AGREEMENT AND PLAN OF MERGER

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Exhibit 2.1

CONFIDENTIAL

A GREEMENT AND P LAN OF M ERGER

B Y AND A MONG

M AGMA D ESIGN A UTOMATION , I NC .,

S ABIO A CQUISITION C ORP .,

S ABIO L ABS LLC.,

S ABIO L ABS , I NC .

AND

D AVID C OLLERAN , AS R EPRESENTATIVE

D ECEMBER  20, 2007

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A GREEMENT AND P LAN OF M ERGER

This A GREEMENT AND P LAN OF M ERGER (this “Agreement ” ) is made and entered into as of December 20, 2007 (the “Agreement Date” ) by and among Magma Design Automation, Inc., a Delaware corporation ( “Magma” ), Sabio Acquisition Corp., a California corporation and a wholly owned subsidiary of Magma ( “Merger Sub I” ), Sabio Labs LLC, a California limited liability company and a wholly owned subsidiary of Magma ( “Merger Sub II” and with Merger Sub I, the “Merger Subs” and each a “Merger Sub” ), Sabio Labs, Inc., a California corporation (the “Company” ), and David Colleran, as Representative, solely with respect to Article IX hereof and such other provisions hereof which specifically refer to such Representative (the “Representative” ).

R ECITALS

A. The parties intend that, subject to the terms and conditions hereinafter set forth, Merger Sub I shall merge with and into the Company (the “First Step Merger” ), with the Company to be the surviving corporation of the Merger (the “Interim Surviving Corporation” ), on the terms and subject to the conditions of this Agreement and pursuant to the applicable provisions of California Law (as defined in Article I below).

B. Following the First Step Merger, Magma shall cause the Interim Surviving Corporation to merge with and into Merger Sub II (the “Second Step Merger” and, taken together with the First Step Merger, the “Integrated Merger” or the “Merger” ), on the terms and subject to the conditions of this Agreement and pursuant to the applicable provisions of California Law and the California LLC Act (as defined in Article I below).

C. The Boards of Directors of Magma, Merger Sub I, Merger Sub II and the Company have determined that the Merger is in the best interests of their respective stockholders, shareholders or members, as the case may be, and have approved and declared advisable this Agreement and the Merger.

D. Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Magma’s willingness to enter into this Agreement, certain Company Shareholders, concurrently with the execution of this Agreement are executing and delivering to Magma voting agreements in the form attached hereto as Exhibit A (the “Company Voting Agreements” ).

E. Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Magma’s willingness to enter into this Agreement, each of the Persons (as defined in Article I below) listed on Exhibit B-1 is executing and delivering to Magma an executed employment offer letter (including the related Confidentiality and Assignment of Inventions Agreement) (the “Offer Letters” ) and is executing and delivering to Magma a Noncompetition and Nonsolicitation Agreement (the “Noncompetition Agreements” ), which Offer Letters and Noncompetition Agreements shall become effective only upon the Effective Time (as defined in Article I below).

F. Concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Magma’s willingness to enter into this Agreement, each of the Persons listed on Exhibit B-2 is executing and delivering to Magma an executed Offer Letter and is executing and delivering to Magma a Nonsolicitation Agreement (the “Nonsolicitation Agreements” ), which Nonsolicitation Agreements shall become effective only upon the Effective Time.

G. Magma, each Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger.

H. For Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Magma and the Company intend that the First Step Merger and the Second Step Merger will constitute integrated steps in a single “plan of reorganization” within the meaning of Treas. Reg. §§1.368-2(g) and 1.368-3, which plan of reorganization the parties adopt by executing this Agreement.

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N OW , T HEREFORE , in consideration of the foregoing and the mutual promises, covenants and conditions contained herein, the parties hereby agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth below. Unless indicated otherwise, all mathematical calculations contemplated hereby shall be made to the fifth decimal place.

“Affiliate” has the meaning set forth in Rule 144 promulgated under the Securities Act.

“First Step Agreement of Merger” means the Agreement of Merger (together with any officer’s certificates attached thereto), in form and substance reasonably acceptable to Magma and the Company, to be filed with the Secretary of State of the State of California at the time of Closing in such appropriate form as shall be required by California Law.

“Alternative Transaction” means: any proposal or offer made by any Person for (A) a merger, reorganization, share exchange, consolidation, business combination, tender offer, recapitalization, dissolution, liquidation or similar transaction directly or indirectly involving the Company, (B) the sale, lease, exchange, transfer, license, acquisition or disposition by any Person of any of the consolidated assets of the Company (other than the sale of assets in the ordinary course of the Company’s business or the license of the Company’s Products in the ordinary course of business), (C) the acquisition by any Person of any of the voting power or any class of equity securities of the Company (other than pursuant to the exercise of equity equivalents outstanding as of the date hereof), or (D) any initial public offering of capital stock or other securities of the Company pursuant to a registration statement filed under the Securities Act.

“Applicable Law” means, collectively, all foreign, federal, state, local or municipal laws, statutes, ordinances, regulations and rules, and all orders, writs, injunctions, awards, judgments and decrees applicable to the assets, properties and business (and any regulations promulgated thereunder) of the applicable company or entity.

“Average Magma Stock Price” shall mean the average closing price for a share of Magma Common Stock as quoted on the Nasdaq Stock Market (or other principal exchange or market on which the Magma Common Stock is then listed) during the ten (10) business days prior to (but not including) the third business day prior to the Closing Date, as to the Initial Stock Consideration, and the ten (10) business days prior to (but not including) the third business day before the payment date of a Contingent Payment (as defined on Schedule A hereto).

“Balance Sheet Date” means September 30, 2007.

“California LLC Act” means the Beverly-Killea Limited Liability Company Act of the State of California.

“California Law” means the General Corporation Law of the State of California.

“Closing” shall have the meaning set forth in Section 2.2.

“Closing Date” means a time and date on which the Closing shall occur to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VII, or at such other time, date and location as the parties hereto agree in writing.

“Closing Merger Expense Certificate” means a certificate executed by the President or Chief Executive Officer of the Company, dated as of the Closing Date, certifying the amount of Merger Expenses (including an itemized list of each Merger Expense with a general description of the nature of such expense and the Person to whom such expense was or is owed). The Closing Merger Expense Certificate shall include a

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representation of the Company, certified by the President or Chief Executive Officer of the Company, that such certificate includes all of the Merger Expenses paid or payable at any time prior to, at or following the Closing Date, it being the expressed intent of the Company and Magma that to the maximum extent possible all the Excess Merger Expenses be deducted in the calculation of the Initial Stock Consideration.

“Common Exchange Ratio” means the quotient obtained by dividing (A) an amount equal to the Initial Stock Consideration by (B) the Fully-Diluted Common Shares.

“Company Ancillary Agreements” means, collectively, each certificate to be delivered on behalf of the Company by an officer or officers of the Company at the Closing pursuant to Article VII and each agreement or document (other than this Agreement) that the Company is to enter into as a party thereto pursuant to this Agreement.

“Company Balance Sheet” means the Company’s unaudited balance sheet as of the Balance Sheet Date included in the Company Financial Statements.

“Company Business” means the business of the Company as presently conducted.

“Company Capital Stock” means the Company Common Stock and the Company Preferred Stock, taken together.

“Company Common Stock” means the Common Stock, no par value, of the Company.

“Company Disclosure Schedule” means the disclosure schedule attached hereto and dated as of the Agreement Date and delivered by the Company to Magma on the Agreement Date listing any exceptions to the representations and warranties of the Company herein by reference to the specific Section and subsection to which the particular exception relates; provided, however, that the inclusion of any fact or item in the Company Disclosure Schedule and its schedules referenced by a specific Section or, if applicable, a subsection, shall, should the existence of the fact or item be relevant to any other Section or subsection of the Agreement, be deemed to be disclosed with respect to such other Section or subsection whether or not an explicit cross-reference appears in the Company Disclosure Schedule if relevance to other Sections or subsections is reasonably apparent from the face of the text of the disclosure (each of which exceptions shall be deemed to be a representation and warranty made by the Company under Article III hereof).

“Company Financial Statements” means (A) the Company’s Balance Sheet; and (B) the Company’s unaudited statement of income and statement of cash flows for fiscal year 2005, fiscal year 2006, fiscal year 2007 and the six month period ended September 30, 2007.

“Company Material Contract” means any Contract required to be listed on the Company Disclosure Schedule pursuant to Section 3.9, Section 3.11, Section 3.13 and Section 3.16(d).

“Company Optionholders” means the holders of Company Options.

“Company Options” means options to purchase shares of Company Common Stock issued pursuant to the Company Stock Plan (including both Vested Company Options and Unvested Company Options).

“Company Preferred Stock” means the Series A Preferred Stock, no par value, of the Company and the Series B Preferred Stock, no par value, of the Company.

“Company Shareholders” means the holders of shares of Company Capital Stock.

“Company Stock Plan” means the 2005 Equity Incentive Plan of the Company.

“Contingent Consideration” means (A) up to $7,500,000 in cash, (B) shares of Magma Common Stock having a value equal to up to $7,500,000 based on the Average Magma Stock Price or (C) any combination of

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cash and Magma Common Stock, as may be determined by Magma in its sole discretion, having a value equal to up to $7,500,000 and based on the Average Magma Stock Price, as applicable.

“Contingent Consideration Pro Rata Share” means each Effective Time Company Shareholder’s pro rata share (based upon the aggregate amount of the Initial Stock Consideration that an Effective Time Company Shareholder is entitled to receive pursuant to Section 2.5(c) in respect of such Effective Time Company Shareholder’s shares of Company Common Stock, whether vested or unvested (other than Dissenting Shares), relative to the total aggregate amount of the Initial Stock Consideration that all such Effective Time Company Shareholders are entitled to receive pursuant to Section 2.5(d) in respect of their shares of Company Common Stock, whether vested or unvested (other than Dissenting Shares)), which Contingent Consideration Pro Rata Share is set forth in the Spreadsheet.

“Continuing Employee” means Mar Hershenson, David Colleran and any employee of the Company that continues such employee’s service to the Final Surviving Entity, Magma or a Subsidiary of Magma following the Closing.

“Contract” means any legally binding contract, agreement, instrument, arrangement, commitment or understanding (including leases, licenses, mortgages, notes, guarantees, sublicenses, subcontracts, invoices and purchase orders), whether oral or written.

“Dissenters’ Deadline Date” means the first date at or after the Effective Time on which no holder of Company Capital Stock immediately prior to the Effective Time has an opportunity to perfect dissenters’ rights in accordance with California Law in connection with the Merger in respect of any shares of Company Capital Stock.

“Dissenting Shares” means any shares of Company Capital Stock that are issued and outstanding immediately prior to the Effective Time and in respect of which dissenters’ rights shall have been perfected prior to the Dissenters’ Deadline Date in accordance with California Law, in connection with the Merger.

“Dissenting Shares Excess Payments” means any payment in respect of Dissenting Shares in excess of the sum of (A) the amount of cash that would have been issuable pursuant to Section 2.9 in respect of such shares had they never been Dissenting Shares and (B) the product of (1) the aggregate number of shares of Magma Common Stock that would have been issuable pursuant to Section 2.5 in respect of such shares had they never been Dissenting Shares and (2) the Average Magma Stock Price calculated in connection with the Closing.

“Documentation” means, collectively, programmers’ notes or logs, source code annotations, user guides, manuals, instructions, software architecture designs, layouts, any know-how, and any other designs, plans, drawings, documentation, materials, supplier lists, software source code and object code, net lists, photographs, images, development tools, blueprints, media, memoranda and records developed by or in the possession of the Company that are primarily related to or otherwise necessary for the use and exploitation of any products or any products in development of the Company, whether in tangible or electronic form, whether owned by the Company or held by the Company under any licenses or sublicenses (or similar grants of rights).

“Effective Time” shall be as defined in Section 2.2 hereof.

“Effective Time Company Shareholders” means the Company Shareholders at the Effective Time holding shares of Company Common Stock immediately prior to the Effective Time.

“Encumbrance” means, with respect to any asset, mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, collateral assignment, adverse claim, restriction or other encumbrance of any kind in respect of such asset (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). For purposes of clarification only, an inability to sell a security without registering such security for sale under the Securities Act or other federal securities laws shall not represent an Encumbrance.

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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means any entity which is a member of (A) a “controlled group of corporations,” as defined in Section 414(b) of the Code; (B) a group of entities under “common control,” as defined in Section 414(c) of the Code; or (C) an “affiliated service group,” as defined in Section 414(m) of the Code, or treasury regulations promulgated under Section 414(o) of the Code, any of which includes the Company.

“Excess Merger Expenses” means the amount of Merger Expenses of the Company in excess of $200,000.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Expiration Date” means the date that is the fifteen (15) month anniversary of the Closing Date.

“Fully-Diluted Common Shares” means the aggregate number of shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time (including any shares of Company Common Stock into which any shares of Company Preferred Stock have been converted immediately prior to the Effective Time and the aggregate number of shares of Company Common Stock issued upon the exercise of outstanding Company Options immediately prior to the Effective Time).

“Fully-Diluted Shares” means the sum of (A) the aggregate number of shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any shares of Company Common Stock into which any shares of Company Preferred Stock have been converted immediately prior to the Effective Time and the aggregate number of shares of Company Common Stock issued upon the exercise of outstanding Company Options immediately prior to the Effective Time) and (B) the aggregate number of shares of Company Preferred Stock that are issued and outstanding immediately prior to the Effective Time (on an as-converted to Company Common Stock basis).

“GAAP” means United States generally accepted accounting principles, applied on a consistent basis.

“Governmental Authority” means any court or tribunal, governmental or regulatory body, administrative agency, commission or other governmental authority.

“Holdback Amount” means that number of shares of Magma Common Stock obtained by dividing (i) $2,187,500 by (ii) the Average Magma Stock Price, which shares shall be withheld by Magma from the Initial Stock Consideration issuable to the Effective Time Company Shareholders in accordance with Section 2.5(c) and Section 2.5(d) of this Agreement and withheld by Magma in accordance with Section 2.7 of this Agreement.

“Independent Accounting Firm” means a mutually agreed upon nationally recognized independent accounting firm.

“Initial Stock Consideration” means the number of whole shares of Magma Common Stock equal to the quotient obtained by dividing (i) an amount equal to $17,500,000 less any Excess Merger Expenses by (ii) the Average Magma Stock Price.

“Intellectual Property” means, collectively, all Technology and IP Rights.

“knowledge” means the knowledge of a particular fact, circumstance, event or other matter in question of the executive officers of an entity (provided that with respect to the Company, such knowledge shall be limited to Mar Hershenson, David Colleran, Sarkis Narkizian and Sunderarajan S. Mohan) (collectively, the “Entity Representatives” ). Any such Entity Representative will be deemed to have knowledge of a particular fact, circumstance, event or other matter if: (A) such Entity Representative has actual knowledge of the fact, circumstance or event or (B) knowledge of such fact, circumstances or event would be obtained by reasonable inquiry without disclosure of the transactions contemplated by this Agreement.

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“Liabilities” means debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, determined or determinable, known or unknown, including those arising under any law, action or governmental order and those arising under any Contract.

“Magma Ancillary Agreements” means, collectively, each certificate to be delivered on behalf of Magma by an officer or officers of Magma at the Closing pursuant to Article VII and each agreement or document (other than this Agreement) that Magma is to enter into as a party thereto pursuant to this Agreement.

“Magma Common Stock” means the Common Stock, par value $0.0001, of Magma.

“Material Adverse Change” and “Material Adverse Effect” when used in connection with an entity means any change, event, circumstance or effect that is, individually or in the aggregate, materially adverse to the condition (financial or otherwise), capitalization, properties, products, assets (including intangible assets), Intellectual Property, liabilities, business, employees, management, operations or results of operations of such entity and its Subsidiaries, taken as a whole.

“Merger Expenses” means all fees and expenses and out-of-pocket costs incurred or payable by the Company in connection with the Merger and this Agreement and the transactions contemplated hereby (including any fees and expenses of legal counsel, financial advisors, investment bankers and accountants) and all bonus payments, retention payments and severance payments incurred or payable by the Company at the Closing as a result of the transactions contemplated by this Agreement; provided that any fees payable to Stanford University in an amount not to exceed $100,000 pursuant to Section 14.3(c) of the Exclusive (Equity) Agreement dated as of October 31, 2006 between the Company and the Board of Trustees of the Leland Stanford Junior University shall not be deemed Merger Expenses.

“Merger Sub Ancillary Agreements” means, collectively, each certificate to be delivered on behalf of Merger Sub by an officer or officers of Merger Sub at the Closing pursuant to Article VII and each agreement or document (other than this Agreement) that a Merger Sub is to enter into as a party thereto pursuant to this Agreement.

“Merger Sub I Common Stock” means the Common Stock, par value $0.0001 per share, of Merger Sub I.

“Mutual NDA” means the Nondisclosure Letter Agreement between the Company and Magma dated August 7, 2007.

“Per Share Contingent Consideration Amount” means the quotient obtained by dividing (A) the Contingent Consideration actually payable by Magma to the Effective Time Company Shareholders pursuant to this Agreement, if any, by (B) the Fully-Diluted Common Shares.

“Permitted Encumbrances” means (A) statutory liens for Taxes that are not yet due and payable; (B) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements, and Encumbrances against the interest of the landlord under any real property lease unless caused by the Company; (C) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by Applicable Law; (D) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies and other like liens; and (E) any minor imperfection of title or similar liens, charges or encumbrances which individually or in the aggregate with other such liens, charges and encumbrances does not impair the value of the property subject to such lien, charge or encumbrance or the use of such property in the conduct of the Company Business.

“Person” means any individual, corporation, company, limited liability company, partnership, limited liability partnership, trust, estate, proprietorship, joint venture, association, organization, entity or Governmental Authority.

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“Pre-Closing Taxes” means Taxes of the Company from (A) a taxable period that closes on or before the Closing Date and (B) the pre-closing portion of any taxable period that commences before and ends after the Closing Date. For this purpose, the pre-closing portion of a taxable period that commences before and ends after the Closing Date shall be deemed to be: (x) in the case of any Taxes other than Taxes based upon or related to income, expenditures (including payroll), receipts or the sale or transfer of any property, the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in the entire taxable period, and (y) in the case of any Tax based upon or related to income, expenditures (including payroll), receipts or the sale or transfer of any property, the amount which would be payable if the relevant taxable period ended on the Closing Date.

“Pro Rata Share” means each Effective Time Company Shareholder’s pro rata share (based upon the aggregate amount of the Initial Stock Consideration that an Effective Time Company Shareholder is entitled to receive pursuant to Section 2.5(c) and Section 2.5(d) in respect of such Effective Time Company Shareholder’s shares of Company Capital Stock, whether vested or unvested (other than Dissenting Shares), relative to the total aggregate amount of the Initial Stock Consideration that all such Effective Time Company Shareholders are entitled to receive pursuant to Section 2.5(c) in respect of their shares of Company Capital Stock, whether vested or unvested (other than Dissenting Shares)), which Pro Rata Share is set forth in the Spreadsheet.

“SEC” means the Securities and Exchange Commission.

“Second Step Agreement of Merger” means the Agreement of Merger (together with any officer’s certificates attached thereto), in form and substance reasonably acceptable to Magma and the Company, to be filed with the Secretary of State of the State of California as soon as practicable after the Effective Time, but in any event within (3) business days after the Effective Time, in such appropriate form as shall be required by California Law.

“Securities Act” means the Securities Act of 1933, as amended.

“Series A Preferred Stock” means the Series A Preferred Stock, no par value, of the Company.

“Series B Preferred Stock” means the Series B Preferred Stock, no par value, of the Company.

“Spreadsheet” means a spreadsheet in form reasonably acceptable to Magma, which spreadsheet shall be dated as of the Closing Date and certified by the Company’s President or Chief Executive Officer and shall set forth, as of the Closing Date and immediately prior to the Effective Time of the Merger, the following factual information relating to holders of Company Capital Stock: (A) the names of all the Effective Time Company Shareholders and their respective addresses and if available, taxpayer identification numbers; (B) the number and kind of shares of Company Capital Stock held by such Persons and the respective certificate numbers; (C) the repurchase price payable per share under each Unvested Company Share; (D) the vesting arrangements with respect to Unvested Company Shares and terms of the Company’s rights to repurchase such Unvested Company Shares; (E) the calculation of the Fully-Diluted Common Shares and the Initial Stock Consideration; (F) the aggregate number of shares of Magma Common Stock issuable to each Effective Time Company Shareholder in exchange for the Company Common Stock held by such Person (and number of such shares which shall constitute Vested Magma Shares and Unvested Magma Shares); (G) the Pro Rata Share of each Effective Time Company Shareholder and the Contingent Consideration Pro Rata Share of each Effective Time Company Shareholder; and (H) the interest in share and percentage terms of each Effective Time Company Shareholder in the Holdback Amount. If any information set forth in the Spreadsheet changes because an Effective Time Company Shareholder who was a Dissenting Shareholder fails to perfect appraisal rights or any Dissenting Shares shall otherwise lose their status as Dissenting Shares, or for any other reason, then the President or Chief Executive Officer of the Company as of immediately prior to the Effective Time of the Merger shall deliver a revised Spreadsheet to Magma setting forth the corrected information and the effective date of the revision.

“Subsidiary” means a corporation or other business entity in which the Company, Magma or Merger Sub, as applicable, owns, directly or indirectly, at least a 50% interest or that is otherwise, directly or indirectly, controlled by such entity.

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“Tax” (and, with correlative meaning, “Taxes” ) means (A) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom duty or other tax, escheat, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental entity responsible for the imposition of any such tax (domestic or foreign), (B) any liability for the payment of any amounts of the type described in clause (A) of this sentence as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any taxable period, and (C) any liability for the payment of any amounts of the type described in clause (A) or (B) of this sentence as a result of being a transferee of or successor to any Person or as a result of any express or implied obligation to indemnify any other Person.

“Unvested Company Options” means any Company Options that are unvested or the shares acquired thereunder subject to a repurchase option, vesting schedule or any other condition providing that such Company Option or the shares subject thereto may be forfeited to or repurchased by the Company upon any termination of the relevant relationship (including employment or directorship) of the Company with the holder (or prior holder thereof) under the terms of any Contract with the Company (including any stock option agreement or stock option exercise agreement) after taking into account any acceleration of vesting or lapse of the Company’s repurchase right that is triggered in connection with the Merger pursuant to this Agreement or the applicable Contract with the Company.

“Unvested Company Shares” means any shares of Company Capital Stock that are unvested or subject to a repurchase option, vesting schedule or any other condition providing that such shares may be forfeited to or repurchased by the Company upon any termination of the relevant relationship (including employment or directorship) of the Company with the holder (or prior holder thereof) under the terms of any Contract with the Company (including any restricted stock purchase agreement, stock option agreement or stock option exercise agreement).

“Vested Company Options” means Company Options that are not Unvested Company Options.

Other capitalized terms defined elsewhere in this Agreement and not defined in this Article I shall have the meanings assigned to such terms in this Agreement.

ARTICLE II

THE MERGER

2.1 The Integrated Merger . At the Effective Time and subject to and upon the terms and conditions of this Agreement and the applicable provisions of California Law, Merger Sub I shall be merged with and into the Company, the separate corporate existence of Merger Sub I shall cease, and the Company shall continue as the Interim Surviving Corporation and as a wholly owned subsidiary of Magma. As soon as practicable after the Effective Time, but in any event within three (3) business days, and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the California LLC Act and California Law, the Interim Surviving Corporation shall be merged with and into Merger Sub II, the separate corporate existence of the Interim Surviving Corporation shall cease, and Merger Sub II shall continue as the surviving entity and as a wholly-owned subsidiary of Magma. The surviving entity after the Second Step Merger is hereinafter referred to as the “ Final Surviving Entity ”.

2.2 Effective Time . Unless this Agreement is earlier terminated pursuant to Article VIII hereof, the closing of the First Step Merger (the “Closing” ) will take place on the Closing Date at the offices of Heller Ehrman LLP, 275 Middlefield Road, Menlo Park, California. On the Closing Date, the parties hereto shall cause the First Step Merger to be consummated by filing the First Step Agreement of Merger with the Secretary of State of the State of California, in accordance with the applicable provisions of California Law (the time of the acceptance of such filing by the Secretary of State of the State of California shall be referred to herein as the “Effective Time” ).

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As soon as practicable after the Effective Time, but in any event within three (3) business days, Parent shall cause the Second Step Merger to be consummated by filing a the Second Step Agreement of Merger with the Secretary of State of the State of California, in accordance with the applicable provisions of California Law and the California LLC Act.

2.3 Effect of the First Step Merger and the Second Step Merger . At the Effective Time, the effect of the First Step Merger shall be as provided in the applicable provisions of California Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise agreed to pursuant to the terms of this Agreement, all of the property, rights, privileges, powers and franchises of the Company and Merger Sub I shall vest in the Interim Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub I shall become the debts, liabilities and duties of the Interim Surviving Corporation. At the effective time of the Second Step Merger, the effect of the Second Step Merger shall be as provided in the applicable provisions of California Law and the California LLC Act. Without limiting the generality of the foregoing, and subject thereto, at the effective time of the Second Step Merger, except as otherwise agreed to pursuant to the terms of this Agreement, all of the property, rights, privileges, powers and franchises of the Interim Surviving Corporation shall vest in Merger Sub II as the surviving entity in the Second Step Merger, and all debts, liabilities and duties of the Interim Surviving Corporation shall become the debts, liabilities and duties of Merger Sub II as the surviving entity in the Second Step Merger.

2.4 Formation Documents and Management . Unless otherwise determined by Magma prior to the Effective Time:

(a) the articles of incorporation of the Interim Surviving Corporation shall be amended and restated as of the Effective Time to be identical to the articles of incorporation of Merger Sub I as in effect immediately prior to the Effective Time;

(b) the bylaws of Merger Sub I, as in effect immediately prior to the Effective Time, shall be the bylaws of the Interim Surviving Corporation at the Effective Time;

(c) the articles of organization of Merger Sub II as in effect immediately prior to the effective time of the Second Step Merger shall be the articles of organization of the Final Surviving Entity in the Second Step Merger;

(d) the Operating Agreement of Sub II as in effect immediately prior to the effective time of the Second Step Merger shall be the Operating Agreement of the Final Surviving Entity.

(e) the directors of Merger Sub I immediately prior to the Effective Time shall be the directors of the Interim Surviving Corporation immediately after the Effective Time and the managers of the Final Surviving Entity immediately after the effective time of the Second Step Merger;

(f) the officers of Merger Sub I immediately prior to the Effective Time shall be the officers of the Interim Surviving Corporation immediately after the Effective Time and the officers of the Final Surviving Entity after the effective time of the Second Step Merger.

2.5 First Step Merger Conversion of Shares .

(a) Conversion of Merger Sub I Common Stock . At the Effective Time, each share of Merger Sub I Common Stock that is issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of Common Stock of the Interim Surviving Corporation, and the shares of the Interim Surviving Corporation into which the shares of Merger Sub I Common Stock are so converted shall be the only shares of Company Common Stock that are issued and outstanding immediately after the Effective Time.

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(b) Cancellation of Company-Owned Stock. Notwithstanding the provisions of Section 2.5(c) and Section 2.5(d) below, each share of Company Capital Stock held by the Company immediately prior to the Effective Time shall be cancelled and extinguished without any conversion thereof.

(c) Conversion of Company Capital Stock.

(i) Common Stock. Subject to the terms and conditions of this Agreement, at the Effective Time, each share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) shall, by virtue of the Merger and without the need for any further action on the part of the holder thereof, be converted into and represent the right to receive (i) that fraction of a fully paid and nonassessable share of Magma Common Stock equal to the Common Exchange Ratio, and (ii) the Per Share Contingent Consideration Amount, if any and as may be determined pursuant to Section 2.6 (regarding the Contingent Consideration). The preceding provisions of this Section 2.5(c)(i) are subject to the provisions of Section 2.9 (regarding rights of holders of Dissenting Shares), Section 2.5(c)(iii) (regarding the continuation of vesting and repurchase rights) and Section 2.7 (regarding the withholding of the Holdback Amount). Each such share of Company Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive shares of Magma Common Stock to be issued in consideration therefore upon the surrender of such certificate in accordance with this Section 2.5(c)(i).

(ii) Company Options. No later than immediately prior to the Effective Time of the Merger, each outstanding Company Option shall have, in accordance with the terms of the applicable Contract pertaining to such Company Option, been exercised in full for the aggregate number of shares of Company Common Stock subject thereto, such that there are no Company Options outstanding immediately prior to the Effective Time of the Merger. Such exercises of Company Options may be made contingent upon the consummation of the Merger. To the extent any such Company Option was not fully vested at the time of exercise, such shares of Company Common Stock received on exercise shall remain Unvested Company Shares subject to continued vesting according to the vesting schedule set forth in the applicable Contract. The Company will withhold for all income and employment-related taxes imposed in connection with such exercises of Company Options. The Company may offer a cash loan (an “Option Exercise Loan” ) for the sole purpose of acquiring shares of Company Common Stock subject to an outstanding Company Option to any holder of such Company Option that is unable to exercise such Company Option due to such holder’s financial circumstances. Any Option Exercise Loan shall be made pursuant to a promissory note (with an interest rate that is not less than the minimum rate required to avoid imputed income under Section 1274 of the Code) issued by the holder of such Company Option and shall be secured by the Company Common Stock subject thereto. An Option Exercise Loan may only be in an amount equal to the aggregate exercise price of such Company Option, which amount may include any applicable taxes incurred by such holder in connection with the exercise of such Company Option. All corporate action and approvals required to facilitate the Option Exercise Loans have been taken and the Option Exercise Loans are expressly authorized under this Agreement, notwithstanding anything to the contrary herein.

(iii) Unvested Magma Shares. The repurchase option, vesting schedule or other condition applicable to any Unvested Company Shares issued and outstanding immediately prior to the Effective Time shall be assigned to Magma and shares of Magma Common Stock issuable upon conversion of such Unvested Company Shares in the Merger (the “Unvested Magma Shares” , with shares of Magma Common Stock issuable upon conversion of shares of Company Common Stock not subject to a repurchase option, vesting schedule or other condition being “Vested Magma Shares” ) shall be withheld by Magma (subject to repurchase by Magma on the same terms as governed such Unvested Company Shares prior to the Merger) and released to the holders of such Unvested Company Shares upon the vesting of the Unvested Magma Shares (assuming vesting by virtue of continuous service to the Final Surviving Entity or Magma on the same terms as governed such Unvested Company Shares prior to the Merger). Cash dividends on Unvested Magma Shares will be distributed to the holders on whose behalf the Unvested Magma Shares are being held by Magma. Any shares of Magma Common Stock or other equity securities issued or distributed by Magma, including shares issued upon a stock dividend or split, in respect of

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Unvested Magma Shares (which remain subject to a repurchase option, vesting schedule or other condition at the time of such distribution) will be subject to the same repurchase option, vesting schedule or other condition as the Unvested Magma Shares with respect which the distribution is made. Each holder will have voting rights with respect to Unvested Magma Shares (and other voting securities) held by Magma on its behalf. The Company shall take all actions that may be necessary to ensure that, from and after the Effective Time, Magma (or its assignee) is entitled to exercise any such repurchase option, vesting schedule or other condition, such that upon termination of service, any Unvested Magma Shares shall be forfeited to the Final Surviving Entity or Magma without compensation to such holder (other than payment of the original purchase price of any Unvested Company Shares converted into Unvested Magma Shares upon repurchase by Magma or the Final Surviving Entity according to the repurchase terms governing such Unvested Company Shares as of immediately prior to the Effective Time of the Merger). No Unvested Magma Shares may be pledged, encumbered, sold, assigned or transferred (including any transfer by operation of law), by a former holder of Unvested Company Shares or be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of such holder, prior to the distribution to such holder of such Unvested Magma Shares in accordance with this Agreement; provided, however, that Unvested Magma Shares may be pledged as security for a promissory note issued by the holder to the Company to acquire the Company Common Stock solely . Notwithstanding the foregoing, Company Options held by the Persons listed on Schedule 2.5(c) shall be vested in full immediately prior to and contingent upon the occurrence of the Effective Time and any rights of repurchase on Company Shares held by such Persons shall lapse in full immediately prior to and contingent upon the occurrence of the Effective Time.

(d) Adjustments . In the event of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into capital stock), reorganization, reclassification, combination, recapitalization or other like change with respect to the Company Capital Stock or Magma Common Stock occurring after the date hereof and prior to the Effective Time, all references in this Agreement to specified numbers of shares of any class or series affected thereby, and all calculations provided for that are based upon numbers of shares of any class or series (or trading prices therefor) affected thereby, shall be equitably adjusted to the extent necessary to provide the parties the same economic effect as contemplated by this Agreement prior to such stock split, reverse stock split, stock dividend, reorganization, reclassification, combination, recapitalization or other like change.

2.6 Contingent Consideration .

(a) In addition to the Initial Stock Consideration payable pursuant to Section 2.5(c) and Section 2.5(d), Magma shall distribute the Contingent Consideration specified on Schedule A upon Final Surviving Entity’s completion of the Milestones as set forth on Schedule A .

(b) Indemnification Claims and Right of Set-Off . Notwithstanding the foregoing and any other provision of this Agreement, Magma shall withhold fifty percent (50%) from any amount of any Contingent Payment payable to the Effective Time Company Shareholders pursuant to this Agreement prior to Expiration Date (the “Initial Contingent Consideration Holdback Amount” ) and from any amount of any Contingent Payment payable to the Effective Time Company Shareholders pursuant to this Agreement after the Expiration Date and prior to March 31, 2010 (the “Subsequent Contingent Consideration Holdback Amount” , together with the Initial Contingent Consideration Holdback Amount, the “Contingent Consideration Holdback Amount” ) in accordance with each Effective Time Company Shareholder’s Contingent Consideration Pro Rata Share to satisfy certain Claims as set forth in Article IX. Each Effective Time Company Shareholder’s Pro Rata Share of the Contingent Consideration Holdback Amount (to the extent that such Contingent Consideration Holdback Amount consists of Magma Common Stock) shall be comprised of both Vested Magma Shares and Unvested Magma Shares, if applicable, in proportion to the number of shares that are vested Company Shares and Unvested Company Shares as of the date of the Contingent Payment. Claims for Damages against the Contingent Consideration Holdback Amount shall be made in accordance with Section 2.7 hereof.

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(c) Unvested Magma Cash . The repurchase option, vesting schedule or other condition applicable to any Unvested Company Shares issued and outstanding immediately prior to the Effective Time shall be assigned to Magma. Any cash paid, if any, pursuant to this Section 2.6 as a result of the conversion of such Unvested Company Shares in the Merger (the “Unvested Magma Cash” , with the cash payable, if any, pursuant to this Section 2.6 as a result of the conversion of shares of Company Common Stock in the Merger not subject to a repurchase option, vesting schedule or other condition being “Vested Magma Cash” ) shall be withheld by Magma and paid without interest to the holders of such Unvested Company Shares upon the vesting of the Unvested Cash (assuming vesting by virtue of continuous service to the Final Surviving Entity or Magma); provided , however , that a portion of such newly vested cash so distributed shall be treated as imputed interest to the extent required under the Code and the regulations promulgated thereunder. The Company shall take all actions that may be necessary to ensure that, from and after the Effective Time, Magma (or its assignee) is entitled to exercise any such repurchase option, vesting schedule or other condition, such that upon termination of service, any Unvested Cash shall be forfeited to the Final Surviving Entity or Magma without compensation to such holder (other than payment of the original purchase price of any Unvested Company Shares converted into Unvested Magma Cash upon repurchase by Magma or the Final Surviving Entity according to the repurchase terms governing such Unvested Company Shares as of immediately prior to the Effective Time of the Merger). No Unvested Magma Cash may be pledged, encumbered, assigned or transferred (including any transfer by operation of law), by a former holder of Unvested Company Shares or be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of such holder, prior to the distribution to such holder of such Unvested Magma Cash in accordance with this Agreement; provided, however, that Unvested Magma Cash may be pledged as security for a promissory note issued by the holder to the Company to acquire the Company Common Stock.

2.7 Holdback .

(a) Holdback Amount . At the Effective Time, Magma shall withhold the Holdback Amount from the Initial Stock Consideration issued or issuable pursuant to Section 2.5(c) and Section 2.5(d) to the Effective Time Company Shareholders (other than holders of shares of Company Capital Stock which constitute and remain Dissenting Shares), in accordance with each Effective Time Company Shareholder’s Pro Rata Share. Each Effective Time Company Shareholder’s Pro Rata Share of the Holdback Amount shall be comprised of both Vested Magma Shares and Unvested Magma Shares, if applicable, in proportion to the number of shares that are vested Company Shares and Unvested Company Shares as of the Effective Time.

(b) Claims for Damages . Claims for Damages shall be made against those shares of Magma Common Stock that comprise the Holdback Amount first against Vested Magma Shares and following the depletion thereof, then against Unvested Magma Shares that comprise the Holdback Amount (subject to the limitations set forth in Section 9.3 hereof). Following depletion of the Holdback Amount, claims for Damages shall be made against those shares of Magma Common Stock that comprise the Contingent Consideration Holdback Amount first against Vested Magma Shares and following the depletion thereof, then against Unvested Magma Shares that comprise the Contingent Consideration Holdback Amount (subject to the limitations set forth in Section 9.3 hereof).

2.8 Surrender of Certificates; Fractional Shares .

(a) As promptly as practicable after the Effective Time, but in any event within five (5) business days thereof, Magma shall, or shall cause the transfer agent for the Magma Common Stock to, mail to each holder of record (including each holder of Company Options as set forth on the Spreadsheet) of a certificate or certificates (or non certificated shares of Company Common Stock represented by book entry ( “Book Entry Shares” ) in the case of holders of Company Options exercised immediately prior to the Effective Time) which immediately prior to the represented shares of Company Capital Stock (the certificates and Book Entry Share, the “Certificates” ) a letter of transmittal (the “Letter of Transmittal” ) in customary form (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the transfer agent or

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Magma and shall contain such other customary provisions as Magma and the transfer agent may reasonably specify). Upon receipt of the Certificates for cancellation, together with a duly completed and validly executed Letter of Transmittal and any other documents as Magma and the transfer agent shall reasonably require, Magma shall, subject to the terms of Section 2.7, cause to be delivered to such Effective Time Company Shareholder that portion of the Initial Stock Consideration which such Effective Time Company Shareholder has the right to receive pursuant to Section 2.5(c) and will cause to be delivered to such Effective Time Company Shareholder, that portion of the Contingent Consideration, if any, which such Effective Time Company Shareholder has the right to receive pursuant to Section 2.6(a), subject to the terms and conditions of this Agreement. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, Magma shall cause the transfer agent, as promptly as practicable following the receipt by the transfer agent of the foregoing documents, subject to the terms of Section 2.7, issue in exchange for such lost, stolen or destroyed Certificate that portion of the Initial Stock Consideration and any other amount payable pursuant to Section 2.5(c) represented by the lost, stolen or destroyed Certificate in exchange therefor which the Effective Time Company Shareholder has the right to receive. The transfer agent may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificate to provide to the transfer agent an indemnity agreement or bond following the transfer agent’s customary practice against any claim that may be made against Magma or the transfer agent with respect to the Certificate alleged to have been lost, stolen or destroyed.

(b) From and after the Effective Time, no shares of Company Capital Stock will be deemed to be outstanding, and holders of Certificates formerly representing such Company Capital Stock shall cease to have any rights with respect thereto except as provided herein or by Applicable Law.

(c) At the Effective Time, the stock transfer books of Company shall be closed and no transfer of Company Capital Stock shall thereafter be made. If, after the Effective Time, Certificates formerly representing shares of Company Capital Stock are presented to Magma or the Final Surviving Entity, they shall be cancelled and exchanged for that portion of the Initial Stock Consideration and any other amount payable with respect to such Company Capital Stock in accordance with Section 2.5(c), subject to the terms of Section 2.7.

(d) No certificate or scrip representing fractional shares of Magma Common Stock shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any rights as a stockholder of Magma. Notwithstanding any other provision of this Agreement, each holder of shares of Company Capital Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Magma Common Stock (after taking into account all Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of Magma Common Stock multiplied by the Average Magma Stock Price.

2.9 Dissenting Shares . If, in connection with the Merger, holders of Company Capital Stock shall have demanded and perfected dissenters’ rights pursuant to Section 1300 of California Law, none of such Dissenting Shares shall be converted into a right to receive a portion of the Initial Stock Consideration or any other amount payable with respect to such Company Capital Stock in accordance with Section 2.5(c), but shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to California Law. Each holder of Dissenting Shares who, pursuant to the provisions of California Law, becomes entitled to payment of the fair value of such shares shall receive payment therefor in accordance with California Law, as the case may be (but only after the value therefor shall have been agreed upon or finally determined pursuant to California Law, as the case may be). In the event that any Effective Time Company Shareholder fails to make an effective demand for payment or fails to perfect its dissenters’ rights as to its shares of Company Capital Stock or any Dissenting Shares shall otherwise lose their status as Dissenting Shares, then any such shares shall immediately be converted into the right to receive the consideration issuable pursuant to Article II in respect of such shares as if such shares had never been Dissenting Shares, and Magma shall issue and deliver to the holder thereof, at (or as promptly as reasonably practicable after) the applicable time or times specified in Section 2.8, following the satisfaction of the applicable conditions set forth in Section 2.8, the portion of the Initial

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Stock Consideration and any other amounts, to which such Effective Time Company Shareholder would have been entitled under Section 2.5(c) and Section 2.5(d) with respect to such shares, subject to the provisions of Section 2.5(c)(iii) (regarding the continuation of vesting and repurchase rights) and Section 2.7 (regarding the withholding of the Holdback Amount). The Company shall give Magma (i) prompt notice of any exercise of an Effective Time Company Shareholder’s dissenters’ rights in accordance with California Law and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal or dissenters’ rights under such laws. The Company agrees that, except with Magma’s prior written consent, it shall not voluntarily make any payment or offer to make any payment with respect to, or settle or offer to settle, any such demand for appraisal or exercise of dissenters’ rights in excess of the pro rata portion of the Initial Stock Consideration and any Contingent Consideration to which such Dissenting Shares would otherwise be entitled pursuant to Sections 2.5(c) and 2.6, respectively.

2.10 Tax Withholding. Magma or Magma’s agent shall be entitled to deduct and withhold from the Initial Stock Consideration, the Contingent Consideration or other payment otherwise payable pursuant to this Agreement to any Effective Time Company Shareholder or Company Optionholder, the amounts required to be deducted and withheld under the Code, or any provision of foreign, state, local or foreign tax law, with respect to the making of such payment. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Effective Time Company Shareholder or Company Optionholder in respect of whom such deduction and withholding was made.

2.11 Further Assurances. If, at any time before or after the Effective Time, any of the parties hereto reasonably believes or is advised that any further instruments, deeds, assignments or assurances are reasonably necessary to consummate the Merger or to carry out the purposes and intent of this Agreement at or after the Effective Time, then the Company, Magma, the Final Surviving Entity and their respective officers and directors shall execute and deliver all such proper deeds, assignments, instruments and assurances and do all other things reasonably necessary to consummate the Merger and to carry out the purposes and intent of this Agreement.

2.12 Tax and Accounting Consequences. It is intended by the parties hereto that the Merger shall constitute a “reorganization” within the meaning of Section 368 of the Code. Parent and the Company intend that the First Step Merger and the Second Step Merger will constitute integrated steps in a single “plan of reorganization” within the meaning of Treas. Reg. §1.368-2(g) and 1.368-3, which plan of reorganization the parties adopt by executing this Agreement. None of the parties hereto will take any action that would be reasonably expected to cause the Integrated Merger to fail to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Notwithstanding the foregoing, none of Magma, Merger Sub or Company makes any representation or warranty with respect to any tax consequences to Magma, Merger Sub I, Merger Sub II, Company or any Company Shareholders arising under this Agreement or the transactions contemplated hereby, and each party hereto and the Company Shareholders shall rely on their own tax advisors as to the tax consequences to them of such transactions.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Subject to the exceptions set forth in a numbered or lettered section of the Company Disclosure Schedule that reference a specific Section or subsection below to which the particular exception relates, the Company represents and warrants to Magma that the statements contained in this Article III are true and correct on and as of the date of this Agreement (except to the extent any such representation and warranty expressly relates to another date, in which case the Company represents and warrants as of such other date).

3.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has the corporate power and corporate authority to own, operate and lease its properties and to carry on the Company Business. The Company is duly

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qualified or licensed to do business, and is in good standing, in each jurisdiction where the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except where the failure to be so qualified would not have a Material Adverse Effect on the Company. Without limiting the foregoing, the Company is so qualified or licensed in each jurisdiction listed on Section 3.1 of the Company Disclosure Schedule. The Company is not in violation of its Amended and Restated Articles of Incorporation or Bylaws, each as amended to date.

3.2 Subsidiaries . The Company does not have any Subsidiaries or any equity or ownership interest (or any interest convertible or exchangeable or exercisable for, any equity or ownership interest), whether direct or indirect, in any Person. The Company is not obligated to make nor is it bound by any agreement or obligation to make any investment in or capital contribution in or on behalf of any other Person.

3.3 Power, Authorization and Validity .

(a) Power and Authority . The Company has all requisite corporate power and corporate authority to enter into, execute, deliver and perform its obligations under this Agreement and each of the Company Ancillary Agreements and to consummate the Merger. The Merger and the execution, delivery and performance by the Company of this Agreement, each of the Company Ancillary Agreements and all other agreements, transactions and actions contemplated hereby or thereby, have been duly and validly approved and authorized by the Company’s Board of Directors.

(b) No Consents . Except as set forth in Section 3.3(b) of the Company Disclosure Schedule, no consent, approval, order or authorization of, or registration, declaration or filing with or notice to (i) any Governmental Authority or (ii) any other Person is necessary or required to be made or obtained by the Company to enable the Company to lawfully execute and deliver, enter into, and perform its obligations under this Agreement and each of the Company Ancillary Agreements or to consummate the Merger (including the consent of any Person required to be obtained in order to keep any Company Material Contract between such Person and the Company in effect following the Merger or to provide that the Company is not in breach or violation of any such Company Material Contract following the Merger by reason of the execution and delivery of, or the performance of its obligations under, this Agreement or the Company Ancillary Agreements or the consummation of the Merger), except for the filing of the Agreement of Merger with the Secretary of State of the State of California.

(c) Enforceability . This Agreement has been duly executed and delivered by the Company. This Agreement and each of the Company Ancillary Agreements are, or when executed by the Company shall be, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to the effect of (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to rights of creditors generally and (ii) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

(d) Required Vote of Shareholders . The affirmative vote or consent of (i) the holders of a majority of the outstanding shares of Company Capital Stock, (ii) the holders of a majority of the outstanding shares of Company Common Stock, voting as a separate class, and (iii) the holders of at least a majority of the outstanding shares of Company Preferred Stock voting as a separate class on an as-converted basis (collectively, the “ Shareholder Approvals ” ), are the only votes or consents of the holders of any class or series of the Company’s capital stock necessary to adopt this Agreement. The Consents will be obtained in a manner fully in accordance with, and without any violation of, Applicable Law.

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3.4 Capitalization of the Company .

(a) Authorized and Outstanding Capital Stock of the Company . The authorized capital stock of the Company consists solely of 12,400,000 shares of Company Common Stock and 4,500,964 shares of Preferred Stock, 2,450,964 of which are designated as Series A Preferred Stock and 2,050,000 of which are designated Series B Preferred Stock. A total of 5,230,562 shares of Company Common Stock, 2,450,964 shares of Series A Preferred Stock and 1,860,465 shares of Series B Preferred Stock are issued and outstanding as of the Agreement Date. Each share of Company Preferred Stock is convertible into one share of Company Common Stock. Section 3.4(a) of the Company Disclosure Schedule sets forth, as of the Agreement Date (i) the names of all the Company Shareholders and their respective last known addresses, (ii) the number and kind of issued and outstanding shares of Company Capital Stock held by each Company Shareholder and the respective certificate numbers, and (iii) with respect to Unvested Company Shares, the original purchase price of such shares and the vesting arrangements with respect to such shares. No shares of Company Capital Stock are issued or outstanding as of the Agreement Date that are not set forth on Section 3.4(a) of the Company Disclosure Schedule. The Company holds no treasury shares. All issued and outstanding shares of Company Stock have been duly authorized and validly issued, are fully paid and nonassessable, were not issued in violation of and, except under the agreements to be terminated pursuant to Section 7.2(f) hereof, are not subject to any right of rescission, right of first refusal or preemptive right, and have been offered, issued, sold and delivered by the Company in compliance with all requirements of Applicable Law and all requirements set forth in applicable Contracts. There is no Liability for dividends accrued and unpaid by the Company.

(b) Options . The Company has reserved an aggregate of 1,398,343 shares of Company Common Stock for issuance pursuant to the Company Stock Plan (including shares subject to outstanding Company Options). A total of 460,800 shares of Company Common Stock are subject to outstanding Company Options as of the Agreement Date. Section 3.4(b) of the Company Disclosure Schedule sets forth as of the Agreement Date (i) the names of all the Company Optionholders, and their respective last known addresses; (ii) the number and kind of shares of Company Capital Stock subject to the Company Options held by such Persons ; (iii) the exercise price per share in effect for each Company Option; (iv) the vesting schedules with respect to Company Options; and (v) the number of Unvested Company Options and Vested Company Options. True and correct copies of the Company Stock Plan and each agreement for each Company Option or any Company Common Stock have been delivered by the Company to Magma. All Company Options have been issued and granted in compliance with Applicable Law and all requirements set forth in applicable Contracts.

(c) No Other Rights . Except for Company Options and the conversion rights of the Company Preferred Stock and agreements to be terminated pursuant Section 7.2(f), there are no stock appreciation rights, options, warrants, calls, rights, commitments, conversion privileges or preemptive or other rights or Contracts outstanding to purchase or otherwise acquire any shares of Company Capital Stock or any securities or debt convertible into or exchangeable for Company Capital Stock or obligating the Company to grant, extend or enter into any such option, warrant, call, right, commitment, conversion privilege or preemptive or other right or Contract. Except under the agreements to be terminated pursuant to Section 7.2(f) hereof, there are no voting agreements, registration rights, rights of first refusal, preemptive rights, co-sale rights or other restrictions applicable to any outstanding securities of the Company.

(d) Spreadsheet . The information set forth on the Spreadsheet to be delivered pursuant to Section 7.2(h) hereof will be true, complete and accurate as of the Closing Date and immediately prior to the Effective Time.

3.5 No Conflict . Neither the execution and delivery of this Agreement or any of the Company Ancillary Agreements by the Company, nor the consummation of the Merger or any other transaction contemplated hereby or thereby, shall conflict with, result in a termination, breach, impairment or violation of (with or without notice or

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lapse of time, or both), or constitute a default, or require the consent, release, waiver or approval of, or notice to, any third party, under: (a) any provision of the Amended and Restated Articles of Incorporation or Bylaws of the Company, each as currently in effect; (b) any Applicable Law applicable to the Company or any of its assets or properties; (c) except as set forth on Section 3.5 of the Company Disclosure Schedule, any Company Material Contract; or (d) any privacy policy of the Company. Neither the Company’s entering into this Agreement nor the consummation of the Merger shall change the obligation or right of the Company as they exist at the Closing and without giving effect to any action taken by Magma after the Closing to make payments to or receive payments from any customer or supplier of the Company or change the right of the Company or any customer of the Company or other third party to use any Company IP Rights.

3.6 Litigation . There is no action, suit, arbitration, mediation, proceeding, claim or investigation pending against the Company (or against any officer, director, employee or agent of the Company in their capacity as such or relating to their employment, services or relationship with the Company) before any Governmental Authority, arbitrator or mediator, nor, to the knowledge of the Company, has any such action, suit, arbitration, mediation, proceeding, claim or investigation been threatened. There is no judgment, decree, injunction, rule or order of any Governmental Authority, arbitrator or mediator outstanding against the Company. To the Company’s knowledge, there is no basis for any person to assert a claim against the Company based upon the Company’s entering into this Agreement or any Ancillary Agreement or consummating the Merger or any of the transactions contemplated by this Agreement or any Company Ancillary Agreement. The Company has no action, suit, arbitration, mediation, proceeding, claim or investigation pending against any Governmental Authority or other Person.

3.7 Taxes .

(a) Tax Returns and Audits.

(i) The Company (and any consolidated, combined, unitary or aggregate group for Tax purposes of which the Company is or has been a member), (A) has properly completed and timely filed all foreign, federal, state, local and municipal tax and information returns (the “ Returns ” ) required to be filed by it or on its behalf and such Returns are true, correct and complete in all material respects, (B) has timely paid all Taxes required to be paid by it for which payment was due, and (C) has established an adequate accrual or reserve in accordance with GAAP for the payment of all Taxes payable in respect of the periods or portions thereof prior to the Balance Sheet Date (which accrual or reserve as of the Balance Sheet Date is fully reflected on the Company Balance Sheet). The Company has provided or made available to Magma true and correct copies of such Returns.

(ii) The Company is not delinquent in the payment of any Tax or in the filing of any Returns, and no deficiencies for any Tax have been threatened, claimed, proposed or assessed against the Company or any of its officers, employees or agents in their capacity as such.

(iii) The Company has not received any notification from the Internal Revenue Service or any other taxing authority regarding any material issues that (A) are currently pending before the U.S. Internal Revenue Service (the “ IRS ” ) or any other taxing agency or authority (including any sales or use taxing authority) regarding the Company, or (B) have been raised by the IRS or other taxing agency or authority and not yet finally resolved. No Return of the Company is under audit by the IRS or any other taxing agency or authority and any such past audits (if any) have been completed and fully resolved to the satisfaction of the applicable taxing agency or authority conducting such audit and all Taxes determined by such audit to be due from the Company have been paid in full to the applicable taxing agencies or authorities or adequate reserves therefore have been established and are reflected in the Company Balance Sheet.

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(iv) No Tax liens are currently in effect against any of the assets of the Company other than liens that arise by operation of law for Taxes not yet due and payable. There is not in effect any waiver by the Company of any statute of limitations with respect to any Taxes.

(v) The Company has in its possession official foreign government receipts for any Taxes paid by it to any foreign tax agencies and authorities.

(vi) The Company has received, from each employee or former employee who holds stock that is subject to a substantial risk of forfeiture as of the date hereof, a copy of the election(s) made under Section 83(b) of the Code with respect to all such shares. Elections under Section 83(b) of the Code have, to the knowledge of the Company, been made and timely filed with the IRS with respect to Unvested Company Shares, and accordingly with respect to any Unvested Magma Cash that may become payable pursuant to Section 2.6(c) in exchange for Unvested Company Shares, and, therefore, to the knowledge of the Company, Magma will not incur any liability for Taxes if it does not withhold any amounts from such Unvested Magma Cash for Taxes and will not be liable for any interest, penalties or other sums to the extent it does not make such withholding.

(vii) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of: (A) a change in method of accounting for a taxable period (or portion thereof) ending on or prior to the Closing Date, (B) any “closing agreement,” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date, (C) any “intercompany transaction” or any “excess loss account” (within the meaning of Treasury Regulations Sections 1.1502-13 and 1502-19, respectively) (or any corresponding or similar provision or administrative rule of federal, state, local or foreign income Tax law); (D) any installment sale or open transaction made on or prior to the Closing date, or (E) any prepaid amount received on or prior to the Closing Date.

(b) Withholding . The Company has complied (and until the Closing Date will comply) with all Applicable Law relating to the payment and withholding of Taxes (including withholding of taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar provisions under any foreign law), and has, within the time and in the manner prescribed by Applicable Law, withheld from employee wages and paid over to the proper taxing agencies and authorities all amounts required to be so withheld and paid over under all Applicable Law (including the Federal Insurance Contribution Act, Medicare, Federal Unemployment Tax Act and relevant state income and employment tax withholding laws), including foreign, U.S. federal and state income Taxes, and has timely filed all withholding tax Returns.

(c) Special Tax Status and Indemnification Obligations .

(i) The Company is not a party to or bound by any tax sharing, tax indemnity, or tax allocation agreement nor does the Company have any liability or potential liability to another party under any such agreement.

(ii) The Company has never been a member of a consolidated, combined, unitary or aggregate group of which the Company was not the ultimate parent corporation. The Company has no liability for the Taxes of any Person (other than the Company) under Section 1.1502-6 of the United States Treasury Regulations (or any similar provision of state, local or foreign law) as a transferee or successor, by contract or otherwise.

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(iii) The Company has never filed any election under Section 341(f) of the Code. The Company has never been a “United States real property holding corporation” within the meaning of Section 897 of the Code, and the Company has filed with the Internal Revenue Service all statements, if any, which are required under Section 1.897-2(h) of the Treasury Regulations.

(iv) The Company has not constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code.

(d) No Tax Shelters . The Company has not filed any disclosures under Section 6662 of the Code or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Return. The Company has not consummated, has not participated in, and is not currently participating in any transaction which was or is a “tax shelter” transaction as defined in Sections 6662, 6011, 6012 or 6111 of the Code or the Treasury Regulations promulgated thereunder.

(e) Nonqualified Deferred Compensation .

(i) The Company is not party to any contract, agreement or arrangement that is a “nonqualified deferred compensation plan” subject to Section 409A of the Code. Based on good faith interpretations of Section 409A of the Code and the United States Treasury Regulations and IRS Guidance thereunder (the “ Guidance ”), each such nonqualified deferred compensation plan, if any, has been operated since January 1, 2005 in good faith compliance with the Guidance.

(ii) All stock options have been appropriately authorized by the Company’s Board of Directors or an appropriate committee thereof, including approval of the option exercise price or the methodology for determining the option exercise price and the substantive option terms. No stock option has been retroactively granted, or the exercise price of any stock option determined retroactively. No stock option or other right to acquire Company Common Stock or other equity of the Company (i) has an exercise price that has been or may be less than the fair market value of the underlying equity as of the date such option or right was granted, as determined by the Board of Directors of the Company in good faith (within the meaning of United States Treasury Regulation §1.421-1(c)) using a reasonable application of a reasonable valuation method (within the meaning of Section 409A of the Code and the Guidance), (ii) has any feature for the deferral of compensation other than the deferral of recognition of income until the later of exercise or disposition of such option or rights, or (iii) has been granted after December 31, 2004, with respect to any class of stock of the Company that is not “service recipient stock” (within the meaning of Section 409A of the Code and the Guidance).

3.8 Company Financial Statements . Section 3.8 of the Company Disclosure Schedule includes the Company Financial Statements. The Company Financial Statements: (a) are derived from and are in accordance with the books and records of the Company; and (b) fairly present on a basis consistent with prior periods the financial condition of the Company at the dates therein indicated and the results of operations and cash flows of the Company for the periods therein specified. The Company has no Liabilities, except for those (a) shown on the Company Balance Sheet, (b) that were incurred after the Balance Sheet Date in the ordinary course of the Company’s business consistent with its past practices, and (c) that constitute Merger Expenses.

3.9 Title to Properties . The Company has good and valid title to all of its assets and properties (including those shown on the Company Balance Sheet) free and clear of all Encumbrances, other than Permitted Encumbrances. Such assets are sufficient for the continued operation of the Company Business. All machinery, vehicles, equipment and other tangible personal property owned or leased by the Company or used in the Company Business are, in all material respects, in operating condition, reasonable wear and tear excepted. To the Company’s

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knowledge, all leases of real or personal property to which the Company is a party are fully effective and afford the Company a valid leasehold possession of the real or personal property that is the subject of the lease. The Company does not own or have any other interest in any real property. Section 3.9 of the Company Disclosure Schedule sets forth a complete and accurate list and a brief description of all (i) real property leases or licenses (excluding License Agreements) to which the Company is a party and (ii) personal property owned by the Company with an original purchase price of $5,000 or greater.

3.10 Absence of Certain Changes . Since the date of the Company Balance Sheet, the Company has operated the Company Business in the ordinary course consistent with its past practices, and since such date, except as contemplated by this Agreement, there has not been with respect to the Company any:

(a) Material Adverse Change or any change, event, circumstance, condition or effect that would reasonably be expected to result in a Material Adverse Change;

(b) amendment or change in its Amended and Restated Articles of Incorporation or Bylaws;

(c) incurrence, creation or assumption of (i) any Encumbrance on any of its assets or properties (other than Permitted Encumbrances), (ii) any Liability for borrowed money, or (iii) any Liability as a guarantor or surety with respect to the obligations of others;

(d) acceleration or release of any vesting condition to the right to exercise any option, warrant or other right to purchase or otherwise acquire any shares of its capital stock, or any acceleration or release of any right to repurchase shares of its capital stock upon the shareholder’s termination of employment or services with it or pursuant to any right of first refusal;

(e) payment or discharge of any Encumbrance on any of its assets or properties, or payment or discharge of any of its Liabilities, in each case that was not either shown on the Company Balance Sheet, incurred in the ordinary course of its business consistent with its past practices after the Balance Sheet Date in an amount not in excess of $10,000 for any single Liability to a particular creditor or $25,000 in the aggregate, or constituted Merger Expenses;

(f) purchase, license, sale, grant, assignment or other disposition or transfer, or any agreement or other arrangement for the purchase, license, sale, assignment or other disposition or transfer, of any of its assets (including Company IP Rights (as defined in Section 3.13(a) and other intangible assets), properties or goodwill other than the sale or non-exclusive license of its products or services in the ordinary course of its business consistent with its past practices;

(g) damage, destruction or loss of any material property or material asset, whether or not covered by insurance;

(h) declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, its capital stock, or any split, combination or recapitalization of its capital stock or any direct or indirect redemption, purchase or other acquisition of any of its capital stock or any change in any rights, preferences, privileges or restrictions of any of its outstanding securities (other than repurchases of stock in accordance with the Company Stock Plan or applicable Contracts in connection with the termination of service of employees or other service providers);

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(i) change or increase in the compensation payable or to become payable to any of its officers, directors, employees or agents, or in any bonus, pension, severance, retention, insurance or other benefit payment or arrangement (including stock awards, stock option grants, stock appreciation rights or stock option grants) made to or with any of such officers, directors, employees or agents, except as may be set forth in Section 3.10(i) of the Company Disclosure Schedule;

(j) change with respect to its management, supervisory or other key personnel, any termination of employment of a material number of employees, or any labor dispute or claim of unfair labor practices;

(k) Liability incurred by it to any of its officers, directors, employees or shareholders, except for normal and customary compensation and expense allowances payable to officers and employees in the ordinary course of its business consistent with its past practices;

(l) making by it of any loan, advance or capital contribution to, or any investment in, any of its officers, directors or shareholders or any firm or business enterprise in which any such person had a direct or indirect material interest at the time of such loan, advance, capital contribution or investment;

(m) entering into, amendment of, relinquishment, termination or nonrenewal by it of any Company Material Contract other than in the ordinary course of its business consistent with its past practices, any default by it under such Company Material Contract, or any written or, to the Company’s knowledge, oral indication or assertion by the other party thereto of any material problems with its services or performance under such Company Material Contract or such other party’s desire to so amend, relinquish, terminate or not renew any such Company Material Contract;

(n) material change in the manner in which it extends discounts, credits or warranties to customers or otherwise deals with its customers;

(o) entering into by it of any Contract that by its terms requires or contemplates a current and/or future financial commitment, expense (inclusive of overhead expense) or obligation on its part that involves in excess of $5,000 or that is not entered into in the ordinary course of its business consistent with its past practices, or the conduct of any business or operations other than in the ordinary course of its business consistent with its past practices;

(p) making or entering into any Contract with respect to any acquisition, sale or transfer of any material asset of the Company;

(q) any change in accounting methods or practices (including any change in depreciation or amortization policies or rates or revenue recognition policies) or any revaluation of any of its assets;

(r) any deferral of the payment of any accounts payable other than in the ordinary course of business, consistent with past practices, or any discount, accommodation or other concession made other than in the ordinary course of business, consistent with past practices, in order to accelerate or induce the collection of any receivable;

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(s) payment or agreement to pay any bonus, increased salary, severance or special remuneration to any officer, director, employee or consultant, except as may be set forth in Section 3.10(s) of the Company Disclosure Schedule; or

(t) entry into any Contract to do any of the things described in the preceding clauses (a) through (s) (other than negotiations and agreements with Magma and its representatives regarding the transactions contemplated by this Agreement).

3.11 Contracts, Agreements, Arrangements, Commitments and Undertakings . Sections 3.11(a)-(n) of the Company Disclosure Schedule set forth a list of each of the following Contracts to which the Company is a party or to which the Company or any of its assets or properties is bound:

(a) any Contract providing for payments (whether fixed, contingent or otherwise) by or to it in an aggregate amount of $10,000 or more;

(b) any dealer, distributor, OEM (original equipment manufacturer), VAR (value added reseller), sales representative or similar Contract under which any third party is authorized to sell, sublicense, lease, distribute, market or take orders for any of the Company’s products, services or technology;

(c) any Contract providing for the development of any software, Technology or IP Rights for (or for the benefit or use of) it, and (ii) License Agreements of a character required to be disclosed pursuant to Section 3.13(c);

(d) any joint venture or partnership Contract;

(e) any Contract for or relating to the employment by it of any director, officer, employee or consultant or any other type of Contract with any of its officers, employees or consultants that is not immediately terminable by it without cost or other Liability, including any contract requiring it to make a payment to any director, officer, employee or consultant in connection with the Merger, any transaction contemplated by this Agreement or any Contract that is entered into in connection with this Agreement;

(f) any indenture, mortgage, trust deed, promissory note, loan agreement, security agreement, guarantee or other Contract for or with respect to the borrowing of money, a line of credit, any currency exchange, commodities or other hedging arrangement, or a leasing transaction of a type required to be capitalized in accordance with GAAP;

(g) any Contract that restricts it from (1) engaging in any aspect of any business, (2) participating or competing in any line of business, market or geographic area, (3) freely setting prices for its products, services or technologies (including most favored customer pricing provisions) or (4) soliciting potential employees, consultants, contractors or other suppliers or customers;

(h) any Contract that grants any exclusive rights, rights of refusal, rights of first negotiation or similar rights to any Person;

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(i) any Contract relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of its capital stock or other securities or any options, warrants or other rights to purchase or otherwise acquire any such shares of capital stock, other securities or options, warrants or other rights therefor, except for those Contracts in substantially the form of the standard agreement evidencing incentive stock options or non-statutory stock options under the Company Stock Plan and the Contracts to be terminated pursuant to Section 7.2(f) hereof;

(j) any Contract with any labor union or any collective bargaining agreement or similar Contract with its employees;

(k) any Contract of guarantee, support, indemnification, assumption or endorsement of, or any similar commitment with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness of any other Person, but excluding warranties, indemnities and support obligations contained in customer, End User and reseller agreements entered into in the ordinary course;

(l) any Contract in which its officers, directors, employees or shareholders or any member of their immediate families is directly or indirectly interested (whether as a party or otherwise);

(m) any Contract pursuant to which it has acquired a business or entity, or substantially all of the assets of a business or entity, whether by way of merger, consolidation, purchase of stock, purchase of assets, license or otherwise; or

(n) any Contract with any Person with whom the Company does not deal at arm’s length.

A true and complete copy of each agreement or document, including any amendments thereto, required by these subsections (a)-(n) of this Section 3.11 to be listed on Sections 3.11(a) – (n) of the Company Disclosure Schedule has been delivered to Magma. All Company Material Contracts are in written form.

3.12 No Default; No Restrictions .

(a) To the knowledge of the Company, each of the Company Material Contracts is binding on all parties thereto, in full force and effect and enforceable in accordance with its terms. There exists no default or event of default , with respect to the Company or, to the knowledge of the Company, with respect to any other contracting party, nor, to the knowledge of the Company, is there any event or circumstance existing which, with the giving of notice, the lapse of time or the happening of any other event or conditions, would reasonably be expected to give any third party (i) the right to declare a default or exercise any remedy under any Company Material Contract, (ii) the right to a rebate, chargeback, refund, credit, penalty or change in delivery schedule under any Company Material Contract, (iii) the right to accelerate the maturity or performance of any obligation of the Company under any Company Material Contract or (iv) the right to cancel, terminate or modify any Company Material Contract. The Company has not received any written, or, to the Company’s knowledge, oral notice or other communication regarding any actual or possible material