Issuance of common stock under stock incentive plans	3,324,196			—		22,319			—		134,319			1,460			—			23,779
Issuance of common stock in connection with asset purchase	281,269			—		2,662			—		—			—			—			2,662
Issuance of common stock in connection with business combination	1,979,833			—		19,970			—		—			—			—			19,970
Retirement of common stock	(145,746	)		—		(2,070	)		—		—			—			—			(2,070	)
Repurchase of common stock	(499,500	)		—		—			—		(499,500	)		(4,995	)		—			(4,995	)
Stock-based compensation expense, net of forfeitures	—			—		20,424			—		—			—			—			20,424
Tax benefits associated with exercise of stock options and debt issuance costs	—			—		53			—		—			—			—			53
Effect of ASC 740-10 adoption (Note 1 “Accounting Corrections”)	—			—		—			(2,850	)	—			—			—			(2,850	)
Reissuance of treasury stock	—			—		—			(334	)	—			—			—			(334	)		—
Comprehensive loss:
Net loss	—			—		—			(32,409	)	—			—			—			(32,409	)		(32,409	)
Effect of ASC 470-20 adoption (Note 1 Adoption of Recent Accounting Pronouncements)	—			—		—			(1,398	)	—			—			—			(1,398	)		—
Cumulative translation adjustments	—			—		—			—		—			—			(2,885	)		(2,885	)		(2,885	)
Net unrealized loss on investments	—			—		—			—		—			—			(807	)		(807	)		(807	)
Other comprehensive loss																							(3,692	)
Total comprehensive loss																						$	(36,101	)
BALANCES AT APRIL 6, 2008	43,473,403		$	5	$	378,811		$	(234,887	)	(3,044,607	)	$	(32,697	)	$	(4,784	)	$	106,448
Issuance of common stock under stock incentive plans	336,521			—		2,309			—		6,655			72			—			2,381
Retirement of common stock	(19,988	)		—		(77	)		—		—			—			—			(77	)
Stock-based compensation expense, net of forfeitures	—			—		1,806			—		—			—			—			1,806
Effect of ASC 470-20 adoption (Note 1 Adoption of Recent Accounting Pronouncements)	—			—		—			(74	)	—			—			—			(74	)
Reissuance of treasury stock	—			—		—			(12	)	—			—			—			(12	)		—
Comprehensive loss:
Net loss	—			—		—			(16,271	)	—			—			—			(16,271	)		(16,271	)
Cumulative translation adjustments	—			—		—			—		—			—			177			177			177
Net unrealized loss on investments	—			—		—			—		—			—			(191	)		(191	)		(191	)
Other comprehensive loss																							(14	)
Total comprehensive loss																						$	(16,285	)
BALANCES AT MAY 4, 2008	43,789,936		$	5	$	382,849		$	(251,244	)	(3,037,952	)	$	(32,625	)	$	(4,798	)	$	94,187

The accompanying notes are an integral part of these consolidated financial statements.

66

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share data)

	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Treasury Stock					Accumulated Other Comprehensive Loss			Total Stockholders’ Equity (Deficit)			Comprehensive Loss
	Shares		Amount								Shares		Amount
BALANCES AT May 4, 2008 (CONTINUED)	43,789,936		$	5	$	382,849		$	(251,244	)	(3,037,952	)	$	(32,625	)	$	(4,798	)	$	94,187
Issuance of common stock under stock incentive plans	3,527,673			—		4,693			—		938			10			—			4,703
Retirement of common stock	(76,470	)		—		(1,342	)		—		—			—			—			(1,342	)
Repurchase of common stock	(18,291	)		—		(10	)		—		—			—			—			(10	)
Stock-based compensation expense, net of forfeitures	—			—		18,239			—		—			—			—			18,239
Stock option exchange	—			—		913			—		—			—			—			913
Effect of ASC 470-20 adoption (Note 1 Adoption of Recent Accounting Pronouncements)	—			—		—			(1,490	)	—			—			—			(1,490	)
Reissuance of treasury stock	—			—		—			(6	)	—			—			—			(6	)		—
Comprehensive loss:
Net loss	—			—		—			(127,750	)	—			—			—			(127,750	)		(127,750	)
Cumulative translation adjustments	—			—		—			—		—			—			(1,558	)		(1,558	)		(1,558	)
Net unrealized loss on investments	—			—		—			—		—			—			1,003			1,003			1,003
Other comprehensive loss																	(555	)		—			(555	)
Total comprehensive loss																	—			—		$	(128,305	)
BALANCES AT MAY 3, 2009	47,222,848		$	5	$	405,342		$	(380,490	)	(3,037,014	)	$	(32,615	)	$	(5,353	)	$	(13,111	)
Issuance of common stock under stock incentive plans	4,784,117			1		2,628			—		—			—			—			2,629
Retirement of common stock	(14,285	)		—		(1,654	)		—		—			—			—			(1,654	)
Repurchase of common stock	(4,408	)		—		—			—		—			—			—			—
Stock-based compensation expense, net of forfeitures	—			—		13,875			—		—			—			—			13,875
Effect of ASC 470-20 adoption (Note 1 Adoption of Recent Accounting Pronouncements)	—			—		(3,060	)		—		—			—			—			(3,060	)
Comprehensive loss:
Net loss	—			—		—			(3,334	)	—			—			—			(3,334	)		(3,334	)
Cumulative translation adjustments	—			—		—			—		—			—			373			373			373
Other comprehensive loss																	373			(2,961	)		(2,961	)
Total comprehensive loss																	—			—		$	(2,961	)
BALANCES AT MAY 2, 2010	51,988,272		$	6	$	417,131		$	(383,824	)	(3,037,014	)	$	(32,615	)	$	(4,980	)	$	(4,282	)

The accompanying notes are an integral part of these consolidated financial statements.

67

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Fiscal Year Ended									One month  ended May 4, 2008 (as adjusted)1
	May 2, 2010			May 3, 2009 (as  adjusted)1			April 6, 2008 (as  adjusted)1
Cash flows from operating activities:
Net loss	$	(3,334	)	$	(129,242	)	$	(33,808	)	$	(16,345	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		6,278			8,633			9,883			682
Amortization of intangible assets		4,978			28,270			30,277			2,425
In-process research and development		—			—			2,256			—
Provision for doubtful accounts (net of recovery)		(174	)		1,124			562			—
Amortization of debt discount and debt issuance costs		1,976			2,562			2,564			154
Amortization of debt premium		(240	)		—			—			—
Gain on extinguishment of convertible notes		(278	)		—			—			—
Loss on auction rate securities		1,407			2,174			—			—
Gain on purchased put option		(1,811	)		(1,732	)		—			—
(Gain) Loss on strategic equity investments		(2,647	)		290			481			17
Loss on disposal of property and equipment		—			—			17			—
Stock-based compensation		13,876			19,151			20,424			1,806
Tax benefits associated with exercise of stock options and debt issuance costs		—			—			53			—
Restructuring charges		340			2,505			—			—
Impairment of goodwill		—			60,089			—			—
Other non-cash items		40			(305	)		28			—
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		9,746			3,063			(648	)		6,174
Prepaid expenses and other assets		1,482			691			(1,561	)		(693	)
Accounts payable		1,008			(2,044	)		(1,447	)		(715	)
Accrued expenses		1,275			(11,152	)		(15,692	)		(1,138	)
Deferred revenue		(10,193	)		9,899			(3,373	)		1,764
Other long-term liabilities		(7,725	)		605			3,198			317
Net cash flows provided by (used in) operating activities		16,004			(5,419	)		13,214			(5,552	)
Cash flows from investing activities:
Cash paid for business and asset acquisitions, net of cash acquired		(1,943	)		(4,467	)		(8,288	)		(1,100	)
Purchase of property and equipment		(1,885	)		(1,147	)		(7,208	)		(617	)
Purchase of available-for-sale investments		—			—			(49,593	)		(5,000	)
Proceeds from maturities and sale of available-for-sale investments		1,475			5,000			38,950			3,000
(Purchase) Sale of strategic investments		4,633			(1,801	)		(1,275	)		—
Restricted cash		1,465			—			4,850			—
Net cash flows provided by (used in) investing activities		3,745			(2,415	)		(22,564	)		(3,717	)

The accompanying notes are an integral part of these consolidated financial statements.

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(in thousands)

	Fiscal Year Ended									One month  ended May 4, 2008 (as adjusted)1
	May 2, 2010			May 3, 2009 (as  adjusted)1			April 6, 2008 (as  adjusted)1
Cash flows from financing activities:
Proceeds from issuance of common stock, net		2,243			3,789			21,377			2,368
Repayment of 2% 2010 Notes		(26,689	)		—			—			—
Proceeds from 6% 2014 Notes		26,689			—			—			—
Issuance costs related to the 6% 2014 Notes		(1,852	)		—			(4,995	)		—
Issuance costs related to Term Debt		(823	)		—			—			—
Retirement of restricted stock		(1,270	)		(1,351	)		—			(77	)
Proceeds/(Repayments) from revolving note		(12,181	)		12,181			—			—
Proceeds from term debt		15,000			12,550			—			—
Repayment of lease obligations		(2,564	)		(1,972	)		(2,367	)		(360	)
Repayment of convertible notes		—			(15,216	)		(83	)		—
Repayment of secured credit line		(1,291	)		—			(3,000	)		—
Restricted cash		7,500			(9,215	)		—			—
Net cash provided by financing activities		4,762			766			10,932			1,931
Effect of foreign currency translation changes on cash and cash equivalents		119			327			50			(3	)
Net change in cash and cash equivalents		24,630			(6,741	)		1,632			(7,341	)
Cash and cash equivalents, beginning of period		32,888			39,629			45,338			46,970
Cash and cash equivalents, end of period	$	57,518		$	32,888		$	46,970		$	39,629
Supplemental disclosure of cash flow information
Non-cash investing and financing activities:
Purchase of equipment under capital leases	$	463		$	2,297		$	2,875		$	651
Purchase of software under installment payment agreement	$	—		$	909		$	—		$	—
Issuance of common stock in connection with acquisitions	$	—		$	908		$	22,632		$	—
Cash Paid for:
Interest	$	2,673		$	1,793		$	990		$	97
Income Taxes	$	674		$	1,942		$	1,488		$	184

1 May 3, 2009, April 6, 2008 and one month ended May 4, 2008 adjusted for adoption of ASC 470-20. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    The Company and Summary of Significant Accounting Policies

The Company

Magma Design Automation, Inc. (the “Company” or “Magma”), a Delaware corporation, was incorporated on April 1, 1997. The Company provides design and implementation, analysis and verification software that enables chip designers to reduce the time it takes to design and produce complex integrated circuits used in the communications, computing, consumer electronics, networking and semiconductor industries. The Company has licensed its products to major semiconductor companies and electronic products manufacturers in Asia, Europe and the United States.

Principles of consolidation

The consolidated financial statements of Magma include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Accounts denominated in foreign-currency have been translated from their functional currency to the U.S. dollar.

Change in fiscal year end

Prior to fiscal 2009, the Company had a 52-53 week fiscal year ending on the first Sunday subsequent to March 31. On January 28, 2008 the Company’s Board of Directors approved a change of fiscal year from a fiscal year ending on the first Sunday subsequent to March 31 to a fiscal year ending on the Sunday closest to April 30 (except for any given year in which April 30 is a Sunday, in which case the fiscal year will end on April 30), starting with fiscal 2009. The Company’s fiscal years consist of four quarters of 13 weeks each except for each fifth or sixth fiscal year, which includes one quarter with 14 weeks.

The Company’s 2009 fiscal year began on May 5, 2008 and ended on May 3, 2009, resulting in a one-month transition period that began on April 7, 2008 and ended on May 4, 2008. Information for the transition period was included in the Company’s Quarterly Report on Form 10-Q for the quarter ended August 3, 2008, which was filed with the SEC on September 12, 2008.

References in this Form 10-K to fiscal 2009 represent the 52 weeks ended May 3, 2009. References in this Form 10–K to fiscal 2008 represent the 52 weeks ended April 6, 2008. References in this Form 10–K to fiscal 2007 represent the 52 weeks ended April 1, 2007. The Company has not submitted financial information for the 52 weeks ended April 5, 2009 in this Form 10–K because the information is not practical or cost effective to prepare. The Company believes that the 52 weeks of fiscal 2008 provide a meaningful comparison to the 52 weeks of fiscal 2009 presented in this Form 10-K. The Company does not believe that there are any significant factors, seasonal or otherwise, that would impact the comparability of information or trends if results for the 52 weeks ended April 5, 2009 were presented in lieu of results for the 52 weeks ended May 3, 2009. The Company did not experience any unusual amount of business activity or product shipment in the transition month and have reported the loss incurred in that month in our consolidated statements of operations. All references to years or quarters in these notes to consolidated financial statements represent fiscal years or fiscal quarters, respectively, unless otherwise noted.

Accounting Corrections

As a part of the Company’s implementation of new automated controls in internal controls over financial reporting in the first quarter of fiscal 2009, the Company identified certain amounts in deferred revenue recorded after events occurred which required the recognition of revenue or the reduction of goodwill. The error resulted from amounts not recognized once final revenue recognition criteria were met; amounts not recognized within the write-down of an investment in a former customer; and amounts not adjusted to goodwill as part of the fair value adjustment to acquired deferred revenue within 12 months subsequent to acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company concluded the effect of the error was not material to any of the affected years and recorded the correction in the first quarter of fiscal 2009 as an increase in revenue and other income of $0.9 million and $0.2 million, respectively, and a decrease in goodwill and deferred revenue of $0.7 million and $1.8 million, respectively. As a result, the Company’s operating loss was decreased by $0.9 million and net loss was decreased by $1.1 million, or $0.02 per basic and diluted share, for fiscal 2009.

While preparing the second quarter of fiscal 2009 tax provision, the Company determined the previously reported $6.9 million deferred tax assets should have been reported net with long-term tax liabilities. Management determined that this classification was not material to previously issued interim and annual financial statements as it was limited to a balance sheet reclassification and did not affect the statements of operations or cash flows. The Company has reported net long term tax liabilities in the consolidated balance sheet at April 6, 2008 in conformity with the presentation at May 3, 2009.

While preparing the final fiscal 2009 tax provision, the Company determined that the previously reported $1.5 million tax liability related to the initial sale of certain intellectual property rights to a foreign subsidiary which was included in long-term tax liabilities should have been reported as a deferred tax liability of the US parent corporation and included as a component of total deferred tax assets for which the Company has provided a full valuation allowance. Accordingly, this liability should not be recorded in the financial statements but is disclosed in Note 17, Income Taxes. In addition, the Company has determined that an additional tax reserve of $3.7 million related to certain withholding taxes in South Korea should have been recorded. A $0.2 million tax reserve related to certain withholding taxes in Italy, which was included in long-term tax liabilities, was recorded in error. An additional $0.2 million tax reserve related to certain withholding taxes in Taiwan should have been recorded during fiscal 2008.

The Company concluded the effect of these errors was not material to any previously issued interim or annual financial statements. The Company recorded these corrections in the fourth quarter of fiscal 2009, but to improve comparability between fiscal 2009 and fiscal 2008, the Company elected to reflect the corrections as if they were corrected at the beginning of fiscal 2008. The effect of the corrections in fiscal 2008 is a net increase in long term tax liabilities of $3.9 million, offset by a reduction of beginning accumulated deficit of $2.3 million and a $1.6 million increase in provision for income taxes. As a result, the Company’s net loss was increased by $1.6 million, or $0.04 per basic and diluted share, for fiscal 2008. In fiscal 2009, the impact of these corrections is an increase in the provision for income taxes of $0.8 million, or $0.02 per basic and diluted share.

Use of estimates

Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management periodically evaluates such estimates and assumptions for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.

Revenue recognition

Revenue is comprised of licenses revenue, bundled licenses and services revenue, and services revenue. Licenses revenue consists of fees for time-based or perpetual licenses of the Company’s software products. Bundled licenses and services revenue consists of fees for software licenses and post-contract customer support (“PCS”), where the Company does not have vendor specific objective evidence (“VSOE”) of fair value of PCS.

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Services revenue consists of fees for services, such as customer training, consulting and PCS associated with unbundled license arrangements. PCS sold with unbundled license arrangements is renewable after the initial PCS period expires, generally in one-year increments for a fixed percentage of the net license fee.

The Company recognizes revenue in accordance with ASC 985-605, with respect to certain transactions. The Company recognizes revenue when all of the following criteria are met as set forth in ASC 985-605:

• Persuasive evidence of an arrangement exists,

• Delivery has occurred,

• The vendor’s fee is fixed or determinable, and

• Collectability is probable.

The Company defines each of the four criteria above as follows:

Persuasive evidence of an arrangement exists.    It is the Company’s customary practice to have a written contract, which is signed by both the customer and Magma, or a purchase order from those customers that have previously negotiated an end-user license arrangement or volume purchase agreement, prior to recognizing revenue on an arrangement.

Delivery has occurred.    The Company’s software may be either physically or electronically delivered to its customers. For those products that are delivered physically, the Company’s standard transfer terms are FOB shipping point. For an electronic delivery of software, delivery is considered to have occurred when the customer has been provided with the access codes that allow the customer to take immediate possession of the software on its hardware.

If an arrangement includes undelivered products or services that are essential to the functionality of the delivered product, delivery is not considered to have occurred.

The fee is fixed or determinable.    The fee customers pay for products is negotiated at the outset of an arrangement. If the license fees are a function of variable-pricing mechanisms such as the number of units distributed or copied by the customer, or the expected number of users in an arrangement, such fees are not recognized as revenue until such time as amounts become fixed or determinable. In addition, where the Company grants extended payment terms to a specific customer, the Company’s fees are not considered to be fixed or determinable at the inception of the arrangements.

The Company considers arrangements to have extended payment terms where less than 100% of the license and initial period PCS fee is due within one year from the order date. For bundled agreements, revenue from such arrangements is recognized at the lesser of the aggregate of amounts due and payable or ratably. For unbundled agreements, revenue from such arrangements is recognized as amounts become due and payable. Payments received from customers in advance of revenue being recognized are presented as deferred revenue on the consolidated balance sheets.

Collectability is probable.    Collectability is assessed on a customer-by-customer basis. The Company typically sells to customers for which there is a history of successful collection. New customers are subjected to a credit review process that evaluates the customers’ financial positions and ultimately their ability to pay. If it is determined from the outset of an arrangement that collectability is not probable based upon the Company’s credit review process, revenue is recognized on a cash receipts basis (as each payment is collected).

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Multiple element arrangements.    The Company allocates revenue on software arrangements involving multiple elements to each element based on the relative fair values of the elements. The Company’s determination of fair value of each element in multiple element arrangements is based on VSOE. The Company limits its assessment of VSOE for each element to the price charged when the same element is sold separately or renewal rates of PCS.

The Company has analyzed all of the elements included in its multiple-element arrangements and determined that it has sufficient VSOE to allocate revenue to the PCS components of its perpetual license products and consulting. Accordingly, assuming all other revenue recognition criteria are met, revenue from unbundled licenses is recognized upon delivery using the residual method and revenue from PCS is recognized ratably over the PCS term. If an unbundled arrangement involves extended payment terms, revenue recognized using the residual method is limited to amounts due and payable. The Company recognizes revenue from bundled licenses ratably over the term of the license period, as the license and PCS portions of a bundled license are not sold separately. Revenue from bundled arrangements with extended payment terms is recognized as the lesser of amounts due and payable or ratable portion of the entire fee.

Certain of the Company’s time-based licenses include the rights to specified and unspecified additional products. Revenue from contracts with the rights to unspecified additional software products is recognized ratably over the contract term. The Company recognizes revenue from time-based licenses that include both unspecified additional software products and extended payment terms that are not considered to be fixed or determinable in an amount that is the lesser of amounts due and payable or the ratable portion of the entire fee. Revenue from licenses that include a right to specified upgrades is deferred until the upgrades are delivered because there is no VSOE for the specific upgrade.

The Company provides design methodology assistance and specialized services relating to generalized turnkey design services. The Company has VSOE of fair value for consulting and training services. Therefore, revenue from such services is recognized when such services are performed. The Company’s consulting services generally are not essential to the functionality of the software. The Company’s software products are fully functional upon delivery and implementation does not require any significant modification or alteration. The Company’s services to its customers often include assistance with product adoption and integration and specialized design methodology assistance. Customers typically purchase these professional services to facilitate the adoption of the Company’s technology and dedicate personnel to participate in the services being performed, but they may also decide to use their own resources or appoint other professional service organizations to provide these services. Software products are billed separately and independently from consulting services, which are generally billed on a time-and-materials or milestone-achieved basis. The Company generally recognizes revenue from consulting services as the services are performed.

Cost of revenue

Cost of revenue includes cost of licenses revenue, cost of bundled licenses and services revenue and cost of services revenue. Cost of licenses revenue primarily consists of amortization of acquired developed technology and other intangible assets, software maintenance costs, royalties and allocated outside sale representative expenses. Cost of bundled licenses and services revenue includes allocation of license and service costs. Cost of services revenue primarily consists of personnel and related costs to provide product support, consulting services and training, as well as stock-based compensation, asset depreciation, and allocated outside sale representative expenses.

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Commission expense

The Company recognizes sales commission expense as it is earned by its employees based on the terms of the respective commission plan. According to the terms of the commission plan, commissions for orders recorded are paid by the Company to employees over a period of time, typically over two to six quarters, depending on the size of the respective orders.

Unbilled receivables

Unbilled receivables represent revenue that has been recognized in the financial statements in advance of contractual invoicing to the customer. The Company will invoice all of the unbilled receivables within one year. Unbilled receivables were approximately $2.9 million at each year end May 2, 2010 and May 3, 2009, and are included in accounts receivable on the consolidated balance sheets for each of these periods.

Research and development expenses

Research and development expenses are charged to expense as incurred.

Capitalized software

Costs incurred in connection with the development of software products are accounted for in accordance with ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility in the form of a working model has been established. To date, the Company’s software has been available for general release concurrent with the establishment of technological feasibility, and accordingly no costs have been capitalized to date.

Software included in property and equipment includes amounts paid for purchased software and customization services for software used internally, which has been capitalized in accordance with ASC 350-40, Accounting for Costs of Computer Software for Internal Use.

Foreign currency

Generally, financial statements of foreign subsidiaries are measured using the local currency of the subsidiary as the functional currency. Accordingly, assets and liabilities of the subsidiaries are translated at current rates of exchange at the balance sheet date, and all revenue and expense items are translated using average exchange rates. At May 2, 2010 and May 3, 2009, cumulative foreign currency translation gains and loss are included in accumulated other comprehensive loss on the consolidated balance sheets.

Derivative Financial Instruments

The Company accounts for its foreign currency exchange contracts in accordance with ASC 815. ASC 815 provides that derivatives that are not designated as hedging instruments be adjusted to fair value through earnings in the period of change in their fair value. The Company’s foreign currency exchange contracts are valued using Level 2 inputs.

The Company enters into foreign currency forward exchange contracts with financial institutions to minimize the impact of currency exchange rate movements on the Company’s operating results. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying expenses increase due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying expenses decrease due to changes in foreign exchange rates.

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company’s forward contracts are not designated as accounting hedges under ASC 815 and, therefore, the unrealized gains and losses are recognized in other expense, net, in the accompanying consolidated statements of operations, with the unrealized gains and losses of these forward contracts being recorded as accrued liabilities or other current assets. The Company does not use forward contracts for trading purposes.

The Company’s forward contracts each have maturities of less than one year. Recognized gains or losses with respect to current hedging activities will ultimately depend on how accurately the Company is able to match the amount of currency forward exchange contracts with underlying currency exposures.

The notional fair value of outstanding forward exchange contracts was approximately $2.1 million and $5.5 million as of May 2, 2010 and May 3, 2009, respectively. The Company had realized losses of $0.6 million, $0.8 million, $2.3 million and a realized gain of $0.3 million on foreign currency forward exchange contracts for the years ended May 2, 2010, May 3, 2009 and April 6, 2008 and the month ended May 4, 2008, respectively. As of May 2, 2010 the Company recorded an unrealized loss of approximately $19,000 in other current liabilities and an unrealized gain of approximately $110,000 as of May 3, 2009.

Cash equivalents, short-term and long-term investments

Cash equivalents consist of highly liquid debt instruments purchased with an original or remaining maturity of three months or less. Investments with an original maturity at the time of purchase between three and twelve months are classified as short-term investments and investments that have a maturity date more than twelve months from the balance sheet date are classified as long-term investments.

The Company accounts for its investments in accordance with ASC 320-10. These investments are typically classified as trading, and the gains or losses are recorded in other income or expense on the statement of operations or available-for-sale, and are recorded on the balance sheet at fair value as of the balance sheet date, with gains or losses considered to be temporary in nature reported as a component of other comprehensive income (loss) within the stockholders’ equity on the consolidated balance sheets. As of May 2, 2010, investments in ARS have been classified as trading, and are recorded on the balance sheet at fair value as of the balance sheet date, with gains or losses recorded as other income or expense on our consolidated statements of operations.

The Company measures fair value in accordance with the provisions in ASC 820. ASC 820 defines fair value and establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Short-term investments on the consolidated balance sheet as at May 2, 2010 consist of ARS that are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education and the UBS purchased put option. The ARS investments were classified as long-term investments on the consolidated balance sheet as at May 3, 2009. Historically, liquidity for investors in ARS was provided via an auction process that reset the applicable interest rate generally every 28 days, allowing investors to either roll over their investments or sell them at par. Beginning in the fourth quarter of fiscal 2008, there was insufficient demand for these types of investments during the auctions and, as a result, these securities are not currently liquid.

In October 2008, the Company entered into an agreement with UBS which provided it with Auction Rate Securities Rights (“Rights”) to sell the ARS at par value to UBS at any time during the period June 30, 2010 through July 2, 2012. These Rights are a separate freestanding instrument accounted for separately from the

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ARS, and are registered, nontransferable securities accounted for as a purchased put option initially recorded at fair value. Under the Rights agreement, UBS could, at its discretion, sell the ARS at any time through July 2, 2012 without prior notice to the Company and be required to pay the Company par value for the ARS within one day of the sale transaction settlement. Additionally, UBS offered a “no net cost” secured line of credit to the Company up to 75% of the market value of the ARS as determined by UBS that expired on June 30, 2010. Due to the Company entering into this agreement with UBS and enabling UBS to sell the ARS at any time, the ARS previously reported as available-for-sale have been transferred to trading securities as of May 2, 2010.

On July 2, 2010, the Company exercised its put option and liquidated the $16.8 million ARS and repaid the outstanding $11.2 million secured line of credit to UBS. (See Note 19, Subsequent Events)

As of May 2, 2010 there was insufficient observable market information available to determine the fair value of our ARS. Prior to November 2, 2008, the Company estimated Level 3 fair values for these securities based on the investment bank’s valuations. The investment bank valued student loan ARSs as floating rate notes with three pricing inputs: the coupon, the current discount margin or spread, and the maturity. The coupon was generally assumed to equal the maximum rate allowed under the terms of the instrument, the current discount margin was based on an assessment of observable yields on instruments bearing comparable risks, and the maturity was based on an assessment of the terms of the underlying instrument and the potential for restructuring the ARS. The primary unobservable input to the valuation was the maturity assumption, which was set at four years for the majority of ARS instruments. Through January 6, 2008, the ARS were valued at par value due to the frequent resets that historically occurred through the auction process.

As of May 2, 2010, the Company engaged a third party valuation service to model Level 3 fair value using an income approach and two scenarios: one based on a 0.2 year term and no put option, and a second based on a 4.0 year term with a put option. The Company reviewed the methodologies employed by the third party models. This included a review of all relevant data inputs and the appropriateness of key model assumptions.

The pricing assumptions for the ARS included the coupon rate, the estimated time to liquidity, current market rates for publicly traded student loans of similar credit rating and an adjustment for lack of liquidity. The student loans are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education, and have maturities ranging from 2031 to 2047. The coupon rate was assumed to equal the stated maximum auction rate being received, which is determined based on the applicable 91-day U.S. Treasury rate plus 1.20% premium according to provisions outlined in each security’s agreement. The current estimated time to liquidity was 4.0 years based on (i) expectations from industry brokers for liquidity in the market and (ii) the period over which UBS and other broker-dealers that had issued ARS have agreed to redeem certain ARS at par value.

The purchased put option gives the Company the right to sell the ARS to UBS for a price equal to par value during the period June 30, 2010 to July 2, 2012, providing liquidity for the ARS sooner than the estimated 4.0 years. As the Company plans to exercise the purchased put option on or around June 30, 2010, the value of the purchased put option was determined based on (i) the ability to sell the securities thereby creating liquidity approximately 0.2 year before the ARS market is expected to become liquid and (ii) the avoidance of receiving below-market coupon rate while the security is illiquid and auctions are failing. The fair value of the purchased put option represents the difference between the ARS with an estimated time to liquidity of 4.0 years and the ARS with an estimated time to liquidity of 0.2 year as the purchased put option allows for the acceleration of liquidity and the avoidance of a below-market coupon rate over the two year time period.

Based on the Level 3 valuation and the transfer of the ARS from the available-for-sale category to the trading category, the Company recorded an other-than-temporary loss of $2.8 million in valuation gain (loss), net

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MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in the second quarter of fiscal 2009, including the transfer of accumulated temporary losses of $0.9 million from other comprehensive loss previously recorded as a component of stockholder equity. For fiscal 2009, the total loss on the ARS, including the other than temporary loss of $0.3 million, was reported in the valuation gain (loss), net in the consolidated statement of operations, this loss was offset by gains related to the purchase put option of $0.7 million. For the year ended May 2, 2010, the Company recorded a realized gain on the ARS of $1.8 million, offset by losses related to the purchased put option of $1.4 million.

Restricted cash

The Company’s total restricted cash balance was $0.2 million and $9.2 million as of May 2, 2010 and May 3, 2009 respectively. The restricted cash as of May 3, 2009 consists of $7.5 million related to our revolving note (See Note 10, Revolving Note) and $1.5 million related to contingent payments related to acquisitions (See Note 6, Acquisitions)

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company’s cash, cash equivalents and short-term investments generally consist of government agencies, municipal obligations and money market funds with high-quality financial institutions. Accounts receivable are typically unsecured and are derived from license and service sales. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts.

At May 2, 2010 and May 3, 2009 one customer accounted for 10% and 21%, respectively, of accounts receivable. See Note 16, Segment Information, for disclosure on customers accounting for 10% or more of revenue for each of the fiscal years ended May 2, 2010, May 3, 2009 and April 6, 2008.

Trade accounts receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is Magma’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, current market trends, and for larger accounts, the ability to pay outstanding balances. Magma continually reviews its allowances for collectability. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Account balances are charged off against the allowance after collection efforts have been exhausted and the potential for recovery is considered remote.

Goodwill

In accordance with ASC 350-20, Magma conducts a goodwill impairment analysis annually and as necessary if changes in facts and circumstances indicate that the fair value of Magma’s reporting unit may be less than its carrying amount. Magma’s goodwill impairment test consists of the two steps required by ASC 350-20. Magma performed a goodwill impairment test at December 31, 2008 and recorded an impairment of goodwill of $60.1 million in fiscal 2009. In fiscal 2010, Magma did not record any impairment of goodwill. See Note 7, Goodwill and Other Intangible Assets, below for additional information regarding Magma’s goodwill impairment analysis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Leases

Magma uses operating leases in its operations. For leases that contain rent escalations or rent concessions, Magma records the total rent payable during the lease term on a straight-line basis over the term of the lease. Magma records the difference between the rents paid and the straight-line rent as a deferred rent liability in the accompanying Consolidated Balance Sheets.

Advertising

Magma expenses the costs of advertising as incurred. Advertising expense was approximately $0.2 million in fiscal 2010, $0.3 million in fiscal 2009, $0.3 million in fiscal 2008, and is included in Marketing and Sales in the accompanying Consolidated Statements of Operations. The Company did not incur any advertising expense for the month ended May 4, 2008.

Property and equipment

Property and equipment are recorded at cost. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the related assets, generally three to five years. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Maintenance and repair costs are charged to operations as incurred.

Property and equipment consisted of the following (in thousands):

	May 2, 2010			May 3, 2009
Property and equipment:
Computer equipment	$	30,827		$	32,896
Software		8,390			8,968
Furniture and fixtures		4,040			4,109
Leasehold improvements		5,701			5,502
Total Property and equipment		48,958			51,475
Accumulated depreciation and amortization		(42,979	)		(41,032	)
Net Property and equipment	$	5,979		$	10,443

Depreciation expense was $6.4 million, $8.6 million, $9.9 million and $0.7 million, respectively, for the years ended May 2, 2010, May 3, 2009, April 6, 2008 and the month ended May 4, 2008.

The cost of equipment acquired under capital leases included in property and equipment was $6.8 million, and $8.8 million respectively, as of May 2, 2010 and May 3, 2009. Accumulated amortization of the leased equipment was $4.7 million, and $4.9 million, respectively, as of May 2, 2010 and May 3, 2009. Amortization of assets reported under capital leases was included with depreciation expense.

Impairment of long-lived assets

In accordance with the provisions of ASC 360, the Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under ASC 360, an impairment loss would be recognized for assets to be held and used when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Strategic investments

The Company invests in debt and equity of private companies as part of its business strategy. Magma applies the guidance in ASC 325-20, as amended, and ASC 323, Investments—Equity Method and Joint Ventures (“ASC 323”), to classify investments as cost method investments or equity method investments. The Company regularly reviews the assumptions underlying the operating performance and cash flow forecasts based on information provided by these investee companies. Assessing each investment’s carrying value requires significant judgment by management as this financial information may be more limited, may not be as timely and may be less accurate than information available from publicly traded companies. If the Company determines, based on the best available evidence, that the carrying value of an investment is impaired, the Company writes down the carrying value of an investment to its estimated fair value and records the related write-down as a loss in equity investment, which is included in other income (expense), net in its consolidated statements of operations. No impairments have been recorded on the Company’s strategic investments.

The investments are included in other long-term assets in the consolidated balance sheets. The carrying value of the Company’s strategic investments was (in thousands):

	May 2, 2010		May 3, 2009
Non-Marketable Securities—Application of Cost Method	$	721	$	721
Non-Marketable Securities—Application of Equity Method		622		2,607
Total	$	1,343	$	3,328

The carrying value of a cost method non-marketable investment is the amount paid for the investment unless it has been determined to be other than temporarily impaired, in which case the Company writes the investment down to its estimated fair value.

For equity method investments where the Company’s ownership interest is between 20% to 50%, or where the Company can exercise significant influence on the investee’s operating or financial decisions, the Company records its share of net equity income (loss) of the investee based on its proportionate ownership. During the first quarter of fiscal 2009 the Company made an additional investment in Zerosoft, Inc of $1.0 million, which increased its ownership in that company to 35%. The Company also invested $0.8 million in Helic, Inc. during the first quarter of fiscal 2009, bringing its ownership in Helic to 8%. In addition, one of the Company’s executives is a member of the board of directors of Helic, which permits the Company to exercise significant influence on Helic’s operating decisions.

During the fourth quarter of fiscal 2010, Synopsys, Inc. purchased 100% of the outstanding stock of Zerosoft, Inc., for $24.0 million in cash and future contingent cash payments. Magma held a 35% ownership interest in Zerosoft, Inc. at the time of the sale resulting in $4.7 million in cash at closing and $4.3 million in contingent proceeds. The contingent proceeds consist of a holdback amount equal to 10% of the initial consideration to be held in escrow and released for payment 15 months from the date of the agreement to secure the indemnification obligations of the sellers, and earnout consideration based upon the achievement of certain annual product performance improvement milestones for the three years subsequent to the sale agreement. The proceeds (net of expenses) received on sale of the investment was recorded in the Statement of Operations in Other Income.

The holdback amount and earnout consideration are gain contingencies each representing incremental income and will be recognized when all contingencies are resolved.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the year ended May 2, 2010, the Company recorded a gain, net of its share of loss in the Company’s strategic investment of $2.7 million. The Company recorded its share of net loss incurred by the Company’s strategic investments as a net loss on equity investments of $0.3 million, $0.5 million and $0.1 million for fiscal years ended May 3, 2009, April 6, 2008 and the month ended May 4, 2008, respectively.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely than not that all or a portion of the deferred tax assets will not be realized.

Treasury stock reissuance

Shares of common stock repurchased by the Company are recorded at cost as treasury stock and result in a reduction of stockholders’ equity in the Company’s consolidated balance sheets. From time to time, treasury shares may be reissued as part of the Company’s stock-based compensation programs. When shares are reissued, the Company uses the weighted average cost method for determining cost. If the issuance price is higher than the cost, the excess of the issuance price over cost is credited to additional paid-in capital (“APIC”). If the issuance price is lower than the cost, the difference is first charged against any credit balance in APIC from treasury stock and the balance is charged to retained earnings (accumulated deficit). During the years ended May 2, 2010 and May 3, 2009, the Company recorded $0, and $6,000, respectively, of such charges to accumulated deficit.

Stock-based compensation

Effective April 3, 2006, the Company accounts for stock-based employee compensation arrangements under ASC 718, which requires the fair value recognition of share-based payment arrangements, including stock options, restricted stock, restricted stock units and shares issued under the Employee Stock Purchase Plan (“ESPP”). Additionally, the Company elected to use the straight-line method to recognize its stock-based compensation expenses over the options and awards vesting periods. For options and awards granted prior to adoption of ASC 718, the Company continues to record stock-based compensation expenses under the accelerated attribution method.

The Company uses the Black-Scholes option pricing model to determine the fair value of each stock option grant and each purchase right granted under its ESPP. The fair value of each restricted stock and restricted stock unit is determined using the fair value of the Company’s common stock on the date of the grant. Determining the fair value of stock-based awards at the grant date requires the input of various highly subjective assumptions, including expected future stock price volatility, expected term of instruments and expected forfeiture rates. The Company established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of the Company’s historical weekly stock price volatility and average implied volatility. The risk-free interest rate for the period within the expected life of the option is based on the yield of United States Treasury notes at the time of grant. Magma has not historically paid dividends, thus the expected dividends used in the calculation are zero.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has not provided an income tax benefit for stock-based compensation expense for current and prior year periods because it is more likely than not that the deferred tax assets associated with this expense will not be realized. To the extent the Company realizes the deferred tax assets associated with the stock-based compensation expense in the future, the income tax effects of such an event may be recognized at that time. Prior to the adoption of ASC 718, the Company presented all tax benefits for deductions resulting from the exercise of stock options as operating cash flows on its statement of cash flows. ASC 718 requires the cash retained as a result of tax benefits for tax deductions in excess of the compensation expense recorded for those options to be classified as cash from financing activities. The Company recorded no such excess tax benefits for the fiscal year ended May 2, 2010, May 3, 2009, April 6, 2008 and the month ended May 4, 2008.

Fair value of financial instruments

Financial instruments consist of cash and cash equivalents, short and long-term investments, accounts receivable and payable, accrued liabilities, convertible notes, auction rate securities and purchased put options. The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable and payable and accrued liabilities approximate their fair values because of the short-term nature of those instruments (See Note 3, Fair Value of Financial Instruments). The Company has estimated the fair value of its convertible subordinated notes and its ARS investment and the put option related to the ARS by using available market information and valuation methodology in accordance with ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three levels:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The following table summarizes the Company’s carrying values and market-based fair values of these financial instruments as of May 2, 2010 and May 3, 2009 (in thousands):

	Carrying Value		Estimated Fair Value
May 2, 2010
Convertible senior notes due 2010	$	23,250	$	23,250
Convertible senior notes due 2014	$	26,689	$	47,405
Auction rate securities	$	16,512	$	16,512
Purchased put options	$	325	$	325
May 3, 2009
Convertible senior notes due 2010	$	49,221	$	31,212
Auction rate securities	$	16,176	$	16,176
Purchased put options	$	1,732	$	1,732

Information on the carrying value of the convertible notes is provided in Note 9, Convertible Notes. Information on the carrying value of the ARS and purchased put option is provided in Note 3, Fair Value of Financial Instruments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comprehensive income (loss)

ASC 220, Comprehensive Income (“ASC 220”), requires companies to classify items of other comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of the balance sheet. Comprehensive income includes all changes in equity (net assets) during a period from non-owner sources. Accumulated other comprehensive income or loss is shown in the consolidated statement of stockholders’ equity.

Components of accumulated other comprehensive losses as of May 2, 2010 and May 3, 2009 were as follows (in thousands):

	Year Ended
	May 2, 2010			May 3, 2009
Unrealized gain on available-for-sale investments	$	—		$	(2	)
Foreign currency translation adjustments		(4,980	)		(5,351	)
Accumulated Other Comprehensive loss	$	(4,980	)	$	(5,353	)

Adoption of New Accounting Pronouncements

On May 4, 2009, the Company adopted ASC 470-20, which clarifies the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). ASC 470-20 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. ASC 470-20 requires retrospective application of its provisions. The Company has determined this new guidance affects the 2% Convertible Senior Notes due 2010 (the “2010 Notes”). Upon adoption of ASC 470-20, with the assistance of a third party valuation firm, the Company estimated the fair value of the 2010 Notes as of the date of issuance to be $43.1 million, assuming a 7.5% non-convertible borrowing rate. The non-convertible borrowing rate was determined utilizing debt yields of publicly traded debt of comparable companies. The difference between the fair value and the net proceeds of the 2010 Notes was $4.8 million. This amount was retrospectively recorded as additional debt discount and as an increase to additional paid-in capital as of the issuance date. The discount is being accreted to interest expense over the three-year period to the due date of the notes in 2010 resulting in an increase in non-cash interest expense in prior, current, and future periods.

As further described in Note 9, Convertible Notes, on September 11, 2009 the Company completed an exchange offer pursuant to which an aggregate principal amount of $26.7 million of its 2010 Notes were exchanged for $26.7 million principal amount of newly issued 6% Convertible Senior Notes due 2014 (“2014 Notes”). The exchange offer was treated as an extinguishment of the $26.7 million principal amount of the 2010 Notes. In conjunction with this exchange, the Company recognized a net gain of $0.3 million on the extinguishment of the 2010 Notes. The net gain is comprised of a $1.2 million gain on extinguishment of the 2010 Notes, offset by the write-off of approximately $0.8 million and $0.1 million in debt discount and issuance costs, respectively, related to the 2010 Notes exchanged. As of May 2, 2010, the remaining balance of the debt discount and unamortized debt issuance costs related to the 2010 Notes were $44,000 and $8,000, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The carrying amounts of the 2010 Notes are as follows (in thousands):

	Balance at
	May 2, 2010			May 3, 2009
	As Reported			As Reported			As Adjusted
Equity component of 2% Convertible Senior Notes net of issuance costs of $8 (additional paid-in capital)	$	1,568		$	—		$	4,628
Principal amount of 2% Convertible Senior Notes	$	23,250		$	49,939		$	49,939
Unamortized discount of 2% Convertible Senior Notes		(44	)		(718	)		(2,339	)
Liability component of 2% Convertible Senior Notes	$	23,206		$	49,221		$	47,600

The unamortized discount and issuance costs will be amortized through May 15, 2010. Interest and amortization expense of the 2010 Notes, net of the 2010 Note exchange and write-off of the debt discount and issuance costs, recognized in the consolidated statements of operations are as follows (in thousands):

	Year Ended									One Month Ended May 4, 2008
	May 2, 2010			May 3, 2009			April 6, 2008
Cash interest expense recognized (2% coupon)	$	658		$	989		$	999		$	83
Non-cash interest expense recognized
Amortization of discount		1,473			2,179			2,089		$	139
Amortization of issuance costs		258			381			366			24
	$	2,389		$	3,549		$	3,454		$	246
Effective interest rate		7.3	%		7.1	%		6.9	%		5.9	%

The following table presents the effect of the retrospective application of ASC 470-20 made to the Company’s previously reported consolidated statements of operations for the fiscal year ended May 3, 2009, April 6, 2008 and the one month ended May 4, 2008 (in thousands):

	Year Ended May 3, 2009						Year Ended April 6, 2008						One Month Ended May 4, 2008
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
Operating loss	$	(124,198	)	$	(124,198	)	$	(24,732	)	$	(24,732	)	$	(15,804	)	$	(15,804	)
Other income (expense):
Interest income		637			637			2,021			2,021			108			108
Interest and amortization of debt discount expense		(2,865	)		(4,357	)		(2,467	)		(3,866	)		(176	)		(250	)
Valuation gain (loss), net		(442	)		(442	)		—			—			—			—
Other income (expense), net		(118	)		(118	)		(591	)		(591	)		(24	)		(24	)
Other income (expense), net		(2,788	)		(4,280	)		(1,037	)		(2,436	)		(92	)		(166	)
Net loss before income taxes		(126,986	)		(128,478	)		(25,769	)		(27,168	)		(15,896	)		(15,970	)
Provision for income taxes		764			764			6,640			6,640			375			375
Net loss	$	(127,750	)	$	(129,242	)	$	(32,409	)	$	(33,808	)	$	(16,271	)	$	(16,345	)
Net loss per share basic and diluted	$	(2.86	)	$	(2.89	)	$	(0.80	)	$	(0.83	)	$	(0.38	)	$	(0.38	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the effect of the retrospective application of ASC 470-20 made to the Company’s previously reported consolidated balance sheet as of May 3, 2009 (in thousands):

	May 3, 2009
	As Reported			As Adjusted
Other assets	$	5,707		$	5,665
Total Assets	$	127,075		$	127,033
Convertible notes	$	49,221		$	47,600
Additional paid-in capital	$	400,713		$	405,342
Accumulated deficit	$	(377,440	)	$	(380,490	)
Total stockholders deficit	$	(14,690	)	$	(13,111	)
Total liabilities and stockholders deficit	$	127,075		$	127,033

The following table presents the effect of the retrospective application of ASC 470-20 and related tax effects made to the Company’s previously reported consolidated statement of cash flows for the fiscal year ended May 3, 2009, April 6, 2008 and the one month ended May 4, 2008 (in thousands):

	Year Ended May 3, 2009						Year Ended April 6, 2008						One Month Ended May 4, 2008
	As Reported			As Adjusted			As Reported			As Adjusted			As Reported			As Adjusted
Net Loss	$	(127,750	)	$	(129,242	)	$	(32,409	)	$	(33,808	)	$	(16,271	)	$	(16,345	)
Amortization of debt discount and debt issuance costs	$	1,066		$	2,562		$	1,165		$	2,564		$	80		$	154
Net cash flows provided/(used) in operating activities	$	(5,419	)	$	(5,419	)	$	13,214		$	13,214		$	(5,552	)	$	(5,552	)

As of May 2, 2010, the if-converted value of the 2010 Notes did not exceed their principal amount.

In February 2008, the FASB issued amendment to ASC 820, Fair Value Measurements and Disclosures, which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and nonfinancial liabilities. Accordingly, ASC 820 became effective for the Company on May 4, 2009. The adoption of ASC 820 did not have a material impact on the Company’s consolidated financial position or results of operations.

In August 2009, the FASB issued an update, Measuring Liabilities at Fair Value, to ASC 820, Fair Value Measurements and Disclosures, to provide additional clarification in circumstances in which a quoted price in an active market for the identical liability is not available. In these circumstances, the Company is required to measure fair value using a valuation technique that uses (a) the quoted price of the identical liability when traded as an asset, or (b) quoted prices for similar liabilities or similar liabilities when traded as assets. If neither of these is available, the Company will use another valuation technique that is consistent with the principles of ASC 820. Two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The update also clarifies that when estimating the fair value of a liability, the Company is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. In addition, the update also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This update was effective for the Company beginning with the third quarter of fiscal 2010. The adoption of this update did not result in a change to the Company’s valuation technique or related inputs of its liabilities measured at fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In January 2010, the FASB issued an update, Improving Disclosures about Fair Value Measurements, to ASC 820, Fair Value Measurements and Disclosures, to provide additional disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which shall be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. In the period of initial adoption, the reporting entity is not required to provide the disclosures to previous periods presented for comparative purposes, but will be required to provide this comparative information for periods ending after initial adoption. The Company has adopted the additional disclosures requirements effective with this quarterly report. See Note 3, Fair Value of Financial Instruments.

In February, 2010, the FASB issued an update, Amendments to Certain Recognition and Disclosure Requirements, to ASC 855, Subsequent Events (“ASC 855”), to clarify (a) an SEC filer or (b) a conduit bond obligor for conduit debt securities that are traded in a public market, is required to evaluate subsequent events through the date that the financial statements are issued. However an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between ASC 855 and the SEC’s disclosure requirements. The update is effective for interim and annual reporting periods beginning after February 24, 2010. Except for conduit debt obligors, the amendment is effective for interim or annual periods ending after June 15, 2010. The Company has adopted the disclosure requirements effective with this Form 10-K. (See Note 19, Subsequent Events)

Recently issued accounting pronouncements

In January 2009, the SEC issued Release No. 33-9002, Interactive Data to Improve Financial Reporting . The final rule requires companies to provide their financial statements and financial statement schedules to the SEC and on their corporate websites in interactive data format using the eXtensible Business Reporting Language (“XBRL”). The rule was adopted by the SEC to improve the ability of financial statement users to access and analyze financial data. The SEC adopted a phase-in schedule indicating when registrants must furnish interactive data. Under this schedule, the Company will be required to submit filings with financial statement information using XBRL commencing with its July 31, 2011 quarterly report on Form 10-Q. The Company is currently evaluating the impact of XBRL reporting on its financial reporting process.

In June 2009, the FASB issued an update to ASC 810, Consolidation (“ASC 810”), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The modification clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This modification to ASC 810 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. It also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. This modification to ASC 810 is effective for fiscal years beginning after November 15, 2009 and is effective for the Company on May 3, 2010. The Company expects this modification may have an impact on the Company’s financial position and results of operations in future periods, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the transactions the Company consummates in the future.

In October 2009, the FASB issued an amendment to ASC 605-25, Multiple Element Arrangements (“ASC 605-25”), which modifies how a company separates consideration in multiple-delivery arrangements. The amendment establishes a selling price hierarchy for determining the selling price of a deliverable. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amendment also clarifies the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. The amendment also eliminates the residual method of allocating revenue and requires the use the relative selling price method. This amendment to ASC 605-25 is effective for new revenue arrangements entered into or modified in fiscal years beginning after June 15, 2010. Early adoption is permitted. The adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued an amendment to ASC 985-605, which modifies the accounting model for revenue arrangements that include both tangible products and software elements. This amendment to ASC 985-605 is effective for new revenue arrangements entered into or modified in fiscal years beginning after June 15, 2010. Early adoption is permitted. The Company does not sell products that include both tangible products and software elements, therefore this amendment will not impact the Company’s consolidated financial statements.

In April 2010, the FASB issued an amendment to ASC 605, Revenue Recognition, to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. This amendment to ASC 605 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. The Company does not provide research or development for others and does not recognize revenue using the milestone method, therefore this amendment will not impact the Company’s consolidated financial statements.

Note 2.    Fair Value Option

During the second quarter of fiscal 2009, the Company elected fair value accounting for the purchased put option recorded in connection with the ARS settlement agreement signed with UBS (see Note 3 Fair Value of Financial Instruments). This election was made in order to mitigate volatility in earnings caused by accounting for the purchased put option and underlying ARS under different methods. The election of fair value led to a $0.4 million loss for fiscal 2010, included in “Valuation gain (loss), net” with the purchased put option asset recorded in long-term investments pledged as collateral for the secured credit line.

Note 3.     Fair Value of Financial Instruments

The Company measures certain assets based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company’s assets measured at fair value on a recurring basis at May 2, 2010, were as follows (in thousands):

	Balance at May 2, 2010			Significant Other Observable Inputs (Level 2)			Significant Unobserved Inputs (Level 3)
Short-term investments, pledged as collateral for secured credit line:
Auction rate securities	$	16,512		$	—		$	16,512
Purchased put option		325			—			325
Total short-term investments, pledged		16,837			—			16,837
Total assets measured at fair value	$	16,837		$	—		$	16,837
Accrued expenses:
Foreign currency forward contract		(19	)		(19	)		—
Total liabilities measured at fair value	$	(19	)	$	(19	)	$	—

The following table is a reconciliation of financial assets measured at fair value using significant unobservable inputs (Level 3) during fiscal year ended May 2, 2010 (in thousands):

	Year Ended May 2, 2010			Year Ended May 3, 2009
Beginning balance	$	17,908		$	—
Net sales and settlements		(1,475	)		—
Transfers in and/or (out) of Level 3		—			17,462
Gain/(Losses) on auction rate securities		1,811			(1,290	)
Acquisition of purchased put option		—			1,076
Gain/(Losses) on put option		(1,407	)		660
Ending balance	$	16,837		$	17,908

Cash, cash equivalents, and short-term and long-term investments are included in the consolidated balance sheets as follows (in thousands):

	Cost		Gross Realized Gains		Gross Realized Losses			Estimated Fair Value
May 2, 2010
Cash and cash equivalents
Cash (U.S. and international)	$	57,518	$	—	$	—		$	57,518
Total cash and cash equivalents		57,518		—		—			57,518
Short-term investments:
Auction rate securities		16,875		—		(38	)		16,837
Total cash and cash equivalents and short-term investments	$	74,393	$	—	$	(38	)	$	74,355

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	Cost		Gross Realized Gains		Gross Realized Losses			Estimated Fair Value
May 3, 2009
Cash and cash equivalents
Cash (U.S. and international)	$	32,888	$	—	$	—		$	32,888
Total cash and cash equivalents		32,888		—		—			32,888
Long-term investments:
Auction rate securities		18,350		—		(442	)		17,908
Total cash and cash equivalents and long-term investments	$	51,238	$	—	$	(442	)	$	50,796

As of May 2, 2010, the stated maturities of the Company’s current investments classified as cash and cash equivalent and short-term investments are $74.4 million within one year.

The realized losses for the year ended May 2, 2010 were primarily associated with failed ARS as discussed above. Gross realized losses from the sales of marketable securities were immaterial for all periods presented.

The notional fair value of outstanding forward exchange contracts was approximately $2.1 million and $5.5 million as of May 2, 2010 and May 3, 2009, respectively. The Company had realized losses of $0.6 million, $0.8 million, $2.3 million, and a realized gain of $0.3 million on foreign currency forward exchange contracts for the years ended May 2, 2010, May 3, 2009, and April 6, 2008, and the month ended May 4, 2008, respectively. As of May 2, 2010, the Company recorded an unrealized loss of $19,000 in other current assets, and a $110,000 unrealized gain in other current assets as of May 3, 2009.

Short-term investments on the consolidated balance sheet as at May 2, 2010 consist of ARS that are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education and the UBS purchased put option. The ARS investments were classified as long-term investments on the consolidated balance sheet as at May 3, 2009. Historically, liquidity for investors in ARS was provided via an auction process that reset the applicable interest rate generally every 28 days, allowing investors to either roll over their investments or sell them at par. Beginning in the fourth quarter of fiscal 2008, there was insufficient demand for these types of investments during the auctions and, as a result, these securities are not currently liquid.

In October 2008, the Company entered into an agreement with UBS which provided it with Auction Rate Securities Rights (“Rights”) to sell the ARS at par value to UBS at any time during the period June 30, 2010 through July 2, 2012. These Rights are a separate freestanding instrument accounted for separately from the ARS, and are registered, nontransferable securities accounted for as a purchased put option initially recorded at fair value. Under the Rights agreement, UBS could, at its discretion, sell the ARS at any time through July 2, 2012 without prior notice to the Company and be required to pay the Company par value for the ARS within one day of the sale transaction settlement. Additionally, UBS offered a “no net cost” secured line of credit to the Company of up to 75% of the market value of the ARS as determined by UBS that expired on June 30, 2010. Due to the Company entering into this agreement with UBS and enabling UBS to sell the ARS at any time, the ARS previously reported as available-for-sale have been transferred to trading securities.

On July 2, 2010, the Company exercised its put option and liquidated the $16.8 million ARS and repaid the outstanding $11.2 million secured line of credit to UBS. (See Note 19, Subsequent Events)

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As of May 2, 2010 there was insufficient observable market information available to determine the fair value of our ARS. Prior to November 2, 2008, the Company estimated Level 3 fair values for these securities based on the investment bank’s valuations. The investment bank valued student loan ARSs as floating rate notes with three pricing inputs: the coupon, the current discount margin or spread, and the maturity. The coupon was generally assumed to equal the maximum rate allowed under the terms of the instrument, the current discount margin was based on an assessment of observable yields on instruments bearing comparable risks, and the maturity was based on an assessment of the terms of the underlying instrument and the potential for restructuring the ARS. The primary unobservable input to the valuation was the maturity assumption, which was set at four years for the majority of ARS instruments. Through January 6, 2008, the ARS were valued at par value due to the frequent resets that historically occurred through the auction process.

As of November 2, 2008, the Company engaged a third party valuation service to model Level 3 fair value using an income approach. The Company reviewed the methodologies employed by the third party models. This included a review of all relevant data inputs and the appropriateness of key model assumptions (in thousands):

	Balance at May 2, 2010			Fair Value at May 2, 2010
				Significant Other Observable Inputs (Level 2)		Significant Unobserved Inputs (Level 3)
Trading Securities
Student Loans AAA rating
Market Value per UBS @75% liquidity	$	11,283		$	—	$	11,283
Add: Value of the illiquid portion using 0.2 year term		5,554			—		5,554
Fair Value of Student Loans using 0.2 year term	$	16,837		$	—	$	16,837
Student Loans AAA rating
Value of security before liquidity adjustment	$	17,272		$	—	$	17,272
Less: Discount for lack of liquidity using the 4.0 year term		(760	)		—		(760	)
Total student loans AAA rating		16,512			—		16,512
Purchased Put Option
Value of put option prior to risk adjustment		326			—		326
Less: Adjustment of credit risk @0.15%		(1	)		—		(1	)
Total purchased put option		325			—		325
Fair Value of Student Loans using a 4.0 year term	$	16,837		$	—	$	16,837

The pricing assumptions for the ARS included the coupon rate, the estimated time to liquidity, current market rates for publicly traded student loans of similar credit rating and an adjustment for lack of liquidity. The student loans are AAA rated and are secured by pools of student loans guaranteed by state regulated higher education agencies and reinsured by the U.S. Department of Education, and have maturities ranging from 2031 to 2047. The coupon rate was assumed to equal the stated maximum auction rate being received, which is determined based on the applicable 91-day U.S. Treasury rate plus 1.20% premium according to provisions outlined in each security’s agreement. The estimated time to liquidity was 4.0 years based on (i) expectations from industry brokers for liquidity in the market and (ii) the period over which UBS and other broker-dealers that had issued ARS have agreed to redeem certain ARS at par value.

The purchased put option gives the Company the right to sell the ARS to UBS for a price equal to par value during the period June 30, 2010 to July 2, 2012, providing liquidity for the ARS sooner than the estimated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.0 years. As the Company plans to exercise the purchased put option on or around June 30, 2010, the value of the purchased put option was determined based on (i) the ability to sell the securities thereby creating liquidity approximately 0.2 year before the ARS market is expected to become liquid and (ii) the avoidance of receiving below-market coupon rate while the security is illiquid and auctions are failing. The fair value of the purchased put option represents the difference between the ARS with an estimated time to liquidity of 4.0 years and the ARS with an estimated time to liquidity of 0.2 year as the purchased put option allows for the acceleration of liquidity and the avoidance of a below-market coupon rate over the two year time period.

Based on the Level 3 valuation and the transfer of the ARS from the available-for-sale category to the trading category, the Company recorded an other-than-temporary loss of $2.8 million in valuation gain (loss), net in the second quarter of fiscal 2009, including the transfer of accumulated temporary losses of $0.9 million from other comprehensive loss previously recorded as a component of stockholder equity. For fiscal 2009, total other-than-temporary impairment loss on auction rate securities of $0.3 million was reported in the valuation gain (loss), net in the consolidated statement of operations, this loss was offset by gains related to the purchase put option of $0.7 million. For the year ended May 2, 2010, the Company recorded a realized gain on the ARS of $1.8 million, offset by losses related to the purchased put option of $1.4 million.

Note 4.    Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with ASC 260, Earnings per Share (“ASC 260”). Basic net income (loss) per share is computed by dividing net income (loss) attributed to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted net income (loss) per share gives effect to all dilutive potential common shares outstanding during the period including stock subject to repurchase, stock options and warrants using the treasury stock method and convertible subordinated notes using the if-converted method.

For each of the three years ended May 2, 2010, May 3, 2009 April 6, 2008, and the month ended May 4, 2008, all potential common shares outstanding during the period were excluded from the computation of diluted net loss per share as their effect would be anti-dilutive. Such shares included the following (in thousands, except per share data):

	Year Ended						One Month Ended  May 4, 2008
	May 2, 2010		May 3, 2009		April 6, 2008
Shares of common stock issuable upon conversion of convertible notes		19,706		3,329		3,995		3,995
Shares of common stock issuable under stock option plans outstanding		9,064		9,152		12,217		12,249
Weighted average price of shares issuable under stock option plans	$	6.51	$	6.73	$	10.69	$	10.69

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5.    Balance Sheet Components

Significant components of certain balance sheet items are as follows (in thousands):

	May 2, 2010			May 3, 2009
Accounts receivable, net:
Trade accounts receivable	$	14,475		$	23,946
Unbilled receivable		2,943			2,880
Gross accounts receivable		17,418			26,826
Allowance for doubtful accounts		(17	)		(191	)
Total accounts receivable	$	17,401		$	26,635
Accrued expenses:
Accrued sales commissions	$	2,098		$	1,548
Accrued bonuses		4,456			2,693
Other payroll and related accruals		4,168			5,244
Acquisition accrual		353			1,780
Accrued professional fees		475			—
Income taxes payable		277			(452	)
Restructuring accrual		2,366			1,426
Other		2,154			3,114
Total accrued expenses	$	16,347		$	15,353

Note 6.    Acquisitions

The Company did not make any acquisitions or material asset purchases during the fiscal years ended May 3, 2009 or May 2, 2010.

On February 26, 2008, the Company acquired Sabio, a privately-held developer of analog design solutions for mixed-signal designers. Sabio’s software enables designers to create robust analog designs, efficiently port complex circuits to new process technologies in foundries, and explore system design trade-offs early in the design process. The total purchase price for the acquisition was $16.5 million, consisting of approximately 1,574,000 shares of the Company’s common stock valued at $16.2 million and transaction costs of $270,000. As part of the initial consideration, approximately 127,000 shares of the Company’s common stock valued at $1.3 million was associated with employee retention and is being earned and recorded as compensation expenses in accordance with such employees’ vesting schedules. In addition, the Company agreed to pay up to $7.5 million of contingent consideration in the form of cash or shares of Magma common stock, at the Company’s discretion, to the former Sabio stockholders upon achieving certain product integration and booking milestones.

Pursuant to the agreement to acquire Sabio, the Company held back cash consideration of $1.5 million and approximately 213,000 shares of Company common stock valued at $2.2 million to secure certain indemnification obligations of Sabio that may arise for a 15-month period from the date of acquisition. The Company classified the $1.5 million of cash as restricted cash. The Sabio indemnification period ended May 26, 2009, accordingly, the Company released the restricted cash.

For a number of Magma’s previously completed acquisitions, the Company agreed to pay contingent considerations in cash and/or stock to former stockholders of the acquired companies based on the acquired

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business’ achievement of certain technology or financial milestones. The following table summarizes the amounts of goodwill and intangible assets recorded by the Company for contingent considerations paid or payable to former stockholders of the acquired companies (in thousands):

	Year Ended												One Month  Ended May 4, 2008
	May 2, 2010				May 3, 2009				April 6, 2008
	Cash		Common Stock Value		Cash		Common Stock Value		Cash		Common Stock Value		Cash		Common Stock Value
Goodwill:
Sabio Labs, Inc	$	427	$	—	$	2,484	$	—	$	—	$	—	$	—	$	—
ACAD Corporation		—		—		—		—		2,825		—		—		—
Other		—		—		—		—		25		—		—		—
Total Goodwill	$	427	$	—	$	2,484	$	—	$	2,850	$	—	$	—	$	—
Intangible assets:
Mojave	$	—	$	—	$	920	$	908	$	2,199	$	2,198	$	—	$	—
Other		347		—		102		—		3,003		—		500		—
Total intangible assets	$	347	$	—	$	1,022	$	908	$	5,202	$	2,198	$	500	$	—
Total earnout consideration	$	774	$	—	$	3,506	$	908	$	8,052	$	2,198	$	500	$	—

Note 7.    Goodwill and Other Intangible Assets

The following table summarizes the components of goodwill, other intangible assets and related accumulated amortization balances, which were recorded as a result of business combinations and asset purchases (in thousands):

	Weighted Average Life (months)	May 2, 2010									May 3, 2009
		Gross Carrying Amount		Goodwill Impairment		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Goodwill Impairment			Accumulated Amortization			Net Carrying Amount
Goodwill		$	7,093	$	—	$	—		$	7,093	$	66,755	$	(60,089	)	$	—		$	6,666
Other intangible assets:
Developed technology	43	$	115,436			$	(112,897	)	$	2,539	$	115,436				$	(110,794	)	$	4,642
Licensed technology	40		42,046				(39,291	)		2,755		41,699					(37,291	)		4,408
Customer relationship or base	70		5,575				(3,981	)		1,594		5,575					(3,376	)		2,199
Patents	57		13,015				(13,004	)		11		13,015					(12,836	)		179
Acquired customer contracts	33		1,390				(1,090	)		300		1,390					(1,090	)		300
Assembled workforce	45		1,252				(1,248	)		4		1,252					(1,244	)		8
No shop right	24		100				(100	)		—		100					(100	)		—
Non-competition agreements	36		600				(572	)		28		600					(500	)		100
Trademark	67		900				(644	)		256		900					(566	)		334
Total		$	180,314	$	—	$	(172,827	)	$	7,487	$	179,967	$	—		$	(167,797	)	$	12,170

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The increase in gross carrying amount of goodwill and intangible assets is the result of payment of contingent consideration discussed in Note 6, Acquisitions.

In accordance with ASC 350-20 goodwill is reviewed annually or whenever events or circumstances occur which indicate that goodwill might be impaired. ASC 350-20 provides for a two-step approach to determining whether and by how much goodwill has been impaired. The first step requires a comparison of the fair value of the Company (reporting unit) to its net book value. If the fair value is greater, then no impairment is deemed to have occurred. If the fair value is less, then the second step must be performed to determine the amount, if any, of actual impairment. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In estimating the fair value of the Company, the Company made estimates and judgments about future revenues and cash flows for its reporting unit.

To determine the fair value, the Company uses a market approach. Under the market approach, the fair value of the reporting unit is based on quoted market prices and the number of shares outstanding of our common stock. If the fair value is greater than net book value, no impairment is deemed to have occurred. If the fair value is less, then the second step must be performed to determine the amount, if any, of actual impairment. The Company uses the income method for the second step. The income method is based on a discounted future cash flow approach that uses estimates including the following for the reporting unit: revenue, based on assumed market growth rates and its assumed market share; estimated costs; and appropriate discount rates based on the particular business’s weighted average cost of capital. The Company’s estimates of market segment growth, market segment share and costs are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates it uses to manage the underlying business. The Company’s business consists of both established and emerging technologies and its forecasts for emerging technologies are based upon internal estimates and external sources rather than historical information.

During fiscal 2010, the Company conducted its annual goodwill impairment test at December 31, 2009 using the market approach for the first step. At December 31, 2009, the Company determined that the fair value of its reporting unit is greater than the book value of the net assets of the reporting unit and therefore concluded there is no impairment of goodwill.

During fiscal 2009, the Company conducted its annual goodwill impairment test at December 31, 2008. The Company concluded that events had occurred and circumstances had changed during the third quarter of fiscal 2009 which showed the existence of impairment indicators, including a significant decline in the Company’s stock price and continued deterioration in the EDA software products market and the related impact on revenue forecasts of the Company. Consistent with the Company’s approach in its annual impairment testing, in assessing the fair value of the reporting unit, the Company considered both the market approach and income approach. At December 31, 2008, using the step one market approach, the Company determined that the fair value of its reporting unit was less than the book value of the net assets of the reporting unit and accordingly, the Company performed step two of the impairment test.

In step two of the impairment test, the Company determined the implied fair value of the goodwill and compared it to the carrying value of the goodwill. With the assistance of a third party valuation firm, the Company allocated the fair value of the reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is the implied fair value of goodwill. The Company’s step two analysis resulted in a reduction in fair value of goodwill and the Company therefore recognized an impairment charge of $60.1 million in fiscal 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company’s intangible assets include acquired intangibles, excluding goodwill. Acquired intangibles with definite lives are amortized on a straight-line basis over the remaining estimated economic life of the underlying products and technologies (original lives assigned are one to six years). The Company reviews its long-lived assets for impairment in accordance with ASC 360. For assets to be held and used, the Company initiates its review whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of an asset is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. If it is determined that an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset exceeds its fair value. Based on the Company’s review, no impairment is indicated.

The Company has included the amortization expense on intangible assets that relate to products sold in cost of license revenue, while the remaining amortization is shown as a separate line item on the Company’s consolidated statement of operations. The amortization expense related to intangible assets was as follows (in thousands):

	Year Ended						One Month Ended  May 4, 2008
	May 2, 2010		May 3, 2009		April 6, 2008
Amortization of intangible assets included in:
Cost of revenue—licenses	$	2,746	$	18,680	$	18,078	$	1,494
Cost of revenue—bundled licenses and services		1,098		6,596		4,156		397
Operating expenses		1,134		2,994		8,043		534
Total	$	4,978	$	28,270	$	30,277	$	2,425

As of May 2, 2010 the estimated future amortization expense of other intangible assets in the table above is as follows (in thousands):

Fiscal Year	Estimated Amortization Expense
2011		4,059
2012		1,998
2013		1,023
2014 and thereafter		407
Total expected future amortization	$	7,487

Note 8.    Restructuring Charge

During fiscal 2008, the Company recorded a restructuring charge of $0.3 million for costs related to termination of 21 employees resulting from the Company’s realignment to current business objectives.

In fiscal 2009, the Company initiated an additional restructuring plan (“FY 2009 Restructuring Plan”) designed to improve its cost structure and to align better its resources and improve operating efficiencies. The Company recorded pre-tax restructuring charges of $10.7 million and $2.7 million during fiscal 2009 and fiscal 2010, respectively, in connection with the FY 2009 Restructuring Plan. These costs relate to severance, expatriate relocation, facilities consolidation and termination, and other costs related to the restructuring. The Company is in the process of evaluating the need for additional restructuring activities during fiscal 2011.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The cash payments associated with the net restructuring liability are expected to be paid through fiscal 2011. The restructuring liability activity was as follows (in thousands):

	Severance			Relocation		Facilities and Other			Net Liability
Balance at May 3, 2009	$	374		$	9	$	1,799		$	2,182
Restructuring provision		3,104			—		(374	)		2,730
Cash payments		(1,480	)		—		(997	)		(2,477	)
Balance at May 2, 2010	$	1,998		$	9	$	428		$	2,435

Note 9.    Convertible Notes

The Company’s 2010 Notes mature on May 15, 2010 and bear interest at 2% per annum, with interest payable on May 15 and November 15 of each year, commencing May 15, 2007. As of May 2, 2010, after the note exchange described below, the principal balance outstanding on the 2010 Notes was approximately $23.2 million. This amount is included in current liabilities. The 2010 Notes are convertible into shares of the Company’s common stock at an initial conversion price of $15.00 per share, for an aggregate of approximately 1.55 million shares. The 2010 Notes are unsecured senior indebtedness of Magma, which rank equally in right of payment to Magma’s Wells Fargo credit facility and the 2014 Notes. The 2010 Notes are effectively subordinated in right of payment to the Wells Fargo credit facility to the extent of the security interest held by Wells Fargo Bank in the assets of the Company. The Company has the option to redeem the 2010 Notes for cash in an amount equal to 100% of the aggregate outstanding principal amount at the time of such redemption. The 2010 Notes also contain a net share settlement provision that requires the Company to deliver to a holder upon conversion of the holder’s 2010 Notes cash equal to the lesser of $1,000 and the conversion value of the 2010 Notes, and in the event that the conversion value is in excess of $1,000 upon conversion of the 2010 Notes, cash or common stock at the Company’s election.

On May 15, 2010, the Company repaid the $23.2 million remaining outstanding balance of the 2010 Notes. (See Note 19, Subsequent Events)

As more fully described in Note 1, The Company and Summary of Significant Accounting Policies, Adoption of New Accounting Pronouncements, in May 2008, the FASB issued ASC 470-20, which clarifies the accounting for convertible debt instruments that may be settled in cash upon conversion. The Company has determined this new guidance affects its 2010 Notes. Retrospective adoption requires the Company to adjust its accounting for the 2010 Notes in its Consolidated Financial Statements for all prior periods presented. As adjusted, the Company initially recorded the 2010 Notes at fair value of $43.1 million, net of the debt discount of $6.9 million. The debt discount is being amortized to interest expense over the term of the 2010 Notes. The $1.3 million of underwriting and legal fees related to the 2010 Notes offering was capitalized upon issuance and is being amortized over the term of the 2010 Notes using the effective interest method.

The shares issuable upon conversion of the 2010 Notes are included in “diluted shares outstanding” under the if-converted method of accounting for purposes of calculating diluted earnings per share unless they are determined to be anti-dilutive. For the fiscal years ended May 2, 2010, May 3, 2009, April 6, 2008 and one month ended May 4, 2008, the shares were excluded from the computation of diluted net earnings (loss) per share as their effect was anti-dilutive.

On September 11, 2009, the Company completed an exchange offer pursuant to which an aggregate principal amount of $26.7 million of its 2010 Notes were exchanged for $26.7 million principal amount of newly issued 2014 Notes. Because the terms of the 2014 notes were substantially different from the 2010 Notes, the exchange offer was treated as an extinguishment of the $26.7 million principal amount of the 2010 Notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In accordance with ASC 470-20, the fair value of the 2014 Notes when issued is allocated between the fair market value of the 2010 Notes extinguished and a reacquisition of the equity component recognized upon issuance of the 2010 Notes. The Company initially recorded the 2014 Notes at fair value of $28.5 million, including a debt premium of $1.8 million. The debt premium is being amortized to interest expense over the term of the 2014 Notes. $1.9 million of underwriting and legal fees related to the 2014 Notes offering was capitalized upon issuance and is being amortized over the term of the 2014 Notes using the effective interest method, and $3.0 million was recorded for the reacquisition of the equity component as a reduction to additional paid-in-capital.

The Company recognized a net gain of $0.3 million on the extinguishment of the 2010 Notes. The net gain is comprised of a $1.2 million gain on the difference between the fair market value of the 2014 Notes and the $26.7 million principal amount extinguished of the 2010 Notes, which is offset by the reacquisition of the equity component and the write-off of approximately $0.8 million and $0.1 million in debt discount and issuance costs, respectively, related to the 2010 Notes exchanged.

As of May 2, 2010, the remaining balance of the debt discount and unamortized debt issuance costs related to the remaining 2010 Notes were $44,000 and $8,000, respectively.

The Company’s 2014 Notes mature on May 15, 2014 and bear interest at 6% per annum, with interest payable on May 15 and November 15 of each year, commencing May 15, 2010. The 2014 Notes are convertible into shares of the Company’s common stock at an initial conversion price of $1.80 per share, for an aggregate of approximately 14.83 million shares. Upon conversion, the holders of the 2014 Notes will receive shares of the Company. Except in limited specific circumstances related to a change in control that are excluded from ASC 470-20, holders will not receive a cash settlement. Therefore, the 2014 Notes are not subject to the provisions of ASC 470-20. The 2014 Notes are unsecured senior indebtedness of Magma, which rank equally in right of payment to Magma’s Wells Fargo credit facility and the 2010 Notes. The 2014 Notes are effectively subordinated in right of payment to the Wells Fargo credit facility to the extent of the security interest held by Wells Fargo Bank in the assets of the Company. After May 15, 2013, the Company has the option to redeem the 2014 Notes for cash in an amount equal to 100% of the aggregate outstanding principal amount at the time of such redemption.

Note 10.    Term Loan and Revolving Loans

Effective as of October 31, 2008, the Company entered into a secured revolving line of credit facility with Wells Fargo Bank, N.A. (the “Credit Facility”). As amended by the First Amendment dated March 11, 2009, the Second Amendment dated May 21, 2009, and the Third Amendment dated October 1, 2009. The Credit Facility (i) provided for a single revolving line of credit note of up to $15 million which replaced the two previous $7.5 million revolving line of credit notes, (ii) eliminated the requirement that Magma maintain a minimum accounts receivable borrowing base and cash collateral, and (iii) extended the term of the line of credit to September 30, 2010. The note bears an annual interest rate equal to a fluctuating rate of 3.5% above the one month LIBOR rate on outstanding borrowings. The Credit Facility also required that the Company provide certain financial statements to Wells Fargo, restricted the Company’s ability to pay dividends or make other distributions on its stock and required that the Company maintain certain financial conditions. In connection with the Third Amendment to the Credit Facility the Company released a $7.5 million collateralized certificate of deposit classified as restricted cash as of May 3, 2009.

On March 19, 2010, the Company entered into a new credit facility with Wells Fargo Capital Finance, LLC (the “New Credit Facility”), which replaced our existing $15.0 million Credit Facility. The New Credit Facility

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provides for a revolving loan not to exceed $15.0 million and a term loan of $15.0 million. The New Credit Facility expires March 19, 2014, and is secured by a first priority interest in all the Company’s assets. The term loan will be repaid in equal quarterly installments of $0.6 million, beginning October 31, 2010.

Under the terms of the New Credit Facility, outstanding borrowings and letter of credit liabilities may not, at any time, exceed the greater of $30.0 million or 40% of all “post-contract support” revenues and “time based license fee” revenues for the preceding twelve-month period. These requirements could, but to date have not, limited our borrowing availability.

The revolving and term loans bear interest at either a LIBOR Rate or a Base Rate, at managements election, in each case determined as follows and plus a margin of 4.50 percentage points: (A) if at a LIBOR Rate, at a per annum rate equal to the LIBOR Rate of the greater of (i) 1.00% per annum or (ii) the one, two or three month LIBOR rate quoted by Bloomberg and (B) if at the Base Rate the greatest of (i) the Federal Funds Rate plus 1/2%, (ii) the three month LIBOR Rate plus 1 percentage point and (iii) the Wells Fargo prime rate. In addition, the Company is required to pay fees of 0.5% per annum on the unused amount of the New Credit Facility, 2.5% per annum for each letter of credit issued and quarterly administrative fees of $10,000.

The Company is required to pay interest and fees monthly, with the outstanding principal amount plus all accrued but unpaid interest and fees payable in full at the maturity date of March 19, 2014.

The proceeds of the credit facility are intended to refinance some of the Company’s existing indebtedness, including repayment of the Credit Facility, a portion of the Company’s 2010 Notes, finance general corporate purposes, including permitted acquisitions and permitted investments, capital expenditures, working capital, letters of credit, and fees and expenses associated with the New Credit Facility. As of May 2, 2010, the Company had withdrawn $15.0 million of term debt, and used the proceeds to pay off the outstanding revolving note of $12.2 million under the Credit Facility, with the balance retained in cash to fund other corporate needs.

The New Credit Facility contains covenants that, among other things, limit the Company’s ability to create liens, merge, consolidate, dispose of assets, incur indebtedness and guarantees, repurchase or redeem capital stock and indebtedness, make certain investments, acquisitions and capital expenditures, enter into certain transactions with affiliates or change the nature of our business. Events of Default under the Credit Agreement include, but are not limited to, payment defaults, covenant defaults, breaches of representations and warranties, cross defaults to certain other material agreements and indebtedness, bankruptcy and other insolvency events, actual or asserted invalidity of security interests or loan documents, and certain change of control events.

The credit facility restricts the Company’s ability to pay dividends or make other distributions on the Company’s stock and requires that the Company maintain certain financial conditions. The unused amount of the New Credit Facility as of May 2, 2010 is $13.3 million. As of May 2, 2010, the Company was in compliance with the covenants contained in the New Credit Facility.

Note 11.    Secured Line of Credit

In October 2008, the Company obtained a line of credit with UBS in conjunction with the ARS settlement agreement (see Note 3, Fair Value of Financial Instruments). The line of credit is due on demand and allows for borrowings of up to 75% of the market value of the ARS, as determined by UBS, pledged as collateral for the line of credit. As of May 2, 2010, UBS determined the ARS market value to be $15.0 million. Prior to January 22, 2009 advances under this agreement bore interest at LIBOR plus 1.0% with interest payments payable monthly. All interest, dividends, distributions, premiums, other income and payments received into the ARS investment account at UBS will be automatically transferred to UBS as payments on the line of credit.

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Additionally, proceeds from any liquidation, redemption, sale or other disposition of all or part of the ARS will be automatically transferred to UBS as payments. If these payments are insufficient to pay all accrued interest by the monthly due date, then UBS will either require the Company to make additional interest payments or, at UBS’ discretion, capitalize unpaid interest as an additional advance. UBS’ intent is to cause the interest rate payable by the Company to be equal to the weighted average interest or dividend rate payable to the Company on the ARS pledged as collateral. Upon cancellation of the line of credit, the Company will be reimbursed for any amount paid in interest on the line of credit that exceeds the income on the ARS.

Effective January 22, 2009, the line of credit converted to a 100% Loan-to-Par Value No Net Cost loan program. Under this program the interest rate is based on the lesser of either the weighted average ARS coupon rate or the published UBS Bank rate. This new rate applies to existing outstanding balances and new advances.

Advances on this line of credit may be used to fund working capital requirements, capital expenditures or other general corporate purposes, except that they may not be used to purchase trade or carry any securities or to repay debt incurred to purchase, trade or carry any securities.

There was $11.2 million outstanding on this line of credit at May 2, 2010, which is the maximum available for borrowing. On July 2, 2010 the Company exercised its put option and liquidated the ARS, the proceeds received were used to pay off the secured line of credit. (See Note 19 Subsequent Events)

Note 12.    Stockholders’ Equity

Stock Incentive Plans

2004 Employment Inducement Award Plan

The 2004 Employment Inducement Award Plan (“Inducement Plan”) was adopted by the Board of Directors on August 30, 2004. Under the Inducement Plan, the Company, with the approval of the Compensation Committee of the Board of Directors (the “Committee”), may grant non-qualified stock options to new hire employees who are not executive officers of the Company. These employees may also be awarded restricted common shares, stock appreciation rights (“SARs”) or stock unit awards (“Stock Units”). The Committee determines whether an award may be granted, the number of shares/options awarded, the date an award may be exercised, vesting and the exercise price. Each award must be subject to an agreement between each applicable employee and the Company. The term of the Inducement Plan continues until May 4, 2011 unless it is terminated earlier in accordance with its terms. The initial number of shares of common stock issuable under the Inducement Plan was 1,000,000 shares, subject to adjustment for certain changes in the Company’s capital structure. On January 24, 2006, the Inducement Plan was amended by the Committee to increase the maximum aggregate number of options, SARs, Stock Units and restricted shares that may be awarded under the Inducement Plan to 2,000,000 shares. As of May 2, 2010, there were options to purchase 82,172 shares outstanding under the Inducement Plan, and 1,455,342 shares were available for the grant of future options or other awards under the Inducement Plan.

2001 Stock Incentive Plan

The 2001 Stock Incentive Plan (“2001 Plan”) was approved by the stockholders in August 2001. Under the 2001 Plan, the Company, with the approval of the Committee or its delegates, may grant incentive stock options or non-qualified stock options to purchase common stock to employees, directors, advisors, and consultants. They may also be awarded restricted common shares, SARs or Stock Units based on the value of the common stock. The initial number of shares of common stock issuable under the 2001 Plan was 2.0 million shares, subject to adjustment for certain changes in the Company’s capital structure. As of January 1 of each year, commencing

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with January 1, 2002, the aggregate number of options, restricted awards, SARs, and Stock Units that may be awarded under the 2001 Plan will automatically increase by a number equal to the lesser of 6% of the total number of fully diluted shares of common stock then outstanding, 6.0 million shares of common stock, or any lesser number as is determined by the Board of Directors. A committee of the Board of Directors determines the exercise price per share; however, the exercise price of an incentive stock option cannot be less than 100% of the fair market value of the common stock on the option grant date, and the exercise price of a non-qualified stock option cannot be less than the par value of the common stock subject to such non-qualified stock options. As of May 2, 2010, there were options to purchase 8,615,315 shares outstanding under the 2001 Plan, and 5,625,026 shares were available for the grant of future options or other awards under the plan.

1997 and 1998 Stock Incentive Plans

In the fiscal year ended March 31, 1998, the Company adopted the 1997 Stock Incentive Plan (“1997 Plan”), and in the fiscal year ended March 31, 1999 the Company adopted the 1998 Stock Incentive Plan (“1998 Plan”) (collectively, “the Plans”). Under the Plans, the Company may grant options to purchase common stock to employees, directors, and consultants. Shares that are subject to options that in the future expire, terminate or are cancelled or as to which options have not been granted under these plans will not be available for future option grants or issuance. Options granted under the Plans were either incentive stock options or non-qualified stock options. The exercise price of incentive stock options and non-qualified stock options were no less than 100% and 85%, respectively, of the fair market value per share of the Company’s common stock on the grant date (110% of fair market value in certain instances), as determined by the Board of Directors. Pursuant to the Plans, the Board of Directors also had the authority to set the term of the options (no longer than ten years from the date of grant, five years in certain instances). Under the terms of the Plans, the options become exercisable prior to vesting, and the Company has the right to repurchase such shares at their original purchase price if the optionee is terminated from service prior to vesting. Such rights expire as the options vest over the vesting period, which is generally four years. At May 2, 2010, there were no unvested shares subject to the Company’s repurchase rights.

As a result of the 2001 Plan becoming effective, no shares of the Company’s common stock are available for future issuance under the Plans. At May 2, 2010, there were no outstanding options under the 1997 Plan; options to purchase 366,212 shares were outstanding under the 1998 Plan.

2005 Key Contributor Long-Term Incentive Plan

The 2005 Key Contributor Long-Term Incentive Plan (“KC Incentive Plan”) was adopted by the Board of Directors on December 23, 2004. Awards under the KC Incentive Plan are granted in exchange for a participant’s contributions to Magma. Awards may include (i) cash payments, and/or (ii) shares of Magma’s restricted stock granted under the 2001 Plan, that vest while the participant remains employed by and in good standing with Magma. KC Incentive Plan participants may receive cash awards prior to such awards becoming fully vested and earned. These awards are considered recoverable advances and are to be repaid to Magma in the event that the participant’s employment with Magma is terminated prior to an award being earned. All executive officers, as well as certain other participants who receive a restricted stock award under the KC Incentive Plan, will have accelerated vesting of such award upon a change in control of Magma. Effective upon a change in control, 25% of a participant’s unvested shares of restricted stock granted under the KC Incentive Plan will immediately become vested shares. In addition, if the participant is, or is deemed to have been, involuntarily terminated within one year after Magma’s change in control, 50% of the remaining unvested shares of restricted stock will vest. If the award so states, participants that receive a cash or stock award under the KC Incentive Plan will not be eligible to receive equity grants under Magma’s 2001 Plan, or cash awards under any other Magma cash variable award plans, until such award is fully vested. As of May 2, 2010, no shares of restricted stock, net of forfeitures, remained unvested under the KC Incentive Plan.

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2001 Employee Stock Purchase Plan

The 2001 Employee Stock Purchase Plan (“Purchase Plan” or “ESPP”) was established in November 2001. Employees, including officers and employee directors but excluding 5% or greater stockholders, are eligible to participate if they are employed for more than 20 hours per week and five months in any calendar year. The Purchase Plan provided for a series of overlapping offering periods with a duration of 24 months, with new offering periods, except the first offering period, which commenced on November 19, 2001, beginning in February, May, August, and November of each year. The Purchase Plan was amended in April 2008 to provide that future offering periods would commence on the first day of March, June, September and December of each year and that purchase dates under the new offering periods would be the last day of February, May, August and November. In February 2009, the Purchase Plan was amended and the maximum number of shares a participant could purchase during a single accumulation was decreased from 4,000 shares to 2,500 shares. The Purchase Plan allows employees to purchase common stock through payroll deductions of up to 15% of their eligible compensation. Such deductions will accumulate over a three-month accumulation period without interest. After such accumulation period, shares of common stock will be purchased at a price equal to 85% of the fair market value per share of common stock on either the first day preceding the offering period or the last date of the accumulation period, whichever is less. During the year ended May 2, 2010, May 3, 2009 and the one month ended May 4, 2008, a total of 2,355,171, and 2,009,043 and 304,900 shares were issued under the Purchase Plan with an average price of $0.95, $1.85 and $7.51 per share respectively.

As of May 2, 2010, a total of 1,629,922 shares of common stock remained available for issuance under the Purchase Plan. Starting with fiscal 2003, the number of shares reserved for issuance is increased on January 1 of each calendar year through fiscal 2011 by the lesser of 3,000,000 shares, 3% of the outstanding common stock on the last day of the immediately preceding fiscal year, or such lesser number of shares as is determined by the Board or the Compensation Committee of the Board.

Option Exchange Program

In November 2008, the Company filed a Tender Offer Statement on Schedule TO with the SEC relating to an offer by the Company to exchange (the “Exchange Offer”) certain options to purchase up to an aggregate of 6,223,830 shares of the Company’s Common Stock, whether vested or unvested, that were granted with an exercise price per share above $4.00. These eligible options could be exchanged for Restricted Stock Units (“RSUs”) upon the terms and subject to the conditions set forth in the Exchange Offer. The Company’s executive officers, members of the Company’s Board of Directors, and the Company’s consultants were not eligible to participate in the Exchange Offer.

The Exchange Offer permitted eligible option holders to exchange eligible underwater options for a lesser number of RSUs. The exchange ratio was determined based on the pricing of the original option. The new RSUs have vesting terms based on the individual option holder’s service history with the Company.

Options to purchase 5,374,016 shares of the Company’s common stock at an average exercise price of $9.92 per share were exchanged for 1,813,303 RSU shares. The option exercise prices ranged from $4.34 to $25.85 per share. The RSUs were issued on December 18, 2008 when the market price and the fair value was $0.98 per share of common stock. There is no exercise price for the RSUs. As of December 18, 2008, there was unamortized expense of $5.2 million remaining on the cancelled and unvested option shares.

With the assistance of a third party actuarial firm, the Company determined incremental value of the RSUs to be $1.4 million; therefore the total expense to be amortized over the vesting period of the RSUs is $6.6 million, or $3.66 per share.

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Repurchases of Common Stock

On February 21, 2008, the Company announced that its Board of Directors authorized Magma to repurchase up to $20.0 million of its common stock. In March 2008, the Company used approximately $5.0 million to repurchase 499,500 shares of its common stock in the open market, with repurchase prices ranging from $9.81 to $10.22 per share. The repurchased shares are to be used for general corporate purposes.

Note 13.    Employee Benefit Plan

Effective April 1, 1997, the Company adopted a plan (the “401(k) Plan”) that is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986. The 401(k) Plan covers essentially all employees. Eligible employees may make voluntary contributions to the 401(k) Plan up to 100% of their annual eligible compensation, subject to limitations under IRS regulations. The Company is permitted to make contributions to the 401(k) Plan as determined by the Board of Directors. The Company has not made any contributions to the 401(k) Plan.

Note 14.    Stock-Based Compensation

The stock-based compensation recognized in the consolidated statements of operations was as follows (in thousands):

	Year Ended						One Month Ended May 4, 2008
	May 2, 2010		May 3, 2009		April 6, 2008
Cost of revenue	$	1,569	$	1,551	$	1,680	$	113
Research and development expense		4,598		7,405		8,050		764
Sales and marketing expense		3,964		5,280		5,235		545
General and administrative expense		3,745		4,915		5,459		384
Total stock-based compensation expense	$	13,876	$	19,151	$	20,424	$	1,806

The Company has adopted several stock incentive plans providing stock-based awards to employees, directors, advisors and consultants, including stock options, restricted stock and restricted stock units. The Company also has an Employee Stock Purchase Plan which enables employees to purchase shares of the Company’s common stock. Stock-based compensation expense recognized under ASC 718, in the consolidated statements of operations by type of award in fiscal years 2010, 2009, 2008 and the month ended May 4, 2008, was as follows (in thousands):

	Year Ended						One Month Ended May 4, 2008
	May 2, 2010		May 3, 2009		April 6, 2008
Stock options	$	2,725	$	6,279	$	10,549	$	644
Restricted stock and restricted stock units		7,479		9,594		6,666		806
Employee stock purchase plan		3,672		3,278		3,209		356
Total stock-based compensation expense	$	13,876	$	19,151	$	20,424	$	1,806

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Stock Options and Employee Stock Purchase Plan

The Company uses the Black-Scholes option pricing model to determine the fair value of its stock options and ESPP awards. The Black-Scholes option pricing model incorporates various highly subjective assumptions, including expected future stock price volatility and expected terms of instruments. The Company established the expected term for employee options and awards, as well as forfeiture rates, based on the historical settlement experience, while giving consideration to vesting schedules and to options that have life cycles less than the contractual terms. Assumptions for option exercises and pre-vesting terminations of options were stratified for employee groups with sufficiently distinct behavior patterns. Expected future stock price volatility was developed based on the average of the Company’s historical weekly stock price volatility and average implied volatility. The risk-free interest rate for the period within the expected life of the option is based on the yield of United States Treasury notes at the time of grant. The expected dividend yield used in the calculation is zero as the Company has not historically paid dividends.

The assumptions used in the Black-Scholes model and the weighted average grant date fair value per share were as follows:

	Year Ended						One Month Ended May 4, 2008
	May 2, 2010		May 3, 2009		April 6, 2008
Stock options:
Expected life (years)	3.23		3.56		4.16		4.10
Volatility	71 – 88	%	46 – 81	%	39 – 45	%	45	%
Risk-free interest rate	1.50 – 2.10	%	1.20 – 3.56	%	2.16 – 4.91	%	2.79	%
Expected dividend yield	0	%	0	%	0	%	0	%
Weighted average grant date fair value	$1.30		$0.79		$4.86		3.62
ESPP awards:
Expected life (years)	1.13		1.13		1.13		1.13
Volatility	71 – 88	%	45 – 81	%	39 – 45	%	45	%
Risk-free interest rate	0.29% – 0.54	%	0.67 – 2.25	%	2.13 – 4.91	%	2.13% – 2.15	%
Expected dividend yield	0	%	0	%	0	%	0	%
Weighted average grant date fair value	$0.88		$2.07		$4.52		$4.45

As of May 2, 2010, there was approximately $4.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock option grants, which will be recognized over the remaining weighted average vesting period of approximately 2.03 years.

As of May 2, 2010, the Company had $2.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to ESPP, which will be recognized over the remaining weighted average vesting period of 1.13 years. Cash received from the purchase of shares under the ESPP was $2.2 million during fiscal 2010, $3.7 million during fiscal 2009 and $8.4 million during fiscal 2008 and $2.3 million during the month ended May 4, 2008.

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A summary of the changes in stock options outstanding and exercisable under the Company’s stock incentive plans during the fiscal years ended May 2, 2010 and May 3, 2009 is as follows (in thousands, except year and per share amount):

	Number of Shares		Weighted Average Price per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at May 4, 2008	12,249		$	10.69	2.02	$	523
Granted	4,645		$	1.58
Exercised	(14	)	$	5.92
Forfeited	(2,505	)	$	9.82
Expired	(5,223	)	$	9.95
Options outstanding at May 3, 2009	9,152		$	6.73	3.74	$	2,910
Granted	1,228		$	2.28
Exercised	(350	)	$	1.10
Forfeited	(561	)	$	2.15
Expired	(405	)	$	9.30
Options outstanding at May 2, 2010	9,064		$	6.51	3.00	$	9,798
Vested and expected to vest at May 2, 2010	8,404		$	6.79	2.94	$	8,569
Exercisable at May 2, 2010	6,107		$	8.46	2.60	$	4,147

The total intrinsic value of options exercised was $0.5 million, $17,000, $9.1 million and zero, during fiscal 2010, fiscal 2009 and fiscal 2008 and the month ended May 4, 2008, respectively. Cash received from stock option exercises was $0.4 million in fiscal 2010, $0.1 million during fiscal 2009 and $15.0 million during fiscal 2008 and $0.1 million during the month ended May 4, 2008.

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock units were granted to employees at par value under the Company’s stock incentive plans and KC Incentive Plan, or assumed in connection with an acquisition. In general, restricted stock and restricted stock unit awards vest over two to four years and are subject to the employees’ continuing service to the Company.

The cost of restricted stock and restricted stock unit awards is determined using the fair value of the Company’s common stock on the date of the grant, and compensation expense is recognized over the vesting period, which is generally one to four years.

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A summary of the changes in restricted stock outstanding during the fiscal years ended May 2, 2010 and May 3, 2009 is presented below (in thousands, except per share amount):

	Number of Shares		Weighted Average Grant Date Fair Value per Share
Shares nonvested at May 4, 2008	416		$	12.02
Granted	—		$	—
Vested	(279	)	$	12.19
Forfeited	(43	)	$	12.36
Shares nonvested at May 3, 2009	94		$	11.33
Granted	—		$	—
Vested	(69	)	$	11.89
Forfeited	(20	)	$	9.65
Shares nonvested at May 2, 2010	5		$	10.28

As of May 2, 2010, the Company had $0.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to restricted stock awards, which will be recognized over the remaining weighted average vesting period of approximately 0.9 years.

A summary of the changes in restricted stock units outstanding during the fiscal years ended May 2, 2010 and May 3, 2009, is presented below (in thousands, except per share amount):

	Number of Shares		Weighted Average Grant Date Fair Value per Share
Shares nonvested at May 4, 2008	89		$	13.35
Granted	3,775		$	3.14
Vested	(1,266	)	$	3.81
Forfeited	(450	)	$	4.31
Shares nonvested at May 3, 2009	2,148		$	2.92
Granted	2,633		$	1.66
Vested	(2,733	)	$	2.31
Forfeited	(220	)	$	1.64
Shares nonvested at May 2, 2010	1,828		$	2.17

As of May 2, 2010, there was $5.2 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to restricted stock unit awards, which will be recognized over the remaining weighted average vesting period of approximately 1.44 years.

The total fair value of restricted stock and restricted stock units that were vested was $5.6 million during fiscal 2010, $4.1 million during fiscal 2009, $7.9 million during fiscal 2008 and $1.1 million during the month ended May 4, 2008.

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Note 15.    Commitments and Contingencies

Commitments

The Company leases its facilities under several non-cancelable operating leases expiring at various dates through December 2013. The Company also leases its computer equipment under several capital leases. Approximate future minimum lease payments under these operating leases at May 2, 2010 are as follows (in thousands):

Fiscal Year	Operating Leases		Capital Leases		Sublease Income
2011	$	3,990	$	1,571	$	441
2012		2,215		474		168
2013		366		168		—
2014		239		—		—
Total expected future commitments	$	6,810	$	2,213	$	609

Rent expense for the years ended May 2, 2010, May 3, 2009, April 6, 2008 and the month ended May 4, 2008, was approximately $5.7 million, $8.0 million, $5.8 million and $0.7 million, respectively.

Contingencies

The Company is subject to certain legal proceedings described below and from time to time, it is also involved in other disputes that arise in the ordinary course of business. The number and significance of these legal proceedings and disputes may increase as the Company’s size changes. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. As a result, these legal proceedings and disputes could harm the Company’s business and have an adverse effect on its consolidated financial statements. However, the results of any litigation or dispute are inherently uncertain and, at this time, no estimate could be made of the loss or range of loss, if any, from such litigation matters and disputes unless they are or are close to being settled. Liabilities are recorded when a loss is probable and the amount can be reasonably estimated. No accrued legal settlement liabilities are recorded on the consolidated balance sheet as of May 2, 2010. Litigation settlement and legal fees are expensed in the period in which they are incurred.

In Genesis Insurance Company v. Magma Design Automation, et al., Case No. 06-5526-JW, in the United States District Court for the Northern District of California, Genesis seeks a declaration of its rights and obligations under an excess directors and officers liability policy for defense and settlement costs arising out of the securities class action against the Company, in re Magma Design Automation, Inc. Securities Litigation, as well as a related derivative lawsuit. Genesis seeks a return of $5 million it paid towards the settlement of the securities class action and derivative lawsuits from the Company or from another of the Company’s excess directors and officers liability insurers, National Union. The Company contends that either Genesis or National Union owes the settlement amounts, but not the Company. The trial court granted summary judgment for the Company and National Union, finding that Genesis owed the settlement amount. Genesis appealed to the Ninth Circuit Court of Appeals, and the Company cross-appealed. On July 12, 2010, the court of appeal reversed, ruling that Genesis does not owe the settlement amount under its policy, and remanded the case to the trial court for further proceedings. While there can be no assurance as to the ultimate disposition of the litigation, the Company does not believe that its resolution will have a material adverse effect on our financial position, results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Indemnification Obligations

The Company enters into standard license agreements in the ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify its customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to the Company’s products. These indemnification obligations have perpetual terms. The Company’s normal business practice is to limit the maximum amount of indemnification to the amount received from the customer. On occasion, the maximum amount of indemnification the Company may be required to provide may exceed the amount received from the customer. The Company estimates the fair value of its indemnification obligations to be insignificant, based upon its historical experience concerning product and patent infringement claims. Accordingly, the Company has no liabilities recorded for indemnification under these agreements as of May 2, 2010.

The Company has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors’ and officers’ liability insurance policy that reduces its exposure and enables the Company to recover a portion of future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, no liabilities have been recorded for these agreements as of May 2, 2010.

In connection with certain of the Company’s recent business acquisitions, it has also agreed to assume, or cause Company subsidiaries to assume, the indemnification obligations of those companies to their respective officers and directors. No liabilities have been recorded for these agreements as of May 2, 2010.

Warranties

The Company offers certain customers a warranty that its products will conform to the documentation provided with the products. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, the Company has no liabilities recorded for these warranties as of May 2, 2010. The Company assesses the need for a warranty accrual on a quarterly basis, and there can be no guarantee that a warranty accrual will not become necessary in the future.

Note 16.    Segment Information

The Company has adopted the provisions of ASC 280 Segment Reporting, (“ASC 280”), which requires the reporting of segment information using the “management approach.” Under this approach, operating segments are identified in substantially the same manner as they are reported internally and used by the Company’s chief operating decision maker (“CODM”) for purposes of evaluating performance and allocating resources. Based on this approach, the Company has one reportable segment as the CODM reviews financial information on a basis consistent with that presented in the consolidated financial statements.

106

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue from North America, Europe, Japan and the Asia Pacific region, which includes India, South Korea, Taiwan, Hong Kong and the People’s Republic of China, was as follows (in thousands, except for percentages shown):

	Year Ended									One Month  Ended May 4, 2008
	May 2, 2010			May 3, 2009			April 6, 2008
North America*	$	72,100		$	86,576		$	127,664		$	2,266
Europe		12,927			17,893			26,539			555
Japan		14,637			24,975			35,150			1,156
Asia-Pacific (excluding Japan)		23,413			17,513			25,066			891
	$	123,077		$	146,957		$	214,419		$	4,868
	Year Ended									One Month Ended May 4, 2008
	May 2, 2010			May 3, 2009			April 6, 2008
North America*		59	%		59	%		60	%		47	%
Europe		10	%		12	%		12	%		11	%
Japan		12	%		17	%		16	%		24	%
Asia-Pacific (excluding Japan)		19	%		12	%		12	%		18	%
		100	%		100	%		100	%		100	%

* Substantially all of the Company’s North America revenue related to the United States for all periods presented.

For the fiscal years ended 2010, 2009, 2008 and the month ended May 4, 2008, the Company had no significant customers representing 10% or more of total revenue.

The Company has substantially all of its long-lived assets located in the United States.

Note 17.    Income Taxes

Income tax expense (benefit) consisted of the following (in thousands):

	Year Ended									One Month  Ended May 4, 2008
	May 2, 2010			May 3, 2009			April 6, 2008
Current:
Federal	$	(280	)	$	(228	)	$	516		$	—
State		14			(113	)		57			12
Foreign		(6,602	)		1,549			6,238			363
Total current		(6,868	)		1,208			6,811			375
Deferred:
Foreign		126			(444	)		(171	)		—
Total income tax (benefit) expenses	$	(6,742	)	$	764		$	6,640		$	375

107

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net loss before provision for income taxes consisted of (in thousands):

	Fiscal Year Ended									One month ended May 4, 2008 (as adjusted)1
	May 2, 2010			May 3, 2009 (as adjusted)1			April 6, 2008 (as adjusted)1
United States	$	(20,270	)	$	(148,538	)	$	(24,545	)	$	(16,343	)
International		10,194			20,060			(2,623	)		373
Total net loss before provision for income taxes	$	(10,076	)	$	(128,478	)	$	(27,168	)	$	(15,970	)

1 Years ended May 3, 2009, April 6, 2008 and one month ended May 4, 2008 adjusted for adoption of ASC 470-20. See Footnote 1.

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax loss as a result of the following (in thousands):

	Fiscal Year Ended									One Month  Ended May 4, 2008
	May 2, 2010			May 3, 2009			April 6, 2008
Federal tax benefit at statutory rate	$	(3,527	)	$	(44,445	)	$	(9,019	)	$	(5,550	)
Permanent differences		12,262			6,868			1,315			259
In process research and development		—			—			789			—
Goodwill and intangibles		—			25,157			516			—
State tax, net of federal benefit		(485	)		(5,336	)		57			(576	)
Foreign tax withholding, not benefited for U.S. tax purposes		520			539			800			23
Foreign tax rate differential		(10,621	)		(6,475	)		6,186			210
Credits		(5,140	)		3,259			(2,365	)		(408	)
Change in valuation allowance		429			21,292			8,361			6,517
Other		(180	)		(95	)		—			(100	)
Total income tax expense	$	(6,742	)	$	764		$	6,640		$	375

The Company has not provided for U.S. income taxes on undistributed earnings of a majority of its foreign subsidiaries because it intends to permanently re-invest these earnings outside the U. S. The cumulative amount of such undistributed earnings upon which no U.S. income taxes have been provided as of May 2, 2010 and May 3, 2009 was approximately $9.9 million and $12.3 million, respectively.

In fiscal 2010, the Company received new information related to its unrecognized tax benefit related to withholding taxes in South Korea. This information was not available to the Company in previous financial reporting periods and was considered new information for purposes of assessing the Company’s uncertain tax positions as required by ASC 740-10. The Company considered this new information collectively with all other information available and concluded that it was more-likely-than-not the license revenue sourced in South Korea is not subject to withholding tax, and therefore, that the full amount of the tax position will ultimately be realized. Accordingly, a $7.8 million tax benefit related to South Korean withholding tax was recognized as a benefit from income taxes in the Consolidated Statements of Operations, and a corresponding decrease in the long term tax liabilities in the Consolidated Balance Sheets at May 2, 2010. The recognition of the tax benefit does not have any current period or future period cash impact.

108

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The types of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	May 2, 2010			May 3, 2009
Deferred tax assets:
Capitalized costs	$	1,544		$	1,723
Accrued liabilities		5,692			9,849
Property and equipment		7,976			10,523
Accrued compensation related expenses		7,778			10,133
Net operating loss and credit carryforwards		61,374			52,472
Litigation settlement		2,364			2,598
Other		319			444
Gross deferred tax assets		87,047			87,742
Valuation allowance		(84,446	)		(84,017	)
Total deferred tax assets		2,601			3,725
Acquired intangible assets		(1,814	)		(2,915	)
Unrealized foreign exchange		(468	)		(366	)
Net deferred tax assets	$	319		$	444

At May 2, 2010, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $185.6 million and $67.6 million, respectively, available to reduce future income subject to income taxes. The federal and state net operating loss carry-forwards will begin to expire in 2019 and 2010, respectively. The Company also has research credit carry-forwards for federal and California tax purposes of approximately $18.5 million and $17.3 million, respectively, available to reduce future income subject to income taxes. The federal research credit carry-forwards will begin to expire in 2012 and the California research credits carry forward indefinitely.

The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended May 2, 2010 the Company has provided a valuation allowance against the Company’s U.S. net deferred tax assets. The net change in the valuation allowance for the years ended May 2, 2010, and May 3, 2009 was an increase of $0.4 million, and $21.3 million, respectively.

The Company is currently under examination by certain foreign tax authorities. At the present time, it is difficult to predict the results of the tax examination and the timing of the final resolution. The Company’s management does not believe that the outcome of this examination would have a material impact to its financial statements. The Company’s larger jurisdictions provide a statute of limitations ranging from three to six years. In the U.S., the statute of limitations remains open for fiscal years 1999 and forward.

As of May 2, 2010, the Company had approximately $18.4 million of total gross unrecognized tax benefits, of which $1.6 million, if recognized, would favorably affect its effective tax rate in future periods and $1.6 million, if recognized, would result in a credit to additional paid-in capital. The remaining $15.2 million of unrecognized tax benefits, if recognized, would result in an increase in deferred tax assets. However, the Company currently has a full valuation allowance against its U.S. net deferred tax assets which would impact the timing of the effective tax rate benefit should any of such uncertain tax positions be favorably settled in the future.

109

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In accordance with ASC 740, the Company has adopted the accounting policy that interest and penalties recognized are classified as part of its income taxes. In fiscal 2010, the Company recorded a reversal of $(0.8) million of such interest and penalty expense and as of May 2, 2010 the balance of such accrued interest and penalty was $0.3 million.

The following table shows the changes in the gross amount of unrecognized tax benefits as of May 2, 2010 (in thousands):

Balance as of May 3, 2009	$	27,118
Gross amount of increases in unrecognized tax benefits for tax positions taken in current year		737
Gross amount of decreases in unrecognized tax benefits for tax positions taken in prior year		(8,914	)
Decrease in unrecognized tax benefits resulting from the lapse of statute of limitation		(537	)
Balance as of May 2, 2010	$	18,404

The Company does not anticipate that its total unrecognized tax benefits will significantly change due to settlement of examination or the expiration of statute of limitation during the next twelve months.

Note 18.    Related Party Transactions

In fiscal 2004, the Company began leasing a building for its corporate headquarters from one of its customers under a seven-year lease agreement. The lease was amended in February 2007. In March 2010 the lease was extended for an additional three years. The lease expires in Fiscal 2014. Under the lease amendment, the Company vacated most of the building and was not obligated to make rent payments on the vacated portion of the building effective January 31, 2007. In fiscal 2010, 2009, 2008 and the month ended May 4, 2008, the Company recorded $0.7 million, $0.9 million, $0.6 million and $0.2 million, respectively, of rent expense related to this lease and recognized $6.7 million, $8.1 million, $7.9 million and $0.2 million, respectively, in revenue from the sale of software licenses to this customer.

On February 23, 2010, the Company announced the appointment of Govind Kizhepat to the Board of Directors, to serve until the Company’s 2012 annual meeting of stockholders. He was also appointed to the Compensation and Nominating Committee of the Board of Directors. Mr. Kizhepat also serves as vice president of business development for a customer of Magma.

Note 19.    Subsequent Events

On May 15, 2010, the Company repaid the $23.2 million remaining outstanding balance of the 2010 Notes.

On July 2, 2010, the Company exercised its put option and liquidated the $16.8 million ARS and repaid the outstanding $11.2 million secured line of credit to UBS.

On July 12, 2010 the Company announced that it had repurchased $2.75 million of aggregate principal amount of its 2014 Notes, representing approximately 10.3% of the previously outstanding aggregate principal amount of Notes, in private transactions. These purchases were funded from the Company’s working capital. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, the Company may, from time to time, purchase additional 2014 Notes for cash in open market purchases and/or privately negotiated transactions, if attractive pricing can be identified. The Company will evaluate any such transactions in light of then-existing market conditions, taking into account its current liquidity and prospects for future access to capital. The amounts involved in any such transactions, individually or in the aggregate, may be material.

110

MAGMA DESIGN AUTOMATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Schedule II—Valuation and Qualifying Accounts

Years Ended May 2, 2010, May 3, 2009, April 6, 2008 and Month Ended May, 4, 2008

(in thousands, except per share data)

	Balance at Beginning of Period		Additions Charged to Costs and Expenses	Write-offs, Net of Recoveries		Balance at End of Period
Year ended May 2, 2010
Allowance for doubtful accounts	$	191	76	(250	)	$	17
Year ended May 3, 2009
Allowance for doubtful accounts	$	376	1,124	(1,309	)	$	191
Year ended April 6, 2008
Allowance for doubtful accounts	$	55	562	(241	)	$	376
Year ended April 1, 2007
Allowance for doubtful accounts	$	115	88	(148	)	$	55
Period Ending May 4, 2008
Allowance for doubtful accounts	$	376	—	—		$	376

Selected Consolidated Quarterly Financial Data (Unaudited)

The following table presents selected unaudited consolidated financial data for each of the eight quarters in the two-year period ended May 2, 2010. In the Company’s opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial information for the period presented.

	Quarter
	First			Second			Third			Fourth
FY 2010
Revenue	$	28,841		$	29,662		$	30,965		$	33,609
Gross profit	$	24,004		$	24,481		$	25,763		$	28,276
Net loss	$	(4,312	)	$	4,344		$	(2,638	)	$	(728	)
Net loss per share—Basic(1)	$	(0.09	)	$	0.09		$	(0.05	)	$	(0.01	)
Net loss per share—Diluted(1)	$	(0.09	)	$	0.08		$	(0.05	)	$	(0.01	)
	Quarter
	First			Second			Third			Fourth
FY 2009
Revenue	$	45,742		$	36,458		$	30,687		$	34,070
Gross profit	$	33,412		$	24,106		$	18,815		$	22,296
Net loss	$	(15,274	)	$	(26,276	)	$	(77,798	)	$	(9,894	)
Net loss per share—Basic and diluted(1)	$	(0.35	)	$	(0.60	)	$	(1.72	)	$	(0.21	)

(1) Earnings per share is computed independently for each of the quarters presented. The sum of the quarterly earnings per share in fiscal 2010 and 2009 does not equal the total computed for the year due to rounding.

111

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.    Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting.    Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, we conducted an evaluation of our internal control over financial reporting.

Management assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on our assessment using those criteria, management concluded that our internal control over financial reporting was effective as of the Evaluation Date.

Because of inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting. This report appears under Item 8 of this Form 10-K.

Changes in Internal Control over Financial Reporting.    There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

112

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this item relating to our directors and our compliance with Section 16(a) of the Exchange Act will be presented under the captions “Magma’s Board of Directors—Director Independence,” “Magma’s Board of Directors—Board Committees and Charters,” “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement to be filed with the SEC and mailed to our stockholders in connection with our 2010 Annual Meeting of Stockholders to be held on September 23, 2010 (“2010 Definitive Proxy Statement”). That information is incorporated into this report by reference. Certain information required by this item concerning executive officers is set forth in Part I of this Report under the caption “Executive Officers of the Registrant.”

We have adopted a Code of Conduct and Ethics that applies to our principal executive officer, principal financial officer, controller and all of our other employees. This Code of Conduct and Ethics is posted on our website at http://investor.magma-da.com/governance.cfm. If applicable, we intend to satisfy our disclosure obligations regarding our amendment to, or waiver from, a provision of this Code of Conduct and Ethics by posting such information on our website at http://investor.magma-da.com/governance.cfm.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation will be presented under the caption “Executive Compensation” in our 2010 Definitive Proxy Statement. That information is incorporated into this report by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information relating to the security ownership of our common stock by our management and other beneficial owners will be presented under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2010 Definitive Proxy Statement. That information is incorporated into this report by reference. Information relating to securities authorized for issuance under equity compensation plans will be presented under the caption “Securities Authorized for Issuance under Equity Compensation Plans” in our 2010 Definitive Proxy Statement. That information is incorporated into this report by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information required by this Item 13 is incorporated by reference from the information contained under the captions “Magma’s Board of Directors—Director Independence” and “Certain Relationships and Related Transactions” in our 2010 Definitive Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference from the information contained under the caption “Ratification of Independent Registered Public Accountants—Audit and Non-Audit Fees” and “Ratification of Independent Registered Public Accountants—Pre-Approval Policies and Procedures” contained in our 2010 Definitive Proxy Statement.

113

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report on Form 10-K:

(1) Consolidated Financial Statements.    Reference is made to the Index to Registrant’s Consolidated Financial Statements under Item 8 in Part II of this Form 10-K.

(2) Financial Statement Schedules.    Reference is made to the Index to Registrant’s Consolidated Financial Statements under Item 8 in Part II of this Form 10-K.

(3) Exhibits.    Reference is made to Item 15(b) below.

(b) Exhibits.

The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this item.

(c) Financial statements schedules.

Reference is made to Item 15(a)(2) above.

114

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 15, 2010

MAGMA DESIGN AUTOMATION, INC.
By	/S/    RAJEEV MADHAVAN
	Rajeev Madhavan, Chief Executive Officer

By	/S/    PETER S. TESHIMA
	Peter S. Teshima, Corporate Vice President, Finance and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name	Title	Date
/S/    RAJEEV MADHAVAN         Rajeev Madhavan	Chief Executive Officer and Director (Principal Executive Officer)	July 15, 2010
/S/    PETER S. TESHIMA         Peter S. Teshima	Corporate Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	July 15, 2010
/S/    ROY E. JEWELL         Roy E. Jewell	President, Chief Operating Officer and Director	July 15, 2010
/S/    KEVIN C. EICHLER         Kevin C. Eichler	Director	July 15, 2010
/S/    SUSUMU KOHYAMA         Susumu Kohyama	Director	July 15, 2010
/S/    THOMAS ROHRS         Thomas Rohrs	Director	July 15, 2010
/S/    GOVIND KIZHEPAT         Govind Kizhepat	Director	July 15, 2010
/S/    CHET SILVESTRI         Chet Silvestri	Director	July 15, 2010

115

EXHIBIT INDEX

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
2.1±	Agreement and Plan of Reorganization, dated February 23, 2004, by and among Magma Design Automation, Inc. Motorcar Acquisition Corp., Auto Acquisition Corp., Mojave, Inc. and Vivek Raghavan, as Representative	8-K	000-33213	2.1	May 14, 2004
2.2	Agreement and Plan of Merger Dated as of December 20, 2007 by and among Magma Design Automation, Inc., Sabio Labs, Inc., Sabio Acquisition Corp., Sabio Labs, LLC and David Colleran, as Representative	8-K	000-33213	2.1	February 27, 2008
3.1	Amended and Restated Certificate of Incorporation	10-K	000-33213	3.1	June 28, 2002
3.2	Certificate of Correction to the Amended and Restated Certificate of Incorporation	10-K	000-33213	3.2	June 28, 2002
3.3	Amended and Restated Bylaws	10-K	000-33213	3.3	June 28, 2002
4.1	Form of Common Stock Certificate	S-1/A	333-60838	4.1	November 15, 2001
4.2	Form of Indenture, dated March 5, 2007, by and between Magma Design Automation, Inc. and U.S. Bank National Association, as Trustee (including form of 2.00% Convertible Senior Note due May 15, 2010)	8-K	000-33213	10.3	March 5, 2007
4.3	Form of Registration Rights Agreement, dated March 5, 2007, by and between Magma Design Automation, Inc. and certain other parties thereto	8-K	000-33213	10.2	March 5, 2007
4.4	Form of First Supplemental Indenture, dated March 15, 2007, by and between Magma Design Automation, Inc. and U.S. Bank National Association, as Trustee (form of note is the same as the form of 2.00% Convertible Senior Note due May 15, 2010 and included in Exhibit 4.2)	8-K	000-33213	10.3	March 16, 2007
4.5	Form of Registration Rights Agreement Amendment, dated March 15, 2007, by and between Magma Design Automation, Inc. and certain other parties thereto	8-K	000-33213	10.2	March 16, 2007
4.6	Indenture, dated as of September 11, 2009, between Magma Design Automation, Inc. and U.S. Bank National Association.	8-K	000-33213	4.1	September 15, 2009
10.1#	2001 Stock Incentive Plan, as amended	10-K	000-33213	10.1	June 16, 2008

116

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
10.2#	2001 Stock Incentive Plan—Form Notice of Grant of Stock Options for Executive Officers	10-Q	000-33213	10.2	November 14, 2005
10.3#	2001 Stock Incentive Plan—Form of Notice of Grant of Stock Options and Stock Option Agreement	10-K	000-33213	10.21	June 16, 2008
10.4#	2001 Stock Incentive Plan—Form of Notice of Grant of Award and Stock Unit Agreement	10-K	000-33213	10.22	June 16, 2008
10.5#	2001 Stock Incentive Plan—Form of Notice of Grant of Award and Restricted Share Agreement	10-K	000-33213	10.23	June 16, 2008
10.6#	2001 Stock Incentive Plan—Form of Notice of Stock Option Award and Stock Option Agreement (U.S. employees) for replacement options in connection with the Registrant’s Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005)	SC TO-I/A	005-77999	99(a) (10)(A)	August 5, 2005
10.7#	2001 Stock Incentive Plan—Form of Notice of Stock Option Award and Stock Option Agreement (for international employees other than those residing in China, Israel, India and the United Kingdom) for replacement options in connection with the Registrant’s Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005)	SC TO-I/A	005-77999	99(a) (10)(B)	August 5, 2005
10.8#	2001 Stock Incentive Plan—Form of Notice of Stock Option Award and Stock Option Agreement (for employees residing in China, Israel and India) for replacement options in connection with the Registrant’s Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005)	SC TO-I/A	005-77999	99(a) (10)(C)	August 5, 2005
10.9#	2001 Stock Incentive Plan—Form of Notice of Stock Option Award and Stock Option Agreement (for employees residing in the United Kingdom) for replacement options in connection with the Registrant’s Offer to Exchange Outstanding Options to Purchase Common Stock, dated June 27, 2005 (as amended August 5, 2005)	SC TO-I/A	005-77999	99(a)	August 5, 2005

117

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
10.10#	2001 Stock Incentive Plan—Form of restricted stock unit agreement (for U.S. employees)	SC TO-I/A	005-77999	99(a) (1)(G)	November 20, 2008
10.11#	2001 Stock Incentive Plan—Form of restricted stock unit agreement (for non-U.S. employees)	SC TO-I/A	005-77999	99(a) (1)(H)	November 20, 2008
10.12#	2001 Stock Incentive Plan—Forms of stock option agreement (non-U.S. employees)	SC TO-I/A	005-77999	99(d) (10)	November 20, 2008
10.13#	2001 Employee Stock Purchase Plan, as amended	10-K	000-33213	10.3	June 16, 2008
10.14#	2004 Employment Inducement Award Plan, as amended	8-K	000-33213	10.1	January 30, 2006
10.15#	2004 Employee Inducement Award Plan—Forms of stock option agreement	SC TO-I/A	005-77999	99(d) (12)	November 20, 2008
10.16#	1998 Stock Incentive Plan	S-1	333-60838	10.4	May 14, 2001
10.17#	1998 Stock Incentive Plan—Form of stock option agreement	S-1/A	333-60838	10.10	August 14, 2001
10.18#	1998 Stock Incentive Plan—Form of Amendment to Stock Option Agreement	S-1/A	333-60838	10.11	August 14, 2001
10.19#	Moscape, Inc. 1997 Incentive Stock Plan	S-1	333-60838	10.6	May 14, 2001
10.20#	Stock Option Agreement entered into between the Registrant and Rajeev Madhavan dated September 29, 2000	S-1/A	333-60838	10.8	August 14, 2001
10.21#	Stock Option agreement entered into between the Registrant and Rajeev Madhavan dated September 29, 2000	S-1/A	333-60838	10.9	August 14, 2001
10.22#	Stock Option Agreement entered into between the Registrant and Roy E. Jewell dated March 30, 2001	S-1/A	333-60838	10.13	August 14, 2001
10.23#	Form of Stock Option Agreement for agreements between the Registrant and Roy E. Jewell dated March 30, 2001	S-1/A	333-60838	10.14	August 14, 2001
10.24#	Summary of RSU Change in Control Vesting Provisions	8-K	000-33213	10.1	July 21, 2008
10.25#	Summary of Standard Director Compensation Arrangements for Non-Employee Directors, effective as of May 5, 2008	10-K	000-33213	10.14	June 16, 2008

118

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
10.26#	Form of Indemnification Agreement (between the Registrant and the following directors and executive officers: Kevin C. Eichler, Thomas M. Rohrs, Chester J. Silvestri, Timothy Ng, Susumu Kohyama, Rajeev Madhavan, Roy E. Jewell, Bruce Eastman, Peter S. Teshima, David H. Stanley and Govind Kizhepat)	10-Q	000-33213	10.5	March 12, 2009
10.27#	Form of Tier 1 Magma Design Automation Employment and Severance Agreement (between the Registrant and the following executive officers: Rajeev Madhavan, Roy E. Jewell, Bruce Eastman, and Peter S. Teshima)	10-Q	000-33213	10.3	March 12, 2009
10.28#	Form of Tier 2 Magma Design Automation Employment and Severance Agreement	10-Q	000-33213	10.4	March 12, 2009
10.29#	Separation Agreement and Mutual Release by and between the Registrant and David Stanley (with an effective date as of February 13, 2009)	10-Q	000-33213	10.6	March 12, 2009
10.30	Lease for corporate headquarters dated June 19, 2003, between Registrant and 3Com Corporation (assumed by Marvell Semiconductor from 3Com)	10-Q	000-33213	10.2	November 14, 2003
10.31	Office Lease Agreement between Registrant and CA-Skyport I Limited Partnership dated December 28, 2006, for the premises located at 1650 Technology Drive, San Jose, California	10-Q	0-33213	10.1	February 8, 2007
10.32	Sub-Sub Lease Agreement between Registrant and Siemens Communications Inc. dated November 15, 2006 and becoming effective on December 28, 2006	10-Q	0-33213	10.2	February 8, 2007
10.33	Amendment Number One dated January 24, 2007 to Lease dated June 19, 2003, between Registrant and 3Com Corporation (assumed by Marvell Semiconductor from 3Com)	10-K	000-33213	10.30	June 6, 2007
[10.34±	Settlement Agreement dated March 29, 2007 by and between Synopsys, Inc. and Registrant	10-K	000-33213	10.37	June 6, 2007]
10.35	Revolving Line of Credit Note, Security Agreement - Specific Rights to Payment, and Credit Agreement by and between the Registrant and Wells Fargo Bank, National Association (with an effective date as of October 31, 2008)	10-Q/A	000-33213	10.7	April 23, 2009

119

Exhibit Number	Exhibit Description	Incorporated by Reference				Filed Herewith
		Form	File No.	Exhibit	Filing Date
10.36	First Amendment to Revolving Line of Credit Note, Security Agreement - Specific Rights to Payment, and Credit Agreement by and between the Registrant and Wells Fargo Bank, National Association (with an effective date as of March 11, 2009)	10-K	000-33213	10.36	July 20, 2009
10.37	Second Amendment to Revolving Line of Credit Note, Security Agreement - Specific Rights to Payment, and Credit Agreement by and between the Registrant and Wells Fargo Bank, National Association (with an effective date as of May 21, 2009)	8-K	000-33213	10.1	May 29, 2009
10.38	Third Amendment to Credit Agreement, effective as of October 1, 2009, by and between the Registrant and Wells Fargo Bank, N.A.	8-K	000-33213	10.1	October 16. 2009
10.39	Credit Agreement, effective as of March 19, 2010, by and between the Registrant and Wells Fargo Bank, N.A.					X
10.30	Separation Agreement and Mutual Release dated December 2, 2009, by and between the Registrant and Bruce Eastman.	10-Q	000-33213	10.1	March 11, 2010
21.1	List of Subsidiaries					X
23.1	Consent of Grant Thornton LLP					X
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer					X
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer					X
32.1*	Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2*	Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

# Indicates management contract or compensatory plan or arrangement.

± Portions of this agreement have been omitted pursuant to a request for confidential treatment.

* As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Magma Design Automation, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings

120

EX-10.39

EXHIBIT 10.39

Execution Copy

CREDIT AGREEMENT

by and among

MAGMA DESIGN AUTOMATION, INC.

as Borrower,

THE LENDERS THAT ARE SIGNATORIES HERETO

as the Lenders,

and

WELLS FARGO CAPITAL FINANCE, LLC

as the Agent

Dated as of March 19, 2010

TABLE OF CONTENTS

DEFINITIONS AND CONSTRUCTION			1
	1.1	Definitions	1
	1.2	Accounting Terms	1
	1.3	Code	1
	1.4	Construction	1
	1.5	Schedules and Exhibits	2
2.	LOANS AND TERMS OF PAYMENT		2
	2.1	Revolver Advances	2
	2.2	Term Loan	3
	2.3	Borrowing Procedures and Settlements	3
	2.4	Payments; Reductions of Commitments; Prepayments	8
	2.5	Overadvances	13
	2.6	Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations	13
	2.7	Crediting Payments	14
	2.8	Designated Account	14
	2.9	Maintenance of Loan Account; Statements of Obligations	14
	2.10	Fees	15
	2.11	Letters of Credit	15
	2.12	LIBOR Option	18
	2.13	Capital Requirements	19
3.	CONDITIONS; TERM OF AGREEMENT		20
	3.1	Conditions Precedent to the Initial Extension of Credit	20
	3.2	Conditions Precedent to all Extensions of Credit	21
	3.3	Maturity	21
	3.4	Effect of Maturity	21
	3.5	Early Termination by Borrower	21
	3.6	Conditions Subsequent	21
4.	REPRESENTATIONS AND WARRANTIES		21
	4.1	Due Organization and Qualification; Subsidiaries	21
	4.2	Due Authorization; No Conflict	22
	4.3	Governmental Consents	22
	4.4	Binding Obligations; Perfected Liens	23
	4.5	Title to Assets; No Encumbrances	23
	4.6	Jurisdiction of Organization; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims	23
	4.7	Litigation	23

TABLE OF CONTENTS

(continued)

	4.8	Compliance with Laws	24
	4.9	No Material Adverse Change	24
	4.10	Fraudulent Transfer	24
	4.11	Employee Benefits	24
	4.12	Environmental Condition	24
	4.13	Intellectual Property	25
	4.14	Leases	25
	4.15	Deposit Accounts and Securities Accounts	25
	4.16	Complete Disclosure	25
	4.17	[Intentionally Omitted]	25
	4.18	Patriot Act	25
	4.19	Indebtedness	26
	4.20	Payment of Taxes	26
	4.21	Margin Stock	26
	4.22	Governmental Regulation	26
	4.23	OFAC	26
	4.24	Employee and Labor Matters	26
	4.25	[Intentionally Omitted]	27
	4.26	[Intentionally Omitted]	27
	4.27	[Intentionally Omitted]	27
	4.28	[Intentionally Omitted]	27
	4.29	Inactive Subsidiaries	27
	4.30	Locations of Equipment	27
5.	AFFIRMATIVE COVENANTS		27
	5.1	Financial Statements, Reports, Certificates	27
	5.2	Collateral Reporting	27
	5.3	Existence	27
	5.4	Maintenance of Properties	27
	5.5	Taxes	27
	5.6	Insurance	28
	5.7	Inspection	28
	5.8	Compliance with Laws	28
	5.9	Environmental	29
	5.10	Disclosure Updates	29
	5.11	Formation of Subsidiaries	29
	5.12	Further Assurances	30

ii

TABLE OF CONTENTS

(continued)

	5.13	Lender Meetings	30
	5.14	[Intentionally Omitted]	30
	5.15	Location of Inventory and Equipment	30
	5.16	[Intentionally Omitted]	30
	5.17	Primary Depository Institution	30
6.	NEGATIVE COVENANTS		31
	6.1	Indebtedness	31
	6.2	Liens	31
	6.3	Restrictions on Fundamental Changes	31
	6.4	Disposal of Assets	31
	6.5	Change Name	31
	6.6	Nature of Business	31
	6.7	Prepayments and Amendments	32
	6.8	Change of Control	32
	6.9	Restricted Junior Payments	32
	6.10	Accounting Methods	32
	6.11	Investments; Controlled Investments	33
	6.12	Transactions with Affiliates	33
	6.13	Use of Proceeds	33
	6.14	Limitation on Issuance of Stock	33
	6.15	[Intentionally Omitted]	34
	6.16	[Intentionally Omitted]	34
	6.17	Inventory and Equipment with Bailees	34
7.	FINANCIAL COVENANTS		34
8.	EVENTS OF DEFAULT		35
9.	RIGHTS AND REMEDIES		36
	9.1	Rights and Remedies	36
	9.2	Remedies Cumulative	37
10.	WAIVERS; INDEMNIFICATION		37
	10.1	Demand; Protest; etc	37
	10.2	The Lender Group’s Liability for Collateral	37
	10.3	Indemnification	37
11.	NOTICES		38
12.	CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER		39
13.	ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS		40
	13.1	Assignments and Participations	40

iii

TABLE OF CONTENTS

(continued)

	13.2	Successors	42
14.	AMENDMENTS; WAIVERS		42
	14.1	Amendments and Waivers	42
	14.2	Replacement of Certain Lenders	44
	14.3	No Waivers; Cumulative Remedies	44
15.	AGENT; THE LENDER GROUP		45
	15.1	Appointment and Authorization of Agent	45
	15.2	Delegation of Duties	45
	15.3	Liability of Agent	46
	15.4	Reliance by Agent	46
	15.5	Notice of Default or Event of Default	46
	15.6	Credit Decision	46
	15.7	Costs and Expenses; Indemnification	47
	15.8	Agent in Individual Capacity	47
	15.9	Successor Agent	48
	15.10	Lender in Individual Capacity	48
	15.11	Collateral Matters	49
	15.12	Restrictions on Actions by Lenders; Sharing of Payments	49
	15.13	Agency for Perfection	50
	15.14	Payments by Agent to the Lenders	50
	15.15	Concerning the Collateral and Related Loan Documents	50
	15.16	Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information	50
	15.17	Several Obligations; No Liability	51
16.	WITHHOLDING TAXES		52
17.	GENERAL PROVISIONS		54
	17.1	Effectiveness	54
	17.2	Section Headings	54
	17.3	Interpretation	54
	17.4	Severability of Provisions	54
	17.5	Bank Product Providers	54
	17.6	Debtor-Creditor Relationship	55
	17.7	Counterparts; Electronic Execution	55
	17.8	Revival and Reinstatement of Obligations	55
	17.9	Confidentiality	55
	17.10	Lender Group Expenses	56

iv

TABLE OF CONTENTS

(continued)

17.11	Survival	56
17.12	USA PATRIOT Act	56
17.13	Integration	56

v

TABLE OF CONTENTS

(continued)

Exhibit A-1	Form of Assignment and Acceptance
Exhibit C-1	Form of Compliance Certificate
Exhibit C-2	Form of Credit Amount Certificate
Exhibit I-1	Form of IP Reporting Certificate
Exhibit L-1	Form of LIBOR Notice
Schedule A-1	Agent’s Account
Schedule A-2	Authorized Persons
Schedule C-1	Commitments
Schedule D-1	Designated Account
Schedule E-1	Existing Earn-out Obligations
Schedule E-2	Existing Letters of Credit
Schedule P-1	Permitted Indebtedness
Schedule P-2	Permitted Investments
Schedule P-3	Permitted Liens
Schedule R-1	Real Property Collateral
Schedule 1.1	Definitions
Schedule 3.1	Conditions Precedent
Schedule 3.6	Conditions Subsequent
Schedule 4.1(b)	Capitalization of Borrower
Schedule 4.1(c)	Capitalization of Borrower’s Subsidiaries
Schedule 4.6(a)	States of Organization
Schedule 4.6(b)	Chief Executive Offices
Schedule 4.6(c)	Organizational Identification Numbers
Schedule 4.6(d)	Commercial Tort Claims
Schedule 4.7	Litigation
Schedule 4.12	Environmental Matters
Schedule 4.13	Intellectual Property
Schedule 4.15	Deposit Accounts and Securities Accounts
Schedule 4.19	Permitted Indebtedness
Schedule 4.30	Locations of Equipment
Schedule 5.1	Financial Statements, Reports, Certificates
Schedule 5.2	Collateral Reporting

vi

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of March 19, 2010, by and among the lenders identified on the signature pages hereof (each of such lenders, together with their respective successors and permitted assigns, are referred to hereinafter as a “Lender”, as that term is hereinafter further defined), WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, “Agent”), and MAGMA DESIGN AUTOMATION, INC., a Delaware corporation (“Borrower”).

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. Capitalized terms used in this Agreement shall have the meanings specified therefor on Schedule 1.1.

1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP; provided, however, that if Borrower notifies Agent that Borrower requests an amendment to any provision hereof to eliminate the effect of any Accounting Change occurring after the Closing Date or in the application thereof on the operation of such provision (or if Agent notifies Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such Accounting Change or in the application thereof, then Agent and Borrower agree that they will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such Accounting Change with the intent of having the respective positions of the Lenders and Borrower after such Accounting Change conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, the provisions in this Agreement shall be calculated as if no such Accounting Change had occurred. When used herein, the term “financial statements” shall include the notes and schedules thereto. Whenever the term “Borrower” is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower and its Subsidiaries on a consolidated basis, unless the context clearly requires otherwise.

1.3 Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein; provided, however, that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern.

1.4 Construction. Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts, and contract rights. Any reference herein or in any other Loan Document to the satisfaction, repayment, or payment in full of the Obligations shall mean the repayment in Dollars in full in

1

cash or immediately available funds (or, (a) in the case of contingent reimbursement obligations with respect to Letters of Credit, providing Letter of Credit Collateralization, and (b) in the case of obligations with respect to Bank Products (other than Hedge Obligations), providing Bank Product Collateralization) of all of the Obligations (including the payment of any termination amount then applicable (or which would or could become applicable as a result of the repayment of the other Obligations) under Hedge Agreements provided by Hedge Providers) other than (i) unasserted contingent indemnification Obligations, (ii) any Bank Product Obligations (other than Hedge Obligations) that, at such time, are allowed by the applicable Bank Product Provider to remain outstanding without being required to be repaid or cash collateralized, and (iii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Provider to remain outstanding without being required to be repaid. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record.

1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

2. LOANS AND TERMS OF PAYMENT.

2.1 Revolver Advances.

(a) Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make revolving loans (“Advances”) to Borrower in an amount at any one time outstanding not to exceed the lesser of:

(i) such Lender’s Revolver Commitment, or

(ii) such Lender’s Pro Rata Share of an amount equal to the lesser of:

(A) the Maximum Revolver Amount less the sum of (1) the Letter of Credit Usage at such time, plus (2) the principal amount of Swing Loans outstanding at such time, and

(B) the Credit Amount at such time less the sum of (1) the Letter of Credit Usage at such time, plus (2) the principal amount of Swing Loans outstanding at such time, plus (3) the outstanding principal balance of the Term Loan at such time.

(b) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. The outstanding principal amount of the Advances, together with interest accrued thereon, shall be due and payable on the Maturity Date or, if earlier, on the date on which they are declared due and payable pursuant to the terms of this Agreement.

(c) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right (but not the obligation) to establish reserves from time to time against the Credit Amount in an amount equal to the Bank Product Reserve Amount.

2

2.2 Term Loan. Subject to the terms and conditions of this Agreement, on the Closing Date each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to make term loans (collectively, the “Term Loan”) to Borrower in an amount equal to such Lender’s Pro Rata Share of the Term Loan Amount. The principal of the Term Loan shall be repaid on the following dates and in the following amounts:

Date	Installment Amount
October 31, 2010	$	562,500
January 31, 2011	$	562,500
April 30, 2011	$	562,500
July 31, 2011	$	562,500
October 31, 2010	$	562,500
January 31, 2012	$	562,500
April 30, 2012	$	562,500
July 31, 2012	$	562,500
October 31, 2012	$	562,500
January 31, 2013	$	562,500
April 30, 2013	$	562,500
July 31, 2013	$	562,500
October 31, 2013	$	562,500
January 31, 2014	$	562,500

The outstanding unpaid principal balance and all accrued and unpaid interest on the Term Loan shall be due and payable on the earlier of (i) the Maturity Date, and (ii) the date of the acceleration of the Term Loan in accordance with the terms hereof. Any principal amount of the Term Loan that is repaid or prepaid may not be reborrowed. All principal of, interest on, and other amounts payable in respect of the Term Loan shall constitute Obligations.

2.3 Borrowing Procedures and Settlements.

(a) Procedure for Borrowing. Each Borrowing shall be made by a written request by an Authorized Person delivered to Agent. Unless Swing Lender is not obligated to make a Swing Loan pursuant to Section 2.3(b), such notice must be received by Agent no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided, however, that if Swing Lender is not obligated to make a Swing Loan as to a requested Borrowing, such notice must be received by Agent no later than 10:00 a.m. (California time) on the Business Day prior to the date that is the requested Funding Date. At Agent’s election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time. In such circumstances, Borrower agrees that any such telephonic notice will be confirmed in writing within 24 hours of the giving of such telephonic notice, but the failure to provide such written confirmation shall not affect the validity of the request.

3

(b) Making of Swing Loans. In the case of a request for an Advance and so long as either (i) the aggregate amount of Swing Loans made since the last Settlement Date, minus the amount of Collections or payments applied to Swing Loans since the last Settlement Date, plus the amount of the requested Advance does not exceed $5,000,000, or (ii) Swing Lender, in its sole discretion, shall agree to make a Swing Loan notwithstanding the foregoing limitation, Swing Lender shall make an Advance in the amount of such requested Borrowing (any such Advance made solely by Swing Lender pursuant to this Section 2.3(b) being referred to as a “Swing Loan” and such Advances being referred to as “Swing Loans”) available to Borrower on the Funding Date applicable thereto by transferring immediately available funds to the Designated Account. Anything contained herein to the contrary notwithstanding, the Swing Lender may, but shall not be obligated to, make Swing Loans at any time that one or more of the Lenders is a Defaulting Lender. Each Swing Loan shall be deemed to be an Advance hereunder and shall be subject to all the terms and conditions (including Section 3) applicable to other Advances, except that all payments on any Swing Loan shall be payable to Swing Lender solely for its own account. Subject to the provisions of Section 2.3(d)(ii), Swing Lender shall not make and shall not be obligated to make any Swing Loan if Swing Lender has actual knowledge that (i) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto prior to making any Swing Loan. The Swing Loans shall be secured by Agent’s Liens, constitute Advances and Obligations hereunder, and bear interest at the rate applicable from time to time to Advances that are Base Rate Loans.

(c) Making of Loans.

(i) In the event that Swing Lender is not obligated to make a Swing Loan, then promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders, not later than 1:00 p.m. (California time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent’s Account, not later than 10:00 a.m. (California time) on the Funding Date applicable thereto. After Agent’s receipt of the proceeds of such Advances, Agent shall make the proceeds thereof available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to the Designated Account; provided, however, that, subject to the provisions of Section 2.3(d)(ii), Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Advance if (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date.

(ii) Unless Agent receives notice from a Lender prior to 9:00 a.m. (California time) on the date of a Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrower the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If any Lender shall not have made its full amount available to Agent in immediately available funds and if Agent in such circumstances has made available to Borrower such amount, that Lender shall on the Business Day following such Funding Date make such amount available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this Section 2.3(c)(ii) shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay such amount to Agent for Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing.

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(d) Protective Advances and Optional Overadvances.

(i) Any contrary provision of this Agreement or any other Loan Document notwithstanding, Agent hereby is authorized by Borrower and the Lenders, from time to time in Agent’s sole discretion, (A) after the occurrence and during the continuance of a Default or an Event of Default, or (B) at any time that any of the other applicable conditions precedent set forth in Section 3 are not satisfied, to make Advances to, or for the benefit of, Borrower on behalf of the Lenders (in an aggregate amount for all such Advances taken together not exceeding $5,000,000 outstanding at any one time) that Agent, in its Permitted Discretion deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, or (2) to enhance the likelihood of repayment of the Obligations (other than the Bank Product Obligations) (any of the Advances described in this Section 2.3(d)(i) shall be referred to as “Protective Advances”).

(ii) Any contrary provision of this Agreement or any other Loan Document notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as applicable, and either Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to Borrower notwithstanding that an Overadvance exists or thereby would be created, so long as (A) after giving effect to such Advances, the outstanding Revolver Usage does not exceed the Credit Amount by more than $5,000,000 and (B) after giving effect to such Advances, the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount. In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the immediately foregoing provisions, regardless of the amount of, or reason for, such excess, Agent shall notify the Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value, in which case Agent may make such Overadvances and provide notice as promptly as practicable thereafter), and the Lenders with Revolver Commitments thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrower intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrower to an amount permitted by the preceding sentence. In such circumstances, if any Lender with a Revolver Commitment objects to the proposed terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. In any event: (x) if any unintentional Overadvance remains outstanding for more than 30 days, unless otherwise agreed to by the Required Lenders, Borrower shall immediately repay Advances in an amount sufficient to eliminate all such unintentional Overadvances, and (y) after the date all such Overadvances have been eliminated, there must be at least five consecutive days before intentional Overadvances are made. The foregoing provisions are meant for the benefit of the Lenders and Agent and are not meant for the benefit of Borrower, which shall continue to be bound by the provisions of Section 2.5. Each Lender with a Revolver Commitment shall be obligated to settle with Agent as provided in Section 2.3(e) (or Section 2.3(g), as applicable) for the amount of such Lender’s Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.3(d)(ii), and any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group Expenses.

(iii) Each Protective Advance and each Overadvance shall be deemed to be an Advance hereunder, except that no Protective Advance or Overadvance shall be eligible to be a LIBOR Rate Loan and, prior to Settlement therefor, all payments on the Protective Advances shall be payable to Agent solely for its own account. The Protective Advances and Overadvances shall be repayable on demand, secured by Agent’s Liens, constitute Obligations hereunder, and bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. The ability of Agent to make Protective Advances is separate and distinct from its ability to make Overadvances and its ability to make Overadvances is separate and distinct from its

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ability to make Protective Advances. For the avoidance of doubt, the limitations on Agent’s ability to make Protective Advances do not apply to Overadvances and the limitations on Agent’s ability to make Overadvances do not apply to Protective Advances. The provisions of this Section 2.3(d) are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrower in any way.

(e) Settlement. It is agreed that each Lender’s funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among the Lenders as to the Advances, the Swing Loans, and the Protective Advances shall take place on a periodic basis in accordance with the following provisions:

(i) Agent shall request settlement (“Settlement”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by Agent (1) on behalf of Swing Lender, with respect to the outstanding Swing Loans, (2) for itself, with respect to the outstanding Protective Advances, and (3) with respect to Borrower’s or its Subsidiaries’ Collections or payments received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. (California time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the “Settlement Date”). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Swing Loans, and Protective Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(g)): (y) if the amount of the Advances (including Swing Loans and Protective Advances) made by a Lender that is not a Defaulting Lender exceeds such Lender’s Pro Rata Share of the Advances (including Swing Loans and Protective Advances) as of a Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time) on the Settlement Date, transfer in immediately available funds to a Deposit Account of such Lender (as such Lender may designate), an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances (including Swing Loans and Protective Advances), and (z) if the amount of the Advances (including Swing Loans and Protective Advances) made by a Lender is less than such Lender’s Pro Rata Share of the Advances (including Swing Loans and Protective Advances) as of a Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on the Settlement Date transfer in immediately available funds to Agent’s Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances (including Swing Loans and Protective Advances). Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loans or Protective Advances and, together with the portion of such Swing Loans or Protective Advances representing Swing Lender’s Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate.

(ii) In determining whether a Lender’s balance of the Advances, Swing Loans, and Protective Advances is less than, equal to, or greater than such Lender’s Pro Rata Share of the Advances, Swing Loans, and Protective Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, fees payable by Borrower and allocable to the Lenders hereunder, and proceeds of Collateral.

(iii) Between Settlement Dates, Agent, to the extent Protective Advances or Swing Loans are outstanding, may pay over to Agent or Swing Lender, as applicable, any Collections or payments received by Agent that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to the Protective Advances or Swing Loans. Between Settlement Dates, Agent, to the extent no Protective Advances or Swing Loans are outstanding, may pay over to Swing Lender any Collections or payments received by Agent, that in accordance with the terms of this Agreement

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would be applied to the reduction of the Advances, for application to Swing Lender’s Pro Rata Share of the Advances. If, as of any Settlement Date, Collections or payments of Borrower or its Subsidiaries received since the then immediately preceding Settlement Date have been applied to Swing Lender’s Pro Rata Share of the Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders (other than a Defaulting Lender if Agent has implemented the provisions of Section 2.3(g)), to be applied to the outstanding Advances of such Lenders, an amount such that each such Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Protective Advances, and each Lender (subject to the effect of agreements between Agent and individual Lenders) with respect to the Advances other than Swing Loans and Protective Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable.

(iv) Anything in this Section 2.3(e) to the contrary notwithstanding, in the event that a Lender is a Defaulting Lender, Agent shall be entitled to refrain from remitting settlement amounts to the Defaulting Lender and, instead, shall be entitled to elect to implement the provisions set forth in Section 2.3(g).

(f) Notation. Agent, as a non-fiduciary agent for Borrower, shall maintain a register showing the principal amount of the Advances (and portion of the Term Loan, as applicable), owing to each Lender, including the Swing Loans owing to Swing Lender, and Protective Advances owing to Agent, and the interests therein of each Lender, from time to time and such register shall, absent manifest error, conclusively be presumed to be correct and accurate.

(g) Defaulting Lenders. Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Agent for the Defaulting Lender’s benefit or any Collections or proceeds of Collateral that would otherwise be remitted hereunder to the Defaulting Lender, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments (A) first, to Swing Lender to the extent of any Swing Loans that were made by Swing Lender and that were required to be, but were not, repaid by the Defaulting Lender, (B) second, to the Issuing Lender, to the extent of the portion of a Letter of Credit Disbursement that was required to be, but was not, repaid by the Defaulting Lender, (C) third, to each non-Defaulting Lender ratably in accordance with their Commitments (but, in each case, only to the extent that such Defaulting Lender’s portion of an Advance (or other funding obligation) was funded by such other non-Defaulting Lender), (D) to a suspense account maintained by Agent, the proceeds of which shall be retained by Agent and may be made available to be re-advanced to or for the benefit of Borrower as if such Defaulting Lender had made its portion of Advances (or other funding obligations) hereunder, and (E) from and after the date on which all other Obligations have been paid in full, to such Defaulting Lender in accordance with tier (L) of Section 2.4(b)(ii). Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrower for the account of such Defaulting Lender the amount of all such payments received and retained by Agent for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents (including the calculation of Pro Rata Share in connection therewith) and for the purpose of calculating the fee payable under Section 2.10(b), such Defaulting Lender shall be deemed not to be a “Lender” and such Lender’s Commitment shall be deemed to be zero. The provisions of this Section 2.3(g) shall remain effective with respect to such Defaulting Lender until the earlier of (y) the date on which the non-Defaulting Lenders, Agent, and Borrower shall have waived, in writing, the application of this Section 2.3(g) to such Defaulting Lender, or (z) the date on which such Defaulting Lender makes payment of all amounts that it was obligated to fund hereunder, pays to Agent all amounts owing by Defaulting Lender in respect of the amounts that it was obligated to fund hereunder, and, if requested by Agent or Borrower, provides adequate assurance of its ability to perform its future obligations hereunder. The operation of this Section 2.3(g) shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by Borrower of its duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any failure by a Defaulting Lender to fund

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amounts that it was obligated to fund hereunder shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Borrower, at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute Lender to be reasonably acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (other than Bank Product Obligations, but including (1) all interest, fees, and other amounts that may be due and payable in respect thereof, and (2) an assumption of its Pro Rata Share of the Letters of Credit); provided, however, that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups’ or Borrower’s rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund. In the event of a direct conflict between the priority provisions of this Section 2.3(g) and any other provision contained in this Agreement or any other Loan Document, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.3(g) shall control and govern.

(h) Independent Obligations. All Advances (other than Swing Loans and Protective Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder.

2.4 Payments; Reductions of Commitments; Prepayments.

(a) Payments by Borrower.

(i) Except as otherwise expressly provided herein, all payments by Borrower shall be made to Agent’s Account for the account of the Lender Group and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (California time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(ii) Unless Agent receives notice from Borrower prior to the date on which any payment is due to the Lenders that Borrower will not make such payment in full as and when required, Agent may assume that Borrower has made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrower does not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid.

(b) Apportionment and Application.

(i) So long as no Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, all principal and interest payments received by Agent shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and all payments of fees and expenses received by Agent (other than fees or expenses that are for Agent’s separate account or for the separate account

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of the Issuing Lender) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee or expense relates. All payments to be made hereunder by Borrower shall be remitted to Agent and all (subject to Section 2.4(b)(iv), Section 2.4(d)(ii), and Section 2.4(e)) such payments, and all proceeds of Collateral received by Agent, shall be applied, so long as no Application Event has occurred and is continuing, to reduce the balance of the Advances outstanding and, thereafter, to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.

(ii) At any time that an Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, all payments remitted to Agent and all proceeds of Collateral received by Agent shall be applied as follows:

(A) first, to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to Agent under the Loan Documents, until paid in full,

(B) second, to pay any fees or premiums then due to Agent under the Loan Documents until paid in full,

(C) third, to pay interest due in respect of all Protective Advances until paid in full,

(D) fourth, to pay the principal of all Protective Advances until paid in full,

(E) fifth, ratably, to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid in full,

(F) sixth, ratably, to pay any fees or premiums then due to any of the Lenders under the Loan Documents until paid in full,

(G) seventh, to pay interest accrued in respect of the Swing Loans until paid in full,

(H) eighth, to pay the principal of all Swing Loans until paid in full,

(I) ninth, ratably, to pay interest accrued in respect of the Advances (other than Protective Advances) and the Term Loan until paid in full,

(J) tenth, ratably (i) to pay the principal of all Advances until paid in full, (ii) to Agent, to be held by Agent, for the benefit of Issuing Lender (and for the ratable benefit of each of the Lenders that have an obligation to pay to Agent, for the account of the Issuing Lender, a share of each Letter of Credit Disbursement), as cash collateral in an amount up to 105% of the Letter of Credit Usage (to the extent permitted by applicable law, such cash collateral shall be applied to the reimbursement of any Letter of Credit Disbursement as and when such disbursement occurs and, if a Letter of Credit expires undrawn, the cash collateral held by Agent in respect of such Letter of Credit shall, to the extent permitted by applicable law, be reapplied pursuant to this Section 2.4(b)(ii), beginning with tier (A) hereof), (iii) ratably, to the Bank Product Providers based upon amounts then certified by the applicable Bank Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such Bank Product Providers on account of Bank Product Obligations, and (iv) to pay the outstanding principal balance of the Term Loan (in the inverse order of the maturity of the installments due thereunder) until the Term Loan is paid in full,

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(K) eleventh, to pay any other Obligations other than Obligations owed to Defaulting Lenders,

(L) twelfth, ratably to pay any Obligations owed to Defaulting Lenders; and

(M) thirteenth, to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.

(iii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(e).

(iv) In each instance, so long as no Application Event has occurred and is continuing, Section 2.4(b)(i) shall not apply to any payment made by Borrower to Agent and specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement or any other Loan Document.

(v) For purposes of Section 2.4(b)(ii), “paid in full” of a type of Obligation means payment in cash or immediately available funds of all amounts owing on account of such type of Obligation, including interest accrued after the commencement of any Insolvency Proceeding, default interest, interest on interest, and expense reimbursements, irrespective of whether any of the foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.

(vi) In the event of a direct conflict between the priority provisions of this Section 2.4 and any other provision contained in this Agreement or any other Loan Document, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, if the conflict relates to the provisions of Section 2.3(g) and this Section 2.4, then the provisions of Section 2.3(g) shall control and govern, and if otherwise, then the terms and provisions of this Section 2.4 shall control and govern.

(c) Reduction of Commitments.

(i) Revolver Commitments. The Revolver Commitments shall terminate on the Maturity Date. Borrower may reduce the Revolver Commitments to an amount (which may not be less than $5,000,000) not less than the sum of (A) the Revolver Usage as of such date, plus (B) the principal amount of all Advances not yet made as to which a request has been given by Borrower under Section 2.3(a), plus (C) the amount of all Letters of Credit not yet issued as to which a request has been given by Borrower pursuant to Section 2.11(a). Each such reduction shall be in an amount which is not less than $1,000,000 (unless the Revolver Commitments are being reduced to $5,000,000 and the amount of the Revolver Commitments in effect immediately prior to such reduction is less than $6,000,000), shall be made by providing not less than 10 Business Days prior written notice to Agent and shall be irrevocable. Once reduced, the Revolver Commitments may not be increased. Each such reduction of the Revolver Commitments shall reduce the Revolver Commitments of each Lender proportionately in accordance with its Pro Rata Share thereof.

(ii) Term Loan Commitments. The Term Loan Commitments shall terminate upon the making of the Term Loan.

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(d) Optional Prepayments.

(i) Advances. Borrower may prepay the principal of any Advance at any time in whole or in part, without premium or penalty.

(ii) Term Loan. Borrower may, upon at least 10 Business Days prior written notice to Agent, prepay the principal of the Term Loan, in whole or in part. Each such prepayment shall be in an amount which is not less than $1,000,000 unless the principal of the Term Loan immediately prior to such prepayment is less than $1,000,000. Each prepayment made pursuant to this Section 2.4(d)(ii) shall be accompanied by the payment of accrued interest to the date of such payment on the amount prepaid. Each such prepayment shall be applied against the remaining installments of principal due on the Term Loan on a pro rata basis (for the avoidance of doubt, any amount that is due and payable on the Maturity Date shall constitute an installment).

(e) Mandatory Prepayments.

(i) Credit Amount. If, at any time, (A) the sum of the outstanding principal balance of the Term Loan on such date plus the Revolver Usage on such date exceeds (B) the Credit Amount (such excess being referred to as the “Credit Amount Excess”), then Borrower shall immediately prepay the Obligations in accordance with Section 2.4(f)(i) in an aggregate amount equal to the Credit Amount Excess.

(ii) Dispositions. Within 1 Business Day of the date of receipt by Borrower or any of its Subsidiaries of the Net Cash Proceeds of any voluntary or involuntary sale or disposition by Borrower or any of its Subsidiaries of assets (including casualty losses or condemnations but excluding (i) sales or dispositions which qualify as Permitted Dispositions under clauses (a), (b), (c), (d), or (r) of the definition of Permitted Dispositions, (ii) the first $4,000,000 of Net Cash Proceeds from sales or dispositions of Minority Interests consummated within 90 days after the Closing Date and permitted under clause (o) of the definition of Permitted Dispositions and (iii) the Net Cash Proceeds of the disposition of any fixed asset in connection with the sale-leaseback of such fixed asset to the extent such leaseback constitutes Permitted Purchase Money Indebtedness), Borrower shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of such Net Cash Proceeds received by such Person in connection with such sales or dispositions, to the extent that such Net Cash Proceeds (x) do not result from casualty losses, condemnation awards or payments in lieu thereof and exceed either $2,500,000 in any 12 month period or $5,000,000 since the Closing Date, or (y) result from casualty losses or condemnation awards or payments in lieu thereof; provided that, with respect to Net Cash Proceeds set forth in sub-clause (y) above, so long as (A) no Default or Event of Default shall have occurred and is continuing or would result therefrom, (B) Borrower shall have given Agent prior written notice of Borrower’s intention to apply such monies to the costs of replacement of the properties or assets that are the subject of such casualty loss or condemnation or the cost of purchase or construction of other assets useful in the business of Borrower or its Subsidiaries, (C) the monies are held in a Deposit Account in which Agent has a perfected first-priority security interest, and (D) Borrower or its Subsidiaries, as applicable, complete such replacement, purchase, or construction within 180 days after the initial receipt of such monies, then the Loan Party whose assets were the subject of such casualty loss or condemnation shall have the option to apply such monies to the costs of replacement of the assets that are the subject of such casualty loss or condemnation or the costs of purchase or construction of other assets useful in the business of Borrower or such Subsidiary unless and to the extent that such applicable period shall have expired without such replacement, purchase, or construction being made or completed, in which case, any amounts remaining in the cash collateral account shall be paid to Agent and applied in accordance with Section 2.4(f)(ii); provided, however, that Borrower and its Subsidiaries shall not have the right to use such Net Cash Proceeds to make such replacements, purchases, or construction in excess of $500,000 in any given fiscal year. Nothing contained in this Section 2.4(e)(ii) shall permit Borrower or any of its Subsidiaries to sell or otherwise dispose of any assets other than in accordance with Section 6.4.

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(iii) Extraordinary Receipts. Within 1 Business Day of the date of receipt by Borrower or any of its Subsidiaries of any Extraordinary Receipts, Borrower shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of such Extraordinary Receipts, net of any reasonable expenses incurred in collecting such Extraordinary Receipts.

(iv) Indebtedness. Within 1 Business Day of the date of incurrence by Borrower or any of its Subsidiaries of any Indebtedness (other than Permitted Indebtedness), Borrower shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such incurrence. The provisions of this Section 2.4(e)(iv) shall not be deemed to be implied consent to any such incurrence otherwise prohibited by the terms and conditions of this Agreement.

(v) Equity. Within 1 Business Day of the date of the issuance by Borrower or any of its Subsidiaries of any shares of its or their Stock (other than (A) in the event that Borrower or any of its Subsidiaries forms any Subsidiary in accordance with the terms hereof, the issuance by such Subsidiary of Stock to Borrower or such Subsidiary, as applicable, (B) the issuance of Stock of Borrower to directors, officers and employees of Borrower and its Subsidiaries pursuant to employee stock option plans (or other employee incentive plans or other compensation arrangements) approved by the Board of Directors, and (C) the issuance of Stock of Borrower in order to finance the purchase consideration (or a portion thereof) in connection with a Permitted Acquisition), Borrower shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 50% of the Net Cash Proceeds received by such Person in connection with such issuance. The provisions of this Section 2.4(e)(v) shall not be deemed to be implied consent to any such issuance otherwise prohibited by the terms and conditions of this Agreement.

(vi) Excess Cash Flow. Within 10 days of delivery to Agent and the Lenders of audited annual financial statements pursuant to Section 5.1, commencing with the delivery to Agent and the Lenders of the financial statements for Borrower’s fiscal year ended May 1, 2011 or, if such financial statements are not delivered to Agent and the Lenders on the date such statements are required to be delivered pursuant to Section 5.1, 10 days after the date such statements are required to be delivered to Agent and the Lenders pursuant to Section 5.1, Borrower shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 25% of the Excess Cash Flow of Borrower and its Subsidiaries for such fiscal year.

(f) Application of Payments.

(i) Each prepayment pursuant to Section 2.4(e)(i) shall, (A) so long as no Application Event shall have occurred and be continuing, be applied, first, to the outstanding principal amount of the Advances until paid in full, second, to the outstanding principal amount of the Term Loan until paid in full, and (B) if an Application Event shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(ii), and third, to cash collateralize the Letters of Credit in an amount equal to 105% of the then extant Letter of Credit Usage. Each such prepayment of the Term Loan shall be applied against the remaining installments of principal of the Term Loan on a pro rata basis (for the avoidance of doubt, any amount that is due and payable on the Maturity Date shall constitute an installment).

(ii) Each prepayment pursuant to Section 2.4(e)(ii), 2.4(e)(iii), 2.4(e)(iv), 2.4(e)(v), or 2.4(e)(vi) above shall (A) so long as no Application Event shall have occurred and be continuing, be applied, first, to the outstanding principal amount of the Term Loan until paid in full, second, to the outstanding principal amount of the Advances (with a corresponding permanent reduction in the Maximum Revolver Amount), until paid in full, and third, to cash collateralize the Letters of Credit in an amount equal to 105% of the then extant Letter of Credit Usage (with a corresponding permanent reduction in the Maximum Revolver Amount), and (B) if an Application Event shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(ii). Each such prepayment of the Term Loan shall be applied against the remaining installments of principal of the Term Loan on a pro rata basis (for the avoidance of doubt, any amount that is due and payable on the Maturity Date shall constitute an installment).

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2.5 Overadvances. If, at any time or for any reason, the amount of Obligations owed by Borrower to the Lender Group pursuant to Section 2.1 or Section 2.11 is greater than any of the limitations set forth in Section 2.1 or Section 2.11, as applicable (an “Overadvance”), subject to Section 2.3(d)(ii), Borrower shall immediately pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b). Borrower promises to pay the Obligations (including principal, interest, fees, costs, and expenses) in full on the Maturity Date or, if earlier, on the date on which the Obligations (other than the Bank Product Obligations) become due and payable pursuant to the terms of this Agreement.

2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.

(a) Interest Rates. Except as provided in Section 2.6(c), all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows:

(i) if the relevant Obligation is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, and

(ii) otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin.

(b) Letter of Credit Fee. Borrower shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any agreements between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.11(e)) which shall accrue at a per annum rate equal to 2.50% times the Daily Balance of the undrawn amount of all outstanding Letters of Credit.

(c) Default Rate. Upon the occurrence and during the continuation of an Event of Default and at the election of the Required Lenders,

(i) all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable thereunder, and

(ii) the Letter of Credit fee provided for in Section 2.6(b) shall be increased to 2 percentage points above the per annum rate otherwise applicable hereunder.

(d) Payment. Except to the extent provided to the contrary in Section 2.10 or Section 2.12(a), interest, Letter of Credit fees, all other fees payable hereunder or under any of the other Loan Documents, and all costs, expenses, and Lender Group Expenses payable hereunder or under any of the other Loan Documents shall be due and payable, in arrears, on the first day of each month at any time that Obligations or Commitments are outstanding. Borrower hereby authorizes Agent, from time to time without prior notice to Borrower, to charge all interest, Letter of Credit fees, and all other fees payable hereunder or under any of the other Loan Documents (in each case, as and when due and payable), all costs, expenses, and Lender Group Expenses payable hereunder or under any of the other Loan Documents (in each case, as and when incurred), all charges, commissions, fees, and costs provided for in Section 2.11(e) (as and when accrued or incurred), all fees and costs provided for in Section 2.10 (as and when accrued or incurred), and all other payments as and when due and payable under any Loan Document or any Bank Product Agreement (including any amounts due and payable to the Bank Product Providers in respect of Bank Products) to the Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then

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applicable to Advances that are Base Rate Loans. Any interest, fees, costs, expenses, Lender Group Expenses, or other amounts payable hereunder or under any other Loan Document or under any Bank Product Agreement that are charged to the Loan Account shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans (unless and until converted into LIBOR Rate Loans in accordance with the terms of this Agreement).

(e) Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360-day year, in each case, for the actual number of days elapsed in the period during which the interest or fees accrue. In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate.

(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess.

2.7 Crediting Payments. The receipt of any payment item by Agent shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to Agent’s Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into Agent’s Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into Agent’s Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.

2.8 Designated Account. Agent is authorized to make the Advances and the Term Loan, and Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d). Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Borrower, any Advance or Swing Loan requested by Borrower and made by Agent or the Lenders hereunder shall be made to the Designated Account.

2.9 Maintenance of Loan Account; Statements of Obligations. Agent shall maintain an account on its books in the name of Borrower (the “Loan Account”) on which Borrower shall be charged with the Term Loan, all Advances (including Protective Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for Borrower’s account, the Letters of Credit issued or arranged by Issuing Lender for Borrower’s account, and with all other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.7, the Loan Account will be credited with all payments received by Agent from Borrower or for Borrower’s account. Agent shall render monthly statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements, absent manifest error, shall be conclusively presumed to

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be correct and accurate and constitute an account stated between Borrower and the Lender Group unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements.

2.10 Fees. Borrower shall pay to Agent,

(a) for the account of Agent, as and when due and payable under the terms of the Fee Letter, the fees set forth in the Fee Letter.

(b) for the ratable account of those Lenders with Revolver Commitments, on the first day of each month from and after the Closing Date up to the first day of the month prior to the Payoff Date and on the Payoff Date, an unused line fee in an amount equal to 0.50% per annum times the result of (i) the aggregate amount of the Revolver Commitments, less (ii) the average Daily Balance of the Revolver Usage during the immediately preceding month (or portion thereof).

2.11 Letters of Credit.

(a) Subject to the terms and conditions of this Agreement, upon the request of Borrower made in accordance herewith, the Issuing Lender agrees to issue, or to cause an Underlying Issuer, as Issuing Lender’s agent, to issue, a requested Letter of Credit. If Issuing Lender, at its option, elects to cause an Underlying Issuer to issue a requested Letter of Credit, then Issuing Lender agrees that it will enter into arrangements relative to the reimbursement of such Underlying Issuer (which may include, among, other means, by becoming an applicant with respect to such Letter of Credit or entering into undertakings which provide for reimbursements of such Underlying Issuer with respect to such Letter of Credit; each such obligation or undertaking, irrespective of whether in writing, a “Reimbursement Undertaking”) with respect to Letters of Credit issued by such Underlying Issuer. By submitting a request to Issuing Lender for the issuance of a Letter of Credit, Borrower shall be deemed to have requested that Issuing Lender issue or that an Underlying Issuer issue the requested Letter of Credit and to have requested Issuing Lender to issue a Reimbursement Undertaking with respect to such requested Letter of Credit if it is to be issued by an Underlying Issuer (it being expressly acknowledged and agreed by Borrower that Borrower is and shall be deemed to be an applicant (within the meaning of Section 5-102(a)(2) of the Code) with respect to each Underlying Letter of Credit). Each request for the issuance of a Letter of Credit, or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be made in writing by an Authorized Person and delivered to the Issuing Lender via hand delivery, telefacsimile, or other electronic method of transmission reasonably in advance of the requested date of issuance, amendment, renewal, or extension. Each such request shall be in form and substance reasonably satisfactory to the Issuing Lender and shall specify (i) the amount of such Letter of Credit, (ii) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the expiration date of such Letter of Credit, (iv) the name and address of the beneficiary of the Letter of Credit, and (v) such other information (including, in the case of an amendment, renewal, or extension, identification of the Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such Letter of Credit. Anything contained herein to the contrary notwithstanding, the Issuing Lender may, but shall not be obligated to, issue or cause the issuance of a Letter of Credit or to issue a Reimbursement Undertaking in respect of an Underlying Letter of Credit, in either case, that supports the obligations of Borrower or its Subsidiaries (1) in respect of (A) a lease of real property, or (B) an employment contract, or (2) at any time that one or more of the Lenders is a Defaulting Lender. The Issuing Lender shall have no obligation to issue a Letter of Credit or a Reimbursement Undertaking in respect of an Underlying Letter of Credit, in either case, if any of the following would result after giving effect to the requested issuance:

(i) the Letter of Credit Usage would exceed the Credit Amount at such time less the sum of (A) the outstanding principal balance of the Advances (inclusive of Swing Loans) at such time, plus (B) the outstanding principal balance of the Term Loan at such time, or

(ii) the Letter of Credit Usage would exceed $5,000,000, or

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(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding amount of Advances (including Swing Loans).

Borrower and the Lender Group hereby acknowledge and agree that all Existing Letters of Credit shall constitute Letters of Credit under this Agreement on and after the Closing Date with the same effect as if such Existing Letters of Credit were issued by Issuing Lender or an Underlying Issuer at the request of Borrower on the Closing Date. Each Letter of Credit shall be in form and substance reasonably acceptable to the Issuing Lender, including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender makes a payment under a Letter of Credit or an Underlying Issuer makes a payment under an Underlying Letter of Credit, Borrower shall pay to Agent an amount equal to the applicable Letter of Credit Disbursement on the date such Letter of Credit Disbursement is made and, in the absence of such payment, the amount of the Letter of Credit Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, initially, shall bear interest at the rate then applicable to Advances that are Base Rate Loans. If a Letter of Credit Disbursement is deemed to be an Advance hereunder, Borrower’s obligation to pay the amount of such Letter of Credit Disbursement to Issuing Lender shall be discharged and replaced by the resulting Advance. Promptly following receipt by Agent of any payment from Borrower pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.11(b) to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear.

(b) Promptly following receipt of a notice of a Letter of Credit Disbursement pursuant to Section 2.11(a), each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant to Section 2.11(a) on the same terms and conditions as if Borrower had requested the amount thereof as an Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit or a Reimbursement Undertaking (or an amendment to a Letter of Credit or a Reimbursement Undertaking increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit issued by Issuing Lender and each Reimbursement Undertaking, in an amount equal to its Pro Rata Share of such Letter of Credit or Reimbursement Undertaking, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of any Letter of Credit Disbursement made by Issuing Lender or an Underlying Issuer under the applicable Letter of Credit. In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of each Letter of Credit Disbursement made by Issuing Lender or an Underlying Issuer and not reimbursed by Borrower on the date due as provided in Section 2.11(a), or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share of each Letter of Credit Disbursement pursuant to this Section 2.11(b) shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3. If any such Lender fails to make available to Agent the amount of such Lender’s Pro Rata Share of a Letter of Credit Disbursement as provided in this Section, such Lender shall be deemed to be a Defaulting Lender and Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full.

(c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group and each Underlying Issuer harmless from any damage, loss, cost, expense, or liability, and reasonable attorneys fees incurred by Issuing Lender, any other member of the Lender Group, or any Underlying Issuer arising out of or in connection with any Reimbursement Undertaking or any Letter of Credit; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of

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the Issuing Lender, any other member of the Lender Group, or any Underlying Issuer. Borrower agrees to be bound by the Underlying Issuer’s regulations and interpretations of any Letter of Credit or by Issuing Lender’s interpretations of any Reimbursement Undertaking even though this interpretation may be different from Borrower’s own, and Borrower understands and agrees that none of the Issuing Lender, the Lender Group, or any Underlying Issuer shall be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Borrower understands that the Reimbursement Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold Issuing Lender and the other members of the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by them as a result of the Issuing Lender’s indemnification of an Underlying Issuer; provided, however, that Borrower shall not be obligated hereunder to indemnify for any such loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Borrower hereby acknowledges and agrees that none of the Issuing Lender, any other member of the Lender Group, or any Underlying Issuer shall be responsible for delays, errors, or omissions resulting from the malfunction of equipment in connection with any Letter of Credit.

(d) Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender’s instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application.

(e) Any and all issuance charges, usage charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and shall be reimbursable immediately by Borrower to Agent for the account of the Issuing Lender; it being acknowledged and agreed by Borrower that, as of the Closing Date, the usage charge imposed by the Underlying Issuer is 0.40% per annum times the undrawn amount of each Underlying Letter of Credit, that such usage charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals.

(f) If by reason of (i) any change after the Closing Date in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Issuing Lender, any other member of the Lender Group, or Underlying Issuer with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto):

(i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued or caused to be issued hereunder or hereby, or

(ii) there shall be imposed on the Issuing Lender, any other member of the Lender Group, or Underlying Issuer any other condition regarding any Letter of Credit or Reimbursement Undertaking,

and the result of the foregoing is to increase, directly or indirectly, the cost to the Issuing Lender, any other member of the Lender Group, or an Underlying Issuer of issuing, making, guaranteeing, or maintaining any Reimbursement Undertaking or Letter of Credit or to reduce the amount receivable in respect thereof, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay within 30 days after demand therefor, such amounts as Agent may specify to be necessary to compensate the Issuing Lender, any other member of the Lender Group, or an Underlying Issuer for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base

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Rate Loans hereunder; provided, however, that Borrower shall not be required to provide any compensation pursuant to this Section 2.11(f) for any such amounts incurred more than 180 days prior to the date on which the demand for payment of such amounts is first made to Borrower; provided further, however, that if an event or circumstance giving rise to such amounts is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. The determination by Agent of any amount due pursuant to this Section 2.11(f), as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.

2.12 LIBOR Option.

(a) Interest and Interest Payment Dates. In lieu of having interest charged at the rate based upon the Base Rate, Borrower shall have the option, subject to Section 2.12(b) below (the “LIBOR Option”) to have interest on all or a portion of the Advances or the Term Loan be charged (whether at the time when made (unless otherwise provided herein), upon conversion from a Base Rate Loan to a LIBOR Rate Loan, or upon continuation of a LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the date on which all or any portion of the Obligations become due and payable pursuant to the terms hereof, or (iii) the date on which this Agreement is terminated pursuant to the terms hereof. On the last day of each applicable Interest Period, unless Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type hereunder. At any time that an Event of Default has occurred and is continuing Borrower no longer shall have the option to request that Advances bear interest at a rate based upon the LIBOR Rate.

(b) LIBOR Election.

(i) Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the “LIBOR Deadline”). Notice of Borrower’s election of the LIBOR Option for a permitted portion of the Advances or the Term Loan and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (California time) on the same day). Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the affected Lenders.

(ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, cost, or expense actually incurred by Agent or any Lender as a result of (A) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (B) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (C) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, or expenses, “Funding Losses”). A certificate of Agent or a Lender delivered to Borrower setting forth in reasonable detail any amount or amounts that Agent or such Lender is entitled to receive pursuant to this Section 2.12 shall be conclusive absent manifest error. Borrower shall pay such amount to Agent or the Lender, as applicable, within 30 days of the date of its receipt of such certificate. If a payment of a LIBOR Rate Loan on a day other than the last day of the applicable Interest Period would result in a Funding Loss, Agent may, in its sole discretion at the request of Borrower, hold the amount of such payment as cash collateral in support of the Obligations until the last day of such Interest Period and apply such amounts to the payment of the applicable LIBOR Rate Loan on such last day, it being agreed that Agent has no obligation to so defer the application of payments to any LIBOR Rate Loan and that, in the event that Agent does not defer such application, Borrower shall be obligated to pay any resulting Funding Losses.

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(iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any given time. Borrower only may exercise the LIBOR Option for proposed LIBOR Rate Loans of at least $1,000,000.

(c) Conversion. Borrower may convert LIBOR Rate Loans to Base Rate Loans at any time; provided, however, that in the event that LIBOR Rate Loans are converted or prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Agent of proceeds of Borrower’s and its Subsidiaries’ Collections in accordance with Section 2.4(b) or for any other reason, including early termination of the term of this Agreement or acceleration of all or any portion of the Obligations pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in accordance with Section 2.12 (b)(ii).

(d) Special Provisions Applicable to LIBOR Rate.

(i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs, in each case, due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), which additional or increased costs would increase the cost of funding or maintaining loans bearing interest at the LIBOR Rate. In any such event, the affected Lender shall give Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Borrower may, by notice to such affected Lender (y) require such Lender to furnish to Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under Section 2.12(b)(ii)).

(ii) In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation or application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Borrower and Agent promptly shall transmit the notice to each other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender’s notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrower shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so.

(e) No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate.

2.13 Capital Requirements.

(a) If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital or reserve requirements for banks or bank holding

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companies, or any change in the interpretation, implementation, or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lender’s or such holding company’s capital as a consequence of such Lender’s Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender’s or such holding company’s then existing policies with respect to capital adequacy and assuming the full utilization of such entity’s capital) by any amount deemed by such Lender to be material, then such Lender may notify Borrower and Agent thereof. Following receipt of such notice, Borrower agrees to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 30 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender’s calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Borrower shall not be required to compensate a Lender pursuant to this Section for any reductions in return incurred more than 180 days prior to the date that such Lender notifies Borrower of such law, rule, regulation or guideline giving rise to such reductions and of such Lender’s intention to claim compensation therefor; provided further that if such claim arises by reason of the adoption of or change in any law, rule, regulation or guideline that is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

(b) If any Lender requests additional or increased costs referred to in Section 2.12(d)(i) or amounts under Section 2.13(a) (any such Lender, an “Affected Lender”), then such Affected Lender shall use reasonable efforts to promptly designate a different one of its lending offices or to assign its rights and obligations hereunder to another of its offices or branches, if (i) in the reasonable judgment of such Affected Lender, such designation or assignment would eliminate or reduce amounts payable pursuant to Section 2.12(d)(i) or Section 2.13(a), as applicable, and (ii) in the reasonable judgment of such Affected Lender, such designation or assignment would not subject it to any material unreimbursed cost or expense and would not otherwise be materially disadvantageous to it. Borrower agrees to pay all reasonable out-of-pocket costs and expenses incurred by such Affected Lender in connection with any such designation or assignment. If, after such reasonable efforts, such Affected Lender does not so designate a different one of its lending offices or assign its rights to another of its offices or branches so as to eliminate Borrower’s obligation to pay any future amounts to such Affected Lender pursuant to Section 2.12(d)(i) or Section 2.13(a), as applicable, then Borrower (without prejudice to any amounts then due to such Affected Lender under Section 2.12(d)(i) or Section 2.13(a), as applicable) may, unless prior to the effective date of any such assignment the Affected Lender withdraws its request for such additional amounts under Section 2.12(d)(i) or Section 2.13(a), as applicable, may seek a substitute Lender reasonably acceptable to Agent to purchase the Obligations owed to such Affected Lender and such Affected Lender’s Commitments hereunder (a “Replacement Lender”), and if such Replacement Lender agrees to such purchase, such Affected Lender shall assign to the Replacement Lender its Obligations and Commitments, pursuant to an Assignment and Acceptance Agreement, and upon such purchase by the Replacement Lender, such Replacement Lender shall be deemed to be a “Lender” for purposes of this Agreement and such Affected Lender shall cease to be a “Lender” for purposes of this Agreement.

3. CONDITIONS; TERM OF AGREEMENT.

3.1 Conditions Precedent to the Initial Extension of Credit. The obligation of each Lender to make its initial extension of credit provided for hereunder is subject to the fulfillment, to the satisfaction of Agent and each Lender, of each of the conditions precedent set forth on Schedule 3.1 (the making of such initial extension of credit by a Lender being conclusively deemed to be its satisfaction or waiver of the conditions precedent).

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3.2 Conditions Precedent to all Extensions of Credit. The obligation of the Lender Group (or any member thereof) to make any Advances hereunder (or to extend any other credit hereunder) at any time shall be subject to the following conditions precedent:

(a) the representations and warranties of Borrower or its Subsidiaries contained in this Agreement or in the other Loan Documents shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); and

(b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof.

3.3 Maturity. This Agreement shall continue in full force and effect for a term ending on March 19, 2014 (the “Maturity Date”). The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default.

3.4 Effect of Maturity. On the Maturity Date, all commitments of the Lender Group to provide additional credit hereunder shall automatically be terminated and all of the Obligations immediately shall become due and payable without notice or demand and Borrower shall be required to repay all of the Obligations in full. No termination of the obligations of the Lender Group (other than payment in full of the Obligations and termination of the Commitments) shall relieve or discharge any Loan Party of its duties, obligations, or covenants hereunder or under any other Loan Document and Agent’s Liens in the Collateral shall continue to secure the Obligations and shall remain in effect until all Obligations have been paid in full and the Commitments have been terminated. When all of the Obligations have been paid in full and the Lender Group’s obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrower’s sole expense, execute and deliver any termination statements, lien releases, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, Agent’s Liens and all notices of security interests and liens previously filed by Agent.

3.5 Early Termination by Borrower. Borrower has the option, at any time upon 10 Business Days prior written notice to Agent, to terminate this Agreement and terminate the Commitments hereunder by repaying to Agent all of the Obligations in full.

3.6 Conditions Subsequent. The obligation of the Lender Group (or any member thereof) to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of the conditions subsequent set forth on Schedule 3.6 (the failure by Borrower to so perform or cause to be performed such conditions subsequent as and when required by the terms thereof, shall constitute an immediate Event of Default).

4. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender Group to enter into this Agreement, Borrower makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the Closing Date, and shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:

4.1 Due Organization and Qualification; Subsidiaries.

(a) Each Loan Party (i) is duly organized and existing and in good standing under the laws of the jurisdiction of its organization, (ii) is qualified to do business in any state where the failure to be so qualified could reasonably be expected to result in a Material Adverse Change, and (iii) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby.

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(b) Other than as described on Schedule 4.1(b), there are no subscriptions, options, warrants, or calls relating to any shares of Borrower’s capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Other than as set forth in the 2010 Indenture and 2014 Indenture, Borrower is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock.

(c) Set forth on Schedule 4.1(c) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement), is a complete and accurate list of the Loan Parties’ direct and indirect Subsidiaries, showing: (i) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and (ii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Borrower. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable.

(d) Except as set forth on Schedule 4.1(c), there are no subscriptions, options, warrants, or calls relating to any shares of a Loan Party’s capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. No Loan Party is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of a Loan Party’s capital Stock or any security convertible into or exchangeable for any such capital Stock.

4.2 Due Authorization; No Conflict.

(a) As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Loan Party.

(b) As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party do not and will not (i) violate any material provision of federal, state, or local law or regulation applicable to any Loan Party or its Subsidiaries, the Governing Documents of any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party or its Subsidiaries, (ii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan Party, other than Permitted Liens, or (iv) require any approval of any Loan Party’s interestholders, other than consents or approvals that have been obtained and that are still in force and effect.

4.3 Governmental Consents. The execution, delivery, and performance by each Loan Party of the Loan Documents to which such Loan Party is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, the failure of which to receive could not reasonably be expected to cause a Material Adverse Change, other than registrations, consents, approvals, notices, or other actions that have been obtained and that are still in force and effect and except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Agent for filing or recordation, as of the Closing Date.

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4.4 Binding Obligations; Perfected Liens.

(a) Each Loan Document has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(b) Agent’s Liens are validly created, perfected (other than (i) in respect of motor vehicles that are subject to a certificate of title and as to which Agent has not caused its Lien to be noted on the applicable certificate of title, and (ii) any Deposit Accounts and Securities Accounts not subject to a Control Agreement as permitted by Section 6.11, and subject only to the filing of financing statements, and the recordation of the Mortgages, in each case, in the appropriate filing offices), and first priority Liens, subject only to Permitted Liens.

4.5 Title to Assets; No Encumbrances. Each of the Loan Parties and its Subsidiaries has (i) good, sufficient and legal title to (in the case of fee interests in Real Property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (iii) good and marketable title to (in the case of all other personal property), all of its assets reflected in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements to the extent permitted hereby and except for assets not in compliance with clause (i), (ii) or (iii) above but only to the extent the aggregate value of all such assets does not exceed $100,000 at any time. All of such assets are free and clear of Liens except for Permitted Liens.

4.6 Jurisdiction of Organization; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims.

(a) The name of (within the meaning of Section 9-503 of the Code) and jurisdiction of organization of each Loan Party and each of its Subsidiaries is set forth on Schedule 4.6(a) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement).

(b) The chief executive office of each Loan Party and each of its Subsidiaries is located at the address indicated on Schedule 4.6(b) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement).

(c) Each Loan Party’s and each of its Subsidiaries’ tax identification numbers and organizational identification numbers, if any, are identified on Schedule 4.6(c) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement).

(d) As of the Closing Date, no Loan Party and no Subsidiary of a Loan Party holds any commercial tort claims that exceed $100,000 in amount, except as set forth on Schedule 4.6(d).

4.7 Litigation.

(a) There are no actions, suits, or proceedings pending or, to the knowledge of Borrower, after due inquiry, threatened in writing against a Loan Party or any of its Subsidiaries that either individually or in the aggregate could reasonably be expected to result in a Material Adverse Change.

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(b) Schedule 4.7(b) sets forth a complete and accurate description, with respect to each of the actions, suits, or proceedings with asserted liabilities in excess of, or that could reasonably be expected to result in liabilities in excess of, $500,000 that, as of the Closing Date, is pending or, to the knowledge of Borrower, after due inquiry, threatened against a Loan Party or any of its Subsidiaries, of (i) the parties to such actions, suits, or proceedings, (ii) the nature of the dispute that is the subject of such actions, suits, or proceedings, (iii) the status, as of the Closing Date, with respect to such actions, suits, or proceedings, and (iv) whether any liability of the Loan Parties’ and their Subsidiaries in connection with such actions, suits, or proceedings is covered by insurance.

4.8 Compliance with Laws. No Loan Party nor any of its Subsidiaries (a) is in violation of any applicable laws, rules, regulations, executive orders, or codes (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change.

4.9 No Material Adverse Change. All historical financial statements relating to the Loan Parties and their Subsidiaries that have been delivered by Borrower to Agent have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, the Loan Parties’ and their Subsidiaries’ consolidated financial condition as of the date thereof and results of operations for the period then ended. Since November 1, 2009, no event, circumstance, or change has occurred that has or could reasonably be expected to result in a Material Adverse Change with respect to the Loan Parties and their Subsidiaries.

4.10 Fraudulent Transfer.

(a) Each Loan Party is Solvent.

(b) No transfer of property is being made by any Loan Party and no obligation is being incurred by any Loan Party in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of such Loan Party.

4.11 Employee Benefits. No Loan Party, none of their Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to any Benefit Plan.

4.12 Environmental Condition. Except as set forth on Schedule 4.12, (a) to Borrower’s knowledge, no Loan Party’s nor any of its Subsidiaries’ properties or assets has ever been used by a Loan Party, its Subsidiaries, or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such disposal, production, storage, handling, treatment, release or transport was in violation, in any material respect, of any applicable Environmental Law, (b) to Borrower’s knowledge, after due inquiry, no Loan Party’s nor any of its Subsidiaries’ properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) no Loan Party nor any of its Subsidiaries has received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by a Loan Party or its Subsidiaries, and (d) no Loan Party nor any of its Subsidiaries nor any of their respective facilities or operations is subject to any outstanding written order, consent decree, or settlement agreement with any Person relating to any Environmental Law or Environmental Liability that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Change.

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4.13 Intellectual Property. Each Loan Party and its Subsidiaries own, or hold licenses in, all trademarks, trade names, copyrights, patents, and licenses that are necessary to the conduct of its business as currently conducted, and attached hereto as Schedule 4.13 (as updated from time to time) is a true, correct, and complete listing of all trademarks, trade names, patents, licenses, and registered copyrights as to which Borrower or one of its Subsidiaries is the owner or is an exclusive licensee; provided, however, that Borrower may amend Schedule 4.13 to add additional intellectual property so long as such amendment occurs by written notice to Agent not less than 30 days after the date on which the applicable Loan Party or its Subsidiary acquires any such property after the Closing Date.

4.14 Leases. Each Loan Party and its Subsidiaries enjoy peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating, and, subject to Permitted Protests, all of such material leases are valid and subsisting and no material default by the applicable Loan Party or its Subsidiaries exists under any of them.

4.15 Deposit Accounts and Securities Accounts. Set forth on Schedule 4.15 (as updated pursuant to the provisions of the Security Agreement from time to time) is a listing of all of the Loan Parties’ and their Subsidiaries’ Deposit Accounts and Securities Accounts, including, with respect to each bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with such Person.

4.16 Complete Disclosure. All factual information taken as a whole (other than forward-looking information and projections and information of a general economic nature and general information about Borrower’s industry) furnished by or on behalf of a Loan Party or its Subsidiaries in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement or the other Loan Documents, and all other such factual information taken as a whole (other than forward-looking information and projections and information of a general economic nature and general information about Borrower’s industry) hereafter furnished by or, at its request, on behalf of a Loan Party or its Subsidiaries in writing to Agent or any Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. The Projections delivered to Agent on February 2, 2010 represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent, Borrower’s good faith estimate, on the date such Projections are delivered, of the Loan Parties’ and their Subsidiaries’ future performance for the periods covered thereby based upon assumptions believed by Borrower to be reasonable at the time of the delivery thereof to Agent (it being understood that such Projections are subject to uncertainties and contingencies, many of which are beyond the control of the Loan Parties and their Subsidiaries, that no assurances can be given that such Projections will be realized, and that actual results may differ in a material manner from such Projections).

4.17 [Intentionally Omitted].

4.18 Patriot Act. To the extent applicable, each Loan Party is in compliance, in all material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the “Patriot Act”). No part of the proceeds of the loans made hereunder will be used by any Loan Party or any of their Affiliates, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

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4.19 Indebtedness. Set forth on Schedule 4.19 is a true and complete list of all Indebtedness of each Loan Party and each of its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding immediately after giving effect to the closing hereunder on the Closing Date and such Schedule accurately sets forth the aggregate principal amount of such Indebtedness as of the Closing Date.

4.20 Payment of Taxes. Except as otherwise permitted under Section 5.5, all tax returns and reports of each Loan Party and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon a Loan Party and its Subsidiaries and upon their respective assets, income, businesses and franchises that are due and payable have been paid when due and payable. Each Loan Party and each of its Subsidiaries have made adequate provision in accordance with GAAP for all taxes not yet due and payable. Borrower knows of no proposed tax assessment against a Loan Party or any of its Subsidiaries that is not being actively contested by such Loan Party or such Subsidiary diligently, in good faith, and by appropriate proceedings; provided such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.

4.21 Margin Stock. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the loans made to Borrower will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors of the United States Federal Reserve.

4.22 Governmental Regulation. Neither Borrower nor any of its Subsidiaries is subject to regulation under the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Borrower nor any of its Subsidiaries is a “registered investment company” or a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940.

4.23 OFAC. Neither Borrower nor any of its Subsidiaries is in violation of any of the country or list based economic and trade sanctions administered and enforced by OFAC. Neither Borrower nor any of its Subsidiaries (a) is a Sanctioned Person or a Sanctioned Entity, (b) has its assets located in Sanctioned Entities, or (c) derives revenues from investments in, or transactions with Sanctioned Persons or Sanctioned Entities. No proceeds of any loan made hereunder will be used to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity.

4.24 Employee and Labor Matters. There is (i) no unfair labor practice complaint pending or, to the knowledge of Borrower, threatened against Borrower or its Subsidiaries before any Governmental Authority and no grievance or arbitration proceeding pending or threatened against Borrower or its Subsidiaries which arises out of or under any collective bargaining agreement and that could reasonably be expected to result in a material liability, (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or threatened in writing against Borrower or its Subsidiaries that could reasonably be expected to result in a material liability, or (iii) to the knowledge of Borrower, after due inquiry, no union representation question existing with respect to the employees of Borrower or its Subsidiaries and no union organizing activity taking place with respect to any of the employees of Borrower or its Subsidiaries. None of Borrower or its Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act or similar state law, which remains unpaid or unsatisfied. The hours worked and payments made to employees of Borrower or its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable legal requirements, except to the extent such violations could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. All material payments due from Borrower or its Subsidiaries on account of wages and employee health and welfare

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insurance and other benefits have been paid or accrued as a liability on the books of Borrower, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.

4.25 [Intentionally Omitted]

4.26 [Intentionally Omitted]

4.27 [Intentionally Omitted]

4.28 [Intentionally Omitted]

4.29 Inactive Subsidiaries. Each of the Inactive Subsidiaries is inactive and does not conduct any business operations and has no material assets.

4.30 Locations of Equipment. The Equipment (other than vehicles or Equipment out for repair) of the Loan Parties and their Subsidiaries are not stored with a bailee, warehouseman, or similar party and are located only at, or in-transit between or to, the locations identified on Schedule 4.30 (as such Schedule may be updated pursuant to Section 5.15).

5. AFFIRMATIVE COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, the Loan Parties shall and shall cause each of their Subsidiaries to comply with each of the following:

5.1 Financial Statements, Reports, Certificates. Deliver to Agent, with copies to each Lender, each of the financial statements, reports, and other items set forth on Schedule 5.1 no later than the times specified therein. In addition, Borrower agrees that no Subsidiary of a Loan Party will have a fiscal year different from that of Borrower. In addition, Borrower agrees to maintain a system of accounting that enables Borrower to produce financial statements in accordance with GAAP. Each Loan Party shall also maintain its billing systems/practices as approved by Agent prior to the Closing Date and shall only make material modifications thereto with notice to, and with the consent of, Agent.

5.2 Collateral Reporting. Provide Agent (and if so requested by Agent, with copies for each Lender) with each of the reports set forth on Schedule 5.2 at the times specified therein.

5.3 Existence. Except as otherwise permitted under Section 6.3 or Section 6.4, at all times maintain and preserve in full force and effect (a) its existence (including being in good standing in its jurisdiction of organization) and (b) all rights and franchises, licenses and permits material to its business other than any such rights or franchise, licenses or permits where the failure to so maintain and preserve could not reasonably be expected to result in a Material Adverse Change.

5.4 Maintenance of Properties. Maintain and preserve all of its assets that are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear, tear, and casualty excepted and Permitted Dispositions excepted (and except where the failure to do so could not reasonably be expected to result in a Material Adverse Change), and comply with the material provisions of all material leases to which it is a party as lessee, so as to prevent the loss or forfeiture thereof, unless such provisions are the subject of a Permitted Protest.

5.5 Taxes. Cause all assessments and taxes imposed, levied, or assessed against any Loan Party or its Subsidiaries, or any of their respective assets or in respect of any of its income, businesses, or franchises to be paid in full, before delinquency or before the expiration of any extension period, except to

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the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest and so long as, in the case of an assessment or tax that has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such assessment or tax. Borrower will and will cause each of its Subsidiaries to make timely payment or deposit of all tax payments and withholding taxes required of it and them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof reasonably satisfactory to Agent indicating that Borrower and its Subsidiaries have made such payments or deposits.

5.6 Insurance. At Borrower’s expense, maintain insurance respecting each of the Loan Parties’ and their Subsidiaries’ assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrower also shall maintain (with respect to each of the Loan Parties and their Subsidiaries) business interruption, general liability, product liability insurance, director’s and officer’s liability insurance, fiduciary liability insurance, and employment practices liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be with responsible and reputable insurance companies acceptable to Agent and in such amounts as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and located and in any event in amount, adequacy and scope reasonably satisfactory to Agent. All property insurance policies covering the Collateral are to be made payable to Agent for the benefit of Agent and the Lenders, as their interests may appear, in case of loss, pursuant to a standard loss payable endorsement with a standard non contributory “lender” or “secured party” clause and are to contain such other provisions as Agent may reasonably require to fully protect the Lenders’ interest in the Collateral and to any payments to be made under such policies. All certificates of property and general liability insurance are to be delivered to Agent, with the loss payable (but only in respect of Collateral) and additional insured endorsements in favor of Agent and shall provide for not less than 30 days (10 days in the case of non-payment) prior written notice to Agent of the exercise of any right of cancellation. If Borrower fails to maintain such insurance, Agent may arrange for such insurance, but at Borrower’s expense and without any responsibility on Agent’s part for obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims. Borrower shall give Agent prompt notice of any loss exceeding $250,000 covered by its casualty or business interruption insurance. Upon the occurrence and during the continuance of an Event of Default, Agent shall have the sole right to file claims under any property and general liability insurance policies in respect of the Collateral, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies.

5.7 Inspection. Permit Agent and each of its duly authorized representatives or agents to visit any of its properties and inspect any of its assets or books and records, to conduct appraisals and valuations, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers and employees at such reasonable times and intervals as Agent may designate and, so long as no Default or Event of Default exists, with reasonable prior notice to Borrower.

5.8 Compliance with Laws. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

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5.9 Environmental.

(a) Keep any property either owned or operated by Borrower or its Subsidiaries free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens,

(b) Comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests,

(c) Promptly notify Agent of any release of which Borrower has knowledge of a Hazardous Material in any reportable quantity from or onto property owned or operated by Borrower or its Subsidiaries and take any Remedial Actions required to abate said release or otherwise to come into compliance, in all material respects, with applicable Environmental Law, and

(d) Promptly, but in any event within 5 Business Days of its receipt thereof, provide Agent with written notice of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of Borrower or its Subsidiaries, (ii) commencement of any Environmental Action or written notice that an Environmental Action will be filed against Borrower or its Subsidiaries, and (iii) written notice of a violation, citation, or other administrative order from a Governmental Authority.

5.10 Disclosure Updates. Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, notify Agent if any written information, exhibit, or report furnished to Agent or the Lenders contained, at the time it was furnished, any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made. The foregoing to the contrary notwithstanding, any notification pursuant to the foregoing provision will not cure or remedy the effect of the prior untrue statement of a material fact or omission of any material fact nor shall any such notification have the effect of amending or modifying this Agreement or any of the Schedules hereto.

5.11 Formation of Subsidiaries. Other than in connection with a Subsidiary acquired as a result of a Non-Cash Acquisition or Smaller Acquisition, at the time that any Loan Party forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date, such Loan Party shall (a) (i) within 10 days of such formation or acquisition of any Subsidiary that is not a CFC, and (ii) within 60 days of such formation or acquisition of any Subsidiary that is a CFC (or, in each case, such later date as permitted by Agent in its sole discretion) cause any such new Subsidiary to provide to Agent a joinder to the Guaranty and the Security Agreement, together with such other security documents (including mortgages with respect to any Real Property owned in fee of such new Subsidiary with a fair market value of at least $250,000 if at the time such new Subsidiary is formed or acquired an Event of Default exists), as well as appropriate financing statements (and with respect to all property subject to a mortgage, fixture filings), all in form and substance reasonably satisfactory to Agent (including being sufficient to grant Agent a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary); provided that the Guaranty, the Security Agreement, and such other security documents shall not be required to be provided to Agent with respect to any new Subsidiary of Borrower that is a CFC unless such Subsidiary owns material intellectual property which has not been transferred to a Loan Party, (b) (i) within 10 days of such formation or acquisition of any Subsidiary that is not a CFC, and (ii) within 60 days of such formation or acquisition of any Subsidiary that is a CFC (or, in each case, such later date as permitted by Agent in its sole discretion) provide to Agent a pledge agreement (or an addendum to the Security Agreement) and appropriate certificates and powers or financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary reasonably satisfactory to Agent; provided that the direct or beneficial ownership interest of any first tier Subsidiary of a Loan Party that is a CFC shall be required to be pledged only if such Subsidiary owns material intellectual property that has not been transferred to a Loan Party, and (c) (i) within 10 days of such formation or acquisition, and (ii) within 60 days of such formation or acquisition of any Subsidiary that is a CFC (or, in each case, such later date as permitted by Agent in its sole discretion) provide

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to Agent all other documentation, including (x) one or more opinions of counsel reasonably satisfactory to Agent, which in its opinion is appropriate with respect to the execution, (y) delivery of the applicable documentation referred to above (including policies of title insurance or other documentation with respect to all Real Property owned in fee and subject to a mortgage to the extent a Lien is to be granted in such Real Property in favor of Agent), and (z) an updated Schedule 4.1(c). Any document, agreement, or instrument executed or issued pursuant to this Section 5.11 shall be a Loan Document.

5.12 Further Assurances. At any time upon the reasonable request of Agent, execute or deliver to Agent any and all financing statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, mortgages, deeds of trust, opinions of counsel, and all other documents (the “Additional Documents”) that Agent may reasonably request in form and substance reasonably satisfactory to Agent, to create, perfect, and continue perfected or to better perfect Agent’s Liens in all of the assets of Borrower and its Subsidiaries (whether now owned or hereafter arising or acquired, tangible or intangible, real or personal), and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents; provided that (i) Agent shall not request any Additional Documents for the purpose of granting a Lien in any Real Property unless an Event of Default then exists, and (ii) the foregoing shall not apply to any Subsidiary of Borrower that is a CFC other than a CFC that is a Loan Party. To the maximum extent permitted by applicable law, Borrower authorizes Agent to execute any such Additional Documents in the applicable Loan Party’s or its Subsidiary’s name, as applicable, and authorizes Agent to file such executed Additional Documents in any appropriate filing office. In furtherance and not in limitation of the foregoing, each Loan Party shall take such actions as Agent may reasonably request from time to time to ensure that the Obligations are guarantied by the Guarantors and are secured by substantially all of the assets of Borrower and its Subsidiaries and all of the outstanding capital Stock of Borrower’s Subsidiaries (subject to exceptions and limitations contained in the Loan Documents with respect to CFCs).

5.13 Lender Meetings. Within 90 days after the close of each fiscal year of Borrower, at the request of Agent or of the Required Lenders and upon reasonable prior notice, hold a meeting (at a mutually agreeable location and time or, at the option of Agent, by conference call) with all Lenders who choose to attend such meeting at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of Borrower and its Subsidiaries and the projections presented for the current fiscal year of Borrower; provided that, so long as no Event of Default exists, Borrower will not be obligated to reimburse Agent for more than $5,000 of Agent’s costs incurred in connection with any such meeting to the extent such costs exceed $5,000 per calendar year.

5.14 [Intentionally Omitted].

5.15 Location of Inventory and Equipment. Keep each Loan Parties’ and its Domestic Subsidiaries’ Inventory and Equipment (other than vehicles and Equipment out for repair) only at the locations identified on Schedule 4.30 and their chief executive offices only at the locations identified on Schedule 4.6(b); provided, however, that Borrower may amend Schedule 4.30 or Schedule 4.6(b) so long as such amendment occurs by written notice to Agent not less than 10 days prior to the date on which such Inventory or Equipment is moved to such new location or such chief executive office is relocated and so long as such new location is within the continental United States, and so long as, Borrower uses commercially reasonable efforts to provide Agent a Collateral Access Agreement with respect to any new chief executive office location.

5.16 [Intentionally Omitted].

5.17 Primary Depository Institution. Retain each Loan Party’s primary depository and treasury management relationships with Wells Fargo and its Affiliates.

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6. NEGATIVE COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, the Loan Parties will not and will not permit any of their Subsidiaries to do any of the following:

6.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except for Permitted Indebtedness.

6.2 Liens. Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens.

6.3 Restrictions on Fundamental Changes.

(a) Other than in order to consummate a Permitted Acquisition, enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock, except for (i) any merger between Loan Parties, provided that Borrower must be the surviving entity of any such merger to which it is a party, (ii) any merger between a Loan Party and Subsidiaries of such Loan Party that are not Loan Parties so long as such Loan Party is the surviving entity of any such merger, and (iii) any merger between Subsidiaries of Borrower that are not Loan Parties,

(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), except for (i) the liquidation or dissolution of an Inactive Subsidiary or other non-operating Subsidiaries of Borrower with nominal assets and nominal liabilities, (ii) the liquidation or dissolution of a Loan Party (other than Borrower) or any of its wholly-owned Subsidiaries so long as all of the assets (including any interest in any Stock) of such liquidating or dissolving Loan Party or Subsidiary are transferred to a Loan Party that is not liquidating or dissolving, or (iii) the liquidation or dissolution of a Subsidiary of Borrower that is not a Loan Party (other than any such Subsidiary the Stock of which (or any portion thereof) is subject to a Lien in favor of Agent) so long as all of the assets of such liquidating or dissolving Subsidiary are transferred to a Subsidiary of Borrower that is not liquidating or dissolving, or

(c) Suspend or go out of a substantial portion of its or their business, except as permitted pursuant to clauses (a) or (b) above or in connection with the transactions permitted pursuant to Section 6.4.

6.4 Disposal of Assets. Other than Permitted Dispositions, Permitted Investments, or transactions expressly permitted by Sections 6.3 and 6.11, convey, sell, lease, license, assign, transfer, or otherwise dispose of (or enter into an agreement to convey, sell, lease, license, assign, transfer, or otherwise dispose of) any of Borrower’s or its Subsidiaries assets.

6.5 Change Name. Change Borrower’s or any of its Subsidiaries’ name, organizational identification number, state of organization or organizational identity; provided, however, that Borrower or any of its Subsidiaries may change their names upon at least 10 days prior written notice to Agent of such change.

6.6 Nature of Business. Make any change in the nature of its or their business as described in Schedule 6.6 or acquire any properties or assets that are not reasonably related to the conduct of such business activities; provided, however, that the foregoing shall not prevent Borrower and its Subsidiaries from engaging in any business that is reasonably related or ancillary to its or their business.

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6.7 Prepayments and Amendments.

(a) Except in connection with Refinancing Indebtedness permitted by Section 6.1,

(i) optionally prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrower or its Subsidiaries, other than (A) the Obligations in accordance with this Agreement, (B) Permitted Intercompany Advances, (C) Indebtedness under the 2010 Notes, (D) the Auction Rate Indebtedness so long as such Indebtedness is paid in full and the Auction Rate Line of Credit is terminated using solely the proceeds of the sale of the Auction Rate Securities, and (E) Capital Leases so long as immediately before and after giving effect thereto, (x) no Default or Event of Default exists and (y) Borrower has Availability plus domestic Qualified Cash in an amount equal to or greater than $10,000,000,

(ii) make any payment on account of Indebtedness that has been contractually subordinated in right of payment if such payment is not permitted at such time under the subordination terms and conditions, or

(b) Directly or indirectly, amend, modify, or change any of the terms or provisions of

(i) any agreement, instrument, document, indenture, or other writing evidencing or concerning Permitted Indebtedness if the terms and conditions thereof could reasonably be expected to be materially adverse to Agent, any Lender, Borrower or any of Borrower’s Subsidiaries,

(ii) [Intentionally Omitted]

(iii) the Governing Documents of any Loan Party or any of its Subsidiaries if the effect thereof, either individually or in the aggregate, could reasonably be expected to be materially adverse to the interests of the Lenders.

6.8 Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control.

6.9 Restricted Junior Payments. Make any Restricted Junior Payment; provided, however, that, so long as it is permitted by law, and so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom,

(a) Borrower may make distributions and payments to former employees, officers, or directors of Borrower (or any spouses, ex-spouses, or estates of any of the foregoing) on account of redemptions and repurchases of Stock of Borrower held by such Persons, provided, however, that the aggregate amount of such redemptions and repurchases made by Borrower during the term of this Agreement plus the amount of Indebtedness outstanding under clause (l) of the definition of Permitted Indebtedness, does not exceed $500,000 in the aggregate,

(b) Borrower may make distributions to former employees, officers, or directors of Borrower (or any spouses, ex-spouses, or estates of any of the foregoing), solely in the form of forgiveness of Indebtedness of such Persons owing to Borrower on account of repurchases of the Stock of Borrower held by such Persons; provided that such Indebtedness was incurred by such Persons solely to acquire Stock of Borrower, and

(c) Borrower may repurchase fractional shares of its Stock arising out of stock splits or stock combinations or conversion of convertible securities, in an amount not to exceed $50,000 in any calendar year.

6.10 Accounting Methods. Modify or change its fiscal year or its method of accounting (other than as may be required to conform to GAAP).

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6.11 Investments; Controlled Investments.

(a) Except for Permitted Investments, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment.

(b) Other than (i) an aggregate amount of not more than $50,000 at any one time, in the case of Borrower and its Subsidiaries (other than those Subsidiaries that are CFCs), (ii) amounts deposited into Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for Borrower’s or its Subsidiaries’ employees, and (iii) an aggregate amount of not more than $15,000,000 (calculated at current exchange rates) at any one time, in the case of Subsidiaries of Borrower that are CFCs, make, acquire, or permit to exist Permitted Investments consisting of cash, Cash Equivalents, or amounts credited to Deposit Accounts or Securities Accounts unless Borrower or its Subsidiary, as applicable, and the applicable bank or securities intermediary have entered into Control Agreements with Agent governing such Permitted Investments in order to perfect (and further establish) Agent’s Liens in such Permitted Investments. Except as provided in Section 6.11(b)(i), (ii), and (iii), Borrower shall not and shall not permit its Subsidiaries to establish or maintain any Deposit Account or Securities Account unless Agent shall have received a Control Agreement in respect of such Deposit Account or Securities Account.

6.12 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower or any of its Subsidiaries except for:

(a) transactions (other than the payment of management, consulting, monitoring, or advisory fees) between Borrower or its Subsidiaries, on the one hand, and any Affiliate of Borrower or its Subsidiaries, on the other hand, so long as such transactions (i) are fully disclosed to Agent prior to the consummation thereof, if they involve one or more payments by Borrower or its Subsidiaries in excess of $250,000 for any single transaction or series of related transactions, and (ii) are no less favorable, taken as a whole, to Borrower or its Subsidiaries, as applicable, than would be obtained in an arm’s length transaction with a non-Affiliate,

(b) so long as it has been approved by Borrower’s or its applicable Subsidiary’s board of directors (or comparable governing body) in accordance with applicable law, any indemnity provided for the benefit of directors (or comparable managers) of Borrower or its applicable Subsidiary,

(c) so long as it has been approved by Borrower’s or its applicable Subsidiary’s board of directors (or comparable governing body) in accordance with applicable law, the payment of reasonable compensation, severance, or employee benefit arrangements to employees, officers, and outside directors of Borrower and its Subsidiaries in the ordinary course of business and consistent with industry practice, and

(d) transactions permitted by Section 6.3 or Section 6.9, any Permitted Intercompany Advance, any Permitted Service Fees, or any Permitted Netting Payments.

6.13 Use of Proceeds. Use the proceeds of any loan made hereunder for any purpose other than (a) on the Closing Date, (i) to repay, in full, the outstanding principal, accrued interest, and accrued fees and expenses owing under or in connection with the Existing Credit Facility and (ii) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes, including to repay the 2010 Notes, to pay the cash consideration for Permitted Acquisitions, and to make Permitted Investments.

6.14 Limitation on Issuance of Stock. Except for the issuance or sale of common stock or Permitted Preferred Stock by Borrower, issue or sell or enter into any agreement or arrangement for the issuance and sale of any of Borrower’s Stock.

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6.15 [Intentionally Omitted]

6.16 [Intentionally Omitted]

6.17 Inventory and Equipment with Bailees. Store the Inventory or Equipment of Borrower or its Subsidiaries at any time now or hereafter with a bailee, warehouseman, or similar party.

7. FINANCIAL COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, Borrower will comply with each of the following financial covenants:

(a) Minimum EBITDA. Achieve EBITDA, measured on a quarter-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:

Applicable Amount		Applicable Period
$	15,500,000	For the 12 month period ending May 2, 2010
$	15,000,000	For the 12 month period ending August 1, 2010
$	14,000,000	For the 12 month period ending October 31, 2010
$	14,750,000	For the 12 month period ending January 30, 2011
$	16,500,000	For the 12 month period ending May 1, 2011
$	17,000,000	For the 12 month period ending July 31, 2011
$	18,000,000	For the 12 month period ending October 31, 2011
$	19,000,000	For the 12 month period ending January 29, 2012
$	19,000,000	For the 12 month period ending April 29, 2012
$	20,000,000	For the 12 month period ending July 29, 2012
$	20,000,000	For the 12 month period ending each quarter thereafter

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(b) Capital Expenditures. Make Capital Expenditures (excluding the amount, if any, of Capital Expenditures made with Net Cash Proceeds of casualty losses or condemnation awards reinvested pursuant to the proviso in Section 2.4(e)(ii)) in any fiscal year in an amount less than or equal to, but not greater than, the amount set forth in the following table for the applicable period:

Fiscal Year Ending May 2, 2010		Fiscal Year Ending May 1, 2011		Fiscal Year Ending April  29, 2012		Fiscal Year Ending April  28, 2013		Fiscal Year Ending April  27, 2014
$	4,000,000	$	5,000,000	$	7,000,000	$	8,000,000	$	8,500,000

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an event of default (each, an “Event of Default”) under this Agreement:

8.1 If Borrower fails to pay when due and payable, or when declared due and payable, (a) all or any portion of the Obligations consisting of interest, fees, or charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts (other than any portion thereof constituting principal) constituting Obligations (including any portion thereof that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), and such failure continues for a period of 3 Business Days, or (b) all or any portion of the principal of the Obligations;

8.2 If any Loan Party or any of its Subsidiaries:

(a) fails to perform or observe any covenant or other agreement contained in any of (i) Sections 3.6, 5.1, 5.2, 5.3 (solely if Borrower is not in good standing in its jurisdiction of organization), 5.6, 5.7 (solely if Borrower refuses to allow Agent or its representatives or agents to visit Borrower’s properties, inspect its assets or books or records, examine and make copies of its books and records, or discuss Borrower’s affairs, finances, and accounts with officers and employees of Borrower), 5.10, 5.11, 5.13, 5.14, or 5.15 of this Agreement, (ii) Sections 6.1 through 6.17 of this Agreement, (iii) Section 7 of this Agreement, or (iv) Section 6 of the Security Agreement;

(b) fails to perform or observe any covenant or other agreement contained in any of Sections 5.3 (other than if Borrower is not in good standing in its jurisdiction of organization), 5.4, 5.5, 5.8, and 5.12 of this Agreement and such failure continues for a period of 10 days after the earlier of (i) the date on which such failure shall first become known to any officer of Borrower or (ii) the date on which written notice thereof is given to Borrower by Agent; or

(c) fails to perform or observe any covenant or other agreement contained in this Agreement, or in any of the other Loan Documents, in each case, other than any such covenant or agreement that is the subject of another provision of this Section 8 (in which event such other provision of this Section 8 shall govern), and such failure continues for a period of 30 days after the earlier of (i) the date on which such failure shall first become known to any officer of Borrower or (ii) the date on which written notice thereof is given to Borrower by Agent;

8.3 If one or more judgments, orders, or awards for the payment of money involving an aggregate amount of $500,000, or more (except to the extent fully covered (other than to the extent of customary deductibles) by insurance pursuant to which the insurer has not denied coverage) is entered or filed against a Loan Party or any of its Subsidiaries, or with respect to any of their respective assets, and either (a) there is a period of 30 consecutive days at any time after the entry of any such judgment, order, or award during which (1) the same is not discharged, satisfied, vacated, or bonded pending appeal, or (2) a stay of enforcement thereof is not in effect, or (b) enforcement proceedings are commenced upon such judgment, order, or award;

8.4 If an Insolvency Proceeding is commenced by a Loan Party or any of its Subsidiaries;

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8.5 If an Insolvency Proceeding is commenced against a Loan Party or any of its Subsidiaries and any of the following events occur: (a) such Loan Party or such Subsidiary consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Loan Party or its Subsidiary, or (e) an order for relief shall have been issued or entered therein;

8.6 If a Loan Party or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of the business affairs of Borrower and its Subsidiaries, taken as a whole;

8.7 If there is (a) a default in one or more agreements to which a Loan Party or any of its Subsidiaries is a party with one or more third Persons relative to a Loan Party’s or any of its Subsidiaries’ Indebtedness involving an aggregate amount of $500,000 or more, and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by such third Person, irrespective of whether exercised, to accelerate the maturity of such Loan Party’s or its Subsidiary’s obligations thereunder, or (b) a default in or an involuntary early termination of one or more Hedge Agreements to which a Loan Party or any of its Subsidiaries is a party if such termination is not the result of any action by or event solely affecting the counterparty,

8.8 If any warranty, representation, certificate, statement, or Record made herein or in any other Loan Document or delivered in writing to Agent or any Lender in connection with this Agreement or any other Loan Document proves to be untrue in any material respect (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of the date of issuance or making or deemed making thereof;

8.9 If the obligation of any Guarantor under the Guaranty is limited or terminated by operation of law or by such Guarantor (other than in accordance with the terms of this Agreement);

8.10 If the Security Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent of Permitted Liens, first priority Lien on the Collateral covered thereby, except (a) as a result of a disposition of the applicable Collateral in a transaction permitted under this Agreement, or (b) as the result of an action or failure to act on the part of Agent; or

8.11 The validity or enforceability of any Loan Document shall at any time for any reason (other than solely as the result of an action or failure to act on the part of Agent) be declared to be null and void, or a proceeding shall be commenced by a Loan Party or its Subsidiaries, or by any Governmental Authority having jurisdiction over a Loan Party or its Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or a Loan Party or its Subsidiaries shall deny that such Loan Party or its Subsidiaries has any liability or obligation purported to be created under any Loan Document.

9. RIGHTS AND REMEDIES.

9.1 Rights and Remedies. Upon the occurrence and during the continuation of an Event of Default, Agent may, and, at the instruction of the Required Lenders, shall (in each case under clauses (a) or (b) by written notice to Borrower), in addition to any other rights or remedies provided for hereunder or under any other Loan Document or by applicable law, do any one or more of the following:

(a) declare the Obligations (other than the Bank Product Obligations), whether evidenced by this Agreement or by any of the other Loan Documents immediately due and payable, whereupon the same shall become and be immediately due and payable and Borrower shall be obligated to repay all of such Obligations in full, without presentment, demand, protest, or further notice or other requirements of any kind, all of which are hereby expressly waived by Borrower;

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(b) declare the Commitments terminated, whereupon the Commitments shall immediately be terminated together with (i) any obligation of any Lender hereunder to make Advances, (ii) the obligation of the Swing Lender to make Swing Loans, and (iii) the obligation of the Issuing Lender to issue Letters of Credit; and

(c) exercise all other rights and remedies available to Agent or the Lenders under the Loan Documents or applicable law.

The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in Section 8.4 or Section 8.5, in addition to the remedies set forth above, without any notice to Borrower or any other Person or any act by the Lender Group, the Commitments shall automatically terminate and the Obligations (other than the Bank Product Obligations), inclusive of all accrued and unpaid interest thereon and all fees and all other amounts owing under this Agreement or under any of the other Loan Documents, shall automatically and immediately become due and payable and Borrower shall be obligated to repay all of such Obligations in full, without presentment, demand, protest, or notice of any kind, all of which are expressly waived by Borrower.

9.2 Remedies Cumulative. The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it.

10. WAIVERS; INDEMNIFICATION.

10.1 Demand; Protest; etc. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which Borrower may in any way be liable.

10.2 The Lender Group’s Liability for Collateral. Borrower hereby agrees that: (a) so long as Agent complies with its obligations, if any, under the Code, the Lender Group shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower.

10.3 Indemnification. Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons, and each Participant (each, an “Indemnified Person”) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys, experts, or consultants and all other costs and expenses actually incurred in connection therewith or in connection with the enforcement of this indemnification (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution and delivery (provided that Borrower shall not be liable for costs and expenses (including attorneys fees) of any Lender (other than WFCF) incurred in advising, structuring, drafting, reviewing, administering or syndicating the Loan Documents), enforcement, performance, or administration (including any restructuring or workout with respect hereto) of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby or the

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monitoring of Borrower’s and its Subsidiaries’ compliance with the terms of the Loan Documents (provided, however, that the indemnification in this clause (a) shall not extend to (i) disputes solely between or among the Lenders or (ii) disputes solely between or among the Lenders and their respective Affiliates; it being understood and agreed that the indemnification in this clause (a) shall extend to disputes between or among Agent on the one hand, and one or more Lenders, or one or more of their Affiliates, on the other hand), (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto, and (c) in connection with or arising out of any presence or release of Hazardous Materials at, on, under, to or from any assets or properties owned, leased or operated by Borrower or any of its Subsidiaries or any Environmental Actions, Environmental Liabilities or Remedial Actions related in any way to any such assets or properties of Borrower or any of its Subsidiaries (each and all of the foregoing, the “Indemnified Liabilities”). The foregoing to the contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this Section 10.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person or its officers, directors, employees, attorneys, or agents. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

11. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as a party may designate in accordance herewith), or telefacsimile. In the case of notices or demands to Borrower or Agent, as the case may be, they shall be sent to the respective address set forth below:

If to Borrower:	MAGNA DESIGN AUTOMATION, INC.
	1650 Technology Drive
	San Jose, California 95110
	Attn: Peter S. Teshima
	Fax No. 408.715.2557
with copies to:	PILLSBURY WINTHROP SHAW PITTMAN LLP.
	50 Fremont Street,
	San Francisco, California 94105
	Attn: Robert J. Spjut, Esq.
	Fax No.: 415.983.1821
If to Agent:	WELLS FARGO CAPITAL FINANCE, LLC
	2450 Colorado Avenue, Suite 3000W
	Santa Monica, California 90404
	Attn: Tech Finance Division Manager
	Fax No.:

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with copies to:	BUCHALTER NEMER
	1000 Wilshire Boulevard, 15th Floor
	Los Angeles, California 90017
	Attn: Robert J. Davidson, Esq.
	Fax No.: 213.630.5692

Any party hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 11, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail; provided, that (a) notices sent by overnight courier service shall be deemed to have been given when received, (b) notices by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient) and (c) notices by electronic mail shall be deemed received upon the sender's receipt of an acknowledgment from the intended recipient (such as by the "return receipt requested" function, as available, return email or other written acknowledgment).

12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA

(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).

(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

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13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

13.1 Assignments and Participations.

(a) With the prior written request of Borrower, which consent of Borrower shall not be unreasonably withheld, delayed or conditioned, and shall not be required (1) if an Event of Default has occurred and is continuing, and (2) in connection with an assignment to a Person that is a Lender or an Affiliate (other than individuals) of a Lender and with the prior written consent of Agent, which consent of Agent shall not be unreasonably withheld, delayed or conditioned, and shall not be required in connection with an assignment to a Person that is a Lender or an Affiliate (other than individuals) of a Lender, any Lender may assign and delegate to one or more assignees so long as such prospective assignee is an Eligible Transferee (each, an “Assignee”; provided, however, that no Loan Party or Affiliate of a Loan Party shall be permitted to become an Assignee) all or any portion of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount (unless waived by Agent) of $5,000,000 (except such minimum amount shall not apply to (x) an assignment or delegation by any Lender to any other Lender or an Affiliate of any Lender or (y) a group of new Lenders, each of which is an Affiliate of each other or a Related Fund of such new Lender to the extent that the aggregate amount to be assigned to all such new Lenders is at least $5,000,000); provided, however, that Borrower and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee have delivered to Borrower and Agent an Assignment and Acceptance and Agent has notified the assigning Lender of its receipt thereof in accordance with Section 13.1(b), and (iii) unless waived by Agent, the assigning Lender or Assignee has paid to Agent for Agent’s separate account a processing fee in the amount of $3,500.

(b) From and after the date that Agent notifies the assigning Lender (with a copy to Borrower) that it has received an executed Assignment and Acceptance and, if applicable, payment of the required processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall be a “Lender” and shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 10.3) and be released from any future obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto); provided, however, that nothing contained herein shall release any assigning Lender from obligations that survive the termination of this Agreement, including such assigning Lender’s obligations under Section 15 and Section 17.9(a).

(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance or observance by Borrower of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto, (iii) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such Assignee will, independently and without reliance upon Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time,

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continue to make its own credit decisions in taking or not taking action under this Agreement, (v) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent, by the terms hereof and thereof, together with such powers as are reasonably incidental thereto, and (vi) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

(d) Immediately upon Agent’s receipt of the required processing fee, if applicable, and delivery of notice to the assigning Lender pursuant to Section 13.1(b), this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto.

(e) Any Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons (a “Participant”) participating interests in all or any portion of its Obligations, its Commitment, and the other rights and interests of that Lender (the “Originating Lender”) hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender shall remain a “Lender” for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a “Lender” hereunder or under the other Loan Documents and the Originating Lender’s obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrower, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender’s rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or substantially all of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender (other than a waiver of default interest), or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums, and (v) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Borrower, the Collections of Borrower or its Subsidiaries, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves.

(f) In connection with any such assignment or participation or proposed assignment or participation or any grant of a security interest in, or pledge of, its rights under and interest in this Agreement, a Lender may, subject to the provisions of Section 17.9, disclose all documents and information which it now or hereafter may have relating to Borrower and its Subsidiaries and their respective businesses.

(g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

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(h) Agent (as a non-fiduciary agent on behalf of Borrower) shall maintain, or cause to be maintained, a register (the “Register”) on which it enters the name and address of each Lender as the registered owner of the Term Loan (and the principal amount thereof and stated interest thereon) held by such Lender (each, a “Registered Loan”). Other than in connection with an assignment by a Lender of all or any portion of its portion of the Term Loan to an Affiliate of such Lender or a Related Fund of such Lender (i) a Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (and each registered note shall expressly so provide) and (ii) any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register, together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any evidencing the same), Borrower shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary. In the case of any assignment by a Lender of all or any portion of its Term Loan to an Affiliate of such Lender or a Related Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender, on behalf of Borrower, shall maintain a register comparable to the Register.

(i) In the event that a Lender sells participations in the Registered Loan, such Lender, as a non-fiduciary agent on behalf of Borrower, shall maintain (or cause to be maintained) a register on which it enters the name of all participants in the Registered Loans held by it (and the principal amount (and stated interest thereon) of the portion of such Registered Loans that is subject to such participations) (the “Participant Register”). A Registered Loan (and the Registered Note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.

(j) Agent shall make a copy of the Register (and each Lender shall make a copy of its Participant Register in the extent it has one) available for review by Borrower from time to time as Borrower may reasonably request.

13.2 Successors. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without the Lenders’ prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release Borrower from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 13.1 and, except as expressly required pursuant to Section 13.1, no consent or approval by Borrower is required in connection with any such assignment.

14. AMENDMENTS; WAIVERS.

14.1 Amendments and Waivers.

(a) No amendment, waiver or other modification of any provision of this Agreement or any other Loan Document (other than Bank Product Agreements or the Fee Letter), and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and the Loan

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Parties that are party thereto and then any such waiver or consent shall be effective, but only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of the Lenders directly affected thereby and all of the Loan Parties that are party thereto, do any of the following:

(i) increase the amount of or extend the expiration date of any Commitment of any Lender or amend, modify, or eliminate the last sentence of Section 2.4(c)(i),

(ii) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document,

(iii) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document (except (y) in connection with the waiver of applicability of Section 2.6(c) (which waiver shall be effective with the written consent of the Required Lenders), and (z) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or a reduction of fees for purposes of this clause (iii)),

(iv) amend, modify, or eliminate this Section or any provision of this Agreement providing for consent or other action by all Lenders,

(v) other than as permitted by Section 15.11, release Agent’s Lien in and to any of the Collateral,

(vi) amend, modify, or eliminate the definition of “Required Lenders” or “Pro Rata Share”,

(vii) contractually subordinate any of Agent’s Liens,

(viii) other than in connection with a merger, liquidation, dissolution or sale of such Person expressly permitted by the terms hereof or the other Loan Documents, release Borrower or any Guarantor from any obligation for the payment of money or consent to the assignment or transfer by Borrower or any Guarantor of any of its rights or duties under this Agreement or the other Loan Documents,

(ix) amend, modify, or eliminate any of the provisions of Section 2.4(b)(i) or (ii) or Section 2.4(e) or (f),

(x) amend, modify, or eliminate any of the provisions of Section 13.1(a) to permit a Loan Party or an Affiliate of a Loan Party to be permitted to become an Assignee, or

(xi) amend, modify, or eliminate the definition of Credit Amount or any of the defined terms (including the definitions of TTM Recurring Revenue and TTM EBITDA) that are used in such definition to the extent that any such change results in more credit being made available to Borrower based upon the Credit Amount, but not otherwise, or the definitions of Maximum Revolver Amount or Term Loan Amount, or change Section 2.1(c).

(b) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive (i) the definition of, or any of the terms or provisions of, the Fee Letter, without the written consent of Agent and Borrower (and shall not require the written consent of any of the Lenders), and (ii) any provision of Section 15 pertaining to Agent, or any other rights or duties of Agent under this Agreement or the other Loan Documents, without the written consent of Agent, Borrower, and the Required Lenders,

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(c) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive any provision of this Agreement or the other Loan Documents pertaining to Issuing Lender, or any other rights or duties of Issuing Lender under this Agreement or the other Loan Documents, without the written consent of Issuing Lender, Agent, Borrower, and the Required Lenders,

(d) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive any provision of this Agreement or the other Loan Documents pertaining to Swing Lender, or any other rights or duties of Swing Lender under this Agreement or the other Loan Documents, without the written consent of Swing Lender, Agent, Borrower, and the Required Lenders,

(e) Anything in this Section 14.1 to the contrary notwithstanding, (i) any amendment, modification, elimination, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrower, shall not require consent by or the agreement of any Loan Party, and (ii) any amendment, waiver, modification, elimination, or consent of or with respect to any provision of this Agreement or any other Loan Document may be entered into without the consent of, or over the objection of, any Defaulting Lender.

14.2 Replacement of Certain Lenders.

(a) If (i) any action to be taken by the Lender Group or Agent hereunder requires the consent, authorization, or agreement of all Lenders or all Lenders affected thereby and if such action has received the consent, authorization, or agreement of the Required Lenders but not of all Lenders or all Lenders affected thereby, or (ii) any Lender makes a claim for compensation under Section 16, then Borrower or Agent, upon at least 5 Business Days prior irrevocable notice, may permanently replace any Lender that failed to give its consent, authorization, or agreement (a “Holdout Lender”) or any Lender that made a claim for compensation (a “Tax Lender”) with one or more Replacement Lenders, and the Holdout Lender or Tax Lender, as applicable, shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender or Tax Lender, as applicable, shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given.

(b) Prior to the effective date of such replacement, the Holdout Lender or Tax Lender, as applicable, and each Replacement Lender shall execute and deliver an Assignment and Acceptance, subject only to the Holdout Lender or Tax Lender, as applicable, being repaid in full its share of the outstanding Obligations (without any premium or penalty of any kind whatsoever, but including (i) all interest, fees and other amounts that may be due in payable in respect thereof, and (ii) an assumption of its Pro Rata Share of the Letters of Credit). If the Holdout Lender or Tax Lender, as applicable, shall refuse or fail to execute and deliver any such Assignment and Acceptance prior to the effective date of such replacement, Agent may, but shall not be required to, execute and deliver such Assignment and Acceptance in the name or and on behalf of the Holdout Lender or Tax Lender, as applicable, and irrespective of whether Agent executes and delivers such Assignment and Acceptance, the Holdout Lender or Tax Lender, as applicable, shall be deemed to have executed and delivered such Assignment and Acceptance. The replacement of any Holdout Lender or Tax Lender, as applicable, shall be made in accordance with the terms of Section 13.1. Until such time as one or more Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender or Tax Lender, as applicable, hereunder and under the other Loan Documents, the Holdout Lender or Tax Lender, as applicable, shall remain obligated to make the Holdout Lender’s or Tax Lender’s, as applicable, Pro Rata Share of Advances and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of such Letters of Credit.

14.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on

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any occasion shall affect or diminish Agent’s and each Lender’s rights thereafter to require strict performance by Borrower of any provision of this Agreement. Agent’s and each Lender’s rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have.

15. AGENT; THE LENDER GROUP.

15.1 Appointment and Authorization of Agent. Each Lender hereby designates and appoints WFCF as its agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to designate, appoint, and authorize) Agent to execute and deliver each of the other Loan Documents on its behalf and to take such other action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as agent for and on behalf of the Lenders (and the Bank Product Providers) on the conditions contained in this Section 15. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender (or Bank Product Provider), and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement or the other Loan Documents with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only a representative relationship between independent contracting parties. Each Lender hereby further authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent to act as the secured party under each of the Loan Documents that create a Lien on any item of Collateral. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections of Borrower and its Subsidiaries, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders, as provided in the Loan Documents, (d) exclusively receive, apply, and distribute the Collections of Borrower and its Subsidiaries as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections of Borrower and its Subsidiaries, (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrower or its Subsidiaries, the Obligations, the Collateral, the Collections of Borrower and its Subsidiaries, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents.

15.2 Delegation of Duties. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects as long as such selection was made without gross negligence or willful misconduct.

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15.3 Liability of Agent. None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders (or Bank Product Providers) for any recital, statement, representation or warranty made by Borrower or any of its Subsidiaries or Affiliates, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or its Subsidiaries or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lenders (or Bank Product Providers) to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of Borrower or its Subsidiaries.

15.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telefacsimile or other electronic method of transmission, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Lenders (and, if it so elects, the Bank Product Providers) against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders (and Bank Product Providers).

15.5 Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders and, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a “notice of default.” Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 15.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable.

15.6 Credit Decision. Each Lender (and Bank Product Provider) acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender (or Bank Product Provider). Each Lender represents (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to represent) to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such due diligence, documents and information as it has deemed

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appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower or any other Person party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to represent) that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower or any other Person party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender (or Bank Product Provider) with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower or any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. Each Lender acknowledges (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that Agent does not have any duty or responsibility, either initially or on a continuing basis (except to the extent, if any, that is expressly specified herein) to provide such Lender (or Bank Product Provider) with any credit or other information with respect to Borrower, its Affiliates or any of their respective business, legal, financial or other affairs, and irrespective of whether such information came into Agent’s or its Affiliates’ or representatives’ possession before or after the date on which such Lender became a party to this Agreement (or such Bank Product Provider entered into a Bank Product Agreement).

15.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, attorneys fees and expenses, fees and expenses of financial accountants, advisors, consultants, and appraisers, costs of collection by outside collection agencies, auctioneer fees and expenses, and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse Agent or Lenders for such expenses pursuant to this Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from the Collections of Borrower and its Subsidiaries received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders (or Bank Product Providers). In the event Agent is not reimbursed for such costs and expenses by Borrower or its Subsidiaries, each Lender hereby agrees that it is and shall be obligated to pay to Agent such Lender’s ratable thereof. Whether or not the transactions contemplated hereby are consummated, each of the Lenders, on a ratable basis, shall indemnify and defend the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so) from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person’s gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make an Advance or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender’s ratable share of any costs or out of pocket expenses (including attorneys, accountants, advisors, and consultants fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent.

15.8 Agent in Individual Capacity. WFCF and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, provide Bank Products to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with

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Borrower and its Subsidiaries and Affiliates and any other Person party to any Loan Document as though WFCF were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such activities, WFCF or its Affiliates may receive information regarding Borrower or its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders (or Bank Product Providers), and the Lenders acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The terms “Lender” and “Lenders” include WFCF in its individual capacity.

15.9 Successor Agent. Agent may resign as Agent upon 30 days prior written notice to the Lenders (unless such notice is waived by the Required Lenders) and Borrower (unless such notice is waived by Borrower) and without any notice to the Bank Product Providers. If Agent resigns under this Agreement, the Required Lenders shall be entitled, with (so long as no Event of Default has occurred and is continuing) the consent of Borrower (such consent not to be unreasonably withheld, delayed, or conditioned), appoint a successor Agent for the Lenders (and the Bank Product Providers). If, at the time that Agent’s resignation is effective, it is acting as the Issuing Lender or the Swing Lender, such resignation shall also operate to effectuate its resignation as the Issuing Lender or the Swing Lender, as applicable, and it shall automatically be relieved of any further obligation to issue Letters of Credit, to cause the Underlying Issuer to issue Letters of Credit, or to make Swing Loans. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders and Borrower, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders with (so long as no Event of Default has occurred and is continuing) the consent of Borrower (such consent not to be unreasonably withheld, delayed, or conditioned). In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term “Agent” shall mean such successor Agent and the retiring Agent’s appointment, powers, and duties as Agent shall be terminated. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 15 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above.

15.10 Lender in Individual Capacity. Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, provide Bank Products to, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrower and its Subsidiaries and Affiliates and any other Person party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group (or the Bank Product Providers). The other members of the Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrower or its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender shall not be under any obligation to provide such information to them.

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15.11 Collateral Matters.

(a) The Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all of the Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies to Agent that the sale or disposition is permitted under Section 6.4 (and Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which Borrower or its Subsidiaries owned no interest at the time Agent’s Lien was granted nor at any time thereafter, or (iv) constituting property leased to Borrower or its Subsidiaries under a lease that has expired or is terminated in a transaction permitted under this Agreement. The Loan Parties and the Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent, based upon the instruction of the Required Lenders, to credit bid and purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any sale thereof conducted by Agent under the provisions of the Code, including pursuant to Sections 9-610 or 9-620 of the Code, at any sale thereof conducted under the provisions of the Bankruptcy Code, including Section 363 of the Bankruptcy Code, or at any sale or foreclosure conducted by Agent (whether by judicial action or otherwise) in accordance with applicable law. Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Lenders (without requiring the authorization of the Bank Product Providers), or (z) otherwise, the Required Lenders (without requiring the authorization of the Bank Product Providers). Upon request by Agent or Borrower at any time, the Lenders will (and if so requested, the Bank Product Providers will) confirm in writing Agent’s authority to release any such Liens on particular types or items of Collateral pursuant to this Section 15.11; provided, however, that (1) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent’s opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. The Lenders further hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent, at its option and in its sole discretion, to subordinate any Lien granted to or held by Agent under any Loan Document to the holder of any Permitted Lien on such property if such Permitted Lien secures Permitted Purchase Money Indebtedness.

(b) Agent shall have no obligation whatsoever to any of the Lenders (or the Bank Product Providers) to assure that the Collateral exists or is owned by Borrower or its Subsidiaries or is cared for, protected, or insured or has been encumbered, or that Agent’s Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or whether to impose, maintain, reduce, or eliminate any particular reserve hereunder or whether the amount of any such reserve is appropriate or not, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent’s own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender (or Bank Product Provider) as to any of the foregoing, except as otherwise provided herein.

15.12 Restrictions on Actions by Lenders; Sharing of Payments.

(a) Each of the Lenders agrees that it shall not, without the express written consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the written request of Agent, set off against the Obligations, any amounts owing by such Lender to Borrower or its Subsidiaries or any deposit

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accounts of Borrower or its Subsidiaries now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so in writing by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings to enforce any Loan Document against Borrower or any Guarantor or to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.

(b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such distributions by Agent, such Lender promptly shall (A) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (B) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that to the extent that such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment.

15.13 Agency for Perfection. Agent hereby appoints each other Lender (and each Bank Product Provider) as its agent (and each Lender hereby accepts (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to accept) such appointment) for the purpose of perfecting Agent’s Liens in assets which, in accordance with Article 8 or Article 9, as applicable, of the Code can be perfected by possession or control. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agent’s instructions.

15.14 Payments by Agent to the Lenders. All payments to be made by Agent to the Lenders (or Bank Product Providers) shall be made by bank wire transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, fees, or interest of the Obligations.

15.15 Concerning the Collateral and Related Loan Documents. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents. Each member of the Lender Group agrees (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to agree) that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders (and such Bank Product Provider).

15.16 Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information. By becoming a party to this Agreement, each Lender:

(a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report respecting Borrower or its Subsidiaries (each, a “Report”) prepared by or at the request of Agent, and Agent shall so furnish each Lender with such Reports,

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(b) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report,

(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrower and its Subsidiaries and will rely significantly upon Borrower’s and its Subsidiaries’ books and records, as well as on representations of Borrower’s personnel,

(d) agrees to keep all Reports and other material, non-public information regarding Borrower and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner in accordance with Section 17.9, and

(e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless from any action the indemnifying Lender may take or fail to take or any conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or loans of Borrower, and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrower or its Subsidiaries to Agent that has not been contemporaneously provided by Borrower or such Subsidiary to such Lender, and, upon receipt of such request, Agent promptly shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrower or its Subsidiaries, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender’s notice to Agent, whereupon Agent promptly shall request of Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Borrower or such Subsidiary, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender.

15.17 Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 15.7, no member of the Lender Group shall have any liability for the acts of any other member of the Lender Group. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender (or Bank Product Provider) to fulfill its obligations to make credit available hereunder, nor to advance for such Lender (or Bank Product Provider) or on its behalf, nor to take any other action on behalf of such Lender (or Bank Product Provider) hereunder or in connection with the financing contemplated herein.

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16. WITHHOLDING TAXES.

(a) All payments made by Borrower hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes, and in the event any deduction or withholding of Taxes is required, Borrower shall comply with the next sentence of this Section 16(a). If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement, any note, or Loan Document, including any amount paid pursuant to this Section 16(a) after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to increase any such amounts if the increase in such amount payable results from Agent’s or such Lender’s own willful misconduct or gross negligence (as finally determined by a court of competent jurisdiction). Borrower will furnish to Agent as promptly as possible after the date the payment of any Tax is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Borrower.

(b) Borrower agrees to pay any present or future stamp, value added or documentary taxes or any other excise or property taxes, charges, or similar levies that arise from any payment made hereunder or from the execution, delivery, performance, recordation, or filing of, or otherwise with respect to this Agreement or any other Loan Document.

(c) If a Lender or Participant is entitled to claim an exemption or reduction from United States withholding tax, such Lender or Participant agrees with and in favor of Agent, to deliver to Agent (or, in the case of a Participant, to the Lender granting the participation only) one of the following before receiving its first payment under this Agreement:

(i) if such Lender or Participant is entitled to claim an exemption from United States withholding tax pursuant to the portfolio interest exception, (A) a statement of the Lender or Participant, signed under penalty of perjury, that it is not a (I) a “bank” as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of Borrower (within the meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign corporation related to Borrower within the meaning of Section 864(d)(4) of the IRC, and (B) a properly completed and executed IRS Form W-8BEN or Form W-8IMY (with proper attachments);

(ii) if such Lender or Participant is entitled to claim an exemption from, or a reduction of, withholding tax under a United States tax treaty, a properly completed and executed copy of IRS Form W-8BEN;

(iii) if such Lender or Participant is entitled to claim that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, a properly completed and executed copy of IRS Form W-8ECI;

(iv) if such Lender or Participant is entitled to claim that interest paid under this Agreement is exempt from United States withholding tax because such Lender or Participant serves as an intermediary, a properly completed and executed copy of IRS Form W-8IMY (with proper attachments); or

(v) a properly completed and executed copy of any other form or forms, including IRS Form W-9, as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding or backup withholding tax.

Each Lender or Participant shall provide new forms (or successor forms) upon the expiration or obsolescence of any previously delivered forms and to promptly notify Agent (or, in the case of a Participant, to the Lender granting the participation only) of any change in circumstances which would modify or render invalid any claimed exemption or reduction.

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(d) If a Lender or Participant claims an exemption from withholding tax in a jurisdiction other than the United States, such Lender or such Participant agrees with and in favor of Agent, to deliver to Agent (or, in the case of a Participant, to the Lender granting the participation only) any such form or forms, as may be required under the laws of such jurisdiction as a condition to exemption from, or reduction of, foreign withholding or backup withholding tax before receiving its first payment under this Agreement, but only if such Lender or such Participant is legally able to deliver such forms, provided, however, that nothing in this Section 16(d) shall require a Lender or Participant to disclose any information that it deems to be confidential (including without limitation, its tax returns). Each Lender and each Participant shall provide new forms (or successor forms) upon the expiration or obsolescence of any previously delivered forms and to promptly notify Agent (or, in the case of a Participant, to the Lender granting the participation only) of any change in circumstances which would modify or render invalid any claimed exemption or reduction.

(e) If a Lender or Participant claims exemption from, or reduction of, withholding tax and such Lender or Participant sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender or Participant, such Lender or Participant agrees to notify Agent (or, in the case of a sale of a participation interest, to the Lender granting the participation only) of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender or Participant. To the extent of such percentage amount, Agent will treat such Lender’s or such Participant’s documentation provided pursuant to Section 16(c) or 16(d) as no longer valid. With respect to such percentage amount, such Participant or Assignee may provide new documentation, pursuant to Section 16(c) or 16(d), if applicable. Borrower agrees that each Participant shall be entitled to the benefits of this Section 16 with respect to its participation in any portion of the Commitments and the Obligations so long as such Participant complies with the obligations set forth in this Section 16 with respect thereto.

(f) If a Lender or a Participant is entitled to a reduction in the applicable withholding tax, Agent (or, in the case of a Participant, to the Lender granting the participation) may withhold from any interest payment to such Lender or such Participant an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by Section 16(c) or 16(d) are not delivered to Agent (or, in the case of a Participant, to the Lender granting the participation), then Agent (or, in the case of a Participant, to the Lender granting the participation) may withhold from any interest payment to such Lender or such Participant not providing such forms or other documentation an amount equivalent to the applicable withholding tax.

(g) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent (or, in the case of a Participant, to the Lender granting the participation) did not properly withhold tax from amounts paid to or for the account of any Lender or any Participant due to a failure on the part of the Lender or any Participant (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent (or such Participant failed to notify the Lender granting the participation) of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless (or, in the case of a Participant, such Participant shall indemnify and hold the Lender granting the participation harmless) for all amounts paid, directly or indirectly, by Agent (or, in the case of a Participant, to the Lender granting the participation), as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent (or, in the case of a Participant, to the Lender granting the participation only) under this Section 16, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders and the Participants under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent.

(h) If Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified by Borrower or with respect to which Borrower has paid additional amounts pursuant to this Section 16, so long as no Default or Event of Default has occurred and is continuing, it shall pay over such refund to Borrower (but only to the extent of payments made, or additional amounts paid, by Borrower under this Section 16 with respect to Taxes giving rise to such a refund), net of all

53

out-of-pocket expenses of Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such a refund); provided, that Borrower, upon the request of Agent or such Lender, agrees to repay the amount paid over to Borrower (plus any penalties, interest or other charges, imposed by the relevant Governmental Authority, other than such penalties, interest or other charges imposed as a result of the willful misconduct or gross negligence of Agent hereunder) to Agent or such Lender in the event Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything in this Agreement to the contrary, this Section 16 shall not be construed to require Agent or any Lender to make available its tax returns (or any other information which it deems confidential) to Borrower or any other Person.

17. GENERAL PROVISIONS.

17.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrower, Agent, and each Lender whose signature is provided for on the signature pages hereof.

17.2 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.

17.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the Lender Group or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

17.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

17.5 Bank Product Providers. Each Bank Product Provider shall be deemed a third party beneficiary hereof and of the provisions of the other Loan Documents for purposes of any reference in a Loan Document to the parties for whom Agent is acting. Agent hereby agrees to act as agent for such Bank Product Providers and, by virtue of entering into a Bank Product Agreement, the applicable Bank Product Provider shall be automatically deemed to have appointed Agent as its agent and to have accepted the benefits of the Loan Documents; it being understood and agreed that the rights and benefits of each Bank Product Provider under the Loan Documents consist exclusively of such Bank Product Provider’s being a beneficiary of the Liens and security interests (and, if applicable, guarantees) granted to Agent and the right to share in payments and collections out of the Collateral as more fully set forth herein. In addition, each Bank Product Provider, by virtue of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Agent shall have the right, but shall have no obligation, to establish, maintain, relax, or release reserves in respect of the Bank Product Obligations and that if reserves are established there is no obligation on the part of Agent to determine or insure whether the amount of any such reserve is appropriate or not. In connection with any such distribution of payments or proceeds of Collateral, Agent shall be entitled to assume no amounts are due or owing to any Bank Product Provider unless such Bank Product Provider has provided a written certification (setting forth a reasonably detailed calculation) to Agent as to the amounts that are due and owing to it and such written certification is received by Agent a reasonable period of time prior to the making of such distribution. Agent shall have no obligation to calculate the amount due and payable with respect to any Bank Products, but may rely upon the written certification of the amount due and payable from the relevant Bank Product Provider. In the absence of an updated certification, Agent shall be entitled to assume that the amount due and payable to the relevant Bank Product Provider is the amount last certified to Agent by such Bank Product Provider as being due and payable (less any distributions made to such Bank Product Provider on account thereof). Borrower may obtain Bank Products from any Bank Product Provider, although Borrower is not required to do so. Borrower acknowledges and

54

agrees that no Bank Product Provider has committed to provide any Bank Products and that the providing of Bank Products by any Bank Product Provider is in the sole and absolute discretion of such Bank Product Provider. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the provider or holder of such agreements or products or the Obligations owing thereunder, nor shall the consent of any such provider or holder be required (other than in their capacities as Lenders, to the extent applicable) for any matter hereunder or under any of the other Loan Documents, including as to any matter relating to the Collateral or the release of Collateral or Guarantors.

17.6 Debtor-Creditor Relationship. The relationship between the Lenders and Agent, on the one hand, and the Loan Parties, on the other hand, is solely that of creditor and debtor. No member of the Lender Group has (or shall be deemed to have) any fiduciary relationship or duty to any Loan Party arising out of or in connection with the Loan Documents or the transactions contemplated thereby, and there is no agency or joint venture relationship between the members of the Lender Group, on the one hand, and the Loan Parties, on the other hand, by virtue of any Loan Document or any transaction contemplated therein.

17.7 Counterparts; Electronic Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.

17.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or Guarantor or the transfer to the Lender Group of any property should for any reason subsequently be asserted, or declared, to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (each, a “Voidable Transfer”), and if the Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrower or Guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.

17.9 Confidentiality.

(a) Agent and Lenders each individually (and not jointly or jointly and severally) agree that material, non-public information regarding Borrower and its Subsidiaries, their operations, assets, and existing and contemplated business plans (“Confidential Information”) shall be treated by Agent and the Lenders in a confidential manner, and shall not be disclosed by Agent and the Lenders to Persons who are not parties to this Agreement, except: (i) to attorneys for and other advisors, accountants, auditors, and consultants to any member of the Lender Group who are under a duty to keep such information confidential (“Lender Group Representatives”), (ii) to Subsidiaries and Affiliates of any member of the Lender Group (including the Bank Product Providers), provided that any such Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the terms of this Section 17.9, (iii) as may be required by regulatory authorities so long as such authorities are informed of the confidential nature of such information, (iv) as may be required by statute, decision, or judicial or administrative order, rule, or regulation; provided that (x) prior to any disclosure under this clause (iv), the disclosing party agrees to provide Borrower with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to

55

provide such prior notice to Borrower pursuant to the terms of the applicable statute, decision, or judicial or administrative order, rule, or regulation and (y) any disclosure under this clause (iv) shall be limited to the portion of the Confidential Information as may be required by such statute, decision, or judicial or administrative order, rule, or regulation, (v) as may be agreed to in advance by Borrower or as requested or required by any Governmental Authority pursuant to any subpoena or other legal process, provided, that, (x) prior to any disclosure under this clause (v) the disclosing party agrees to provide Borrower with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior notice to Borrower pursuant to the terms of the subpoena or other legal process and (y) any disclosure under this clause (v) shall be limited to the portion of the Confidential Information as may be required by such governmental authority pursuant to such subpoena or other legal process, (vi) as to any such information that is or becomes generally available to the public (other than as a result of prohibited disclosure by Agent or the Lenders or the Lender Group Representatives), (vii) in connection with any assignment, participation or pledge of any Lender’s interest under this Agreement, provided that any such assignee, participant, or pledgee shall have agreed in writing to receive such information hereunder subject to the terms of this Section, (viii) in connection with any litigation or other adversary proceeding involving parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of such parties under this Agreement or the other Loan Documents; provided, that, prior to any disclosure to any Person (other than any Loan Party, Agent, any Lender, any of their respective Affiliates, or their respective counsel) under this clause (viii) with respect to litigation involving any Person (other than Borrower, Agent, any Lender, any of their respective Affiliates, or their respective counsel), the disclosing party agrees to provide Borrower with prior notice thereof, and (ix) in connection with, and to the extent reasonably necessary for, the exercise of any secured creditor remedy under this Agreement or under any other Loan Document.

(b) Anything in this Agreement to the contrary notwithstanding, Agent may provide information concerning the terms and conditions of this Agreement and the other Loan Documents to loan syndication and pricing reporting services.

17.10 Lender Group Expenses. Borrower agrees to pay any and all Lender Group Expenses promptly after demand therefor by Agent and agrees that its obligations contained in this Section 17.10 shall survive payment or satisfaction in full of all other Obligations. Agent acknowledges receipt of a deposit in the amount of $150,000 and agrees that such deposit has been or will be used to pay for costs and expenses relating to Agent’s business due diligence and other expenses relating to the transactions set forth in the Loan Documents. To the extent there are any unused amounts with respect to such deposit, such unused portion will be refunded to Borrower within 60 days after the Closing Date.

17.11 Survival. All representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Agent, the Issuing Lender, or any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated.

17.12 USA PATRIOT Act. Each Lender that is subject to the requirements of the Patriot Act hereby notifies Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender to identify Borrower in accordance with the Patriot Act.

17.13 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be

56

contradicted or qualified by any other agreement, oral or written, before the date hereof. The foregoing to the contrary notwithstanding, all Bank Product Agreements, if any, are independent agreements governed by the written provisions of such Bank Product Agreements, which will remain in full force and effect, unaffected by any repayment, prepayments, acceleration, reduction, increase, or change in the terms of any credit extended hereunder, except as otherwise expressly provided in such Bank Product Agreement.

[Signature pages to follow.]

57

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

MAGMA DESIGN AUTOMATION, INC.,
a Delaware corporation, as Borrower
By:	/S/ Peter S. Teshima
Name:	Peter S. Teshima
Title:	Corporate Vice President and Chief Financial Officer

58

WELLS FARGO CAPITAL FINANCE, LLC,
a Delaware limited liability company, as Agent and as a Lender
By:	/S/ Alexander E. Hechler
Name:	Alexander E. Hechler
Title:	Vice President

59

EXHIBIT A-1

FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT

This ASSIGNMENT AND ACCEPTANCE AGREEMENT (“Assignment Agreement”) is entered into as of                      between                                      (“Assignor”) and                                          (“Assignee”). Reference is made to the Agreement described in Annex I hereto (the “Credit Agreement”). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Credit Agreement.

1. In accordance with the terms and conditions of Section 13 of the Credit Agreement, the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to the Assignor’s rights and obligations under the Loan Documents as of the date hereof with respect to the Obligations owing to the Assignor, and Assignor’s portion of the Commitments, all to the extent specified on Annex I.

2. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim and (ii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment Agreement and to consummate the transactions contemplated hereby; (b) makes no representation or warranty and assumes no responsibility with respect to (i) any statements, representations or warranties made in or in connection with the Loan Documents, or (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any Guarantor or the performance or observance by Borrower or any Guarantor of any of their respective obligations under the Loan Documents or any other instrument or document furnished pursuant thereto, and (d) represents and warrants that the amount set forth as the Purchase Price on Annex I represents the amount owed by Borrower to Assignor with respect to Assignor’s share of the Term Loan and the Advances assigned hereunder, as reflected on Assignor’s books and records.

3. The Assignee (a) confirms that it has received copies of the Credit Agreement and the other Loan Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (b) agrees that it will, independently and without reliance upon Agent, Assignor, or any other Lender, based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under the Loan Documents; (c) confirms that it is an Eligible Transferee; (d) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (e) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender[; and (f) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].

4. Following the execution of this Assignment Agreement by the Assignor and Assignee, the Assignor will deliver this Assignment Agreement to the Agent for recording by the Agent. The effective date of this Assignment (the “Settlement Date”) shall be the latest to occur of (a) the date of the execution and delivery hereof by the Assignor and the Assignee, (b) the receipt by Agent for its sole and separate account a processing fee in the amount of $3,500 (if required by the Credit Agreement), (c) the receipt of any required consent of the Agent, and (d) the date specified in Annex I.

1

5. As of the Settlement Date (a) the Assignee shall be a party to the Credit Agreement and, to the extent of the interest assigned pursuant to this Assignment Agreement, have the rights and obligations of a Lender thereunder and under the other Loan Documents, and (b) the Assignor shall, to the extent of the interest assigned pursuant to this Assignment Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents, provided, however, that nothing contained herein shall release any assigning Lender from obligations that survive the termination of this Agreement, including such assigning Lender’s obligations under Article 15 and Section 17.9(a) of the Credit Agreement.

6. Upon the Settlement Date, Assignee shall pay to Assignor the Purchase Price (as set forth in Annex I). From and after the Settlement Date, Agent shall make all payments that are due and payable to the holder of the interest assigned hereunder (including payments of principal, interest, fees and other amounts) to Assignor for amounts which have accrued up to but excluding the Settlement Date and to Assignee for amounts which have accrued from and after the Settlement Date. On the Settlement Date, Assignor shall pay to Assignee an amount equal to the portion of any interest, fee, or any other charge that was paid to Assignor prior to the Settlement Date on account of the interest assigned hereunder and that are due and payable to Assignee with respect thereto, to the extent that such interest, fee or other charge relates to the period of time from and after the Settlement Date.

7. This Assignment Agreement may be executed in counterparts and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. This Assignment Agreement may be executed and delivered by telefacsimile or other electronic method of transmission all with the same force and effect as if the same were a fully executed and delivered original manual counterpart.

8. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

2

IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement and Annex I hereto to be executed by their respective officers, as of the first date written above.

		[NAME OF ASSIGNOR]
		as Assignor
		By:
			Name:
			Title:
		[NAME OF ASSIGNEE]
		as Assignee
		By:
			Name:
			Title:
ACCEPTED THIS      DAY OF
WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as Agent
By:
	Name:
	Title:

3

ANNEX FOR ASSIGNMENT AND ACCEPTANCE

ANNEX I

(a) Borrower: Magma Design Automation, Inc., a Delaware corporation

(b) Name and Date of Credit Agreement:

Credit Agreement, dated as of March     , 2010, by and among Borrower, the lenders from time to time a party thereto (the “Lenders”), and Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as the arranger and administrative agent for the Lenders

(c)	Date of Assignment Agreement:
(d)	Amounts:
	(i)	Assigned Amount of Revolver Commitment	$
	(ii)	Assigned Amount of Advances	$
	(iii)	Assigned Amount of Term Loan	$
(e)	Settlement Date:
(f)	Purchase Price		$

(g) Notice and Payment Instructions, etc.

Assignee: Assignor:

(h) Agreed and Accepted:

[ASSIGNOR]	[ASSIGNEE]
By:	By:
Title:	Title:

Accepted: WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as Agent
By:
	Name:
	Title:

4

EXHIBIT C-1

FORM OF COMPLIANCE CERTIFICATE

[on Borrower’s letterhead]

To: Wells Fargo Capital Finance, LLC

2450 Coloardo Avenue

Suite 3000 West

Santa Monica, California 90404

Attn: Technology Finance Division Manager

Re: Compliance Certificate dated                     

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement (the “Credit Agreement”) dated as of March ___, 2010, by and among the lenders identified on the signature pages thereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter each individually as a “Lender” and collectively as the “Lenders”), Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as the agent for the Lenders (“Agent”), and Magma Design Automation, Inc., a Delaware corporation (the “Borrower”). Capitalized terms used in this Compliance Certificate have the meanings set forth in the Credit Agreement unless specifically defined herein.

Pursuant to Schedule 5.1 of the Credit Agreement, the undersigned officer of Borrower hereby certifies that:

1. The financial information of Borrower and its Subsidiaries furnished in Schedule 1 attached hereto, has been prepared in accordance with GAAP (except for year-end adjustments and the lack of footnotes), and fairly presents in all material respects the financial condition of Borrower and its Subsidiaries.

2. Such officer has reviewed the terms of the Credit Agreement and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and condition of Borrower and its Subsidiaries during the accounting period covered by the financial statements delivered pursuant to Schedule 5.1 of the Credit Agreement.

3. Such review has not disclosed the existence on and as of the date hereof, and the undersigned does not have knowledge of the existence as of the date hereof, of any event or condition that constitutes a Default or Event of Default, except for such conditions or events listed on Schedule 2 attached hereto, specifying the nature and period of existence thereof and what action Borrower and its Subsidiaries have taken, are taking, or propose to take with respect thereto.

4. The representations and warranties of Borrower and its Subsidiaries set forth in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date hereof (except to the extent they relate to a specified date), except as set forth on Schedule 3 attached hereto.

5. Borrower and its Subsidiaries are in compliance with the applicable covenants contained in Article 7 of the Credit Agreement as demonstrated on Schedule 4 hereof.

1

IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned this      day of             ,         .

MAGMA DESIGN AUTOMATION, INC.,

a Delaware corporation

By:

Name:

Title:

2

SCHEDULE 1

Financial Information

3

SCHEDULE 2

Default or Event of Default

4

SCHEDULE 3

Representations and Warranties

5

SCHEDULE 4

Financial Covenants

1. Minimum EBITDA.

Borrower’s EBITDA, measured on a quarter-end basis, for the quarter period ending                     ,         is $            , which amount [is/is not] greater than or equal to the amount set forth in Section 7(a) of the Credit Agreement for the corresponding period.

2. Capital Expenditures.

Borrower’s Capital Expenditures from the beginning of Borrower’s most recent fiscal year to the date hereof is $            , which [is/is not] less than or equal to the amount set forth in Section 7(b) of the Credit Agreement for the corresponding period.

6

EXHIBIT C-2

FORM OF CREDIT AMOUNT CERTIFICATE

Wells Fargo Foothill, LLC

2450 Colorado Avenue

Suite 3000 West

Santa Monica, California 90404

Attn.: Technology Finance Division Manager

Fax:

The undersigned, Magma Design Automation, Inc., a Delaware corporation (“Borrower”), pursuant to Schedule 5.1 of that certain Credit Agreement dated as of March     , 2010 (as amended, restated, modified, supplemented, refinanced, renewed, or extended from time to time, the “Credit Agreement”), entered into among Borrower, the lenders signatory thereto from time to time and Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as the agent for the Lenders (in such capacity, together with its successors and assigns, if any, in such capacity, “Agent”), hereby certifies to Agent that the following items, calculated in accordance with the terms and definitions set forth in the Credit Agreement for such items are true and correct, and that Borrower is in compliance with and, after giving effect to any currently requested Advances, will be in compliance with, the terms, conditions, and provisions of the Credit Agreement.

All initially capitalized terms used in this Credit Amount Certificate have the meanings set forth in the Credit Agreement unless specifically defined herein.

[Remainder of page intentionally left blank.]

1

MAGMA DESIGN AUTOMATION, INC.,

a Delaware corporation

By:

Name:

Title:

S-1

Form of Credit Amount Certificate

Effective Date of Calculation:				____________
A.	Availability Calculation
1.	Credit Amount:
	a.	0.40
	b.	TTM Recurring Revenue, calculated as of the last month for which Agent received a Credit Amount Certificate		$
	c.	the product of Item 1.a and Item 1.b			$
2.	Reserves
	a.	Bank Product Reserve		$
	b.	Other reserves established pursuant to Section 2.1(c) of the Credit Agreement		$
	c.	the sum of Item 2.a and Item 2.b			$
3.	Availability Calculation
	a.	(i)	Maximum Revolver Amount	$15,000,000
		(ii)	Letter of Credit Usage	$
		(iii)	Outstanding Advances	$
		(iv)	Reserves (see Item 2.c)	$
		(v)	Item 3.a(i) less the sum of Item 3.a(ii), Item 3.a(iii) and Item 3.a(iv)		$
	b.	(i)	Credit Amount (see Item 1.c)	$
		(ii)	Letter of Credit Usage	$
		(iii)	Outstanding Advances	$
		(iv)	Reserves (see Item 2.c)	$
		(v)	Term Loan Balance	$
		(vi)	Item 3.b(i) less the sum of Item 3b(ii), Item 3b(iii), Item 3b(iv) and Item 3.b(v)		$
	c.	the lesser of Item 3.a(v) and Item 3.b(vi)			$

EXHIBIT L-1

FORM OF LIBOR NOTICE

Wells Fargo Capital Finance, LLC, as Agent

under the below referenced Credit Agreement

2450 Colorado Avenue

Suite 3000 West

Santa Monica, California 90404

Ladies and Gentlemen:

Reference hereby is made to that certain Credit Agreement, dated as of March     , 2010 (the “Credit Agreement”), among Magma Design Automation, Inc., a Delaware corporation (“Borrower”), the lenders signatory thereto (the “Lenders”), and Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as the arranger and administrative agent for the Lenders (“Agent”). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

This LIBOR Notice represents Borrower’s request to elect the LIBOR Option with respect to outstanding Advances of the Term Loan in the amount of $             (the “LIBOR Rate Advance”)[, and is a written confirmation of the telephonic notice of such election given to Agent].

The LIBOR Rate Advance will have an Interest Period of [1, 2, [or] 3] month(s) commencing on                     .

This LIBOR Notice further confirms Borrower’s acceptance, for purposes of determining the rate of interest based on the LIBOR Rate under the Credit Agreement, of the LIBOR Rate as determined pursuant to the Credit Agreement.

Borrower represents and warrants that (i) as of the date hereof, each representation or warranty contained in or pursuant to any Loan Document or any agreement, instrument, certificate, document or other writing furnished at any time under or in connection with any Loan Document, and as of the effective date of any initial advance requested above, is true and correct in all material respects (except to the extent any representation or warranty expressly related to an earlier date), (ii) each of the covenants and agreements contained in any Loan Document have been performed (to the extent required to be performed on or before the date hereof or each such effective date), and (iii) no Default or Event of Default has occurred and is continuing on the date hereof, nor will any thereof occur after giving effect to the request above.

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Wells Fargo Capital Finance, LLC, as Agent

Page 2

Dated:

MAGMA DESIGN AUTOMATION, INC.,

a Delaware corporation, as Borrower

By:

Name:

Title:

Acknowledged by:

WELLS FARGO CAPITAL FINANCE, LLC,

a Delaware limited liability company, as Agent

By:

Name:

Title:

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Schedule A-1

An account at a bank designated by Agent from time to time as the account into which Borrower shall make all payments to Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Agent under this Agreement and the other Loan Documents; unless and until Agent notifies Borrower and the Lender Group to the contrary, Agent’s Account shall be that certain deposit account bearing account number 4121617856 and maintained by Agent with Wells Fargo Bank, N.A., San Francisco, CA, ABA #121-000-248.

SCHEDULE A-2

Authorized Persons

1. Rajeev Madhavan, CEO

2. Roy E. Jewell, President & COO

3. Peter S. Teshima, CFO

SCHEDULE D-1

Designated Account

An account at a bank designated by Borrower as the account into which the Agent shall make all payments to Borrower under this Agreement and the other Loan Documents; unless and until Borrower notifies Agent and the Lender Group to the contrary, the Designated Account shall be that certain deposit account bearing account number 4121275036 and maintained by Borrower with Wells Fargo Bank, N.A., San Jose, CA., ABA# 121000248.

SCHEDULE E-1

Existing Earn Outs

Due Date	Amount ($)
Payees: Original Shareholders of Sabio Labs LLC
Maximum as of June 30, 2010		4,921,000
Maximum as of November 30, 2010		4,921,000
Sabio Labs LLC Total		4,921,000
Payee: TeraRoute LLC
Maximum as of March 1, 2011		3,000,000
TOTAL	$	7,921,000

SCHEDULE E-2

Existing Letters of Credit

1. Wells Fargo Bank, N.A. Letter of Credit for $200,000, issued November 21, 2006 (# NZS584969) for the account of Magma Design Automation, Inc.

2. Wells Fargo Bank, N.A. Letter of Credit for $1,500,000, issued January 5, 2007 (# NZS587968) for the account of Magma Design Automation, Inc.

SCHEDULE P-1

Leases

None.

SCHEDULE P-2

Permitted Investments

Subsidiaries [country provided for informational purposes]

1. Magma Services, Inc. (100 % ownership)

2. Ramble Acquisition LLC (100 % ownership)

3. Sabio Labs LLC (100 % ownership)

4. Aplus Design Technologies, Inc. (100% ownership)

5. Silicon Correlation, Inc. (100% ownership)

6. Beijing Magma Design Automation Co., Ltd. (100 % ownership)

7. MDA Netherlands C.V. (100 % ownership)

8. Magma Design Automation GmbH (100 % ownership)

9. Magma Design Automation, K.K. (100 % ownership)

10. Magma Design Automation B.V. (100 % ownership)

11. Magma Design Automation Cayman Ltd. (100 % ownership)

12. Magma Design Automation Corp. (Canada) (100 % ownership)

13. Magma Design Automation Inc. Taiwan Limited (100 % ownership)

14. Magma Design Automation India Private Limited (100 % ownership)

15. Magma Design Automation Ltd. [Israel] (100 % ownership)

16. Magma Design Automation Ltd. [U.K] (100 % ownership)

17. Magma Design Automation SARL (100 % ownership)

18. Magma Korea, Inc. (100 % ownership)

Minority Interests and Other Investments

19. Zerosoft (34.8 % ownership)

20. Fishtail Design Automation, Inc. (18.5 % ownership)

21. AutoESL Design Technologies, Inc. (9.2 % ownership)

22. Helic, Inc. (7.7 % ownership)

23. Auction Rate Securities held at UBS Financial Services (approximately $17 million)

SCHEDULE P-3

Permitted Liens

Liens filed against Magma Design Automation, Inc.

	Jurisdiction	Filing Number	Filing Date	Secured Party
1.	Delaware, Secretary of State	41184615	04/13/04	Network Appliance, Inc. and Netapp Financial Solutions
2.	Delaware, Secretary of State	41538620	06/03/04	Citicorp Vendor Finance, Inc., NFS Leasing, Inc. and Dell Financial Services, L.P.
3.	Delaware, Secretary of State	52239615	07/12/05	FNF Capital, Inc.
4.	Delaware, Secretary of State	52580695	08/15/05	FNF Capital, Inc.
5.	Delaware, Secretary of State	52580703	08/15/05	FNF Capital, Inc.
6.	Delaware, Secretary of State	62248482	06/29/06	IBM Credit LLC
7.	Delaware, Secretary of State	73148714	08/03/07	CIT Technology Financing Services LLC
8.	Delaware, Secretary of State	90936184	03/24/09	Dansversbank and NFS Leasing, Inc.
9.	Delaware, Secretary of State	91215802	04/16/09	Dansversbank and NFS Leasing, Inc.
10.	California, Secretary of State	20057028755837	05/27/05	FNF Capital, Inc.
Lien filed against Silicon Metrics Corp.
	Jurisdiction	Filing Number	Filing Date	Secured Party
	California, Secretary of State	AS00258433	05/11/2000	Stephen Leograndis

SCHEDULE R-1

Real Estate Assets

None.

Schedule C-1

Commitments

Lender	Revolver Commitment		Term Loan Commitment		Total Commitment
Wells Fargo Capital Finance, LLC	$	15,000,000	$	15,000,000	$	30,000,000
All Lenders	$	15,000,000	$	15,000,000	$	30,000,000

Schedule 1.1

As used in the Agreement, the following terms shall have the following definitions:

“2010 Indenture” means the Indenture dated as of September 11, 2009 between Borrower and U.S. Bank National Association, as trustee, as amended, supplemented or otherwise modified from time to time.

“2010 Notes” means the 2.00% Convertible Senior Notes Due May 15, 2010 issued by Borrower pursuant to the 2010 Indenture.

“2014 Indenture” means the Indenture dated as of March 5, 2007 between Borrower and U.S. Bank National Association, as trustee, as amended, supplemented or otherwise modified from time to time.

“2014 Notes” means the 6.00% Convertible Senior Notes Due 2014 issued by Borrower pursuant to the 2014 Indenture.

“Account” means an account (as that term is defined in the Code).

“Account Debtor” means any Person who is obligated on an Account, chattel paper, or a general intangible.

“Accounting Changes” means changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions).

“Acquired Indebtedness” means Indebtedness of a Person whose assets or Stock is acquired by Borrower or any of its Subsidiaries in a Permitted Acquisition; provided, however, that such Indebtedness (a) was in existence prior to the date of such Permitted Acquisition, and (b) was not incurred in connection with, or in contemplation of, such Permitted Acquisition.

“Acquisition” means (a) the purchase or other acquisition by a Person or its Subsidiaries of all or substantially all of the assets of (or any division or business line of) any other Person, or (b) the purchase or other acquisition (whether by means of a merger, consolidation, or otherwise) by a Person or its Subsidiaries of all or substantially all of the Stock of any other Person.

“Additional Documents” has the meaning specified therefor in Section 5.12 of the Agreement.

“Advances” has the meaning specified therefor in Section 2.1(a) of the Agreement.

“Affected Lender” has the meaning specified therefor in Section 2.13(b) of the Agreement.

“Affiliate” means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of Section 6.12 of the Agreement: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person.

“Agent” has the meaning specified therefor in the preamble to the Agreement.

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“Agent-Related Persons” means Agent, together with its Affiliates, officers, directors, employees, attorneys, and agents.

“Agent’s Account” means the Deposit Account of Agent identified on Schedule A-1.

“Agent’s Liens” means the Liens granted by Borrower or its Subsidiaries to Agent under the Loan Documents.

“Agreement” means the Credit Agreement to which this Schedule 1.1 is attached.

“Aplus Design” means Aplus Design Technologies, Inc., a California corporation.

“Application Event” means the occurrence of (a) a failure by Borrower to repay all of the Obligations in full on the Maturity Date, or (b) an Event of Default and the election by Agent or the Required Lenders to require that payments and proceeds of Collateral be applied pursuant to Section 2.4(b)(ii) of the Agreement.

“Assignee” has the meaning specified therefor in Section 13.1(a) of the Agreement.

“Assignment and Acceptance” means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1.

“Auction Rate Line of Credit” means a line of credit secured by the Auction Rate Securities, provided to Borrower by UBS Bank USA pursuant to that certain Credit Line Agreement dated as of October 15, 2008, as amended from time to time.

“Auction Rate Indebtedness” means the Indebtedness of Borrower to UBS Bank USA under the Auction Rate Line of Credit.

“Auction Rate Securities” means the Borrower’s Auction Rate Securities held by UBS Financial Services Inc.

“Authorized Person” means any one of the individuals identified on Schedule A-2, as such schedule is updated from time to time by written notice from Borrower to Agent.

“Availability” means, as of any date of determination, the amount that Borrower is entitled to borrow as Advances under Section 2.1 of the Agreement (after giving effect to all then outstanding Obligations (other than Bank Product Obligations)).

“Bank Product” means any one or more of the following financial products or accommodations extended to Borrower or its Subsidiaries by a Bank Product Provider: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) stored value cards, (e) purchase cards (including so-called “procurement cards” or “P-cards”), (f) Cash Management Services, or (g) transactions under Hedge Agreements.

“Bank Product Agreements” means those agreements entered into from time to time by Borrower or its Subsidiaries with a Bank Product Provider in connection with the obtaining of any of the Bank Products.

“Bank Product Collateralization” means providing cash collateral (pursuant to documentation reasonably satisfactory to Agent) to be held by Agent for the benefit of the Bank Product Providers (other than the Hedge Providers) in an amount determined by Agent as sufficient to satisfy the reasonably estimated credit exposure with respect to the then existing Bank Product Obligations (other than Hedge Obligations).

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“Bank Product Obligations” means (a) all obligations, liabilities, reimbursement obligations, fees, or expenses owing by Borrower or its Subsidiaries to any Bank Product Provider pursuant to or evidenced by a Bank Product Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, (b) all Hedge Obligations, and (c) all amounts that Agent or any Lender is obligated to pay to a Bank Product Provider as a result of Agent or such Lender purchasing participations from, or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to Borrower or its Subsidiaries.

“Bank Product Provider” means Wells Fargo or any of its Affiliates (including WFCF).

“Bank Product Reserve Amount” means, as of any date of determination, the Dollar amount of reserves that Agent has determined it is necessary or appropriate to establish (based upon the Bank Product Providers’ reasonable determination of their credit exposure to Borrower and its Subsidiaries in respect of Bank Product Obligations) in respect of Bank Products then provided or outstanding.

“Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.

“Base Rate” means the greatest of (a) the Federal Funds Rate plus  ¹/2%, (b) the LIBOR Rate (which rate shall be calculated based upon an Interest Period of 3 months and shall be determined on a daily basis), plus 1 percentage point, and (c) the rate of interest announced, from time to time, within Wells Fargo at its principal office in San Francisco as its “prime rate”, with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate.

“Base Rate Loan” means each portion of the Advances or the Term Loan that bears interest at a rate determined by reference to the Base Rate.

“Base Rate Margin” means 4.50 percentage points.

“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of ERISA) for which Borrower or any of its Subsidiaries or ERISA Affiliates has been an “employer” (as defined in Section 3(5) of ERISA) within the past six years.

“Board of Directors” means the board of directors (or comparable managers) of Borrower or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).

“Borrower” has the meaning specified therefor in the preamble to the Agreement.

“Borrowing” means a borrowing consisting of Advances made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of a Protective Advance.

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the State of California, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.

“Capital Expenditures” means, with respect to any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed minus any software development costs to the extent deducted under the definition of EBITDA for such period.

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“Capital Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“Capitalized Lease Obligation” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued or fully guaranteed by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit, time deposits, overnight bank deposits or bankers’ acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d) above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full amount maintained with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of any commercial bank satisfying the requirements of clause (d) of this definition or recognized securities dealer having combined capital and surplus of not less than $250,000,000, having a term of not more than seven days, with respect to securities satisfying the criteria in clauses (a) or (d) above, (g) debt securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the criteria described in clause (d) above, and (h) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (g) above, and (i) other long-term marketable securities reasonably acceptable to Agent the acquisition of which is consistent with Borrower’s investment policy as in effect as of the Closing Date; provided, however, that the term “Cash Equivalents” shall not include auction rate securities, irrespective of when acquired.

“Cash Management Services” means any cash management or related services including treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) and other cash management arrangements.

“CFC” means a controlled foreign corporation (as that term is defined in the IRC).

“Change of Control” means that (a) any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20%, or more, of the Stock of Borrower having the right to vote for the election of members of the Board of Directors, (b) a majority of the members of the Board of Directors do not constitute Continuing Directors, or (c) Borrower fails to own and control, directly or indirectly, 100% of the Stock of each other Loan Party.

“Closing Date” means the date of the making of the initial Advance (or other extension of credit) under the Agreement.

“Code” means the California Uniform Commercial Code, as in effect from time to time.

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“Collateral” means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Borrower or its Subsidiaries in or upon which a Lien is granted by such Person in favor of Agent or the Lenders under any of the Loan Documents.

“Collateral Access Agreement” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in Borrower’s or its Subsidiaries’ books and records, Equipment, or Inventory, in each case, in form and substance reasonably satisfactory to Agent.

“Collections” means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds).

“Commitment” means, with respect to each Lender, its Revolver Commitment, its Term Loan Commitment, or its Total Commitment, as the context requires, and, with respect to all Lenders, their Revolver Commitments, their Term Loan Commitments, or their Total Commitments, as the context requires, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.

“Compliance Certificate” means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent.

“Confidential Information” has the meaning specified therefor in Section 17.9(a) of the Agreement.

“Continuing Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of Borrower on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was approved, appointed or nominated for election to the Board of Directors by either the Permitted Holders or a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Borrower and whose initial assumption of office resulted from such contest or the settlement thereof.

“Control Agreement” means a control agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by Borrower or one of its Subsidiaries, Agent, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).

“Controlled Account Agreement” has the meaning specified therefor in the Security Agreement.

“Copyright Security Agreement” has the meaning specified therefor in the Security Agreement.

“Credit Amount” means the result of (a) 0.40 times (b) TTM Recurring Revenue calculated as of the last month for which financial statements have most recently been delivered pursuant to Section 5.1 of the Agreement minus the aggregate amount of reserves, if any, established by Agent under Section 2.1(c) of the Agreement.

“Credit Amount Certificate” means a certificate in the form of Exhibit C-2.

“Credit Amount Excess” has the meaning specified therefor in Section 2.4(e)(i) of the Agreement.

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“Current Assets” means, as at any date of determination, the total assets of Borrower and its Subsidiaries (other than cash and Cash Equivalents) which may properly be classified as current assets on a consolidated balance sheet of Borrower and its Subsidiaries in accordance with GAAP.

“Current Liabilities” means, as at any date of determination, the total liabilities of Borrower and its Subsidiaries which may properly be classified as current liabilities (other than the current portion of the Term Loan, the Swing Loans and the Advances) on a consolidated balance sheet of Borrower and its Subsidiaries in accordance with GAAP.

“Daily Balance” means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such day.

“Default” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

“Defaulting Lender” means any Lender that (a) has failed to fund any amounts required to be funded by it under the Agreement on the date that it is required to do so under the Agreement including the failure to make available to Agent amounts required pursuant to a Settlement or to make a required payment in connection with a Letter of Credit Disbursement), (b) notified the Borrower, Agent, or any Lender in writing that it does not intend to comply with all or any portion of its funding obligations under the Agreement, (c) has made a public statement to the effect that it does not intend to comply with its funding obligations under the Agreement or under other agreements generally (as reasonably determined by Agent) under which it has committed to extend credit, (d) failed, within 1 Business Day after written request by Agent, to confirm that it will comply with the terms of the Agreement relating to its obligations to fund any amounts required to be funded by it under the Agreement, (e) otherwise failed to pay over to Agent or any other Lender any other amount required to be paid by it under the Agreement on the date that it is required to do so under the Agreement, or (f) (i) becomes or is insolvent or has a parent company that has become or is insolvent or (ii) becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, or custodian or appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

“Defaulting Lender Rate” means (a) for the first 3 days from and after the date the relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to Advances that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto).

“Deposit Account” means any deposit account (as that term is defined in the Code).

“Designated Account” means the Deposit Account of Borrower identified on Schedule D-1, or such other Deposit Account designated by Agent in its sole discretion at any time (x) an Event of Default has occurred and is continuing or, (y) Borrower has Availability plus Qualified Cash of less than $10,000,000.

“Designated Account Bank” has the meaning specified therefor in Schedule D-1.

“Dollars” or “$” means United States dollars.

“Earn-Outs” means any liabilities of Borrower or its Subsidiaries arising under an agreement to make any deferred payment (in either cash or Stock of Borrower) as a part of the purchase price for a Permitted Acquisition, including performance bonuses or consulting payments in any related services, employment or similar agreement, in an amount that is subject to or contingent upon the revenues, income, cash flow or profits (or the like) of the underlying target.

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“EBITDA” means, with respect to any fiscal period:

a. Borrower’s consolidated net earnings (or loss) for such period, minus

b. without duplication, the sum of the following amounts of Borrower for such period to the extent included in determining consolidated net earnings (or loss) for such period:

i. extraordinary, unusual, or non-recurring gains,

ii. cash and non-cash interest income,

iii. software development costs to the extent capitalized during such period,

iv. gains resulting from the sale or disposition of any asset outside the ordinary course of business, and

v. exchange, translation, or performance gains relating to any foreign currency hedging transactions or currency fluctuations (it being understood that any such non-cash or cash gains shall be determined net of any non-cash or cash losses incurred in the same period of measurement), plus

c. Without duplication, the sum of the following amounts of Borrower for such period to the extent included in determining consolidated net earnings (or loss) for such period:

i. extraordinary, unusual, or non-recurring non-cash losses,

ii. cash and non-cash interest expense,

iii. tax expense based on income, profits, or capital, including federal, foreign, state, franchise and similar taxes,

iv. depreciation and amortization for such period,

v. with respect to any Permitted Acquisitions after the Closing Date: (1) purchase accounting adjustments, including, without limitation, a dollar for dollar adjustment for that portion of revenue that would have been recorded in the relevant period had the balance of deferred revenue (unearned income) recorded on the closing balance sheet and before application of purchase accounting not been adjusted downward to fair value to be recorded on the opening balance sheet in accordance with GAAP purchase accounting rules; and (2) non-cash adjustments in accordance with GAAP purchase accounting rules under FASB Statement No. 141 and EITF Issue No. 01-3, in the event that such an adjustment is required by Borrower’s independent auditors, in each case, as determined in accordance with GAAP,

vi. non-cash compensation expense (including deferred non-cash compensation expense), or other non-cash expenses or charges, arising from the sale or issuance of stock, the granting of stock options, and the granting of stock appreciation rights and similar arrangements (including any repricing, amendment, modification, substitution, or change of any such stock, stock option, stock appreciation rights, or similar arrangements) minus the amount of any such expenses or charges when paid in cash to the extent not deducted in the computation of net earnings (or loss),

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vii. to the extent not capitalized, non-recurring costs, fees, charges, or expenses actually incurred in such period in connection with the restructuring of Borrower’s and its Subsidiaries’ operations to the extent the foregoing are cash charges that, together with any cash charges described in clause (ix) following, do not exceed $1,250,000 in the aggregate in any fiscal year,

viii. non-cash exchange, translation, or performance losses relating to any foreign currency hedging transactions or currency fluctuations (it being understood that any such non-cash losses for such items shall be determined net of any non-cash gains for such items incurred in the same period of measurement),

ix. to the extent not capitalized, losses relating to foreign currency fluctuations, to the extent actually incurred in such fiscal period and that, together with any cash charges described in clause (vii) preceding, do not exceed $1,250,000 in the aggregate in any fiscal year,

x. non-cash losses on sales of fixed assets or write-downs of fixed or intangible assets,

xi. other non-cash items reducing net earnings, and

xii. to the extent not capitalized, expenses related to the Loan Documents paid before, on, or after the Closing Date not exceeding $800,000, but only to the extent incurred within 30 days of the Closing Date,

in each case, determined on a consolidated basis in accordance with GAAP. For the purposes of calculating EBITDA for any period of 4 consecutive fiscal quarters (each, a “Reference Period”): (a) if at any time during such Reference Period (and after the Closing Date), Borrower or any of its Subsidiaries shall have made a Permitted Acquisition, EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto (including pro forma adjustments arising out of events which are directly attributable to such Permitted Acquisition, are factually supportable, and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S X promulgated under the Securities Act and as interpreted by the staff of the SEC) or in such other manner acceptable to Agent as if any such Permitted Acquisition or adjustment occurred on the first day of such Reference Period, and (b) EBITDA for the fiscal quarter ended August 2, 2009, shall be deemed to be $4,791,000, (c) EBITDA for the fiscal quarter ended November 1, 2009 shall be deemed to be $4,836,000, and (d) EBITDA for the fiscal quarter ended January 31, 2010 shall be deemed to be $5,209,000.

“Eligible Transferee” means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $250,000,000 provided that such bank is acting through a branch or agency located in the United States, (c) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of a pre-existing Lender, (e) so long as no Event of Default has occurred and is continuing, any other Person approved by Agent and Borrower (such approval by Borrower not to be unreasonably withheld, conditioned or delayed), and (f) during the continuation of an Event of Default, any other Person approved by Agent.

“Environmental Action” means any written complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other written communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials (a) from any assets, properties, or businesses of any Borrower, any

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Subsidiary of a Borrower, or any of their predecessors in interest with respect to such assets, properties or businesses, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Borrower, any Subsidiary of a Borrower, or any of their predecessors in interest with respect to such facilities.

“Environmental Law” means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, in each case, to the extent binding on Borrower or its Subsidiaries, relating to the protection of the environment, the effect of the environment on employee health, or maintenance, release or threatened release of Hazardous Materials, in each case as amended from time to time.

“Environmental Liabilities” means all liabilities, monetary obligations, losses, damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, or Remedial Action required, by any Governmental Authority or any third party, and which relate to any Environmental Action.

“Environmental Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities.

“Equipment” means equipment (as that term is defined in the Code).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.

“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower or its Subsidiaries under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower or its Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Borrower or any of its Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with Borrower or any of its Subsidiaries and whose employees are aggregated with the employees of Borrower or its Subsidiaries under IRC Section 414(o).

“Event of Default” has the meaning specified therefor in Section 8 of the Agreement.

“Excess Cash Flow” means, with respect to any fiscal period and with respect to Borrower determined on a consolidated basis in accordance with GAAP:

(a) TTM EBITDA for such period, plus

(b) The sum of:

(i) the cash portion of foreign, United States, state, or local tax refunds received during such period,

(ii) the cash portion of interest income received during such period, and

(iii) the amount of any decrease in Net Working Capital for such period, minus

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(c) the sum of:

(i) the cash portion of Interest Expense paid during such period,

(ii) the cash portion of income taxes paid during such period,

(iii) all scheduled principal payments made in respect of the Term Loan during such period and all mandatory prepayments pursuant to Section 2.4(e)(i) of the Agreement to the extent such mandatory prepayments are applied to the outstanding principal amount of the Term Loan during such period,

(iv) the cash portion of Capital Expenditures (net of (y) any proceeds reinvested in accordance with the proviso to Section 2.4(e)(ii) of the Agreement, and (z) any proceeds of related financings with respect to such expenditures) made during such period, and

(v) cash payments made in respect of Permitted Acquisitions (in each case, to the extent such payments are not made with the proceeds of indebtedness or any Non-Cash Acquisition consideration),

(vi) the amount of any increase in Net Working Capital for such period,

(vii) any non-cash purchase accounting adjustments with respect to a Permitted Acquisition added to Borrower’s net income (or loss) pursuant to clauses (c)(v) of the definition of EBITDA,

(viii) to the extent added back to consolidated net earnings (or loss) pursuant to clauses (vii) or (ix) of the definition of EBITDA and to the extent actually paid in cash, restructuring expenses and foreign currency losses not to exceed $1,250,000 in the aggregate in any fiscal year,

(ix) cash principal payments on Advances to the extent that the Commitments are reduced in connection with such payments, and

(x) cash payments of principal with respect to Capital Leases and other Indebtedness.

“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time to time.

“Existing Credit Facility” means that certain credit facility provided by Wells Fargo to Borrower pursuant to that certain Credit Agreement, dated as of October 31, 2008, as amended.

“Existing Earn-out Obligations” means the earn-out obligations of Borrower or its Subsidiaries in connection with the purchase of assets or Stock prior to the Closing Date, which obligations are more completely described on Schedule E-1 to the Agreement

“Existing Letters of Credit” means those letters of credit described on Schedule E-2 to the Agreement.

“Extraordinary Receipts” means any payments received by Borrower or any of its Subsidiaries not in the ordinary course of business (and not consisting of proceeds described in Section 2.4(e)(ii) of the Agreement) consisting of proceeds of judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action,.

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“Fee Letter” means that certain fee letter, dated as of even date with the Agreement, between Borrower and Agent, in form and substance reasonably satisfactory to Agent.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal to, for each day during such period, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by it.

“Foreign Lender” means any Lender or Participant that is not a United States person within the meaning of IRC section 7701(a)(30).

“Funding Date” means the date on which a Borrowing occurs.

“Funding Losses” has the meaning specified therefor in Section 2.12(b)(ii) of the Agreement.

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied; provided, however, that all calculations relative to liabilities shall be made without giving effect to Statement of Financial Accounting Standards No. 159.

“Governing Documents” means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person.

“Governmental Authority” means any federal, state, local, or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

“Guarantors” means (a) Magma Service, (b) each Subsidiary of Borrower formed or acquired after the Closing Date (other than any Subsidiary that is not required to become a Guarantor pursuant to Section 5.11), and (c) each other Person that becomes a guarantor after the Closing Date pursuant to Section 5.11 of the Agreement, and “Guarantor” means any one of them.

“Guaranty” means that certain general continuing guaranty, dated as of even date with the Agreement, executed and delivered by each extant Guarantor in favor of Agent, for the benefit of the Lender Group and the Bank Product Providers, in form and substance reasonably satisfactory to Agent.

“Hazardous Materials” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.

“Hedge Agreement” means a “swap agreement” as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.

“Hedge Obligations” means any and all obligations or liabilities, whether absolute or contingent, due or to become due, now existing or hereafter arising, of Borrower or its Subsidiaries arising under, owing pursuant to, or existing in respect of Hedge Agreements entered into with one or more of the Bank Product Providers.

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“Hedge Provider” means Wells Fargo or any of its Affiliates.

“Holdout Lender” has the meaning specified therefor in Section 14.2(a) of the Agreement.

“Inactive Subsidiaries” means Aplus Design, Silicon Correlation, Ramble, and Sabio.

“Indebtedness” as to any Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, or other financial products, (c) all obligations of such Person as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed, (e) all obligations of such Person to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all obligations of such Person owing under Hedge Agreements (which amount shall be calculated based on the amount that would be payable by such Person if the Hedge Agreement were terminated on the date of determination), (g) any Prohibited Preferred Stock of such Person, and (h) any obligation of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (g) above. For purposes of this definition, (i) the amount of any Indebtedness represented by a guaranty or other similar instrument shall be the lesser of the principal amount of the obligations guaranteed and still outstanding and the maximum amount for which the guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Indebtedness, and (ii) the amount of any Indebtedness described in clause (d) above shall be the lower of the amount of the obligation and the fair market value of the assets of such Person securing such obligation.

“Indemnified Liabilities” has the meaning specified therefor in Section 10.3 of the Agreement.

“Indemnified Person” has the meaning specified therefor in Section 10.3 of the Agreement.

“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intercompany Subordination Agreement” means an intercompany subordination agreement, dated as of even date with the Agreement, executed and delivered by Borrower, each of its Subsidiaries, and Agent, the form and substance of which is reasonably satisfactory to Agent.

“Interest Expense” means, for any period, the aggregate of the interest expense of Borrower for such period, determined on a consolidated basis in accordance with GAAP.

“Interest Period” means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter; provided, however, that (a) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (b) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (c) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the

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end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (d) Borrower may not elect an Interest Period which will end after the Maturity Date.

“Inventory” means inventory (as that term is defined in the Code).

“Investment” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising in the ordinary course of business), or acquisitions of Indebtedness, Stock, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.

“IRC” means the Internal Revenue Code of 1986, as in effect from time to time.

“Issuing Lender” means WFCF or any other Lender that, at the request of Borrower and with the consent of Agent, agrees, in such Lender’s sole discretion, to become an Issuing Lender for the purpose of issuing Letters of Credit or Reimbursement Undertakings pursuant to Section 2.11 of the Agreement and the Issuing Lender shall be a Lender.

“Lender” has the meaning set forth in the preamble to the Agreement, shall include the Issuing Lender and the Swing Lender, and shall also include any other Person made a party to the Agreement pursuant to the provisions of Section 13.1 of the Agreement and “Lenders” means each of the Lenders or any one or more of them.

“Lender Group” means each of the Lenders (including the Issuing Lender and the Swing Lender) and Agent, or any one or more of them.

“Lender Group Expenses” means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by Borrower or its Subsidiaries under any of the Loan Documents that are paid, advanced, or incurred by the Lender Group, (b) out-of-pocket fees or charges paid or incurred by Agent in connection with the Lender Group’s transactions with Borrower or its Subsidiaries under any of the Loan Documents, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including periodic collateral appraisals or business valuations to the extent of the fees and charges (and up to the amount of any limitation) contained in the Agreement or the Fee Letter), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) out-of-pocket costs and expenses incurred by Agent in the disbursement of funds to Borrower or other members of the Lender Group (by wire transfer or otherwise), (d) out-of-pocket charges paid or incurred by Agent resulting from the dishonor of checks payable by or to any Loan Party, (e) reasonable out-of-pocket costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or during the continuance of an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) reasonable out-of-pocket audit fees and expenses (including travel, meals, and lodging) of Agent related to any inspections or audits to the extent of the fees and charges (and up to the amount of any limitation) contained in the Agreement or the Fee Letter, (g) reasonable out-of-pocket costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender Group’s relationship with Borrower or any of its Subsidiaries, (h) Agent’s reasonable costs and expenses (including reasonable attorneys fees) incurred in advising, structuring, drafting, reviewing, administering (including travel, meals, and lodging), syndicating (including rating the Term Loan), or amending the Loan Documents,

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and (i) Agent’s and each Lender’s reasonable costs and expenses (including reasonable attorneys, accountants, consultants, and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding concerning Borrower or any of its Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral.

“Lender Group Representatives” has the meaning specified therefor in Section 17.9 of the Agreement.

“Lender-Related Person” means, with respect to any Lender, such Lender, together with such Lender’s Affiliates, officers, directors, employees, attorneys, and agents.

“Letter of Credit” means a letter of credit issued by Issuing Lender or a letter of credit issued by Underlying Issuer, as the context requires.

“Letter of Credit Collateralization” means either (a) providing cash collateral (pursuant to documentation reasonably satisfactory to Agent, including provisions that specify that the Letter of Credit fee and all usage charges set forth in the Agreement will continue to accrue while the Letters of Credit are outstanding) to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then existing Letter of Credit Usage, (b) causing the Letters of Credit to be returned to the Issuing Lender, or (c) providing Agent with a standby letter of credit, in form and substance reasonably satisfactory to Agent, from a commercial bank acceptable to Agent (in its sole discretion) in an amount equal to 105% of the then existing Letter of Credit Usage (it being understood that the Letter of Credit fee and all usage charges set forth in the Agreement will continue to accrue while the Letters of Credit are outstanding and that any such fees that accrue must be an amount that can be drawn under any such standby letter of credit).

“Letter of Credit Disbursement” means a payment made by Issuing Lender or Underlying Issuer pursuant to a Letter of Credit.

“Letter of Credit Usage” means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit.

“LIBOR Deadline” has the meaning specified therefor in Section 2.12(b)(i) of the Agreement.

“LIBOR Notice” means a written notice in the form of Exhibit L-1.

“LIBOR Option” has the meaning specified therefor in Section 2.12(a) of the Agreement.

“LIBOR Rate” means the greater of (a) 1.00% per annum, and (b) the rate per annum rate appearing on Bloomberg L.P.’s (the “Service”) Page BBAM1/(Official BBA USD Dollar Libor Fixings) (or on any successor or substitute page of such Service, or any successor to or substitute for such Service) 2 Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance with the Agreement, which determination shall be conclusive in the absence of manifest error.

“LIBOR Rate Loan” means each portion of an Advance or the Term Loan that bears interest at a rate determined by reference to the LIBOR Rate.

“LIBOR Rate Margin” means 4.50 percentage points.

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“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest, or other security arrangement and any other preference, priority, or preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of a lessor under a Capital Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.

“Loan Account” has the meaning specified therefor in Section 2.9 of the Agreement.

“Loan Documents” means the Agreement, the Controlled Account Agreements, the Control Agreements, the Copyright Security Agreement, any Credit Amount Certificate, the Fee Letter, the Guaranty, the Intercompany Subordination Agreement, the Letters of Credit, the Mortgages, the Patent Security Agreement, the Security Agreement, the Trademark Security Agreement, any note or notes executed by Borrower in connection with the Agreement and payable to any member of the Lender Group, any letter of credit application entered into by Borrower in connection with the Agreement, and any other agreement entered into, now or in the future, by Borrower or any of its Subsidiaries and any member of the Lender Group in connection with the Agreement.

“Loan Party” means Borrower or any Guarantor.

“Magma Service” means Magma Service, Inc., a Delaware corporation.

“Margin Stock” as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.

“Material Adverse Change” means (a) a material adverse change in the business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, (b) a material impairment of Borrower’s and its Subsidiaries ability to perform their obligations under the Loan Documents to which they are parties or of the Lender Group’s ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of Agent’s Liens with respect to the Collateral as a result of an action or failure to act on the part of Borrower or its Subsidiaries.

“Maturity Date” has the meaning specified therefor in Section 3.3 of the Agreement.

“Maximum Revolver Amount” means $15,000,000, decreased by the amount of reductions in the Revolver Commitments made in accordance with Section 2.4(c) of the Agreement.

“Minority Interest” means a Permitted Investment in the minority interests of the Stock of another Person.

“Moody’s” has the meaning specified therefor in the definition of Cash Equivalents.

“Mortgages” means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, executed and delivered by Borrower or its Subsidiaries in favor of Agent, in form and substance reasonably satisfactory to Agent, that encumber the Real Property Collateral.

“Net Cash Proceeds” means:

(a) with respect to any sale or disposition by Borrower or any of its Subsidiaries of assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of Borrower or its Subsidiaries, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under the Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is,

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repaid in connection with such sale or disposition, (ii) reasonable fees, commissions, and expenses related thereto and required to be paid by Borrower or such Subsidiary in connection with such sale or disposition and (iii) taxes paid or payable to any taxing authorities by Borrower or such Subsidiary in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of Borrower or any of its Subsidiaries, and are properly attributable to such transaction; and

(b) with respect to the issuance or incurrence of any Indebtedness by Borrower or any of its Subsidiaries, or the issuance by Borrower or any of its Subsidiaries of any shares of its Stock, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of Borrower or such Subsidiary in connection with such issuance or incurrence, after deducting therefrom only (i) reasonable fees, commissions, and expenses related thereto and required to be paid by Borrower or such Subsidiary in connection with such issuance or incurrence, (ii) taxes paid or payable to any taxing authorities by Borrower or such Subsidiary in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of Borrower or any of its Subsidiaries, and are properly attributable to such transaction.

“Net Working Capital” means, as of any date of determination, Current Assets as of such date minus Current Liabilities as of such date.

“Non-Cash Acquisition” means an Acquisition for which the purchase consideration (including deferred payment obligations) is entirely made up of the common Stock of Borrower.

“non-Loan Party” means a Subsidiary of Borrower that is not a Loan Party.

“Obligations” means (a) all loans (including the Term Loan and the Advances (inclusive of Protective Advances and Swing Loans)), debts, principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), reimbursement or indemnification obligations with respect to Reimbursement Undertakings or with respect to Letters of Credit (irrespective of whether contingent), premiums, liabilities (including all amounts charged to the Loan Account pursuant to the Agreement), obligations (including indemnification obligations), fees (including the fees provided for in the Fee Letter), Lender Group Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, covenants, and duties of any kind and description owing by any Loan Party pursuant to or evidenced by the Agreement or any of the other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all other expenses or other amounts that Borrower is required to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents, (b) all debts, liabilities, or obligations (including reimbursement obligations, irrespective of whether contingent) owing by Borrower or any other Loan Party to an Underlying Issuer now or hereafter arising from or in respect of Underlying Letters of Credit, and (c) all Bank Product Obligations. Any reference in the Agreement or in the Loan Documents to the Obligations shall include all or any portion thereof and any extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

“OFAC” means The Office of Foreign Assets Control of the U.S. Department of the Treasury.

“Originating Lender” has the meaning specified therefor in Section 13.1(e) of the Agreement.

“Overadvance” has the meaning specified therefor in Section 2.5 of the Agreement.

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“Participant” has the meaning specified therefor in Section 13.1(e) of the Agreement.

“Participant Register” has the meaning set forth in Section 13.1(i) of the Agreement.

“Patent Security Agreement” has the meaning specified therefor in the Security Agreement.

“Patriot Act” has the meaning specified therefor in Section 4.18 of the Agreement.

“Payoff Date” means the first date on which all of the Obligations are paid in full and the Commitments of the Lenders are terminated.

“Permitted Acquisition” means any Acquisition so long as:

(a) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the proposed Acquisition and the proposed Acquisition is consensual,

(b) no Indebtedness will be incurred, assumed, or would exist with respect to Borrower or its Subsidiaries as a result of such Acquisition, other than Indebtedness permitted under clauses (f) or (g) of the definition of Permitted Indebtedness and no Liens will be incurred, assumed, or would exist with respect to the assets of Borrower or its Subsidiaries as a result or such Acquisition other than Permitted Liens,

(c) except in the case of a Smaller Acquisition, Borrower has provided Agent with written confirmation, supported by reasonably detailed calculations, that on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to such proposed Acquisition, are factually supportable, and are expected to have a continuing impact, in each case, determined as if the combination had been accomplished at the beginning of the relevant period; such eliminations and inclusions determined on a basis consistent with Article 11 of Regulation S X promulgated under the Securities Act and as interpreted by the staff of the SEC) created by adding the historical combined financial statements of Borrower (including the combined financial statements of any other Person or assets that were the subject of a prior Permitted Acquisition during the relevant period) to the historical consolidated financial statements of the Person to be acquired (or the historical financial statements related to the assets to be acquired) pursuant to the proposed Acquisition, subject to adjustments to reflect projected consolidated operations following the Acquisition, Borrower and its Subsidiaries are projected to be in compliance with the financial covenants in Section 7 for the 4 fiscal quarter period ended one year after the proposed date of consummation of such proposed Acquisition,

(d) except in the case of a Smaller Acquisition, Borrower has provided Agent with forecasted balance sheets, profit and loss statements, and cash flow statements of the Person or assets to be acquired, all prepared on a basis consistent with such Person’s (or assets’) historical financial statements, subject to adjustments to reflect projected consolidated operations following the Acquisition, together with appropriate supporting details and a statement of underlying assumptions for the 1 year period following the date of the proposed Acquisition, on a quarter by quarter basis),

(e) Borrower shall have Availability plus domestic Qualified Cash in an amount equal to or greater than $10,000,000 immediately after giving effect to the consummation of the proposed Acquisition,

(f) except in the case of a Smaller Acquisition, the assets being acquired or the Person whose Stock is being acquired did not have pro forma EBITDA that is less than negative Two Million Dollars (-$2,000,000), after taking into account adjustments which are reasonably acceptable to Agent) during the 12 consecutive month period most recently concluded prior to the date the agreement to consummate the proposed Acquisition becomes effective,

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(g) except in the case of a Smaller Acquisition, Borrower has provided Agent with written notice of the proposed Acquisition at least 15 Business Days prior to the anticipated closing date of the proposed Acquisition and, not later than 5 Business Days prior to the anticipated closing date of the proposed Acquisition, copies of the acquisition agreement and other material documents relative to the proposed Acquisition, which agreement and documents do not contain terms that are inconsistent with those in this Agreement or the other Loan Documents,

(h) the assets being acquired (other than a de minimis amount of assets in relation to Borrower’s and its Subsidiaries’ total assets), or the Person whose Stock is being acquired, are useful in or engaged in, as applicable, the business of Borrower and its Subsidiaries or a business reasonably related thereto,

(i) the assets being acquired (other than a de minimis amount of assets in relation to the assets being acquired) are located within the United States, or the Person whose Stock is being acquired is organized in a jurisdiction located within the United States; provided, however, that if the Acquisition is a Non-Cash Acquisition or a Smaller Acquisition, then such assets or target may be located or organized, as the case may be, outside of the United States,

(j) except for Non-Cash Acquisitions or Smaller Acquisitions, the subject assets or Stock, as applicable, are being acquired directly by a Loan Party, and, in connection therewith, the applicable Loan Party shall have complied with Section 5.11 or 5.12, as applicable, of the Agreement, and

(k) the purchase consideration payable in respect of all Permitted Acquisitions (including the proposed Acquisition and including deferred payment obligations and Indebtedness described in clause (p) of the definition of Permitted Indebtedness) shall not exceed $8,000,000 in the aggregate in any one year (with unused amounts of such limit being carried forward and added to the limit for the subsequent year) or $20,000,000 in the aggregate since the Closing Date.

“Permitted Discretion” means a determination made in the exercise of reasonable (from the perspective of a secured lender) business judgment.

“Permitted Dispositions” means:

(a) sales, abandonment, or other dispositions of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of business,

(b) sales of Inventory to buyers in the ordinary course of business,

(c) the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of the Agreement or the other Loan Documents,

(d) the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business,

(e) the granting of Permitted Liens,

(f) the sale or discount, in each case without recourse and forgiveness, of Accounts arising in the ordinary course of business, but only in connection with the compromise or collection thereof,

(g) any involuntary loss, damage or destruction of property,

(h) any involuntary condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, or confiscation or requisition of use of property,

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(i) the leasing or subleasing of assets of Borrower or its Subsidiaries in the ordinary course of business,

(j) the sale or issuance of Stock (other than Prohibited Preferred Stock) of Borrower,

(k) the lapse of registered patents, trademarks and other intellectual property of Borrower and its Subsidiaries to the extent not economically desirable in the conduct of their business and so long as such lapse is not materially adverse to the interests of the Lenders,

(l) the making of a Restricted Junior Payment that is expressly permitted to be made pursuant to the Agreement,

(m) the making of a Permitted Investment,

(n) the transfer of assets of a Subsidiary of Borrower to a Loan Party in connection with a liquidation, wind up or dissolution of such Subsidiary as permitted in Section 6.3 of the Agreement,

(o) disposition of Minority Interests so long as made in an arm’s length transaction at fair market value,

(p) the contemporaneous exchange of Equipment traded in for credit towards new Equipment so long as such transaction is otherwise permitted by the terms of the Agreement,

(q) unwinding of Hedge Agreements so long as the termination of the Hedge Agreement does not result in an Event of Default,

(r) sale of the Auction Rate Securities so long as such sale is made in an arm’s length transaction and at fair market value and the proceeds of such sale are sufficient and are used to repay the Auction Rate Indebtedness in full and terminate the Auction Rate Line of Credit, and

(s) dispositions of assets (other than Accounts, intellectual property, licenses, Stock of Subsidiaries of Borrower) not otherwise permitted in clauses (a) through (r) above so long as made at fair market value and the aggregate fair market value of all assets disposed of in all such dispositions since the Closing Date (including the proposed disposition) would not exceed $500,000.

“Permitted Holder” means any shareholder of Borrower who (a) on the Closing Date owns 5% or more of the common Stock of Borrower or (b) as a result of the conversion of the 2014 Notes becomes the owner of 5% or more of the common Stock of Borrower.

“Permitted Indebtedness” means:

(a) Indebtedness evidenced by the Agreement or the other Loan Documents, as well as Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit,

(b) Indebtedness set forth on Schedule 4.19 and any Refinancing Indebtedness in respect of such Indebtedness,

(c) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness,

(d) endorsement of instruments or other payment items for deposit,

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(e) Indebtedness consisting of (i) unsecured guarantees incurred in the ordinary course of business with respect to surety and appeal bonds, performance bonds, bid bonds, appeal bonds, completion guarantee and similar obligations; (ii) unsecured guarantees arising with respect to customary indemnification obligations to purchasers in connection with Permitted Dispositions; (iii) unsecured guarantees by a Loan Party of Indebtedness of another Loan Party to the extent such Indebtedness otherwise constitutes Permitted Indebtedness; (iv) unsecured guarantees by a Loan Party of the real property leases of a Subsidiary that is a CFC as set forth in Schedule P-1, and (v) unsecured guarantees incurred in the ordinary course of business by a Loan Party of the real property leases of a Subsidiary that is a CFC so long as with respect to this clause (iv), (x) no Event of Default has occurred and is continuing or would result therefrom, (y) Borrower has Availability plus Qualified Cash of $10,000,000 or greater immediately after giving effect to each such guaranty, and (z) Schedule P-1 is updated by Borrower within 5 Business Days after the incurrence thereof.

(f) unsecured Indebtedness of Borrower that is incurred on the date of the consummation of a Permitted Acquisition solely for the purpose of consummating such Permitted Acquisition so long as (i) no Event of Default has occurred and is continuing or would result therefrom, (ii) such unsecured Indebtedness is not incurred for working capital purposes, (iii) such unsecured Indebtedness does not mature prior to the date that is 12 months after the Maturity Date, (iv) such Indebtedness is subordinated in right of payment to the Obligations on terms and conditions reasonably satisfactory to Agent, and (v) the only interest that accrues with respect to such Indebtedness is payable in kind,

(g) Acquired Indebtedness in an amount not to exceed $2,000,000 outstanding at any one time,

(h) Indebtedness incurred in the ordinary course of business under performance, surety, statutory, and appeal bonds,

(i) Indebtedness owed to any Person providing property, casualty, liability, or other insurance to Borrower or any of its Subsidiaries, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such Indebtedness is outstanding only during such year,

(j) the incurrence by Borrower or its Subsidiaries of Indebtedness under Hedge Agreements that are incurred for the bona fide purpose of hedging the interest rate, commodity, or foreign currency risks associated with Borrower’s and its Subsidiaries’ operations and not for speculative purposes,

(k) Indebtedness incurred in respect of credit cards, credit card processing services, debit cards, stored value cards, purchase cards (including so-called “procurement cards” or “P-cards”), or Cash Management Services, in each case, incurred in the ordinary course of business,

(l) unsecured Indebtedness of Borrower owing to former employees, officers, or directors (or any spouses, ex-spouses, or estates of any of the foregoing) incurred in connection with the repurchase by Borrower of the Stock of Borrower that has been issued to such Persons, so long as (i) no Default or Event of Default has occurred and is continuing or would result from the incurrence of such Indebtedness, (ii) the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $250,000, and (iii) such Indebtedness is subordinated to the Obligations on terms and conditions reasonably acceptable to Agent,

(m) unsecured Indebtedness owing to sellers of assets or Stock to a Loan Party that is incurred by the applicable Loan Party in connection with the consummation of one or more Permitted Acquisitions so long as (i) the aggregate principal amount for all such unsecured Indebtedness does not exceed $5,000,000 at any one time outstanding, (ii) is subordinated to the Obligations on terms and conditions reasonably acceptable to Agent, and (iii) is otherwise on terms and conditions (including all economic terms and the absence of covenants) reasonably acceptable to Agent,

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(n) contingent liabilities in respect of any indemnification obligation, adjustment of purchase price, non-compete, or similar obligation of Borrower or the applicable Loan Party incurred in connection with the consummation of one or more Permitted Acquisitions,

(o) the Existing Earn-Out Obligations,

(p) unsecured Indebtedness consisting of Earn-Outs, so long as the cash portion of Earn-outs (i) are subordinated to the Obligations on terms and conditions acceptable to Agent, (ii) are otherwise on terms and conditions reasonably acceptable to Agent and (iii) the aggregate maximum liabilities (contingent or otherwise) for any such Earn-Out to be paid in cash do not exceed 50% of the aggregate purchase consideration for the related Permitted Acquisition, and

(q) Indebtedness composing Permitted Investments.

“Permitted Intercompany Advances” means loans made by (a) a Loan Party to another Loan Party. (b) a non-Loan Party to another non-Loan Party, (c) a non-Loan Party to a Loan Party, so long as the parties thereto are party to the Intercompany Subordination Agreement, and (d) a Loan Party to a non-Loan Party so long as (i) the amount of such loans does not exceed $1,000,000 outstanding at any one time, (y) no Event of Default has occurred and is continuing or would result therefrom, and (x) Borrower has Availability plus Qualified Cash of $10,000,000 or greater immediately after giving effect to each such loan.

“Permitted Investments” means:

(a) Investments in cash and Cash Equivalents,

(b) Investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of business,

(c) advances made in connection with purchases of goods or services in the ordinary course of business,

(d) Investments received in settlement of amounts due to any Loan Party or any of its Subsidiaries effected in the ordinary course of business or owing to any Loan Party or any of its Subsidiaries as a result of Insolvency Proceedings involving an Account Debtor or upon the foreclosure or enforcement of any Lien in favor of a Loan Party or its Subsidiaries,

(e) Investments owned by any Loan Party or any of its Subsidiaries on the Closing Date and set forth on Schedule P-2,

(f) guarantees permitted under the definition of Permitted Indebtedness,

(g) Permitted Intercompany Advances,

(h) Stock or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to a Loan Party or its Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary course of business) or as security for any such Indebtedness or claims,

(i) deposits of cash made in the ordinary course of business to secure performance of operating leases,

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(j) non-cash loans to employees, officers, and directors of Borrower or any of its Subsidiaries (or any spouses, ex-spouses or estates of nay of the foregoing) for the purpose of purchasing Stock in Borrower so long as the proceeds of such loans are used in their entirety to purchase such stock in Borrower,

(k) Permitted Acquisitions,

(l) Permitted Strategic Investments,

(m) Investments resulting from entering into (i) Bank Product Agreements, or (ii) agreements relative to Indebtedness that is permitted under clause (j) of the definition of Permitted Indebtedness,

(n) Investments held by a Person acquired in a Permitted Acquisition to the extent that such Investments were not made in contemplation of or in connection with such Permitted Acquisition and were in existence on the date of such Permitted Acquisition,

(o) travel and entertainment advances and relocation and other loans and advances in the ordinary course of business to officers and employees of Borrower or any of its Subsidiaries; provided that the aggregate principal amount of all such loans and advances outstanding at any one time shall not exceed $50,000,

(p) Investments received as consideration for the sale of assets pursuant to any Permitted Disposition,

(q) the formation of any direct or indirect Subsidiary so long as Borrower and such Subsidiary satisfy the requirements set forth in Section 5.11 and 5.12, and

(r) so long as no Event of Default has occurred and is continuing or would result therefrom, any other Investments in an aggregate amount not to exceed $250,000 during the term of the Agreement.

“Permitted Liens” means

(a) Liens granted to, or for the benefit of, Agent to secure the Obligations,

(b) Liens for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent, or (ii) do not have priority over Agent’s Liens and the underlying taxes, assessments, or charges or levies are the subject of Permitted Protests,

(c) judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under Section 8.3 of the Agreement,

(d) Liens set forth on Schedule P-3; provided, however, that to qualify as a Permitted Lien, any such Lien described on Schedule P-3 shall only secure the Indebtedness that it secures on the Closing Date and any Refinancing Indebtedness in respect thereof,

(e) the interests of lessors under operating leases and non-exclusive licensors under license agreements,

(f) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the asset purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the asset purchased or acquired or any Refinancing Indebtedness in respect thereof,

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(g) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests,

(h) Liens on amounts deposited to secure Borrower’s and its Subsidiaries obligations in connection with worker’s compensation or other unemployment insurance,

(i) Liens on amounts deposited to secure Borrower’s and its Subsidiaries obligations in connection with the making or entering into of bids, tenders, or leases in the ordinary course of business and not in connection with the borrowing of money,

(j) Liens on amounts deposited to secure Borrower’s and its Subsidiaries reimbursement obligations with respect to surety or appeal bonds obtained in the ordinary course of business,

(k) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof,

(l) non-exclusive licenses of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business,

(m) Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of permitted Refinancing Indebtedness and so long as the replacement Liens only encumber those assets that secured the original Indebtedness,

(n) rights of setoff or bankers’ liens upon deposits of cash in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such deposit accounts in the ordinary course of business,

(o) Liens granted in the ordinary course of business on the unearned portion of insurance premiums securing the financing of insurance premiums to the extent the financing is permitted under the definition of Permitted Indebtedness,

(p) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods,

(q) Liens solely on any cash earnest money deposits made by Borrower or any of its Subsidiaries in connection with any letter of intent or purchase agreement with respect to a Permitted Acquisition,

(r) Liens in favor of UBS Bank USA on the Auction Rate Securities to secure the Auction Rate Indebtedness, and

(s) other Liens which do not secure Indebtedness for borrowed money or letters of credit and as to which the aggregate amount of the obligations secured thereby does not exceed $100,000.

“Permitted Netting Payments” means, payments by Borrower in the ordinary course of Borrower’s business in settlement of unpaid service fees owed by Borrower to a Subsidiary of Borrower which is a CFC pursuant to one or more Service Agreements to the extent such fees are owed but not otherwise paid by Borrower as a Permitted Service Fee, so long as (i) such settlement does not occur more than 2 times in each calendar year, (ii) the aggregate amount of such payments made in connection with each settlement shall not exceed $5,000,000, (iii) Borrower provides Agent notice of each such settlement, (iv) such payments are repaid to Borrower in full within 10 days after they are made, (v) no Event of Default has occurred and is continuing or would result from any such payment, and (vi) Borrower has Availability plus Qualified Cash of $10,000,000 or greater immediately after giving effect to each such payment.

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“Permitted Preferred Stock” means and refers to any Preferred Stock issued by Borrower (and not by one or more of its Subsidiaries) that is not Prohibited Preferred Stock.

“Permitted Protest” means the right of Borrower or any of its Subsidiaries to protest any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on Borrower’s or its Subsidiaries’ books and records in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Borrower or its Subsidiary, as applicable, in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of Agent’s Liens.

“Permitted Purchase Money Indebtedness” means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount outstanding not in excess of (i) $5,000,000 at any one time prior to the first anniversary of the Closing Date, and (ii) $6,000,000 at any one time on or after the first anniversary of the Closing Date.

“Permitted Service Fees” means the service fees paid by Borrower to a Subsidiary of Borrower which is a CFC in the ordinary course of Borrower’s business pursuant to one or more Service Agreements so long as the aggregate amount of such fees do not exceed $4,000,000, and at the time such fees are paid, (y) no Event of Default has occurred and is continuing or would result therefrom, and (x) Borrower has Availability plus Qualified Cash of $10,000,000 or greater immediately after giving effect to each such payment.

“Permitted Strategic Investment” means, a strategic Investment by Borrower in the stock of another Person, subject to the limitations and satisfaction of the conditions set forth below:

(a) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the proposed Investment and the proposed Investment is consensual,

(b) no Indebtedness will be incurred, assumed, or would exist with respect to Borrower or its Subsidiaries as a result of such Investment, other than Permitted Indebtedness and no Liens will be incurred, assumed, or would exist with respect to the assets of Borrower or its Subsidiaries as a result or such Investment other than Permitted Liens,

(c) Borrower shall have Availability plus domestic Qualified Cash in an amount equal to or greater than $10,000,000 immediately after giving effect to the consummation of the proposed Investment,

(d) except in the case of a Smaller Strategic Investment, Borrower has provided Agent with written notice of the proposed Investment at least 15 Business Days prior to the anticipated closing date of the proposed Investment and, not later than 5 Business Days prior to the anticipated closing date of the proposed Investment, copies of any material documents relative to the proposed Investment,

(e) the entity in which Borrower is making such Investment is engaged in the business of Borrower and its Subsidiaries or a business reasonably related thereto,

(f) except for a Smaller Strategic Investment, the subject stock or other investment property is being acquired directly by a Loan Party, and, in connection therewith, the applicable Loan Party shall have provided such documents and instruments as requested by Agent to perfect Agent’s Lien therein, and

(g) the purchase consideration payable in respect of all Permitted Strategic Investments (including the proposed Investment, and including deferred payment obligations and Indebtedness described in

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clause (p) of the definition of Permitted Indebtedness but excluding purchase consideration consisting of the common Stock of Borrower) shall not exceed $4,000,000 in the aggregate in any year (with unused amounts of such limit being carried forward and added to the limit for the subsequent year) or $10,000,000 in the aggregate since the Closing Date.

“Person” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.

“Post-Contract Support Revenues” means, with respect to any period, all “post-contract support” revenues of the Loan Parties earned during such period, calculated on a basis consistent with the financial statements delivered to Agent prior to the Closing Date.

“Preferred Stock” means, as applied to the Stock of any Person, the Stock of any class or classes (however designated) that is preferred with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Stock of any other class of such Person.

“Prohibited Preferred Stock” means any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and series payable in kind or dividends of shares of common stock) on or before a date that is less than 1 year after the Maturity Date, or, on or before the date that is less than 1 year after the Maturity Date, is redeemable at the option of the holder thereof for cash or assets or securities (other than distributions in kind of shares of Preferred Stock of the same class and series or of shares of common stock).

“Projections” means Borrower’s forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrower’s historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.

“Pro Rata Share” means, as of any date of determination:

(a) with respect to a Lender’s obligation to make Advances and right to receive payments of principal, interest, fees, costs, and expenses with respect thereto, (i) prior to the Revolver Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii) from and after the time that the Revolver Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lender’s Advances by (z) the outstanding principal amount of all Advances,

(b) with respect to a Lender’s obligation to participate in Letters of Credit and Reimbursement Undertakings, to reimburse the Issuing Lender, and right to receive payments of fees with respect thereto, (i) prior to the Revolver Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii) from and after the time that the Revolver Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lender’s Advances by (z) the outstanding principal amount of all Advances; provided, however, that if all of the Advances have been repaid in full and Letters of Credit remain outstanding, Pro Rata Share under this clause shall be determined based upon subclause (i) of this clause as if the Revolver Commitments had not been terminated or reduced to zero and based upon the Revolver Commitments as they existed immediately prior to their termination or reduction to zero.

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(c) with respect to a Lender’s obligation to make the Term Loan and right to receive payments of interest, fees, and principal with respect thereto, (i) prior to the making of the Term Loan, the percentage obtained by dividing (y) such Lender’s Term Loan Commitment, by (z) the aggregate amount of all Lenders’ Term Loan Commitments, and (ii) from and after the making of the Term Loan, the percentage obtained by dividing (y) the principal amount of such Lender’s portion of the Term Loan by (z) the principal amount of the Term Loan, and

(d) with respect to all other matters as to a particular Lender (including the indemnification obligations arising under Section 15.7 of the Agreement), (i) prior to the Revolver Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver Commitment plus the outstanding principal amount of such Lender’s portion of the Term Loan, by (z) the aggregate amount of Revolver Commitments of all Lenders plus the outstanding principal amount of the Term Loan, and (ii) from and after the time that the Revolver Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the outstanding principal amount of such Lender’s Advances plus the outstanding principal amount of such Lender’s portion of the Term Loan, by (z) the outstanding principal amount of all Advances plus the outstanding principal amount of the Term Loan; provided, however, that if all of the Advances have been repaid in full and Letters of Credit remain outstanding, Pro Rata Share under this clause shall be determined based upon subclause (i) of this clause as if the Revolver Commitments had not been terminated or reduced to zero and based upon the Revolver Commitments as they existed immediately prior to their termination or reduction to zero.

“Protective Advances” has the meaning specified therefor in Section 2.3(d)(i) of the Agreement.

“Purchase Money Indebtedness” means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 60 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof.

“Qualified Cash” means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of Loan Parties that is in Deposit Accounts or in Securities Accounts, or any combination thereof, and which such Deposit Account or Securities Account is the subject of a Control Agreement and is maintained by a branch office of the bank or securities intermediary located within the United States.

“Ramble” means Ramble Acquisition, LLC, a Delaware limited liability company.

“Real Property” means any estates or interests in real property now owned or hereafter acquired by Borrower or its Subsidiaries and the improvements thereto.

“Real Property Collateral” means the Real Property identified on Schedule R-1 and any Real Property hereafter acquired by Borrower or its Subsidiaries.

“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

“Refinancing Indebtedness” means refinancings, renewals, or extensions of Indebtedness so long as:

(a) such refinancings, renewals, or extensions do not result in an increase in the principal amount of the Indebtedness so refinanced, renewed, or extended, other than by the amount of premiums paid thereon and the fees and expenses incurred in connection therewith and by the amount of unfunded commitments with respect thereto,

(b) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity (measured as of the refinancing, renewal, or extension) of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are or could reasonably be expected to be materially adverse to the interests of the Lenders,

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(c) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness,

(d) the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or extended, and

(e) the Indebtedness that is refinanced, renewed or extended is not Indebtedness under the 2010 Notes or the 2014 Notes.

“Register” has the meaning set forth in Section 13.1(h) of the Agreement.

“Registered Loan” has the meaning set forth in Section 13.1(h) of the Agreement.

“Reimbursement Undertaking” has the meaning specified therefor in Section 2.11(a) of the Agreement.

“Related Fund” means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Remedial Action” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) restore or reclaim natural resources or the environment, (d) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials required by Environmental Laws.

“Replacement Lender” has the meaning specified therefor in Section 2.13(b) of the Agreement.

“Report” has the meaning specified therefor in Section 15.16 of the Agreement.

“Required Availability” means that the sum of (a) Availability, plus (b) Qualified Cash exceeds $45,000,000.

“Required Lenders” means, at any time, Lenders whose aggregate Pro Rata Shares (calculated under clause (d) of the definition of Pro Rata Shares) exceed 50%; provided, however, that at any time there are 2 or more Lenders, “Required Lenders” must include at least 2 Lenders.

“Restricted Junior Payment” means to (a) declare or pay any dividend or make any other payment or distribution on account of Stock issued by Borrower (including any payment in connection with any merger or consolidation involving Borrower) or to the direct or indirect holders of Stock issued by Borrower in their capacity as such (other than dividends or distributions payable in Stock (other than Prohibited Preferred Stock) issued by Borrower), or (b) purchase, redeem, or otherwise acquire or retire for value (including in connection with any merger or consolidation involving Borrower) any Stock issued by Borrower.

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“Revolver Commitment” means, with respect to each Lender, its Revolver Commitment, and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.

“Revolver Usage” means, as of any date of determination, the sum of (a) the amount of outstanding Advances, plus (b) the amount of the Letter of Credit Usage.

“Sabio” means Sabio Labs LLC, a California limited liability company.

“Sanctioned Entity” means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, or (d) a Person resident in or determined to be resident in a country, in each case, that is subject to a country sanctions program administered and enforced by OFAC.

“Sanctioned Person” means a person named on the list of Specially Designated Nationals maintained by OFAC.

“S&P” has the meaning specified therefor in the definition of Cash Equivalents.

“SEC” means the United States Securities and Exchange Commission and any successor thereto.

“Securities Account” means a securities account (as that term is defined in the Code).

“Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.

“Security Agreement” means a security agreement, dated as of even date with the Agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by Borrower and Guarantors to Agent.

“Service Agreement” means an agreement between Borrower and a Subsidiary of Borrower which is a CFC pursuant to which Borrower agrees to pays to such Subsidiary (i) transfer pricing charges among the Loan Party and such Subsidiaries in respect of the sale of software products and the provision of related professional services to end users, and (ii) charges related to internal research and development services, maintenance support services, back-office charges and matters ancillary thereto.

“Settlement” has the meaning specified therefor in Section 2.3(e)(i) of the Agreement.

“Settlement Date” has the meaning specified therefor in Section 2.3(e)(i) of the Agreement.

“Silicon Correlation” means Silicon Correlation, Inc., a Delaware corporation.

“Smaller Acquisition” means an Acquisition where the total purchase consideration (including deferred payment obligations and including considerations consisting of the Stock of Borrower), is less than $5,000,000.

“Smaller Strategic Investment”, means a strategic Investment where the total purchase consideration (including deferred payment obligations and including consideration consisting of the stock of Borrower) is less than $2,000,000.

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“Solvent” means, with respect to any Person on a particular date, that, at fair valuations, the sum of such Person’s assets is greater than all of such Person’s debts.

“Stock” means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

“Subsidiary” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.

“Swing Lender” means WFCF or any other Lender that, at the request of Borrower and with the consent of Agent agrees, in such Lender’s sole discretion, to become the Swing Lender under Section 2.3(b) of the Agreement.

“Swing Loan” has the meaning specified therefor in Section 2.3(b) of the Agreement.

“Taxes” means any taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments and all interest, penalties or similar liabilities with respect thereto; provided, however, that Taxes shall exclude (i) any tax imposed on the net income or net profits of any Lender or any Participant (including any branch profits taxes), in each case imposed by the jurisdiction (or by any political subdivision or taxing authority thereof) in which such Lender or such Participant is organized or the jurisdiction (or by any political subdivision or taxing authority thereof) in which such Lender’s or such Participant’s principal office is located in each case as a result of a present or former connection between such Lender or such Participant and the jurisdiction or taxing authority imposing the tax (other than any such connection arising solely from such Lender or such Participant having executed, delivered or performed its obligations or received payment under, or enforced its rights or remedies under the Agreement or any other Loan Document); (ii) taxes resulting from a Lender’s or a Participant’s failure to comply with the requirements of Section 16(c) or (d) of the Agreement, and (iii) any United States federal withholding taxes that would be imposed on amounts payable to a Foreign Lender based upon the applicable withholding rate in effect at the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), except that Taxes shall include (A) any amount that such Foreign Lender (or its assignor, if any) was previously entitled to receive pursuant to Section 16(a) of the Agreement, if any, with respect to such withholding tax at the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), and (B) additional United States federal withholding taxes that may be imposed after the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), as a result of a change in law, rule, regulation, order or other decision with respect to any of the foregoing by any Governmental Authority.

“Tax Lender” has the meaning specified therefor in Section 14.2(a) of the Agreement.

“Term Loan” has the meaning specified therefor in Section 2.2 of the Agreement.

“Term Loan Amount” means $15,000,000.

“Term Loan Commitment” means, with respect to each Lender, its Term Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.

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“Time Based License Fee Revenues” means, with respect to any period, all “time based license fee” revenues of the Loan Parties earned during such period, calculated on a basis consistent with the financial statements delivered to Agent prior to the Closing Date.

“Total Commitment” means, with respect to each Lender, its Total Commitment, and, with respect to all Lenders, their Total Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 attached hereto or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.

“Trademark Security Agreement” has the meaning specified therefor in the Security Agreement.

“TTM EBITDA” means, as of any date of determination, EBITDA of Borrower determined on a consolidated basis in accordance with GAAP, for the 12 month period most recently ended.

“TTM Recurring Revenue” means, as of any date of determination, the recurring Post-Contract Support Revenues and Time Based License Fee Revenues for the 12 month period most recently ended prior to the date of determination.

“Underlying Issuer” means Wells Fargo or one of its Affiliates.

“Underlying Letter of Credit” means a Letter of Credit that has been issued by an Underlying Issuer.

“United States” means the United States of America.

“Voidable Transfer” has the meaning specified therefor in Section 17.8 of the Agreement.

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.

“WFCF” means Wells Fargo Capital Finance, LLC, a Delaware limited liability company.

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Schedule 3.1

The obligation of each Lender to make its initial extension of credit provided for in the Agreement is subject to the fulfillment, to the satisfaction of each Lender (the making of such initial extension of credit by any Lender being conclusively deemed to be its satisfaction or waiver of the following), of each of the following conditions precedent:

(a) the Closing Date shall occur on or before June 1, 2010;

(b) Agent shall have received a letter duly executed by Borrower and each Guarantor authorizing Agent to file appropriate financing statements in such office or offices as may be necessary or, in the opinion of Agent, desirable to perfect the security interests to be created by the Loan Documents;

(c) Agent shall have received evidence that appropriate financing statements have been duly filed in such office or offices as may be necessary or, in the opinion of Agent, desirable to perfect the Agent’s Liens in and to the Collateral, and Agent shall have received searches reflecting the filing of all such financing statements;

(d) Agent shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force and effect:

(i) the Agreement,

(ii) the Controlled Account Agreements,

(iii) the Security Agreement, together with the Patent Security Agreement and the Trademark Security Agreement,

(iv) a disbursement letter executed and delivered by Borrower to Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which is satisfactory to Agent,

(v) the Fee Letter,

(vi) the Guaranty,

(vii) the Intercompany Subordination Agreement, and

(viii) a letter, in form and substance satisfactory to Agent, from Wells Fargo Bank (“Existing Lender”) to Agent respecting the amount necessary to repay in full all of the obligations of Borrower and its Subsidiaries owing to Existing Lender and obtain a release of all of the Liens existing in favor of Existing Lender in and to the assets of Borrower and its Subsidiaries, together with termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties and assets of Borrower and its Subsidiaries;

(e) Agent shall have received a certificate from the Secretary of Borrower certifying (i) the resolutions of Borrower’s Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party, specific officers of Borrower to execute the same, and (ii) the incumbency and signatures of such specific officers of Borrower;

(f) Agent shall have received copies of Borrower’s Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower;

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(g) Agent shall have received a certificate of status with respect to Borrower, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction;

(h) Agent shall have received certificates of status with respect to Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions;

(i) Agent shall have received a certificate from the Secretary of each Guarantor certifying (i) the resolutions of such Guarantor’s Board of Directors authorizing its execution, delivery, and performance of the Loan Documents to which such Guarantor is a party, specific officers of such Guarantor to execute the same and (ii) the incumbency and signatures of such specific officers of Guarantor;

(j) Agent shall have received copies of each Guarantor’s Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Guarantor;

(k) Agent shall have received a certificate of status with respect to each Guarantor, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Guarantor, which certificate shall indicate that such Guarantor is in good standing in such jurisdiction;

(l) Agent shall have received certificates of status with respect to each Guarantor, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Guarantor) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Guarantor is in good standing in such jurisdictions;

(m) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 5.8, the form and substance of which shall be satisfactory to Agent;

(n) Agent shall have received an opinion of Borrower’s and each Guarantor’s counsel in form and substance satisfactory to Agent;

(o) Borrower shall have the Required Availability after giving effect to the initial extensions of credit hereunder and the payment of all fees and expenses required to be paid by Borrower on the Closing Date under this Agreement or the other Loan Documents;

(p) Agent shall have completed its legal due diligence, including, but not limited to a review of all material indebtedness, and the material contracts and other material agreements of Borrower and its Subsidiaries, the results of which shall be, in each case, reasonably satisfactory to Agent;

(q) Agent shall have completed all Patriot Act and OFA/PEP searches with respect to each Loan Party, the results of which are satisfactory to Agent in its sole discretion;

(r) Borrower shall have paid (i) all fees due to Agent or Lenders on the Closing Date as set forth in the Fee Letter, and (ii) all Lender Group Expenses incurred in connection with the transactions evidenced by this Agreement;

(s) Borrower and each of the Loan Parties shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by Borrower or the other Loan Parties of the Loan Documents or with the consummation of the transactions contemplated thereby; and

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(t) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Agent.

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SCHEDULE 3.6

The obligation of the Lender Group (or any member thereof) to make any Advances hereunder at any time (or to extend any other credit hereunder) shall be subject to the fulfillment, to the satisfaction of Agent (or waiver thereby), of each of the post-closing covenants set forth below. Borrower shall, and shall cause its Subsidiaries to, satisfy each of the post-closing covenants set forth below within such covenant’s prescribed time period; provided that such covenants may be waived and/or time periods extended by Agent in its sole discretion. Except as otherwise provided in clause (c) below, Borrower’s failure to satisfy any covenant within the prescribed time period shall constitute an Event of Default under the Agreement.

(a) Borrower shall, within 2 Business Days of the Closing Date, deliver to Agent all of the original certificates representing the shares of Stock pledged under the Security Agreement with respect to each of the Pledged Companies set forth on Schedule 6 attached thereto, together with a power endorsed in blank with respect to each such certificate; provided, that copies of such certificates shall be delivered to Agent on or before the Closing Date.

(b) Borrower shall, within 5 days of the Closing Date, (i) make a determination as to which of the real property leases belonging to a Subsidiary that is a CFC, as set forth in Schedule P-1 to the Agreement, are guaranteed by a Loan Party, and (ii) deliver to Agent an updated Schedule P-1 with respect to such determination.

(c) Borrower shall use commercially reasonable efforts to, within 45 days of the Closing Date, deliver to Agent, a Collateral Access Agreement, in form and substance satisfactory to Agent, with respect to the premises located at 1650 Technology Drive, San Jose, California.

(c) To the extent any Inactive Subsidiary has not been dissolved or otherwise terminated within 60 days of the Closing Date, Borrower shall (i) deliver to Agent all necessary documents to join such Inactive Subsidiary, as (x) a Guarantor under the Guaranty, (y) an Obligor under the Intercompany Subordination Agreement, and (z) a Grantor under the Security Agreement, and (ii) deliver to Agent the original certificates representing the shares of Stock pledged under the Security Agreement with respect to such Inactive Subsidiary, together with powers endorsed in blank with respect to such certificates.

Schedule 5.1

Deliver to Agent, with copies to each Lender, each of the financial statements, reports, or other items set forth below at the following times in form satisfactory to Agent:

as soon as available, but in any event within 45 days after the end of each quarter (each such date, the “Quarterly Deadline”) during each of Borrower’s fiscal years

(a) an unaudited consolidated and consolidating balance sheet, income statement, and statement of cash flow covering Borrower’s and its Subsidiaries’ operations during such period, provided, however, that if Borrower has filed any of the items listed in clause (a) above in its Form 10-Q quarterly report with the SEC by the applicable Quarterly Deadline, then Borrower shall (i) provide Agent written notice (in the Compliance Certificate or elsewhere) by the applicable Quarterly Deadline that Borrower has filed its 10-Q with the SEC (and attach a copy of its 10-Q to such Compliance Certificate) and (ii) deliver to Agent by the applicable Quarterly Deadline copies of any items listed in clause (a) above that were not filed with the SEC, provided further, however, that if Borrower has been granted an extension by the SEC for the filing of a Form 10-Q quarterly report, Borrower shall deliver to Agent (i) by the applicable Quarterly Deadline, all of the items listed in clause (a) above, (ii) within 2 Business Days of receiving such extension, a copy of such extension and the document that sets forth the extension date on which Borrower is required to file the Form 10-Q, and (iii) on the date that the 10-Q quarterly report is filed with the SEC, a copy of the 10-Q that was filed with the SEC, and (b) Compliance Certificate along with the underlying calculations, including the calculations to arrive at EBITDA to the extent applicable.

as soon as available, but in any event within 90 days after the end of each of Borrower’s fiscal years (each such date, the “Annual Deadline”),

(c) a consolidated and consolidating financial statements of Borrower and its Subsidiaries for each such fiscal year, audited by Grant Thorton or other independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications (including any (i) “going concern” or like qualification or exception, (ii) qualification or exception as to the scope of such audit, or (iii) qualification which relates to the treatment or classification of any item and which, as a condition to the removal of such qualification, would require an adjustment to such item, the effect of which would be to cause any noncompliance with the provisions of Section 7.1), by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants’ letter to management); provided, however, that if Borrower has filed any of the items listed in clause (c) above in its Form 10-K annual report with the SEC by the applicable Annual Deadline, then Borrower shall (i) provide Agent written notice (in the Compliance Certificate or elsewhere) by the applicable Annual Deadline that Borrower has filed its 10-K with the SEC (and attach a copy of its 10-K to such Compliance Certificate) and (ii) deliver to Agent by the applicable Annual Deadline copies of any items listed in clause (c) above that were not filed with the SEC, provided further, however, that if Borrower has been granted an extension by the SEC for the filing of a Form 10-K annual report, Borrower shall deliver to Agent (i) by the applicable Annual Deadline, unaudited consolidated and consolidating financial statements of Borrower and its Subsidiaries for such fiscal year (such

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	unaudited financial statements to include a balance sheet, income statement, and statement of cash flow), (ii) by the earlier of (A) the date that is 90 days after the end of such fiscal year, and (B) the date that the Form 10-K annual report is filed with the SEC, notice of all of the items listed in clause (c) above that are filed with the SEC (if any) and copies of all of the items listed in clause (c) above that were not filed with the SEC, (iii) within 2 Business Days of receiving such extension, a copy of such extension and the document that sets forth the extension date on which Borrower is required to file the Form 10-K, and (iv) on the date that the 10-K annual report is filed with the SEC, a copy of the 10-K that was filed with the SEC, and (d) a Compliance Certificate along with the underlying calculations, including the calculations to arrive at EBITDA to the extent applicable, and (e) a detailed calculation of Excess Cash Flow.
as soon as available, but in any event within 30 days after the start of each of Borrower’s fiscal years,	(f) copies of Borrower’s Projections, in form and substance consistent with the Projections delivered to Agent on February 2, 2010, for the remaining term of the Agreement, year by year, and for the forthcoming fiscal year, quarter by quarter, certified by the chief financial officer of Borrower as being such officer’s good faith estimate of the financial performance of Borrower during the period covered thereby.
if and when filed by Borrower,	(g) written notice of the filing of any Form 8-K current reports, (h) subject to clauses (a) and (c) above, copies of any other filings relating to the business, operations, results of operations, assets, liabilities or financial condition of Borrower or any of its Subsidiaries made by Borrower with the SEC, and (i) any other information that is provided by Borrower to its shareholders generally.
promptly, but in any event within 5 Business Days after Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default,	(j) notice of such event or condition and a statement of the curative action that the Borrower proposes to take with respect thereto.
promptly after the commencement thereof, but in any event within 5 Business Days after the service of process with respect thereto on Borrower or any of its Subsidiaries,	(k) notice of all actions, suits, or proceedings brought by or against Borrower or any of its Subsidiaries before any Governmental Authority which reasonably could be expected to result in a Material Adverse Change.
upon the request of Agent,	(l) any other information reasonably requested relating to the financial condition of Borrower or its Subsidiaries.

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SCHEDULE 4.1(b)

Capitalization of Borrower

Notes, Warrants, Options & RSUs	Number of Shares
Convertible Notes -2%	1,550,000
Convertible Notes -6%	14,827,222
Outstanding Warrants	0
RSUs Outstanding	2,294,947
Options Outstanding	9,245,705
Options Available for Grant	2,357,905
Total Notes, Warrants, Options & RSUs	30,275,779

SCHEDULE 4.1(c)

Capitalization of Borrower’s Subsidiaries

	Subsidiary [Country]	Authorized Shares/ Membership Interest	Outstanding Shares	Ownership	Percentage Ownership by Borrower
1.	Magma Services, Inc.	3,000 common shares.	1,000 common shares.	Magma Design Automation, Inc. holds 1,000 common shares.	100	%
2.	Ramble Acquisition LLC	Membership interest.	Not applicable.	Magma Design Automation, Inc. is the sole member.	100	%
3.	Sabio Labs LLC	Membership interest.	Not applicable.	Magma Design Automation, Inc. is the sole member.	100	%
4.	Aplus Design Technologies, Inc.	1,000 common shares.	1,000 common shares.	Magma Design Automation, Inc. holds 1,000 common shares.	100	%
5.	Silicon Correlation, Inc.	100 common shares.	100 common shares.	Magma Design Automation, Inc. holds 100 common shares.	100	%
6.	Beijing Magma Design Automation Co., Ltd. [China]	Common shares. No amount specified.	Not applicable.	Magma Design Automation, Inc. as Investor, is the “sole shareholder.”	100	%
7.	Magma Design Automation B.V. [The Netherlands]	8,000 common shares.	1,601 common shares.	MDA Netherlands C.V. holds 1,601 common shares.	100	%
8.	Magma Design Automation Cayman Ltd. [Cayman Islands]	50,000 common shares.	1,000 common shares.	MDA Netherlands C.V. holds 1,000 common shares.	100	%
9.	Magma Design Automation Corp. (Canada) [Canada]	100,000 common shares; company has power to attach preferred rights.	100 common shares.	Magma Design Automation, Inc. holds 100 common shares.	100	%

	Subsidiary [Country]	Authorized Shares/ Membership Interest	Outstanding Shares	Ownership	Percentage Ownership by Borrower
10.	Magma Design Automation GmbH [Germany]	1 common share.	1 common share.	Magma Design Automation, Inc. holds 1 common share.	100%
11.	Magma Design Automation India Private Limited [India]	1,000,000 common shares.	905,205 common shares.	Magma Design Automation, Inc. holds 905,203 common shares. Magma Design Automation Inc. Taiwan Limited holds 1 share. Magma Services, Inc. holds 1 share.	100%
12.	Magma Design Automation, K.K. [Japan]	800 common shares.	223 common shares.	Magma Design Automation, Inc. holds 223 common shares.	100%
13.	Magma Design Automation Ltd. [U.K.]	100,000 common shares.	1,000 common shares.	Magma Design Automation B.V. holds 1,000 common shares.	100%
14.	Magma Design Automation Ltd. [Israel]	38,000 common shares.	1,000 common shares.	Magma Design Automation, Inc. holds 1,000 common shares.	100%
15.	Magma Design Automation SARL [France]	750 membership interests.	750 membership interests.	Magma Design Automation B.V. holds 750 membership interests.	100%
16.	Magma Design Automation Taiwan Limited [Taiwan]	Common shares. No amount specified.	Not applicable.	Magma Design Automation, as Investor, is the “sole shareholder.”	100%
17.	Magma Korea, Inc. [South Korea]	1,000,000 common shares; preferred stock authorized.	647,500 common shares.	Magma Design Automation, Inc. holds 647,500 common shares.	100%
18.	MDA Netherlands C.V.	Limited and general partnership interests.	Not applicable.	Magma Design Automation, Inc. is Limited Partner. Magma Services, Inc. is General Partner.	100%

SCHEDULE 4.6(a)

States of Organization

	Name [Country]	Jurisdiction of Organization (Date Organized)
1.	Magma Design Automation, Inc.	DE (04/01/1997)
2.	Magma Services, Inc.	DE (05/17/2004)
3.	Ramble Acquisition LLC*	DE (09/05/2007)
4.	Sabio Labs LLC*	CA (12/20/2007)
5.	Aplus Design Technologies, Inc.*	CA (06/03/2003)
6.	Silicon Correlation, Inc.**	DE (10/14/2003)
7.	Beijing Magma Design Automation Co., Ltd.	China (12/12/2003
8.	Magma Korea, Inc.	South Korea (10/06/2000)
9.	Magma Design Automation B.V.	The Netherlands (4/11/2000)
10.	Magma Design Automation Cayman Ltd.	Cayman Islands (03/23/2005)
11.	Magma Design Automation Corp. (Canada)	Canada (04/24/2001)
12.	Magma Design Automation GmbH	Germany (08/29/99)
13.	Magma Design Automation India Private Limited	India (03/21/2003)
14.	Magma Design Automation Ltd. [U.K.]	United Kingdom (05/12/1999)
15.	Magma Design Automation Ltd. [Israel]	Israel (08/24/1999)

16.	Magma Design Automation SARL	France (04/17/2004)
17.	Magma Design Automation Inc. Taiwan Limited	Taiwan (02/19/2003)
18.	Magma Design Automation, K.K.	Japan (07/22/1999)
19.	MDA Netherlands C.V.	The Netherlands 10/24/05

* Dissolution proceedings will be initiated.

** Dissolution proceedings have been initiated.

SCHEDULE 4.6(b)

Chief Executive Offices

The Chief Executive Office of the Loan Parties and each of their Subsidiaries is the following:

1650 Technology Drive, San Jose, CA 95110 (Santa Clara County).

SCHEDULE 4.6(c)

Organizational Identification Numbers

	Name [Country]	Corporate ID Federal ID
1.	Magma Design Automation, Inc.	Corp: 2735304 Fed: 77-0454924
2.	Magma Services, Inc.	ID: 3804188 Fed: 20-1216088
3.	Ramble Acquisition LLC*	ID: 4419735
4.	Sabio Labs LLC*	Corp: 200735410324
5.	Aplus Design Technologies, Inc.*	Corp: C2537987 Fed: 04-3762079
6.	Silicon Correlation, Inc.**	Corp: 2763347 Fed: 74-2840958
7.	Beijing Magma Design Automation Co., Ltd.	N/A
8.	Magma Korea, Inc.	N/A
9.	Magma Design Automation B.V.	Fed: 98-0479245
10.	Magma Design Automation Cayman Ltd.	Fed: 98-0479246
11.	Magma Design Automation Corp. (Canada)	N/A
12.	Magma Design Automation GmbH	Fed: 98-0479249
13.	Magma Design Automation India Private Limited	N/A
14.	Magma Design Automation Ltd [U.K.]	Fed: 98-0479247
15.	Magma Design Automation Ltd. [Israel]	N/A
16.	Magma Design Automation SARL	Fed: 98-0479248
17.	Magma Design Automation Inc. Taiwan Limited	N/A
18.	Magma Design Automation, K.K.	N/A
19.	MDA Netherlands C.V.	Fed: 98-0479241

* Dissolution proceedings will be initiated.

** Dissolution proceedings have been initiated.

SCHEDULE 4.6(d)

Commercial Tort Claims

None.

SCHEDULE 4.7(b)

Litigation

I. Unlawful Termination Claim; Labour Court, Munich, Germany

(a) Parties: Plaintiff – Harold Weiss; Defendant: Magma Design Automation, Inc.; Magma Design Automation GmbH

(b) Nature: Unlawful termination claim

(c) Status: Pending

(d) Not covered by liability insurance

SCHEDULE 4.12

Environmental Matters

None.

SCHEDULE 4.13

Intellectual Property

	Owner	Patent	Country	Date Filed	Serial No.	Patent No./Status	Issue Date
1.	Magma Design Automation, Inc.	Creating Optimized Physical Implementations from High-Level Descriptions of Electronic Design Using Placement-based Information	U.S.	08/08/2000	09/634927	6360356	03/19/2002
2.	Magma Design Automation, Inc.	Method for Storing Multiple Levels of Design Data in a Common Database	U.S.	04/27/1999	09/300540	6505328	01/07/2003
3.	Magma Design Automation, Inc.	Method and Apparatus for Calculation of Crosstalk Noise in Integrated Circuits	U.S.	03/29/2001	09/823085	7013253	03/14/2006
4.	Magma Design Automation, Inc.	System and Method for Placement of Dummy Metal Fills While Preserving Device Matching and/or Limiting Capacitance Increase	U.S.	05/30/2002	10/158617	6904581	06/07/2005
5.	Magma Design Automation, Inc.	Generalized Theory of Logical Effort for Look-up Table Based Delay Models	U.S.	04/21/1999	09/295938	6253361	06/26/2001
6.	Magma Design Automation, Inc.	Optimization of Abutted-pin Hierarchical Physical Design	U.S.	11/15/2000	09/714722	6857116	02/15/2005
7.	Magma Design Automation, Inc.	Facilitating Verification in Abutted-pin Hierarchical Physical Design	U.S.	03/22/2002	10/104786	6757874	06/29/2004

8.	Magma Design Automation, Inc.	Optimization of the Top Level in Abutted-pin Hierarchical Physical Design	U.S.	03/22/2002	10/104960	6865721	03/08/2005
9.	Magma Design Automation, Inc.	Circuit Optimization with Posynomial Function F Having an Exponent of a First Design Parameter	U.S.	12/22/2004	11/021278	7458041	11/25/2008
10.	Magma Design Automation, Inc.	Signal Flow Driven Circuit Analysis and Partitioning Technique	U.S.	6/13/2006	11/452,542	7,448,003 B2	11/4/2008
11.	Magma Design Automation, Inc.	Creating Optimized Physical Implementations from High-Level Descriptions of Electronic Design using Placement Based Information	U.S.	1/30/1998	09/015,602	6,145,117	11/7/2000
12.	Magma Design Automation, Inc.	IC Test Software System for Mapping Logical Functional Test Data of Logic Integrated Circuits to Physical Representation	U.S.	11/13/1998	09/192,164	6,185,707 B1	2/6/2001
13.	Magma Design Automation, Inc.	Method of Optimizing Placement and Routing of Edge Logic in Pad Ring Layout Design	U.S.	10/3/2002	10/264,691	7,117,469	10/3/2006
14.	Magma Design Automation, Inc.	Method of Generating the Pad Ring Layout Design Using Automation	U.S.	10/3/2002	10/264,680	6,823,501	11/23/2004
15.	Magma Design Automation, Inc.	Floorplanning a Hierarchical Physical Design to Improve Placement and Routing	U.S.	4/23/2004	10/831,700	7,155,693	12/26/2006
16.	Magma Design Automation, Inc.	Method of Customizing and Using Maps in Generating Pad Ring Layout Design	U.S.	10/3/2002	10/264,679	6,734,046	5/11/2004

17.	Magma Design Automation, Inc.	Method and System for Implementing a Graphical User Interface for Defining and Linking Multiple Attach Points for Multiple Blocks of an Integrated Circuit Netlist	U.S.	7/18/2001	09/909,050	6,564,363	5/13/2003
18.	Magma Design Automation, Inc.	CAD Driven Microprobe Integrated Circuit Tester	U.S.	5/19/1989	07/354,268	5,030,907	7/9/1991
19.	Magma Design Automation, Inc.	Creating a Power Distribution Arrangement with Tapered Metal Wires for a Physical Design	U.S.	5/26/2004	10/855,539	7,185,305	2/27/2007
20.	Magma Design Automation, Inc.	Method and System for Implementing a User Interface for Performing Physical Design Operations on an Integrated Circuit Netlist	U.S.	11/15/2000	09/714,296	6,557,153	4/29/2003
21.	Magma Design Automation, Inc.	Contact Sensing for Integrated Circuit Testing	U.S.	5/21/1990	07/527,661	5,019,771	5/28/1991
22.	Magma Design Automation, Inc.	System and Method for Limiting Increase in Capacitance Due to Dummy Metal Fills Utilized for Improving Planar Profile Uniformity	U.S.	3/12/2002	10/097,978	6,751,785	6/15/2004
23.	Magma Design Automation, Inc.	Method of Automating the Manipulation and Displaying of Sets of Wafer Yield Data Using a User Interface Smart Macro	U.S.	12/19/1997	08/994,996	6,088,712	7/11/2000
24.	Magma Design Automation, Inc.	Optimizing Locations of Pins for Blocks in a Hierarchical Physical Design by Using Physical Design Information of a Prior Hierarchical Physical Design	U.S.	5/26/2004	10/855,667	7,114,142 B1 (revived)	9/26/2006

25.	Magma Design Automation, Inc.	Creating Optimized Physical Implementations from High-Level Descriptions of Electronic Design using Placement Based Information	U.S.	12/28/2001	10/040,852	7,143,367	11/28/2006
26.	Magma Design Automation, Inc.	Methods and Systems for Mixed-Mode Synthesis in Electronic Design Automation	U.S.	6/1/2005	11/140,914	7,409,658	8/5/2008
27.	Magma Design Automation, Inc.	Method and System for Implementing a Graphical User Interface for Depicting Loose Fly Line Interconnections Between Multiple Blocks of an Integrated Circuit Netlist	U.S.	7/18/2001	09/908,957	6,553,554	4/22/2003
28.	Magma Design Automation, Inc.	Method and System for Maintaining Element Abstracts of an Integrated Circuit Netlist Using a Master Library File and Modifiable Master Library File	U.S.	7/18/2001	09/909,354	6,564,364	5/13/2003
29.	Magma Design Automation, Inc.	Method and System for Automatically Generating Dependency Graphs From High Level Physical Design Stages	U.S.	11/13/2000	09/712,418	6,574,788	6/03/2003
30.	Magma Design Automation, Inc.	Representing the Design of a Sub-Module in a Hierarchical Integrated Circuit Design & Analysis System	U.S.	6/10/2002	10/167,293	7,103,863 B2	9/5/2006
31.	Magma Design Automation, Inc.	Efficient Layout Strategy for Automated Design Layout Tools	U.S.	4/7/2002	10/118,692	6,802,050 B2	10/5/2004
32.	Magma Design Automation, Inc.	Method for Providing Convex, Piecewise-Linear Expression for Multiple Variable System	U.S.	12/30/1999	09/475,734	6,813,590 B1	11/2/2004

33.	Magma Design Automation, Inc.	Analog Circuit Power Distribution Circuits and Design Methodologies for Producing Same	U.S.	5/25/2003	10/444,602	7,013,436	3/14/2006
34.	Magma Design Automation, Inc.	Method for Design of Oscillator Delay Stage and Corresponding Applications	U.S.	1/21/2003	10/348,723	7,039,885	5/2/2006
35.	Magma Design Automation, Inc.	Delay Stage for Oscillator Circuit and Corresponding Applications	U.S.	1/21/2003	10/348,822	7,102,449	9/5/2006
36.	Magma Design Automation, Inc.	Method and Apparatus for Automatic Layout of Circuit Structures	U.S.	4/7/2002	10/119,326	6,789,246 B1	9/7/2004
37.	Magma Design Automation, Inc.	Aggregate Sensitivity for Statistical Static Timing Analysis	U.S.	6/12/2006	11/451,905	7,458,049	11/25/2008
38.	Magma Design Automation, Inc.	Subgrid Detailed Routing	U.S.	4/28/1999	09/301,143	6,507,941	1/14/2003
39.	Magma Design Automation, Inc.	Method for Generating Design Constraints For Modules In A Hierarchical Integrated Circuit Design System	U.S.	6/10/2002	10/166944	6,845,494	1/18/2005
40.	Magma Design Automation, Inc.	Lithographically Optimized Placement Tool (Smart RDR)	U.S.	3/9/2006	11/372,557	7,434,188 B1	10/7/2008
41.	Magma Design Automation, Inc.	Method and Apparatus for Automatic Analog/Mixed Signal System Design Using Geometric Programming	U.S.	4/7/2002	10/118,672	6,954,921 B1	10/11/2005

42.	Magma Design Automation, Inc.	Method of Estimating Performance of Integrated Circuit Designs Using State Point Identification	U.S.	6/29/2004	10/882,003, continuation of 6,851,095, a divisional of 6,499,129	7,117,461 B1	10/3/2006
43.	Magma Design Automation, Inc.	Reduced Architecture Processing Paths	U.S.	3/29/2004	10/812,579 Provisional Patent Application No. 60/458,910	7,137,082 B1	11/14/2006
44.	Magma Design Automation, Inc.	Capacitor Structure and Automated Design Flow for Incorporating Same	U.S.	9/5/2003	10/656,793	6,963,122	11/8/2005
45.	Magma Design Automation, Inc.	Automated Design of Parallel Drive Standard Cells	U.S.	9/20/1999	09/399,986	6,496,965	12/17/2002
46.	Magma Design Automation, Inc.	Method of Estimating Performance of Integrated Circuit Designs	U.S.	7/21/1999	09/357,940	6,499,129 B1	12/24/2002
47.	Magma Design Automation, Inc.	Design-Manufacturing Interface via a Unified Model	U.S.	10/7/2003	10/680,592	7,155,689	12/26/2006
48.	Magma Design Automation, Inc.	Method and System for Creating Electronics Circuitry	U.S.	6/4/1998	09/090,457	6,327,557 B1	12/4/2001
49.	Magma Design Automation, Inc.	Automatic Phase Lock Loop Design Using Geometric Programming	U.S.	3/26/2004	10/810,444	7,304,544 B2	12/4/2007

50.	Magma Design Automation, Inc.	Method of Incremental Recharacterization to Estimate Performance of Integrated Designs	U.S.	11/24/2001	09/999,222	6,851,095 B1	2/1/2005
51.	Magma Design Automation, Inc.	Method for Determining Control Line Routing for Components of an Integrated Circuit	U.S.	4/15/1999	09/293,488	6,687,892 B1	2/3/2004
52.	Magma Design Automation, Inc.	System and Method for Estimating Capacitance of Wires Based On Congestion Information	U.S.	5/26/2000	09/579,966	6,519,745	2/11/2003
53.	Magma Design Automation, Inc.	Method of Vector Generation For Estimating Performance of Integrated Circuit Designs	U.S.	6/29/2004	10/881,832	7,000,202 B1	2/14/2006
54.	Magma Design Automation, Inc.	Method of Using Strongly Coupled Components to Estimate Integrated Circuit Performance	U.S.	6/29/2004	10/880,649	7,337,416	2/26/2008
55.	Magma Design Automation, Inc.	Rapid Parameter Passing Between Multiple Program Portions for Efficient Procedural Interaction with Minimum Calls and/or Call Backs.	U.S.	5/22/2001	09/863,809	6,862,600	3/1/2005
56.	Magma Design Automation, Inc.	Parametric Timing Analysis	U.S.	1/31/2005	11/048,287	7,346,874	3/18/2008
57.	Magma Design Automation, Inc.	Method of Estimating Performance of Integrated Circuit Designs By Finding Scalars For Strongly Coupled Components	U.S.	6/29/2004	10/881,195	7,340,698	3/4/2008
58.	Magma Design Automation, Inc.	Flow Definition Language for Designing Integrated Circuit Implementation Flows	U.S.	5/26/2004	10/856,268	7,353,488 B1	4/1/2008

59.	Magma Design Automation, Inc.	Asynchronous Control Of Memory Self Test	U.S.	6/4/2004	10/861,247	7,203,873 B1	4/10/2007
60.	Magma Design Automation, Inc.	Timing Optimization in Presence of Interconnect Delays	U.S.	4/27/1999	09/300,557	6,553,338	4/22/2003
61.	Magma Design Automation, Inc.	Method and Apparatus for Routing an Integrated Circuit	U.S.	4/7/2002	10/118,673	6,877,148 B1	4/5/2005
62.	Magma Design Automation, Inc.	Modeling Interconnected Propogation Delay for an Integrated Circuit Design	U.S.	4/19/2004	10/827,791	7,213,221 B1	5/1/2007
63.	Magma Design Automation, Inc.	Aplus Patent: Methodology and Applications of Timing-Driven Logic Resynthesis for VLSI Circuits	U.S.	1/2/2001	09/754,406	7,219,048	5/15/2007
64.	Magma Design Automation, Inc.	Reduction of Cross-Talk Noise in VLSI Circuits	U.S.	2/10/2004	10/776,402	7,058,907	6/6/2006
65.	Magma Design Automation, Inc.	Optimal Simultaneous Design and Floor Planning of Integrated Circuit	U.S.	4/25/2001	09/843,486	7,065,727	6/20/2006
66.	Magma Design Automation, Inc.	Automatic Phase Lock Loop Design Using Geometric Programming	U.S.	4/7/2002	10/119,347	6,909,330 B2	6/21/2005
67.	Magma Design Automation, Inc.	Apparatus for Optimized Constraint Characterization with Degradation Options and Associated Methods	U.S.	7/13/2001	09/904,463	6,584,598 B2	6/24/2003
68.	Magma Design Automation, Inc.	Method for Forming a Relative Placement of Components of an Integrated Circuit Using a Structural Similarity Group	U.S.	4/15/1999	09/293,500	6,584,605 B1	6/24/2003

69.	Magma Design Automation, Inc.	Redundantly Tied Metal Fill for IR-Drop and Layout Density Optimization	U.S.	6/4/2004	10/861,812	7,240,314 B1	7/3/2007
70.	Magma Design Automation, Inc.	System and Method for Performing Assertion-Based Analysis of Circuit Designs	U.S.	3/17/2000	09/528,088	6,591,402 B1	7/8/2003
71.	Magma Design Automation, Inc.	Interconnect Model Compiler	U.S.	11/7/2000	09/707,757	6,766,506	7/20/2004
72.	Magma Design Automation, Inc.	Method for Forming a Structural Similarity Group from a Netlist of an Integrated Circuit	U.S.	4/15/1999	09/293,484	6,606,737 B1	8/12/2003
73.	Magma Design Automation, Inc.	Method for Modifying Placement of Components of an Integrated Circuit by Analyzing Resources of Adjacent Components	U.S.	4/15/1999	09/293,640	6,434,734 B1	8/13/2002
74.	Magma Design Automation, Inc.	Method and Apparatus for Efficient Semiconductor Process Evaluation	U.S.	4/10/2003	10/412,535	7,093,205 B2	8/15/2006
75.	Magma Design Automation, Inc.	Method for Determining Cleanup Line Routing for Components of an Integrated Circuit	U.S.	4/15/1999	09/293,485	6,438,736 B1	8/20/2002
76.	Magma Design Automation, Inc.	Method for Determining BUS Line Routing for Components of an Integrated Circuit	U.S.	4/15/1999	09/293,638	6,430,734 B1	8/6/2002
77.	Magma Design Automation, Inc.	Method for Storing Multiple Levels of Design Data in a Common Database	U.S.	5/1/2008	12/113,834		Pending

78.	Magma Design Automation, Inc.	Sensitivity-Current-Based Approach for Equivalent Waveform Propagation in the Presence of Noise for Static Timing Analysis	U.S.	11/1/2005	11/264,919	Pending
79.	Magma Design Automation, Inc.	Placement-Driven Physical-Hierarchy Generation	U.S.	4/12/2007	11/734,757	Pending
80.	Magma Design Automation, Inc.	Relative Floorplanning for Improved Integrated Circuit Design (Anaconda #7)	U.S.	5/14/2007	11/748,416	Pending
81.	Magma Design Automation, Inc.	Hybrid Rule-Based and Model-Based Semiconductor Layout Verification/Correction	U.S.	11/13/2006	11/559,038	Pending
82.	Magma Design Automation, Inc.	Lithography Aware Leakage Analysis	U.S.	7/20/2007	11/781,043	Pending
83.	Magma Design Automation, Inc.	Method for Identifying Peak Power Consumption	U.S.	11/17/2006	11/561,214	Pending
84.	Magma Design Automation, Inc.	Method and Apparatus for Built-in Power Gating	U.S.	3/19/2008	12/051,780	Pending
85.	Magma Design Automation, Inc.	A Method for Automated Clock Gating to Save Power	U.S.	5/28/2008	12/128,554	Pending
86.	Magma Design Automation, Inc.	Method for Repeated Block Timing Analysis	U.S.	5/29/2008	12/128,919	Pending
87.	Magma Design Automation, Inc.	Method for Repeated Block Modification for Chip Routing	U.S.	5/30/2008	12/129,916	Pending
88.	Magma Design Automation, Inc.	Method for Multi-Cycle Path and False Path Clock Gating	U.S.	7/10/2007	60/948,760	Pending

89.	Magma Design Automation, Inc.	Method for Multi-Cycle Path and False Path Clock Gating	U.S.	7/9/2008	12/170,354	Pending
90.	Magma Design Automation, Inc.	Lithography Aware Timing Analysis	U.S.	7/20/2007	11/781,054	Pending
91.	Magma Design Automation, Inc.	Method for Structured Placement Cluster Optimization	U.S.	11/30/2007	60/991,566	Pending
92.	Magma Design Automation, Inc.	Redundant Via Insertion for Circuit Designs	U.S.	6/16/2008	12/140,127	Pending
93.	Magma Design Automation, Inc.	Timing Analysis Using Statistical On-Chip Variation	U.S.	6/6/2008	12/135,031	Pending
94.	Magma Design Automation, Inc.	A Method for Optimized Automatic Clock Gating	U.S.	5/28/2008	12/128,574	Pending
95.	Magma Design Automation, Inc.	Multi-threaded Global Routing	U.S.	6/5/2008	12/156,963	Pending
96.	Magma Design Automation, Inc.	Structured Placement for Bit Slices	U.S.	6/7/2008	61/131,158	Pending
97.	Magma Design Automation, Inc.	Failure Analysis Using Design Rules	U.S.	1/30/2010	61/299,952	Pending
98.	Magma Design Automation, Inc.	Signal Tracing Through Boards and Chips	U.S.	2/2/2010	61/300,662	Pending
99.	Magma Design Automation, Inc.	Systems and Methods for Package Aware Planning of Integrated Circuits	U.S.	1/28/2008	12/020,980	Pending
100.	Magma Design Automation, Inc.	Systems and Methods for Signal Integrity Analysis for Co-Design of Chip Packages and Integrated Circuits	U.S.	1/28/2008	12/021,053	Pending

101.	Magma Design Automation, Inc.	Dynamic Push for Topological Routing of Semiconductor Packages	U.S.	6/6/2008	12/134,849		Pending
102.	Magma Design Automation, Inc.	Novel Optimization for a Circuit Design	U.S.	9/12/2007	11/900,749		Pending
103.	Magma Design Automation, Inc.	Novel Optimization for a Circuit Design	U.S.	9/12/2007	11/900,856		Pending
104.	Magma Design Automation, Inc.	Automated Circuit Design Wing Active Set Solving Process	U.S.	8/20/2008	12/195,326		Pending
105.	Magma Design Automation, Inc.	A Parser for Signomial and Geometric Programs	U.S.	11/19/2007	11/986,253		Pending
106.	Magma Design Automation, Inc.	Creating Optimized Physical Implementations from High-Level Descriptions of Electronic Design using Placement Based Information	U.S.	11/1/2005	11/262,736		Pending
107.	Magma Design Automation, Inc.	Rule-Based Design Consultant and Method for Integrated Circuit Design	U.S.	6/1/2005	11/141,386		Pending
108.	Magma Design Automation, Inc.	Novel Optimization for Circuit Design	U.S.	12/22/2004	11/021,278		Pending
109.	Magma Design Automation, Inc.	Behavorial Circuit Modeling for Geometric Programming	U.S.	4/5/2002	10/118,221		Pending
110.	Magma Design Automation, Inc.	Subgrid Detailed Routing	Taiwan	5/4/2000	89108044	157350	10/4/2002
111.	Magma Design Automation	Generalized Theory of Logical Effort for Look-Up Table Based Delay Models Using Capacitance Ratio	Taiwan	4/24/2000	89107586	NI-154635	5/1/2002

112.	Magma Design Automation	A Method for Automated Clock Gating to Save Power	PCT	5/29/2008	PCT/US2008 /065120	Pending
113.	Magma Design Automation		Korea	6/10/2002	10-2003-7016098	Pending
114.	Magma Design Automation	System and Method for Placement of Dummy Metal Fills While Preserving Device Matching and/or Limiting Capacitance Increase	Korea	3/12/2003	2005007440, KR 20047014	Pending
115.	Magma Design Automation	Method for Storing Multiple Levels of Design in a Common Database	Japan	4/24/2000	2000/614166	Pending
116.	Magma Design Automation		Japan	6/10/2002	2003-504289	Pending
117.	Magma Design Automation	IC Test Software System for Mapping Logical Functional Test Data of Logic Integrated Circuits to Physical Representation	Japan	11/12/1999	JP 2000-583043	Pending
118.	Magma Design Automation	Creating Optimized Physical Implementations from High-Level Descriptions of Electronic Design using Placement Based Information	Japan	1/29/1999	H11-539,572	Pending
119.	Magma Design Automation	Representing the Design of a Sub-Module in a Hierarchical Integrated Circuit Design & Analysis System	India	6/10/2002	1630/KOLN P/2003	Pending
120.	Magma Design Automation	Representing the Design of a Sub-Module in a Hierarchical Integrated Circuit Design & Analysis System	Europe	6/10/2002	2739817.1	Pending
121.	Magma Design Automation		Europe	6/10/2002	2739816.3	Pending

Trademark Registrations and Applications

	Grantor	Name	Country	Status	Appl. Date	Serial Number	Reg. Number	Reg. Date
1.	Magma Design Automation, Inc.	Blast Chip*	U.S.	Registered	04/04/01	76/235,370	2525005	1/1/02
2.	Magma Design Automation, Inc.	Blast Fusion	U.S.	Registered	10/06/00	76/142,309	2,685,321	2/11/03
3.	Magma Design Automation, Inc.	Blast Noise	U.S.	Registered	04/03/01	76/235,375	2,578,110	6/11/02
4.	Magma Design Automation, Inc.	Blast RTL	U.S.	Registered	04/04/01	76/235,371	2,578,109	6/11/02
5.	Magma Design Automation, Inc.	Blast Speed*	U.S.	Registered	04/02/99	75/673,781	2,483,136	8/28/01
6.	Magma Design Automation, Inc.	Blast Wrap*	U.S.	Registered	04/02/99	75/673.783	2,483,137	8/28/01
7.	Magma Design Automation, Inc.	Cellrater	U.S.	Registered		7542232	2,489,497	9/11/01
8.	Magma Design Automation, Inc.	Fixed Timing	U.S.	Registered	06/16/99	75/729,068	2,424,209	1/23/01
9.	Magma Design Automation, Inc.	Magma	U.S.	Registered	09/03/98	75/547,154	2,419,729	1/9/01

10.	Magma Design Automation, Inc.	Magma and Design	U.S.	Registered	02/19/99	75/643,648	2413577	12/19/00
11.	Magma Design Automation, Inc.	MEGALAB	U.S.	Registered	07/13/94		1,904,292	7/11/1995
12.	Magma Design Automation, Inc.	MEGALAB w/Design	U.S.	Registered	03/27/97		2,520,407	12/18/2001
13.	Magma Design Automation, Inc.	Melting Logical & Physical Design*	U.S.	Registered	09/03/98	75/547,152	2388444	9/19/00
14.	Magma Design Automation, Inc.	Memrater	U.S.	Registered	09/05/02	78/161,000	2,732,322	7/1/03
15.	Magma Design Automation, Inc.	MOLTEN	U.S.	Registered	12/09/98	75/604,186	2,574,096	5/28/02
16.	Magma Design Automation, Inc.	PCX	U.S.	Registered	05/13/99	75705887	2,678,480	1/21/03
17.	Magma Design Automation, Inc.	PD Builder*	U.S.	Registered	03/31/03	76-502,466	2,913,678	12/21/04
18.	Magma Design Automation, Inc.	PD Shell*	U.S.	Registered	03/31/03	76-502,467	3,066,320	3/7/06
19.	Magma Design Automation, Inc.	Quickcap	U.S.	Registered	08/26/97	75347413	2214221	12/29/98
20.	Magma Design Automation, Inc.	ReShape*	U.S.	Registered	04/22/98	75-472-162	2,453,527	5/22/01
21.	Magma Design Automation, Inc.	Silicon Integrity	U.S.	Registered	10/12/01	76324309	2604631	8/6/02

22.	Magma Design Automation, Inc.	Silicon Smart*	U.S.	Registered	03/06/02	75935236	2,672,645	1/7/03
23.	Magma Design Automation, Inc.	TALUS	U.S.	Registered	03/15/06	78/837-611
24.	Magma Design Automation, Inc.	Realitycheck	U.S	Registered		75-610,439	2,451,595	5/15/01
25.	Magma Design Automation, Inc.	Blast Chip	U.K.	Registered	10/02/01	2282161	2282161	10/2/01
26.	Magma Design Automation, Inc.	Blast Speed	U.K.	Registered	09/30/99	2210120	2210120	9/30/99
27.	Magma Design Automation, Inc.	Magma Design Automation	U.K.	Registered	01/18/99	2186432	2186432	1/18/99
28.	Magma Design Automation, Inc.	MEGALAB	U.K.	Registered	12/09/94		2004703	9/27/1996
29.	Magma Design Automation, Inc.	MEGALAB	U.K.	Pending	12/06/04
30.	Magma Design Automation, Inc.	MOLTEN	U.K.	Registered	05/21/99	2198112	2198112	5/21/99
31.	Magma Design Automation, Inc.	Mgma Design Automation	Taiwan	Registered	01/18/99	88001882	935551	3/15/01
32.	Magma Design Automation, Inc.	Silicon Integrity	Taiwan	Registered	12/29/99	880065841	158016	2/1/02
33.	Magma Design Automation, Inc.	Blast Fusion	Taiwan	Registered	10/01/99	88048455	154988	12/16/01
34.	Magma Design Automation, Inc.	Blast Speed	Taiwan	Registered	10/01/99	88048456	143698	6/1/01

35.	Magma Design Automation, Inc.	Blast Speed	Taiwan	Registered	10/01/99	88048457	924870	1/16/01
36.	Magma Design Automation, Inc.	Magma Design Automation	Taiwan	Registered	01/16/99	88001881	131354	10/16/00
37.	Magma Design Automation, Inc.	MEGALAB	Taiwan	Registered	12/08/94		696214	11/15/1995
38.	Magma Design Automation, Inc.	MOLTEN	Taiwan	Registered	05/24/99	88024747	131956	11/1/00
39.	Magma Design Automation, Inc.	YIELD MANAGEMENT	Taiwan	Registered	12/08/94		702653	1/1/1996
40.	Magma Design Automation, Inc.	YIELD MANAGEMENT	Spain	Registered	06/24/05		2,659,111	12/26/2005
41.	Magma Design Automation, Inc.	MEGALAB	Singapore	Registered	07/13/94		T94/10357A	11/27/2000
42.	Magma Design Automation, Inc.	MEGALAB	Malaysia	Pending	12/07/94
43.	Magma Design Automation, Inc.	Blast Fusion	Korea	Registered	10/16/99	99-38901	479738	10/26/00
44.	Magma Design Automation, Inc.	Magma and Design	Korea	Registered	12/24/99	1999-3798	3060	5/22/01
45.	Magma Design Automation, Inc.	Magma Design Automation	Korea	Registered	12/24/99	1999-3797	3059	5/22/01
46.	Magma Design Automation, Inc.	Silicon Integrity	Korea	Registered	12/30/99	199-20909	65959	1/22/01

47.	Magma Design Automation, Inc.	Blast Fusion	Japan	Registered	10/07/99	1999-90466	4418768	9/22/00
48.	Magma Design Automation, Inc.	Blast Speed	Japan	Registered	10/01/99	1999-88467	4437862	12/8/00
49.	Magma Design Automation, Inc.	Fixed Timing	Japan	Registered	12/03/99	1999-110308	4433586	11/17/00
50.	Magma Design Automation, Inc.	Magma Design Automation	Japan	Registered	01/18/99	H11-006214	4509500	9/28/01
51.	Magma Design Automation, Inc.	MEGALAB	Japan	Registered	12/06/94		3313682	5/23/1997
52.	Magma Design Automation, Inc.	MOLTEN	Japan	Registered	06/07/99	H11-049379	4549037	3/8/02
53.	Magma Design Automation, Inc.	PD Builder	Japan	Registered	09/30/03	2003-85,080	4,798,647	8/27/04
54.	Magma Design Automation, Inc.	Silicon Integrity	Japan	Registered	01/11/00	2000-6560	4450670	2/2/01
55.	Magma Design Automation, Inc.	SuperCell	Japan	Registered	12/03/99	1999-110307	4545334	2/22/02
56.	Magma Design Automation, Inc.	YIELD MANAGEMENT	Japan	Registered	12/06/94		4124815	3/13/1998
57.	Magma Design Automation, Inc.	MEGALAB	Israel	Registered	12/07/94		95948	6/2/1996
58.	Magma Design Automation, Inc.	YIELD MANAGEMENT	Israel	Registered	12/08/94		95954	11/5/1996

59.	Magma Design Automation, Inc.	YIELD MANAGEMENT	Israel	Registered	12/08/94		95955	11/5/1996
60.	Magma Design Automation, Inc.	MEGALAB	Ireland	Registered	07/13/94		163279	7/13/1994
61.	Magma Design Automation, Inc.	YIELD MANAGEMENT	Ireland	Registered	06/10/94		165634	6/10/1004
62.	Magma Design Automation, Inc.	MEGALAB	International	Registered	12/06/04		849026	12/6/2004
63.	Magma Design Automation, Inc.	MEGALAB	Germany	Registered	12/06/04		849026	12/6/2004
64.	Magma Design Automation, Inc.	MEGALAB	Germany	Registered	12/09/94		39405909	3/21/1996
65.	Magma Design Automation, Inc.	Blast Gates	EU	Registered	04/03/01	76/235,175		3/24/03
66.	Magma Design Automation, Inc.	Blast Noise	EU	Registered	04/03/01	76/235,375		4/19/02
67.	Magma Design Automation, Inc.	Blast Speed	EU	Registered	09/30/99	1327766	1327766	9/30/99
68.	Magma Design Automation, Inc.	Magma Design Automation	EU	Registered	01/18/99		1044494	1/18/99
69.	Magma Design Automation, Inc.	MOLTEN	EU	Registered	05/26/99	1186006	186006	8/14/00
70.	Magma Design Automation, Inc.	Silicon Integrity	EU	Registered	12/30/99	1443316	1443316	12/30/99

71.	Magma Design Automation, Inc.	MEGALAB w/Design	E.U.	Abandoned	09/29/97		640292	7/5/1999
72.	Magma Design Automation, Inc.	Blast Fusion	Canada	Registered	10/01/99	1,030,868	TMA607,988	4/19/04
73.	Magma Design Automation, Inc.	Mgma Design Automation	Canada	Registered	01/18/99	1002479	TMA551,598	9/26/01
74.	Magma Design Automation, Inc.	MOLTEN	Canada	Registered	05/27/99	1016960	TMA587705	8/21/03

* Cancelled or not registered to Magma Design Automation, Inc.

Trade Names

Magma

Common Law Trademarks

	Trademark	Country
1.	Arch Evaluator	U.S.
2.	Automated Chip Creation	U.S.
3.	Blast Create	U.S.
4.	Blast DFT	U.S.

5.	Blast FPGA	U.S.
6.	Blast Prototype	U.S.
7.	Blast Rail	U.S.
8.	Blast SA	U.S.
9.	Blast View	U.S.
10.	Blast Yield	U.S.
11.	Fastest Path from RTL to Silicon	U.S.
12.	MagmaCast	U.S.
13.	PALACE	U.S.
14.	Physical Netlist	U.S.
15.	Physically Aware DFT	U.S.
16.	Quickind	U.S.
17.	QuickRules	U.S.
18.	Quartz	U.S.
19.	Relative Placement Constraint	U.S.

20.	Sign-off in the Loop	U.S.
21.	SiliconSmart CR	U.S.
22.	SiliconSmart Sl	U.S.
23.	SiliconSmart I/O	U.S.
24.	SiliconSmart MR	U.S.
25.	SuperSite	U.S.
26.	Volcano	U.S.

Trademarks Not Currently In Use

See starred entries above.

Trademark Licenses

None.

Registered Copyrights

None.

SCHEDULE 4.15

Deposit Accounts and Securities Accounts

	Country	Account Holder Name [Country or other notes]	Bank Name	Account Number	Mailing Address
1.	Canada	Magma Design Automation Corp. (Canada)	Royal Bank of Canada	1014430	1233 The Queensway, Etobicoke Ontario Canada M8Z 1S1
2.	Cayman Islands	Magma Design Automation Cayman Ltd.	Wells Fargo Bank, N.A.	412-1114813	121 Park Center Plaza, 3rd Foor, San Jose, CA 95113
3.	China	Beijing Magma Design Automation, Co., Ltd.	Bank of China, Beijing Branch, Haidian Sub-branch	807908118708092001	Floor 1, Ideal Plaza, 58 North Fourth Ring West Street Haidian Dist., Beijing 100080, P.R. of China
4.	China	Beijing Magma Design Automation, Co., Ltd.	Bank of China, Beijing Branch, wanchuanhe Sub-branch	804108118708093014	No. 68, Wanquanhe Road, Haidian District, Beijing, 100086, P.R. of China
5.	China	Beijing Magma Design Automation Co., Ltd.	China Merchants Bank, Shanghai Branch, Changning Sub-branch	096615-23802835001	No. 1268, Changning Road, Shanghai, P.R. of China
6.	Finland	Magma Design Automation Ltd. [U.K.]	Nordea Helksinki	102330-229422
7.	France	Magma Design Automation SARL	Societe Generale	FR76 30003 03392 00020236190 38	91 Avenue des Champs-Elysees 75008 Paris/France
8.	Germany	Magma Design Automation GmbH	Commerzbank AG	241582600	Weissenburger Strasse 1, 81667 Munich/Germany
9.	Germany	Magma Design Automation Ltd. [U.K.]	Commerzbank AG	2415826+75 Overnight sub account	Weissenburger Strasse 1, 81667 Munich Germany
10.	India	Magma Design Automation India Private Limited	The Hong Kong and Shanghai Banking Corp., India	071671341001	No. 7, M.G. Road, Bangalore 560001, India
11.	India	Magma Design Automation India Private Limited	The Hong Kong and Shanghai Banking Corp., India	071671341511	No. 7, M.G. Road, Bangalore 560001, India

	Country	Account Holder Name [Country or other notes]	Bank Name	Account Number	Mailing Address
12.	India	Magma Design Automation India Private Limited	HDFC Bank	0772320000567	ITPL, Whitefield, Bangalore 560066, India
13.	India	Magma Design Automation India Private Limited	HDFC Bank	0772430000258	ITPL, Whitefield, Bangalore 560066, India
14.	India	Magma Design Automation India Private Limited	HDFC Bank	0772320000577	ITPL, Whitefield, Bangalore 560066, India
15.	India	Magma Design Automation India Private Limited	HDFC Bank	0772430000265	ITPL, Whitefield, Bangalore 560066, India
16.	India	FEI Software PTV Ltd. [account owned by Magma Design Automation, Inc]	The Bank of Nova Scotia, Mumbai Branch	071671341001	Mittal Tower ‘B’ Wing, Nariman Point, Mumbai 400021, India
17.	Israel	Magma Design Automation Ltd. [Israel]	Leumi Bank of Israel Ltd.	3253933	Hei Beiar 76, Branch 603 Kikar Hamedina, Tel Aviv 62198 Israel
18.	Israel	Magma Design Automation Ltd. [Israel]	Leumi Bank of Israel Ltd.	3253911	Hei Beiar 76, Branch 603 Kikar Hamedina, Tel Aviv 62198 Israel
19.	Italy	Magma Design Automation Ltd. [U.K.]	Bana Intesa s.p.a	009949113/01/08	Via Monte di Pieta 8, 20121 Milano/Italia
20.	Japan	Magma Design Automation, K.K.	The Bank of Tokyo - Mitsubishi UFJ, Ltd.	1030263	2-2, Kanda Jinbocho, Chiyoda-ku, Tokyo 101-0051 Japan
21.	Japan	Magma Design Automation, K.K.	The Bank of Tokyo - Mitsubishi UFJ, Ltd.	1343032	2-2, Kanda Jinbocho, Chiyoda-ku, Tokyo 101-0051 Japan
22.	Japan	Magma Design Automation, K.K.	The Bank of Tokyo - Mitsubishi UFJ, Ltd.	72567	2-2, Kanda Jinbocho, Chiyoda-ku, Tokyo 101-0051 Japan
23.	Korea	ACAD (Korea) [account owned by Magma Design Automation, Inc.]	Shinhan Bank	217-05-013656	Company Financial Team, Yeok Sam -Dong 809, Kangnam -Gu, Seoul,135-931 South Korea
24.	Korea	Magma Korea, Inc.	Woori Bank, Nonhyon Dong Branch	1005-501-096234	114 Nonhyundong Kangnamku Seoul, Korea 135-010

	Country	Account Holder Name [Country or other notes]	Bank Name	Account Number	Mailing Address
25.	Singapore	Magma Services, Inc.	Wells Fargo Bank, N.A.	139331SGD	121 Park Center Plaza, 3rd Floor, San Jose, CA 95113
26.	Singapore	Magma Services, Inc.	Wells Fargo Bank, N.A.	412-1075931	121 Park Center Plaza, 3rd Floor, San Jose, CA. 95113
27.	Taiwan	Magma Design Automation Inc. Taiwan Ltd.	Mega International Commercial Bank, Hsinchu Science Park Hsin-an Branch	020-09-02357-0	1 Hsin-an Road Hsinchu Science-based Industrial Park, Hsinchu 300, Taiwan
28.	The Netherlands	Magma Design Automation B.V.	ABN Amro Bank	570002281	Vestdijk 18, 5600 AM Eindhoven Netherlands
29.	The Netherlands	Magma Design Automation B.V.	ABN Amro Bank N.V.	611244799 Overnight sub account	Vestdijk 18, 5600 AM Eindhoven Netherlands
30.	The Netherlands	Magma Design Automation B.V.	Wells Fargo Bank, N.A.	672080USD	121 Park Center Plaza, 3rd Floor, San Jose, Ca. 95113
31.	The Netherlands	MDA Netherlands C.V.	Wells Fargo Bank, N.A.	412-1203079	121 Park Center Plaza, 3rd Floor, San Jose, CA 95113
32.	U.S.	Magma Design Automation Inc.	Wells Fargo Bank, N.A.	4050015742	121 Park Center Plaza, 3rd Floor, San Jose, CA 95113
33.	U.S.	Magma Design Automation Inc.	Wells Fargo Bank, N.A.	4121275036	121 Park Center Plaza, 3rd Floor, San Jose, CA 95113
34.	U.S.	Magma Design Automation Inc.	Wells Fargo Bank, N.A.	4050015734	121 Park Center Plaza, 3rd Floor, San Jose, CA. 95113
35.	U.S.	Magma Design Automation Inc.	Wells Fargo Bank, N.A.	9600188444	121 Park Center Plaza, 3rd Floor, San Jose, CA 95113
36.	U.K.	Magma Design Automation Ltd. [U.K]	Lloyds Bank	2491813	Bridge Street Newbury Branch, 5 Bridge Street, Newbury, Berkshire RG14 5BQ United Kingdom

SCHEDULE 4.19

Permitted Indebtedness

	Parties	Nature	Amount ($Million)	Date	Duration	Documentation
1	UBS/Magma	Line of Credit	11.2	10/15/2008	Through 06/30/2010	Files provided to Robert Davidson on 02/16/2010
2	Wells Fargo Bank, N.A./Magma*	Line of Credit	15.0	10/01/2009	Through 09/30/2010	Publicly filed on SEC Form 8-K
3	Various Investors/Magma	Convertible Bonds	23.3	04/30/2007	Through 05/15/2010	Publicly filed on SEC Form 8-K
4	Various Investors/Magma	Convertible Bonds	26.7	09/11/2009	Through 05/15/2014	Publicly filed on SEC Form 8-K
5	Various Lessors/Magma	Capital Leases				File provided to Alex Hechler on 01/20/2010

* To be paid off contemporaneously with the Wells Fargo Capital Finance closing.

SCHEDULE 4.30

Locations of Inventory and Equipment

	Entity	Location	Maintains at Location
1.	Magma Design Automation, Inc.	1650 Technology Drive, San Jose, CA 95110 (Santa Clara County)	Equipment and other tangible personal property
2.	Magma Design Automation, Inc.	11921 North MoPac Expressway, Suite 300, Austin, TX 78759 (Travis County)	Equipment and other tangible personal property
3.	Magma Design Automation, Inc.	Palisades Central Tower I, 2425 N. Central Expressway, Suite 463, Richardson, TX 75080 (Collin County)	Equipment and other tangible personal property
4.	Magma Design Automation, Inc.	2530 Meridian Parkway, 3rd Floor, Durham, NC 27713 (Durham County)	Equipment and other tangible personal property
5.	Magma Design Automation, Inc.	5460 Bayfront Plaza Santa Clara, CA 95054 (Santa Clara)	Equipment and other tangible personal property
6.	Beijing Magma Design Automation Co., Ltd.	Room 701-703, Ideal Plaza, 58 North Fourth Ring West Street, ZhongGuanCun West Zone, Haidian Dist., Beijing 100080, (CHINA)	Equipment and other tangible personal property
7.	Beijing Magma Design Automation Co., Ltd.	Rm 2008, 20F, Cloud Nine Plaza, #1018, Chang Ning Road, Shanghai 200042 (CHINA)	Equipment and other tangible personal property
8.	Magma Design Automation India Private Limited	Crystal Plaza, N. B414, B415 Link Rd, Oshiwara Village Andheri (West), Mumbai 400 058 (INDIA)	Equipment and other tangible personal property
9.	Magma Design Automation Inc. Taiwan Limited	3F-1, No. 120, Section 2, Gongdaowu Road, Hsin-Chu City 300 (TAIWAN)	Equipment and other tangible personal property
10.	Magma Design Automation, K.K.	Level 7, Yusen Shin-Yokohama Building, 3-17-2 Shin-Yokohama, Kohoku-ku Road, Yokohama 222-0033 (JAPAN)	Equipment and other tangible personal property
11.	Magma Design Automation, K.K.	Office Port Osaka Bldg., Room#610, 3-5-10 Nishitenma, Kita-ku, Osaka 530-0047 (JAPAN)	Equipment and other tangible personal property
12.	Magma Design Automation B.V.	Beta Building, High Tech Campus 9, 5656 AE Eindhoven (THE NETHERLANDS)	Equipment and other tangible personal property
13.	Magma Design Automation GmbH	Unterhachinger Strasse 75, 81737 Munich (GERMANY)	Equipment and other tangible personal property
14.	Magma Design Automation India Private Limited	102 Kherwadi Cooperative Society, 23/24 RTO Rd, Four Bungalows Andheri (West), Mumbai 400 058 (INDIA)	Equipment and other tangible personal property
15.	Magma Design Automation India Private Limited	A-41, Correnthum, Tower ‘B’, Lobe-3, Fifth Floor., Sector-62, Noida-201307, Uttar Pradesh (INDIA)	Equipment and other tangible personal property

16.	Magma Design Automation India Private Limited	Prestige Tech Park, Jupiter Block, 2nd Floor, Kadabeesanahalli Village, Sarjapur- Marathahalli Ring Road,Varthur Hobli, Bangalore-560 087 (INDIA)	Equipment and other tangible personal property
17.	Magma Korea, Inc.	13h Floor, Room 1301, Trade Tower, World Trade Center, 159-1, Samsung-dong, Kangnam-gu, Seoul, 135-729 (SOUTH KOREA)	Equipment and other tangible personal property
18.	Magma Design Automation Ltd.	250 South Oak Way, Green Park, Reading, RG2 6UG (UNITED KINGDOM)	Equipment and other tangible personal property
19.	Magma Design Automation Ltd.	8 Maskit Street, Herzelia 46140 (ISRAEL)	Equipment and other tangible personal property

Schedule 5.2

Provide Agent (and if so requested by Agent, with copies for each Lender) with each of the documents set forth below at the following times in form satisfactory to Agent:

Monthly (not later than the 15th day of each month	(a) a Credit Amount Certificate, together with supporting schedules and documentation, and (b) Borrower’s consolidating and consolidated balance sheet for the prior month.
Quarterly (no later than the last day of the month 40 days following the end of each fiscal quarter)	(c) a report that (i) segregates trailing twelve months revenue into licenses revenue, maintenance revenue, and services revenue, and (ii) within licenses revenue, includes (A) sub-totals for perpetual and time-based licenses, and (B) further sub-totals for up-front, ratable, due and payable, and cash receipts revenue, (d) a backlog report delineating scheduled vs. unscheduled backlog, and segmented by estimated period of recognition, and (e) a lost material customer report, with identified cause (if known) and trailing twelve months revenue contribution for each lost customer.
Upon request by Agent	Such other reports, including but not limited to a summary aging of the Borrower’s Accounts, and a summary aging, by vendor, of Borrower’s accounts payable, and any book overdrafts, and as to the Collateral or the financial condition of Borrower and its Subsidiaries, as Agent may reasonably request.

1

SCHEDULE 6.6

Nature of Business

Magma Design Automation, Inc. (“Magma”) provides electronic design automation software products and related services. Magma software enables chip designers to reduce the time it takes to design and produce complex integrated circuits used in the communications, computing, consumer electronics, networking and semiconductor industries. Magma’s flagship products comprise a digital integrated solution for the chip development cycle, from initial design through physical implementation.

Magma’s software products allow chip designers to meet critical time-to-market objectives, improve chip performance and handle chip designs involving millions of components. Magma’s flagship Blast and Talus families of products and its Quartz family of sign-off and verification tools combine into one integrated chip design and verification flow, from what traditionally had been separate logic design, physical design, and analysis and sign-off processes. This integrated flow significantly reduces design iterations, allowing customers to accelerate the time it takes to design and produce deep submicron integrated circuits. Its Titan platform for custom integrated chip design provides an integrated chip-finishing solution for mixed-signal designs. Magma provides consulting, training and services to help customers more rapidly adopt its technology. Magma also provides post-contract support, or maintenance, for its products.

EX-21.1

Exhibit 21.1

List of Subsidiaries

Name	Jurisdiction of Organization (Date Organized)
Magma Design Automation, Inc.	DE (04/01/1997)
Magma Services, Inc.	DE (05/17/2004)
Ramble Acquisition LLC*	DE (09/05/2007)
Sabio Labs LLC*	CA (12/20/2007)
Aplus Design Technologies, Inc.*	CA (06/03/2003)
Silicon Correlation, Inc.**	DE (10/14/2003)
Beijing Magma Design Automation Co., Ltd.	China (12/12/2003
Magma Korea, Inc.	South Korea (10/06/2000)
Magma Design Automation B.V.	The Netherlands (4/11/2000)
Magma Design Automation Cayman Ltd.	Cayman Islands (03/23/2005)
Magma Design Automation Corp. (Canada)	Canada (04/24/2001)
Magma Design Automation GmbH	Germany (08/29/99)
Magma Design Automation India Private Limited	India (03/21/2003)
Magma Design Automation Ltd. [U.K.]	United Kingdom (05/12/1999)
Magma Design Automation Ltd. [Israel]	Israel (08/24/1999)

Magma Design Automation SARL	France (04/17/2004)
Magma Design Automation Inc. Taiwan Limited	Taiwan (02/19/2003)
Magma Design Automation, K.K.	Japan (07/22/1999)
MDA Netherlands C.V.	The Netherlands 10/24/05

* Dissolution proceedings will be initiated.

** Dissolution proceedings have been initiated.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated July 15, 2010, with respect to the consolidated financial statements, schedules, and internal control over financial reporting included in the Annual Report on form 10-K of Magma Design Automation, Inc. for the year ended May 2, 2010. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Magma Design Automation, Inc. on Forms S-8 (File No. 333-74278, effective November 30, 2001, File No. 333-92324, effective July 12, 2002, File No. 333-108348, effective August 29, 2003, File No. 333-112326, effective January 30, 2004, File No. 333-122656, effective February 9, 2005, File No. 333-132333, effective March 10, 2006, File No. 333-143551, effective June 6, 2007, File No. 333-151681, effective June 16, 2008, File No. 333-161743, effective September 4, 2009 and File No. 333-165462, effective March 14, 2010).

/s/ GRANT THORNTON LLP

San Jose, California

July 15, 2010

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification,

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

for the Year Ended May 2, 2010

I, Rajeev Madhavan, certify that:

1. I have reviewed this annual report on Form 10-K of Magma Design Automation, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 15, 2010

/S/     RAJEEV MADHAVAN        

Rajeev Madhavan

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification,

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

for the Year Ended May 2, 2010

I, Peter S. Teshima, certify that:

1. I have reviewed this annual report on Form 10-K of Magma Design Automation, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 15, 2010

/S/     PETER S. TESHIMA        

Peter S. Teshima

Corporate Vice President, Finance and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Section 1350 Certification,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Magma Design Automation, Inc. (the “Company”) on Form 10-K for the year ended May 2, 2010, as filed with the Securities and Exchange Commission on the date hereof, I, Rajeev Madhavan, Chief Executive Officer of the Company, certify for the purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code that, to the best of my knowledge,

(i) the Annual Report of the Company on Form 10-K for the year ended May 2, 2010 (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    RAJEEV MADHAVAN        

Rajeev Madhavan

Chief Executive Officer

July 15, 2010

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished with the Company’s Form 10-K for the year ended May 2, 2010 pursuant to 18 U.S.C. § 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

Section 1350 Certification,

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Magma Design Automation, Inc. (the “Company”) on Form 10-K for the year ended May 2, 2010, as filed with the Securities and Exchange Commission on the date hereof, I, Peter S. Teshima, Chief Financial Officer of the Company, certify for the purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code that, to the best of my knowledge,

(i) the Annual Report of the Company on Form 10-K for the year ended May 2, 2010 (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/    PETER S. TESHIMA        

Peter S. Teshima

Corporate Vice President, Finance and

Chief Financial Officer

July 15, 2010

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished with the Company’s Form 10-K for the year ended May 2, 2010 pursuant to 18 U.S.C. § 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.